Emkay sees more than 20% rise in Aditya Birla Fashion shares, calls Reebok deal a game-changer – do you know why?


Aditya Birla Fashion and Retail Limited (ABFRL) shares outperformed the key BSE Sensex and Nifty50 indices over a one-year period by more than 40%. On December 14, the company approved the acquisition of the exclusive online and offline rights from Reebok for the Indian market and the purchase of certain assets from Reebok India Company. The news triggered that stock’s prices, followed by corrections over the next three consecutive sessions.

Equity research firm Emkay Global Financial Services has a positive opinion on this stock and is what it recommends.

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ABFRL shares closed at Rs 269.20 on Friday, down nearly 1.8 percent from the previous closing price. The correction was in line with the market fall over the past week.

Emkay recommended this action for a target price of Rs 340 at a price of Rs 283 with a 20% probability of going up.

Reebok is the fourth largest brand in the Indian sports and sportswear market after Puma, Adidas and Nike, with revenue of Rs 4.3 billion in fiscal year 2020, according to the Emkay report. The turnover of these companies was Rs 14 billion, Rs 12 billion and Rs 8 billion in FY20.

Reebok recorded a 5% CAGR in fiscal year 2015-20 compared to -1%, 9% and 16% for Nike, Adidas and Puma in India, according to the report.

Reebok’s EBITDA margins have been on a path of improvement to 17% in FY20 versus (-) 11% in FY15.

  1. The company has entered into an agreement to acquire the exclusive online and offline distribution rights of the global “Reebok” brand for the Indian / ASEAN markets. The transaction also involves the purchase of certain inventory and other net short-term assets of “Reebok India Company” in the amount of Rs 0.8 billion to Rs 1.0 billion.
  2. The foray into the fast growing sports segment is increasing the addressable market and is a key positive, he said. (industry size estimated at USD 10-14 billion in fiscal years 22-24E with growth seen at a CAGR of 14 percent).
  3. A strong presence in online and physical retail via pants / MBO is expected to help expand the brand’s distribution significantly.
  4. The brand experienced slower growth, possibly due to a lack of expansion / proper positioning in the market.
  5. “We view the transaction as an increase in EBITDA / EPS, which may add 5-7% to our EBITDA / EPS estimates over the forecast period. We believe that better margins will offset the impact of slightly higher capital on ABFRL’s RoIC, ”he said.
  6. Faster recovery trends, aggressive expansion outlook and potential margin gains are expected to drive healthy revenue / EBITDA CAGRs of 11-25% in FY20-24E for ABFRL (transaction with Reebok).

What to pay attention to?

ABFRL will have to invest in the brand to develop,

The transaction is effective upon the final transfer of global ownership of the “Reebok” brand from Adidas to Authentic Brand Group in the US and is expected to close by Q4FY22.

(Disclaimer: The opinions / suggestions / advice expressed here in this article are solely by investment experts. Zee Business suggests that its readers consult their investment advisers before making a financial decision.)


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