Value Pick: Brokerages see up to 17% upside in ABFRL shares on strong outlook, strategic acquisitions

Several brokerages see a potential growth of up to 17 per cent in shares of Aditya Birla Fashion and Retail Limited due to strategic acquisitions and attractive valuations.  The Aditya Birla Group-backed firm is a leading retail conglomerate and India’s first billion-dollar pure-play fashion powerhouse.  

On Friday, the shares of Aditya Birla Fashion and Retail Limited (ABFRL) gained marginally by half a per cent to Rs 303.65 per share on the BSE intraday as against Rs 302 apiece Thursday’s closing. In comparison, the S&P BSE Sensex in trading positive by 0.2 per cent at around 09:50 am today. 

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Ashika Stock Broking 

Multiple strategic initiatives like entry into footwear by acquiring Reebok’s India operations, acquisition of majority stake in Masaba, launch of premium menswear ethnic brand Tasva and setting up a separate platform to build a portfolio of D2C brands are expected to add value. 

Its core businesses (Lifestyle brands, Pantaloons) continue generating healthy cash, which is aiding the company to fund the new initiatives. With improved business fundamentals, enhanced digital capabilities and strengthened balance sheet, ABFRL is focusing on achieving strong earnings growth. 

Going forward, maintaining balance sheet strength coupled with aggressive expansion would be the focus of ABFRL. Thus, we recommend to Buy the scrip with target of Rs 350 from 12 months view, which translates an upside of around 17 per cent. 

Edelweiss Broking 

ABFRL reported a strong December-end quarter of FY22 with recovery and margins were ahead of expectations in all key segments. Improved consumer sentiment along with a concentrated wedding season aided overall recovery. ABFRL turned net cash positive this quarter.  

In addition to the new initiatives/acquisitions during the quarter (Reebok, Masaba and Tasva), ABFRL announced its foray into acquiring D2C (Direct to Consumer) brands with plans to leverage its expertise to help these businesses scale up. 

Factoring in-line performance, we are raising FY22/23E EBITDA by 11/7 per cent and maintained target Buy rating with a target price of Rs 347 per share, which implies an upside of around 16 per cent, maintaining target EV/EBITDA (21x) and a roll-forward to June-23E yields. 

Motilal Oswal 

Amid recent fundraise through a rights issue and the strategic stake sale to Flipkart, ABFRL’s leverage has come under control. The increase in losses from its expansion in the Ethnic Wear vertical should be offset by growth in the Lifestyle Brands / Pantaloons business. 

We maintain Buy and sets target price for ABFRL to Rs 340 per share, over 13 per cent upside on stronger growth and an improved balance sheet. It further assigns an EV/EBITDA of 17x to the Lifestyle Brands business and 16x to the Pantaloons segment, and EV/sales of 1x to other businesses.