Mirae Asset Sharekhan has issued a BUY recommendation for Aditya Birla Fashion and Retail Ltd (ABFRL), with a revised price target of Rs. 95. The report highlights that, following the demerger of ABFRL and ABLBL effective May 1, 2025, ABFRL has demonstrated robust margin improvement and narrowing losses despite subdued consumer demand. The company’s cash balance stands at Rs. 2,350 crore, earmarked for aggressive expansion in value and ethnic fashion segments. While near-term demand remains tepid, ABFRL’s long-term growth strategy—focused on tripling revenue and doubling EBITDA margins by 2030—positions it as a compelling investment, albeit with risks tied to discretionary spending and heightened competition.

BUY Call and Price Target: Mirae Asset Sharekhan’s Conviction

Mirae Asset Sharekhan maintains a BUY rating on ABFRL, setting a revised sum-of-the-parts (SOTP) price target of Rs. 95. The current market price (CMP) hovers around Rs. 77, offering a potential upside of over 23%. This recommendation is underpinned by the firm’s confidence in ABFRL’s ability to navigate a challenging demand environment and emerge stronger post-demerger. The research house underscores the company’s robust cash position and ambitious growth roadmap as key drivers for future value creation.

Demerger and New Corporate Structure: A Fresh Start

The demerger between ABFRL and ABLBL, effective May 1, 2025, marks a pivotal moment for both entities. The restructured ABFRL now comprises Pantaloons (including Style Up), ethnic brands, luxury retail, and the digital-first TMRW portfolio. This separation is designed to streamline operations, optimize capital allocation, and sharpen strategic focus. The demerged ABFRL reported a 9.2% year-on-year revenue growth in Q4FY25, with notable margin expansion across all business segments. The company’s net cash position stands at a formidable Rs. 2,350 crore, providing ample firepower for growth initiatives.

Financial Performance: Margins Shine Amidst Revenue Headwinds

Despite a challenging macro environment, ABFRL has delivered impressive margin improvements. Gross margins surged by 848 basis points year-on-year to 63.2% in Q4FY25, while EBITDA margins jumped 970 basis points to 11.9%. The company’s reported loss narrowed to Rs. 161 crore from Rs. 287 crore in the prior year. Pantaloons’ EBITDA margins rose by 475 basis points to 15.1%, and the ethnic segment’s margins expanded by 694 basis points to 10.1%. However, Pantaloons’ revenue declined by 1% year-on-year, reflecting ongoing rationalization and weak consumer sentiment.

Store Expansion and Growth Strategy: Scaling Up for the Future

ABFRL’s management has outlined an aggressive expansion plan. In FY26, the company intends to add 40-50 Style Up stores (from 46 currently), 15-20 Pantaloons stores, and 25+ TASVA stores (from 67 currently). The demerged entity now operates 451 masstige and value retail stores, 659 ethnic brand stores, 41 luxury retail outlets, and 16 TMRW brand stores. The company is targeting an annual capex of Rs. 400 crore, with a one-time investment of Rs. 100 crore for Galleries in FY26. The long-term vision is to triple sales and double EBITDA margins by 2030.

Segment Performance: Highlights and Headwinds

Pantaloons: Revenue declined by 1.1% year-on-year to Rs. 885 crore in Q4FY25, impacted by store rationalization and a 1.6% decline in like-to-like (LTL) sales. However, EBITDA grew by 44.1% year-on-year, driven by cost controls and lower discounting. The share of private labels reached 63% in FY25, underscoring the company’s focus on margin enhancement.

Ethnic Wear: Revenue grew by 19% year-on-year to Rs. 564 crore, with the TASVA brand leading the charge with a 51% growth. The ethnic portfolio (excluding TCNS) posted a 45% year-on-year increase, with EBITDA margins at 17%. The designer-led brands portfolio, including Sabyasachi, Shantanu & Nikhil, House of Masaba, and Tarun Tahiliani, grew by 46% year-on-year.

Luxury Retail: Led by The Collective and mono-brand formats, luxury retail grew 11% year-on-year in Q4FY25, surpassing Rs. 500 crore in annual revenue. The segment remains profitable, with the store network expanding to 41 outlets.

TMRW: The digital-first brand portfolio reported a 27.2% year-on-year revenue increase to Rs. 145 crore, with offline expansion underway. TMRW exited the quarter with 16 stores across India.

Valuation and Peer Comparison: ABFRL Stands Out

ABFRL is trading at 20x and 16x its FY26E and FY27E EV/EBITDA, respectively. This compares favorably to sector leader Trent, which trades at much higher multiples. The table below summarizes key valuation metrics:

ABFRL’s valuation is attractive relative to peers, though its return on capital employed (RoCE) remains negative, reflecting ongoing investments and restructuring.

Investment Rationale: Why Buy ABFRL Now?

1. Margin Expansion: ABFRL has demonstrated a remarkable improvement in gross and EBITDA margins, driven by cost optimization and a higher share of private labels.

2. Cash Cushion: With Rs. 2,350 crore in gross cash, the company is well-positioned to fund its ambitious expansion plans and weather near-term demand volatility.

3. Growth Ambition: The management’s goal to triple revenue and double EBITDA margins by 2030 is underpinned by a clear roadmap for store expansion and segment focus.

4. Demerger Benefits: The separation of ABFRL and ABLBL allows for more efficient capital allocation and sharper strategic focus, unlocking long-term value for shareholders.

5. Attractive Valuation: ABFRL trades at a discount to sector leader Trent, offering a compelling entry point for investors with a medium- to long-term horizon.

Key Risks: What Could Go Wrong?

1. Demand Slowdown: Any sustained weakness in discretionary spending could pressure same-store sales growth and revenue.

2. Heightened Competition: The rise of private labels by other branded players poses a threat to ABFRL’s market share and pricing power.

3. Execution Risk: Aggressive store expansion and margin targets hinge on flawless execution and continued cost discipline.

Stock Levels and Investor Guidance

Conclusion: A Compelling Proposition Amidst Uncertainty

Aditya Birla Fashion and Retail Ltd stands at an inflection point. The demerger has unlocked operational agility and financial flexibility, while aggressive expansion and margin improvement initiatives position the company for robust long-term growth. Despite near-term demand headwinds, the combination of a strong cash position, attractive valuation, and ambitious growth targets makes ABFRL a compelling BUY for discerning investors. Mirae Asset Sharekhan’s revised price target of Rs. 95 reflects conviction in the company’s ability to deliver shareholder value over the medium to long term.