MOSL: ADITYA BIRLA FASHION AND RETAIL (Buy)-Annual Report-Healthy portfolio mix to help sustain growth
ADITYA BIRLA FASHION AND RETAIL (Annual Report): Healthy portfolio mix to help sustain growth; Pantaloons and innerwear biz to drive profitability over next 3-5 years
(ABFRL IN, Mkt Cap USD2.2b, CMP INR204, TP INR250, 22% Upside, Buy)
We pored over ABFRL’s FY19 annual report to capture key details of the company’s performance. Key takeaways:
Management focused on four themes for the future
ABFRL has a strong platform of established brands, a deep distribution network and good track record. Thus, despite the formal wear category growing modestly, company has continued to witness overall steady growth given its agility to move toward new growth opportunities in the clothing space. This point is validated from ABFRL’s management commentary, which states four key themes for the future; these include: (a) focus on increasing the share of casual wear (through the Lifestyle segment), (b) strengthening the fast-growing value fashion segment through Pantaloons, (c) exploring Women Fast Fashion through Forever 21, and (d) making inroads into Men/Women innerwear. Each of these identified categories offers strong growth opportunities. However, with several players targeting these categories, it is important for ABFRL to have the right product, brand positioning and economic model to achieve sustainable growth.
Revenue growth coupled with margin improvement drives PAT
In FY19, ABFRL continued its steady annual performance; it reported 173% increase in PAT driven by stable 13% revenue growth, which was contributed by Pantaloons and the new businesses. Margin improvement was achieved by (a) continuing the margin improvement cycle in Pantaloons, and (b) restricting losses in the new businesses. Over the last five years, ABFRL has registered revenue/EBITDA at 37%/75% CAGR, which highlights consistent improvement.
Aditya Birla Fashion and Retail Limited, formerly Pantaloons Fashion & Retail Limited, is a fashion and lifestyle company. The Company is engaged in providing branded fashion apparels and accessories, and the retail sale of clothing, footwear and leather articles in stores. It operates through two segments: Madura Fashion & Lifestyle, and Pantaloons. Its Madura Fashion & Lifestyle segment is engaged in manufacturing and distribution of branded fashion apparel and accessories, and comprises over 1,800 exclusive brand outlets (EBOs) and approximately 150 value stores. Its Pantaloons segment is engaged in retailing of apparel and accessories, and comprises over 160 stores, including one Pantaloons Kids store and approximately 30 Factory Outlets. The Pantaloons segment has a diversified customer base with men, women, kids and non-apparels. The Company's brands include Louis Philippe, Van Heusen, Allen Solly and Peter England.
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