Aditya Birla Lifestyle Brands: Recovery Remains Steady; Maintain BUY

ABLBL’s recovery across segments remains steady. Weeding off unprofitable stores seems largely behind in Lifestyle brands (LB), and early signs of a pick- up in expansion are visible (59 net stores in Q3FY26 vs a muted H1FY26). Channel checks suggest demand till mid-February remained healthy, post which a moderation was witnessed. Online/MBO channels are expected to outpace Retail in Q4. However, as expansion picks up in FY27 (300-350 gross/200-250 net adds), Retail channel should mean-revert to double-digit growth, in our view. We expect mid-single-digit SSSG over FY26-28. We pencil an 80bps improvement in LB EBITDAM (on a low base) to 9.8% in FY28. In emerging brands (EB), the F21 drag is now behind and from here on, we expect EB (AE, VH Innerwear and Reebok) to grow at >20% over FY26-28 with EBITDAM expanding from near break-even to ~4.5%. We maintain our FY27/28 EBITDA estimates and our BUY rating with an SOTP-based TP of INR155/sh (implying ~20x FY28 EV/EBITDA). Note: At CMP, the stock is trading at ~12x FY28 EV/EBITDA (pre-IND-AS 116).

Lifestyle brands recovery remains steady: Channel checks suggest demand momentum until mid-February was healthy, post which some moderation was witnessed. EOS sales remained healthy. While there are signs of Retail channel recovery (as expansion has picked up), Online/MBO channels are expected to outpace Retail in Q4. We expect store expansion to pick up decisively in FY27 (management expects to achieve 250 net adds vs HSIE: 170 stores). This, coupled with mid-single-digit SSSG, is likely to ensure low-double-digit growth in LB in FY27.

F21 drag in Emerging Brands (EB) is now behind: The EB portfolio (comprising American Eagle, Reebok, and VH Innerwear) now seems to be at an inflection point in terms of growth and margins. The introduction of lower price points (per channel checks) has helped induce traction across MBOs for innerwear products. The F21 drag in EB is now behind. Hence, the EB portfolio now seems to be well placed to spur growth while improving margins. We pencil in >20% revenue growth over FY26-28 with EBITDAM expanding from near break-even to ~4.5%.

Risk-reward favorable: Most of the pain points in the portfolio have been churned out and now it is all about execution. The ask from core – Lifestyle brands remain low as the franchise is now available at ~12x FY28 EV/EBITDA. We maintain our FY27/28 EBITDA estimates and our BUY rating with an SOTP-based TP of INR155/sh (implying ~20x FY28 EV/EBITDA).

Financial summary (INR mn)