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Aditya Birla Fashion Share: Is your cart ready? Trent, Aditya Birla Fashion Could Give 30-50% Return

The recovery in the second half of 4QFY22 offset the impact of the Omicron Covid wave. While activity was affected for 35-40 days in 4QFY22, a rapid recovery was seen in the latter part of the quarter.

January 2022 and mid-February 2022 sales were impacted by the onset of the Omicron Covid wave. However, there was a strong recovery in the second half of 4QFY22 as attendance improved and restrictions eased.

While a steady recovery in MoM was seen, the revenue run rate in March 2022 remained flat negative compared to March 2020/March 2021.

Businesses in cities serving the commercial and small business community have suffered some impact from low purchasing power and economic hardship.

This is evident from the weak performance of VMART, with a decline in same-store sales. Retailers like Shopper Stop, Lifestyle, West Life Developers in the Clothing category, which cater to the relatively high ASP categories, had comparable better performance.

Despite continued pressure from rising raw material (yarn) prices on apparel retailers, gross margin/EBITDA saw year-over-year improvement in the fourth quarter as companies increased prices by 5-10% in all categories to pass on the increased cost of inputs.

Overall net profit improved as a strong revenue recovery in the latter part of 4QFY22 helped to mitigate fixed costs.

The impact of the Omicron Covid wave is expected to be short-lived as most retailers reported strong footfall and a recovery in demand in March 2022. The momentum of store additions continued despite a slight delay in beginning of 4QFY22.

Store additions for DMART remained strong, with 21 store additions, reaching 284 stores as of March 22. Similarly, WLDL/Zudio added a net number of 3/56 stores in 4QFY22, reaching 200/233 stores.

While the sector is recovering on a month-to-month basis, helped by improving footfall, the continued rise in commodity prices and inflationary pressures could impact demand going forward.

Here are two investment ideas for the next 12 months. Upside calculated on the basis of the LTP of June 17:

Aditya Birla Fashion: Buy| LTP Rs 230 | Objective Rs 350 | Up 52%

Aditya Birla Fashion’s strong execution ability is reflected in its ability to develop a series of strong brands over the past 10 years with healthy growth.

Ethnic Wear, whose EBITDA is positive, as well as the continued momentum in other activities, including loungewear, remains the main positive element.

With a healthy recovery and growth momentum across all verticals, we model a strong revenue/EBITDA CAGR of 30%/40% in FY22-24E.

The recent announcement of a preferential issue of Rs 22 billion at

is expected to further reduce its leverage position by Rs 5 billion and fuel growth in a wide range of new categories.

Trent: Buy| LTP Rs 1,043 | Target Rs 1,430 | Up 37%

Trent’s successful store performance, healthy store economics and aggressive growth strategy provide a huge growth avenue over the next three to five years as the company targets 25% annual revenue growth.

Emerging categories such as beauty and personal care, loungewear and home continued to gain traction with customers. We expect 37% revenue growth in FY22-24, which justifies a higher valuation for the stock.

(The author is Head – Retail Research, Limited)