Research firm Kotak Institutional Equities has maintained its ‘buy’ call on Aditya Birla Fashion and Retail Ltd., but it has cut the target price on the stock due to the risk of slower growth in earnings.
Kotak reduced the target price of Aditya Birla Fashion by nearly 22 percent to Rs 270 apiece from Rs 345 earlier. The new target price still implies an upside potential of over 22 percent from its previous close of Rs 220.85 on the BSE on Wednesday.
The research firm said that it sees value in Aditya Birla Fashion shares, but the near-term stock price may be governed by the news of mergers and acquisitions (M&A).
It also expected higher advertising and promotional (A&P) spending across the company’s businesses, resulting in a 31-58 percent cut in earnings per share (EPS) for 2023-25.
Furthermore, Kotak revised down target multiple for the company’s core business on concerns that discretionary demand slowdown and heightened competitive intensity may impact revenue growth.
A major setback in the form of the company’s December quarter results disappointed the Street. Revenue for the December quarter grew 25 percent year-on-year to Rs 3,588 crore, but consolidated net profit plunged 92 percent to Rs 15.8 crore on soaring marketing expenses.
Various media reports in December also suggested that Aditya Birla Fashion was contemplating acquiring a majority stake in TCNS Clothing (women’s branded apparel retailer that owns brands such as W, Elleven, and Aurelia) from its promoters and PE investors.
Analysts feared that sluggish growth in financials and incremental investments in new businesses could drag down profitability in the near term.
