Professional Documents
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July 7, 2017
Rating Matrix
Rating : Buy
Aditya Birla Fashion & Retail (ADIFAS)
Target : | 210 | 170
Target Period : 12-18 months Established supremacy in branded fashion
Potential Upside : 24%
ABFRL combines Maduras portfolio of leading power brands with
YoY Growth (%)
Pantaloons forte of largest value fashion retailer. The combination
(| Crore) FY16 FY17E FY18E FY19E
positions ABFRL as Indias fashion powerhouse offering 5000 styles and
Net Sales 6,035 6,633 7,783 8,841
200+ brands. A pan-India distribution network of 2261 exclusive brand
EBITDA 378 437 599 703 outlets (EBOs) spanning across 6.2 million sq ft covering 375 cities and
Net Profit* 11 53 182 262 towns, ABFRL reaches out to over 13 million discerning customers. With
EPS* (|) 0.1 0.7 2.4 3.4 induction of brands like Ted Baker, Simon Carter and Forever 21, ABFRL
*adjusted PAT and EPS
continues to provide greater choice to its consumers across formats and
Valuation Summary channels. In-house design and product development capabilities remain
FY16 FY17E FY18E FY19E central to merchandising requirements of its widespread network. Strong
EV/Sales 2.5 2.3 1.9 1.7 track record of organic & inorganic growth, restorative growth in Madura
Target EV/Sales 3.1 2.9 2.4 2.1 through extensions and turnaround in Pantaloons position ABFRL at a
EV / EBITDA 39.4 34.8 24.9 20.8 vantage point leading to five-fold increase in PAT to | 262 crore by FY19E.
P/BV 14.4 13.7 11.5 9.3 Maduras renewed focus, Forever 21 - Anchoring core portfolio
RoNW (%) 1.3 5.6 15.9 18.7
A slew of newer brands entering the Indian fashion industry resulted in
RoCE (%) 2.4 7.5 12.3 14.6
flat LTL in the past two years for Madura. We believe moderation of prices
Stock Data (~10%), coupled with a change in inventory cycle from two to four
Particular Amount season and launch of brand extensions (innerwear) would revive LTL
Market Capitalization (| Cr) 13,330.2 growth to 5-6% in Madura posting revenue CAGR of 12% in the lifestyle
Total Debt (FY17) (| Cr) 2,160.6 category. Furthermore, fast fashion (Forever 21 + People) is expected to
Cash and Investments (FY17) (| Cr) 44.5 grow at a CAGR 26% in FY17-19E. Cumulatively, Maduras revenues are
EV (| Cr) 15,446.3 expected to grow at a CAGR of 13% to | 5247 crore in FY17-19E.
52 week H/L 189 / 127
Pantaloons turnaround Enabling profitable growth
Equity capital (| Cr) 770.5
Face value (|) 10.0 The integration issues of Pantaloons, since its acquisition in FY13, have
FII Holding (%) 11.6 largely been addressed. Refurbishment of store product mix by hiring a
DII Holding (%) 15.0 core team of 280 people across design, merchandising and sourcing has
Comparative return matrix (%) struck the right chord to Maduras ideology, resulting in consistent LTL
Return % 1M 3M 6M 12M
growth for Pantaloons. Increased share of private labels (61% vs. earlier
Arvind Ltd (3.0) (7.6) 3.4 10.3 45%) has resulted in a 300 bps expansion in EBITDA margins to 5% in
Raymond 12.4 26.8 60.4 78.0 FY17. With the right model in place, we expect Pantaloons to accelerate
ABFRL (4.8) 7.4 23.2 18.5 store openings to ~50 stores annually in FY17-19E (vs. sub-30 stores over
FY14-17), generating revenue CAGR of 19% to | 3594 crore.
Price movement
Oneness to provide quality earnings to ABFRL; recommend BUY
11,000 300
ABFRL enjoys a vantage position in its mens portfolio built over wide
10,000
9,000
250 offerings across price points (mass to luxury), broad categories (mens,
8,000 200 womens and kidswear & accessories) and diversified market channels
7,000
150 (MBO+EBO+SIS). Newer brands coupled with the existing portfolio
6,000 would provide cohesive growth to ABFRLs revenues, which are expected
5,000 100
4,000
to grow at a CAGR of 15% to | 8841 crore and RoCE expansion to 14.6%
50 (vs. 2.4% currently). Ascribing 2x EV/sales (two-year trailing average) to
3,000
2,000 0 FY19E earnings (implied MCap/sales of 1.8x), we initiate coverage on
Jun-14 Jan-15 Aug-15 Apr-16 Nov-16 Jul-17 ABFRL with a BUY recommendation and a target price of | 210.
Price (R.H.S) Nifty (L.H.S) Exhibit 1: Financial Performance
(Year-end March) FY16 FY17E FY18E FY19E
Research Analysts Revenues (| crore) 6,034.6 6,633.0 7,782.7 8,840.5
Bharat Chhoda EBITDA (| crore) 378.4 437.5 598.9 703.1
bharat.chhoda@icicisecurities.com Adjusted Net Profit (| crore) 11.4 53.5 181.7 261.5
EPS (|) 0.1 0.7 2.4 3.4
Ankit Panchmatia P/E (x) NM NM 72.1 50.1
ankit.panchmatia@icicisecurities.com Price / Book (x) 14.4 13.7 11.5 9.3
EV/EBITDA (x) 39.4 34.8 24.9 20.8
Cheragh Sidhwa RoCE (%) 2.4 7.5 12.3 14.6
cheragh.sidhwa@icicisecurities.com RoNW (%) 1.3 5.6 15.9 18.7
Source: Company, ICICIdirect.com Research
Q1FY17
Q2FY17
Q3FY17
Q4FY17
30 65 28 64 70
25 60
50
20
16 40
15 29
%
25
10 13 30
10 18
20 20
5 4 5 10
10 12 12 10
9 9
0 0
FY12 FY13 FY14 FY15 FY16 FY17
107 categories of men, women and kids offering a wide range of brands
100 86 80 across apparel (casual, ethnic, formal, party & active wear) and non-
54
50 apparel (footwear, handbags, cosmetics, perfumes, fashion jewellery &
watches). It retails over 200 licensed and international brands, including
0 14 exclusive in-house brands. Womenswear is the lead category
Pantaloons Westside Unlimited Shoppers FBB
Stop
contributing to half of total apparel sales.
No of Stores
Exhibit 5: Pantaloons assemblage of private labels
Source: Company, ICICIdirect.com Research
Pantaloons also houses Maduras brands like Louis Philippe, Van Heusen,
Exhibit 6: Geographical break-up (Revenue) Allen Solly, Peter England and People in menswear, Van Heusen and
120 Allen Solly in womenswear and Allen Solly Junior.
Pantaloons enjoys strong customer patronage handling ~7 million
100
14 16 17 customers as on FY17, which is considered to be one of the largest
80
29 28 26 among Indian apparel retailers. Since FY13, Pantaloons has exhibited
60 revenue growth of 19% CAGR to | 2552 crore in FY17. Given the
40 31 29 29 integration challenges and aggressive expansion of stores from 68 in
20 FY13 to 107 in FY14, EBITDA over the period declined from | 66 crore in
26 27 28
FY13 to | 33 crore in FY14. Post-acquisition, with a change in strategy, the
0
FY15 FY16 FY17 revival in Pantaloons remained robust reflecting an EBITDA CAGR of 56%
North East West South in FY14-17 to | 126 crore.
Source: Company, ICICIdirect.com Research Exhibit 7: Pantaloons revenue and EBITDA trend
1500 3.0
%
|
2.0
1000 2.0
500 1.0
1285
1661
1851
2157
2552
0 0.0
FY13 FY14 FY15 FY16 FY17
ABFRL
FY17 Revenue: |6633 crore
Own Brands
~61% of Pantaloons
Lifestyle Brands Fast Fashion (| 1557 crore)
92% of the Madura (| 3770 crore) 8% of the Madura (| 345 crore)
External Brands
~39% of Panatallons
(| 995 crore)
Other new
brands
| 170 crore
~| 1000 ~| 1000 ~| 1000
~| 600 crore
crore crore crore
With the merger, ABFRL has diversified its earlier mens focused portfolio
Exhibit 9: Category wise revenue-break-up to a more balanced mix of brands targeting customers across price points
and categories. Furthermore, the merger bestows ABFRL with a presence
4%
5% Men's Casuals in 375 cities and towns with 6.2 mn sq ft of retail network space and 7800
8%
Men's Formals
point of sales and 2261 EBOs.
39% Exhibit 10: ABFRL - Managing one of the largest footprints pan-India
Women's western wear
12%
Women's ethnic wear
Kids
Accessories
32%
Raymond
KKCL
Terrian
Garments
Indian
Madura
For FY17, share of revenues from EBOs, MBOs, fast fashion & other
brands were at 38%, 52% & 10%, respectively. However, with addition of
revenues from newer brands, we expect Maduras revenue mix to change
to 37%, 51% and 12% for EBOs, MBOs and fast fashion and newer
brands, respectively. Subsequently we believe Maduras revenues will
grow at 13% CAGR to | 5247 crore by FY19 vs. | 4081 crore in FY17.
Exhibit 13: Madura revenue to revive post internal restructuring
Internal 13% CAGR
6000.0 restructuring 30%
28% 5247.1
5000.0 4670.1 25%
3878.0 4081.0
3735.0
4000.0 20%
3226.0
| cr
1000.0 5% 5%
4%
0.0 0%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Madura revenues
% growth
Source: Company, ICICIdirect.com Research
5
30 26 6
25 24 2 2 2 4
20 0 0 2
Revenue Growth (%)
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
-5 -3 -2 -10
-10 -7 -12
Source: Company, ICICIdirect.com Research, Revenue growth excluding fast fashion business
Exhibit 15: EBO addition through consolidation phase Lossmaking stores were phased out while older stores were recalibrated,
Net additions stood at mere 1 store
resulting in net addition of a mere one store in FY17. In the past year, the
1,900 1,895
1,890
reflecting sluggish store additions management has embarked upon a number of strategies to revive growth
1,880 1,877 1,878 in Madura. These strategies are focused on making Madura agile by
building a healthy, sustainable, future ready business model. It involves:
No. of stores
1,870
1,860 1,856
a) avoiding heavy discounting maintaining intrinsic value of premium
1,850
1,840
1,841 brands through calibrated price concession keeping prime costs intact
1,830 b) Continued investments directed towards brand building remains core
1,820 to maintain cult over other plethora of available brands
1,810
Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 c) Providing seamless omni-channel experience currently fulfilled by
No. of EBO's
vast pan-India presence enabling digital transformation
Source: Company, ICICIdirect.com Research d) Keeping a closer eye on profitability metrics and continuously
rationalising its cost structure
(%)
0 0
FY18E
FY19E
FY13
FY14
FY15
FY16
FY17
-2
-4
-5
-6
LTL growth
Faster
Inventory turnover
Dynamics
Lower Change in cycle Enabling
Working capital Fashion - Time to
from two to
requirement market
four
Leading
Lower inventories
Recently
added
Luxury
>| 5000
Super
premium
Premium
| 1500 to | 5000
Sub-
Premium
Fast
Fashion
| 500 to | 1500
Mass
4000.0 3593.5
3500.0 3112.6
3000.0 2552.0
2500.0 2157.0
| cr
2000.0
1500.0
1000.0
500.0
0.0
FY16 FY17 FY18E FY19E
Pantaloons revenues
2 3.3
0
FY14 FY15 FY16 FY17 FY18E FY19E
-2
-1.6
-4
LTL growth
The consequence of the same was evident. This led to the slowest store
addition with the addition of a mere 12 stores, negative impact of 300 bps
on EBITDA margins to 2% and LTL of -2% in FY14.
Recruited ~280 people at HO. Laid down key business processes all
Built the organisation well defined KRA's for key functional positions
Subsequently, the share of private labels over the years increased from
52% in FY13 to 61% in FY17. A tight sourcing network coupled with
higher share of private labels resulted in a 300 bps revival in EBITDA
margins to 5% in FY17 vs. 2% in FY14. We expect the share of private
labels to further improve resulting in a margin expansion of 100 bps to
6% and EBITDA of | 215 crore by FY19E.
No. of stores
CAGR 7%
CAGR 7%
10000 9009
7800
8000 6800
CAGR 5%
6000 CAGR 1%
4000
1959
1735 1759
2000
0
FY15 FY17 FY19E FY15 FY17 FY19E
160 0.70
0.58
140 0.60
0.49
120
0.50
mn. sq feet coverage
0.40
100
No of stores
0.40
80
0.24 0.30
60
0.20
40
20 0.10
111 107 124 141
0 0.00
FY16 FY17 FY18E FY19E
120
0 2 2 2
100 4
8 9 10
80 40
% contribution
38 37 37
60
40
56 52 52 51
20
0
FY16 FY17 FY18E FY19E
MBO's EBO's Fast Fashion Other brands
Focus on brand building had led the majority of the current stores to
operate on the basis of company owned-company operated (COCO)
model. As these brands have already scaled up, ABFRL now plans to
scale up the newer stores on the franchisee route. The model facilitates
ABFRL to scale up swiftly with lower capex while managing only the
inventory risk. Approximately 80% of the phased expansion of 100 EBOs
is expected through the franchisee route.
Exhibit 30: Asset light franchisee model to form core for expansion
The southern and western regions of India across Tier I & II cities remain
the core coverage for ABFRL deriving ~60% of total revenues. Enhanced
coverage is expected across the northern and eastern region coupled
with higher focus within tier III & IV cities.
mn. Sq.ft
200 2.0 2.5
1.7
150 2.0
1.5
100
1.0
50 0.5
95 107 134 163 209 253 300
0 0.0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
No of stores Coverage (mn sq.ft)
50%
We believe this expansion will continue with the constant addition of five
40% stores every year in the womens category and two or three stores under
30% kidswear segment. Total store count is expected at 300 stores, including
20% 26, 12 womens, kids stores, respectively. A slew of brands across all
10% categories would position Pantaloons as one stop shop for apparel
0% requirements of the family. The in-house merchandise team enables
FY13 FY14 FY15 FY16 FY17 Pantaloons to launch own brands and churn its new designs at faster rate
Share of private labels
keeping store inventory afresh. This has led share of own brands increase
Source: Company, ICICIdirect.com Research from 50% in FY13 (in acquisition) to 61% in FY17.
Exhibit 33: Own brands to continue dominate the Pantaloons portfolio
0
Madura Raymond Arvind KKCL Indian
Terrain
No. of Stores
Exhibit 36: Global apparel consumption to grow at a CAGR of 4.4% over FY15 to FY25...
3000
2495 2600
2298 2395
2500 2206
2031 2117
1871 1950
2000 1796
1685
US$ Bn
1500
1000
500
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Global Apparel Consumption
Exhibit 38: Global apparel consumption to grow at CAGR of 4.4% in FY15 to FY25...
Countrywise Per Capita expenditure
2015 2025 CAGR %
on Apparel (US$)
EU-28 693 766 1.0
USA 978 1116 1.3
China 172 435 9.7
Japan 736 835 1.3
India 45 123 10.6
Brazil 270 404 4.1
Russia 282 390 3.3
Canada 683 768 1.2
India is expected to have the highest annual growth rate in PEAP of ~11%
over the next decade while Chinas PEAP is expected to grow at an annual
growth rate of 10%. Even with expectations of registering the strongest
growth over the next decade, Indias PEAP would increase from $45 in
2015 to $123, which would be still be only 11% of US PEAP, which is
expected to be ~$1123 in 2025 while Chinas PEAP would be around 3.5x
of Indias PEAP in 2025.
70
83.1
40 47.5
28.5 41.0
10 6.5 11.5 19.9
Segment wise, the womens segment is expected to grow faster than the
mens segment. The womens apparel market is expected to grow at an
average annual growth rate of 16.4% in CY14-25 while mens apparel is
expected to grow at an average annual growth rate of 14% over the same
period. Further, mens casual wear is expected to grow at an average
annual growth of 22% in CY14-25, while mens formal wear is expected to
grow at an average annual growth of 10% over the period. Among
womenswear, western wear is expected to grow at an average annual
growth of ~24% in CY14-25 while womens ethnic wear is expected to
grow at an average annual growth rate of 11%.
12.5
12
9
9 7.5 7
US$ Bn
6 5 5 5.2 4.7
3.6
2.5 2.8 2.7
3 1.4 1.7
0.7
0
Mens Formals Mens Casuals Women's Western Women's Ethnic Kids
2014 2020 2025
No. of stores
250
209
200
163
150 134
107
95
100
64 68
60
47
50 34 38
28
15 19
4 6 6 10 10
2 2 2
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 2014 2015 2016 2017
Pre-acquisition Post-acquisition
2500 2157
2000
1500
1000 545
345 439
500 149
0
FY16 FY17 FY18E FY19E
800.0 9.0
8.0
700.0 7.7 8.0
600.0 7.0
6.6
6.3 6.0
500.0
% to sales
5.0
| cr
400.0
4.0
300.0
3.0
200.0 2.0
100.0 1.0
378.4 437.5 598.9 703.1
0.0 0.0
FY16 FY17 FY18E FY19E
EBITDA EBITDA Margin %
300.0 3.5
3.0
250.0 3.0
2.3 2.5
200.0
2.0
| cr
150.0
1.5
100.0
0.8 1.0
50.0 0.5
11.4 53.5
0.2 181.7 261.5
0.0 0.0
FY16* FY17 FY18E FY19E
20.0
18.7
15.9
15.0 14.6
12.3
10.0
(%)
5.6 7.5
5.0
2.4
1.3
0.0
FY16 FY17 FY18E FY19E
RoE RoCE
1000.0 1.0
500.0 0.5
1830.6 2116.2 1803.6 1559.8
0.0 0.0
FY16 FY17P FY18E FY19E
ABFRL has also moderated prices of its key brands to the extent 5% in
FY17, impacting growth in Madura. Moreover, growth rates for
Pantaloons and Forever 21 could negatively surprise if the competitive
intensity widens with newer brands entering and disrupting the market.
Aggressive store expansion at invariably high rental expenses
Rent expenses currently forms 16% of overall revenues. With ~80% of
the presence in metro and mini-metro, our estimates include store
expansion in non-metros and smaller cities with major thrust on
franchisee based model. Any variation on above assumptions would
impact our margin estimates in accordance to sensitivity provided below:
400
350
300
250
(|)
200
150
100
50
0
Jun-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-14
Aug-15
Aug-16
Valuation metrics
Target EV/Sales multiple 2.0
2019E Sales 8,840.5
2019E EV 17,788.0
2019E Debt 1,654.6
2019E Cash 44.5
2019E Market Cap. 16,177.8
No. of shares 77.1
Target Price 210.0
CMP 170.0
Upside/(Downside) 23.5
Source: Company, ICICIdirect.com Research
Coverage Companies
Aditya Birla Fashion 13378.3 2.0 1.7 1.5 34.8 24.9 20.8 2.3 1.9 1.7
Arvind 9558.7 1.0 0.9 0.8 13.0 10.8 8.8 1.3 1.2 1.0
Kewal Kiran 2163.0 4.5 3.9 3.4 21.7 18.5 15.5 4.4 3.9 3.3
Trent 8474.1 4.3 2.0 1.7 69.4 26.1 21.4 4.4 2.2 1.9
Shoppers Stop 2903.0 0.6 0.5 0.5 20.2 16.8 13.3 0.7 0.7 0.6
Siyaram Silk 2081.0 1.3 1.2 1.1 12.3 10.1 8.4 1.5 1.4 1.2
Rupa & Co. 4022.7 3.7 3.3 3.0 29.5 24.1 20.8 3.7 3.4 3.0
Page Industries 18992.6 9.2 7.2 5.8 47.8 38.2 32.6 9.3 7.2 5.8
2.8 1.9 1.6 25.6 21.3 18.1 3.0 2.1 1.8
3.3 2.6 2.2 31.1 21.2 17.7 3.5 2.7 2.3
Brands & Retail
Monte Carlo 1208.3 2.1 2.1 1.7 11.5 10.6 9.2 1.4 1.5 1.0
Raymond 5033.8 0.9 0.9 0.8 21.0 20.1 13.2 1.0 1.0 0.8
Indian Terrian 786.5 1.9 2.0 1.6 16.1 16.4 12.7 1.5 1.6 1.1
Future Lifestyle 5856.0 1.5 1.5 1.3 17.5 17.0 14.4 1.5 1.5 1.1
Future Retail 18662.6 1.1 1.1 0.9 33.7 38.6 27.2 0.8 0.8 0.7
1.5 1.5 1.3 17.5 17.0 13.2 1.4 1.5 1.0
1.5 1.5 1.3 20.0 20.6 15.3 1.2 1.3 0.9
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
ANALYST CERTIFICATION
We /I, Bharat Chhoda, MBA (Finance), Ankit Panchmatia, MBA (Finance) and Cheragh Sidhwa, MBA (Finance); Research Analysts, authors and the names subscribed to this report, hereby certify that all of
the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly
related to the specific recommendation(s) or view(s) in this report.
RATING
Terms &RATIONALE
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Strong Buy:
The information >15%/20%
and opinions in this report for large
have been caps/midcaps,
prepared by ICICI Securities andrespectively, with any
are subject to change without high conviction;
notice. The report and information contained herein is strictly confidential and
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Buy: >10%/15%
prior written for large
consent of ICICI Securities. caps/midcaps,
While we respectively;
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Hold: Up to +/-10%;
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.
Sell: -10% or more;
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