EUR 120.00 For Business Accounts Only

MOSL: ADITYA BIRLA FASHION AND RETAIL (Buy) – ANNUAL REPORT UPDATE: A year of firefighting

ADITYA BIRLA FASHION AND RETAIL – ANNUAL REPORT UPDATE: A year of firefighting

(ABFRL IN, Mkt Cap USD2.7b, CMP INR224, TP INR270, 21% Upside, Buy)

The year FY21, which proved to be a tumultuous year for the Apparel business, impacted ABFRL even more adversely – high leverage and squeezed working capital led to a strain on liquidity. This was well responded with equity infusion and unwinding of working capital as market recovered. Overall revenues declined 40% to INR52.5b, dragging down EBITDA by 54% to INR5.5b (pre-Ind-AS 116 EBITDA loss of INR4b). The company’s prompt cost management led to overall decline of 36% in operating cost, excluding RM (32% on a pre-Ind-AS 116 basis). The Lifestyle Brands / Pantaloons segment saw 41%/47% revenue decline to INR27.5b/INR18.6b, and EBITDA fell 57%/51% to INR3.4b/INR2.7b. Net loss stood at INR7.4b v/s INR1.7b in FY20. The Wholesale Lifestyle segment was impacted by a correction in dealer inventory, while Pantaloons’ mall-dominated presence was affected by stricter restrictions v/s high street stores.

 Sharp cost savings, fundraise, and WC cleanup addresses balance sheet cleanup

The high leverage position of INR23.7b at the start of the lockdown in FY20 and squeezed working capital of INR9.1b (38 days) called for strong measures. Along with sharp cost rationalization, the management announced a cumulative equity raise of INR25b, of which INR10b was raised through rights issues (INR2.5b pending) and the remaining INR15b through a 7.8% stake sale to Flipkart on a preferential basis and cleaning up of working capital, thereby reducing it by 78% (4% of sales). This was partly offset by spending of INR5.2b on the acquisition of ethnic wear brands Sabyasachi and Tarun Tahiliani to achieve comfortable net debt of INR5.3b in FY21.