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Execution on guided lines can drive a significant re-rating

We retain ADD on the de-merged ABFRL with TP of Rs100 (23x Jun-27E EBITDA; ex TMRW). ABFRL offers a ~20% decadal growth opportunity with annual margin gain of ~100bps on average, per the Investor Day outlook. The company has also provided comfort on no further rounds of M&A and on further capital raise. In our view, the management guidance offers significant re-rating scope, though we prefer to wait for execution on key drivers before turning constructive on the stock. Although our estimates largely build-in this guidance, we remain conservative on the TP multiple. Monitorables include a multifold scale-up of Style Up (3-Yr target: 250 store additions), Tasva (5-Yr target: ~200 additions), designer brands (~25% CAGR), luxury retail (Galeries Lafayette), and margin turnaround in Pantaloons/TCNS. ABFRL reported a strong EBITDA performance in Q4, with topline beating our estimate by ~2% along with a ~350bps beat on our margin, aided by ~500/700bps margin gains in Pantaloons/Ethnic. ABFRL highlighted that Pantaloons has made structural changes (better product, fresh mix) and that the overall entity (ex TMRW) should be profitable in FY26, with segment-wise profitability in FY27. Near-term capex is expected to remain in the Rs4-5bn range.

Underlying demand still weak; Q4 sees healthy margin gains across formats

Consol sales at Rs17.0bn were up 9%, led by 19%/26% growth in the Ethnic/TMRW segments and offset by muted growth in Pantaloons (down 1%). The Ethnic portfolio (exTCNS) posted a robust 45% YoY growth in Q4, led by ~50% growth in Tasva (12% LTL) and strong continued traction in designer-led brands (ex-Sabyasachi). While the company’s wedding-related portfolio should see a pick-up in Q1FY26TD (higher number of wedding days), the underlying demand trends remain sluggish, as of now. Pantaloons reported 1% revenue decline in Q4 (SSG down 1.6%), impacted by closure of over 50 stores in the last 15 months. Adjusted EBITDA for Q4 doubled, led by a broad-based margin gain (~550/200bps in Q4/FY25). Among major segments, Ethnic/Pantaloons saw ~700/500bps margin gains in Q4. The Pantaloons EBITDA margin gain is structural, mainly led by lower markdown, improved private label share, disciplined cost optimization efforts, and some gain contributed by 50 store closures over the last 15 months. Pantaloons added 6 new stores this quarter (closed 13). ABFRL saw 7 Style Up store adds in Q4, with another 40-50 adds expected in FY26.

Pantaloons delivers margin-led growth despite macro softness and store rationalization

EBITDA margin improved for the sixth straight quarter, reaching 15.1% in Q4 and 16.9% for the full year. Key drivers included a better private label mix, markdown control, and strong execution. Around 50 underperforming stores were closed in the last 15M; FY26 will see 15-20 new stores, largely in metros, mini-metros, and tier-1 cities. ABFRL sees scope of ~300bps margin expansion in Pantaloons over the medium term.

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