Aditya Birla Fashion and Retail Limited (ABFRL) is one of India’s leading fashion and lifestyle companies, housing a diverse portfolio of iconic brands across premium, luxury, and value segments. The company owns brands such as Allen Solly, Peter England, Louis Philippe,
Pantaloons, Van Heusen etc.
In its Q3 FY25 earnings conference call held on January 22, 2025, ABFRL’s management provided insights into the company’s financial performance, growth strategies, and market outlook. This article summarizes the major takeaways from the session, offering a deeper understanding of ABFRL’s business trajectory and future initiatives.
Let’s dive into the details
The macro environment
The management started the conference with the macro environment.
The overall consumption remains subdued this quarter as well with periods of high to moderate consumption. While the festive and wedding season witnessed robust demand, other periods experienced inconsistent footfalls.
In this weak demand scenario, the management is focused on driving better efficiencies in operations, leveraging its existing asset base and deploying capital strategically.
The company have been executing this agenda by rationalizing its distribution to prune less productive channels, tightening inventory management, strengthening high-value partnerships, reducing operating costs and strategically aligning the product portfolio in line with consumer relevance.
Update on key corporate actions
the demerger of western wear brands business into a separate entity, that is Aditya Birla Lifestyle Brands Limited, or ABLBL, is progressing well and set for completion within the next 2, 3 months. The NCLT hearing is scheduled in third week of March 2025.
the company has successfully secured USD 490 million equity capital through a mix of QIP and preferential issue. The fundraise within demerged ABFRL will strengthen its balance sheet by making it debt-free and leaving enough cash in the books to take care of the growth needs of its businesses until they become self-sustainable.
Final performance
– consolidated revenue of INR4,305 crores, a growth of 3% over same quarter last year
– Consolidated EBITDA stood at INR683 crores, growing 13% Y-o-Y in absolute terms, with 15.9% margin as against 14.5% margin in Q3 last year
-Consolidated PAT stood at a loss of INR42 crores for the quarter against a loss of INR108 crores in same quarter last year
Debt reduction
The total net debt of consolidated ABFRL at the end of January 2025 stood at approximately INR1,800 crores after receiving INR1,860 crores of QIP money.
This will further come down post receipt of preferential issue of INR2,379 crores.
The company expect ABLBL to start the next year with opening debt of INR700 crores, whereas demerged ABFRL will have a likely cash balance of approximately INR1,300 crores.
Brand wise performance and key updates
As on 31st December 2024, The companies store network stands at 4,492 stores, spanning across a total retail area of 11.9 million square feet.
Pantaloons has been a driving premiumization strategy where it has consciously moved away from the overcrowded value retailing space. It has exited over 40 stores in the past 12 months, mostly in Tier 2 and smaller markets
- Excluding the East zone, Pantaloons recorded a positive LTL growth of 2.5%. At an overall level, the LTL was negative 2.5%.
- On profitability front, the segment reported an EBITDA margin of 19.3%, reflecting an improvement of over 170 basis points Y-o-Y
Style Up continues to expand its retail footprint and now operates across 39 stores. The brand has also diversified its product portfolio by introducing newer categories to constantly improve its consumer proposition.
Ethnic business: the portfolio of Ethnic brands is the largest and most comprehensive portfolio in the industry and has consistently driven growth for ABFRL by maintaining double-digit growth over the past few quarters.
Luxury Retail, the Collective & Mono brands grew by 13% in Q3 FY ’25, led by a strong LTL of 10% and robust e-commerce performance.
Similarly, The digital brand portfolios under TMRW posted a growth of 26% in sales year-on-year with an improvement in margin.
The overall portfolio posted a revenue of INR588 crores, a growth of 7% Y-o-Y. While TCNS is still going through a distribution rationalization to focus on profitable channels, which led to its de-growth for rest of the portfolio, excluding TCNS, the growth has been 39%, highlighting strong momentum across the brands.
Question and answer session highlights
How the brand maintains its margin in this quarter despite weak macro?
According to management the biggest drain in ABFRL’s business on margins is the discounting. And as the company keep getting better and better at tightening discounting, getting into more and more of channel mix play, et cetera, which drives for reduced discounting, they think the stronger the business keeps getting.
Whether performance will continue for this calendar year as well?
Yes. all the fundamentals are very strong and in place. After the first quarter, it has been a steady improvement pace. So, we should expect the momentum to continue. The company is consolidating its retail network. So, some of the margin draining retail stores have been taken off. So, the company think, yes, the quarters ahead fundamentally look strong.
40 store closures in the last 12 months, is the consolidation phase over for Pantaloons?
The company closed about 40 stores in the last 1 year. There are a few more closures in this quarter. And for next year, the management will review based on performance and
the market conditions.
The company is closing stores on one front and on anther it is going aggressive on the expansion. What is the rationale?
ABFRL closed stores across three business segments for different strategic reasons:
Lifestyle Brands: Store closures mainly occurred in smaller towns where expansion took longer to deliver results. Rationalization was necessary due to slower-than-expected market recovery.
Pantaloons: The company strategically exited smaller towns and undersized stores to align with its premiumization strategy. Most closures are complete, with a few remaining.
TCNS: A deep, one-time correction was made after evaluating network profitability post-acquisition.
These closures are considered strategic, one-time adjustments. Going forward, Lifestyle Brands will have access to its own capital for expansion, Pantaloons will focus investments on its value-format Style Up, and TCNS will prioritize profitability before scaling growth.
How is Pantaloons positioning itself versus Style Up? What key metrics are being tracked for Style Up’s success?
Pantaloons is shifting towards premiumization, focusing on larger stores and an enhanced brand experience. Style Up is a value-format with a private label focus and lower price points. Key metrics include store-level profitability, customer feedback, and category expansion.
What is the expected growth trajectory for TMRW, and when will it become profitable?
TMRW is growing organically at about 25% to 30%. current portfolio of about 5 or 6 brands is focused largely on the young casual menswear space. There will be opportunities later. The intrinsic profitability of each of these brands is on a continuously improving path. Barring 1 out of 6 brands, most others are close to being profitable. over a period of time, as intrinsic profitability of the constituent brands of TMRW improves, that will be able to leverage the overhead that currently exists.
a few years back the growth lever here which was identified was expansion into smaller cities with concepts like Peter England RED. Now the focus is back on larger cities. So how should we look at the growth outlook?
ABFRL has a strong Peter England RED network with around 700 stores in Tier 4 towns, and this network continues to grow. While smaller towns have faced market challenges, they remain important for the company’s long-term strategy. In the short term, expansion will focus more on larger stores in bigger cities, but growth in smaller towns will continue at a slower pace.
What are the expansion plans for Tasva and Style Up in FY26?
Tasva plans to open 50 new stores, reaching 120 locations. Style Up will at least double its store count, adding around 50 stores.
Are the current margins (close to 20%) sustainable?
Lifestyle margins have historically been in the 18-20% range. Pantaloons has significantly improved profitability (from 13% to 17.5%). Ethnic wear margins may fluctuate seasonally due to wedding/festive demand.
What is the financial impact of exiting Forever 21’s offline business?
The business was not profitable. The exit will have a positive impact on EBITDA. Online operations will continue on a small scale.