Company Update

Aditya Birla Fashion and Retail Ltd. Strategic tie-up to elevate E-commerce play

Aditya Birla Fashion and Retail (ABFRL) has announced fund raising of INR 1,500 crore via Kapil Jagasia, CFA
preferential issue to Flipkart group’s investment vehicle - Flipkart Investments Private Research Analyst
Limited (FIPL). With this infusion, Flipkart Group will own 7.8% equity stake in ABFRL. As Kapil.jagasia@edelweissfin.com
per the deal, ABFRL will issue 7,31,70,732 fully paid-up equity shares to FIPL at INR 205 Praveen Sahay
per share (premium of ~34% to share price as on 22nd Oct, 2020). Post the deal, Research Analyst
promoters’ stake will be diluted to 55.1%. As per the agreement, the deal provides right Praveen.sahay@edelweissfin.com
of first refusal to Flipkart for a period between 1-5 years from the date of allotment of
equity shares.
Capital raising to help deleverage balance sheet
CMP INR: 165
ABFRL plans to utilize fund raised via this strategic deal to strengthen its balance sheet by
reducing its debt levels to ~INR 1,000 crore from INR 3,250 crore as on June 2020 (company Rating: BUY
had also raised INR 1,000 cr via rights issue in July) and propel its growth ambition with Target Price INR 210
renewed vigour. With this capital addition, the company plans to scale-up its play in Upside: 27%
emerging high growth fashion categories i.e. innerwear & athleisure, casual wear and ethnic
wear, establishing these as the new engines of growth for the company.
Both parties stand to benefit from the deal
One of biggest benefit of this strategic tie-up for ABFRL is strong partnership with India’s
top e-tailers: Flipkart. As per industry reports, Flipkart & Myntra combined have a market Bloomberg: ABFRL:IN
share of ~38% in the e-commerce space. Nevertheless, Flipkart’s decision to pick minority
52-week
stake in ABFRL is seen as a win-win situation for both the parties. ABRFL offers Flipkart, two 96 / 281
range (INR):
things: 1) A bouquet of powerful brands which are very successful and have strong market
share within their segments. 2) Flipkart can leverage ABFRL's 3,000+ stores and 23,000+ Share in issue (cr): 94
multi-brand outlets across India. On the other hand, ABFRL can use proceeds from Flipkart
M cap (INR cr): 13,720
to scale up its existing businesses and enter into newer categories. Flipkart’s e-commerce
capabilities will enhance ABFRL’s omni-channel presence and double its online reach. Promoter
59.79
Holding (%)
Building its E-commerce domain under Covid-19 has hit the right note
Partnership with E-commerce major has been struck at the most opportune time, when
online space has been buzzing with customers preferring to shop online under Covid-19 led
lockdowns. Earlier, the ratio of retail versus online buying at ABFRL stores was 90:10, which
in times of COVID-19 has changed to 60:40. E-commerce sales spiked up by significantly for
the company in Q1FY21 as it contributed 21% to overall sales as compared to 6% in FY20.
This deal is also envisaged to give ABFRL the most favoured status on Flipkart’s page.
Outlook and valuations
ABFRL has raised INR 2,245 crore (Rights issue of INR 745 crore and Preferential issue of INR
1,500 crore) over last 6 months to strengthen its balance sheet (would result in debt
reduction to INR 1,005 crore by March 2021). Decline in debt would percolate to a
substantial reduction in interest outgo, thereby boosting earnings significantly, going
forward. Deleveraging of balance sheet and enhanced customer reach through Flipkart and
Myntra positions the stock as a re-rating candidate. We assign a multiple of 3x sales for
Lifestyle, 1x sales for other businesses and 10x EV/EBITDA for Pantaloons and reiterate our
BUY rating on the stock with increased target price of INR 210 (earlier TP: INR 180).
Year to March (INR Cr) FY19 FY20 FY21E FY22E FY23E
Net revenues 8,117 8,785 6,135 8,812 9,532
Rev growth (%) 13% 8% -30% 44% 8%
EBITDA margin (%) 6.8 13.8 11 14 15
Adjusted PAT 129 (168) (316) 189 347
Adj. EPS (INR) 4 (2) (4) 2 4
EPS growth (%) 158% -230% NM -160% 83%
P/E (x) 40 (76) (40) 82 45
P/B (x) 9 12 17 14 11
RoACE (%) 8 6 (4) 9 12
RoAE (%) 26 (13) (35) 20 27 Date: 25th October, 2020
EV/EBITDA (x) 26 13 23 12 11

Edelweiss Professional Investor Research 1

Aditya Birla Fashion and Retail Ltd.
Company Update

Gradual recovery in topline Cost reduction measures to aid EBITDA

10,000 1,500
9,000
1,300
8,000
7,000
1,100
6,000
INR crore

INR crore
5,000 900
4,000
700
3,000
2,000
500
1,000
0 300
FY19 FY20 FY21E FY22E FY23E FY19 FY20 FY21E FY22E FY23E

Fund raising to reduce debt & finance costs Net Profit to witness V-shaped recovery
3,000 350

2,500 250

150
2,000
INR crore
INR crore

50
1,500
-50
1,000
-150
500 -250

- -350
FY19 FY20 FY21E FY22E FY23E

Borrowings Interest expenses FY19 FY20 FY21E FY22E FY23E

Source: Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 2

Aditya Birla Fashion and Retail Ltd. Financials

Financial Statements (INR cr)

Year to March FY19 FY20 FY21E FY22E FY23E
Net revenue 8,117 8,785 6,135 8,812 9,532
Materials costs 3,924 4,224 3,068 4,362 4,671
Gross profit 4,193 4,561 3,068 4,450 4,861
Employee costs 913 1,080 918 987 1,049
Other costs 2,725 2,271 1,104 1,674 1,811
EBITDA 555 1,209 677 1,260 1,430
Depreciation & Amortization 282 885 907 813 810
EBIT 273 324 (231) 448 620
Other income 65 65 240 100 105
EBIT incl. other income 338 389 9 548 725
Interest expenses 187 425 404 311 292
Profit before tax 151 -36 (395) 237 433
Provision for tax 22 132 (79) 47 87
Adjusted Profit (pre extraordinary) 129 -168 (316) 189 347
Basic shares outstanding (Cr) 77.4 77.4 77.4 93.8 93.8
EPS (INR) 4.2 -2.2 -4.1 2.0 3.7
Dividend per share (INR) 0.0 0.0 0.0 0.0 0.0
Dividend payout (%) 0% 0% 0% 0% 0%

Common size metrics ‐ as % of net revenues

Year to March FY19 FY20 FY21E FY22E FY23E
COGS 48.3% 48.1% 50.0% 49.5% 49.0%
Employee Exp 11.2% 12.3% 15.0% 11.2% 11.0%
Other Exp 19.9% 20.3% 18.0% 19.0% 19.0%
Depreciation 3.5% 10.1% 14.8% 9.2% 8.5%
EBITDA margins 6.8% 13.8% 11.0% 14.3% 15.0%
EBIT margins 3.4% 3.7% -3.8% 5.1% 6.5%
Adj profit margins 4.0% -1.9% -5.2% 2.1% 3.6%
Net profit margins 1.6% -1.9% -5.2% 2.1% 3.6%

Growth ratios (%)

Year to March FY19 FY20 FY21E FY22E FY23E
Revenues 13% 8% -30% 43.6% 8.2%
EBITDA 18% 118% -44% 86.2% 13.5%
PBT 202% -124% NM -159.9% 82.9%
Adj profit 171% -152% NM -159.9% 82.9%
Net profit 158% -230% NM -159.9% 82.9%

Edelweiss Professional Investor Research 3

Aditya Birla Fashion and Retail Ltd. Financials

Balance sheet (INR cr)

As on 31st March FY19 FY20 FY21E FY22E FY23E
Equity capital 774 774 774 938 938
Reserves & surplus 645 294 (22) 167 514
Borrowings 1,780 2,783 1,005 800 600
Other long-term liabilities 208 2,743 2,843 3,043 3,243
Sources of funds 3,407 6,594 4,600 4,948 5,295
Gross Block 2,589 5,709 6,000 6,500 7,000
Accumulated Depreciation (1,931) (2,816) (3,724) (4,536) (5,346)
CWIP - - - - -
Net Fixed Assets 658 2,893 2,276 1,964 1,654
Net intangible assets 1,920 2,094 2,094 2,094 2,094
Investments 674 607 607 657 757
Inventories 1,921 2,367 1,615 1,983 2,224
Sundry debtors 787 840 605 821 888
Cash and equivalents 49 219 29 346 579
Loans and advances 604 696 348 522 653
Total current assets 3,361 4,123 2,597 3,672 4,344
Sundry creditors and others 2,399 2,290 1,975 2,689 2,879
Provisions 807 832 998 748 674
Total current liabilities & provisions 3,206 3,122 2,973 3,437 3,553
Net current assets 155 1,001 (376) 234 791
Deferred tax assets - - - - -
Other long-term assets - - - - -
Uses of funds 3,407 6,594 4,600 4,948 5,295
Book value per share (INR) 18.3 13.8 9.7 11.8 15.5

Free cash flow

Year to March FY19 FY20 FY21E FY22E FY23E
Net profit 129 -168 -316 189 347
Add : Depreciation 282 885 907 813 810
Others 122 359 164 211 187
Gross cash flow 533 1,077 756 1,213 1,343
Changes in WC -130 -676 1,187 -294 -324
Operating cash flow 403 401 1,943 919 1,020
Capex -276 -281 -112 -250 -250
Free cash flow 127 120 1,831 669 770

Cash flow metrics

Year to March FY19 FY20 FY21E FY22E FY23E
Cash flow from operations 403 401 1,943 919 1,020
Cash Flow from investing activities -227 -216 128 -150 -145
Cash Flow from financing activities -301 579 -2,182 -352 -492
Capex -276 -281 -112 -250 -250
Dividends - - - - -

Edelweiss Professional Investor Research 4

Aditya Birla Fashion and Retail Ltd. Financials

Profitability & efficiency ratios

Year to March FY19 FY20 FY21E FY22E FY23E
ROAE (%) 26% -13% -35% 20% 27%
ROACE (%) 8% 6% -4% 9% 12%
ROIC (%) 8% 6% -2% 9% 12%
Inventory day 86 98 96 82 85
Debtors days 35 35 36 34 34
Payable days 108 95 118 111 110
Cash conversion cycle (days) 14 38 15 5 9
Current ratio 1.0 1.3 0.9 1.0 1.1
Debt/Equity 1.3 2.6 1.3 0.7 0.4
Core ROACE (%) 22% 11% -7% 18% 24%

Valuation parameters
Year to March FY19 FY20 FY21E FY22E FY23E
Diluted EPS (INR) 4.2 -2.2 -4.1 2.0 3.7
Y‐o‐Y growth (%) 170.9 -151.9 88.3 149.5 -82.9
Diluted PE (x) 39.5 -76.1 -40.4 81.7 44.6
Price/BV (x) 9.0 12.0 17.0 14.0 10.7
EV/Sales (x) 1.8 1.7 2.5 1.0 0.9
EV/EBITDA (x) 26.2 12.7 22.7 12.2 10.7
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

Edelweiss Professional Investor Research 5

Aditya Birla Fashion and Retail Ltd.

Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200

Vinay Khattar
VINAY
Digitally signed by VINAY KHATTAR
DN: c=IN, o=Personal, postalCode=400072,
st=MAHARASHTRA,
Head Research serialNumber=cd5737057831c416d2a5f7064c

vinay.khattar@edelweissfin.com KHATTAR b693183887e7ff342c50bd877e00c00e2e82a1,

cn=VINAY KHATTAR
Date: 2020.10.25 13:59:49 +05'30'

Rating Expected to

Buy appreciate more than 15% over a 12-month period

Hold appreciate between 5-15% over a 12-month period

Reduce Return below 5% over a 12-month period

290

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(Indexed)

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40
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ABFRL Sensex

Edelweiss Professional Investor Research 6

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Edelweiss Professional Investor Research 8