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Aditya Birla Fashion and Retail Ltd. (ABFRL) reported a challenging Q2FY25, where slower revenue growth impacted its overall performance, largely due to lower demand in lifestyle brands and subdued discretionary spending. Despite the muted revenue growth, ABFRL demonstrated a strong focus on profitability improvements, particularly within its Pantaloons and ethnic portfolio segments. The company recorded revenue growth of 13% YoY, primarily driven by inorganic growth through acquisitions like TCNS and expanding newer portfolio brands. We maintain HOLD recommendation with a revised target price of INR 330.

Performance Across Key Segments:

* Pantaloons:

Saw a 3% YoY revenue growth and recorded a notable improvement in EBITDA margin by 560 bps YoY to 15%, mainly from improved inventory management, markdown reductions, and closure of unviable stores.

* Ethnic and Newer Segments:

Ethnic businesses, especially brands like Tasva and TCNS, grew significantly with a robust YoY growth rate of 215% in the segment, supported by higher retail productivity and targeted expansion. TMRW also performed well, with revenue growing by 105% YoY.

* Lifestyle Brands:

Lifestyle brands underperformed, showing only a 3% YoY growth, impacted by lower off-take in the wholesale channel due to demand softness in smaller markets.

Outlook and Strategic Initiatives:

* ABFRL is focused on consolidating unprofitable stores and is maintaining a cautious approach towards store expansion in H2FY25. The company plans to add around 100 stores in highdemand urban locations while closely monitoring the performance of new stores in lifestyle and ethnic brands. Management expects demand to pick up during the festive season, supported by the wedding calendar in H2FY25.

* ABFRL's portfolio expansion in previous years positions it well for long-term growth, though scaling profitability in its newer segments, such as ethnic and digital-first brands, remains a priority. Management is optimistic about leveraging the demerger process to unlock shareholder value, with completion anticipated by the end of FY25.

Future Outlook and Valuation :

The management remains cautious about store expansion due to the subdued demand with environment and given the limited upside at current valuations, We maintain HOLD recommendation with a revised target price of INR 330.

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