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For Aditya Birla Fashion and Retail Ltd (ABFRL), 2021 has been a good year of recovery. The stock has appreciated as much as 55% so far this calendar year, much higher than the 22% gain in the Nifty 200 index. Improving balance sheet is one comforting factor. However, analysts reckon execution on its various acquisitions is crucial to track ahead.

“Despite continuous investments, ‘net debt to Ebitda’ is likely to fall to less than 1x, and all businesses except men’s ethnic wear and Jaypore are likely to turn profitable in FY23E," said analysts from ICICI Securities Ltd in a report on 15 December. Over the past three years, ABFRL has made four acquisitions in the ethnic wear segment.

Recovery path
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Recovery path

Last week, ABFRL entered into an agreement to acquire the exclusive online and offline distribution rights for multinational brand Reebok for India and other Asean markets. The deal also includes purchase of certain inventory and other current assets/ liabilities of Reebok India Company for 75 crore- 100 crore.

“We believe ABFRL would be able to deliver low double-digit (pre Ind-AS116) Ebitda margin for Reebok India post royalty expenses, and hence, this transaction is likely to add 4-5% to consolidated Ebitda (pre-IndAS116) from FY23E and would accelerate overall Ebitda CAGR for ABFRL," point out ICICI Securities analysts.

Meanwhile, ABFRL has seen a reasonable recovery in its business during the September quarter (Q2FY22). The improvement in recovery is likely to continue as we move towards normalcy after the easing of restrictions effected to combat the second covid wave. In the near term, there could be some tailwinds from robust festive season sales.

“Faster recovery trends, an aggressive expansion outlook and potential margin gains should drive healthy revenue/ Ebitda CAGRs of 11%/25% in FY20-24E for ABFRL (ex-Reebok transaction)," said analysts from Emkay Global Financial Services.

ABFRL’s consolidated net debt increased to 873 crore at September end from 530 crore at March end. In its Q2 earnings call, the company said its net debt has reduced and as on 8 November, stood at approximately 450 crore.

However, a potential third covid wave that could hit the country remains a threat to recovery. Even as investors are sitting on handsome gains this year, the recent sharp correction has dragged ABFRL’s shares below pre-covid highs seen in early 2020.

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