Aditya Birla Fashion & Retail Ltd CMP 134 Rating HOLD

INDSEC Q1FY21 - Result Update Target 148 (21m) Upside 11%

STOCK DETAILS
We value your support in the Asiamoney Brokers Poll 2020
Bloomberg code ABFRL:IN
Market Cap (Rs. bn) 102.6
Aditya Birla Fashion and Retail reported 84.4% YoY decline in topline to Rs.3.2bn, led by COVID-19 led shutdown
and disruption during the qtr. Madura Fashion & Lifestyle reported 80.2% YoY decline to Rs.2.4bn, while Panta-
Market Cap (USD bn) 1.4
loons sales declined 90.8% YoY to Rs.0.8bn. It reported an EBITDA loss of Rs.3.6bn vs. a profit of 3.1bn YoY. Howev-
Sector Retail
er, the company was able to cut down on its expenses, which declined by 61.0% YoY in absolute terms. Other in-
Index S&P BSE 200 come was higher at Rs.1.8bn owing to accounting the unconditional rent concessions of Rs. 1.6bn. It reported a net
52 w.High/Low 285/97 loss of Rs.4.1bn as on Q1FY21. As per management, 80% of its stores has resumed operations by the end of the qtr.
Avg Monthly Turnover At present 90% of its stores are functional and expects full normalcy in sales to return by Q4FY21. It has increased
150.3
(Rs.mn) the focus on digital platforms and other innovative routes (Pantaloons on wheels, video shopping, WhatsApp com-
Shares in Issue (mn) 864.0 merce and hyper local delivery) to reach out to customers. It witnessed 2x sales on third party e-commerce
BSE Sensex 38,051 platforms and a multi-fold jump in own website sales. The company has completed the rights issue of Rs 10bn, out
NSE Nifty 11,259
of which Rs 7.5bn will be received in FY21E and Rs 2.5bn in 1QFY22E.
SHAREHOLDING PATTERN Key Takeaways from the call:
% Sep-19 Dec-19 March-20 June-20
Promoter 59.09 59.09 59.07 59.07
Cost Reduction Initiative: Management informed about its successful cost saving initiative since the pandemic which
Pledge NA NA NA NA was reflected in Rs.4.5bn of cost saving on QoQ basis through various initiatives. These initiatives include lower em-
FII 9.70 9.36 8.43 6.39 ployee costs (hiring freeze and lower fixed/variable pay), lower administrative expenses and negotiating rentals. As
DII 20.28 20.52 21.35 22.1 stated by the management, employee cost optimization began in June and the actual benefit would flow in Q2 while
Others 10.92 11.03 11.16 11.28 on the rental side it is re-negotiating terms with landlords (1.6bn in savings already accounted for in other income).
CONSOLIDATED FINANCIALS
Rs in bn FY19 FY20 FY21E FY22E Quarterly Performance Table
Revenue 81.2 87.9 59.3 85.5
Particulars (Rs mn) Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 YoY (%) QoQ (%)
EBIDTA 5.5 12.1 7.5 13.8
Net Sales 20,073.4 22,815.5 19,153.1 20,654.6 23,077.8 25,827.4 18,318.8 3,230.2 -84.36% -82.37%
OPM (%) 6.8% 13.8% 12.6% 16.1%
Gross profit 10,459.6 11,389.2 10,155.4 11,171.6 11,604.0 13,462.0 9,399.5 1,334.7 -88.05% -85.80%
PAT 1.3 -0.3 -3.0 0.3
Gross margin (%) 52.1% 49.9% 53.0% 54.1% 50.3% 52.1% 51.3% 41.3% -2361bps -1947bps
EPS (Rs.) 1.6 -0.4 -3.9 0.4
EBITDA 1,428.0 1,729.3 1,245.0 3,140.6 3,392.2 4,082.9 1,502.6 -3,603.9 -214.75% -339.84%
EV/EBITDA 20.7x 10.3x 15.1x 8.9x
OPM (%) 7.1% 7.6% 6.5% 15.2% 14.7% 15.8% 8.2% N.A N.A N.A
AYUSH JAIN
Research Analyst Adj. PAT 427.3 702.5 2,026.4 215.6 -23.5 -376.4 -1,465.9 -4,103.6 N.A N.A
[email protected] EPS (Rs) 0.55 0.91 2.62 0.28 -0.03 -0.49 -1.89 -5.30 N.A N.A
+91 22 61146140 Source: Company, Indsec Research *Comparable.

August 17, 2020

Indsec Research is also available on www.indsec.com and Bloomberg RESP_ISFL <GO>, Thomson Reuters, Factset and Bluematrix
Page 1
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Going forward, we expect some of the steps and renewed cost structure may stay with the company.
Net debt reduction on cards led by successful Rights issue and lower working capital: ABFRL has received Rs4.96bn of Rs10bn rights issue with further inflows
expected in Jan’21 (Rs2.5 bn) and July’21 (Rs2.5 bn). The net debt stood at Rs32.5bn at the end of Q1FY21 which the management intends to lower to Rs20bn by
end of FY21 through inventory release of Rs~4bn, Rs7.5bn from flow in of rights issue and remaining through other working capital.
Lifestyle revenue impacted by lockdown: Madura division reported revenue decline of 80.2% YoY to Rs. 2.4bn impacted by COVID-19 led lockdown. Within Ma-
dura, lifestyle brands revenue declined by 81.1% YoY to Rs1.9bn and posted an EBITDA loss of Rs.0.7bn. On a like-for-like basis, the sales had reached over 50% of
pre-Covid levels in the operational stores. The company launched the ‘work from home’ collection and merchandise focused on health and safety. As on June, e-
commerce orders (by value) were up 166% vs. June last year.
Innerwear & Athleisure saw higher demand for work from home category. Athleisure mix grew by ~30%. The sales of innerwear and Athleisure reached 83% of
last year’s level in June’20 while the e-commerce sales have been robust, with June’20 sales at 3x of last year.
Key updates on Pantaloons: This segment reported revenue decline of 90.8%YoY to Rs.0.8bn. It reported an EBITDA loss of Rs.720mn vis-à-vis profit of Rs.870mn
YoY. Contribution of own brand improved significantly from 64% to 72% led by higher contribution from new home category products and increasing preference
for affordable products in the casual and kids wear category. As of June, end 256 stores have resumed operations.
Outlook: 90% of the company’s network is functional while the rest it expects to be functional by Aug’20. It had fresh inventory in the stores just before the lock-
down and expects to sell it and monetise ~Rs.4-5bn which would help in bringing down working capital. Despite, the opening up of stores, we expect the revival in
demand to be slow given lesser operating hours and customers safety reservations. Also, management has stated for sales growth in Q4FY21. Further, given the
ongoing omni-channel ramp up initiative it expects the revenue share of e-commerce to be ~10-15% by March’21.
Valuation and View:
Performance during the qtr was weaker then expected led by slower offtake. The key positive during the qtr remained the cost control initiative and efforts to
keep the balance sheet lean. Earlier, the focus was on growth driven by aggressive store expansion and acquisition led. However, now the initiative is to make the
balance sheet lean by reducing debt and optimizing working capital. It Aims to bring down its net debt to Rs.20bn by FY21E.
ABFRL has opened 90% of its stores and expects the rest to be fully operational by month end coupled with increased focus on omni channel. However, near term
outlook continues to remain weak as the restoration of normalcy of business will depend on the pace of economic revival and mitigation of health concerns and
changing consumer preferences. Hence, we have adjusted our estimates for FY21/FY22E and expect the company to post net loss in FY21E while FY22E is ex-
pected to see quicker recovery.
At CMP of Rs. 134, the stock is trading at 15.1x/8.9x FY21E/FY22E EV/EBITDA. We continue to value the company on sum of part basis. We value the Madura
Lifestyle brands at 12x FY22E EV/EBITDA, value-fashion business, Pantaloons at 9x FY22E EV/EBITDA. We continue to value its Fast Fashion and other busi-
nesses (innerwear, other premium brands) at 1x FY22E EV/sales. We maintain our HOLD rating, with an increase target price of Rs.148.

Source: Company, Indsec Research Page 2

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Quarterly Trend Charts
Madura Fashion and Lifestyle Revenue Trend (Rs.bn) Madura Fashion and Lifestyle EBITDA (Rs.bn) & OPM Trend

18000 40.0% 2000 20.0%

16000
20.0% 1500 10.0%
14000
0.0% 1000 0.0%
12000
10000 -20.0%
500 -10.0%
8000 -40.0%
0 -20.0%
6000 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
-60.0%
4000 -500 -30.0%
-80.0%
2000
-1000 -40.0%
0 -100.0%
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q2FY20 Q4FY20 Q1FY21 -1500 -50.0%

Revenue YoY EBITDA OPM

Revenue Mix Madura Fashion & Lifestyle Pantaloons Revenue Trend (Rs.bn)

120.0% 12000 40.0%

100.0% 10000 20.0%

6.4% 6.7% 7.9% 8.1% 10.3% 9.2% 9.7% 9.4% 9.7%
8.0% 7.0% 7.6% 6.1% 5.1% 5.8% 3.3%
6.6% 10.1% 0.0%
80.0% 8000
-20.0%
60.0% 6000
-40.0%
85.6% 86.4% 84.5% 85.8% 83.1% 85.7% 84.5% 87.2%
40.0% 80.2% 4000
-60.0%
20.0% 2000 -80.0%

0.0% 0 -100.0%
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q2FY20 Q4FY20 Q1FY21

Lifestyle Brands Fast Fashion Others Revenue YoY

Source: Company, Indsec Research Page 3

 INDSEC
Quarterly Charts
Pantaloons EBITDA (Rs.bn) and OPM Trend Pantaloons Revenue/Ownership Mix

1200 20.0% 120%

1000
0.0% 100%
800
21%
600 32% 33% 32% 33% 29% 31% 31% 31%
-20.0% 80%
400 7%
6% 5% 5% 7% 7% 7% 8%
200 6%
60%
-40.0%
0
-200 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 40%
-60.0% 72%
62% 62% 63% 61% 64% 62% 62% 61%
-400
20%
-600 -80.0%
-800
0%
-1000 -100.0% Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q2FY20 Q4FY20 Q1FY21
EBITDA OPM Own Brands MFL External Brands

Pantaloons’ EBO network in Q1 FY21 Madura EBO network in Q1 FY21

400 2500

350
2000
300

250 1500
200
343 342 342 2187 2253 2222
331 1000 1980 2057 2096
150 302 308 314 1897 1959
282 288 1838

100
500
50

0 0
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q2FY20 Q4FY20 Q1FY21 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q2FY20 Q4FY20 Q1FY21

Source: Company, Indsec Research Page 4

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Financials
SUMMARY INCOME STATEMENT SUMMARY BALANCE SHEET
(in mn) FY18 FY19 FY20 FY21E FY22E (in mn) FY18 FY19 FY20 FY21E FY22E
Assets
Total Income 71,721 81,177 87,879 59,328 85,502
Net Block & Right to use assets 7,227 6,959 29,569 27,310 26,047
YoY 8.6% 13.2% 8.3% -32.5% 44.1% Capital WIP 459 224 441 250 250
Cost Of Revenues (incl Stock Adj) 33,901 39,250 42,242 29,368 41,041 Other Non current Assets 22,432 22,672 23,953 25,080 24,378
Gross Profit 37,820 41,928 45,637 29,961 44,461 Long term loans and advances 29 31 34 34 34
Current Assets
Gross Margin 52.7% 51.6% 51.9% 50.5% 52.0%
Current Investment 0 0 70 70 70
Employee Cost 7,723 9,130 10,805 6,823 10,004
Inventories 16,912 19,213 23,668 17,880 22,957
Other Operating Expenses 25,414 27,257 22,714 15,663 20,691 Trade receivables 5,518 7,866 8,405 6,502 8,199
EBITDA 4,683 5,541 12,118 7,475 13,766 Cash and cash equivalents 726 572 2,668 1,700 1,287
OPM 6.5% 6.8% 13.8% 12.6% 16.1% Bank Balance 2 2 1 1 1
Short-term loans and advances 47 54 71 71 71
Other Income 328 648 653 2,284 770
Other Current Assets 3,298 5,985 6,825 4,389 6,325
Net Interest Exp. 1,716 1,874 4,247 4,609 4,409
Total Current Assets 26,503 33,692 41,709 30,613 38,910
Depreciation 2,805 2,823 8,853 9,480 9,794 Current Liabilities & Provisions
Exceptional Items 0 0 0 0 0 Trade payables 20,093 23,986 22,899 18,692 24,596
PBT 490 1,491 -329 -4,329 332 Other current liabilities 5,204 12,194 11,390 10,978 11,265
Short-term provisions 709 870 887 887 887
Tax -1,376 -3,661 1,321 -1,346 0
Total Current Liabilities 26,006 37,051 35,176 30,558 36,748
Net Profit 1,866 5,152 -1,650 -2,983 332 Net Current Assets 497 -3,359 6,533 55 2,162
Adj. Net Profit 490 1,273 -329 -2,983 332 Total Assets 30,645 26,526 60,530 52,730 52,871
adj. NPM 0.7% 1.6% -0.4% -5.0% 0.4% Liabilities
adj. EPS 0.6 1.6 -0.4 -3.9 0.4 Share Capital 7,717 7,735 7,740 8,640 8,640
Reserves and Surplus 3,214 6,554 2,939 6,738 9,379
Total Shareholders Funds 10,931 14,289 10,679 15,379 18,020
Minority Interest 199 199 199
Total Debt & Lease Liability 17,584 11,982 41,896 29,396 26,896
Long Term Provisions 1,211 1,152 1,001 1,001 1,001
Other Long Term Liabilities 1,607 1,737 8,632 8,632 8,632
Net Deferred Tax Liability -688 -2,634 -1,877 -1,877 -1,877
Total Liabilities 30,645 26,526 60,530 52,730 52,871

Source: Company, Indsec Research Page 5

 INDSEC
Financials
SUMMARY CASH FLOW STATEMENT SUMMARY RATIOS
(in mn) FY18 FY19 FY20 FY21E FY22E FY18 FY19 FY20 FY21E FY22E
PBT 490 1,491 -329 -4,329 332 Profitability
Depreciation & Amort., Total 2,805 2,823 8,853 9,480 9,794 Return on Assets 0.9% 1.9% N.A N.A 0.4%
After other adjustments 1,906 2,095 4,108 6,893 5,179 Return on Capital 7.7% 12.8% 7.5% 0.6% 10.6%
(Inc) / Dec in Working Capital 760 -937 -6,126 5,011 -2,819 Return on Equity 4.5% 8.9% N.A N.A 1.8%
Taxes -10 -196 -65 -1,346 0 Margin Analysis
Cash from Ops. 5,951 5,276 6,440 15,709 12,486 Gross Margin 52.7% 51.6% 51.9% 50.5% 52.0%
Capital Expenditure & invest- EBITDA Margin 6.5% 6.8% 13.8% 12.6% 16.1%
-3,252 -2,766 -5,509 -1,000 -2,500
ments Net Income Margin 0.7% 1.6% N.A N.A 0.4%
Cash from Investing -3,252 -2,766 -5,509 -1,000 -2,500 Short-Term Liquidity
Issue of Share capital 12 9 72 7,460 2,540 Current Ratio 0.8x 0.8x 0.7x 0.6x 0.8x
Net Borrowings -1,832 -1,576 10,742 -12,500 -2,500 Quick Ratio 0.3x 0.3x 0.3x 0.3x 0.3x
Others -649 -1,098 -9,650 -10,638 -10,438 Avg. Days Sales Outstanding 28 35 35 40 35
Issuance of Dividend 0 0 0 0 0 Avg. Days Inventory Outstanding 86 86 98 110 98
Cash from Financing -2,469 -2,664 1,165 -15,678 -10,398 Avg. Days Payables 102 108 95 115 105
Net Change in Cash 230 -154 2,096 -968 -413 Long-Term Solvency
BF Cash 495 726 572 2,668 1,700 Total Debt / Equity 1.6x 0.8x 3.9x 1.9x 1.5x
Forex 0 0 0 0 0 EBITDA / Interest Expense 1.3x 1.8x 0.9x 0.1x 1.1x
END Cash 726 572 2,668 1,700 1,287 Valuation Ratios
EV/EBITDA 25.7x 20.7x 10.3x 15.1x 8.9x
PER 211.2x 81.3x N.A N.A 347.8x
P/B 9.4x 7.2x 9.7x 7.5x 6.4x

Source: Company, Indsec Research Page 6

 INDSEC
Stock Price movement from Initiation (17th Dec 2019) to 17th Aug, 2020 Recommendation History

300.00
Periods
Date Closing Price TP Rating Analyst
(months)

250.00 17-Aug-20 134 148 21m Hold Ayush Jain

01-Jun-20 120 142 24m Hold Ayush Jain

200.00
07-Feb-20 261 305 24m Hold Ayush Jain
150.00
17-Dec-19 229 259 12m Hold Ayush Jain

100.00

50.00

0.00

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 INDSEC
INDSEC Rating Distribution

BUY : Expected total return of over 20% within the next 12-18 months.
HOLD : Expected total return between 0% to 20% within the next 12-18 months.
SELL : Expected total return is negative within the next 12-18 months.
NEUTRAL: No investment opinion, stock under review.
Note: Considering the current pandemic situation, the duration for the price target may vary depending on how the macro scenario plays out. Therefore, the duration which has been mentioned as a period of 12-18
months for upside/downside target may be higher for certain companies.

DISCLOSURE

DISCLOSURE
BUSINESS ACTIVITIES:
Indsec Securities and Finance Limited (ISFL) is a corporate member of BSE (Equity, WDM segment), of NSEIL (Equity, WDM, Futures & Options and Currency Derivative segments) and has also secured membership of the MSEI Exchange (Currency
Derivative Segment) vide registration No. INZ000236731. ISFL is an AMFI Registered Mutual Fund Advisor (MRMFA) vide Registration Number 9194. ISFL is also a Depository Participant of the National Securities Depository Limited (NSDL) and a
SEBI registered Portfolio Manager. With this setup ISFL is in a position to offer all types of services in the securities industry.
Since inception company’s focus has been on research. In view of its research capabilities ISFL focused mainly on institutional business and is today empaneled with most of the local financial institutions, insurance companies, banks and mutual
funds. ISFL has grown from being a medium size broking outfit to become one of the largest capitalized Indian broking company offering the complete range of broking services.
ISFL was incorporated on 28th July 1993 and doesn’t have any associates/ subsidiaries. ISFL is a registered Portfolio Manager under SEBI (Portfolio Managers) Regulations, 1993 vide registration No. INP000001892.
DISCIPLINARY HISTORY:
• No material penalties / directions have been issued by the SEBI under the securities laws, SEBI Act or Rules or Regulations made there under

• No penalties have been imposed for any economic offence by any authority.
• No material deficiencies in the systems and operations of the Company have been observed by any regulatory agency.

• There are no pending material litigations or legal proceedings, findings of inspections or investigations for which action has been taken or initiated by any regulatory authority against the Company or its Directors, principal officers or em-
ployees or any person directly or indirectly connected with the Company.
DECLARATION:
• ISFL/Research Analysts or their associates or their relatives do not have any financial interest in the subject company (ies);
• ISFL/Research Analysts or their associates or their relatives do not have actual or beneficial ownership of 1 % or more in the subject company (ies);

• Directors may have actual or beneficial ownership of 1 % or more in the subject company (ies);
• ISFL/Research Analysts or their associates or their relatives do not have any material conflict of interest in the subject company(ies) at the time of publication of this document;
• ISFL has not received any compensation from the subject company (ies) in the past twelve months;
• ISFL has not managed or co-managed public offering of securities for the subject company (ies) in the past twelve months;
• ISFL has not received any compensation for investment banking or merchant banking or brokerage services or any other service from the subject company (ies) in the past twelve months;
• ISFL has not received any compensation or other benefits from the subject company (ies) or third party in connection with this document;
• None of the research analysts have served as an officer, director or employee of the subject company (ies);

• ISFL has not been engaged in the market making activity for the subject company (ies);

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 INDSEC
DISCLOSURE

GENERAL TERMS AND CONDITION/ DISCLAIMERS:

This document has been issued by ISFL and is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of security.

This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources believed to be reliable. However, we do not guarantee its accuracy and the information may be incomplete
and condensed. Note however that, we have taken meticulous care to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the analyst nor any other employee of our company is in any way responsible for
its contents. The Company’s research department has received assistance from the subject company (ies) referred to in this document including, but not limited to, discussions with management of the subject company (ies). All opinions, projec-
tions and estimates constitute the judgment of the author as of the date of this document and these, including any other information contained in this document, are subject to change without notice. Prices and availability of financial instru-
ments also are subject to change without notice. While we would endeavor to update the information herein on reasonable basis, we are under no obligation to update or keep the information current. Also, there may be regulatory, compli-
ance, or other reasons that may prevent us from doing so.

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information on such security or any registered prospectus. The appropriateness of a particular investment, decision or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies dis-
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