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

Ladies and gentlemen, good day, and welcome to the conference call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief overview by the company's management on the recent corporate action followed by a question-and-answer session. Please note that the company is still in its shut period. So request you to please restrict your questions to the specific event and cover strategic aspects only. Housekeeping questions can be separately dealt with the IR team. We have with us today, Mr. Ashish Dikshit, Managing Director; and Mr. Jagdish Bajaj, CFO. I want to thank the management team on behalf of all participants for taking valuable time to be with us. I must remind you that today's discussion may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. With this, I hand the conference over to Mr. Jagdish Bajaj. Thank you, and over to you, sir.

Thank you. Dear all, good day, and welcome to the conference call. It gives me immense pleasure to share an important update with all of you about demerger. As you are already aware, on 1st of April, our Board had directed the management to evaluate the proposal of a restructuring exercise. Pursuant to that, this Friday, 19th April 2024 the Board of Aditya Birla Fashion and Retail Limited has approved the proposal of vertical demerger of Madura Fashion and Lifestyle business from ABFRL into a newly incorporated company named as Aditya Birla Lifestyle Brands Limited, which will be listed separately post the demerger. This demerger will enable creation of 2 separate listed entities as independent growth engines, addressing distinct capital structures and parallel value creation opportunities, thus unlocking significant value for the shareholders through independent market-led valuation. On receipt of necessary approvals, the demerger will be implemented through an NCLT scheme of arrangement. Upon completion of this demerger as per the share entitlement ratio recommended by the independent valuer and opined on by fairness opinion advisers, the shareholders of ABFRL will get 1 share of Aditya Birla Lifestyle Brands Limited for every 1 share in ABFRL in addition to their existing shareholding in ABFRL. The business assets and liabilities will be split between the 2 companies in accordance with the prescribed regulatory framework. In line with the norms, the overall ABFRL borrowing which is estimated to be approximately INR 3,000 crores as of 31st March 2024, will be split between the 2 companies as on appointed date that is first April 2024. As of this date, the estimated date to be transferred to ABLBL that is Aditya Birla Lifestyle Brands Limited will be approximately INR 1,000 crores, and the balance will continue to stay with ABFRL. These will be the opening debt positions in 2 respective companies till the effectiveness of this scheme. Just to clarify further, the Newco that is Aditya Birla Lifestyle Brands Limited, the opening date as on 1st April 2024 will be approximately INR 1,000 crores. Within 12 months after the completion of the demerger, ABFRL plans to raise approximately INR 2,500 crores equity capital to strengthen its balance sheet and fund the growth of remaining businesses housed within itself. Promoter Group will fully support the proposed equity raise in the company. Let me elaborate on the 2 business segments. As you know, ABFRL currently runs a diverse portfolio of fashion brands and retail formats, with key business segments comprising of Madura Fashion and Lifestyle, Pantaloons, Ethnic portfolio, along with other new growth platforms. The Madura Fashion & Lifestyle business segment, consisting of 4 lifestyle brands, namely Louis Philippe, Van Heusen, Allen Solly, and Peter England, along with casual wear brands, American Eagle and Forever 21, sportswear brand Reebok and the innerwear business under Van Heusen will be demerged into separate listed entity. With its current run rate, this portfolio has a combined scale of INR 8,000 crores on annualized basis. This business over the years has built a leadership position in its segment and has a proven track record of delivering consistent revenue growth, strong profitability and free cash flow generation, along with high ROCE. As a separate listed entity, the business will be able to pursue its independent growth and value creation trajectory in a more focused manner. Post demerger, the remaining ABFRL will be an attractive portfolio comprising of multiple distinct high-growth platforms in large addressable markets with significant value creation opportunities. The portfolio will comprise of following 4 segments: First, the Value and Masstige segment, retail play under Pantaloons and Style Up; second, Ethnic portfolio, one of India's most comprehensive Ethnic wear portfolio covering multiple occasions, price points and consumer segments, including designer wear partnerships and recently acquired portfolio of TCNS plants; third, the Luxury portfolio, a fast-growing bridge-to-luxury and luxury platform of The Collective, Galeries Lafayette and select luxury brands; and the last fourth, TMRW, a leading portfolio of digital-first fashion brands. This portfolio within ABFRL currently has a run rate of approximately INR 7,000 crores plus on an annualized basis and is expected to grow rapidly. To suitably fund the growth of these businesses and to infuse the strength in the balance sheet, ABFRL will raise external equity capital of INR 2,500 crores with backing from promoters. To conclude, over the years, our portfolio has evolved from 4 brands to more than 30-plus brands across various lifestyle categories, mirroring the evolution of our consumers and their purchase patterns. For the next stage of growth in these businesses, we believe they need to be structured appropriately with a simplified architecture that could enable businesses to follow their own growth plans as well as unlock distinct value creation opportunity. The separate structures would sharpen strategic focus and ensure clear capital allocation. The 2 separately listed entities will allow participation of right set of investors and strategic partners in line with the appropriate risk profiles and will encourage better capital market outcomes. The proposed demerger will be subject to necessary regulatory approvals and may take between 9 to 12 months for implementation. Please note that the TCNS scheme, which is already in the NCLT process will precede the implementation of this demerger scheme basis the approval of NCLT. Thank you for your time today, and we are happy to take your questions.

[Operator Instructions]. The first question is from the line of Nihal Mahesh Jham from Nuvama.

Just checking, am I audible?

Yes, Nihal. We can hear you.

Sir, 3 questions from my side. First is, was the trigger of this transaction mainly from a perspective of value unlocking or any other considerations that came to consider the demerger?

Do you want to ask all 3 questions or let me go at this one first. I think this is -- so Nihal, the -- as you -- if you look at our business and our trajectory over the last 4 or 5 years, as we had identified the strategy to play in all meaningfully large segments of Indian apparel industry and as a part of that strategy, we had invested in partnerships. We had entered new segments. We had acquired new businesses and built a portfolio of multiple large platforms. At the next level of taking these businesses, we needed to raise capital and we felt the best way to raise capital is to raise capital for the businesses who need capital and keep the businesses who are self-funded, mature in their sense and are able to pursue their own growth trajectory separately. And that led to thinking around separating into 2 businesses. One which has a clear proven track record, own ability to raise cash and pursue its own rat race trajectory, which is the Madura part of the business. And the other business, which needs capital, and therefore, it's best to raise capital in that entity, which again has very high growth, perhaps even larger growth runs and multiple growth opportunities. So that's the rationale for this fund raise, this structuring.

That's clear, Ashish. So a related question to that was that in the future, right to think that Madura would continue to be this core brands, whereas all the incremental ventures into new opportunities would be via the existing ABFRL, which will include Pantaloons and new avenues. Would that be the right way to think of these 2 businesses in the future?

I think a better way to think about it, Nihal, as we have been articulating and consistently executing on our strategy on where we want to play. We now, as we have said over last couple of calls, have clearly well-defined canvas in each one of them, very strong assets in each one of them. And therefore, as we look at the medium term of the business, we don't see the need to actually add more vehicles to it. We now have clearly separated the 2 vehicles on where capital is required and where the capital is not required and I think we can pursue clear independent strategies in these 2 companies.

Sure. The final question was, if you could at present, give a ballpark split of the fixed assets and working capital and the lease liabilities for the 2 businesses, are they given a ballpark bifurcation for the debt?

So Nihal, we are filing the scheme with the stock exchanges today and in next few days with the December cutoff. But we have worked it out the debt number, approximate debt number as on 31st December 2024, because my audit is still on. So let me tell you, the demerger is under Section 219 AA of Income Tax Act. The section sets the framework for a split up of assets, liabilities and borrowings. Borrowings could be specific and for general corporate purposes. In our case, the specific borrowing is relating to only one series of debentures, which will remain in ABFRL. Rest all our general corporate purposes are borrowings, which will be split up as per Section 219 AA explanation 2C that is in proportion to assets transferred to the total assets of company. The debt allocation is based on estimated debt on -- estimated borrowing as on 31st March 2024. That is I already conveyed in Madura part of business is estimated to be approximately INR 1,000 crores against the total borrowing of INR 3,000 crores. The allocation is also vetted by our tax and legal advisers and certified by auditors.

I think, Nihal, you'll have to wait for our March results, post audit and we'll -- you'll have the exact details there.

That is right.

We've tried to give a sense of debt number because that's a singular number on which we have a reasonable degree of visibility at this point of time.

The next question is from the line of Devanshu Bansal from Emkay Global.

I wanted to check here, you mentioned that we'll be raising another INR 2,500 crores of money in the left entity which is ABFRL. Can you highlight as in what will be the exact purpose of that capital? Will this largely be further debt reduction or will be remaining with the debt and using it for growth purposes as well?

That clearly is a combination of both. As you know, we have multiple businesses in that segment. And each one of them has very large runway and growth potential. So essentially, the capital raise will fund the growth that these businesses have. And to the extent there is a debt sitting on the book, we'll have to maintain the balance sheet also, so we'll strengthen the balance sheet to that extent.

Mr. Dikshit, can you help us understand the INR 7,500 crore run rate that you've spoken about for this business. I guess, we will still be at a pre IND-AS EBITDA loss of about INR 250-odd crores, right, for this part of the business. As in what is going to be the trajectory of at least operational losses in this part of the business, if you can share some thoughts about that.

We can't comment on that. I don't know which business are you talking about? I couldn't hear you correctly. Can you repeat your question?

Sure, Sure Mr. Dikshit. I was speaking about the remnant business in ABFRL. Jagdish talked about that this is currently at a run rate of about INR 7,500 crores. What my sense suggests this would still be at a pre IND-AS EBITDA loss run rate of about INR 250 crore to INR 300-odd crores. I wanted to get some sense if you could help us understand what is the trajectory of profit going to be in this business.

So I think in this call, we are more focused on the structure of the scheme itself. I don't want to give any forward-looking projections at this point of time. But I'd like to reassure, I think the number that Jagdish was talking about -- was about INR 7,000 crores of the revenue run rate, which is the current run rate of that business. As far as EBITDA and other numbers that you're talking about, we will perhaps at some point of time come and talk about the future projections for this business, but we are not talking about it in this call.

The next question is from the line of Tejash Shah from Avendus Spark.

Three questions from my side. So first, see, we always had this ambition of -- to emerge into a fashion powerhouse in terms of having multiple formats, multiple categories, multiple brands. And then it always appeared at least theoretically, it always appeared to be kind of appealing and synergistic. So just wanted to know as -- the first question is also that the trigger of the transaction. And how do you see that vision getting compromised in terms of operational synergies or sourcing synergies or branding synergies going ahead?

Tejash, we have always run these businesses. As you know, you are aware these are fairly strong organizations by themselves. Each one of the parts of the businesses, whether it is Madura business, Pantaloons business, innerwear business, Ethnic businesses, in fact, multiple ethnic businesses in that sense, run by a truly comprehensive and complete management teams led by a CEO in each one of the businesses. And the synergy, which came through management, come through common best practices, many of those things will -- these are 2 entities within Aditya Birla Group and to the extent there is value in synergy, we will be able to extract that. But these are independent businesses, fairly differential business models, different rates -- stages of their evolution. And to that extent, I think we felt that it would be more clearer to run them as -- and particularly from a capital allocation point of view, capital raise point of view, capital deployment point of view, the 2 clear segments were emerging, one which had reached both the size and scale and ability to grow and still pursue growth with their own capital as well as other set of businesses which have very long runway that needed additional capital. And therefore, raising capital together didn't make sense at that point of time and both have become large enough. And therefore, that's really why it led to this structure. We feel we'll be able to manage reasonably good synergies through management cooperation. These are both teams of Aditya Birla Group. And to that extent, we found a mechanism by which the common learning, the best practices, et cetera, will continue to get shared.

Sir, second question on Pantaloons. So obviously, you kind of justified why this part of the other portfolio and not with lifestyle brands. But was just wondering, just from the explanation on the definition that you just gave, from ability to self-fund growth, Pantaloons was almost reaching there. So was there any thought that can Pantaloons be part of this portfolio, let's say, as an investor, somebody wanted to play a mature portfolio of Lifestyle Brands and Pantaloons [indiscernible].

Yes, we -- Tejash, when you do this exercise, you think about multiple combinations of what is the best way to do it. We felt the opportunity for Pantaloons today, which is in a masstige retail segment, Style Up that is just under that and overall opportunity in that segment, combined with the slightly higher capital lead model that retail needs versus a franchisable Madura small brand format or a small-store format model, we felt that the nature of the businesses is distinct enough and the long-term need for capital in that segment will continue to perhaps be there as we pursue this opportunity at the next level of scale and size. And we reached this conclusion that it's perhaps best done in this format.

Got it, got it. And sir, last one, if I may. See, Madura portfolio, Lifestyle Brand portfolio always had this imperative to support many emerging projects or emerging initiatives that we had taken on the other end. Now with most of those being carved out, how should we think about capital allocation philosophy of Lifestyle Brand portfolio alone going forward?

So Tejash, there also, if you look at it over the last few years, we have done multiple things in the demerged entity that you talk about. So first of all, I would say each of our brands has spent over last few years significant effort in creating new categories, new occasions, casualization has been a large theme and therefore, multiple growth opportunities in the 4 Lifestyle Brands themselves have come. What we have added to that portfolio is young denim and fast fashion portfolio as well as Reebok, which are both opportunities by themselves. You know the size of sportswear market in India -- in this country as well as other brands in the segment. And you combine that with the runway that innerwear business has. We have multiple growth options even in that brand from the 4 Lifestyle Brands to youth casual brands to sportswear space where Reebok plays as well as the innerwear market. So multiple growth opportunity is there. All of them are of the kind that they don't need too much capital and are typically either a small brand format for growth or which can be franchised far more easily? Or in case of innerwear includes wide distribution, which is, again, less capital intensive.

The next question is from the line of Varun from ICICI Securities.

Am I audible?

Yes, sir.

So my first question is on the line of thinking, while we were kind of deciding to bifurcate kind of which brand to keep in which of the 2 separate entity, so for example, why TCNS would be categorized in Aditya Birla Fashion and Retail whereas I would maybe look at TCNS more as a brand compared to other retail. And similarly, Forever 21 into Aditya Birla Brand Limited. That's my first question.

So I think -- well, my question, our division is not retail versus brands. All brands typically and increasingly so are becoming vertically integrated retailers in that sense. So most of the brands are owning their own retail. If you look back 10 years back, the share of retail used to be less in most brands. Increasingly, brands and retailers are difficult to extinguish beyond a point. So our division is not on that segment. We looked at parts of the businesses and the nature of businesses, which have reached very distinct and, I would say, well-stabilized state and the businesses which have high growth potential, but currently require capital to come to the stable end. And TCNS is a part of the overall ethnic portfolio. Along with the other ethnic brands, which either we have invested in, in partnership with designers, all the brands that we have launched, brands like Tasva, are in early stage and our Ethnic portfolio combined with the TCNS entity today is the largest Ethnic portfolio in the country today with close to INR 2,000 crores, a little bit more than INR 2,000 crores of annualized run rate. And we feel that keeping them together will create a very powerful Ethnic portfolio, which can both learn from each other and over a period of time, can feed into the entire ecosystem. And therefore, it needed to be kept together. And that's the rationale for keeping it.

Okay, understood. And sir, my second question is on the -- like how the organizational structure in both the companies will look like? Will it be similar compared to, I mean, what you see as on today for both the entities?

At the highest level, well, as we said, these businesses for long have been run as fairly complete and comprehensive organization run by fairly seasonal professionals and CEOs and so on. That's part of the overall management philosophy that Aditya Birla Group has for the business. As far as specific independent companies are concerned, during the next 9 to 12 months and closer to the actual demerger, we'll look at the structure. I think the Board will have to take some decisions regarding the management structure, and that will become clearer, closer to that time.

The next question is from the line of Sameer Gupta from India Infoline.

I have 3. I'll be quick. So firstly, sir, just a broad indicative time line on this demerger. I know you -- Mr. Bajaj said that it will happen post the TCNS 49% stake acquisition. But just any other sort of guideline as to 6 months, 12 months? Or how do you envisage when the demerger will play out based on all the set of approvals and requisite things that you need to do?

So Sameer, I have said that we will try and complete this process in the next 9 to 12 months' time, which include the filing of the scheme with the stock exchange that will happen next week. After that, it will go to NCLT. And then the court-convened meeting, et cetera, but court-convened meeting we propose to do only once the TCNS approval is in place.

Got it, sir. And second question, sir, in the press release, you have written that the promoters will fully participate in the equity raise capital. Just want you to elaborate on what exactly does this mean?

So Sameer, to some extent, the exact nature of the fund raise is not finalized yet. This is still to be discussed and we still have time 6, 9 months to come to exact nature of fund raise. But this basically validates support from the promoter to the next company and the overall ambition which Aditya Birla Group has for its fashion business, it's a reconfirmation of that fit.

Got it, sir. So it doesn't really mean that only promoters will participate. It is still open and there is a kind of certainty that this INR 2,500 crores will be raised. If not, the promoters will fully participate. Is that understanding correct?

Yes. So this is to indicate one broad amount of fund raise that we want to do and the fact that Aditya Birla Group will be fully behind the fund raise. The nature and the mode of fund raise is still to be decided.

Got it, sir. And last question from me. This net debt number, based on FY '24, there is a chance that there will be some changes till this process is finalized. So how is that incremental debt, if any, will be split between the 2 entities?

See, the 31st March 2024 audit is still on. So we have done the calculation. Therefore, I'm telling you the approximate number, it will be in a range of around INR 1,000 crores, right, not more than that, around that. So after that -- this is the opening balance for the Newco on 1st April, this number. After that, they have their own cash generation, and we will run this business in trust for them till the effective rate.

So there's likely to be -- there's unlikely to be a very large deviation, Sameer, because we are indicating a number which is close enough to what we see at this point of time. And there will be a marginal up and down, which happens in the normal course of final audit. But it's unlikely to be very different.

Next question is from the line of Ankit Kedia from PhillipCapital.

Sir, just one question on my side on the leadership structures of both the entities. So we have Vishak, who is the CEO of Madura; and we have Sangeeta, who is the CEO of Pantaloons and Style Up, and both of them report to you. So going forward, how will this structure change?

Just to complete, as we operate today, Vishak heads large part of Madura business. Most of the Lifestyle -- all the Lifestyle Brands; Reebok, American Eagle, Forever 21. We have a CEO who runs Innerwear, it's Puneet. Sangeeta runs the retail formats in the value and the masstige segment, which is Pantaloons and Style Up. We have a CEO Sathyajit who runs the luxury and the bridge-to-luxury formats of collective international brands and the proposed Galeries Lafayette project. Our Ethnic wear business has multiple CEOs due to the nature of this business. TCNS is headed by its CEO, which is Anant. Suraj heads other designer brands and we have separate CEO for Sabyasachi. So as you know, we focus on each of the large business as independent entities with clear management structure. TMRW has a separate CEO. Prashanth runs TMRW business as a CEO. As we go forward, as I mentioned in the earlier response, closer to the actual period at somewhere between now to next 6 to 9 months, we'll figure out the kind of management structure that will be required to run the 2 companies separately. There will be announcement and perhaps that will be done by the Boards of the independent 2 companies separately and we'll let you know in the due course of time.

And one last question is how much time will it take to complete the TCNS merger?

So we are awaiting direction from NCLT. That should come in this week. And in next 4 months’ time line, Ankit, we will be able to -- we are hoping we will be able to complete it.

The next question is from the line of Ashish Kanodia from Citi.

Yes, sir. The first question was on the debt buildup on the Lifestyle part of the business. So that business has been a free cash flow generating business, a very high ROCE business. So just wanted to understand, when you look at that INR 1,000 crores kind of a number, if you can just give us a ballpark idea in terms of what led to that number? And maybe how much was for the innerwear business and how much was for the -- the core Lifestyle Brands?

See, Ashish, there is a prescribed formula which we have to adhere to if we have to qualify for the demerger. That is under Section 219 AA, which I explained to you. That section provides how the general corporate purposes debt needs to be allocated. That is in proportion to the total asset transfer to the total assets of the company. That's how this debt number is derived and vetted by the legal luminaries those who are advising us in the -- on these transactions.

Got it. And maybe just the second question was now TMRW will be part of the ABFRL post the demerger and there is a plan to raise INR 2,500 crores of equity in the new entity -- in the ABFRL entity, but there was also a plan to raise external fund within TMRW because that was like a separate strategy and that business might continue to need more capital than other businesses. So does that strategy still remain intact? Or will there be any change in the TMRW's fund raise plan given the demerger?

No, I think we have consistently maintained that TMRW will have its own funding trajectory. We'll continue to run TMRW as a separate independent entity, which will raise its own capital and that journey will continue. So this INR 2,500 crores that we are talking about is for ABFRL, for its growth purpose. We'll separately continue to find the right time and opportunity to raise capital for TMRW, which probably will be during the course of this year. So that's a separate funding plan for TMRW. This is to say that we feel that the different nature of the businesses will attract different kind of investors. And therefore, we want to clarify that and bring different stages of business to different sets of investors. And that clarity is what we are providing through this structure. TMRW is always to be funded separately, and that's the plan that we'll follow.

The next question is from the line of Naveen Baid from Nuvama Asset Management.

Sir, you said the new entity is likely to have debt of roughly about INR 1,000-odd crore. Just wanted to clarify that this does not include the lease liabilities.

No, no, this is the borrowings I'm talking about. Lease liabilities are specific to those asset -- to this business that will come together.

The next question is from Nisarg Vakharia from NV Alpha Fund Management.

Yes, sir. The reported EBITDA for Madura Garments comes separately as a part of the stand-alone business. There is a INR 176 crore reported pre IND-AS EBITDA loss in the Lifestyle Brands. Now you've made it very clear that we are going to get not collective, and we are going to get Reebok and Van Heusen and American Eagle. Can we know an indicative number of the EBITDA loss that is going to come into the listed company indicatively -- sorry, in the new company?

So it's too early for us to talk about. I don't know which pre- IND-AS EBITDA loss because we don't refer to pre IND-AS numbers. And to that extent, I don't think this entity has a loss in this period. But I think if you have any further clarification, you can talk to Amit subsequently, reach out to him. Nisarg, in this call, we are not giving any forward-looking numbers. And we'll focus more on the announcement and the rationale of the deal.

Sir, but this is not forward-looking. These are the numbers which are existing in the business today. So you are saying that there is no EBITDA loss that we are doing in the...

There is no pre- IND-AS numbers that we have ever put down in the public domain for the last few years. So I don't know where you're getting the numbers from. That's why I'm suggesting to reach out to Amit and clarify this number.

The next question is from the line of Ankit Babel from Subhkam Ventures.

My first question is again on the INR 2,500 crores equity capital, which you plan to raise. So I just wanted to know, since you have mentioned that the promoter will also participate. Is it fair to assume that the promoter participation would be equal to their current holding in the company which is around 52%, just so that they can maintain their shareholding?

So I think as we discussed in the previous couple of questions, the nature of the fund raise and the instrument that we'll use is not decided. I think from what our intent is obviously that the entire fundraise will have very strong support from promoter. At this point of time, since this instrument is not decided, it'll perhaps be speculative to get the exact shareholding and the nature of participation.

Instrument in the sense, but it would be an equity capital, either by way of QIP or a preferential or right or anything, but it will be equity capital. Yes. So just wanted to know, is the promoter willing to maintain its current shareholding? Or they are ready to dilute it?

Actually again depending on the nature of whether it's rights, preference, something else. And therefore, we'll have to decide at that point of time. And different shareholders will decide what the nature of it is.

Okay. And my second and last question is the Lifestyle business. Now I remember a few years back when you had conducted a big analyst meet where you had articulated the next 5-year plans. So in that, you had mentioned that in the Lifestyle business, the potential of that business is to do around INR 1,000 crores of pre IND-AS EBITDA by FY '26. Now -- and definitely, that's excluding the innerwear and the Reebok. So is it possible to achieve that kind of EBITDA now by FY '26, what you had targeted at that time?

Again, it will be amounting to giving an estimate for next year numbers. I think at this point of time, we'd stay away from it. But let me reassure that trajectory in Lifestyle Brands over last 10, 15, 20 years have been fairly consistent. And the business has continued to trade track on the lines that we have indicated. And to that extent, our -- so there's robustness and predictability around that business. I don't want to give an exact number, we don't have it right now in front of us either, nor is that the purpose of this -- today's call. But it's been a fairly stable business, which is growing at a fairly predictable rate and a very strong business model.

Okay. Okay. And any plans of that INR 1,000 crores debt which will be there in this business, any time line that would you like it to be a debt-free company say in a couple of years? Or you will maintain -- that debt position will be maintained? Because the free cash flows would be very good in that business.

Yes. I think the cash generation ability of that company, that part of the business although we'll grow the business more aggressively and it has multiple growth opportunities, including Reebok, innerwear, apart from the 4 Lifestyle Brands, but it's a fair observation. We expect over next 2 to 3 years, debt to be significantly lower, if not complete 0. And I think that's the kind of trajectory we see for the business.

[Operator Instructions] The next question is from Nishant Sharma from Nuvama Wealth Research.

My question is more like a follow-up question to earlier participant related to the time lines. Sir, on the TCNS merger, are we yet to get shareholder approval from both the companies?

Yes, please. We have yet to see the direction from NCLT. Only after that, we will go to shareholders. So it is still pending. But hopefully, we are hoping that it should be done in the next 120 days’ time line.

Okay. And sir, can we file -- I mean can we file another scheme of arrangement with NCLT when one is already going on like the -- unless and until we get a final verdict on NCL -- TCNS merger, can we file the new scheme of arrangement with them for this demerger? Is that possible?

In our scheme, we have said this is one of the condition precedents. And I think we are going with that assumptions because we are trying to complete this in the next 9 to 12 months' time. So first, we will file with the stock exchange. After hearing from them, we'll go to NCLT. By then, hopefully, we'll have much more clarity about TCNS. So we kept it [indiscernible] in our scheme.

Okay. So for our demerger, the next process ideally would be filing with the exchanges, which I don't think so required the NCLT filing or the first NCLT filing will be done. And then based on their recommendation, we will go for exchange approval and subsequently shareholder approval?

First, we'll go to stock exchange. Only after that, we'll go to NCLT. And then NCLT will direct us to hold the various meetings with the shareholders and creditors.

The next question is from the line of Garima from Kotak.

One question, and this is mostly for the Madura business. Now that it actually has access to all of its cash flows, et cetera. Can Madura itself become more aggressive with growth and think about more investments in the field's various business segments that it is present?

I think, honestly, Garima, at this point in time, we think the Madura part of the new entity, which is Lifestyle Brand Limited has multiple growth opportunity in the form that it exists in today, which is the 4 brands. Reebok is a very large opportunity in the broader sportswear space. It's very early stage, just a year from the time we have effectively taken control of the business. Innerwear business has a very long runway in front of it and there are multiple brands that we could play that out and the youth fashion is also a large space. I think our initial focus at this point of time is going to be on strengthening and accelerating the current portfolio that we have, which itself is both diverse and can grow much faster with that. And that will be the intent at this point of time. Of course, in the due course of that business, the Board of that company may decide something else. But in the medium term, this is the strategy that we see going forward.

Understood. Now in the ABFRL, the post demerger ABFRL, where do you think most of this capital allocation will go to? Should we construe that most of this goes towards the Ethnic wear business, which is the most sort of nascent part of that entity?

Yes. I think amongst the portfolio, Ethnic wear will take because particularly Tasva needs capital, some of the designer businesses have very large growth ambition and possibility there, they are -- they will need some capital. So total put together, I think that will be the largest part of it. There is a onetime investment in the Galeries Lafayette first store that we are talking about, so luxury will take a little bit of investment. Value Retail, while Pantaloons perhaps will generate enough to fund its growth, the Style Up would need next level of capital. And as the market improves, we have obviously planned to grow Pantaloons and Style Up portfolio also much faster. So I think all the 3 businesses in ABFRL will take capital, but the order perhaps may be Ethnic, followed by Value Retail, followed by Luxury.

Next question is from the line of [ Shrey J ] from Swan Investments.

My first question is, sir, the INR 2,000 crores of debt that stands in Pantaloons business. So what is the time line or the schedule, so to say, for the repayment of debt. And a related question to that is, what is our capital allocation sense in that business? Would we want to repay off debt? Or would you want to chase growth in that business? So how do you look at this whole piece?

So the INR 2,000 crore debt is a mix of long term, short term and the working capital, [ Shrey ]. But it is 3/4 portion, around INR 1,000 crores, INR 1,500 crores is more than 2 years and rest all is at the shorter end. The second question is, where will we use this equity raised money? That is your second part?

Yes. I think the capital allocation part that you talked about, it's very similar to the question that Garima had asked earlier. See if you look at all the 3 businesses within this portfolio, whether it's Ethnic wear brands, Pantaloons plus Style Up portfolio, which is the Value Retail or the Luxury, to a lesser extent, Luxury. But between the Value Retail and Ethnic wear, we have just acquired or launched multiple businesses and the growth possibilities in each one of them are very large. So there will be growth capital, which will be required to get these businesses to the level of stability and size that they become self, sort of, funding businesses, and that's clearly where most of the capital will go.

Okay. And secondly, sir, so we understand that you're targeting more the Ethnic and then the others. But just we wanted to understand is, would you be okay with a little bit of debt on the Pantaloons' books or looking at the past trajectory of a company, would you want to repay off debt and then chase growth? So just wanted some understanding on that. And second is on the Madura bit that comes in. So you're also -- would you want to chase growth in Reebok? Or do you think the 4 brands that we have there, the larger portion of your capital will be deployed? So just some sense on that business as well.

On the second one, I think we've already talked about [ Shrey ], which is the 4 brands don't need much capital even to that extent, even Reebok doesn't need too much capital because it's mostly franchise-led growth in small format retail. And to that extent, that entity will generate positive cash flow after pursuing all options of growth for itself and therefore it's simpler response there. In the ABFRL entity, which has multiple opportunities, we have obviously invested and carefully created this portfolio of Ethnic wear, of Value Retail as well as entered the Luxury segment. The whole intent of the strategy we'll have to play it out over the next 2, 3 years for each of these businesses to become meaningfully large, competitive and achieve their full potential. And to that extent, the whole idea of this fundraise is to continue that journey. And to that extent, if there is small amount of manageable debt which sets in for the company that we'll have to manage.

The next question is from the line of Jasmine Surana from VT Capital.

I wanted a little long-term view from your perspective. I wanted to understand in case of any mergers and acquisitions that we might be doing in the long term, what would be your rationale or what would be your view on deciding whether the business should come into Madura or whether the business should remain with the Pantaloons side of the segment? I wanted to understand how would we categorize those M&A opportunities? And if at all, you feel the company would be ready for M&A opportunities, if it is still on your mind after the demerger?

So I think I'll repeat what I've said several times over the last couple of quarters that we had a clearly laid out strategy, announced 4 or 5 years back. We have executed that strategy. And as a part of that strategy, at this point of time, we don't have too many wide spaces, which are large, attractive or meaningful for us to look at it. To that extent, the company is in a consolidation phase of making more out of what we have. But to your previous question, which is really how do we select which parts of the businesses lie there. Clearly, we have taken a path of Value Retail, which will lie in ABFRL and luxury retail, which lie in ABFRL. The only other thing that we have added here is the Ethnic business, which is a combination of multiple formats that we have in that business. Very early stage. Over the next 3, 4, 5 years, this will be a very large part of the business. As I said, it's already Ethnic wear is close to INR 2,000 crores annual -- annualized run rate. We expect it to be INR 4,000 crores to INR 5,000 crores in the next 3 years, and that's really the size of opportunity we want to build it. While Madura side will build largely Western branded small-format businesses. And that's the kind of opportunity that we have created on that side of the business and that's the path that we'll pursue there.

Thank you very much. Ladies and gentlemen, on behalf of the management, we thank all participants for joining us. In case you have any further queries, you may please get in touch with Mr. Amit Dwivedi. You may now disconnect your lines. Thank you.