ABFRL demerger: JM shares fair values for ABFRL, Aditya Birla Lifestyle Brands

Aditya Birla Fashion and Retail Ltd (ABFRL) on Thursday saw its shares trading ex-date for the lifestyle business -- Aditya Birla Lifestyle Brands (ABLBL). With this, ABFRL is left with Pantaloons, Styleup, ethnic brands, luxury retail and digital first brands.

Today is the record date for the spin off. All shareholders of ABFRL, who held the stock today, would be entitled to one equity share of ABLBL of face value Rs 10 for every one equity share of ABFRL. 

JM Financial is expecting equity shares of ABLBL to be listed by mid-to-end June 2025. Post demerger, ABLBL will be focussed towards achieving stable growth and healthy profitability, while demerged ABFRL will focus on driving growth led by value fashion and new-age digital brands with improvement in margins, the domestic brokerage said.

"Post the demerger, we expect the value of the demerged ABFRL to be Rs 103 (18 times EV/Ebitda to Pantaloons, 3 times EV/Sales to ethnics and 1 time EV/sales to digital brands on March 2027). We expect the ABLBL value to be Rs 186 (23 times EV/Ebitda to lifestyle brands and 10x EV/Ebitda to other business on March 2027)," JM Financial said.

For now, the brokerage is maintaining a 'Hold' rating on the ABFRL stock.

Bernstein, meanwhile,  estimated a fair value between Rs 185-215 for the demerged ABLBL, while it sees fair value for ABFRL at Rs 80 -105 per share. Jefferies sees a fair value of Rs 100 for ABFRL.

JM Financial said ABLBL portfolio would be comprising of India’s leading lifestyle brands such Louis Philippe, Van Heusen, Allen Solly, Peter England. It would also include Youth western wear (American Eagle), Activewear & Innerwear (Van Heusen innerwear), and Sportswear (Reebok). 

"Lifestyle brands are expected to witness stable growth rate led by network expansion and mid-single digit SSSG growth, while the other brands like Reebok and Van Huesen Innerwear will do the heavy lifting for driving future growth," JM Financial said.

It noted that the ABLBL business would start with a nominal debt of Rs 700-800 crore and is expected to become debt free over next 2-3 years. 

"At an aggregate level it aims to nearly double its revenue (11 per cent+ CAGR) and triple its cash profits over FY24-30 led by 300 bps Pre-Ind AS Ebitda margin expansion to 11 per cent+ led by operating leverage and other businesses turning profitable," JM said.

This, it said, would take ROCE for ABLBL to 70 per cent -- without intangibles, by FY30.

ABFRL will have net cash of Rs 140-150 crore that JM Financial said will be sufficient to fund its future growth plans. The company may look for a separate fundraise in the TMRW entity to fund its growth plans and do few M&A’s to complete the portfolio, without seeking additional funding from ABFRL, JM said.