Aditya Birla Fashion and Retail Ltd. Q4FY23 Result Update

Aditya Birla Fashion and Retail Ltd. (ABFRL) emerged after the consolidation of the branded apparel businesses of Aditya Birla Group comprising ABNL’s Madura Fashion division and ABNL’s subsidiaries Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle (MFL) in May 2015. Post the consolidation, PFRL was renamed Aditya Birla Fashion and Retail Ltd. Aditya Birla Fashion and Retail Limited is part of a leading Indian conglomerate, The Aditya Birla Group.

Result Highlights

Aditya Birla Fashion & Retail Ltd. (ABFRL) achieved a strong 26.2% year-on-year growth in Q4FY23, reaching Rs. 2,879.7 crores in revenue. This growth was primarily driven by the Madura segment, which grew by 23.6% YoY, and Pantaloons, which grew by 18.2% YoY. The company’s expansion efforts, including adding over 500 stores in FY23, along with robust retail sales and an enhanced omnichannel presence, contributed to the positive results. However, the company faced challenges due to lower sales after Diwali and negative operating leverage, leading to a decline in EBITDA of 50.4% QoQ and 42.2% YoY. The company also reported a higher-than-expected loss of Rs. 194.5 crores. ABFRL’s growth was driven by its offline expansion strategy, with the addition of 104 net stores in Q4FY23. Additionally, the company made a significant acquisition of TCNS Clothing Company Limited to strengthen its ethnic wear portfolio.

Valuation and Outlook

ABFRL’s revenue growth in Q4FY23 exceeded market expectations, mainly due to aggressive store expansion and a favorable base from the previous year. However, the company’s profit margin declined significantly, primarily due to weaker consumer spending and higher marketing costs. Concerns remain regarding the Pantaloons segment and the company’s debt and inventory levels for the next fiscal year. The performance of the recently acquired TCNS portfolio is also being closely watched. Despite short-term challenges, the apparel industry is expected to grow in the long term, driven by premiumization and a shift towards branded products.

Key Concall Highlights

1. On May 5, 2023, Aditya Birla Fashion and Retail Limited (ABFRL) approved the acquisition of a 51% stake in TCNS Clothing Company Limited, marking one of the largest deals in the Indian fashion industry. The acquisition will be financed through a combination of debt and internal funds, with a borrowing of approximately Rs. 700 crores – Rs. 800 crores.
2. ABFRL’s management aims to focus on expanding their existing and new ethnic wear portfolio businesses in the coming years. They have committed Rs. 500 crores in equities, which will be raised over the next 12 to 18 months to support the growth of acquired or smaller businesses.
3. The company’s revenue targets have surpassed their previous five-year plan, with four brands generating revenue between Rs. 1,500 crores and Rs. 2,500 crores. With the addition of Reebok and parts of the TCNS portfolio, the management anticipates having four to five brands earning between Rs. 1,000 crores and Rs. 2,000 crores.

The debt funding for this acquisition will be obtained from the capital market rather than bank loans, and it will be of a long-term nature