IGI Logo

We maintain ADD on ABFRL, albeit reducing our DCF-based TP by ~13% to Rs70 (vs Rs80 earlier; Exhibit 1). ABFRL’s topline growth of 10.6% in 1Q was led by ~30% growth in the Luxury segment (~10% of sales); TMRW/Pantaloons (~60% of sales) grew in line at 10-11%, while the ethnic portfolio (~30% of sales) grew slower at 4%. The key reasons behind the TP cut are growth moderation for Pantaloons in 1Q (4% LTL vs ~7% in 2HFY26) and a slower start for the Ethnic/D2C segments in 1Q (vs 20-30% expectations). However, ABFRL expects growth to recover strongly in the rest of FY27—the ethnic portfolio was impacted by lower weddings/subdued international travel, Pantaloons saw abrupt moderation in Jun-26, and there was a mismatch between primary and secondary growth in TMRW (D2C). While ABFRL maintained its outlook of 20- 25% growth for Ethnic/TMRW and high-single-digit LFL for Pantaloons in FY27, we prefer to remain conservative. On margins, Pantaloons’s gross margin may come under pressure in the rest of FY27, as only ~50% of the 4% RM inflation has been passed on to consumers. Standalone gross cash stood at ~Rs10bn at 1Q-end, and ABFRL expects cash utilization of ~Rs5bn each in FY27/FY28, after which it expects to turn FCF-positive. TMRW has recently raised ~Rs5bn, which will suffice for its growth expectations.

Slow start across segments; growth investments weigh on EBITDA margins

Consolidated revenue at Rs20.2bn rose ~11% yoy. The Luxury/TMWR/Pantaloons segments saw 30%/11%/10% yoy growth, respectively. While Ethnic business growth was lower at ~4% yoy; excluding TCNS, though, the ethnic portfolio grew ~14% yoy. In Pantaloons, 10% growth was led by 7% growth in the core Pantaloons format (4% LTL) and 55% growth in ‘OWND’. No net new stores were opened in Pantaloons, while 9 new OWND stores were added. ABFRL expects to add 20 gross stores for Pantaloons in FY27. The Luxury segment reported robust 30% yoy growth, led by double-digit LTL for TCMB and scale-up of Galleries Lafayette. Pantaloons EBITDA margin, at 15.9%, was down ~120bps, largely due to growth investment in OWND, while consolidated EBITDA margin, at 5.9%, was down ~30bps yoy. APAT loss at Rs2.15bn was slightly lower than the expectation of Rs2.3bn loss.

Expects ethnic portfolio to clock >20% growth; TMRW to turn profitable by FY30

The ethnic portfolio grew slower at ~4% in 1Q, impacted by lower wedding days and subdued international travel, although ABFRL remains confident of >20% growth in FY27, indicating a strong recovery as the demand environment normalizes. Within Ethnic, the designer portfolio brands are already profitable, while TCNS and Tasva remain the key drag on profitability. TMRW delivered ~11% growth (primary), while secondary growth was faster at ~16% yoy. ABFRL expects the portfolio to grow >20% in FY27. TMRW cash losses narrowed in 1Q, and ABFRL expects brand-level cash profitability in the next 12- 18 months, and the overall TMRW portfolio to turn profitable by FY30. The segment’s profitability is likely to improve through scale-led operating leverage, better brand-level gross margins driven by premiumization and price increases, and tighter cost efficiencies

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354