ADVERTISEMENT

Aditya Birla Fashion Q2 Results Review - Long Road To Recovery; Maintain 'Hold': Axis Securities

Short-term headwinds ahead; long-term prospects positive

<div class="paragraphs"><p>A Pantaloons store exterior inside a mall in Mumbai. (Source: Usha Kunji/BQ Prime)</p></div>
A Pantaloons store exterior inside a mall in Mumbai. (Source: Usha Kunji/BQ Prime)

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

Axis Securities Report

Aditya Birla Fashion and Retail Ltd.’s revenue grew by 11% YoY and the growth was led by network expansion and category expansion. Its Ebitda, however, de-grew by 38% YoY owing to negative operating leverage, led by the subdued performance of Pantaloons business and continued investment in TMRW and ethnic business.

This impacted Aditya Birla Fashion’s profit after tax and saw a decline of 271% YoY. The management highlighted that discretionary spends continues to remain under pressure and has not seen any meaningful recovery.

However, it expects demand to revive in H2 FY24, led by strong festive and wedding seasons.

Outlook:

We like the management’s strategy of revamping product strategy through new launches and acquisitions, renewed brand positioning, and digital transformation to increase contribution from online sales (along with next-generation digital-first brands under its technology-led ‘House of D2C Brands’ venture TMRW).

These would be key growth drivers in the long term. However, all these initiatives will take time to bear fruit. Moreover, short-term vagaries such as –

  1. slowdown in discretionary spends,

  2. Sharp increase in debt,

  3. Increase in marketing spends and

  4. Investment in TCNS Clothing Co Ltd. will have a near-term impact on the balance sheet and return ratios.

Valuation and recommendation:

We maintain a 'Hold' rating on the stock with the revised target price of Rs 205/ share to account for near-term challenges – a slowdown in discretionary spends, a sharp increase in debt, an increase in ad-spends, and TCNS acquisition.

Key risks to our estimates and target price

  • Increase in competitive intensity; weakening of demand environment.

Click on the attachment to read the full report: 

Axis Securities Aditya Birla Fashion Results Update-13112023.pdf
Opinion
Aditya Birla Fashion Q2 Results Review - Profitability Remains Weak: Motilal Oswal

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.