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Motilal Oswal is bullish on Aditya Birla Fashion recommended buy rating on the stock with a target price of Rs 305 in its research report dated February 28, 2023.
Motilal Oswal’s research report on Aditya Birla Fashion
As per recent media articles, ABFRL is contemplating to acquire a majority stake in TCNS Clothing (women’s branded apparel retailer that owns brands such as W, Elleven and Aurelia) from promoters and PE investors (holding 61% stake). At the current market cap of INR29b, the investment could be to the tune of INR12b-15b for a 51% stake and could be funded through a combination of cash and share swap (without taking leverage of GIC’s INR14.5b equity infusion likely in the next 18 months). TCNS’s FY23E revenue/EBITDA of INR12.5b/INR1.6b (as per BBG estimates) represent only 10% of ABFRL’s consolidated revenue/EBITDA as TCNS has been witnessing weak earnings for the last few years. While TCNS has built a decent scale, it operates in a crowded women ethnic wear market that is catering to highly price- and design-conscious women consumers. Therefore, we believe that earnings revival at TCNS may be a challenging journey and that building the scale internally could be a good alternative for ABFRL.
Outlook
We value ABFRL on the SOTP basis, assigning EV/EBITDA of 15x to Lifestyle Brands, 10x to Pantaloons, and EV/sales of 1x to other businesses on FY25E. Subsequently, we arrive at a TP of INR305. We reiterate our Buy rating on the stock.
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Aditya Birla Fashion – 01 -03 – 2023 – moti
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