Aditya Birla Fashion and Retail Limited (ABFRL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Fourth Quarter and FY '21 Earnings Conference Call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief discussion of the company's management on the fourth quarter FY '21 and full year FY '21 performance, followed by the question-and-answer session. We have with us today Mr. Ashish Dikshit, Managing Director; Mr. Jagadish Bajaj, CFO; Mr. Vishak Kumar, Director and CEO, Lifestyle Business; Ms. Sangeeta Pendurkar, Director and CEO, Pantaloons. I want to thank the management team on behalf of all the participants for taking the valuable time to be with us. I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risk that the company faces. Please restrict your questions to the quarter and yearly performance and to strategic questions only. Housekeeping questions can be dealt separately with the IR team. Please note that this conference is being recorded. With this, I hand the conference over to Mr. Jagadish Bajaj. Thank you, and over to you, sir.

Good evening, and welcome to the earnings call for our company. We sincerely hope that you and your families are safe during these difficult times. Let me first take you through the highlights of the quarter. The emergence of second wave of COVID-19 and consequent lockdowns and restrictions in almost all parts of the country has impacted sales from middle of March 2021. Currently, the focus of the top management of the company and Aditya Birla Group is safety of employees and staff. We recognize people as our biggest strength and their safety and wellbeing have always been the top priority of the management. Considering the travel risk, the entire setup of office has again been shifted back to work from home. Further, we are in the continuous communication with the affected employees to help them and their families to cope with the situation. We have extended the care, that is COVID assistance and emergency response program, to all our 35,000-plus employees and their families. Care envisages support for 24/7 doctors, medical consultation, testing, ambulance, home isolation, extended additional health insurance to cover home care, vaccination support and all other necessary awareness. We have already vaccinated close to 80% of our 45% -- 45-plus aged employee base and more vaccines will roll out in the coming months. We also extended financial and other support to employees who fell victim to COVID-19. We expect COVID restrictions to be in place in large parts of the country for the rest of Q1 in varying degrees. The second wave, according to many experts, is likely to peak in end May. Return to normalcy will depend on the availability and ability to vaccinate large part of the population in the next few months. Consequently, we expect normalcy to return by end of Q2, with the arrival of festive season and simultaneously the vaccination drive picking up momentum as is expected. Keeping in mind these realities, the company has initiated appropriate cost-cutting measures and optimal inventory ordering so that we have enough liquidity in our business. We have successfully demonstrated last year our ability to quickly calibrate our expenses and inventory management. We are in dialogue, again, with landlords and mall owners to grant us rebate on rentals. Now let me give you a brief of our consolidated performance for Q4 FY '21. January and February saw good traction in terms of strong demand, both in our off-line and online channels. However, the emergence of second wave during the later part of March and consequent restrictions have impacted the performance of the company for the quarter. Sales in Q4 were INR 1,822 crore. Almost flat at last year level with only a 1% reduction over Q4 FY '20. The company delivered a consolidated EBITDA of INR 250 crores, a rise of 52% over last year levels, despite similar restrictions towards the end of Q4. The net loss after tax for the quarter is INR 196 crore. However, this is adjusted for a onetime noncash deferred tax liability of INR 69 crore and another INR 40 crore for capital gain towards reorganization of Sabyasachi LLP, which is not attributable to ABFRL. Adjusted for these two, amounting to INR 109 crore, net loss is INR 87 crore versus INR 147 crore, lower by 40% from Q4 FY '20. During the quarter, company received INR 1,750 crore towards equity that is infusion of INR 1,500 crore from -- by preferential offer which we made to Flipkart and collecting first call of rights issue of INR 250 crore in January. Further, we invested INR 520 crore for the partnership with Sabyasachi and Tarun Tahiliani. The e-commerce business growth was strong in Q4, growth -- grown by more than 90% over Q4 FY '20. Now let me take you through the full year performance for financial year FY '21. Sales for the year stood at INR 5,249 crore, down by 40% compared to FY '20. EBITDA for FY '21 has been INR 628 crore, compared to an EBITDA of INR 1,277 crore in previous year. Net loss for the company is INR 736 crore after tax, compared to a loss of INR 165 crore last year. During the year, the company has reduced its fixed cost, rental, employee cost and other overhead by INR 1,200 crore from its cost base of Q4 FY '20. We could reduce our net working capital by INR 760 crore in this year. In the whole year, the company received INR 2,250 crore from equity, which were used to repay debt and made investment in Sabya and Tarun Tahiliani partnership. At the same time, the losses during the year were funded by reducing working capital, which I highlighted is INR 760 crore. The net debt of the company stands at INR 654 crore, down by 74% from last year. In our Q3 earnings call, we had forecasted our debt to come down to INR 250 crore before investment in new ethnic businesses. We ended the year with net debt of INR 134 crore against our estimated -- estimate of INR 250 crore before ethnic investment, staying true to our commitments. We have significantly ramped up our digital capabilities and our e-commerce operations. Our digital channel sales have grown by 40% over the past year. We have also enabled close to 1,000 stores of ours with omnichannel functionality. We also continued to grow our physical network with addition of more than 400 new stores and also rationalized network by shutting down close to 250 unviable stores. I will now take you through the performance of individual businesses, starting with Lifestyle Brands. The revenue of the business for Q1 FY '21, INR 1,000 crore, a degrowth of 6%. The EBITDA stood at INR 176 crore versus INR 164 crore in Q4 FY '20. This resulted in an EBITDA margin of 17.5% compared to 15.3% margins in Q4 FY '20, margin expansion of 220 basis points. Lifestyle Brands reported an industry-leading 8% growth on last year's sales in its all retail channel this quarter despite the COVID impact. This is due to the rising share of casual product portfolio from 50% in FY '19 to 55% in FY '21. This stands testimony to the strength of our brands and the versatility to fulfill consumer requirements in all market conditions. Stated in the wholesale -- sales in the wholesale channel of MBO and departmental stores saw a declining, ending at 60% of last year. However, the primary sales to this channel were controlled to ensure liquidation of adjusting inventory in the channel. Consequently, we expect robust recovery of sales to wholesale channel when the situation normalizes. E-commerce sales continued to rise significantly for the division, 28% growth over last year, and our brands are available on all leading e-commerce platform. I would like to reiterate that Madura brand is one of the largest e-commerce apparel player in the country. Lifestyle Brands continued with its aggressive store expansion strategy, added more than 100 new stores in the quarter and more than 380 new stores in the year. After successfully crossing the 300-plus stores milestone for PE-RED, Lifestyle business has now piloted Allen Solly Prime across select markets. This aggressive expansion into newer Indian towns and cities has leveraged the company's strong distribution network into untapped market. Full year -- for the Lifestyle Brands, YTD sales till 31 March '21 has been INR 2,750 crore, 41% lower than last year. The EBITDA recorded is INR 340 crore, and the EBITDA margin is 12.3%. Business significantly improved its working capital management and achieved revenues of INR 2,750 crore with an operating capital of just INR 430 crore. This reflects strong asset productivity and high return on capital for the business. The Pantaloons business, the revenues of the division were INR 597 crore, registering a degrowth of 5% over Q4 FY '20. The EBITDA, however, has grown, significant increase, of 54% from INR 56 crore in Q4 '20 to INR 86 crore in Q4 FY '21. Margins for the quarter were at 14.5%. This profitability was achieved on the back of excellent inventory management and lower discounting, leading to higher gross margin, along with company's push to cut cost on rent, manpower and overheads. Pantaloons e-com has grown significantly, recording over 3x sales growth over last year's Q4 level. Business has launched new categories of home, sarees, bags and other accessories and has also launched exclusive brands in women's ethnic wear. Pantaloons added 3 new stores during the quarter to its network of stores and has exit Q4 with a total of 340 stores, adding 19 stores in the whole year. Full year for Pantaloons reported an annual revenue of INR 1,859 crores, down by 47% from last year, while the EBITDA stands at INR 270 crore. The EBITDA margin is [ 14.8% ], which is lower by 120 basis points. The business focused on working capital management and reduced its inventory by nearly 40% during the year. It achieved its revenue of INR 1,859 crore with operating capital employed of just INR 248 crore, reflecting a very strong and fast improving capital productivity model for Pantaloons business. This is in line with our vision to deliver ROCE in excess of 20% for this business also. Having strengthened our balance sheet in FY '21, we plan to significantly accelerate retail expansion of Pantaloons network in coming years. We plan to open about 60 stores in FY '22, in line with our long-term vision, building a much larger and more profitable Pantaloons business. And lastly, our other business segment, which includes active, athleisure, innerwear, youth western fashion and super premium brands. Revenues from this segment witnessed 36% growth over same quarter last year, recording sales of INR 214 crore versus INR 157 crore in Q4 FY '20. Active athleisure division stood at -- revenue stood at INR 272 crore in FY '21, and we increased our footprint with availability at 28,000 plus MBO outlets and 83 departmental stores and 47 EBOs. The revenues of this segment grew 56% over the same quarter last year. The e-commerce channel grew by 152% in FY '21 over last year on the back of growing demand for comfort wear athleisure. We expect this business to accelerate its growth rate with enhanced profitability as the normalcy returns. The youth fashion and premium international brands continued to work on profitability, and profitably -- and bringing more freshness to their merchandise. Forever 21 saw a 7% growth over the same period last year. The business has consistently posted profits for the last 2 quarters, including Q4 FY '21, indicating a profitable growth path ahead. Similar results were seen in American Eagle, where the business grew by an astounding 70% in Q4 over last year. The super premium Global Brands business segment, which includes The Collective, an international brand, also witnessed a sharp growth and have doubled the revenues year-on-year with a high single-digit profitability during the quarter. The Ethnic wear business segment, ABFRL has -- now has one of the strongest and most comprehensive portfolio of brands across price points, consumer segments and occasions. ABFRL has made a constellation of partnerships with leading designers, Sabyasachi, Tarun Tahiliani and Shantanu & Nikhil, to add to its first investment in Jaypore. Let me briefly cover the performance of ethnic business. Jaypore has grown phenomenally by 71% over last year in Q4 on the back of e-commerce sales in categories it operates. It has added to its portfolio in-home category, sleepwear, loungewear, making it a more comprehensive and appealing proposition to its target consumers. The brand opened its first store post acquisition in this quarter and plans to open about 10 stores in the coming year. This network will complement its strong online presence. Shantanu & Nikhil, the revenue of the business this quarter grew by 12% Y-o-Y. Shantanu & Nikhil have opened 3 priority stores in the year and in the process of opening 2 more soon. We'll continue to have fresh growth investments in this brand. Luxury Ethnic partnership with Sabya and Tarun. Sabyasachi Couture -- ABFRL work towards establishing Sabyasachi Couture as a global luxury brand house that truly embodies authenticity. We believe ethnic wear is set to scale rapidly to become an important part of modern Indian fashion. The Sabyasachi brand aspires to take its global influence ahead through its artisanal craftsmanship and traditional techniques. Tarun Tahiliani. We are foraying into premium men's ethnic wear by launching a new brand in partnership with Tarun Tahiliani. We expect the new brand to be launched by the festive period of financial year '22. These forays will propel ABFRL to the leading players in the large ethnic wear market. So in conclusion, in a very tough year, the company has achieved the following: #1, strengthened the balance sheet and brought down debt by bringing in equity and optimizing working capital; #2, deepened our presence in India by going into Tier 3, Tier 4 and Tier 5 cities; #3, achieved best-in-class cost reduction in rent, employee costs and overhead, including some permanent cost reductions; #4, increased market share in Lifestyle Brands segment; #5, we have partnered with iconic brands to improve our play in the Ethnic segment; #6, deepened our partnership with e-commerce players to make our ABFRL brands have a strong play in the fashion e-commerce segment. Thank you. We'll now take your questions.

[Operator Instructions] The first question is from the line of Jiten Doshi from ENAM Asset Management. We move to the next participant. The next question is from the line of Aditya Soman from Goldman Sachs.

So the first question is on the overall business. At this point, when do you expect the recovery to start? Are all stores fully shut across most of the country? Or is there a small proportion that is still open? And then in terms of the business last year, any sense you can give us on how e-commerce -- I'm sorry, the innerwear business progressed in FY '21? And also, you indicated that sort of digital sales growth was 40% Y-o-Y. Any reason why this could not be higher?

Aditya, Can you hear me? This is Ashish here.

Yes, I can hear you clearly.

Perfect. I'll go ahead. Your first part is about what's the state of network opening at this point of time. We have close to about 15% of network which is operating in last few days with some states allowing relaxation and few openings. But this is limited to a very small set of stores and numbers. We expect further relaxation, I think Delhi has just announced from 1st, sometime early in June we see Maharashtra opening up a little bit, Karnataka also opening after that. I think what we'll have to watch for is what's the nature of relaxation and the speed of opening that these state governments allow because very often in the past, they have kept malls not part of the first opening and that typically delays a lot of our industries opening. So we'll have to keep an eye on that. As of now, it's only about 15-odd percent of stores which are open, and a large part of them actually in just last few days. Your second question was on innerwear. Innerwear is one of the few categories and part of our business, I think we mentioned in the investor deck, which actually grew over last year. Despite the fact that Q1 and some part of Q2 was completely wiped off, the growth momentum continues. It's an organic long-term growth trajectory as we continue to gain market share in -- we are still very small as a part of the overall market, but rapidly gaining ground. I think over the next year or 2, as we expand -- we've got about -- we've got fairly good presence in the high throughput A and B quality multi-brand outlets, which is where our first attempt was. The next phase would be to go to the next share of distribution, which is beyond top 30,000 outlets, 25,000 outlets, and that will be the next piece. In distribution, then we open about 45 to 50 stores is what we operate with. At this point of time, which is exclusive stores. We think that's a large opportunity. And this year, you will start seeing progression on that. So we think it's -- as we had indicated, it continues to be a long-term growth opportunity, and that momentum will continue. On the e-commerce side, I think our base of e-commerce, as partnership in B2B business deals with all the 3 major players and a couple of other smaller players, has always been very, very large. And that's the effect of that. There's a base effect of this. That business is growing. The own brand.com business, which actually picked up momentum in the omnichannel business, which started to pick up momentum from early last year, that's been growing. You have in the presentation, Pantaloons has grown about 3x, even Madura business. So brand.com has grown about 1.5 to 2x. So our own brand.com business, obviously, is growing much, much faster. Partner business is growing well, but that's on a large base because strength of our brand meant that we are very large players even before the COVID, and that's really how the statistics sort of adds up.

Very clear. And just in terms of own brand.com, I mean what would be the contribution now of your own brand e-commerce?

Very, very small, Aditya. So it's still early days. I think of the e-commerce business, we have got to now double digit of that. But as an overall share, it continues to remain small. But the trend in the last couple of months has been -- because it took us time to actually ramp up both the capability, digital marketing. It takes some time for consumers to sort of move to brand.com. We are seeing rapid acceleration in the last couple of months. And if last 3, 4 months is anything to go by, I think it will become a significant business, but we still have to see maybe a year or more before it starts to count on itself.

Understand, very clear. And just lastly, on Pantaloons, I mean even in 4Q, we still haven't reached say 4Q last year. Now is this because of its -- I mean of the product mix that we have? Because if you look at some of the other discretionary names, I mean we saw a meaningful growth compared with 4Q last year, which was already impacted for 10 or 15 days due to COVID?

I didn't get your question, Aditya. Sorry.

Yes. Sorry. So if I look at Pantaloons, I mean in the fourth quarter, we still declined a small number Y-o-Y. If I look at some of the other discretionary businesses, they've recorded very strong growth in the fourth quarter. So what would be the reason for that? Is it the product mix or any specific type of products that did not do particularly well?

See, I don't know Aditya what would we be comparing with. But if you look at the industry so far, retailers and big-box retailers have typically dropped in quarter 4 between minus 8%, minus 10-kind of percent same-store growth. And that's been the case with Pantaloons also. If you look at all the other retailers, same-store growth will also be in the high single digit or early double digit kind of thing. So I think that's in line with it, and that's primarily because if there is one segment where consumers were hesitant to sort of shop, it is the large-format stores. Also, large-format stores, particularly Pantaloons and many others, are more mall heavy. And that's the place where consumers have been a little bit more hesitant to come to even in the months of October to December as well as January, February. So I would not worry too much about it. I think this is more led by macro factors versus anything inside the Pantaloons. Within the Pantaloons, of course, different parts of the business, we have performed differently. Women's ethnic wear is one category, which is more occasion and going out led, et cetera. So some of them have not done well. But I think your broader question, I would say, the answer is more in the macro factors about consumers with shopping with respect to large-format stores with respect to malls.

Got it. So it would be fair to say that the stores outside the malls would have had a better performance compared with, say, the mall stores or large -- very large stores?

Yes. I would say if you have to take 3 dimensions, size of the stores, smaller stores do better than -- for most of last 9 months have done better than larger stores. High streets have done better than malls. And I would say, smaller towns have done better than larger cities. But depending on how your distribution is placed, you will see differential results along these dimensions.

The next question is from the line of Nihal Jham from Edelweiss.

So a couple of questions from my side. First, specifically on Madura, you have detailed about the fact that you remain cautious on the wholesale channel and even giving details of how you curtail your inventory. What I wanted to understand is that when is it that we get the confidence that this channel will see the throughput that it used to earlier, considering it is one of the important channels for Lifestyle Brands? And I ask this also in the context that now with wave two, do we remain cautious till the impact of this is totally gone and only then we look at getting this channel back to normalcy? I'll come to my second question after this.

I'll get Vishak to comment. Vishak, you go ahead.

Okay. Nihal, I think you will have to separate the wholesale part into department stores and multi-brand trade. A large part of department store reopening will be a function of when the local governments allow the malls and the large-format stores to reopen. And to that extent, as and when they start and they kick off, I think we should be off to the kind of business there as we've been stronger. On trade or multi-brand trade, I think we will have to see how small town India is impacted by COVID and hence, how soon it comes back to bouncing back. My own sense is that it should come back faster this time with the kind of vaccination drives which are happening and so on, it should bounce back. So like Ashish said in the earlier question, a lot of it is going to be about external factors. As the COVID impact recedes in the market, we should be able to get back to growth in all -- across channels and not just in wholesale.

So it's purely a case of the MBO channel and as you believe that when is it that their payment ability won't be impacted, that is when you want to go ahead and get this channel in line?

No. I think more than payment ability, it's throughput from these stores, Nihal. As they get -- I mean, right now, almost practically the entire country has been closed down. As the lockdowns are opened and these stores open back, they'll start selling. And as they start selling is when their orders come up. So it's more to do with when do their secondary sales pick up.

That's helpful, Vishak. Second question was specifically on the balance sheet and our cash flows in the year ahead. This has been a good year in terms of, as you mentioned, actually, in terms of us seeing a reduction in working capital, which, along with the external infusion has helped in the debt reduction. In the year ahead, the normal expectation would be that our working capital should normalize. And potentially, maybe the cash generation despite improved profitability may not be as strong. So just your internal thoughts on it?

Jagadish, I'll go ahead, and you can add to that subsequently. Nihal, you're right to some extent that as the recovery -- and remember, we will look at it in a full year basis. So I expect that by the time you hit Q4 of next year, which is FY '22, by then, certainly, the normalcy should have got stored. By that time, we would have expanded our network, lot of wholesale customers would have come back. And we would be looking like we had a very different sort of trajectory of revenue performance. And to that extent, we'll have to align our inventory in line with that. As if so -- you have seen our ability to actually quickly change -- the kind of agility in supply chain and planning that we've built, our ability to quickly change our inventory levels in line with the market is something that we have demonstrated in good times and bad times. All of it last year was clearly a function of the choices that we have made. As we look ahead, by the time the year ends in FY '22, we are hoping that we'll probably be in a situation where markets will be back to normal, organic growth will be more or less back to where it used to be pre-COVID level and we would have significantly expanded our network. Jagadish talked about Pantaloons, 50, 60 stores. Our trajectory in Madura to open 300, 400 stores will be another thing that will continue. So I do believe that inventory levels will go back a little bit. But our profitability will hopefully be able to offset to a large extent, that is. Now it's hard to predict sitting here, but I will only give you comfort that we know how to navigate these things and simultaneously sort of find the right balance in this. And that's what we will do. Our overall debt level, as Jagadish has said, started at about INR 650-odd crores after INR 500 crores of investments that we've made. And we think that for the size of the business and profitability that we would be looking for FY '23, we would be very well placed even if it -- if we have to take slightly higher inventory to fund that growth. It shouldn't be a matter of concern in our mind.

The next question is from the line of Abhijeet Kundu from Antique Stockbroking.

My first question was in Pantaloons, what have been the learnings during the year? Because, see, in a year where your sales have been impacted, across the board, retail sales have been impacted. So this was a time where you could look back at your product portfolio or do some more things in your -- in the back end of operations. So what have been the learnings there? And what -- which could be used to -- for ramping up operations or improving operations going ahead? One. And second is, also in Pantaloons, what we understand from other players is they have worked on lower inventory during the year. And they have got a sense that with a lower level of inventory also, good amount of work could be -- efficient work could be done. So they are working on that. So what would be your thoughts on that?

Right. So -- Abhijeet, this is Sangeeta. Let me address that. I think this year has been a very, very insightful year for us. I think while it's been a tough year, there is a lot that we've done as a business. And I think my headline is that today, as a business, the shape of our business is far better. The health of our network is far better, and I'll talk about a few things that we've done. I think first, to your point on product, I think what we have been able to do is, in terms of very quickly pivoting towards the need that we saw from the consumer, we saw [Technical Difficulty]. And as a business, we quickly pivoted and tried to kind of serve our customers in the right stores and to serve the demand that we saw that came up, right? So on the product, I think 2 things. One is the shift in the demand. The second, as Ashish mentioned, there are a lot of new categories that we launched during the course of the year. And we've been able to get reading on some of them. For some of them, we still have to wait because we haven't seen a full season on that. So home is one category which became extremely important during the time of the pandemic because everything moved within the house. You are spending more time in your house than anywhere else or with anybody else. And we saw good traction for home category. So that was a timely entry for us. As I said, still very early days on some of those categories. So that's on the product. I think our big focus was on cash and cost last year. And to your other point before I come to cash and cost, I'll finish two other points on the top line first. I think we did a lot to strengthen our operations in terms of relooking at our processes. We launched a lot of alternate channels [Technical Difficulty] as well. So whether it was the social commerce channel that we launched in the store or the temporary stores -- pop-up stores that we put up, I think we built muscles both on agility and on operations on alternate channels. And I think that's been another great capability and learning for us. And the third bit on e-commerce -- I would talk about on the alternate channel is on e-commerce. I think, again, our e-commerce, as both Jagadish and Ashish alluded, we've seen our e-commerce business grow 3x of where it was in the previous year. And then coming to cash and cost now, I think the bit on cost, it's been a phenomenal year for us with a significant reduction in terms of our rental, significant reduction in terms of our rentals, significant reduction in terms of our overall overhead. And we've managed to get, so for example, our rent reduction is in excess of 30%. Our overhead reduction is in excess of 15%. And that led us to delivering a planned bottom line, that's what we have planned and we are able to deliver that. The third bit is in terms of the bit on cash. And I think the big focus was, we took some very, very strong decisions in terms of how we would restrict our buy and how we will optimize our working capital. And we've been able to release a substantial amount of cash, largely from working capital, with a very tight inventory management. And as a result, today, our inventory position is far better than where it was a year ago. The point that you were making, you've seen other players delever, we've done the same thing. And lastly -- lastly, I would say, on the network, I think we've also been bold, and we have shut a few of our stores where we believe either our rental negotiations were not kind of heading in the right direction or where the profitability was not good. A lot of these stores are also smaller stores. So we've made those decisions and also made our network far more healthier. So I think learning is all across, and we feel good about where we are at the end of the year, with newer set of capabilities and with better health of the business.

Okay. So just a follow-up on this. So how much of the cost reduction that you have done during the year? Will you see reversal once operations get back to normalcy? I mean how much of that would come back?

Right. So there are 3 big elements of costs. I think one is in terms of advertising and marketing. And that based on the demand and based on the way we forecasted sales, that is the call that we took and learned. Other learning has been in terms of very dynamic decision-making, right? So advertising, we think we'll definitely have in control. The other cost is on overhead. And again, here, in the coming years, we have done a few things with where those cost benefits will take. There are others that we will need to address as we move along. As far as rentals are concerned, which is a large part of our cost base, we had a good experience working with the developer partners. And I think those conversations, again, this year, I'm sure they will be fair this year too as they were last year. And we hope to get good savings this year too. I think we have a great track record from last year of having a team having worked very relentlessly on this. And I'm pretty sure this year also. We believe this year, though, overall, in terms of topline, we'll be far better than last year. And I think with the new capabilities that we have, we'll also do everything possible to keep these costs under control. A lot of the costs, more specifically to your question, are costs that we think we have control of. The rental cost is something that we'll have to discuss with our developer partners.

Okay. And just my last question, sorry, if I could ask that. So what we understand is from our channel case analysis, the April and May have to -- in April, it was -- the major impact was in Maharashtra and Gujarat, and other parts of the country had not seen that kind of impact optically. Still the local [ ground ] here is such that operations were very difficult to continue. I mean -- so still sales were -- no one was visiting store. Local authorities were also closing stores left, right and center without any intonation. So those -- all these issues were there. So anyways -- I mean in that perspective, it has not -- I mean now May and June has an impact. But even during April, it was not limited to Maharashtra and Gujarat, right? I mean -- so there was a broader impact across India even during April and May. I just -- I'm not obviously asking any numbers just from the quantum.

You're absolutely right. I think April was also quite severely impacted.

Next question is from the line of Richard Liu from JM Financial Service.

Ashish, I just want to understand...

Richard, can you speak a bit louder, please?

Okay. Is it better? Hello?

Yes.

Sorry, about that. Ashish, I just want to understand what you see because there are a lot of volatility, et cetera, in terms of locking, unlock, et cetera, et cetera. But let's say that this whole drama goes on for some more quarters, and then we get back to -- let's say people get vaccinated by 1Q FY '23 or 2Q FY '23 or whatever that -- whichever that quarter is, okay? For illustration sake, let's say it is 2Q FY '23. So the moment things get back to normal, the pandemic goes away mostly from the country, would you -- do you think that the moment that happens, your next 4 quarters revenue run rate would immediately get back to that INR 9,000 crores number that you guys had before the pandemic? Or do you think that the momentum is lost and it's going to take a long time to build back that INR 9,000 crore base turnover?

So two things. I think, first of all, our base has, I think, moved up. And one of the things that we are quietly doing, and I think you follow us closely, you would understand, is that on one side, there will be driving down cost and cash and strengthening balance sheet. On the other side, we are investing for growth for times when recovery comes back. And that's the strategy that we're going to follow in FY '22, even more aggressively. In Lifestyle Brands, we will expand, I think the PE-RED and Allen Solly Prime. Former has started to work. We have stated -- Jagadish has stated 50 to 60 stores at least in Pantaloons because we want to expand that network. We took this time to rationalize the network. So first point very simply is that we are quietly building an acceleration base, which is much higher than what we had pre-COVID, which gives us a better chance to get back to those numbers and, in fact, higher numbers before. In terms of how quickly we come back to the base level, whatever that base is, I think what we have seen if last Q3 was anything to go by, and you've seen that across multiple forms of discretionary category, including the ones like us, which is even more discretionary, that consumer's desire to come out, express themselves, celebrate, socially get together, et cetera, et cetera. Having been trapped for 6, 9 months last year, it was evident that they sort of come out very, very strongly. I think this time, it may start a little slowly, maybe next couple of months. But as, I think earlier, Vishak and Sangeeta had indicated that we feel by festive time a fair bit of recovery should start to come in as vaccination gets to some level. And definitely, towards the last part of this year, we feel at the end of this year vaccination is sort of done, we should get back to a trajectory which some ways gets us back to what the base level of business is. I don't know if that answers your question, Richard.

So you don't think -- okay. No, partly it does, Ashish. You -- no -- so basically, what I understand from you is that with consumers locked up at home for so long and with habits change, lifestyle change, et cetera, let's forget about the new businesses that you invested in, right? I mean I'm just talking about the INR 9,000 crore turnover that existed before the pandemic started. We think that the moment life comes back to normal, be it through vaccination or be it through the pandemic magically disappearing, that INR 9,000 crores turnover is immediately there for you to earn the moment this pandemic is over. Is that the right understanding?

I would say -- I mean using words like the moment that gets over, it's going to be sales recovery. But that sales recovery is going to start now in the next 2 months, not 6 months later. I would say, however, that we would get back to not just INR 9,000 crore but slightly higher base very quickly as the consumers come back. Now when you start counting that period is a matter of choice we can debate. I clearly see some recovery starting to happen from July, August. And depending on the pace of vaccination, you could see some surprises towards the end of this year, which is October, November, December, or in the quarter after that. But I do feel, yes, I don't think other than time, we would have lost the base level of business. In fact, if anything, we have added more to it.

The next question is from the line of Swagato Ghosh from Franklin Templeton.

So I just wanted to understand for our e-commerce sales, what is the fulfillment model we are following? How much is fulfill from nearby stores? And how much is from like a central warehouse?

So it varies. And I'll get maybe Vishak and Sangeeta, but they will have different answers. I'll get them to respond to that. But, obviously, fulfillment from store is something that we have not opened up with all third-party e-commerce players as yet. That's selective, and you'll get a sense of that. For our own business, that number could be fairly significant, which is traffic coming directly to our website. Almost half of that can be fulfilled from stores. But let Vishak, if you can comment, and Sangeeta if you can add to that.

Yes. So currently, for example, that number is almost 0, because stores are all closed. So we have very quickly changed our rule set that it's all serviced through central location. But it is a competitive advantage in the sense that we can deliver much faster to consumer. We can also provide a much greater assortment. And also it helps us to create different region-specific speed of service. So to answer your question, it helps us. And hence, it is something which has been naturally scaling up. Like Ashish said, it's gone up to, in some brands, 50-plus percent also. And I think that trend should continue. Sangeeta, you want to mention how many stores and what geography you cover?

So as far as Pantaloons is concerned, there was this earlier question as well on the learnings, and I was talking about agility. And this is again another capability we built very quickly. I think about close to 200 of our stores are only enabled for Pantaloons. And this is for our pantaloons.com business and part of that network is also for our e-commerce partners. And therefore, as Vishak was saying, we are able to offer two things. One is a larger assortment to our customers. And obviously, a better experience in terms of service delivery. I think for us, if I look at the total business, and if I look at quarter 4, at this point of time, the numbers will be quite different given that stores are shut at this point of time. I think for us, more than half of our pantaloons.com business is being serviced out of our store network.

Okay. That is very helpful. And a related question is, what are the margins for online sales currently given whatever mix we have for FY '21, I'm asking? And if the margins are like any different from the off-line margins, doing what will get us to those margins? If it's better, then like it is better by how much? Any color would be helpful.

So let me comment here, Swagato. Our e-commerce margins with partners are at par, if not sometimes better than off-line. Off-line, you know, margin varies fairly significantly depending on store rental, productivity, et cetera. So some part of that happens. Our own .com business currently is slightly less profitable due to higher cost of customer acquisition. But we are also, on the other side, compensate that with, as Sangeeta mentioned, close to half of that delivery we are able to service through nearby store, which is a much cheaper way of servicing customer orders. Overall, at this point of time, it's less profitable. But that's a matter of scaling up. I think you all know that there is a certain gravity which is required to build lower cost of customer acquisition. And as our traffic is growing, as more customers are getting used to and familiar with buying directly from any of our brand.com, I think that cost will keep coming down.

Got it. That is very helpful. And one last question, if I may. So on Flipkart and Myntra platform, our brands' growth, will it be in line with the other brands that are there? Or is there a reason that we can like outperform other brands by way of maybe the platform pushing our product because they have invested in our company? So can you just help me understand that bit?

So two parts. I'll get Vishak to give you some idea of performance, but clearly, the partnership is a more financial investment, which is an outcome of a deep existing strategic partnership. In no way is it expected that our brands get pushed up for some reason or the other or we give them any preferential treatment. That's not part of the deal. I think our brands compete and win on the strength of what they have. And that's really how we think it's going to play out. In terms of [Technical Difficulty] therefore, it will be purely on merit, which is the function of strength of the brand, the proposition of products, the kind of delivery system and fulfillment systems that we have built up, the technology integration between the two partners, the large integration of stores that we have done with them. I don't know, Vishak, if you want to add something about specific brand performances or something else?

Absolutely. I think our equation with e-commerce aggregators has also evolved over the years. And I think we are very, very sharp in defining common customers, figuring out how we can provide solutions for different customer cohorts. There is a lot of things around technology integration, service levels, speed. And this is across all e-com aggregators and not only to the Flipkart, Myntra business entities. So it is something which I think -- and that's why growth has also been as strong across partners. And my sense is it will continue to be like that. And also, you must remember, we have a [ bouquet of ] brands and different brands have a natural affinity to be very strong in different kinds of partner ecosystems. So different brands have different shares depending on their kind of [indiscernible].

The next question is from the line of Vaishnavi from Anand Rathi.

So my first question is on the ethnic subsidiary loss that we posted of I think around INR 24 crores during the quarter. So how can we look at this number going forward? And the second is on the INR 1,200 crores fixed cost reduction that we've seen in this year. How much of that would be sustainable?

Jagadish, you want to explain the INR 20 crores for quarter 4?

Jagadish sir, may I request that you unmute line from your side and go ahead with the answer.

Yes. Can you hear me now?

Yes, sir, we can hear you.

The Ethnic business in Q4 has our subsidiaries, the lossage of Jaypore and Shantanu & Nikhil, and 1 month for Sabya. Because you have some transaction cost with Sabya, a few cost has been added here around INR 5 crore to INR 6 crore. Otherwise, the Ethnic losses are in a range of around INR 17 crore to INR 18 crore. Going forward, based on the business plan, as I explained in my speech, that businesses now after taking -- after collaborating with Shantanu & Nikhil and taking over Jaypore, we have big aggressive plan. I think we'll like to build up both off-line and online. So there will be continuously into investment phase.

So Vaishnavi, if you look at different part of our Ethnic portfolio, there are existing good businesses like Tarun and Sabya's business, which are profitable being these are couture businesses. With Tarun, we are launching a new brand. And Jaypore in some ways is almost a new business. And these 2 businesses to scale up, to get to a meaningful size of INR 300 crores, INR 500 crores would require significant early investment. And so therefore, you will see losses in this business maybe first 1, 2, 3 years as we build these. But clearly, it's built around, as we have clearly laid out our 5-year strategy, it is built around building an Ethnic business of INR 2,000 crores, literally from scratch across 4 or 5 of these brands. So you might see some bit of the losses. They will -- Q4 is especially sort of tainted by one exceptional item, but most of what you would see as you look at annual and more steady-state picture will come from rapidly growing the new brands that we are launching. Vishak, do you want to talk about the cost part?

The cost? Yes. So Vaishnavi, it's quite simple. Let's assume that I was doing a business of INR 100, and I was paying, let's say, a rent of INR 10. If business becomes INR 50, our premise has been that until the time that the business is INR 50, the rent becomes the same percentage of sales and hence, should be INR 5. So that has been our entire premise with various landlords and other cost providers that, look, we will have a pro rata understanding on costs. So to that extent, when the business bounces back, we would actually be happy to pay the higher cost again or the original cost again. And it could actually have a good impact on the bottom line as well because the business would have come back. So it is -- while our cost, some of it looks fixed cost in nature, they are actually, if any, variable costs. And our effort has always been to try and index them onto revenues. And we do believe that as the revenues bounce back, it's actually good, then we will be able to pay the original costs again.

The next question is from the line of Aliasgar from Motilal Oswal Financial Service.

I have a couple of questions. First is on the competitive landscape. Am I audible?

Yes, sir.

Yes, Ali, we can hear you.

Yes. So the first one is on the competitive landscape. I just wanted to understand, I mean you mentioned that we expect a bounce back to be quite strong and soon. So how is the competitive landscape? Have we seen the second wave impact being more severe on smaller players and how are they delivering? Are we seeing any kind of shutdown of those? My point is I want to understand, do we see any tailwinds from weaker competition that should actually allow us to drive better throughputs in our stores and kind of actually give us any kind of benefit from this COVID, as the narrative has been that the stronger players should actually see more benefits coming out of this lockdown?

So Ali, first of all, I want to correct if we have given an impression that we see a very early recovery. I think all of us are living in the same world, we'll have to wait for things to get better. So if you got that impression, I would like to correct that. In terms of market shares and competitive positioning, I think both on demand side and from supply side, we are very confident that we are significantly increasing our share and strength in the market. And you'll see, in all times like this, the stronger brands get more preferred; consumers gravitate towards stronger brands, well-known propositions; familiarity and trust becomes important. So that's one part you see category after category. I don't think I need to talk to you about it. I think what's more important in our industry is the supply side also. So as a prolonged tough year like last year, few people had cash, few people could raise cash, many others had to scale down their business from scale of business, size of operation, portfolio brands, et cetera, and so on and so forth. And to that extent, those who have brands which are strong and ability to fund the growth and have an ambition around that, I think they will definitely gain significantly when this cycle is over. And we are already seeing signs of that. It is not for any other reason that we continue to expand and indicate much faster growth trajectory for our businesses. We're talking about 400 stores in Lifestyle Brands. Pantaloons is talking about getting back to its highest ever expansion of 60 stores kind of numbers. All this is built around because we've already seen strong brands gaining share. And from supply side, our ability to sort of get on to that growth curve much quicker than rest of the players will also be important. And therefore, yes, the weaker brands will perhaps take much longer to recover from that. And there will also be somewhat and at least slightly disadvantage in consumers' mindset -- mind also.

Got it. One more question on -- I just want to follow-up on what Vishak gave an example on the previous question about kind of having a lot of your costs being indexed to your revenues. Would you say that there are any costs that you have kind of created savings which would have some level of permanency in nature, and you would see kind of relatively better margins as you come out of COVID? Has there been any cost savings basically, which would be permanent in nature?

So I think Vishak was talking about large cost of rentals. But many other -- see, one of the things -- even in rentals, what we have learned through this whole exercise is, how to build the next set of stores, what kind of initial agreement should we have. So there would be some of those learnings which will hopefully result into a more sort of flexible model for us. But there are many other areas where the use of technology has significantly brought down need for parts of overheads, whether it's travel, organization, the activities that we were doing, that we have decided or found that we're not as productive. So clearly, when you do almost a bottom-up exercise in situations like this, it does leave you with some numbers on that. I won't be able to give you exact numbers, but I think clearly, whether it's overheads, whether ways of working, whether use of enablement of technology to reduce or just getting rid of some activities which are happening, greater effectiveness and productivity and things like marketing and even a base business model from store viability point of view, rental structure point of view. Some of those costs will definitely be much better off than we were pre-COVID times.

So is it safe to assume that when you reach probably a stable state base of INR 9,000 crore plus kind of revenues, whenever that is, you would relatively have better EBITDA or whatever margins versus what you would be doing earlier?

Yes. Ali, that's what our hope would be at that point of time. We've had a lot of learnings around cost in this period.

The next question is from the line of Ashish Kanodia from AMBIT Capital Private Limited.

I just wanted to understand how the consumer behavior has changed while shopping online between, say, 1Q and 2Q when the markets were closed and then gradually into the 3Q and 4Q when the market opened up. So when you look at the product portfolio, which was selling online during 3Q and 4Q, was it more skewed still towards your utility products? Or did you see a higher share of demand coming from fashion products as well? That would be the first question.

So Ashish, I'll get Sangeeta to answer that question because Pantaloons does sell a very large sort of breadth of product categories and price points from ethnic, western, men, women, kids, accessories, apparel. I think she has a better sense on what happens across product categories. Sangeeta, if you can take that question?

Ma'am, we are not able to hear you. Hello?

I'm so sorry. Can you hear me now?

Yes, ma'am.

Yes.

So if I had to replot the year, we saw different consumer trends as [Technical Difficulty] post the first wave kind of receiving and as the stores started opening. We saw very high demand initially and a lot of pent-up demand for casual products, right? And that's the way we all were at working from home. So the wardrobes kind of changed significantly, and we saw a lot of that behavior, and we saw that reflecting in our category. So in menswear, we saw more casual clothes. We have a label called Agile where the sales kind of stepped up. Likewise, in women's, there's a label called Dreams that we have. These are our private label brands. We saw that. That's the first trend that we saw. The second thing also, I think kids, as a category, has done exceedingly well for us. And we know, in case of kids, the cost can outgrow. Consumers have to buy clothes for kids. And you -- there is a constant demand that keeps surfacing, and we saw an increase in kids as a category. When it comes to festive, we saw demand for festive coming back after a while. Overall, we see a rebalancing in terms of our categories. The casualization trend continues. But I think in quarter 3, we saw a demand for fashion products coming back. In terms of categories, men's and kids, we have seen overindexing versus where they were. So it's been a shift in demand. And as I said, we've done everything possible to cater to the [Technical Difficulty] very quickly to cater to those demands. So I hope I've answered your question. As of today, again, things have changed. But quarter 4, we saw good demand for fashion products coming back.

I'll just add one point to that, which is on wedding wear, especially in the Madura segment, we have seen an amazing consumer response. Even in the small windows that consumers got to shop, they have shopped with their heart on wedding wear. So I just thought I'll add to what Sangeeta said.

Sir, my question is more on the e-com. When you look at whether it's wedding or kidswear, right? And when the market opened up gradually in 3Q and 4Q, did the demand online sustain? Or did you witness a slowdown in online demand and basically, this demand moved to off-line? So what I'm just trying to get is that when we think of whether it's a kidswear or maybe a fashion-oriented product, we'll look until your fit is more important. Those demand did you see moving back from online to off-line during 3Q and 4Q?

So I can comment. Do you want to go Vishak? So in terms of the demand on e-commerce, I think one of the things we've done is we expanded our assortment very rapidly on that. And we see, while the demand in quarter 2 was much higher for kids, we saw that leveling out and evening -- leveling out between online and off-line. But the overall pattern for demand was the same between e-commerce and off-line, if that's your question. We saw a little bit of tempering of demand, but I think we are back to seeing very heavy demand in the online segment once again. So if altered, we also saw the same consumer now has become more comfortable shopping both online and off-line. And when off-line is not a possibility that one of the big pivots we've seen in terms of the shift in consumer behavior is that consumers who had never shopped online have started adopting online channel very comfortably.

Sure. And just last question is, when we talk about fulfillment from our stores, so in case of stores where you have a renew sharing model and this online order gets fulfilled from those stores, does this order also become part of that revenue sharing model? So do you pay a rent on those online orders as well?

Okay. Simple answer is yes. Look, our relationships with our partners, et cetera, are built on much larger overall business discussions. And this is one of those many ingredients which go into that. So at the end of the day, the business has to make financial sense for us and it has to make financial sense for the mall partner. Some of these are transactional things that could be -- they are worked out with the mall specifically. But the simple answer is yes, it is part of the revenue in the store.

Ladies and gentlemen, that will be the last question for today. On behalf of the management, we thank all the participants for joining us. In case for any further queries, you may please get in touch with Mr. Rahul Desai or Mr. Amit Dwivedi. You may now disconnect your lines. Thank you.