2021 has been a good year of recovery for Aditya Birla Fashion and Retail Limited (ABFRL). The stock has appreciated 55% so far this calendar year, which is much higher than the 22% gain in the Nifty 200 index. Balance sheet improvement is a comforting factor. However, analysts believe execution of its various acquisitions is key going forward.
Analysts at ICICI Securities Ltd said in a report on December 15, “Despite consistent exposure, ‘net debt on Ebitda’ is likely to be less than 1x, and across all businesses except men’s ethnic wear and Jeypore, in FY23E likely to be profitable.” In the last three years, ABFRL has made four acquisitions in the ethnic wear segment.
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Last week, ABFRL entered into an agreement to acquire exclusive online and offline distribution rights for multinational brand Reebok for India and other ASEAN markets. The transaction also includes purchase of certain inventory and other current assets/liabilities of Reebok India Company: 75 crore- 100 crores.
“We believe that ABFRL will be able to deliver low double-digit (ex-Ind-AS116) EBITDA margin for Reebok India after royalty expense, and hence, 4-5% in consolidated EBITDA (ex-IndAS116) from this transaction The addition is likely to accelerate the overall EBITDA CAGR for FY23E and ABFRL,” say analysts at ICICI Securities.
Meanwhile, ABFRL has seen reasonable improvement in its business during the September quarter (Q2FY22). The recovery is likely to continue improving as we move towards normalcy after the easing of restrictions to tackle the second Covid wave. In the near future, strong festive season sales could lead to some upsides.
Analysts at Emkay Global Financial Services said, “A sharp recovery trend, an aggressive expansion outlook and potential margin gains will drive healthy Revenue/Ebitda CAGR of 11%/25% for ABFRL (ex-Reebok transaction) in FY20-24E. should be promoted.”
ABFRL’s consolidated net debt rises 873 crore at the end of September 530 crore at the end of March. In its second quarter earnings call, the company said that its net debt has reduced and as of November 8, approx. 450 crores.
However, a possible third Covid wave that could hit the country remains at risk of its recovery. Even as investors are sitting on spectacular gains this year, the recent sharp correction has pulled ABFRL shares below the pre-Covid highs witnessed in early 2020.
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