ABFRL: Acquiring big and influential brands; Is it enough for your long-term investing?

ABFRL is part of a leading Indian conglomerate, the Aditya Birla Group. With revenue of Rs. 8,136 Cr. spanning retail space of 9.2 million sq. ft. (as on March 31, 2022), it is India’s first billion-dollar pure-play fashion powerhouse with an elegant bouquet of leading fashion brands and retail formats.

The company has a network of 3,487 stores across approximately 30,787 multi-brand outlets with 6,381 points of sales in department stores across India (as on 30th June 2022).

It has a repertoire of India’s largest brands in Louis Philippe, Van Heusen, Allen Solly and Peter England, established over 25 years. Pantaloons is one of India’s leading fashion retailers. The company’s international Brands portfolio includes - The Collective, India's largest multi-brand retailer of international brands and has long-term exclusive partnerships with select brands such as Ralph Lauren, Hackett London, Ted Baker, Fred Perry, Forever 21, American Eagle and Reebok.

The Company’s foray into branded ethnic wear business includes brands such as Jaypore, Tasva & Marigold Lane. The company has strategic partnerships with Designers Shantanu & Nikhil’, ‘Tarun Tahiliani’, ‘Sabyasachi’ and ‘House of Masaba’.

Gradual recovery from the impact of COVID-related restrictions

FY22 saw a partial recovery in the business, with the management focusing on Retail expansion, along with Balance Sheet discipline, a key focal point, given the challenges faced in FY20. Hit by the second COVID wave, consolidated revenue recovered, yet remained 7% below pre-COVID levels (FY20).

EBITDA margin remained stable at 13.5% on strong cost control. On a pre-Ind AS 116, EBITDA margin was 2.2% v/s

5.1% in FY20. Revenue from the Lifestyle segment remained resilient, reaching pre-COVID levels. Revenue from Pantaloons stood 25% below pre-COVID levels as its large format stores and its higher presence in malls was severely affected by the COVID-19 pandemic. EBITDA contribution from Ethnic Wear and Other segments grew to 4% from 5%, led by a recovery in Fast Fashion, Innerwear, and its recent Ethnic Wear foray.

Performance of brands

Lifestyle brands

The robust operational performance led to quarterly revenue of Rs. 1,519 Cr. 51% growth over pre-COVID (Q1 FY20) EBITDA growth of 40% over pre-COVID. Retail LTL growth of 29% (over Q1 FY20) on a 2000+ store network reflects strong brand franchise. Best quarter for our Women’s wear. Business grew by more than 50% over pre-COVID ‒ Casual share continued to grow rapidly ‒ Ecom business grew by more than 50% over LY Pantaloons

Highest ever first quarter for the business with Rs. 1027 Cr. Revenue. Strong EBITDA performance on account of larger full-price period ‒ Ecom channel grew by 70% YoY led by strong traction on its own platforms. Successful app pilot: 5 lakh+ downloads on launch. Continued to expand its private label portfolio with new launches in distinct spaces.

Vanheusen

Highest ever quarterly sales with business growing to ~2.5x of LY. Aggressive network expansion. Expanded trade

MBO counts to exit with ~29000 stores. Ecom sales at ~3x of pre-COVID level. The portfolio now well balanced between Innerwear & Athleisure. Continuously launching innovative products. New launch “AIR” met with tremendous consumer love ‒ Business set to scale up rapidly.

Youth western wear American Eagle

Revenue grew ~3 times the pre-COVID levels ‒ Continued to expand the distribution network with 5 new stores during the quarter

Forever 21

Improving margin profile with leverage of local sourcing.

Super premium brands

One of the fastest growing businesses within ABFRL portfolio with revenue more than 2x of pre-COVID level. Continued to deliver double-digit EBITDA margin.

Ethnic collection

Jaypore

Revenue grew to 3.5 times of LY with both the channels showing robust growth ‒ Physical store network expanded to 11 stores – Set for further scale up ‒ Continued scale up of own website through technology advancement and customised marketing ‒ New categories such as Home, Jewellery & Men’s wear contributing to growth.

Shantnu & Nikhil

12% growth in revenue, EBITDA up 35%. Retail network posted 8% LTL despite tough market conditions. E-

Commerce exhibits aggressive growth. Women’s and kid’s wear business growing strongly Shantnu & Nikhil ‒ Highest ever Q1 revenue, more than 2x of LY ‒ Added 2 more stores to the network. Now available across 12 stores (50% above LY) ‒ Strong efforts toward brand building ‒ Revamped retail across 50% of existing couture network ‒ Promising traction on new channels of sale ‒ Ecom & SIS now brings ~30% of bridge revenue.

Sabyasachi

Revenue grew by ~160% over pre-COVID levels ‒ Robust profitability with EBITDA growing to 4 times of last year ‒ Strong consumer acceptance of jewellery and accessories building new platforms for growth.

Tasva

Brand finding strong traction on the foundation of winning products and price-value proposition. Reflected in impressive store walk-ins, high conversions, and positive consumer feedback. Rapid store expansion planned in this financial year. Added 6 stores to the network during this quarter. Plans to end the year with more than 60 stores.

House of Masaba

Completed the transaction to acquire majority stake (51%) in House of Masaba during this quarter. Business started execution of its long-term growth plan. Beauty launch planned in Q2

The Lifestyle segment, through brand extensions, has delivered well, with ~50% contribution accruing from the NonFormal Men’s Wear segment, growing outside the brand’s lineage.

The management looks to tap opportunities across smaller towns in India, through merchandise offerings customised to local needs, quality product offerings at value prices, and its asset-light growth model. It is focusing on its specialised small-town store formats for its Peter England, Allen Solly, Pantaloons, and Style Up brands. Retail formats like Style Up brands have been present since the last four-to five years, but have seen limited scale, despite the large-scale growth seen in the Value segment.

Launching new brands and re-energizing existing ones. In line with the evolving demand within the Apparel segment, the company has extended its brands into categories such as Innerwear, Athleisure and Activewear, and Ethnic Wear. This is evident from brand additions across categories, which include Van Heusen for Innerwear, Jaypore, Tasva, and others within Ethnic Wear, and acquisition of the India business for Sportswear brand Reebok.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.