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We maintain ADD on ABFRL, with an unchanged TP of Rs100 (implied 20x Sep27E EBITDA – Exhibit 1). ABFRL’s Q2 EBITDA was impacted by a ~100bps miss on the EBITDA margin, while revenue growth of 13% was in line with expectations. The weaker EBITDA margin (down 30bps YoY) was led by higher investments in Pantaloons/TMRW, though partially offset by the better-margin performance of the Ethnic segment. The usage of balance-sheet cash (standalone) was higher at ~Rs6bn in H1; ABFRL attributed this to seasonality and expects it to normalize by the year-end. Pantaloons’ LTL growth picked up at 7% in Q2, although the format is expected to see additional marketing investments and store refurbishments in the near term. Albeit on a low base, the value format OWND and ethnic-wear brands like Tasva/Sabyasachi saw healthy 40-60% growth, along with healthy expansion plans. While ABFRL offers faster growth prospects, key triggers for the stock are growth revival in Pantaloons, multifold scale-up of Tasva/Style-up/TCNS, and working capital optimization across the Ethnic portfolio.

Early festive season drives pick-up across segments; H2 trends key monitorables Consolidated sales at Rs19.8bn rose ~13% YoY, led by 27% growth in the TMRW segment; Pantaloons/Ethnic businesses grew 6%/11%. The Ethnic portfolio (excl TCNS) delivered strong 34% YoY growth, supported by continued momentum in Tasva (+58%; LTL: 38%) and double-digit growth in designer-led brands such as Sabyasachi (60% YoY growth) and Tarun Tahiliani (15% YoY growth). The Ethnic segment’s margins also improved, with a sharp rise in TCNS’ margins (~900bps YoY). Ethnic margins expanded by ~280bps YoY, primarily led by TCNS’ profitability. OWND (Genz-focused) posted 43% YoY growth, adding 10 stores to reach 59, while Pantaloons added 6 stores and closed 8 in H1. The luxury portfolio grew 13% YoY, driven by mid-single digit LTL growth.

Festive demand boosts growth; margins impacted by higher marketing spends Pantaloons grew 6% YoY (LTL up 7%), aided by early festive demand, though floods and local disruptions in the East during Pujo curbed the growth momentum. The gross margin in the business is currently close to 50%; the management aims to inch this up to north of 50% ahead. Retail network’s profitability improved by 180bps YoY, although higher marketing spends and OWND-related losses weighed on overall margins; the reported EBITDA margin was 13.7%. The management reiterated that Pantaloons’ EBITDA margin should normalize at 15–17% over the medium term, though near-term ad spends may keep margins below the band in the interim. Pantaloons continues to invest in its repositioning through the “#SparkYourImagination” campaign, refreshed store identity, and partnership with its first-ever brand ambassador Samantha Prabhu. Consumer response to Pantaloons’ new retail identity has been highly positive. The business continues to operate with negative working capital and ~65% private label share, targeting 70–75% over time. Pantaloons closed the quarter with 403 stores, with 6 additions and 8 closures in H1, with most of the network rationalization now complete.

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