Q2FY24 Review: Aditya Birla Fashion: Core segments struggle

13 Nov 2023 , 12:25 PM

ABFRL posted a broadly in-line performance at Ebitda level (Ebitda decline of 18% YoY) with weakness in core businesses offset by a better than expected performance in new businesses. Q3 so far has been a mixed bag with wedding related categories bouncing back while value fashion categories remain under pressure. Management has reiterated net debt guidance of Rs28bn by end of FY24 which would require steady execution from hereon. Maintain ADD with a TP of Rs220. 

A weak quarter, but on expected lines: 

ABFRL reported Q2FY24 results, broadly in-line at Ebitda level. Net sales increased by 5%, driven by new businesses as Lifestyle/Pantaloons declined by 6%/7% during the quarter with double digit LTL declines. Innerwear & athleisure also declined by 10% during the quarter. On the other hand, premium end brands such as Sabyasachi, super premium & luxury brands, American Eagle, Shantnu Nikhil, among others have performed well at an LTL level. Reebok ramp up is progressing well and the brand is on track to deliver Rs4bn sales and positive Ebitda margin in FY24. 

Strong revival in wedding related categories in Q3 so far: 

Demand in the current festive period so far is flattish to marginally positive in most segments on a like to like basis (compared with the festive period last year). Wedding related categories have come back strongly in Q3. While the value fashion segments continue to remain under pressure, the liquidation of old inventory (accumulated from November last year) is largely done and gross margins in this segment are expected to improve going forward. Management has guided towards store additions of 30-40 stores in Pantaloons (vs. 40-50 in earlier quarters) 

Ebitda downgrade of 27% in FY24: 

Analysts of IIFL Capital Services downgrade their adj Ebitda estimate for FY24 by 27% to factor in the weak performance and a more gradual recovery in H2. Their FY25/26 adj Ebitda estimates witness a lower downgrade at 5%/4%. While core segments have struggled in Q2, new businesses have performed well (Reebok, Sabyasachi, Tasva). Management has reiterated its net debt guidance of Rs28bn in Mar’24 (vs. 43.5bn currently) – which would require recovery in core businesses and reduction in working capital, in addition to equity infusion by GIC (expected in Mar’24). Analysts of IIFL Capital Services maintain their ADD rating with a target price of Rs220.