Big Upside? Morgan Stanley upgrades Aditya Birla retail twins to Overweight

Morgan Stanley believes the recent demerger has created two distinct businesses catering to different investor risk appetites.

Morgan Stanley on Aditya Birla retail twins: Morgan Stanley has turned positive on the Aditya Birla retail twins, giving a thumbs-up to both companies. The brokerage upgraded Aditya Birla Fashion and Retail Ltd (ABFRL) to ‘Overweight’ from ‘Equal weight’ (Target: ₹131) and initiated coverage on Aditya Birla Lifestyle Brands Ltd (ABLBL) with the same rating (Target: ₹175), saying the recent demerger has created two businesses for different kinds of investors.

 

The foreign brokerage believes the recent demerger has created two distinct businesses catering to different investor risk appetites.

 

In a research note dated September 8, Morgan Stanley equity analysts Archana Menon and Sheela Rathi, along with research associates Shravan Vohra and Gaurav Varma, said, “We upgrade ABFRL to Overweight, as we think it is at the cusp of improving fundamentals led by profitability gains, and see opportunity for valuation re-rating. Meanwhile, we view ABLBL as a defensive discretionary play and initiate at Overweight.”

 

 

A tale of two sisters

 

The demerger of ABFRL in May 2025 carved out two entities with sharply defined strategic priorities. ABFRL, housing the group’s growth businesses including its ethnic wear and luxury designer portfolio, is seen as a high-risk, high-reward bet, analysts said. ABLBL, meanwhile, combines core lifestyle brands with younger labels such as Reebok, positioning it as a steadier discretionary play.

 

“In our view, the demerger created two separate businesses suitable for different investment styles –  ABFRL offers higher growth potential but higher execution risk, while ABLBL provides a steadier path with lower risk and lower reward,” the analysts wrote.  ALSO READ | Why Emkay Global has Sell call on YES Bank despite Sumitomo picking stake?

ABFRL: Self-help story with re-rating potential

 

Morgan Stanley sees ABFRL as an “anti-consensus self-help story,” forecasting a 14 per cent revenue CAGR and 27 per cent Ebitda CAGR over FY27-28e. The brokerage noted that investor sentiment remains muted, with nearly 80 per cent of the sell-side holding Underweight or Equal-weight ratings, which could amplify re-rating potential if execution improves.

 

“We think profitability improvement will precede top-line growth. Importantly, we believe the worst in terms of performance is now behind the company,” the note said. ABFRL’s luxury and ethnic businesses are also highlighted as key plays on India’s rapidly expanding premium fashion market.

 

ABLBL: A defensive consumer bet

 

For ABLBL, the brokerage expects a 10 per cent revenue CAGR over FY25-28, alongside gradual margin improvement. Trading at 13x FY27e EV/Ebitda, the company offers room for multiple expansion with consistent execution.

 

“ABLBL has a good mix of established lifestyle brands and younger brands, especially Reebok, that provide incremental growth potential,” the analysts said.

 

Both companies have also assured investors that they plan to scale organically over the next five years without major acquisitions or capital raises (excluding ABFRL’s TMRW subsidiary), which Morgan Stanley believes should ease concerns about capital allocation.

 

“We see Aditya Birla group’s commitment to improving fundamentals in the fashion business as consistent with its broader strategy of scaling consumer franchises,” the note added.

 

On the bourses in the previous session, Aditya Birla Fashion and Retail climbed 3.88 per cent to an intraday high of ₹92.34, before closing 2.41 per cent higher at ₹91.03. Aditya Birla Lifestyle Brands surged 5.25 per cent to a day’s peak of ₹151.20, and eventually ended 3.86 per cent up at ₹149.20.