Aditya Birla Fashion and Retail Ltd (ABFRL) acquired Reebok India’s current business and exclusive licensing rights for an investment of just INR750m-INR1b. Reebok India has a steady revenue/EBITDA of INR4.3b/INR721m. In our view, this is a highly value-accretive deal – ABFRL has acquired a strong and established Indian brand, with high visibility, for a very low upfront payment.
Sportswear is the fastest growing category in the Footwear market and has seen peers growing to 2-3x Reebok India’s size over the last few years – this underscores high growth opportunity. FY20 EBITDA of INR721m (for Reebok India) is just 4% of ABFRL’s estimated FY23E EBITDA. However, it could add incremental value of 8-10%, with scope in Athleisure, among others.
We revise our TP for ABFRL to INR340 (on stronger growth and an improved balance sheet), valuing it on Sept’23E EBITDA. We further assign an EV/EBITDA of 17x to the Lifestyle Brands business and 16x to the Pantaloons segment, and EV/sales of 1x to other businesses. Maintain Buy.
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