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Weak sales performance on expected line, headwinds expected to remain till festive season

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ABFRL reported an in‐line performance for 4Q with strong cost controls leading to a margin expansion, but that was still not enough to get the company into profits. The fact that the company was not able to cross 4QFY20 sales was a bit disappointing. Given the ongoing uncertainties on the timing of markets reopening, 1HFY22 will remain weak which will put further pressure on the P&L.

Debt levels can again increase given continued investments in ethnic wear, footprint expansion in both Madura and Pantaloons in addition to an increase in inventory levels. Key positives include reasonable valuations and the fact that the company is well placed for strong market share gains once the markets normalize given it is utilizing its strong balance sheet to ramp up its online and offline presence during this soft period. Overall, we expect the stock to remain range bound for now till demand trends start recovering around the festive season.

Topline growth – 4QFY21 sales almost similar to last year, down 1%, strong sales in smaller cities, best ever e‐com performance with 2x growth, innerwear growth of 36%, ethnic portfolio up 165% given footprint expansion.

Margin performance – EBITDA growth of 51% yoy with 480bps margin expansion to 13.9% given strong recovery in sales coupled with slower restoration of costs, innerwear and other businesses turned EBITDA positive; Net comparable loss down to Rs 87crs vs Rs 147crs yoy.

Future investments – More than 400 stores opened in FY21 coupled with store rationalization via closure of 250 stores, footprint scale‐up in small towns, more focus on casual and active wear, closure of Rs 520cr worth deals with Sabyasachi and Tarun Tahiliani.

Debt reduction – Debt reduced from Rs 2511crs in FY20 to Rs 654crs given combination of OCF generation and equity infusion of Rs 1750crs.

Lifestyle brands – Revenue down 6% yoy with retail channel revenue up 8% yoy, wholesale sales down 40%, 28% growth in e‐Com channel, EBITDA margins of 17.5% up 220bps yoy; focus on casualwear (55% of revenue), eCom acceleration, product innovation, added 100 stores in 4Q.

Pantaloons – Revenue down 5% yoy, EBITDA growth of 54% with margin reaching 14.5% up 560bps led by cost reduction initiatives, eCom growth of 3x, plan to open 60 stores in FY22.

Innerwear – Overall growth of 36% yoy, Active athleisure grew 56%, added 5500 MBOs to 28000 MBOs and 47 EBOs.

Ethnic wear ‐ Jeypore up 71% led by e‐Com sales and portfolio expansion; Shantanu & Nikhil revenue up 12%, aggressively working on ramping up Sabyasachi and Tarun Tahiliani.  

Outlook – Only 419/3212 stores operational as of now, expect a gradual pickup post 1QFY22 with normalization to take some more time, focused on stepping up e‐ commerce play, driving higher casualization of brands, continued footprint expansion for fulfilling long term growth aspirations.

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