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MOSL: ADITYA BIRLA FASHION AND RETAIL (Buy)-Strong revenue recovery, but leverage on the rise

ADITYA BIRLA FASHION AND RETAIL: Strong revenue recovery, but leverage on the rise

(ABFRL IN, Mkt Cap USD2.8b, CMP INR225, TP INR270, 20% Upside, Buy)

 

• EBITDA loss was down to INR1.6b (v/s INR3.5b YoY), led by strong 2.5x revenue recovery YoY, much better than estimated (although still 63% below pre-COVID levels). The gross margin also inched to normalcy (up 810bp YoY). Subsequently, net loss declined to INR3.3b (v/s INR4.3b).
• Given the quicker recovery, we revise up our FY22E estimates, but maintain our FY23E estimates, keeping EBITDA at 18% above FY20 levels. The rise in net debt by INR5.5b is a dampener. However, it should largely reverse with revenue recovery and the payment of the final tranche of the INR2.5b rights issue. Maintain Buy.

 

Massive beat on EBITDA, but net loss in-line

• Revenue grew 2.4x YoY to INR7.7b (16% beat) on the back of higher operational days and continued aggression in e-commerce. Revenues were 63% lower v/s pre-COVID levels of 1QFY20.
• The gross margin surged 810bp YoY to 49.6%, with no provisioning/markdowns. It is inching toward normalcy (40bp miss), implying a lower impact from the second COVID wave.
• SG&A cost grew 47% YoY, chasing revenue growth. Better-than-expected revenue and an improving gross margin drove an EBITDA beat of 49%. EBITDA loss was down to INR1.6b v/s INR3.5b in 1QFY21 (pre-COVID EBITDA of INR3.1b).
• The management indicated a cost reduction of INR1.7b QoQ, attributable to INR920m/INR820m in savings from rental/other expenses. Subsequently, net loss was down to INR3.3b (v/s estimated loss of INR4.3b).