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Dolat Capital Report
ABFRL’s Q4FY23 standalone revenue and GP were in-line. However, EBITDA was subdued led by tepid margin in core lifestyle business and persistent investments in new ventures. Revenue/GP grew by 21.5/19.2% YoY. EBITDA was -39% driven by higher rent and significantly higher A&P spend.
Lifestyle is steady growth and FCF engine. Pantaloons can see margin boosts with improvement in through-put, while others (innerwear, youth and western wear, super-premium brands, Reebok, Ethnic etc) can provide strong growth. But, with number of business under growth/incubation stage and significant step-up in investments to support this businesses, earnings would continue to remain volatile. These coupled with large investments in TCNS (Rs 15.75bn cash and dilution of ~5.5%) and weak sales momentum, if any in core Lifestyle/Pantaloons to significantly weigh on BS.
That said, ABFRL’s steep stock price correction of 30% in 12m and 45% from peak factors the concern. Stock may go through time correction but absolute price correction may be limited, if any. Reiterate BUY with revised TP of Rs 245 @ 12x EV/EBITDA for Lifestyle/Pantaloons and 1x EV/Sales for new businesses. Growth and margin sustenance in core Lifestyle/Pantaloons and profitable scale-up in others is key for re-rating. Potential fund infusion from GIC (by Nov’23) @ Rs 289/sh would be another near-term trigger.
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