Shares of Aditya Birla Fashion and Retail (ABFRL) and Aditya Birla Lifestyle Brands Ltd (ABLBL) rallied up to 5 per cent in Tuesday’s trade after Morgan Stanley upgraded the former to ‘overweight’ while initiating coverage on the latter with a similar rating, saying it is time to take risk.
Morgan Stanley said ABFRL is at the cusp of improving fundamentals led by profitability improvement, and see opportunity for valuation re-rating. It views ABLBL as a defensive discretionary play.
Calling it a tale of two sisters, Morgan Stanley said the de-merger of ABFRL in May 2025 created two separate businesses suitable for different investment styles. They are: ABFRL, a portfolio of growth businesses offering higher growth potential, but higher execution risk, i.e., high risk, high reward; and ABLBL, a steady business with lower risk, lower reward.
“We believe Aditya Birla group’s commitment to improve fundamentals in the fashion business is in line with its focus to scale the consumer business. The de-merger resulted in ABFRL and ABLBL having their own strategic focus – profitability improvement in the case of the former and growth acceleration for the latter,” the foreign brokerage said.
Shares of ABLBL climbed 5.25 per cent to hit a high of Rs 151.20 on BSE. The ABFRL stock, on the other hand, rose 3.88 per cent to hit a high of Rs 92.34 apiece.
Morgan Stanley said the senior management for both companies have stated that the focus over the next five years will be on organically scaling existing businesses by improving top- and bottom-line growth.
“Both have also stated that they have no plans to acquire or raise further capital (excluding ABFRL subsidiary TMRW) in the next five years, which should allay market concerns on capital allocation,” it said.
ABFRL target price: Rs 131 | Upside seen: 53%
In the case of ABFRL, Morgan Stanley said it is a self-help story with management taking corrective actions to improve growth and profitability. Improvement will likely be gradual and dependent on consistent execution, noting that change in customer perception takes time.
“However, we think the worst in terms of performance is now behind us, and expect fundamentals to improve across its businesses. We think profitability improvement will precede top-line growth improvement. ABFRL is also a good play on India’s fast-growing luxury market via its designer-led ethnic and luxury businesses. Overall, we forecast ABFRL to deliver 14 per cent revenue and 27 per cent Ebitda CAGRs, F27-28e, and think it is well capitalized to fund its growth plans,” Morgan Stanley said.
Given its track record, the brokerage believes investors have limited confidence on the stock, as 80 per cent of sell-side have UW/EW ratings.
“At 10x F27e EV/Ebitda, we think risk-reward is attractive, with opportunity for valuation re-rating should ABFRL’s performance improve (our base case) and upside potential if it delivers on its stated target (our bull case),” it said.
ABLBL | Target price: Rs 175 | Upside seen: 23%
In the case of ABLBL, the company is seen as having a good mix of core lifestyle brands and younger brands (especially Reebok) that offer upside potential to growth. Overall, Morgan Stanley expect it to deliver a 10 per cent revenue CAGR, F25-28e, with gradual improvement in its margins and return profile. The stock trades at 13 times F27e EV/ Ebitda, with opportunity for multiple expansion upon consistent execution delivery.