ABFRL Initiation - GS PDF

15 February 2019 | 3:47PM IST
Aditya Birla Fashion and Retail (ADIA.BO)

Dressing up India’s urban mass consumers: Initiate with Buy
Buy
ADIA.BO 12m Price Target: Rs250.00 Price: Rs212.85 Upside: 17.5%

Aditya Soman
+91(22)6616-9345 | aditya.soman@gs.com
Goldman Sachs India SPL
ADIA is an established player in the fragmented lifestyle apparel and Aditya Gupta
+91(22)6616-9046 | aditya.y.gupta@gs.com
department store segments. We initiate with Buy and a 12-month Goldman Sachs India SPL
TP of Rs250 (17% upside potential). We like ADIA for its:
Robust growth at discounted multiple: ADIA’s 28% EBITDA/54%

For the exclusive use of ZEESHAN@ABUDHABICAPITAL.AE
EPS CAGR potential (FY18-21E) is ahead of our coverage at

19%/19% and in our view is not priced in, with the stock trading at a
22% FY20E EV/EBITDA discount. We note investor concerns on Key Data __________________________________
Market cap: Rs164.5bn / $2.3bn
past Pantaloons execution are valid, but we believe renewed focus Enterprise value: Rs181.1bn / $2.5bn
3m ADTV: NA
on in-house brands and optimizing space will drive better margins. India
India Consumer
M&A Rank: 3
Good mix of premium and affordable: ADIA through its brands
GS Forecast ________________________________
like Louis Philippe, Van Heusen and Allen Solly offers premium 3/18 3/19E 3/20E 3/21E
Revenue (Rs mn) 71,814.1 81,577.8 94,758.4 109,123.6
products for the Indian urban middle class. It is also well placed to EBITDA (Rs mn) 4,682.8 6,080.7 7,620.9 9,883.6
benefit from rising aspirations of the urban mass via its affordable EPS (Rs) 1.52 2.46 4.15 5.57
P/E (X) 108.3 86.4 51.3 38.2
brands like Peter England and private labels of its Pantaloons P/B (X) 11.7 12.8 10.3 8.1
Dividend yield (%) 0.0 0.0 0.0 0.0
department stores. ADIA’s varied product and brand mix is tailored Net debt/EBITDA (X) 3.6 2.7 1.9 1.1
CROCI (%) 19.9 22.2 23.4 23.4
for different local tastes, something which is harder for global
FCF yield (%) 2.0 1.3 2.4 3.3
brands to adapt to, especially if they work to a global design.
9/18 12/18E 3/19E 6/19E
EPS (Rs) 0.55 0.91 0.93 0.59
Expansion into smaller cities: We expect ADIA to open 1600
Madura and 300 Pantaloons stores (FY18-24E) mainly in smaller GS Factor Profile ____________________________
Growth
Indian cities where (1) internet penetration is boosting brand

Financial Returns
awareness, (2) there is relatively lower branded competition. In our
Multiple
India Consumer Close-Up, we highlight the largest consumer
opportunity is the Urban Mass, we believe ADIA’s push into smaller Integrated
towns will enable it to reach more of the Urban Mass cohort.

Percentile 20th 40th 60th 80th 100th
Risks: While international brands (Zara, H&M etc) and private labels ADIA.BO relative to Asia ex. Japan Coverage
(online) are risks to our sales growth forecasts, Euromonitor data ADIA.BO relative to India Consumer
from emerging markets suggest strong domestic brands can Source: Company data, Goldman Sachs Research estimates.
See disclosures for details.
withstand competition from global players. Any related party
transactions within the Birla group.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Goldman Sachs Aditya Birla Fashion and Retail (ADIA.BO)
Aditya Birla Fashion and Retail (ADIA.BO) Balance Sheet (Rs mn) ____________________________________
Buy Rating since Feb 15, 2019 Cash & cash equivalents
3/18
727.9
3/19E
951.8
3/20E
3,170.1
3/21E
6,992.2
Accounts receivable 5,518.4 5,600.5 6,375.5 7,192.6
Inventory 16,912.0 17,623.1 20,340.7 23,274.8
Ratios & Valuation _______________________________________ Other current assets 3,344.7 3,344.7 3,344.7 3,344.7
3/18 3/19E 3/20E 3/21E Total current assets 26,503.0 27,520.1 33,231.0 40,804.2
P/E (X) 108.3 86.4 51.3 38.2 Net PP&E 6,923.4 7,758.9 8,315.7 8,478.6
P/B (X) 11.7 12.8 10.3 8.1 Net intangibles 19,358.5 19,358.5 19,358.5 19,358.5
FCF yield (%) 2.0 1.3 2.4 3.3 Total investments 2,597.9 2,597.9 2,597.9 2,597.9
EV/EBITDA (X) 38.7 29.8 23.5 17.7 Other long-term assets 1,955.6 1,955.6 1,955.6 1,955.6
CROCI (%) 19.9 22.2 23.4 23.4 Total assets 57,338.4 59,191.0 65,458.7 73,194.8
ROE (%) 11.5 16.0 22.2 23.6 Accounts payable 20,093.2 20,042.5 23,102.7 26,537.7
Net debt/equity (%) 154.2 129.6 89.8 52.1 Short-term debt 5,704.5 5,704.5 5,704.5 5,704.5
Interest cover (X) 1.1 1.8 2.5 3.9 Other current liabilities 5,912.5 5,912.5 5,912.5 5,912.5
Days inventory outst, sales 79.4 77.3 73.1 72.9 Total current liabilities 31,710.2 31,659.5 34,719.7 38,154.7
Receivable days 25.6 24.9 23.1 22.7 Long-term debt 11,879.1 11,879.1 11,879.1 11,879.1
Days payable outstanding 191.1 185.3 173.3 174.0 Other long-term liabilities 2,818.0 2,818.0 2,818.0 2,818.0
DuPont ROE (%) 10.8 14.8 20.0 21.1 Total long-term liabilities 14,697.1 14,697.1 14,697.1 14,697.1
Turnover (X) 1.3 1.4 1.4 1.5 Total liabilities 46,407.3 46,356.6 49,416.8 52,851.8
Leverage (X) 5.2 4.6 4.1 3.6 Preferred shares -- -- -- --
Total common equity 10,931.1 12,834.4 16,041.9 20,343.0
Growth & Margins (%) ____________________________________ Minority interest -- -- -- --
3/18 3/19E 3/20E 3/21E Total liabilities & equity 57,338.4 59,191.0 65,458.7 73,194.8
Total revenue growth 8.3 13.6 16.2 15.2 Gross cash invested (ex cash) 33,493.1 37,992.0 42,161.5 46,139.2
EBITDA growth 7.0 29.9 25.3 29.7 Net debt, adjusted 16,855.7 16,631.8 14,413.5 10,591.4
EPS growth 120.2 61.6 68.5 34.1
Average capital employed 28,620.6 28,626.5 29,960.8 30,694.9

DPS growth NM NM NM NM BVPS (Rs) 14.15 16.61 20.76 26.32
EBIT margin 2.6 4.0 4.7 5.9
EBITDA margin 6.5 7.5 8.0 9.1 Cash Flow (Rs mn) _______________________________________
Net income margin 1.6 2.3 3.4 3.9 3/18 3/19E 3/20E 3/21E
Net income 1,177.9 1,903.3 3,207.4 4,301.2
Price Performance _______________________________________ D&A add-back 2,805.2 2,819.5 3,180.3 3,498.7
ADIA.BO (Rs) India BSE30 Sensex Minority interest add-back -- -- -- --
Net (inc)/dec working capital 760.0 (843.9) (432.4) (316.2)
220 42,000
Other operating cash flow 1,208.1 1,850.0 1,750.0 1,650.0
200 40,000 Cash flow from operations 5,951.2 5,728.9 7,705.3 9,133.7
180 38,000
Capital expenditures (3,390.9) (3,655.0) (3,737.1) (3,661.5)
160 36,000 Acquisitions -- -- -- --
Divestitures -- -- -- --
140 34,000
Others 191.9 -- -- --
120 32,000 Cash flow from investing (3,199.0) (3,655.0) (3,737.1) (3,661.5)
Apr-18 Jul-18 Oct-18 Jan-19

Dividends paid (common & pref) -- -- -- --
3m 6m 12m Inc/(dec) in debt (1,831.7) -- -- --
Absolute 12.1% 10.4% 35.3% Other financing cash flows (637.2) (1,850.0) (1,750.0) (1,650.0)
Rel. to the India BSE30 Sensex 9.8% 16.5% 28.8% Cash flow from financing (2,468.9) (1,850.0) (1,750.0) (1,650.0)
Total cash flow 283.3 223.9 2,218.2 3,822.1
Source: FactSet. Price as of 14 Feb 2019 close.
Free cash flow 2,560.3 2,073.9 3,968.2 5,472.1
Income Statement (Rs mn) _________________________________ Source: Company data, Goldman Sachs Research estimates.
3/18 3/19E 3/20E 3/21E
Total revenue 71,814.1 81,577.8 94,758.4 109,123.6
Cost of goods sold (33,994.2) (39,526.0) (45,438.4) (52,054.0)
SG&A (25,413.8) (27,202.9) (32,006.5) (36,444.8)
R&D 0.0 0.0 0.0 0.0
Other operating inc./(exp.) -- -- -- --
EBITDA 4,682.8 6,080.7 7,620.9 9,883.6
Depreciation & amortization (2,805.2) (2,819.5) (3,180.3) (3,498.7)
EBIT 1,877.6 3,261.2 4,440.7 6,384.9
Net interest inc./(exp.) (1,387.9) (1,357.9) (1,233.2) (1,107.4)
Income/(loss) from associates -- -- -- --
Pre-tax profit 489.7 1,903.3 3,207.4 5,277.5
Provision for taxes 688.2 0.0 0.0 (976.3)
Minority interest -- -- -- --
Preferred dividends -- -- -- --
Net inc. (pre-exceptionals) 1,177.9 1,903.3 3,207.4 4,301.2
Post-tax exceptionals -- -- -- --
Net inc. (post-exceptionals) 1,177.9 1,903.3 3,207.4 4,301.2
EPS (basic, pre-except) (Rs) 1.52 2.46 4.15 5.57
EPS (diluted, pre-except) (Rs) 1.52 2.46 4.15 5.57
EPS (basic, post-except) (Rs) 1.52 2.46 4.15 5.57
EPS (diluted, post-except) (Rs) 1.52 2.46 4.15 5.57
DPS (Rs) -- -- -- --
Div. payout ratio (%) 0.0 0.0 0.0 0.0
15 February 2019 2
Table of Contents
PM Summary: Affordable clothes, rapid expansion and attractive valuation 4
Investment thesis on ADIA 8
We value ADIA to capture the longer-term opportunity: 17% upside 22
What are the risks to our bullish view? 27
Company Overview and Financials 31
M&A rank detail 36
Appendix 38
Disclosure Appendix 41
15 February 2019 3
PM Summary: Affordable clothes, rapid expansion and attractive valuation
We initiate coverage on Aditya Birla Fashion and Retail (ADIA) with a Buy rating and a
12m target price of Rs250 implying 17% upside potential compared to an average
upside of 10% for the rest of our coverage. ADIA operates in two business segments
through:
n Madura (two businesses, Lifestyle and Fast Fashion brands) - a market leader in
menswear segment which is now in expansion mode to dress urban mass
consumers in the smaller Indian cities
n Pantaloons (department stores) which we believe is a turnaround story with
increasing focus on its private label and network expansion in lower tier towns and
cities.
We believe both the segments through their strategies are well-placed to cater to the
urban Indian middle and mass consumers, which we believe have a combined
disposable income pool of US$648bn (FY18). Given the large income pool and a current
addressable apparel and footwear market of US$65bn in India we think ADIA will be
able to deliver 13% sales growth between FY18-24E. We also forecast 23% EBITDA
CAGR as we believe ADIA will be able to drive margin expansion due to operating
leverage and higher private label contribution.
Madura, Fashion and Lifestyle (60% of sales in FY18, 59% in FY24)
Madura segment operates mostly in the branded menswear segment through its four
brands: Louis Philippe, Van Heusen, Allen Solly and Peter England, and offers both
formal, semi-formal and casual wear products mostly for men. Madura also has a small
presence in the women wear market through its Van Heusen brand and kids wear
through Allen Solly. We forecast 13% sales CAGR (FY18-24E) for the Lifestyle segment
driven by a combination of:
n Rapid retail expansion especially for its entry level brand Peter England in smaller
Indian towns and cities. Madura expects to add 350 and 300 EBOs in FY19E and
FY20E respectively (on a base of 1,813 at the end of FY18) and we expect this to be
a core driver of sales growth as the stores ramp up.
n New launches in the athwork, wedding and footwear (Louis Philippe), innerwear
and occasion wear (Van Heusen), kids wear (Allen Solly)
Pantaloons (40% of sales in FY18, 41% in FY24)
Pantaloons is one of India’s largest department store chain, with 302 stores (3.95mn
sqft retail area) as of Dec-18. We expect Pantaloons to deliver 14% sales and 24%
EBITDA CAGR (FY18-24E) driven by:
n Improving store productivity and increased focus on its private label offerings:
Pantaloons currently has 24 private labels which contribute ~63% of its overall sales
and over the medium term, management expects the share of private label to
increase to 75-80%, which would also have a positive impact on its gross margin.
15 February 2019 4
The first evidence of progress under the new strategy was demonstrated in 3QFY19
results where it reported 30% comparable sales growth YoY (albeit partly helped by
seasonality).
n Retail footprint expansion especially in the smaller cities: Management by
offering attractive price points (entry level $5 t-shirts) has positioned itself well to
benefit from the urban mass consumer in smaller towns and we expect Pantaloons
to open 300 new stores between FY18-24E (from 275 at the end of FY18)
Valuation
Our 12-month target price of Rs250 is a 50/50 blend of 40x FY21P/E and DCF and the
methodology is consistent with most other companies under our coverage including the
target multiple. Our 25-year DCF assumes a WACC of 10.2% and terminal growth rate
of 4%. ADIA is currently trading at 23x FY20E EV/EBITDA compared to our coverage at
29x and offers a significantly higher EBITDA CAGR potential of 28% (FY18-21E) vs
coverage at 19%. Our FY20E/21E EBITDA estimates are 3%/7% ahead of Bloomberg
consensus.
Catalysts
We think ADIA’s outperformance will be driven by (1) performance of the Madura EBOs
in new locations, and (2) progress made in increasing contribution from private label in
Pantaloons - both of which we expect to become apparent over the next two quarters.
Risks
We see three broad risks to our bullish thesis on ADIA
(1) increasing competition from foreign brands like Zara, H&M and Uniqlo in India,
although our analysis indicates these brand have had limited impact on market shares of
the incumbent leaders in other markets.
(2) risk to sales growth of Pantaloons from other department store chains such as
Reliance, Westside, Max etc and private labels of online competitors like Myntra (owned
by Walmart).
(3) any potential inter-corporate transactions of ADIA with other entities of the Birla
conglomerate.
15 February 2019 5
Exhibit 1: Aditya Birla Fashion and Retail is a formidable in the lifestyle apparel and department store segment in India
Aditya Birla Fashion and Retail overview
Aditya Birla
Fashion & Madura Fashion and Lifestyle Pantaloons
Retail
Core Lifestyle
Brands
Rang Manch,
Other People, Forever 21, Hackett, Simon Carter, American Eagle, Ted Baker, Trishaa, Ajile,
brands/labels Ralph Lauren, The Collective, Planet Fashion Annabelle, SF,
Byford
Categories Apparel and Footwear Department store
1%
Madura is<$1bn
Market size of the $65bn
Pantaloons is
(USD, bn)
Indian apparel ~0.5bn of the
and footwear market
$4bn market
2.3
1.8
Peter England 1.8 1.2
0.7
Allen Solly 1.8 Madura has more Westside Central Reliance Pantaloons
Van Heusen 1.5 facebook followers Trends
Social Media than other brands

Louis Phillipe 0.8
...and so has
Arrow 0.5 Pantaloons
Turtle 0.1
2190, 7mn sqft
Store network 275

(FY18)
3.76mn sqft
298 276 226 684
Growth Potential ●ADIA:13% Sales:23% EBITDA 14% Sales

(FY18-24E)
●MADURA:13% Sales: 20% EBITDA 24% EBITDA
Market size as of CY18. Social Media as of Feb-19.
Source: Company data, Euromonitor, Goldman Sachs Global Investment Research
15 February 2019 6
Exhibit 2: We initiate on Aditya Birla Fashion and Retail with a Buy rating and an upside potential of 17%
India consumer coverage comp table
Last 12m Target Upside/ Market P/E EV/EBITDA CAGR (2018-21E) PEG
Company Name Ticker Rating Close (Rs) Price (Rs) Downside Cap ($s, mn) 2019E 2020E 2021E 2019E 2020E 2021E Sales EBITDA EPS 2019E 2020E
Retail and discretionary
Avenue Supermarts Ltd. AVEU.BO Buy 1,462 1,914 31% 12,997 97x 70x 53x 55x 40x 31x 32% 30% 30% 3.3x 2.4x
Asian Paints (India) ASPN.BO Buy 1,399 1,702 22% 18,881 57x 45x 36x 35x 27x 22x 17% 23% 22% 2.6x 2.1x
Titan Co. TITN.BO Buy 1,045 1,269 21% 13,045 62x 44x 36x 42x 30x 23x 22% 33% 32% 2.0x 1.4x
Aditya Birla Fashion and Retail ADIA.BO Buy 213 250 17% 2,314 86x 51x 38x 30x 23x 18x 15% 28% 54% 1.6x 0.9x
United Spirits UNSP.BO Neutral 522 594 14% 5,335 51x 42x 36x 31x 26x 22x 10% 20% 25% 2.1x 1.7x
United Breweries Ltd. UBBW.BO Neutral 1,404 1,513 8% 5,221 58x 48x 40x 30x 25x 21x 15% 24% 33% 1.8x 1.5x
Page Industries Ltd. PAGE.BO Neutral 23,965 23,144 -3% 3,760 61x 54x 47x 40x 35x 30x 15% 17% 18% 3.4x 3.0x
Jubilant Foodworks JUBI.BO Sell 1,311 1,192 -9% 2,370 50x 51x 48x 31x 29x 27x 15% 17% 23% 2.2x 2.3x
Total/Average 13% 63,922 65x 51x 42x 37x 30x 24x 18% 24% 29% 2.4x 1.9x
Staples
Britannia Industries Ltd. BRIT.BO Buy 2,922 3,756 29% 9,858 59x 45x 36x 39x 30x 24x 14% 23% 25% 2.4x 1.8x
Colgate Palmolive (India) COLG.BO Buy 1,249 1,556 25% 4,780 43x 40x 35x 28x 25x 22x 10% 13% 13% 3.4x 3.1x
Emami Ltd. EMAM.BO Neutral 357 404 13% 2,278 49x 40x 29x 21x 19x 16x 10% 9% 22% 2.2x 1.8x
ITC ITC.BO Neutral 278 306 10% 47,063 28x 26x 23x 19x 17x 15x 8% 12% 9% 3.0x 2.7x
Godrej Consumer Products Ltd. GOCP.BO Neutral 681 735 8% 9,787 38x 39x 34x 32x 28x 25x 10% 12% 8% 4.8x 5.1x
Nestle India NEST.BO Neutral 10,612 11,023 4% 14,391 60x 49x 43x 39x 32x 28x 15% 21% 22% 2.7x 2.2x
Dabur India DABU.BO Neutral 440 429 -3% 10,891 50x 43x 39x 42x 36x 31x 13% 15% 14% 3.6x 3.1x
Marico MRCO.BO Sell 345 309 -10% 6,261 50x 45x 41x 34x 31x 27x 12% 12% 10% 5.1x 4.6x
Hindustan Unilever HLL.BO Sell 1,782 1,536 -14% 54,210 63x 55x 48x 46x 40x 35x 12% 15% 15% 4.3x 3.8x
Gross Margin EBITDA Margin CROCI Dividend yield

Company Name Ticker 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E 2019E 2020E
Avenue Supermarts Ltd. AVEU.BO 15.9% 14.9% 14.9% 15.0% 9.0% 8.3% 8.5% 8.7% 22.1% 21.5% 22.7% 23.3% 0.0% 0.0%
Asian Paints (India) ASPN.BO 39.2% 39.7% 40.3% 40.8% 18.5% 19.4% 20.8% 21.6% 31.0% 30.2% 33.5% 35.7% 0.9% 1.2%
Titan Co. TITN.BO 27.4% 27.9% 28.4% 28.8% 10.2% 10.9% 12.4% 13.0% 29.2% 33.0% 39.6% 40.1% 0.5% 0.6%
Aditya Birla Fashion and Retail ADIA.BO 52.7% 51.5% 52.0% 52.3% 6.5% 7.5% 8.0% 9.1% 19.9% 22.2% 23.4% 23.4% 0.0% 0.0%
United Spirits UNSP.BO 47.5% 48.5% 48.3% 49.2% 12.5% 14.4% 15.3% 16.3% 12.6% 19.5% 21.1% 22.9% 0.0% 0.0%
United Breweries Ltd. UBBW.BO 53.2% 54.1% 54.7% 55.3% 16.1% 19.1% 19.8% 20.6% 15.7% 17.8% 18.6% 19.4% 0.3% 0.4%
Page Industries Ltd. PAGE.BO 57.4% 58.1% 58.1% 58.1% 21.2% 22.5% 22.3% 22.3% 47.8% 49.4% 47.3% 46.3% 0.7% 0.8%
Jubilant Foodworks JUBI.BO 69.3% 71.2% 70.6% 70.9% 14.6% 17.6% 16.0% 15.3% 15.5% 19.1% 18.8% 18.3% 0.3% 0.4%
Average 45.3% 45.7% 45.9% 46.3% 13.6% 15.0% 15.4% 15.8% 24.2% 26.6% 28.1% 28.7% 0.3% 0.4%
Staples
Britannia Industries Ltd. BRIT.BO 38.1% 40.6% 41.2% 41.4% 15.0% 15.8% 17.7% 18.8% 37.7% 40.3% 47.8% 50.9% 0.6% 0.7%
Colgate Palmolive (India) COLG.BO 58.4% 61.4% 60.6% 60.6% 25.9% 28.4% 28.1% 28.1% 21.5% 25.3% 24.8% 24.7% 1.0% 1.1%
Emami Ltd. EMAM.BO 55.5% 54.7% 55.5% 59.7% 28.3% 28.0% 28.0% 28.0% 21.9% 21.6% 23.1% 24.2% 1.5% 1.8%
ITC ITC.BO 55.7% 60.3% 60.5% 60.8% 35.4% 38.4% 38.6% 39.2% 29.7% 30.9% 29.4% 30.2% 1.9% 2.1%
Godrej Consumer Products Ltd. GOCP.BO 56.0% 55.9% 55.2% 55.2% 20.8% 20.8% 21.1% 21.6% 20.7% 25.6% 26.7% 29.4% 1.6% 1.8%
Nestle India NEST.BO 53.2% 56.1% 56.1% 56.1% 20.7% 23.3% 24.0% 24.1% 20.8% 22.7% 23.4% 23.7% 1.3% 1.5%
Dabur India DABU.BO 48.3% 47.8% 48.1% 48.4% 20.9% 21.1% 21.6% 21.9% 18.6% 22.2% 24.1% 25.4% 0.7% 0.7%
Marico MRCO.BO 47.0% 44.9% 45.4% 46.4% 18.0% 17.3% 17.8% 18.0% 27.1% 30.1% 32.8% 35.1% 1.2% 1.3%
Hindustan Unilever HLL.BO 49.8% 50.9% 50.9% 51.2% 21.0% 22.4% 23.0% 23.0% 51.7% 60.4% 58.7% 59.1% 1.3% 1.4%
Average 51.3% 52.5% 52.6% 53.3% 22.9% 23.9% 24.4% 24.7% 27.7% 31.0% 32.3% 33.6% 1.2% 1.4%
Source: Company data, Goldman Sachs Global Investment Research, Datastream
Prices in the body of the report are as on 14th Feb, 2019
15 February 2019 7
Investment thesis on ADIA
#1. Madura: Mix of affordable and aspirational offerings for the urban Indian mass
Bottomline: We expect the segment to deliver 13% sales and 20% EBITDA CAGR over
FY18-24E driven a 350bps margin expansion which will be a function of operating
leverage and reducing losses at Fast Fashion and inner-wear.
ADIA through its Madura segment is mostly exposed to the $24.8bn (as of CY18)
menswear market through its four core brands Louis Philippe, Van Heusen, Allen Solly
and Peter England (together called the Lifestyle business). The Indian apparel market like
multiple other categories in the country is still very fragmented, with a high share for
the unorganized players. The top 5 players in India have combined value share of 5%
significantly lower than most other countries.
While Madura has a presence in the kids wear segment (through Allen Solly) and
women wear (through Van Heusen) they remain a very small contributor to the segment
sales. As per Euromonitor, all 4 of Madura’s brands are within the top 10 brands in the
country and have gradually strengthened their market share over the past decade.
Exhibit 3: ADIA through its ADIA segment operates mostly in the Exhibit 4: The Indian menswear market is very fragmented
US$24.8bn menswear market 46% of the total apparel market) compared to other countries
India apparel market mix (CY2018) Top 5 cumulative market share (value, 2017)
30 27
1%
25
15% 19
1% 20 18 18
17
14 14
Childrenswear 15 13
12
38%
Apparel Accessories
10
Menswear 5 5
5
Womenswear
Hosiery 0
USA
France
Spain
India
China
UK
Indonesia
Italy
Thailand
Germany
South Korea
45%
Top 5 market share
Source: Euromonitor Source: Euromonitor
15 February 2019 8
Exhibit 5: All four of Madura’s brands are within the top 10 brands in the country...
Menswear brands size (C2018)
Woodland 99
Allen Solly 135 (0.6%)
Max 137
Levi's 151
Arrow 190
Peter England 191 (0.9%)
Van Heusen 194 (0.9%)
fbb 198
Excalibur 224
Louis Phillipe 240 (1%)
0 50 100 150 200 250 300
Retail sales, (USD,mn)
(1) Green fills represent Madura brands, (2) Numbers in parantheses indicate market share by value
Source: Euromonitor
Exhibit 6: ...and they have consistently strengthened market share

over the past decade
Madura brands’ market share (value)
1.40
1.20
Value market share
1.00
0.80
0.60
0.40
0.20
0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Louis Phillipe Peter England Van Heusen Allen Solly
Source: Euromonitor
We forecast Madura will post 13% sales CAGR (FY18-24E) driven by a combination of
12% growth in the core lifestyle brands and 18% in the other businesses (mostly
innerwear). Our 12% sales growth for the lifestyle brands for is driven by Madura’s retail
expansion strategy; we forecast it to add 1,600 new Exclusive Business Outlets (EBOs)
over the next five years compared to the 1,813 they had at the end of FY18.
While we expect Madura to open EBOs for all the brands, we expect the entry level
price point (~$12 for shirt) brand Peter England (and the newly launched Peter England
Red) to have a higher share. However, given the limited affordability of the Indian
educated urban mass consumer (which we estimate has an hourly wage of A$3.30) we
believe the brand will be aspirational for this cohort, and the price point will allow Peter
England to gather market share especially in the smaller Indian towns. Our price
15 February 2019 9
analysis indicates that a Peter England white shirt is ~14%-25% less priced than most
other established Indian brands and 40% lower than a Zara.
Exhibit 7: Madura’s four brands already have a much stronger EBO Exhibit 8: We expect Madura to open c.1600 EBOs (cumulative)
network compared to other domestic brands between FY18-24E
EBO network (FY18) Madura EBO network
4,000
Peter England 684 3,413
3,500 3,213
Louis Phillipe 298 2,988
3,000 2,738
Van Heusen 2,463
276 2,500 2,163
Allen Solly 226 1,878 1,813
2,000
Colors 141 1,500
Park Avenue 96 1,000

500
Raymonds RTW 46
0
Parx 16 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
0 100 200 300 400 500 600 700 800 Madura EBOs
Source: Company data Source: Company data
Exhibit 9: Madura brands’ EBOs are present in lesser cities compared to Indian domestic auto companies
Madura brand wise city presence through its stores (current)
3500
3000
3000
2500
2000
1650
1500
1000
500
500 315
9 14 71 74 116
0
Van V-Dot Allen Solly Louis Van Peter Royal Maruti Hero
Heusen Philippe Heusen England Enfield Honda
Women
City presence
The ADIA brands are present in more cities through MBOs
Source: Company data
15 February 2019 10
Exhibit 10: We believe there is still scope remaining for Madura to

add cities to its network using Peter England or Peter England Red
brand
India population wise cities (as per census 2011) and Peter England store
presence (current)
600
498
500
400
315
300
200
89 94
100
0
Population >0.5mn Population between Peter England presence Polulation of more than
0.25mn and 0.5mn 0.1mn
Peter England is available in more than 750+ cities as of FY18 through multi brand outlets
Source: Census, Company Data
Exhibit 11: Madura offers a wide range of price points through its four brands with Peter England being exposed to the urban Indian mass
Menswear price points **add units to Y axis**
4,000
Park Avenue
3,500
Raymond
3,000
Raymond
Zara
Zara
Raymond Arrow
2,500
Park Avenue Park Avenue
Louis Phillipe Van Heusen Raymond
Louis Phillipe
Allen Solly Van Heusen Louis Phillipe
Park Avenue Zara Allen Solly Arrow
Rs
2,000
Louis Phillipe Van Heusen Allen Solly Zara Zara
Raymond Arrow
Allen Solly Arrow Louis Phillipe
Van Heusen
1,500
Arrow Peter England US Polo
Peter England Peter England
Peter England Allen Solly
Park Avenue
1,000
Van Heusen
Peter England
500
0
White formal Black formal Black chinos Blue jeans White polo
shirt trouser t-shirt
Prices as of Feb-19 and are representative only for the brands
We also take a positive view of Madura’s recent expansion into the innerwear market
and expect it to deliver 43% sales CAGR over FY18-24E driven by a widening
distribution network. The segment is expected to deliver 100% sales growth and report
sales of Rs2bn per management in FY19. We compare our growth forecast for Madura
to industry leader PAGE when it was of similar size and expect the growth to be slightly
15 February 2019 11
slower given higher competition. However, if Madura’s performance in the women

segment or athleisure is higher than our expectations and if they can leverage their
current distribution network in a more efficient way we see upside risks to our
forecasts. On the negative side, we forecast the business to report losses at the
EBITDA level for FY19 and FY20 at-least.
Exhibit 12: We currently estimate Madura’s innerwear segment Exhibit 13: Madura has significant room to add its retail touch
sales growth to be slower than PAGE when it was of similar size points
PAGE and Madura sales growth indexed to the latter’s current size Innerwear retailers
4.5x 4.2x 500000

450,000
4.0x 450000
3.3x 400000
3.5x
3.8x
350000
3.0x
2.4x 3.1x 300000
2.5x
250000
2.0x 1.7x 2.5x
200000
1.5x 1.2x 2.0x 125,000
1.0x 150000
95,000
1.0x 1.5x 100000
53,770
35,000
0.5x 1.0x 50000 12000
0
0.0x
Madura VIP Clothing Page Industries Dollar Rupa and Lux Industries
2019E 2020E 2021E 2022E 2023E 2024E Industries company Ltd
Madura Page Retailers
For PAGE the time period ranges from FY08-13 Madura as of 3QFY19, others FY18
Source: Company data, Goldman Sachs Global Investment Research Source: Company data
In Madura, other businesses Fast Fashion (People and Forever 21) we forecast sales
growth to remains flat over the next five years. Madura’s performance with both brands
has been sub par with declining sales (except 3QFY19) and continuous loses. Madura
imports products from the international catalogue of these brands which we believe is
not well positioned for the Indian consumer.
While Madura is working on improving the collection we remain conservative on the

business’ outlook and expect flattish sales growth. However, on the positive side we
expect the segment to stop reporting losses from FY21E. If Madura is able to turn
around the brands and generate higher margins this would present an upside risk to our
estimates. For international brands we forecast sales growth CAGR of 25% (FY18-24E).
15 February 2019 12
Exhibit 14: Overall, we expect Madura to deliver 13% sales CAGR Exhibit 15: We expect 20% EBITDA CAGR to FY24E for the segment
between FY18-24E driven by gradual margin expansion due to operating leverage,
Madura sales growth by segment reducing losses in Fast Fashion and innerwear
Madura EBITDA margin
100,000 3,177 93,550 14.0%

7,117
90,000 38,933 357 11.5% 11.9%
12.0% 11.2%
80,000 9.8%
10.0% 8.8%
70,000 8.3% 8.3% 8.3%
60,000 8.0%
Rs, mn
44,688
50,000
6.0%
40,000
4.0%
30,000
20,000 2.0%
10,000 0% 43% 25%
13% 0.0%
0 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
FY18 sales Lifestyle Fast Innerwear Others FY24E sales
Fashion EBITDA margin
Numbers for each business represent our forecast for sales CAGR (FY18-24E) Source: Company data, Goldman Sachs Global Investment Research
Source: Company data, Goldman Sachs Global Investment Research
Exhibit 16: We expect losses in Fast Fashion and innerwear to Exhibit 17: ...and forecast low single digit EBITDA margins in
EBITDA break-even in FY21E innerwear from FY22-24E
Madura EBITDA mix Madura EBITDA margins for each portfolio
12,000 20.0%
We expect Fast Fashion and 13.5% 13.8%
15.0% 12.3% 12.4% 12.6% 12.9% 13.3%
10,000 innerwear business to stop
reporting losses from FY22E 10.0%
8,000 2.0% 3.4%
EBITDA (Rs,mn)
5.0% 0.3%
6,000 0.0%
-5.0%
4,000 -4.0%
-10.0%
2,000 -15.0% -10.3% -10.9%
-13.6%
0 -20.0% -17.4%
-25.0% -20.6%
(2,000) -23.9%
-30.0%
FY18 FY19e FY20e FY21e FY22e FY23e FY24e
FY18 FY19e FY20e FY21e FY22e FY23e FY24e
Lifestyle Fast Fashion Others
Lifestyle Fast Fashion Others
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
15 February 2019 13
#2. Pantaloons: Improved product offering and store expansion in low tier
cities
Bottom line: We forecast Pantaloons to deliver 14% sales and 24% EBITDA CAGR
between FY18-24E driven by a combination of 9% growth in sales area and 4% in
sales/sqft. Our EBITDA growth forecast is based on our assumption of improvement in
gross margins as Pantaloons gradually increases the share of private label products and
optimizes its operating costs. We forecast Pantaloons to deliver EBITDA margin of
10.25% in FY24E from 6% in FY18 and 8.5% in 9MFY19.
Pantaloons with its network of 302 stores (Dec-18) operates in the US$3.5bn (CY2018)
Indian department store segment which remains a very small contributor to the Indian
overall apparel and footwear market. As discussed in the Madura segment above the
apparel market in India is very fragmented with due to sizable presence of smaller
brands and informal players. We believe the current market structure is conducive for
players like Pantaloons with a wide store network and improving private label offerings
which can take market share from the smaller brands.
15 February 2019 14
Exhibit 18: Pantaloons has a pan Indian presence across 210 cities
Pantaloons store footprint
3 <2%
2-5%
1
13 5-10%
7
>10%
17
1
40 8
10 5 1
1
1
22
6 36
8 5
5 5
43
66
1 16
26
24
7
Store mix Sales mix

North 24% 18% North
29% 28%
East East
West 25% West
South 26% 21% 29% South
15 February 2019 15
Exhibit 19: Department stores in India contribute only 6% to the Exhibit 20: The Indian department store segment has seen a
apparel and footwear market gradual drop in sales/sqft over the last few years
Department store contribution (C2018) Department store annual sales/sqft (Rs)
80% 8,800 8,666

72% 8,531
70%
8,600 8,446
8,400 8,292
8,212
60% 54% 8,200 8,061
50%
50% 8,000 7,857 7,822
7,779
37% 7,800
40%
7,600 7,449
29%
30% 24% 7,400
20% 7,200
7,000
10% 6%
6,800
0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
India USA Indonesia UK China Thailand Japan
Sales/sqft (Rs)
Deparmental stores as % of apparel & footwear market
As with the industry as a whole (as shown in Ex-17), Pantaloons has also seen its annual
sales/sqft drop to Rs8,218 in FY18 from Rs8,608 in FY15 partly as a function of opening
bigger stores which were not as productive. However, Pantaloons has now decided to
open smaller stores especially as it expands into smaller cities with lower population
density and income levels. We forecast Pantaloons’ new stores will be considerably
smaller going forward (GSe: 8,500sqft, 9MFY19: 7,500sqft) which we think will improve
store efficiencies.
Our forecast of improving sales/sqft at Pantaloons is also driven by its renewed focus on
private label apparel post the appointment of the new CEO in 2018. The same was
visible during our channel checks across stores and also a significant driver of the 30%
comparable sales growth reported in 3QFY19. Pantaloons has already made progress in
improving its private label offering with the contribution improving to 62% in 9MFY19
from 55% in FY16. Pantaloons currently has 24 private labels across apparel categories
which offer affordable price points compared to peer Westside at about 20.
However, unlike Westside which offers private label footwear, cosmetics and fragrances,
Pantaloons currently does not have a similar offering, and we believe any potential
launch could have positive implications for our sales/sqft assumptions.
15 February 2019 16
Exhibit 21: We forecast Pantaloons retail area to grow by 9% CAGR Exhibit 22: However, the average store size will come down by 19%
between FY18-24E by FY24E from FY18 as Pantaloons opens smaller stores
Pantaloons retail footprint Pantaloons store size
700 6.3 7 20,000

We forecast Pantaloons to 5.9
18,000 17,164 17,791
600 add 300 stores and 2.55mn 5.5 6
5.2 16,000 15,311
sqft in retail area between 4.7
575
13,687
500 FY18-24E 5 14,000 12,823
530
4.2 12,158 11,742
11,441 11,192 10,981
485
3.8 12,000
400 4
440
3.2
2.9 10,000
390
300 2.3 3
330 8,000
275
200 2 6,000
209
4,000
163
100 1
134
2,000
0 0 0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E
Stores- LHS Retail Area (mn, sqft) RHS Size/store (sqft)
Exhibit 23: We also forecast sales/sqft growth of 3% CAGR Exhibit 24: We also forecast 145bps gross margin
between FY18-24E improvement(FY19-24E) as Pantaloons increases focus on private

Pantaloons sales/sqft label products
Pantaloons gross margin
12,000 7% 8% 45.5%
6% 10,246 45.0% 45.1%
9,719 10,043 6% 45.0% 44.8%
10,000 9,333 44.6%
8,608 8,815 44.6%
8,265 8,371 8,218 8,257 3%
4% 44.5%
8,000 2%
4%
1% 2% 44.0%
0% 43.7%
6,000
-2% 43.5%
0% 43.2%
4,000 43.0%
-2%
-4%
2,000 42.5%
-4%
42.0%
0 -6%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E FY18 FY19E FY20E FY21E FY22E FY23E FY24E
Sales/sqft (Rs)- LHS Growth- RHS Gross margin
Exhibit 25: Pantaloons’ private label offers affordable price points Exhibit 26: We forecast 420bps EBITDA margin expansion at
across categories Pantaloons from FY18-24E
Pantaloons’ private label Pantaloons EBITDA margin
2500 12.0%
10.0% 10.3%
10.0% 9.5%
2000 9.0%
8.4%
8.0% 7.6%
1500
6.0%
Rs
6.0% 4.9%
4.7%
1000
4.0%
500
2.0%
0
0.0%
Rangmanch Rangmanch Akkriti skirt Akkriti tunic Forever Glam Honey Top
Kurta Pallazo Dress FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E
Low High EBITDA margin
Prices as of Feb-19 Source: Company data, Goldman Sachs Global Investment Research
15 February 2019 17
Exhibit 27: While Pantaloons has one of the widest store network and has grown faster than some peers we believe it has potential to
improve its store productivity and margins by improving share of the private label products
India department store comparison
900 814 400 6.0

767 345
800 350
5.0
700 300 275
4.3 5.2
600 540 4.0 4.0
467 250 3.7
500 3.8
381 200 2.2 3.0
400 338
150
300 2.0
100 78 83 125
200
40 1.0
100 50
0 0 0.0
Central Westside Reliance Pantaloons Landmark Shoppers Central Landmark Shoppers Westside Pantaloons Reliance
Trends Stop Stop Trends
Sales ($,mn) Stores-LHS Area (mn, sqft)- RHS
Lifestyle 13,351
Westside 9.7%
Westside 9,980
Shoppers Stop 9,600 Central 8.7%

Pantaloons 8,218
Pantaloons 6.0%
Reliance Trends 6,306
Central 4,145 Shoppers Stop 5.9%
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Sales/sqft (Rs)
EBITDA margin
30
100% 96%
25 24 90%
22 22
80%
20 70% 63%
16
60%
15
50%
40%
10 40%
30%
5 20% 10%
10%
0
0%
Shoppers Stop Reliance Westside Pantaloons
Shoppers Stop Central Pantaloons Westside
Private labels
Priavte label contribution to sales
(1) Sales,stores, area are for FY18/CY17 (2) EBITDA margin and private label contribution for FY18, (3) number of private labels are current
Source: Company data, Goldman Sachs Global Investment Research, Euromonitor
15 February 2019 18
#3. Premium growth potential within coverage by catering to the urban mass.
Bottom line: We forecast 28% EBITDA/54% EPS CAGR potential for ADIA between
FY18-21E driven by a combination of 19% EBITDA growth for Madura and 34% for
Pantaloons. The growth potential for ADIA is significantly ahead of our coverage group at
19%/19%. We believe this growth opportunity is not priced into ADIA’s valuation with
the stock currently trading at 1.2x FY20E PEG vs the rest of coverage at 2.7x.
n We estimate that ADIA due to its retail network expansion in both Madura and
Pantaloons will be able to deliver 13% and 14% sales CAGR potential over the next
three and five years respectively. At the group level we estimate a 9.3% retail area
growth CAGR over between FY18-24E.
n Our FY18-24E EBITDA CAGR forecast of 23% is driven by a group level margin
expansion to 10.7% by FY24E from 6.5% in FY18 (6.9% in 9MFY19). While our
assumptions assume 130bps of gross margin expansion to 52.8% in FY24E from
51.5% in FY19E (52.7% in FY18), operating leverage as both Madura and Pantaloons
gather scale remains core to our thesis.
n Employee costs: We forecast 11% CAGR in employee costs (FY18-24E) slower than
our sales growth forecast of 13% and as a result as a percentage of sales it will
come down to 9.4% in FY24E from 10.8% in FY18. We believe ADIA will be able to
drive operating leverage going forward especially for employees at the head office
level for both Madura and Pantaloons. Even for the new businesses like innerwear,
Madura has already set up the back end facilities and the benefits of operating
leverage will is likely to flow through as the business ramps up going forward.
n Rent: We forecast a 12% CAGR in rent expenses but believe it will drive
approximately 110bps in EBITDA margin savings as the recent expansion in
Pantaloons in smaller towns and Madura EBOs scale up.
n Ad-spend: While we forecast ad-spend to remain high in FY19 and FY20 at around
4.4% of sales as ADIA invests in supporting its Lifestyle brand expansion in smaller
towns (especially Peter England), innerwear and the private labels in Pantaloons.
However, as these investments yield results going forward we forecast ad-spend to
come down to 4.1% of sales by FY24E.
15 February 2019 19
Exhibit 28: We forecast 13% sales CAGR potential for ADIA

ADIA sales growth
180,000
153,169
160,000 34,120
140,000
3,177
38,933 7,117
120,000
357 13%
25%
0% 43%
100,000
Rs,mn
80,000 71,814
60,000 13%
40,000
20,000
0
FY18 Sales
Other Madura
Pantaloons
Fast Fashion
Innerwear
FY24E sales
Lifestyle brands
Exhibit 29: We forecast 23% EBITDA CAGR potential... Exhibit 30: ...driven by margin expansion
ADIA EBITDA walk ADIA EBITDA margin walk
60,000 12.0% 1.0% 10.7%

43,127 10.0% 1.0% 0.7%
50,000 6,738 1.3%
8.0% 6.5% 0.2%
10,218
40,000 6.0%
14,411 4.0%
Rs,mn
30,000
2.0%
20,000 16,443 0.0%
Rent
Employee cost
Advertising
Others
Gross margin
FY18 EBITDA margin
FY24E EBITDA margin

10,000 4,683
0
FY18 Gross Profit Employee Rent Other FY24E
EBITDA cost expenses EBITDA
15 February 2019 20
Exhibit 31: While we forecast high single digit to low double digit Exhibit 32: ...we expect them to be slower than sales growth and
growth in major cost items... drive margin expansion
ADIA costs and sales CAGR ADIA costs as a % of sales
16.0% 16.0% 14.5%

13.5% 13.6% 13.5%
14.0% 14.0%
12.1%
12.0% 11.0% 10.6% 12.0% 10.8%
9.8% 9.4%
10.0% 10.0%
8.0% 8.0%
6.0% 6.0% 4.7% 4.5% 4.1%
4.0% 4.0%
2.0% 2.0%
0.0% 0.0%
Employee costs Advertising Rent Sales FY18 FY21E FY24E
FY18-24E CAGR Employee costs Rent Advertising
Exhibit 33: ADIA offers one of the highest EBITDA growth potentials Exhibit 34: but it is trading at relatively attractive valuations
within our coverage Coverage EV/EBITDA

Coverage EBITDA CAGR forecasts
35% 33% 45x 41x 42x

30%
30% 28% 40x 36x 37x
25% 35x 32x 34x
23% 30x 31x
25% 22% 22% 22% 29x 29x 29x
30x 26x 27x 27x
20% 17% 17% 24x
25x 21x
15% 15%
15% 13% 20x 17x
11% 12% 12% 12%
15x
10%
10x
5% 5x
0% 0x
UNSP
ASPN
PAGE
ITC
BRIT
DABU
JUBI
HLL
AVEU
ITC
UBBW
DABU
PAGE
UNSP
EMAM
COLG
GOCP
MRCO
NEST
COLG
UBBW
ASPN
BRIT
ADIA
TITN
MRCO
JUBI
TITN
NEST
ADIA
EMAM
GOCP
HLL
AVEU
FY18-21 EBITDA CAGR FY20 EV/EBITDA
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research, Datastream
15 February 2019 21
We value ADIA to capture the longer-term opportunity: 17% upside
We initiate ADIA with a Buy rating and a 12-month target price of Rs250 implying an
upside potential of 17%. We value ADIA using a blend of P/E (50%) and DCF (50%)
consistent with most companies under our coverage (except AVEU, ASPN, BRIT, JUBI,
UBBW, UNSP).
Our P/E based value is based on 40x (based on last 5 year average for the coverage, and
consistent with other companies under our coverage) FY21E P/E and DCF assumes a
WACC of 10.2%, a Beta of 1, and terminal growth rate of 4%.
We also conduct a reverse DCF analysis for our coverage which implies a 14% FCF
CAGR for ADIA, inline with the other Buy rated names over the next 25 years.
Exhibit 35: ADIA valuation overview
DCF assumptions Target price (Rs) calculation

NPV Stage 1 (Rs mn) 15,563 Risk free rate 6.5% 2021 EPS (Rs) 5.6
NPV Stage 2 (Rs mn) 130,742 Equity risk premium 5.5% Target multiple 40x
NPV Stage 3 (Rs mn) 84,330 Beta 1.0 P/E based value 223
EV (Rs mn) 230,634 COE 12.0% P/E based weight 50%
Less net debt (Rs mn) 16,856 COD 9.1% DCF based value 277
Equity value (Rs mn) 213,779 D/E 62% DCF based weight 50%
Shares (mn) 773 WACC 10.2% Blended target price 250
Share value (Rs) 277 Terminal Growth rate 4.0% Current price (Rs) 213
Upside/downside 17%
15 February 2019 22
Exhibit 36: We initiate ADIA with a Buy and a 12-month target price of Rs250 implying 17% upside potential
Coverage comp table. Priced as of 14th Feb, 2019
Last 12m Target Upside/ Market P/E EV/EBITDA CAGR (2018-21E) PEG
Company Name Ticker Rating Close (Rs) Price (Rs) Downside Cap ($s, mn) 2019E 2020E 2021E 2019E 2020E 2021E Sales EBITDA EPS 2019E 2020E
Avenue Supermarts Ltd. AVEU.BO Buy 1,462 1,914 31% 12,997 97x 70x 53x 55x 40x 31x 32% 30% 30% 3.3x 2.4x
Asian Paints (India) ASPN.BO Buy 1,399 1,702 22% 18,881 57x 45x 36x 35x 27x 22x 17% 23% 22% 2.6x 2.1x
Titan Co. TITN.BO Buy 1,045 1,269 21% 13,045 62x 44x 36x 42x 30x 23x 22% 33% 32% 2.0x 1.4x
Aditya Birla Fashion and Retail ADIA.BO Buy 213 250 17% 2,314 86x 51x 38x 30x 23x 18x 15% 28% 54% 1.6x 0.9x
United Spirits UNSP.BO Neutral 522 594 14% 5,335 51x 42x 36x 31x 26x 22x 10% 20% 25% 2.1x 1.7x
United Breweries Ltd. UBBW.BO Neutral 1,404 1,513 8% 5,221 58x 48x 40x 30x 25x 21x 15% 24% 33% 1.8x 1.5x
Page Industries Ltd. PAGE.BO Neutral 23,965 23,144 -3% 3,760 61x 54x 47x 40x 35x 30x 15% 17% 18% 3.4x 3.0x
Jubilant Foodworks JUBI.BO Sell 1,311 1,192 -9% 2,370 50x 51x 48x 31x 29x 27x 15% 17% 23% 2.2x 2.3x
Staples
Britannia Industries Ltd. BRIT.BO Buy 2,922 3,756 29% 9,858 59x 45x 36x 39x 30x 24x 14% 23% 25% 2.4x 1.8x
Colgate Palmolive (India) COLG.BO Buy 1,249 1,556 25% 4,780 43x 40x 35x 28x 25x 22x 10% 13% 13% 3.4x 3.1x
Emami Ltd. EMAM.BO Neutral 357 404 13% 2,278 49x 40x 29x 21x 19x 16x 10% 9% 22% 2.2x 1.8x
ITC ITC.BO Neutral 278 306 10% 47,063 28x 26x 23x 19x 17x 15x 8% 12% 9% 3.0x 2.7x
Godrej Consumer Products Ltd. GOCP.BO Neutral 681 735 8% 9,787 38x 39x 34x 32x 28x 25x 10% 12% 8% 4.8x 5.1x
Nestle India NEST.BO Neutral 10,612 11,023 4% 14,391 60x 49x 43x 39x 32x 28x 15% 21% 22% 2.7x 2.2x
Dabur India DABU.BO Neutral 440 429 -3% 10,891 50x 43x 39x 42x 36x 31x 13% 15% 14% 3.6x 3.1x
Marico MRCO.BO Sell 345 309 -10% 6,261 50x 45x 41x 34x 31x 27x 12% 12% 10% 5.1x 4.6x
Hindustan Unilever HLL.BO Sell 1,782 1,536 -14% 54,210 63x 55x 48x 46x 40x 35x 12% 15% 15% 4.3x 3.8x
Gross Margin EBITDA Margin CROCI Dividend yield

Company Name Ticker 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E 2019E 2020E
Avenue Supermarts Ltd. AVEU.BO 15.9% 14.9% 14.9% 15.0% 9.0% 8.3% 8.5% 8.7% 22.1% 21.5% 22.7% 23.3% 0.0% 0.0%
Asian Paints (India) ASPN.BO 39.2% 39.7% 40.3% 40.8% 18.5% 19.4% 20.8% 21.6% 31.0% 30.2% 33.5% 35.7% 0.9% 1.2%
Titan Co. TITN.BO 27.4% 27.9% 28.4% 28.8% 10.2% 10.9% 12.4% 13.0% 29.2% 33.0% 39.6% 40.1% 0.5% 0.6%
Aditya Birla Fashion and Retail ADIA.BO 52.7% 51.5% 52.0% 52.3% 6.5% 7.5% 8.0% 9.1% 19.9% 22.2% 23.4% 23.4% 0.0% 0.0%
United Spirits UNSP.BO 47.5% 48.5% 48.3% 49.2% 12.5% 14.4% 15.3% 16.3% 12.6% 19.5% 21.1% 22.9% 0.0% 0.0%
United Breweries Ltd. UBBW.BO 53.2% 54.1% 54.7% 55.3% 16.1% 19.1% 19.8% 20.6% 15.7% 17.8% 18.6% 19.4% 0.3% 0.4%
Page Industries Ltd. PAGE.BO 57.4% 58.1% 58.1% 58.1% 21.2% 22.5% 22.3% 22.3% 47.8% 49.4% 47.3% 46.3% 0.7% 0.8%
Jubilant Foodworks JUBI.BO 69.3% 71.2% 70.6% 70.9% 14.6% 17.6% 16.0% 15.3% 15.5% 19.1% 18.8% 18.3% 0.3% 0.4%
Average 45.3% 45.7% 45.9% 46.3% 13.6% 15.0% 15.4% 15.8% 24.2% 26.6% 28.1% 28.7% 0.3% 0.4%
Staples
Britannia Industries Ltd. BRIT.BO 38.1% 40.6% 41.2% 41.4% 15.0% 15.8% 17.7% 18.8% 37.7% 40.3% 47.8% 50.9% 0.6% 0.7%
Colgate Palmolive (India) COLG.BO 58.4% 61.4% 60.6% 60.6% 25.9% 28.4% 28.1% 28.1% 21.5% 25.3% 24.8% 24.7% 1.0% 1.1%
Emami Ltd. EMAM.BO 55.5% 54.7% 55.5% 59.7% 28.3% 28.0% 28.0% 28.0% 21.9% 21.6% 23.1% 24.2% 1.5% 1.8%
ITC ITC.BO 55.7% 60.3% 60.5% 60.8% 35.4% 38.4% 38.6% 39.2% 29.7% 30.9% 29.4% 30.2% 1.9% 2.1%
Godrej Consumer Products Ltd. GOCP.BO 56.0% 55.9% 55.2% 55.2% 20.8% 20.8% 21.1% 21.6% 20.7% 25.6% 26.7% 29.4% 1.6% 1.8%
Nestle India NEST.BO 53.2% 56.1% 56.1% 56.1% 20.7% 23.3% 24.0% 24.1% 20.8% 22.7% 23.4% 23.7% 1.3% 1.5%
Dabur India DABU.BO 48.3% 47.8% 48.1% 48.4% 20.9% 21.1% 21.6% 21.9% 18.6% 22.2% 24.1% 25.4% 0.7% 0.7%
Marico MRCO.BO 47.0% 44.9% 45.4% 46.4% 18.0% 17.3% 17.8% 18.0% 27.1% 30.1% 32.8% 35.1% 1.2% 1.3%
Hindustan Unilever HLL.BO 49.8% 50.9% 50.9% 51.2% 21.0% 22.4% 23.0% 23.0% 51.7% 60.4% 58.7% 59.1% 1.3% 1.4%
Average 51.3% 52.5% 52.6% 53.3% 22.9% 23.9% 24.4% 24.7% 27.7% 31.0% 32.3% 33.6% 1.2% 1.4%
M&A ranking
Based on our analysis which is shown in detail in a section below, we derive an M&A
rank for ADIA of 3, and hence we do not incorporate an M&A-based value in our target
price. We briefly discuss the important factor for ADIA below:
n CAN: We score ADIA ‘3’ due to M&A restrictions as the government of India
regulations do not allow for foreign companies to own multi brand retial chains in
India.
n SHOULD: We score ADIA ‘2’ due to its high valuation multiple which is partly offset
by its high growth potential.
n WOULD: We score ADIA ‘3’ for this factor. We rate management stance as ‘weak’
given it is a family-controlled business which has been involved for many years. We
also consider strategic appeal as ‘weak’ because the family and biggest owner has
not its increased stake or indicated it will increase its stake.
GS vs consensus - Our FY20/21E EBITDA estimates are 2-7% above Bloomberg

consensus due to our higher margin expectations.
15 February 2019 23
Exhibit 37: We are 2-7% ahead of Bloomberg consensus EBITDA

expectations
GS vs Bloomberg consensus
8% 7%
7%
6%
5%
GS vs consensus
4% 3%
3%
2% 2%
1%
1%
0%
-1% 0%
-1%
-2%
FY19E FY20E FY21E
Sales EBITDA
Source: Goldman Sachs Global Investment Research, Bloomberg
Global comp table

15 February 2019 24
Exhibit 38: ADIA offers much higher EPS growth potential and generates higher returns compared to our global coverage
Global comp table
Ticker Name Market Cap CAGR(C2017-20E) C2019E C2019E

USD, mn Revenues EBITDA EPS ND/EBITDA Div yield P/E EV/EBITDA
Brands
GPS Gap Inc. 9,660 3% -1% 5% -0.2x 3.9% 10.1x 10.4x
LB L Brands Inc. 7,547 3% 0% 1% 1.7x 4.8% 8.9x 8.7x
PVH PVH Corp. 8,522 5% 9% 13% 1.3x 0.1% 11.0x 12.0x
RL Ralph Lauren Corp. 9,913 2% 5% 11% -1.1x 2.1% 16.8x 12.5x
VFC VF Corp. 34,316 7% 12% 15% 0.9x 2.4% 21.0x 18.6x
HMb.ST Hennes & Mauritz 25,330 5% -1% -9% 0.5x 6.9% 20.3x 17.7x
ITX.MC Inditex 87,634 7% 7% 6% -1.4x 3.6% 20.9x 15.8x
ASOS.L ASOS Plc 3,102 18% 16% 7% 0.1x 0.0% 43.0x 16.6x
NXT.L Next 9,512 2% -1% 4% 1.3x 3.4% 11.0x 10.7x
ABF.L Associated British Foods 23,418 4% 5% 7% -0.5x 2.1% 16.5x 8.8x
9983.T Fast Retailing 45,425 9% 13% 13% -1.5x 0.9% 29.5x 15.9x
PAGE.BO Page Industries Ltd. 3,838 17% 19% 20% -0.2x 0.8% 56.1x 42.4x
Median 5% 6% 7% 0.0x 2.2% 18.6x 14.2x
Department store
BURL Burlington Stores Inc. 10,938 9% 12% 23% 0.7x 0.0% 23.4x 18.1x
KSS Kohl's Corp. 10,983 3% 2% 15% 0.9x 4.0% 11.1x 6.2x
M Macy's Inc. 7,760 1% -7% -8% 1.5x 6.0% 8.0x 5.1x
JWN Nordstrom Inc. 7,464 3% 4% 11% 0.7x 3.5% 11.8x 6.9x
ROST Ross Stores Inc. 35,073 6% 4% 11% -0.4x 1.1% 21.5x 16.1x
TJX TJX Cos. 61,522 8% 7% 15% -0.1x 1.7% 18.6x 14.5x
3086.T J. Front Retailing Co. 2,857 2% 3% 5% 2.8x 3.0% 10.2x 8.9x

8252.T Marui Group 4,910 4% 11% 15% 9.4x 3.0% 16.0x 18.9x
7453.T Ryohin Keikaku 6,408 8% 7% 8% -1.3x 1.5% 20.2x 10.8x
2670.T ABC-Mart 4,622 4% 2% 2% -2.9x 2.3% 16.9x 7.9x
8227.T Shimamura 3,056 -1% -10% -10% -4.6x 2.8% 16.1x 5.1x
Median 4% 4% 11% 0.7x 2.8% 16.1x 8.9x
ADIA.BO Aditya Birla Fashion and Retail 2,314 15% 27% 58% 2.1x 0.0% 57.0x 31.1x
Gross Margin EBITDA Margin CROCI

C2018E C2019E C202E C2018E C2019E C202E C2018E C2019E C202E
Brands
GPS Gap Inc. 38.3% 38.0% 37.8% 11.1% 10.9% 10.7%
LB L Brands Inc. 38.1% 37.7% 37.7% 15.5% 16.5% 16.9% 15.9% 15.8% 15.8%
PVH PVH Corp. 55.1% 55.3% 55.6% 13.7% 14.4% 15.0% 11.2% 11.4% 11.6%
RL Ralph Lauren Corp. 61.4% 61.8% 62.1% 15.9% 16.4% 16.9% 11.9% 12.7% 12.9%
VFC VF Corp. 51.0% 51.6% 52.3% 15.6% 16.5% 17.4%
HMb.ST Hennes & Mauritz 52.7% 52.3% 52.8% 11.9% 11.6% 11.9% 7.3% 6.9% 7.0%
ITX.MC Inditex 56.7% 56.7% 56.7% 20.9% 21.0% 20.9% 17.9% 17.8% 17.7%
ASOS.L ASOS Plc 50.6% 49.6% 49.7% 5.7% 5.0% 6.1% 28.1% 19.5% 21.8%
NXT.L Next 36.9% 36.9% 36.9% 21.4% 20.7% 20.2% 13.5% 12.7% 12.1%
ABF.L Associated British Foods 25.4% 25.6% 25.8% 12.6% 12.6% 13.1% 11.2% 10.8% 11.0%
9983.T Fast Retailing 49.1% 48.9% 49.1% 13.3% 13.5% 13.7% 15.7% 15.4% 15.8%
PAGE.BO Page Industries Ltd. 57.9% 58.1% 58.1% 22.2% 22.3% 22.3% 49.0% 48.0% 47.1%
Median 50.8% 50.6% 51.0% 14.6% 15.4% 15.9% 14.6% 14.1% 14.3%
Department store
BURL Burlington Stores Inc. 41.9% 42.2% 42.4% 11.9% 12.2% 12.5% 18.0% 17.1% 17.4%
KSS Kohl's Corp. 39.4% 39.8% 39.9% 12.1% 12.1% 12.2% 12.3% 12.3% 12.1%
M Macy's Inc. 40.7% 40.9% 40.8% 10.9% 9.7% 9.4% 12.3% 11.6% 10.9%
JWN Nordstrom Inc. 36.1% 36.1% 36.1% 9.9% 10.0% 10.1% 13.5% 13.3% 13.1%
ROST Ross Stores Inc. 28.5% 28.4% 28.5% 15.9% 15.7% 15.8% 25.4% 24.6% 24.4%
TJX TJX Cos. 28.6% 28.4% 28.4% 13.0% 13.0% 13.1% 21.7% 21.9% 21.9%
3086.T J. Front Retailing Co. 45.1% 44.3% 44.2% 12.9% 12.7% 13.1% 5.3% 4.9% 4.9%
8252.T Marui Group 72.1% 72.2% 72.6% 20.0% 21.2% 22.5% 4.0% 4.0% 4.0%
7453.T Ryohin Keikaku 51.3% 51.2% 51.4% 14.2% 14.0% 14.0% 15.1% 14.1% 14.4%
2670.T ABC-Mart 53.1% 53.3% 53.4% 18.3% 18.2% 18.1% 11.4% 11.0% 10.7%
8227.T Shimamura 32.2% 32.3% 32.6% 6.3% 6.3% 6.5% 7.9% 7.8% 7.8%
Median 40.7% 40.9% 40.8% 12.9% 12.7% 13.1% 12.3% 12.3% 12.1%
ADIA.BO Aditya Birla Fashion and Retail 51.8% 51.9% 52.2% 7.2% 7.9% 8.8% 21.7% 23.1% 23.5%
15 February 2019 25
Exhibit 39: On a reverse DCF basis ADIA is implying a 14% FCF CAGR through FY44E
Coverage reverse DCF
20%
18%
18%
Implied FY18-44E FCF CAGR based on reverse DCF

16%
16% 15%
14% 14%
14%
14% 13%
13%
12%
11% 12% 12%
12% 11%
10%
8% 8%
8%
7%
6%
4%
2%
0%
BRIT.BO
ADIA.BO
EMAM.BO
TITN.BO
UBBW.BO
PAGE.BO
HLL.BO
ITC.BO
ASPN.BO
UNSP.BO
GOCP.BO
NEST.BO
COLG.BO
MRCO.BO
JUBI.BO
DABU.BO
Green/Red fills indicate Buy/Sell rated stocks
Exhibit 40: ADIA’s CROCI generation potential is similar to grocery retailer AVEU
Coverage CROCI
Company Name CROCI

2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E
Aditya Birla Fashion and Retail 6% 9% 23% 21% 20% 22% 23% 23%
Asian Paints (India) 39% 39% 35% 34% 31% 31% 30% 33% 36%
Avenue Supermarts Ltd. 17% 20% 20% 21% 24% 22% 21% 23% 23%
Britannia Industries Ltd. 21% 33% 36% 32% 41% 37% 38% 40% 48%
Colgate Palmolive (India) 29% 25% 26% 22% 19% 22% 25% 25% 25%
Dabur India 28% 35% 30% 25% 18% 19% 22% 24% 25%
Emami Ltd. 24% 29% 39% 36% 26% 22% 22% 23% 24%
Godrej Consumer Products Ltd. 19% 15% 21% 19% 19% 21% 26% 27% 29%
Hindustan Unilever 61% 58% 47% 50% 47% 52% 60% 59% 59%
ITC 33% 31% 30% 28% 27% 30% 31% 29% 30% 1st Qtle
Jubilant Foodworks 25% 20% 18% 17% 14% 16% 19% 19% 18% 2nd Qtle
Marico 20% 21% 24% 30% 30% 27% 30% 33% 35% 3rd Qtle
Nestle India 23% 22% 13% 17% 18% 21% 23% 23% 24% 4th Qtle
Page Industries Ltd. 44% 43% 41% 47% 45% 52% 54% 52% 51%
Titan Co. 68% 37% 30% 21% 23% 29% 33% 40% 40%
United Breweries Ltd. 15% 15% 14% 16% 13% 16% 18% 19% 19%
United Spirits 7% 5% 4% 8% 14% 13% 20% 21% 23%
Average 29% 24% 22% 23% 23% 25% 28% 29% 30%
15 February 2019 26
What are the risks to our bullish view?
Risks to Madura sales growth after entry of foreign brands India: While Madura has
established brands in the Indian menswear market which offer both formal and casual
wear products there is risk of increased competition from foreign brands like Zara,
H&M, Uniqlo etc as they expand their footprint in India. However, given the relatively
affordable price points for Madura’s brands like Peter England we see limited risk to its
growth potential especially as it is currently focusing on expanding in smaller towns
compared to foreign brands setting up footprint in big cities.
Our analysis of Euromonitor data is that foreign brands (excluding the footwear)
category have not been able to build scale in India due to their relatively higher price
points which makes the brand unaffordable for the Indian mass. We also look at
performance of domestic brands in other countries and our analysis indicates that in
most markets the market leader has strengthened its position over the last decade
despite higher competition from foreign brands like Zara. For example in China,
domestic brand Heilan has been the fastest growing brand in the menswear segment
over the last decade even though brands like Zara and Uniqlo have expanded
aggressively. Heilan, like Madura has focussed on offering relatively lower price points
compared to foreign brands and has a very wide presence in smaller Chinese cities
where the foreign brands have not been able to expand rapidly.
Exhibit 41: The top domestic brand in many countries has gained Exhibit 42: Local brands like Heilan and Peacebird have delivered
market share despite competition from foreign brands strong growth in China
Top brand market share performance China menswear market sales growth by brand
2.5 2.2 40% $1.8 $1.3 $1.8 $0.4 $0.6 $0.7 $1.7 $3.9
1.9
2.0 34% 35%
35% 33%
1.5 1.1 1.2 1.2
1.0 0.6 0.6 0.7 30%
0.5 0.1 0.2 0.2
0.0 25% 23%
0.0 22%
-0.5 -0.1 20% 17%
-0.3
-1.0
15%
-1.5 11%
-2.0 10% 8%
-1.7
Brazil
Thailand
USA
Mexico
Italy
India
China
Germany
France
Indonesia
South Korea
Japan
Malaysia
Argentina
United Kingdom
5%
0%
Jack & Jones
H&M
Nike
Peacebird
Zara
adidas
Uniqlo
Heilan Home
Top brand market share gain/loss in last 10 years
Source: Euromonitor $bn number for each brands indicates sales as of CY18
Source: Euromonitor
15 February 2019 27
Exhibit 43: Heilan has a much higher market share in China Exhibit 44: Foreign brands in India do not have a significant share
compared to foreign brands in menswear
China menswear market market share India menswear market share
5.00 1.00
4.50
4.00 0.80
3.50 0.60
Value share
3.00
2.50 0.40
2.00
1.50 0.20
1.00
0.00
0.50 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Levi's United Colors of Benetton
Tommy Hilfiger Zara
Jack & Jones Heilan Home adidas Nike
Marks & Spencer Puma
Uniqlo Zara H&M

Exhibit 45: ..or womenwear

Indian womenwear market share
1.00
0.80
0.60
0.40
0.20
0.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
United Colors of Benetton Levi's

Zara Forever 21
Marks & Spencer Bodycare
Source: Euromonitor
15 February 2019 28
Exhibit 46: We believe the relatively higher price point for foreign brands will make it difficult to gain scale with the urban mass Indian
consumer
Brand prices across segments
3,500
3,000
Nike
Levi's
2,500
Adidas
Zara
2,000
Rs per SKU
Louis Phillipe
Allen Solly
Van Heusen Pepe
1,500
Arrow
Nike
Puma Peter England
Reebok
1,000 Wrangler
Adidas
Generic Prankster
Power
Reebok Radius
Lalkhani Puma Amazon
500 Jockey
Power
-
Running Gym shorts White Shirt Blue jeans
shoes
Prices as of Feb-19. Brands within the boxes are domestic.
Source: Amazon.in, Company data
Aggressive expansion from other players and online increase risk to private label
of Pantaloons: We see risk to our Pantaloons margin assumptions due to increased
competition from other department stores like Reliance which are also expanding
aggressively in smaller Indian towns and from the presence of smaller brand online.
Higher than expected competition to Pantaloons’s private label adds risk to our margin
forecasts. Although, the recent changes to e-commerce policies which prevent (a) deep
discounts being offered by online players and (b) restricts market places from running an
inventory based business mode works in favor for the brick and mortar players in India
there is limited clarity on the implementation of the same.
Any benefits from these new policies are not factored into our estimates. We run a
scenario analysis where Pantaloons’ margins remain at the FY18 level of 6% in our bear
case (9MFY19 8.5% with Q4 being a seasonally weak quarter) and Pantaloons reaching
global average department store margins of 13% in our bull case by FY24E (11% in
FY21). Our scenario analysis indicates an upside/downside potential of 31%/14% from
the current stock levels.
15 February 2019 29
Exhibit 47: Our bull/bear case assumes a Pantaloons reaching Exhibit 48: Our bull/bear case implies a 31% upside/14% downside
global average margins in FY24E and margins remaining flat at potential
FY18 levels respectively ADIA scenario analysis
Pantaloons EBITDA margin scenario
12.0% 11.0% 300

275
280
10.0% 9.0% 250
Pantaloons' EBITDA margin
260
7.6% 9.5% 240
8.0%
8.4% 220 210
6.0% 7.6%
6.0% 4.9% 200
4.7% 180
6.0% 6.0% 6.0% 6.0% 180
4.0% 4.7% 4.9% 160
140
2.0%
120
0.0% 100
FY16 FY17 FY18 FY19E FY20E FY21E Bear Case valuation CMP TP Bull Case valuation
Bear case Base case Bull case TP/value (Rs)
Source: Company data, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research, Datastream
n Risk from transactions with group companies: ADIA is a part of the Birla group
conglomerate which has other interests in cement, aluminium, telecom, financial
services. As of FY18, ADIA does not have any related party transaction with any of
the group companies but we see risk to share price performance if there were some
kind of unrelated transactions going forward. Also, as of Dec-18, the promoters of
ADIA do not have any pledged shares but if they were to pledge their stake to raise
capital, it could also become an overhang on the stock.
Exhibit 49: Overview of key financials and promoter shareholding of other listed group companies
Market Cap EV Net Debt CFO Capex FCF Promoter stake

Name Ticker USD,mn FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E Dec-18
Vodafone Idea Ltd. IDEA.BO 3,805 21,481 23,739 17,772 20,030 -199 332 -1,542 -2,231 -1,741 -1,899 26.5%*
Hindalco Industries HALC.BO 6,291 11,095 10,401 4,961 4,267 1,340 1,452 -1,009 -786 331 667 34.7%
Ultratech Cement ULTC.BO 13,302 15,464 14,868 2,492 1,891 811 928 -281 -219 530 709 61.7%
Aditya Birla Fashion and Retail ADIA.BO 2,293 2,441 2,388 206 153 97 125 -51 -50 46 75 59%
All figures in USD, mn
* Promoter stake in Vodafone Idea is Birla group stake
Source: Company data, Goldman Sachs Global Investment Research, Datastream, Bombay Stock Exchange
15 February 2019 30
Company Overview and Financials
ADIA is the fashion retail arm of the Birla Group with approximately 7mn sqft combined
retail area (FY18) and has two main segments: Madura and Pantaloons.
Exhibit 50: Madura segment (including Fast Fashion) contribute Exhibit 51: ..but being higher margin, they contribute 68% to
61% to sales... EBITDA
ADIA sales break down (FY18) ADIA EBITDA breakdown (FY18)
32%
40%
55%
68%
6%
Lifestyle brands Fast Fashion Departmental store Lifestyle brands Fast Fashion
Source: Company data Source: Company data
n Madura Fashion and Lifestyle (Madura) which deals with the four core brands mostly
involved in menswear (Louis Philippe, Van Heusen, Allen Solly and Peter England).
The four brands offer different entry level price points with a white shirt in Peter
England being available of ~$17 to a Louis Philippe at $27 with the other two in the
middle. Besides pricing, the brands are also differentiated with
Louis Philippe offering higher priced points occasion based apparel including
wedding suits etc. Under the brand Madura now also offers footwear, athwork
apparel and wedding wear for the groom.
Van Heusen brand offers branded formal wear for the urban middle including some
occasion based suits under the sub brand V-Dot. Madura has also launched
inner-wear for both men and women in the last two years under Van Heusen
Allen Solly brand is mostly exposed to casual wear and kids wear.
Peter England has been positioned as the entry level formal and casual wear brand
for the urban Indian mass.
Besides the four menswear brands, Madura also owns license to rights to foreign
brands like Ted Baker, Hackett London, Simon Carter, American Eagle and Ralph
Lauren. Madura has also got exposure to fast fashion brands like Forever 21 and
People. In FY18, Madura started expanding into the inner-wear market through the
Van Heusen brand.
15 February 2019 31
Exhibit 52: We expect Madura’s contribution from the lifestyle Exhibit 53: We expect the contribution from wholesale and retail to
brands to come down over the next few years due to higher growth come down due to faster growth in e-commerce
in innerwear Madura channel mix
Madura sales mix
100% 100%
0%
2% 90% 17% 17% 19% 21% 23%
2%
95% 4% 80%
6% 7% 70%
9% 41% 40%
90% 60% 45% 41% 43%
7%
6% 50%
97% 5%
85% 40%
30%
80% 87% 85% 20% 42% 41%
84% 84% 38% 38% 38%
10%
75% 0%
FY17 FY18 FY19E FY21E FY24E FY17 FY18 FY19E FY21E FY24E
Lifstyle Brands Fast Fashion Innerwear Others Wholesale Retail Others
Exhibit 54: We expect innerwear sales for Madura to grow at 30% Exhibit 55: We believe Madura generates around 55% gross margin
from FY19E sales level over the next five years slower than the and expect it to report only some expansion as its new expansion
33%reported by PAGE when it was the similar size get scale
Innerwear sales Madura gross and EBITDA margin
10,000 10,000
9,000 8,635 9,000 8,635
8,067 8,067
8,000 8,000
7,000 7,000
Sales (Rs,mn)
Sales (Rs,mn)
6,000 6,000
5,000 5,000
4,000 4,000
3,000 2,138 2,047 3,000 2,138 2,047
2,000 2,000
1,000 1,000
0 0
ADIA PAGE ADIA PAGE
FY19E FY24E FY19E FY24E
For PAGE FY19E and FY24E represent FY08A and FY13A respectively Source: Company data, Goldman Sachs Global Investment Research
Pantaloons is one of India’s biggest department store networks with 275 stores as of
FY18 spread across the country. Pantaloons gets approximately 90% of its sales (FY18)
through apparel (mens, women and kids combined) and has a private label contribution
of ~60%. The geographical mix for the segment is titled towards the north and the east
with sales contribution of 29% and 28% respectively (FY18). However, East India has
only 21% of Pantaloons’ stores indicating a much higher sales/store in the region
compared to other geographies.
15 February 2019 32
Exhibit 56: Pantaloons has 275 stores with a total retail area of Exhibit 57: Pantaloons generates Rs8,218/sqft in sales
3.8mn sqft (FY18) Pantaloons sales/sqft (Rs)
Pantaloons footprint
700 6.3 7.0 12,000

10,246
600 6.0 10,000 9,333
5.2
8,265 8,371 8,218 8,257
575
500 4.2 5.0
8,000
3.8
400 3.2 440 4.0
2.9 6,000
300 330 3.0
275 4,000
200 2.0
209
100 163 1.0 2,000
0 0.0 0
FY16 FY17 FY18 FY19E FY21E FY24E FY16 FY17 FY18 FY19E FY21E FY24E
Stores- LHS Sqft (mn, sqft)- RHS Sales/sqft (Rs)
Exhibit 58: We expect pantaloons’ gross margin to improve going Exhibit 59: Own brands contribute roughly 60% to sales
forward due to higher contribution from own brand sales Pantaloons sales mix (FY18)
Pantaloons margins
50.0%
45.7% 44.6% 45.2%
44.2% 43.2% 43.7%
45.0%
40.0%
35.0%
30.0% 34%
25.0% Owned
20.0% Madura
15.0% Others
9.0% 10.3% 60%
10.0% 7.6%
4.7% 4.9% 6.0%
5.0% 6%
0.0%
FY16 FY17 FY18 FY19E FY21E FY24E
EBITDA margin Gross Margin
Exhibit 60: Womenswear is the biggest contributor to sales Exhibit 61: North and East India contribute to 57% of sales
Pantaloons sales mix (FY18) Pantaloons region mix (FY18)
18%
29%
North
East
West
25% South
28%
15 February 2019 33
An overview of ADIA’s financial statements

n We expect ADIA to deliver 13% sales CAGR (FY18-24E) and with 420bps EBITDA
margin expansion we forecast EBITDA CAGR of 23%.
n While ADIA does not pay income taxes today we expect the tax holiday to end
based on management guidance and forecast a tax rate of 19.5-34% from
FY21-24E.
n ADIA, as of FY18, has gross debt and net debt of Rs17.5bn and Rs16.9bn but we
expect it to turn net cash by FY24E due to our EBITDA growth forecast.
n ADIA generates CFO almost equal to its EBITDA and we expect this to remain same
going forward
n We expect ADIA to spend ~Rs22.5bn in cumulative capex (FY19-24E) at around
4.5% of sales to fund its growth plans.
n ADIA currently does not pay any dividend to its equity shareholders and we do not
expect it to pay any dividends through FY24E due to the store expansion potential
and as it still focuses on paying down debt.

n However, given the strong cash flow generation and improving asset turns, we
forecast its CROCI to expand to 24.4% by FY24E from 19.9% in FY18.
Overview of shareholding structure
Exhibit 62: The promoter owns ~59% stake in the company and does
not have any pledged shares
ADIA shareholding pattern
100%
90%
80%
70%
60%
50%
40%
68% 73%
30% 59% 59% 59% 59%
20%
10%
0%
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Dec-18
Promoter Domestic Institutional Investors

Foreign Institutional Investors Others
Source: Bombay Stock Exchange
Exhibit 63: ADIA’s senior management has long industry experience

ADIA management overview
Name Designation Experience (years) Prior roles

- CEO of the Madura Lifestyle Business,
- President of the Madura Lifestyle Business
Ashish Dixit Managing Director, ABFRL 25
- Principal Executive Assistant to the Chairman of Aditya Birla Group
- Asian Paints, across sales, brand management, supply chain etc
- Multiple roles across the group including stints at Aditya Birla Nuvo,
Jagdish Bajaj CFO, ABFRL 28
Grasim, Ultra Tech Cement, Swiss Singapore
Vishak Kumar CEO, Madura Fashions 23 - CEO of Aditya Birla Retail
- Managing Director, Kellogg India and South Asia
Sangeeta Pendurkar CEO, Pantaloons 30 ’ Multiple positions at Coca-Cola India, HSBC Bank, Hindustan Unilever,
Novartis
15 February 2019 34
Other listed entities: The Birla group is a conglomerate and has interests across
businesses in India and abroad.
n Cement through Grasim (not covered) and Ultratech (covered by Pulkit Patni)
n Metals through Hindalco (covered by Indrajit Agarwal)
n Telecom through Vodafone Idea (covered by Manish Adukia)
n Financial services through Aditya Birla Money Limited and Aditya Birla Capital
Limited (both not covered).
15 February 2019 35
M&A rank detail
Across our global coverage, we examine stocks using an M&A framework, considering
both qualitative factors and quantitative factors (which may vary across sectors and
regions) to incorporate the potential that certain companies could be acquired. We then
assign an M&A rank as a means of scoring companies under our rated coverage from 1
to 3, with 1 representing high probability (30%-50%) of the company becoming an
acquisition target, 2 representing medium probability (15%-30%) and 3 representing low
probability (0%-15%). For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. An
M&A rank of 3 is considered immaterial and therefore does not factor into our target
price, and may or may not be discussed in research.
Qualitative factors include regulation, industry positioning, cost synergies, strategic

appeal, and management stance.
Quantitative factors include market cap, ownership, growth potential in terms of

EBITDA CAGR, and forward multiple (12M forward EV/EBITDA). Moreover, under our
M&A framework for the consumer coverage, we sort companies into three categories
that correspond to whether M&A: 1) “can” happen (based on size, ownership and
regulatory restriction); 2) “should” happen (industry positioning, growth potential,
valuation and synergy potential); or 3) “would” happen (strategic appeal, stated
management stance). We also overlay our M&A ranks to assess which companies are
most likely to be M&A targets.
For ADIA, we arrive at an overall M&A score of 3, which denotes low probability
(0%-15%) of being acquired, consistent with our regional framework of “Can”, “Should”
and “Would”. The final rank is an average of the rank for each factor as shown below:
(1) Whether M&A “can happen” based on the average rank of the three metrics below:
n Size: If a company has a market cap greater than US$10bn, then n company ranks
low (“3”), else it ranks higher (“2”).
n Ownership: If a company has a free float less than 50%, the company ranks low
(“3”), if the free float is more than 75%, it ranks high (“1”); otherwise we rank it as
“2”. This assumes that in tightly held companies, takeovers are unlikely.
n Regulation: If a company has any regulatory restrictions on M&A, we rank it low
(“3”), if not we rank it high (“1”).
(2) Whether M&A “should happen” based on the average rank for the four metrics
below:
n Industry positioning: Companies with a dominant market share in an industry with

few players rank high (“1” or “2”) while companies with moderate market share in
competitive industries rank lower (”3”).
15 February 2019 36
n Growth potential: We quartile our coverage according to our FY18-21E EBITDA

growth expectations and companies are scored according to the quartile in which
they place. A first-quartile growth company will rank high (“1”).
n Valuation: We quartile our coverage according to their 12-m EV/EBITDA multiples and
companies are scored according to the quartile in which they place. A first-quartile
valuation company, i.e. where valuation is inexpensive, will rank high (“1”).
n Cost synergies: This is a qualitative metric in which we rank companies according to
the potential synergy an acquisition could add to an acquirer from the same industry.
This metric is subjective but companies with multiple business lines rank lower as it
is more difficult to drive synergies across business lines (for exampl e, Hindustan
Unilever Ltd; HLL.BO). Similarly, for dominant players and where
upstream/downstream acquisitions are unlikely, we assume it is hard to drive further
synergy through acquisitions (for example, ITC Ltd; ITC.BO). We rank companies
with higher potential for cost synergy highly (”1” or “2”) and those for lower
potential lower (“3”)
(3) Whether M&A “would happen” based on the average rank for the two metrics
below:
n Strategic appeal: Under this factor, we rank the multinationals as high (“1”) due to
the strategic appeal for the parent in increasing their stake. Other companies that
rank high are businesses that are strong competitively and operate in a segment
with larger players (like Britannia in biscuits).
n Management stance: Companies that have seen transactions in the past, such as
Hindustan Unilever Ltd (HLL.BO) and United Spirits Ltd (UNSP.BO), rank high (“1” or
“2”). Companies in which there have been no discussions or where
managementhas denied any intention for M&A rank lower (“3”).
Based on our analysis, we derive an M&A rank for ADIA of 3, and hence we do not
incorporate an M&A-based value in our target price. We briefly discuss the important
factor for ADIA below:
n CAN: We score ADIA ‘3’ due to M&A restrictions as the government of India
regulations do not allow for foreign companies to own multi brand retail chains in
India.
n SHOULD: We score ADIA ‘2’ due to its high valuation multiple which is partly offset
by its high growth potential.
n WOULD: We score ADIA ‘3’ for this factor. We rate management stance as ‘weak’
given it is a family-controlled business which has been involved for many years. We
also consider strategic appeal as ‘weak’ because the family and biggest owner has
not its increased stake or indicated it will increase its stake.
15 February 2019 37
Appendix
Exhibit 64: ADIA income statement
Aditya Birla Fashion Retail
Standalone (Rs millions)
Y/E 3/31
Income Statement 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
Net Sales 12,851 16,612 18,507 60,346 66,330 71,814 81,578 94,758 109,124 123,319 138,202 153,169
% yoy 29% 11% 226% 10% 8% 14% 16% 15% 13% 12% 11%
Revenues from operations 12,851 16,612 18,507 60,346 66,330 71,814 81,578 94,758 109,124 123,319 138,202 153,169
yoy 29.3% 11.4% 226.1% 9.9% 8.3% 13.6% 16.2% 15.2% 13.0% 12.1% 10.8%
Purchase of stock in trade 7510.4 9,898 10,648 23,522 23,992 29,720 34,671 39,799 45,559 51,177 57,147 63,106
% of sales 58.4% 59.6% 57.5% 39.0% 36.2% 41.4% 42.5% 42.0% 41.8% 41.5% 41.4% 41.2%
Change in inventory of stock in trade 233.4 (375) (644) (2,396) 26 (2,461) (2,795) (3,247) (3,739) (4,226) (4,735) (5,248)
% of sales 1.8% -2.3% -3.5% -4.0% 0.0% -3.4% -3.4% -3.4% -3.4% -3.4% -3.4% -3.4%
Cost of raw materials consumed 2 6,399 6,370 6,735 7,651 8,887 10,234 11,565 12,961 14,365
% of sales 0.0% 10.6% 9.6% 9.4% 9.4% 9.4% 9.4% 9.4% 9.4% 9.4%
Cost of materials 7,744 9,523 10,006 27,524 30,388 33,994 39,526 45,438 52,054 58,517 65,372 72,222
Gross profit 5,108 7,090 8,502 32,822 35,942 37,820 42,052 49,320 57,070 64,802 72,830 80,947
margin 39.7% 42.7% 45.9% 54.4% 54.2% 52.7% 51.5% 52.0% 52.3% 52.5% 52.7% 52.8%
yoy 19.9% 286.1% 9.5% 5.2% 11.2% 17.3% 15.7% 13.5% 12.4% 11.1%
Employee costs 942.9 1,497 1,837 6,205 7,058 7,723 8,768 9,693 10,741 11,888 13,126 14,462
As a % of Sales 7.3% 9.0% 9.9% 10.3% 10.6% 10.8% 10.7% 10.2% 9.8% 9.6% 9.5% 9.4%
Other expenses 3503.5 5,259 5,938 22,832 24,509 25,414 27,203 32,006 36,445 40,596 45,264 50,043
As a % of Sales 27.3% 31.7% 32.1% 37.8% 37.0% 35.4% 33.3% 33.8% 33.4% 32.9% 32.8% 32.7%
EBITDA 661 334 727 3,784 4,375 4,683 6,081 7,621 9,884 12,318 14,439 16,443
margin 5.1% 2.0% 3.9% 6.3% 6.6% 6.5% 7.5% 8.0% 9.1% 10.0% 10.4% 10.7%
yoy 117.7% 420.5% 15.6% 7.0% 29.9% 25.3% 29.7% 24.6% 17.2% 13.9%
Depreciation & amortisation 544.3 1,090 1,835 3,381 2,425 2,805 2,819 3,180 3,499 3,769 4,016 4,222
As a % of Sales 4.2% 6.6% 9.9% 5.6% 3.7% 3.9% 3.5% 3.4% 3.2% 3.1% 2.9% 2.8%
EBIT 117 (756) (1,108) 403 1,950 1,878 3,261 4,441 6,385 8,549 10,423 12,221
margin 0.9% -4.6% -6.0% 0.7% 2.9% 2.6% 4.0% 4.7% 5.9% 6.9% 7.5% 8.0%
yoy 46.5% -136.4% 383.6% -3.7% 73.7% 36.2% 43.8% 33.9% 21.9% 17.3%
Other income 632.2 51 28 264 382 328 492 517 543 570 598 628
% yoy -46% 849% 45% -14% 50% 5% 5% 5% 5% 5%
Finance charges 1438 1,173 1,202 1,765 1,797 1,716 1,850 1,750 1,650 1,550 1,450 1,350
Exceptional loss/(profit) 0 0 0 0 0 0 0 0 0 0 0 0
Others 0 0 0 0 0 0 0 0 0 0 0 0
Net Profit before tax (689) (1,877) (2,281) (1,097) 535 490 1,903 3,207 5,278 7,569 9,571 11,499
Less: Current tax, FBT 0 0 0 0 0 (688) 0 0 976 2,536 3,254 3,910
Tax Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0% 0% 19% 34% 34% 34%
Exceptionals post tax 0 0 0 0 0 0 0 0 0 0 0 0
Minority and associates 0 0 0 0 0 0
PAT (689) (1,877) (2,281) (1,097) 535 1,178 1,903 3,207 4,301 5,033 6,317 7,590
Margin -5.4% -11.3% -12.3% -1.8% 0.8% 1.6% 2.3% 3.4% 3.9% 4.1% 4.6% 5.0%
Growth 21.5% -51.9% -148.7% 120.2% 61.6% 68.5% 34.1% 17.0% 25.5% 20.1%
Weighted avg diluted shares 70 93 93 773 773 773 773 773 773 773 773 773
Period end outstanding shares 70 93 93 773 773 773 773 773 773 773 773 773
EPS (diluted) (9.9) (20.2) (24.6) (1.4) 0.7 1.5 2.5 4.2 5.6 6.5 8.2 9.8
Growth
EPS (period end) (9.9) (20.2) (24.6) (1.4) 0.69 1.52 2.5 4.2 5.6 6.5 8.2 9.8
Dividend/share 0 0 0 0 0 0 0 0 0 0 0 0
Dividend distribution tax
Payout ratio
15 February 2019 38
Exhibit 65: ADIA Balance Sheet

Balance Sheet 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
Assets
Gross tangible assets 7,062 7,865 8,838 6,738 8,166 11,289 14,944 18,682 22,343 25,923 29,716 33,793
Less: Accumulated depreciation (2,366) (3,433) (5,089) (1,648) (2,454) (4,366) (7,185) (10,366) (13,864) (17,633) (21,650) (25,871)
Net Tangible assets 4,696 4,432 3,749 5,091 5,712 6,923 7,759 8,316 8,479 8,289 8,067 7,922
Gross intangible assets 11,746 12,040 12,142 18,459 19,658 19,836 19,836 19,836 19,836 19,836 19,836 19,836
Less: Accumulated ammortization (70) (71) (97) (64) (250) (478) (478) (478) (478) (478) (478) (478)
Net Intangible assets 11,677 11,969 12,045 18,395 19,408 19,359 19,359 19,359 19,359 19,359 19,359 19,359
Capital WIP (Tangible) 136 179 38 0 0 0 0 0 0 0 0 0
Non Current Investments 0 0 0 0 0 42 42 42 42 42 42 42
Long term loans and advances 626 770 816 2,026 2,721 2,556 2,556 2,556 2,556 2,556 2,556 2,556
Other non current assets 0 0 0 763 1,159 1,956 1,956 1,956 1,956 1,956 1,956 1,956
Current Assets
Cash 253 108 72 192 445 728 952 3,170 6,992 11,964 18,362 26,029
Trade Receivables 10 170 71 3,124 4,539 5,518 5,600 6,376 7,193 7,959 8,731 9,466
Inventory 3,249 3,584 4,273 14,105 14,313 16,912 17,623 20,341 23,275 26,134 29,098 32,040
ST loans and advances 119 167 264 1,374 1,266 739 739 739 739 739 739 739
Other current assets 8,060 154 97 754 796 2,606 2,606 2,606 2,606 2,606 2,606 2,606
Total current assets 11,689 4,183 4,777 19,550 21,358 26,503 27,520 33,231 40,804 49,402 59,535 70,879
Total assets 28,823 21,532 21,425 45,824 50,358 57,338 59,191 65,459 73,195 81,603 91,514 102,713
Liabilities
Short term borrrowings 9,988 5 2,981 7,993 7,607 5,705 5,705 5,705 5,705 5,705 5,705 5,705
Trade Payables 3,163 3,756 3,114 14,298 15,511 20,093 20,042 23,103 26,538 29,913 33,507 37,116
Other current liabilities 2,712 1,246 1,735 5,834 2,550 5,204 5,204 5,204 5,204 5,204 5,204 5,204
Short term provisions 28 97 156 660 859 709 709 709 709 709 709 709
Current liabilites 15,891 5,103 7,987 28,785 26,526 31,710 31,659 34,720 38,155 41,530 45,124 48,733
Long term borrowings 4,849 10,150 9,375 6,772 12,710 11,879 11,879 11,879 11,879 11,879 11,879 11,879
Deferred tax liabilities 0 0 0 0 0 0 0 0 0 0 0 0
Other long term liabilities 388 485 607 1,213 1,541 2,818 2,818 2,818 2,818 2,818 2,818 2,818
Total liabilities 21,128 15,738 17,969 36,769 40,777 46,407 46,357 49,417 52,852 56,227 59,821 63,430
Equity Share Capital 5 928 933 7,688 7,705 7,717 7,717 7,717 7,717 7,717 7,717 7,717
Preference Share Capital 5 5 0 0 0 0 0 0 0 0 0 0
Reserves and surplus 7,685 4,862 2,523 1,367 1,876 3,214 5,118 8,325 12,626 17,659 23,976 31,566
Minority Interest 0 0
Total capital and liabilities 28,823 21,532 21,425 45,824 50,358 57,338 59,191 65,459 73,195 81,603 91,514 102,713
Exhibit 66: ADIA cash flow statement

Cash Flow statement 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
Net Profit before tax after restated adj (689) (1,877) (2,281) (1,098) 535 490 1,903 3,207 5,278 7,569 9,571 11,499
Depreciation & Ammortisation 544 1,090 1,835 3,381 2,425 2,805 2,819 3,180 3,499 3,769 4,016 4,222
Finance Costs 1,438 1,173 1,202 1,765 1,797 1,669 1,850 1,750 1,650 1,550 1,450 1,350
Others (662) (34) (3) (179) (83) 237 0 0 0 0 0 0
CFO before WC changes 632 351 752 3,869 4,674 5,201 6,573 8,138 10,426 12,888 15,038 17,071
Increase/(Decrease) in payables (218) 593 (642) 1,884 958 5,510 (51) 3,060 3,435 3,375 3,594 3,610
Increase/(Decrease) in other liabilities (396) 504 68 (60) 442 609 0 0 0 0 0 0
(Increase)/ Decrease in debtors 57 (160) 292 961 (1,415) (1,050) (82) (775) (817) (767) (771) (736)
(Increase)/ Decrease in inventory 180 (335) (690) (2,603) 60 (2,600) (711) (2,718) (2,934) (2,859) (2,965) (2,941)
(Increase)/ Decrease in other assets (138) (194) (124) (924) (506) (1,710) 0 0 0 0 0 0
WC changes (516) 408 (1,096) (741) (461) 760 (844) (432) (316) (250) (142) (67)
Taxes Paid (89) (29) (15) (19) (30) (10) 0 0 (976) (2,536) (3,254) (3,910)
Cash Flow from operations 27 730 (359) 3,109 4,183 5,951 5,729 7,705 9,134 10,102 11,641 13,094
Investments sold/(purchased) (7,997) 7,940 60 0 0 (36) 0 0 0 0 0 0
Acquisitions 0 0 0 0 (1,756) 0 0 0 0 0 0 0
Divestments 0 0 0 52 219 0 0 0 0 0 0 0
Capex (300) (1,175) (1,163) (2,128) (3,031) (3,391) (3,655) (3,737) (3,662) (3,580) (3,794) (4,077)
Others 62 20 15 417 164 228 0 0 0 0 0 0
Cash flow from investment (8,234) 6,785 (1,088) (1,659) (4,404) (3,199) (3,655) (3,737) (3,662) (3,580) (3,794) (4,077)
Equity issued 0 0 0 (16) 11 12 0 0 0 0 0 0
Dividend Paid 0 0 0 0 0 0 0 0 0 0 0 0
Debt raised/(paid) 9,670 (6,802) 2,602 508 1,948 (1,832) 0 0 0 0 0 0
Finance Costs (1,243) (857) (1,191) (1,821) (1,485) (649) (1,850) (1,750) (1,650) (1,550) (1,450) (1,350)
Cash flow from finance 8,427 (7,659) 1,411 (1,330) 474 (2,469) (1,850) (1,750) (1,650) (1,550) (1,450) (1,350)
Net increase/(decrease) in cash 220 (144) (36) 120 252 283 224 2,218 3,822 4,972 6,398 7,667
Cash at the beginning of the year 253 108 72 192 445 728 952 3,170 6,992 11,964 18,362
Cash at the end of the year 108 72 192 445 728 952 3,170 6,992 11,964 18,362 26,029
15 February 2019 39
Exhibit 67: ADIA DCF overview
Rs mn FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY34E FY39E FY44E
Sales 16,612 18,507 60,346 66,330 71,814 81,578 94,758 109,124 123,319 138,202 153,169 169,373 186,869 205,705 225,924 377,934 552,214 779,201
yoy 11.4% 226.1% 9.9% 8.3% 13.6% 16.2% 15.2% 13.0% 12.1% 10.8% 10.6% 10.3% 10.1% 9.8% 8.3% 7.6% 6.8%
EBIT (756) (1,108) 403 1,950 1,878 3,261 4,441 6,385 8,549 10,423 12,221 13,768 15,471 17,339 19,382 35,068 51,377 72,691
margin -4.6% -6.0% 0.7% 2.9% 2.6% 4.0% 4.7% 5.9% 6.9% 7.5% 8.0% 8.1% 8.3% 8.4% 8.6% 9.3% 9.3% 9.3%
Tax rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18.5% 33.5% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0%
NOPLAT (756) (1,108) 403 1,950 1,878 3,261 4,441 5,204 5,685 6,879 8,066 9,087 10,211 11,443 12,792 23,145 33,909 47,976
yoy 46.5% -136.4% 383.6% -3.7% 73.7% 36.2% 17.2% 9.3% 21.0% 17.3% 12.7% 12.4% 12.1% 11.8% 9.5% 7.6% 6.9%
D&A 1,090 1,835 3,381 2,425 2,805 2,819 3,180 3,499 3,769 4,016 4,222 4,414 4,590 4,744 4,871 7,488 10,833 13,688
% of sales 6.6% 9.9% 5.6% 3.7% 3.9% 3.5% 3.4% 3.2% 3.1% 2.9% 2.8% 2.6% 2.5% 2.3% 2.2% 2.0% 2.0% 1.8%
Change in WC 408 (1,096) (741) (461) 760 (844) (432) (316) (250) (142) (67) 0 0 0 0 0 0 0
% of sales 2.5% -5.9% -1.2% -0.7% 1.1% -1.0% -0.5% -0.3% -0.2% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Capex (1,175) (1,163) (2,128) (3,031) (3,391) (3,655) (3,737) (3,662) (3,580) (3,794) (4,077) (4,508) (4,880) (5,270) (5,675) (8,359) (10,833) (13,688)
% of sales -7.1% -6.3% -3.5% -4.6% -4.7% -4.5% -3.9% -3.4% -2.9% -2.7% -2.7% -2.7% -2.6% -2.6% -2.5% -2.2% -2.0% -1.8%
Free cash flow (433) (1,532) 915 883 2,052 1,582 3,451 4,725 5,624 6,960 8,143 8,993 9,920 10,918 11,989 22,274 33,909 47,976
Exhibit 68: ADIA CROCI overview
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E
Cash flow from operating activities 27 730 (359) 3,109 4,183 5,951 5,729 7,705 9,134 10,102 11,641 13,094
(Increase)/decrease in working capital (516) 408 (1,096) (741) (461) 760 (844) (432) (316) (250) (142) (67)
Net interest income/(expense) (806) (1,121) (1,174) (1,501) (1,415) (1,388) (1,358) (1,233) (1,107) (980) (852) (722)
Marginal tax rate 0% 0% 0% 0% 0% 0% 0% 0% 19% 34% 34% 34%
Debt adjusted cash flow 1,349 1,443 1,911 5,351 6,059 6,579 7,931 9,371 10,352 11,004 12,346 13,638
yoy 32% 180% 13% 9% 21% 18% 10% 6% 12% 10%
Accounts receivable 10 170 71 3,124 4,539 5,518 5,600 6,376 7,193 7,959 8,731 9,466
Inventory 3,249 3,584 4,273 14,105 14,313 16,912 17,623 20,341 23,275 26,134 29,098 32,040
Other current assets 8,178 321 361 2,128 2,062 3,345 3,345 3,345 3,345 3,345 3,345 3,345
Gross fixed assets, PP&E 7,062 7,865 8,838 6,738 8,166 11,289 14,944 18,682 22,343 25,923 29,716 33,793
Gross intangibles 11,746 12,040 12,142 18,459 19,658 19,836 19,836 19,836 19,836 19,836 19,836 19,836
Equity method investments
Investments in securities 626 770 816 2,026 2,721 2,556 2,556 2,556 2,556 2,556 2,556 2,556
Accounts payable 3,163 3,756 3,114 14,298 15,511 20,093 20,042 23,103 26,538 29,913 33,507 37,116
Other current liabilities 2,740 1,343 1,892 6,494 3,408 5,913 5,913 5,913 5,913 5,913 5,913 5,913
Capitalized Leases
Other GCI adjustments - - - - - - - - - - - -
GCI 24,968 19,651 21,496 25,788 32,540 33,451 37,950 42,119 46,097 49,927 53,863 58,007
yoy 9% 20% 26% 3% 13% 11% 9% 8% 8% 8%
CROCI 5.4% 7.3% 9.3% 22.6% 20.8% 19.9% 22.2% 23.4% 23.5% 22.9% 23.8% 24.4%
Cash margin 10.5% 8.7% 10.3% 8.9% 9.1% 9.2% 9.7% 9.9% 9.5% 8.9% 8.9% 8.9%
Asset turns (x) - RH axis 0.5x 0.8x 0.9x 2.3x 2.0x 2.1x 2.1x 2.2x 2.4x 2.5x 2.6x 2.6x
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Prices in this report are based on the market close of February 14, 2019, unless stated
otherwise.
15 February 2019 40
Disclosure Appendix
Reg AC
We, Aditya Soman and Aditya Gupta, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject
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Coverage group(s) of stocks by primary analyst(s)
Aditya Soman: India Consumer.
India Consumer: Aditya Birla Fashion and Retail, Asian Paints (India), Avenue Supermarts Ltd., Britannia Industries Ltd., Colgate Palmolive (India), Dabur
India, Emami Ltd., Godrej Consumer Products Ltd., Hindustan Unilever, ITC, Jubilant Foodworks, Marico, Nestle India, Page Industries Ltd., Titan Co.,
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15 February 2019 41
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15 February 2019 42
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15 February 2019 | 3:47PM IST

Aditya Birla Fashion and Retail (ADIA.BO)

ADIA.BO 12m Price Target: Rs250.00 Price: Rs212.85 Upside: 17.5%

TP of Rs250 (17% upside potential). We like ADIA for its:

Robust growth at discounted multiple: ADIA’s 28% EBITDA/54%

EPS CAGR potential (FY18-21E) is ahead of our coverage at

Indian cities where (1) internet penetration is boosting brand

towns will enable it to reach more of the Urban Mass cohort.

Average capital employed 28,620.6 28,626.5 29,960.8 30,694.9

Apr-18 Jul-18 Oct-18 Jan-19

Investment thesis on ADIA 8

We value ADIA to capture the longer-term opportunity: 17% upside 22

What are the risks to our bullish view? 27

Company Overview and Financials 31

M&A rank detail 36

PM Summary: Affordable clothes, rapid expansion and attractive valuation

Madura, Fashion and Lifestyle (60% of sales in FY18, 59% in FY24)

Pantaloons (40% of sales in FY18, 41% in FY24)

We see three broad risks to our bullish thesis on ADIA

Categories Apparel and Footwear Department store

Peter England 1.8 1.2

Van Heusen 1.5 facebook followers Trends

Social Media than other brands

2190, 7mn sqft

Store network 275

298 276 226 684

Growth Potential ●ADIA:13% Sales:23% EBITDA 14% Sales

Source: Company data, Euromonitor, Goldman Sachs Global Investment Research

Gross Margin EBITDA Margin CROCI Dividend yield

Source: Company data, Goldman Sachs Global Investment Research, Datastream

Prices in the body of the report are as on 14th Feb, 2019

Investment thesis on ADIA

Top 5 market share

Source: Euromonitor Source: Euromonitor

Van Heusen 194 (0.9%)

Exhibit 6: ...and they have consistently strengthened market share

Louis Phillipe Peter England Van Heusen Allen Solly

Colors 141 1,500

Park Avenue 96 1,000

Source: Company data Source: Company data

The ADIA brands are present in more cities through MBOs

Source: Company data

Exhibit 10: We believe there is still scope remaining for Madura to

Source: Census, Company Data

Prices as of Feb-19 and are representative only for the brands

Source: Company data

slower given higher competition. However, if Madura’s performance in the women

4.5x 4.2x 500000

Madura Page Retailers

While Madura is working on improving the collection we remain conservative on the

100,000 3,177 93,550 14.0%

Store mix Sales mix

Source: Company data

80% 8,800 8,666

Source: Euromonitor Source: Euromonitor

700 6.3 7 20,000

Stores- LHS Retail Area (mn, sqft) RHS Size/store (sqft)

between FY18-24E improvement(FY19-24E) as Pantaloons increases focus on private

Sales/sqft (Rs)- LHS Growth- RHS Gross margin

Low High EBITDA margin

900 814 400 6.0

Sales ($,mn) Stores-LHS Area (mn, sqft)- RHS

Shoppers Stop 9,600 Central 8.7%