Edel Investment Research
BUY
Aditya Birla Fashion & Retail Ltd. (ABFRL): Q2FY17 Result
Updatehough
Q2FY16
Mixed quarter; Structural play intact
CMP: INR 138
ABFRL reported a mixed set of results for Q2FY17, wherein the revenue grew by 13.1% yoy driven by strong
21.6% yoy growth in the Pantaloons revenue (6.2% like to like growth), while the Madura’s business
performance was muted at 4.7% yoy growth. Madura continued to stick with its strategy of limited participation
in discounting, to protect the premium nature of its brands, thus lost some sales to the competition. We
continue to back Madurá’s strategy of limited discounting to protect the brand strength in the long run. Our
hypothesis of Pantaloons being a long term game changer for ABFRL due to its presence in the fastest growing
value fashion and womens wear segments is already playing out with double digit revenue growth, along with a
sharp improvement in margins (+210 bps yoy, from 5% in Q2FY16 to 7.2% in Q2FY17). During the quarter, the
company has entered the innerwear category under its “Van Heusan” brand in three cities (Bangalore, Chennai
and Hyderabad). Further the company has signed exclusive deal with the luxury brand – Ted Baker, and
completed the forever 21 acquisition. To bring more freshness and agility to the supply chain the company has
moved from two designs cycle per year to four designs cycle per year.
Sangeeta Tripathi
Research Analyst
+91 (22) 6187 9524
sangeeta.tripathi@edelweissfin.
com
Kshitij Kaji
Mad an
Research Analyst
+91 (22) 4272 2515
[email protected]
Bloomberg:
ABFRL :IN
52-week range (INR):
264 / 124
Share in issue (Crs):
77.2
M cap (INR crs):
10,734
Avg. Daily Vol. BSE/NSE
1200
:(‘000):
We believe that present demonetization exercise would have some marginal impact on the revenue and
earnings for Q3FY17, but the structural theme remains intact. We continue to believe that with its rich product
portfolio, strong distribution reach, clarity of long term strategy, ABFRL is a unique mix of brand and retail, thus
is a potential multi-bagger. We re-iterate “BUY” with a revised price target of Rs 200
Strong revenue growth led by Pantaloons, Madura grows backed by forever 21 & innerwear launch- ABFRL
posted 13.1% growth in the topline led by strong growth from the Pantaloons vertical (Pantaloons posted a 22.5%
yoy growth, led by both new stores as well as the organic growth – like to like store growth was 6.2% for the
quarter). Pantaloons own brand contribution to the total topline increased to 63% for the quarter. The Madura
business posted a 4.7% yoy growth, which was led by forever 21 and launch of innerwear in three cities. While
Madura’s numbers were below our estimates, we expect that Madura’s brand strength, focus on long term non
discounting strategy and rationalization of store network along with an improvement in the macro-economic
scenario, will ensure an improvement in growth and margins
Blended margins contracted 70 bps yoy - Madura the culprit, while Pantaloons exceeded expectation
On the margins front, driven by increased share of own brands (at 62%), coupled with decent like to like growth of
6.2% yoy, the Pantaloons margins expanded by 210 bps yoy from 5% in Q2FY16 to 7.2% in Q2FY17. The
management stated that excluding the impact of forever 21, and initial innerwear launch expense, Madura
margins remained intact. On the Madura front, lower sales, coupled with higher expenses related to forever 21,
and launch of innerwear brand led to 240 basis point margin contraction on a yoy basis from 12.3% in Q2FY16 to
9.8% in Q2FY17. The blended margins declined by 70 basis point yoy from 9.4% in Q2FY16 to 8.7% in Q2FY17.
SHARE HOLDING PATTERN (%)
Public, 40.6
Target: INR 200
Promoter,
59.4
Madura Garments + Pantaloons business together a strong moat in the Indian apparel space- We believe that
combination of Madura fashion & Lifestyle along with Pantaloons business in the form of ABFRL, would present
the investors to play on the enviable portfolio of brands across segments, categories and price points with strong
capital efficiency and multiple levers to drive both the revenue and the earnings performance ahead. Thus we
believe ABFRL is best placed among branded apparel peers to reap significant benefits of the improving
macroeconomic milieu due to the sheer quality & size of Madura's 5 brands, presence in fastest growing segments
such as fast fashion and an unparalleled distribution network. The company’s pole position, ability to generate free
cash flow, 25% EBITDA CAGR over FY16-18E and RoCE expansion from 4% currently to 16% by FY19E will yield
target multiple of 3x sales for Madura and 20x EV/EBITDA for Pantaloons, leading to a target price of INR 200. We
re-iterate our Buy rating
220
200
180
160
140
120
100
80
60
40
Net s ales
Q2FY17
Q2FY16
% Change
1,887
1,668
13
Q1FY17 % Change
1,415
33
ABFRL
Jul-16
Sep-16
May-16
Jan-16
Mar-16
Nov-15
Jul-15
Sep-15
May-15
Jan-15
Mar-15
% Growth
Sensex
EBITDA
165
158
5
70
Adj. PAT
65
61
7
-21
% Growth
Dil. EPS (INR)
Diluted PE(x)
EV/EBITDA
st
Date: 1 December, 2016
1
RoCE
Core RoCE (ex Goodwill)
1
1
135
FY16
FY17E
6,060
6,551
FY18E
7,531
NA
8.1%
15.0%
625
397
485
-104
63
134
NA
NA
113%
-1
0.8
1.7
NA
170.8
80.4
31.8
26.0
20.2
3
8
11
7%
21%
27%
Edel Invest Research
Aditya Birla Fashion & Retail Ltd.
Q2FY17 Result
Update
Particulars
Q2FY17
Q2FY16
% change
H1FY17
H2FY16
% change
1,887
876
189
383
264
9
1,722
165
60
105
47
7
65
1,668
767
160
353
230
1,511
158
59
98
43
6
61
13%
14%
18%
9%
15%
3,302
1,495
359
683
517
12
3,067
235
112
123
92
13
44
2,975
1,370
308
652
450
11%
9%
17%
5%
15%
2,780
195
121
74
92
11
-7
10%
20%
-8%
67%
0%
15%
NA
65
61
44
-7
65
-8
56
772
77
0.8
61
-0
61
772
77
0.8
44
-9
35
772
77
0.6
-7
-0
-7
772
77
-0.1
Income from operations
Cost of goods sold
Employee expenses
Other expenses
Rental
Excise duty
Total operating expenses
EBITDA
Depreciation and amortization
EBIT
Interest expenses
Other income
PBT
Provision for tax
Core profit
Extraordinary items
Adjusted net profit
Other comprehensive income
Total comprehensive income
Equity capital (FV INR 10)
No. of shares (Cr)
Diluted EPS (INR)
Year to March
14%
5%
1%
7%
8%
19%
Q2FY17
Q2FY16
Bps
1HFY17
1HFY16
Bps
COGS
46.4
46.0
41
45.3
46.1
-76
Employee Exp
10.0
9.6
43
10.9
10.3
55
Rental Exp
14.0
13.8
21
15.7
15.1
52
Other Exp
20.3
21.1
-81
20.7
21.9
-124
Depreciation
3.2
3.6
-39
3.4
4.1
-70
EBITDA margins
8.7
9.4
-71
7.1
6.6
56
EBIT margins
5.6
5.9
-32
3.7
2.5
126
Adj profit margins
3.4
3.6
-20
1.3
-0.2
158
NA
Net profit margins
Madura performance
Revenue
EBITDA
EBITDAM
Q2FY17
1171
115
9.8
Q2FY16
1118
137
12.3
% change
4.7
-16.1
-243bps
H1FY17
2013.06
162
8.0
H1FY16
2002
205
10.2
% change
0.6
-21.0
-219 bps
Pantaloons
Q2FY17
Q2FY16
% change
H1FY17
H1FY16
% change
Revenue
727
598
21.6
1301
1037
25.5
EBITDA
52
30
73.3
78
34
129.4
EBITDAM
7.2
5.0
214bps
6.0
3.3
272bps
2
Edel Invest Research
Aditya Birla Fashion & Retail Ltd.
About the Company
Aditya Birla Fashion & Retail (ABFRL)—formed by merger of Madura and Pantaloons Fashion & Retail
(Pantaloons)—is India’s largest branded apparels player with a turnover of INR 6,060 crore in FY16. Ability to
surpass industry growth anchored by a large base, anticipated margin improvement from Pantaloons’
turnaround, an asset light model, presence across all categories & price points in apparel and a massive
unparalleled distribution network reinforce our optimism in the company’s robust growth prospects.
Moreover, it is best poised, underpinned by sheer quality & size of Madura's 4 brands and presence in
fastest growing segments such as fast fashion through Pantaloons & Forever 21, amongst branded apparel
players to take advantage of the improving macroeconomic milieu.
Investment Theme
Presence across value pyramid, diversified market channels, pan-India presence burnish prospects
Madura is predominantly a premium men’s wear player, housing India’s largest brands (Louis Philippe, Van
Heusen, Allen Solly and Peter England) with 2.3 mn sq ft retail space and revenue of ~INR 4,000 crore in
FY16. Acquisition of retail franchisees such as Pantaloons and Forever 21 gives it access to mid-premium fast
fashion for women across additional 2.5 mn sq ft. Cumulatively, Madura and Pantaloons boast of a portfolio
of 40 brands, retailed through 2,150 EBOs and additional 7,000 points of sale across India with a combined
5.8 mn sq ft area. We perceive wide offerings across price points (mass to luxury), broad categories (men’s
wear, women’s wear, kid’s wear, and accessories) and diversified market channels (MBOs, EBOs, LRS) to be
key catalysts of ABFRL’s success.
Pantaloons long-term game changer; expansion in white spaces, deeper penetration to spur Madura
Pantaloons’ aggressive expansion plans are bound to spur ABFRL’s top line as new stores in cities sans
branded apparel presence provide humungous growth opportunity. Also, targeting the currently fragmented
women’s wear segment and the fast growing fast fashion segment entails significant long-term benefits.
Moreover, higher sales throughput in each store along with improved designs, new vendor network,
refurbished IT systems and addition & rationalization of own brands should meaningfully spur its margins.
Successful franchisee model in conjunction with economies of scale will aid superior return ratios. Madura is
anticipated to far outstrip industry growth underpinned by expansion in white spaces, product extensions
through its wide distribution network.
Improving macros, rising brand consciousness entail humungous growth opportunity
Domestic branded apparel segment is set to catapult manifold riding: 1) shift from fabrics to readymade
garments; 2) favourable demographics; 3) higher discretionary spends; 4) low GDP per capita spend on
apparel; 5) increasing spends on branded products due to growing fashion consciousness & aspirations,
among others. Sales of branded apparels are estimated to grow at 15-20% CAGR over FY16-19E, driven by
volumes as well as superior realizations. Therefore, the share of branded garments is expected to rise to 4850% in FY19E compared to ~35% in FY14.
Investment Risk:




3
Increasing competitive intensity from other western brands
Semi-urban and urban slowdown
E-commerce threat
GST impact
Edel Invest Research
Aditya Birla Fashion & Retail Ltd.
Financials
Financial Statements
Year to March (INR Cr)
Net revenue
Ma teri a l s cos ts
Gros s profi t
Empl oyee cos ts
Other cos ts
EBITDA
Depreci a tion & Amortiza tion
EBIT
Other i ncome
EBIT i ncl . other i ncome
Interes t expens es
Profi t before tax
Provi s i on for tax
Adjus ted Profi t
Ba s i c s ha res outs tandi ng (Cr)
EPS (INR)
Di vi dend per s ha re (INR)
Di vi dend pa yout (%)
Common size metrics ‐ as % of net revenues
Year to March
COGS
Empl oyee Exp
Other Exp
Depreci a tion
EBITDA ma rgi ns
EBIT ma rgi ns
Adj profi t ma rgi ns
Net profi t ma rgi ns
Growth ratios (%)
Year to March
Revenues
EBITDA
PBT
Adj profi t
Net profi t
4
FY14
1,661
953
709
150
655
46
109
-63
5
-57
129
-187
0
-187
46.4
-4.1
0.0
0%
FY15
1,851
1,000
850
184
750
87
183
-96
3
-93
134
-228
0
-228
46.4
-4.9
0.0
0%
FY16
6,060
2,755
3,305
597
2,311
397
338
59
12
71
175
-104
0
-104
76.9
-1.4
0.0
0%
FY17E
6,551
2,961
3,590
603
2,502
485
243
241
12
253
190
63
0
63
77.2
0.8
0.0
0%
FY18E
7,531
3,351
4,180
693
2,862
625
289
336
12
348
180
168
34
134
77.2
1.7
0.0
0%
FY14
57.3%
9.0%
24.2%
6.6%
2.8%
-3.8%
-11.4%
-11.2%
FY15
54.1%
9.9%
25.0%
9.9%
4.7%
-5.2%
-12.3%
-12.3%
FY16
45.5%
9.9%
27.4%
5.6%
6.6%
1.0%
-1.7%
-1.7%
FY17E
45.2%
9.2%
28.0%
3.7%
7.4%
3.7%
1.0%
1.0%
FY18E
44.5%
9.2%
27.5%
3.8%
8.3%
4.5%
1.8%
1.8%
FY14
29.3%
NA
NA
NA
NA
FY15
11.4%
NA
NA
NA
NA
FY16
NA
NA
NA
NA
NA
FY17E
8.1%
22.1%
NA
NA
NA
FY18E
15.0%
29.0%
165.7%
112.6%
112.6%
Edel Invest Research
Aditya Birla Fashion & Retail Ltd.
Financials
Balance sheet
As on 31st March
Equi ty ca pi ta l
Res erves & s urpl us
FY14
93
FY15
93
FY16
769
FY17E
772
INR Cr
FY18E
772
486
252
174
234
368
Borrowi ngs
1,051
1,311
1,858
1,950
1,875
Other l ong-term l i a bi l i ti es
Sources of funds
48
1,678
61
1,717
100
2,902
100
3,056
100
3,116
Gros s Bl ock
Accumul a ted Depreci a ti on
CWIP
794
909
1,698
2,048
2,398
(350)
(516)
(1,126)
(1,369)
(1,658)
25
4
-
-
-
469
396
572
679
740
1,189
6
1,187
-
1,775
272
1,775
272
1,775
272
358
427
1,388
1,480
1,635
Sundry debtors
Ca s h a nd equi va l ents
17
11
3
7
391
20
395
36
413
60
Loa ns a nd a dva nces
26
36
200
200
200
412
465
474
406
1,999
1,437
2,112
1,501
2,308
1,699
Net Fi xed As s ets
Net i nta ngi bl e a s s ets
Inves tments
Inventori es
Tota l current a s s ets
Sundry credi tors a nd others
Provi s i ons
Tota l current l i a bi l i ti es & provi s i ons
Net current a s s ets
10
16
280
280
280
475
(63)
422
52
1,717
283
1,781
331
1,979
329
-
-
-
-
-
77
1,678
82
1,717
2,902
3,056
3,116
Deferred ta x a s s ets
Other l ong-term a s s ets
Uses of funds
Book va l ue per s ha re (INR)
12.5
7.4
12.3
13.0
14.8
Free cash flow
Year to March
Net profi t
Add : Depreci a ti on
Others
FY15
FY16
FY17E
FY18E
-227.6
183.5
-103.9
338.0
63.3
243.5
134.5
289.0
107.2
117.8
163.0
178.0
168.0
Gros s ca s h fl ow
Cha nges i n WC
29.4
40.8
73.7
-109.6
397.1
-217.3
484.8
-32.2
591.5
25.7
Opera ti ng ca s h fl ow
70.1
-36.0
179.8
452.5
617.2
-117.5
-47.3
-116.3
-152.3
-300.0
-120.3
-350.0
102.5
-350.0
267.2
Ca pex
Free ca s h fl ow
Cash flow metrics
Year to March
FY14
FY15
FY16
FY17E
FY18E
Ca s h fl ow from opera ti ons
70.1
-36.0
179.8
452.5
617.2
Ca s h Fl ow from i nves ti ng a cti vi ti es
Ca s h Fl ow from fi na nci ng a cti vi ti es
681.3
-765.9
-108.8
141.1
-185.4
299.4
-338.0
-98.7
-338.0
-255.0
Ca pex
-117.5
-116.3
-785.4
-350.0
-350.0
-
-
-
-
-
Di vi dends
5
FY14
-186.8
109.0
Edel Invest Research
Aditya Birla Fashion & Retail Ltd.
Financials
Profitability & efficiency ratios
Year to March
ROAE (%)
ROACE (%)
ROIC (%)
Inventory da y
Debtors da ys
Pa ya bl e da ys
Ca s h convers i on cycl e (da ys )
Current ra tio
Debt/Equi ty
Core ROACE (%)
Operating ratios
Year to March
Total a s s et turnover
Fi xed a s s et turnover
Equi ty turnover
Du pont analysis
Year to March
NP ma rgi n (%)
Total a s s ets turnover
Levera ge mul tipl i er
ROAE (%)
Valuation parameters
Year to March
Di l uted EPS (INR)
Y‐o‐Y growth (%)
Di l uted PE (x)
Pri ce/BV (x)
EV/Sa l es (x)
EV/EBITDA (x)
Di vi dend yi el d (%)
6
FY14
NA
NA
NA
79
4
102
-16
0.8
1.8
FY15
NA
NA
NA
84
1
80
9
1.1
3.8
FY16
NA
3%
3%
84
24
87
16
1.2
2.0
FY17E
6%
8%
8%
82
22
84
16
1.2
1.9
FY18E
13%
11%
10%
79
20
82
13
1.1
1.6
NA
NA
7%
21%
27%
FY14
0.8
2.2
6.6
FY15
1.1
2.2
4.0
FY16
2.6
4.6
9.4
FY17E
2.2
3.5
6.7
FY18E
2.4
3.4
7.0
FY14
-11.4%
0.8
6.7
NA
FY15
-12.3%
1.1
3.7
NA
FY16
-1.7%
2.6
3.6
NA
FY17E
1.0%
2.2
3.1
6.5%
FY18E
1.8%
2.4
2.9
12.5%
FY14
-4.1
NA
NA
11.2
4.7
168.2
0.0
FY15
-4.9
NA
NA
18.8
4.2
89.2
0.0
FY16
-1.4
NA
NA
11.4
2.1
31.8
0.0
FY17E
0.8
NA
170.8
10.7
1.9
26.0
0.0
FY18E
1.7
112.6
80.4
9.5
1.7
20.2
0.0
Edel Invest Research
Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200
Vinay Khattar
Head Research
[email protected]
Rating
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate between 5-15% over a 12-month period
Reduce
Return below 5% over a 12-month period
ABFRL 5 years price chart
300
250
200
150
100
50
7
Sep-16
Jul-16
May-16
Mar-16
Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
0
Edel Invest Research
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Disclosures under the provisions of SEBI (Research Analysts) Regulations 2014 (Regulations)
Edelweiss Broking Limited ("EBL" or "Research Entity") is regulated by the Securities and Exchange Board of India ("SEBI") and is licensed to carry on the business of broking, depository services and related activities. The business of EBL and its
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