IGI Logo

ABFRL’s 2QFY24 earnings were weak overall. Revenue was lower vs our subdued expectation on account of c.6-7% decline in Core Lifestyle Brands and Pantaloons’ revenue – weaker wedding calendar, shift in festive dates and continued slowdown in value segment. On the positive side, newer ventures, viz. Ethnic, D2C, Fast Fashion did quite well with reasonably well-controlled losses. EBITDA delivery in 2Q was mostly inline despite the lower revenue helped by Madura segment – margin-beat in Brands business (+360bps vs LY) and lowerthan-expected losses in the newer ventures. Pantaloons is still a big disappointment. Outlook for 3Q sounded cautious with sales during some of the regional festivals staying flattish to marginally higher vs last year; revival is better in wedding-related segments. We expect the stock to stay lacklustre for some time to come; the continuous WIP nature of the portfolio is not of great help either.

* Core Lifestyle brands and Pantaloons’ growth were disappointing: ABFRL’s consolidated sales grew 4.9% to INR 32.3bn, c.3-4% below our expectation, due to a c.3% miss in Pantaloon sales and even higher miss of 6-7% in the Madura brands business. The latter declined 5.5% yoy (vs JMFe +1%) due to a weaker wedding calendar (c.20-25% of revenue from suits and blazers during relevant season) and a much later festive season this year. Amongst newer ventures, Ethnic and Youth Western Wear grew >30% driven by aggressive retail expansion; Tmrw’s growth is M&A-led. Innerwear was flattish while Athleisure declined (significant category slowdown). Pantaloons’ performance remained weak - revenue fell 6.6% despite 11% higher store-count - in part due to shift in East India festivals to 3Q; the non-affected regions grew 7% during the quarter. The format also continued to be impacted by the slowdown being seen in the lower-tiered markets; in our view, though, there is also an issue of lower-than-desired execution finesse in this business. On profitability, Madura segment’s EBITDA surprised positively helped by stronger margin delivery in Lifestyle Brands (c.150bps expansion in gross margin plus costs control), lower losses in Ethnic and ‘Others’ businesses. The better profit delivery in Madura was, however, entirely offset by a c.42% decline in Pantaloons EBITDA (200- 250bps decline in gross margin plus scale deleverage). We reckon that Pantaloons would have been EBITDA-negative on intrinsic basis, i.e. after absorbing full costs of rentals.

* Improved operational performance in Madura & Ethnic business was offset by further weakness in Pantaloons: 1) Core Madura Lifestyle brands’ revenue declined by 5.5% yoy. Both EBO (LTL sales down 12%) and E-commerce sales declined. Notwithstanding lower sales, the business’ reported EBITDA margin still expanded 360bps yoy to c.21% - much better vs recent past helped by benign input costs, better channel mix and costs-savings. 2) Pantaloons’ revenue declined 6.6% (LTL sales down 15%) with sales per sq ft down c.20% vs four-year ago level. Ex of festive days shift impact, the non-East regions grew c.7%, as per management. Reported EBITDA margin was 600bps lower yoy - a function of lower gross margin (inventories built up during 2H LY were liquidated through higher discounts in EOSS resulting in c.200-250bps margin dilution) and scale deleverage. 3) Ethnic performance was better than expected with sales growth of 32% and lower losses on both yoy & qoq basis. 4) D2C losses for the quarter were INR 390mn – not a very big spike vs 1Q’s INR340mn.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361