Company Update : Aditya Birla Fashion and Retail Ltd By Motilal Oswal Financial Services Ltd
Muted revenue growth, GM expansion driven beat
* ABFRL’s consol. revenue grew 3% YoY (in line) to INR43.1b, driven by growth in the ethnic and TMRW portfolio.
* Lifestyle revenue remained flat YoY (2% miss) as 12% LTL growth in the retail channel was offset by weaker primary sales in wholesale and other channels.
* Pantaloons revenue declined ~2% YoY due to the shift in festive dates (Pujo in 2Q) and continued store closures.
* Ethnic revenue grew 7% YoY, driven by robust growth in designer-led brands amid strong festive and wedding seasons.
* TMRW revenue surged 26% YoY.
* Gross profit grew 6% YoY to INR25.1b (2% beat) as margins expanded ~170bp YoY to 58.2% (120bp beat).
* EBITDA rose 15% YoY (11% beat) to INR6.3b, led by higher gross margin.
* EBITDA margin expanded ~150bp YoY to 14.8% (~150bp beat).
* Margin expansion was broad-based across Lifestyle, Pantaloons, and Ethnic segments.
* D&A was up 6.4% YoY, while finance cost increased 1% YoY.
* However, ABFRL continued to report a net loss, with a reported loss of INR0.4b (though better than INR1.1b loss YoY and our estimate of ~INR1b loss).
* Recently, ABFRL successfully raised USD490m through QIP and preference issuance to the promoter and Fidelity group, resulting in the complete deleveraging of the company.
* Management indicated that the de-merger process is nearing completion with the final NCLT court hearing scheduled for March.
Segmental split:
* Proposed ABLBL (Lifestyle, Reebok, others) –
* Revenue was up 1% YoY (vs. 4% YoY in 2Q) as improved retail LTL growth in Lifestyle brands was offset by weaker primary sales in wholesale and other channels.
* However, EBITDA grew 7% YoY (vs. 3% YoY decline in 2Q) as margin expanded ~90bp YoY, driven by a 40bp YoY margin expansion in Lifestyle brands and lower losses in other businesses.
* Lifestyle:
* Revenue was flat YoY (vs. +3% YoY in 2Q) at INR18.2b (42% of consol revenue) as robust 12% LTL growth in retail channels was offset by lower primary sales in the wholesale & e-commerce channels.
* Retail channel sales were up 11% YoY (+3% YoY in 2Q) to INR10.7b, driven by ~12% LTL growth, as productivity improvement (SPSF up ~14% YoY) was offset by unprofitable store closures (store count declined 6% YoY).
* ABLBL closed net 36 lifestyle brand stores during the quarter, bringing the total store count to 2,533. However, management plans to open ~300 stores in the next 12 months across the ABLBL portfolio.
* The wholesale channel declined ~13% YoY (vs. -11% YoY in 2Q) to INR2.9b due to lower primary sales.
* Other channels (e-com, exports) also declined ~11% YoY (vs ~18% YoY growth in 2Q) to INR4.5b.
* EBITDA grew 2% YoY to INR3.6b as margin expanded ~40bp YoY to 19.6%, led by a better channel mix, tighter cost control, and inventory management.
* Other Business (Reebok, Innerwear, American Eagle):
* Revenue grew 5% YoY (vs. 7% YoY in 2Q) to INR3.3b (~8% of consol revenue).
* Reebok continued its growth momentum with double-digit sales growth, while Van Heusen innerwear grew for the second consecutive quarter.
* Operating loss stood at INR10m (vs. INR170m operating loss YoY).
* ABFRL demerged (Pantaloons, Ethnic, TMRW, Others) –
* Revenue was up 3% YoY as the revenue decline in Pantaloons was offset by robust growth in TMRW, Ethnic, and Luxury Retail.
* EBITDA was up 25% YoY, led by a broad-based improvement in profitability across Pantaloons, Ethnic, and Luxury Retail segments.
* Pantaloons (including Style Up):
* Revenue declined ~2% YoY to INR13b (~30% of consol revenue) due to weaker L2L in East (shift in Pujo dates).
* ABFRL added four Style Up stores, bringing the total store count to 39 stores, while five Pantaloons stores were closed during 3Q (40+ store closures in the last 12 months).
* EBITDA grew 8% YoY to INR2.5b as margin expanded 180bp YoY to 19.3%, driven by gross margin expansions.
* Ethnic wear segment: Robust growth with significant profitability improvement
* Revenue grew 7% YoY to INR5.9b (~14% of consol revenue), led by strong growth in the wedding and festive period.
* TCNS revenue declined 20%+ YoY due to network consolidation (100+ store closures in the last 12 months) and a focus on profitable partners. Retail LTL grew ~6%, while TCNS’ EBITDA remained positive for the second successive quarter.
* Tasva revenue grew 50% YoY (18% retail LTL) and ended the quarter with 67 stores (one net store addition QoQ). Tasva posted positive EBITDA in 3Q.
* Jaypore sales were up 14% YoY, led by network expansions and higher realizations.
* Masaba sales doubled YoY and ended the quarter with 19 stores (two net additions in 3Q).
* S&N posted 24% YoY growth and ended the quarter with 20 stores (flat QoQ).
* The segment reported a sharp 2.7x YoY jump in EBITDA with margins expanding ~1160bp YoY to 19.2%, led by strong profitability in designer wear brands and narrowing losses in Tasva and TCNS.
* TMRW revenue grew 26% YoY, though operating loss surged to INR620b (vs. INR490b YoY). According to the company, TMRW’s Annual Run Rate (ARR) now stands at INR10b.
* Luxury Retail grew 13% YoY, driven by 10% LTL growth and 10% YoY growth in e-commerce channels.
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