Aditya Birla Fashion and Retail share price: Sharekhan maintains Buy rating with a revised price target of Rs 255

Sharekhan attended the analyst/investor meet of Aditya Birla Fashion and Retail to understand the current business environment and future growth strategies. Revenues grew at a CAGR of 12% over FY2017-20 and achieved an OPM (excluding impact of Ind-AS 116) of 7.6% in FY2020. Sharekhan maintains Buy rating on Aditya Birla Fashion and Retail share price with a revised price target of Rs 255. Aditya Birla Fashion and Retail share price today is Rs 200, up Rs 7 or 3.7%. 

Aditya Birla Fashion & Retail is targeting a CAGR of 15% over FY2020-26 (with strong growth expected between FY2022-26) and achieving revenues of Rs 21000 cr in FY2026 from Rs 8742 cr in FY2020. Lifestyle brands business is expected to clock a CAGR of 11-12% on the back of sustained store expansions through the franchisee route, making the portfolio more casual-oriented, expanding the women wear and kids wear portfolio and expanding into tier-3/4 towns through new brands.

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On the other hand, Pantaloons is expected to grow by 15% over FY2020-26 driven by steady store additions, improving price value in the portfolio, revamped product strategy (by launching a new style every fortnight) and an increase in private label sales. Further, the company expects new businesses (inner wear, global brands + youth fashion and ethnic business) to achieve revenues of Rs 4500 cr by FY2026. The strategic tie-up with Tarun Tahiliani is the third such tie-up with a top fashion designer after Shantanu & Nikhil and Sabyasachi. The acquisition of a 33% stake is valued at 3 times its sales which is in line with some of the existing strategic acquisitions done by the company.

Aditya Birla Fashion and Retail is focusing on consolidating its position in the Indian ethnic wear market and targets revenues of Rs 2000 cr by FY2026. OPM is expected to expand by 360 bps to 11% (excluding impact of IND AS116) by FY2026. The strong improvement in the profitability and better working capital management through efficient supply and agility in design would help the company to achieve strong cash flows in the coming years.

Aditya Birla Fashion and Retail is focusing on achieving cumulative free cash flows of Rs 2000 cr over FY2020-26 (after a capex of Rs 2000-2500 crore) and targets an RoCE of over 35%. Core businesses such as the lifestyle brands and Pantaloons are cash-flow positive, inner-wear business is expected to be cash positive by FY2023.