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Edelweiss maintains ‘buy/SO’ on ABFRL with target price of ₹224

We preserve the target EV/EBITDA at 18x June 2022E, which yields an unchanged TP of ₹224. Maintain ‘Buy/SO’. Flawed capital allocation stays a key danger although.

Lifestyle manufacturers are the group’s money cow with progress potential. Key highlights: rising share of casualwear (at 60% versus 34% in FY10). The business stays the group’s money cow, producing ₹3bn in annual FCF for the final 5 years. Growth alternatives nonetheless out there (focusing on 3,750 new shops over FY21–26E) pushed by new ideas reminiscent of Peter England Red and Allen Solly Prime. Besides, ABFRL is focusing on to extend e-com share to 18–20% (~7% now). Pantaloons, transferring past turnaround and funding part.

A significant spotlight in our view is ABFRL’s expectation of producing ₹5bn in FCF over FY21–26E from Pantaloons following its vital funding within the business over FY12–20. ABFRL additionally targets to take personal label/e-commerce share to 75%/10% by FY25 (FY20: 61%/2%), and plans so as to add 250 shops over the subsequent three years. Ethnic to extend target market; innerwear scale-up to proceed. Ethnic makes up the biggest section of attire.



ABFRL expects ethnic put on to drive a signification share of progress (~20% of incremental income over FY20–26). In the wake of its acquisitions and by way of Pantaloons, ABFRL has 5 manufacturers unfold throughout varied price factors. For innerwear, ABFRL is focusing on ₹15bn in income pushed by enlargement of its EBO community to 500 (from 44 at current), majorly by way of franchisees.

There is an evident sharpening of focus from the Aditya Birla Group in driving ABFRL’s efficiency, which we consider is a transparent reflection of Kumar Mangalam Birla turning into the chairman. Through its interplay on the analyst meet, ABFRL has set clear targets for every section, towards which it might monitor its efficiency.

Overall, ABFRL is focusing on a 15%/23% progress in income/EBITDA over FY20–26E with a target of producing ₹20bn in FCF (OCF: ~₹40bn, capex: ~₹20bn). Through its model portfolio, ABFRL stays a powerful structural story, to not point out its execution prowess to ship. We preserve the target EV/EBITDA at 18x June 2022E, which yields an unchanged TP of ₹224. Maintain ‘Buy/SO’. Flawed capital allocation stays a key danger although.

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