Business News/ Markets / Mark To Market/ Investors cheer Aditya Birla Fashion’s 5-year biz plan, but concerns remain
Aditya Birla Fashion and Retail Ltd's (ABFRL) shares jumped by around 7% on the NSE on Tuesday. The reason is simple. The company held an investors’ call on Monday after market hours wherein it gave clarity on its long-term targets. Investors have been visibly thrilled after that.
Aditya Birla Fashion and Retail Ltd's (ABFRL) shares jumped by around 7% on the NSE on Tuesday. The reason is simple. The company held an investors’ call on Monday after market hours wherein it gave clarity on its long-term targets. Investors have been visibly thrilled after that.
ABFRL plans to more than double its consolidated revenue to about ₹21,000 crore by financial year 2026 from ₹9,100 crore in financial year 2020. This represents a 15% compounded annual growth rate (CAGR) over FY20-FY26.
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ABFRL plans to more than double its consolidated revenue to about ₹21,000 crore by financial year 2026 from ₹9,100 crore in financial year 2020. This represents a 15% compounded annual growth rate (CAGR) over FY20-FY26.
Here, the company estimates growth from new businesses to be relatively faster at a CAGR of 32%.
Within new businesses, revenue from the ethnic wear segment is expected to grow at a fast pace of 85% CAGR. Further, ABFRL estimates the revenue of Lifestyle Brands to grow at a CAGR of 11-12%, whereas Pantaloons is expected to grow by 15-16%.
“We like ABFRL’s increased aggression and raise estimates marginally, factoring in strong growth plans," said analysts from Emkay Global Financial Services Ltd in a report on 2 March.
Overall, ABFRL’s earnings before interest, tax, depreciation and amortization (Ebitda) is expected to increase by 3.4 times over FY20-FY26 to about ₹2,350 crore.
Here, the contribution from Lifestyle Brands, Pantaloons and new businesses stands at around ₹1,000 crore, ₹900 crore and ₹550 crore, respectively.
New businesses are expected to swing to profit at the Ebitda level by FY26 with a margin of about 12%.
This is expected to be driven by strong performance from the inner wear and ethnic segments. Note that new businesses posted an operating loss in FY20.
But not all is hunky dory. Some analysts said ABFRL’s cash-accretion target over the next five years appears to be on the lower side.
“As per the management, the company’s target is to generate cumulative FCFF of ₹2,000 crore (cashflows from operations of ₹4,000-4,500 crore less ₹2,000- 2,500 crore of capex), which post interest costs and taxes would work out to just about ₹1,000-1,300 crore of cumulative cash accretion over a five-year period. In contrast, we are forecasting net-cash accretion to be ₹1,900 crore between Mar ’21 and Mar ’26," said analysts from JM Financial Institutional Securities Ltd in a report on 1 March. FCFF refers to free cash flow to the firm.
The broking firm added, “We are not entirely sure if the management’s projections are being shared after cognizing for extreme conservatism, or whether there are other use of cash planned."
Meanwhile, despite Tuesday’s rise in the share price, ABFRL’s stock is still nearly 26% away from its pre-covid highs seen in February 2020. A sustained pace of recovery post pandemic would go a long way in improving sentiments for the stock.
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