HDFC Securities initiates 'Buy' on Aditya Birla Lifestyle; sees 28% upside

On a consolidated basis, HDFC Securities anticipates the company to clock 10/19 per cent revenue/Ebitda CAGR over FY25-28, building in 180/250 bps margin expansion over FY25-28/30

HDFC Securities has initiated ‘Buy’ on Aditya Birla Lifestyle Brands as it believes the company inherits predominantly the “cash cow businesses”. Aditya Birla Lifestyle has four legacy lifestyle brands under it: Louis Philippe, Van Heusen, Allen Solly, and Peter England. Additionally, emerging brands such as Van Heusen Innerwear, Reebok, and American Eagle will also fall under its umbrella.

 

The brokerage has set its target price at ₹180, which implies 27.6 per cent upside from Tuesday’s close of ₹141 per share.

 

At 10:26 AM, Aditya Birla Lifestyle Brands' share price was trading 1.35 per cent higher at ₹142.9 per share. In comparison, BSE Sensex was up 0.05 per cent at 80,200.99. The stock logged an intra-day high at ₹144.25, up 2.3 per cent from Tuesday's close. 

 

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Aditya Birla Lifestyle shares were listed at ₹167.75 on the BSE. On the National Stock Exchange (NSE), the stock began trading at ₹167. The stock's discovered price stood at ₹171 per share.  CATCH STOCK MARKET UPDATES TODAY LIVE

Here’s why HDFC Securities is bullish on Aditya Birla Lifestyle Brands:

Management’s ambitious targets:

The company’s management intends to double Aditya Birla Lifestyle Brands’ scale by FY30 and hit 11 per cent Earnings before interest, tax, depreciation and amortisation margin (Ebitdam). This will be driven by better full-price sales in the core portfolio, mid-single-digit same-store sales growth (SSSG), rising retail channel skew, and emerging brands scaling into positive unit economics. It intends to get debt-free in the next two to three years and hit dividend distribution mode in the medium term. 

 

On store expansion, management intends to add 250 stores (net) annually across formats and hit 4,500 stores and 7.3mn sq. ft by FY30, against 4.7 mn sq ft in FY25. It should be noted that 70 per cent of the company’s stores are franchisee-owned.

Inherits cash counters brands:

The core lifestyle brands Aditya Birla Lifestyle Brands inherited from the Aditya Birla Fashion and Retail demerger — Louis Philippe, Van Heusen, Allen Solly and Peter England — remain the company’s cash engines, with about 70 per cent of stores operated on a franchisee model.

 

While management’s aim is to hit 10-15 per cent compound annual growth rate (CAGR) for the legacy brands (core) over FY24-30, HDFC Securities builds in a more conservative 9.4 per cent over FY25-28, backed by a more balanced approach to growth (evenly aided by expansion and SSSGs – 4-5 per cent each over FY25-28). 

 

On the margin front, lifestyle brands’ Ebitdam is estimated at 9.5 per cent in FY25 with a gradual 60/90 basis points (bps) expansion to 10-10.5 per cent over FY25-28/30, respectively. Underpinnings for margin expansion are likely to be higher full-price sales, steady SSSGs (5 per cent), and rising retail channel skew.  ALSO READ | From Draft Red Herring to listing: The real journey of an IPO in India

Emerging brands — execution will be key

HDFC Securities flagged execution as crucial to realising the company’s potential in emerging brands, which include Van Heusen innerwear (VH innerwear), Reebok, and American Eagle. The broker estimates VH Innerwear’s FY25 scale at ₹450–500 crore and expects the category’s difficult inventory cycle to largely unwind in FY26, enabling an expansion push from FY27. 

 

Reebok has doubled since its FY22 acquisition and is estimated at about ₹500 crore in FY25, with around 172 stores; HDFC expects Reebok to add 25–30 stores annually and for apparel to rise from a current one-third of sales. American Eagle,  Aditya Birla Lifestyle Brands’ premium denim brand, is estimated at ₹250–300 crore with 68 stores and will see more measured expansion. Overall, HDFC projects emerging brands to grow at about 15 per cent CAGR over FY25–28, at the lower end of management’s 15–25 per cent ambition.

Outlook 

On a consolidated basis, the brokerage anticipates the company to clock 10/19 per cent revenue/Ebitda CAGR over FY25-28, building in 180/250 bps margin expansion over FY25-28/30, respectively, as against management’s targeted 300 bps expansion and RoICs inching up 220 bps from 9 per cent to 11.2 per cent over FY25-28.