Morgan Stanley has turned upbeat on two key Aditya Birla Group retail companies, upgrading Aditya Birla Fashion and Retail Ltd (ABFRL) to “Overweight” and initiating coverage on Aditya Birla Lifestyle Brands Ltd (ABLBL) with the same rating. The global brokerage believes both businesses are now well-positioned for a valuation re-rating as fundamentals begin to improve.

According to Morgan Stanley, the demerger of ABFRL in May 2025 has created two distinct businesses catering to different investor preferences. ABFRL offers a portfolio of growth-oriented businesses with higher execution risks — a classic “high risk, high reward” opportunity — whereas ABLBL represents a steady and relatively lower-risk play on India’s lifestyle and apparel consumption trends, said the brokerage.

ABFRL: A Turnaround Play with Improving Fundamentals

Calling ABFRL an “anti-consensus self-help story,” Morgan Stanley upgraded the stock to “Overweight” with a price target of ₹131, implying a potential upside of 44 percent. The brokerage said the company is on the cusp of a fundamental turnaround, driven primarily by profitability improvement, which could trigger a re-rating.

Morgan Stanley highlighted that ABFRL’s portfolio spans mass-market retail, premium ethnic wear, and designer-led luxury brands, with Pantaloons contributing nearly 59 percent of revenues. The brokerage believes profitability improvement will come before top-line growth accelerates, supported by better markdown management and operational efficiencies.

“We believe the worst is behind ABFRL. Management has taken corrective actions to improve growth and profitability, and we expect gradual execution to bear fruit over the next few years,” Morgan Stanley said, adding that the company offers attractive risk-reward at 10x F27 enterprise value to EBITDA.

The brokerage forecasts 14 percent revenue and 27 percent EBITDA growth between FY27 and FY28, supported by organic expansion and a well-capitalised balance sheet.

ABLBL: A Steady Growth and Margin Expansion Story

Morgan Stanley also initiated coverage of ABLBL with an “Overweight” rating and a price target of ₹175, suggesting a 20 percent upside from current levels. The brokerage called the company a “defensive discretionary play” with strong core brands such as Louis Philippe, Van Heusen, Allen Solly, and Peter England, complemented by growth brands like Reebok and American Eagle.

The brokerage expects ABLBL to deliver 10 percent revenue CAGR between FY25 and FY28 with gradual margin expansion, paving the way for improved return ratios. Currently trading at 13x F27e EV/EBITDA, Morgan Stanley sees room for multiple expansion if the company continues to deliver consistent execution.

Recent Earnings Snapshot

ABLBL reported Q1 FY26 profit of ₹24.06 crore, up from ₹22.93 crore a year ago, on revenue of ₹1,840.58 crore. Lifestyle brands — which account for 85 percent of its business — grew 6 percent year-on-year, though e-commerce sales dipped 19 percent.

ABFRL, meanwhile, posted a net loss of ₹161 crore despite 7 percent revenue growth to ₹3,428 crore. Its Pantaloons division delivered ₹1,101 crore in sales, with EBITDA surging 43 percent year-on-year, supported by improved markdown efficiency.

Stock Price Trends

ABFRL shares have fallen 23 percent over the last 12 months, but have started to recover, rising 15.5 percent in the last three months.

ABLBL, which was listed in June 2025 at ₹281 per share, has shed 48 percent from its IPO price. However, the stock has shown signs of stabilisation, gaining 7 percent in September after consecutive declines in July and August.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.