Covid-19 impact aside, debt reduction key for Aditya Birla Fashion

MUMBAI: Aditya Birla Fashion and Retail Ltd (ABFRL) is grappling with two things primarily. On one hand, it has to deal with the adverse consequences of covid-19 and on the other hand, it has high debt.

The branded apparel company’s net debt at the end of March stood at 2,500 crore. Reducing debt is essential. ABFRL is looking to raise 1,000 crore through a rights issue. One of the main aims of this issue is to lower the debt.

“Debt build-up is a concern, though we believe some unwinding should happen in financial year 2021,” said analysts from Kotak Institutional Equities in a report on 28 May.

Meanwhile, ABFRL’s March quarter results, announced on Wednesday after market hours, show the hit to financials because of covid-19.

Standalone revenues declined 5% year-on-year to 1,817 crore in the March-ended quarter. Even though January and February saw growth momentum, performance in March was hit due to the lockdown to contain covid-19, which in turn weighed on overall performance. The company estimates loss of revenues to the tune of 340 crore during the quarter. However, under a normalised scenario, revenues growth would have been 13%, according to ABFRL.

Earnings before interest, tax, depreciation and amortisation (Ebitda) stood at 156 crore. Although, adjusting for Indian Accounting Standard (Ind-AS) 116 changes, comparable Ebitda shows a loss of 57 crore, pointed out analysts.

After the March quarter, outlook for the current quarter remains subdued as well. “Given the high fixed-costs nature of ABFRL’s business, we reckon that the June quarter financials would look far worse than the March quarter, given that turnover for that quarter could be down about 75-80%,” said brokerage firm JM Financial Institutional Securities Ltd in a report on 27 May.

Having said that, it is encouraging that the company has told analysts that it would consider several cost cutting initiatives. Investors would do well to follow progress on this front in the medium-term.

It also helps that more than 1,300 stores of ABFRL’s network of 3,041 stores are operational now.

On Thursday, ABFRL’s shares rose about 9%. The rights issue to deal with the debt and cost cutting measures are being viewed positively. Despite the gains, the stock has seen a sharp correction of close to 60% from its 52-week highs seen in February.

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