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

Ladies and gentlemen, good day, and welcome to the First Quarter Earnings Conference Call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief discussion by the company's management on the Q1 FY '27 performance, followed by a question-and session. [Operator Instructions] Please note that this conference is being recorded. We have with us today Mr. Ashish Dikshit, Managing Director; Mr. Suraj Bahirwani, CEO, Pantaloons; and Mr. Jagdish Bajaj, CFO. I want to thank the management team on behalf of all the participants for taking their valuable time to be with us. I must remind you that today's discussion may include certain forward-looking statements and therefore, must be viewed in conjunction with the risks that the company faces. Please restrict your questions to the quarter performance and to the strategic questions only. Housekeeping questions can be dealt separately with the IR team. With that, I would now like to hand the conference over to Mr. Jagdish Bajaj. Thank you, and over to you, sir.

Thank you. Good evening, everyone. Thank you for joining us today for the Q1 FY '27 Earnings Call of Aditya Birla Fashion and Retail Limited. From a demand perspective, the environment remained broadly stable and largely in line with trends seen over the last few quarters. Within the period, consumer traction was relatively better in May, while June reflected the market dynamics in the lead up to the market-wide end of season sale. Overall, consumption trends remained steady across categories and channels. Occasion-led consumption, however, saw some moderation as Adhik Maas impacted the peak wedding season and consequently led to lower wedding-related purchases. Against this backdrop, ABFRL sustained its double-digit growth momentum with healthy traction across key businesses, underscoring the resilience and strength of our diversified portfolio. Our retail channel, in particular, remained strong across the portfolio, supported by upgraded merchandise, sharper assortment, improved in-store experience and sustained consumer engagement. Now moving to the financial performance of the quarter. ABFRL reported revenue of INR 2,026 crores, registering an 11% Y-o-Y growth. Over the years, ABFRL has built a large diverse portfolio comprising both large established businesses and newer growth platforms. Our established portfolio includes businesses such as Pantaloons, the TCNS, our designer-led brands and the collective and monobrand businesses. Alongside these, over the last 4 to 5 years, we have incubated and scaled several new businesses, including TMRW, Galeries Lafayette, OWND and Tasva. Viewed through this lens, both our established and newer businesses contributed meaningfully to growth during the quarter. Our established businesses delivered steady high single-digit growth. Importantly, this growth was accompanied by margins that remained broadly stable compared with the same period last year, reflecting the underlying strength and resilience of these businesses. At the same time, our newer businesses continue to scale strongly, delivering around 30% Y-o-Y growth, supported by the expansion of the retail footprint and continued investment in building these businesses for the long term. Moving to profitability. EBITDA for the quarter stood at INR 167 crores with a margin of 8.2%. The Y-o-Y decline largely reflects lower treasury income, along with continued investment in scaling our newer businesses. Excluding treasury income, EBITDA increased Y-o-Y, reflecting better operating performance on a comparable basis. At a segment level, the ethnic businesses maintained broadly stable EBITDA, while TMRW continued to demonstrate improvement in its profitability trajectory with Y-o-Y EBITDA losses narrowing during the quarter. Reported loss for the quarter stood at INR 249 crores compared to a loss of INR 234 crores in the corresponding period last year, primarily due to higher depreciation and finance costs associated with new store openings. Coming to the balance sheet and cash position. At the stand-alone level, we ended the quarter with gross cash of approximately INR 1,000 crores. The deployment of this cash remains broadly in line with priorities and framework that we outlined during the previous investor call. We are confident that this cash is enough for us to fund the businesses for next 2 years with annual cash funding requirement of INR 500 crores to INR 550 crores. And by FY '29 and '30, we expect the business to be [ FCF ] positive. On our retail network expansion, we continue to follow a calibrated and measured approach to expansion. At the end of the quarter, our portfolio comprised 1,286 stores, spanning more than 7.9 million square feet of retail space. During the quarter, we added more than 45 stores across the portfolio with expansion focused on markets and brands where we continue to see attractive long-term growth opportunities. Now let me brief you on the performance of individual segment. Coming to the Pantaloon segment, revenue for the quarter stood at INR 1,204 crores, registering a growth -- registering a 10% Y-o-Y growth. EBITDA margin came in at 15.9%, lower than the previous year, largely reflecting the continued scale-up of OWND. The Pantaloon business delivered another solid quarter with revenue growing 7%, supported by a healthy 4% like-to-like growth. The Pantaloons strategy continues to progress well with sharper merchandise, improved fashion relevance and the new retail identity driving better consumption traction. Digital momentum remained healthy, further strengthen the overall omnichannel proposition. On delivered 55% Y-o-Y growth, primarily led by network expansion and increasing consumer traction. During the quarter, we added 10 new stores across the segment, comprising one Pantaloon store and nine OWND stores as we continue to expand the network in key markets. Turning to our ethnic portfolio. It is one of the most comprehensive portfolio with annual revenue more than INR 2,200 crores. This business in Q1 reported revenue of INR 450 crores, registering a 4% Y-o-Y growth, while margins remained broadly stable. This growth has to be seen in context of higher wedding dates in Q1 last year and the impact of Adhik Maas on occasion wear-related purchases this year. Some of our designer wear businesses also got impacted due to lower wedding purchase in context of global disruptions where the order book went down. Despite all this, the portfolio delivered a healthy 5% like-to-like growth, reflecting the underlying strength of the brands and their consumer proposition. As you are aware, our ethnic portfolio comprises two distinct segments, designer-led brands and Premier ethnic. Within the designer-led portfolio, the business continued to deliver profitable growth during the quarter, supported by strong category extension, differentiated collections and high-impact collaborations. Overall, the portfolio grew at a high single-digit growth rate. Now within the premium ethnic wear brand, TCNS, the retail revenue grew 10% Y-o-Y, supported by low single-digit like-to-like growth and network expansion with 8 new stores adding during the quarter. However, the non-retail channels [ degrew ] in pursuit of building them profitably. The portfolio continues to sharpen its product propositions with greater granularity in assortments and a broader merchandise grade designed to cater to a wide range of occasions and consumer needs. Alongside measured retail expansion, these initiatives are beginning to strengthen the underlying business, and we remain confident of building momentum and narrowing full year losses. For delivered robust growth of 35% Y-o-Y with double-digit like-to-like growth, marking the eighth consecutive quarter of positive L2L performance. The brand continues to strengthen its proposition through sharper product differentiation and greater regional relevance, driving healthy consumer traction and helping it gain market share across key wedding markets. Tasva's retail footprint now stands at 90 stores, and we continue to expand its distribution in key occasion wear market going forward. Moving to luxury retail. The collective and monobrand portfolio maintained healthy momentum, delivering double-digit Y-o-Y growth, strong like-to-like performance together with sustained e-commerce traction supported the quarter. The network stood at 51 stores at the end of the period following the addition of 3 new stores. Galeries Lafayette continues to progress well following its launch last November. We are seeing a steady improvement across key operating indicators alongside growing brand awareness and consumer segments, engagements. A series of high-impact brand and celebrity collaborations has also helped drive footfall and reinforce Galeries Lafayette's positioning as a differentiated luxury retail destination in India. Turning to TMRW. Primary sales grew 11% Y-o-Y, while secondary sales increased at a faster pace of 16%, reflecting healthy underlying consumer demand. Importantly, cash losses narrowed further during the quarter, benefiting from improving operating leverage and better scale efficiencies. We will continue to drive the trajectory going forward as well with a clear path to achieve brand level cash profitability over the next 12 to 18 months. At the same time, TMRW continues to strengthen its omnichannel footprint, adding more than 20 stores during the quarter. Including Wrogn, the portfolio now operates over 140 stores across key markets nationwide, providing a stronger platform for the next phase of growth. In conclusion, the quarter saw us carry forward the momentum build from the preceding period with healthy growth across several parts of the portfolio. While we remain mindful of the evolving consumer or macro environment, we will continue to navigate it with discipline and agility, taking appropriate actions as required. Our diversified portfolio strategy continues to play out in line with our expectations. Our established businesses remain on a steady growth trajectory, supported by strong brand, improving consumer propositions and disciplined execution. At the same time, our newer businesses are getting scale and building stronger market positions with a clear focus on improving operating leverage and progressively reducing losses as they move towards greater maturity. As we look ahead, our priorities remain clear: sustain growth in our established businesses with better margins, scale our new platforms responsibly, strengthen profitability and maintain a disciplined approach to capital allocation. We'll also closely look at areas to bring in efficiencies and leverage to make sure the overall profitability is enhanced. We expect the losses to mirror going forward and to build a business that is sizable and profitable in context of the large market opportunity that is the fashion and lifestyle space in India. Thank you. I'm happy to take questions now.

[Operator Instructions] The first question comes from the line of Garima Mishra with Kotak Securities.

First question is on the Pantaloon segment. Revenue for the segment scaled pretty fast this quarter. And presumably, most of this is on account of OWND. So what is the consumer response to this format? And how much of the segment revenue and EBITDA contribution was on account of OWND in [indiscernible]

Thanks. As we have given in the IR deck, Pantaloons business grew 7%, 7.5% this quarter of the total segment growth of 10%. And the remaining was from OWND. So 2%, 2.5% of segment growth incrementally came from OWND. So Pantaloons also did show pretty decent growth this quarter. As far as the profitability is concerned, OWND still continues to be in an investment phase, and therefore, profitability mostly driven by Pantaloons. In fact, OWND has taken away some of the segment profit.

All right. And Ashish, in terms of consumer response to the format and also what are your expectations in terms of store additions for this format?

So at this stage, Garima, we are sort of still watching the format in terms of its adequate profitability. We have still not achieved the segment level profitability, which perhaps will take some time. We will probably add more stores towards the second half of the year. For first half, I think our expansion plan is about 20, 22 stores.

Got it. Got it. Second question is on TMRW. Now in 1Q, TMRW witnessed a slower scale-up of revenue, especially compared with last year. So what is the strategy here? And should we expect this sort of momentum of revenues to sustain in the near term?

So Garima, if you look at TMRW over the last several quarters, the business has been growing close to 25% annually over the last 3 years. Last year, same quarter was much higher, about 39%. On top of that, this quarter, there is a difference between -- a significant difference between secondary and primary, and that's why we reported both. While primary has grown only by 11%, the secondary revenue has grown by about 16%, 17%. We expect TMRW to continue to be on 20% plus revenue growth rate for the year. And the business is gaining both momentum and is reducing the losses. And this year, therefore, is a significant year in TMRW's journey.

Okay. Maybe the last question for me. The absolute net loss for the quarter was still high. So should we assume that FY '27 remains a year of investments and then we start seeing improved profitability only FY '28 onwards. Also, I think, Jagdish did give the gross cash number, which I missed. So I would appreciate if I can get both the period ending cash and debt numbers.

So in terms of profitability, I'll let Jagdish comment later. Garima, we had indicated that over next 2 years, our losses will reduce. This quarter probably doesn't reflect it to that extent. But on an annual basis, we will have lower losses this year and '28 will probably be even lower losses. We had indicated that '29 is the year when portfolio will become fully profitable, and that's really the trajectory that we are on.

And Garima, on cash, I said that when I started the year with roughly INR 1,100 crores, INR 1,200 crores cash, now I have INR 11,000 crores approximately. By year-end, I will have around INR 500 crores.

This is the standalone.

Stand-alone cash. And you are aware that TMRW has already raised INR 500 crores for the growth plan. So we don't have to contribute to them now.

The next question comes from the line of Tejas Shah with Avendus Spark Institutional Equities.

A couple of questions. First, on Pantoon, the format LTL has moderated from 14% to 4% this quarter. To a large extent, you also called out that [ Tim ] has kind of played Sport. So if you adjust for that period, how this number would look for the rest of the period?

So Tej has fluctuated fair bit during the quarter. First to sort of give context to 14% of Q4, we had mentioned in the Q4 call that was a part of that was because of the shift in U.S. And we had called out from November onwards, which is almost the second half of the year, the business had grown with like-to-like of 7%, 7.5%. And that is the sort of like-to-like trajectory we were in. We started with a little bit lower April, May was much better with significant double digit, but June again came down. Therefore, the full quarter ended up being more modest at about 4%. We hope that as we go forward, the rest of the year, we'll be able to improve it and to get the annual like-to-like growth in at least high single digits.

Sure. And Ashish, how to read the consumer demand sentiment because when we look at jewelry, it has been robust, obviously, helped by gold prices. In pockets also value retailers would have done well. And broader discretionary also sentiments are mixed. So just your read on the demand on the ground.

So from our perspective, I think I would still say demand has been quite steady and I wouldn't say strong, but quite steady even this quarter. And therefore, the fear that demand might reverse or slow down hasn't been seen as of now. But as you know, we are moving to a slightly more inflationary phase in the second half of the year. So we'll have to keep watching on how that plays out. For us, in terms of revenue growth, this quarter was more impacted by -- we have a large share of wedding wear businesses between our designers and some of the premium brands in ethnic wear. And that business was impacted by very specific marriage date related issues and a longer Adhik Maas, et cetera, which is more pronounced in our business. But I would say, if I were to look at overall demand more reflected both by industry performance and by rest of our portfolio, I would say this quarter, at least the demand stood reasonably well.

And the last one, if I may, as we reach -- we have these 90 stores now, what are the early markers giving you confidence that we have found the right product market brand fit? And how should -- like one as an external observer like us, how should we get that confidence that this is the model that we are backing now to the fullest and we have found that right sweet spot on the space?

So there are a couple of things that we are internally sort of measuring. Clearly, like-to-like gross margin and sell-through are 3 parameters that give you a reflection of how any retail format works. We haven't got to a point where we are pressing an accelerator in this format. We still have some work to be done. We have a new management team, which has come in. We have dedicated the business separated from Pantaloons management and created a whole new team. Over the next 3 to 5 months, we will closely watch with some of the changes that we are bringing in the format, how they play out. At this point of time, therefore, we are not growing it as aggressively as you know we are capable of in terms of expanding the business. We will continue to -- I would say, a large part of this year will continue to be getting the format right through -- and the best reflection would be store profitability, where we are just about breaking even. I think we need to do better than that and get to slightly better profitability before we press the pedal.

[Operator Instructions] The next question comes from the line of Archana Menon, an individual investor.

This is Archana Menon from Morgan Stanley. My first question was on the [ TS ] business. So just want to get a better understanding about the performance this quarter because there seems to be a difference between the reported revenue growth and the retail growth. And even for the retail growth, when I look at the LL numbers, it seems to have come down from the 7%, 8% growth last 2 quarters to 2% this quarter. So just wanted to understand what has led to this?

ACNS, you're right. I think we've had fairly consistent almost double-digit growth for 4 to 5 quarters -- this is one of the quarters in which the like-to-like trajectory has remained low, which is about 2%. So I would say, overall, not a very good quarter for the business. The overall growth is marginally lower than last year -- overall number was marginally lower than last year. A part of it was we had, as you know, previous 12 to 15 months, we've been reducing old inventory. There was a lot of liquidation set into that base. So while our growth has come down, our margin is slightly better than last year at the same time. But I think I have to say that with just 2% like-to-like, this has been a somewhat disappointing quarter from organic performance.

And how should we be thinking about this for the rest of the year, both in terms of [ ACL ] and new store opening?

So new store opening, we look at, I think, about 35 to 40 stores probably at an overall level, which would be about close to 10% of space addition because these stores are slightly bigger. We're improving the retail performance. But like-to-like, we'll have to get back to high single digit and early double digit. There's a lot of work happening in contemporizing the brand, infusion, greater relevance of fusion and contemporariness from traditional ethnic wear. And so you'll see a lot of it play out in the second half of the year.

Understood. And on the core Pantaloons business, so the firm, could you help us understand how the profitability for the Pantaloons brand has been moving?

Pantoons brand, as you know, has been operating close to 18% EBITDA as we used to report at some point separately. I think the business performance is pretty much similar to last year. Growth is 7%, but EBITDA margins are in the similar region. Its own which is pulling it down for the segmental margin to be marginally lower.

Understood. And last question for me on the inflation. What is the kind of inflation that you are seeing for both Pantaloons and owns? And have any price hike policy already been taken? So the point I'm trying to figure out is how should we be thinking about margins for both 2Q and for the second half?

So there is inflation of close to 4% plus, which is there in both the businesses. OWND at this point, we are still sort of getting the format proposition right. So I'm less worried about it. I think in the -- we haven't got a stable margin as yet. In Pantaloons, we have chosen to keep the price hike to much smaller part of this and not impact the customer because rest of the basic proposition was working very well. We think it's a transient phase for price increases in raw material. And therefore, we haven't passed on a large part of it. Half of it is passed on. The rest half we have kept it. We hope to recover it through better sell-through, higher sales, but some of the margins at the gross margin level certainly will be impacted as we go into the second half.

The next question comes from the line of Abhijeet Kundu with Antique Stockbroking. Since the line of the current participant has dropped, we move to the next participant, that is Devanshu Bansal with Emkay Global Financial Services.

So sir, I wanted to understand the growth which we can anticipate for the ethnic segment for this full year. So TCNS obviously is slow, but I guess that is only 40% of the business, right? So in the rest 60% of the business, what is the growth rate that we can anticipate as I understand that Designer Brands was due to a shift or slow wedding season this time around. But overall, if you could just highlight what's your expectation for this year from ethnic segment?

So Devanshu, you're right. I think quarter 1 was very significantly impacted both by fewer wedding dates as well as the international travelers and weddings not happening enough, which has affected our designer wear part of the business. We expect this segment to perform 20% plus at an overall level despite some of the drag which the TCNS portfolio currently has, which we expect to come back to at least early double-digit kind of growth. But overall portfolio should be north of 20% for full year. This year is somewhat skewed in terms of H2 versus H1. So while Q1 and to some extent, even Q2 -- and Q2 more so because of the shift in festival dates, nothing to do with wedding, H2 is likely to be significantly higher than H1 for the entire ethnic portfolio.

Okay. So despite 40% of the business being flattish and even in H1 overall maybe in single digits, you're anticipating that overall, we may deliver 20% growth, right, in FY '27 for this?

Yes. For the full [indiscernible]

Okay. And Ashish, currently for...

And sorry, just to sort of add to that, Devanshu, TCNS growth to some extent is also impacted by a large liquidation that we're doing, which I was responding to Garima's question earlier in the call. So some of the bases to that extent are unhealthy. And that's one of the reasons why TCNS while may not show that higher growth as the rest of the portfolio, it will be healthier growth this time around. Sorry, you can go back to the next question.

Okay. Okay. Ashish for Galeries Lafayette, what is the revenue run rate currently? And subpart to it, what is the overall investment that we have made in this business? And what is the current level of operational loss also that you can sort of anticipate because it is in initial years. So if you could throw some light here?

Devanshu, we don't give this level of detail for initial business. But you're right, I think the business is still operationally loss-making because the overheads do not cover the size of the business and it's early stages. What I would say is between the collective business and Galleries -- we expect to break even if not in the -- at least in the second half of this year at a total, which is a combined level.

Okay. Okay. Okay. And last question, Ashish. So we acquired or maybe the TMRW portfolio had this brand Berrylush, which was -- which has been recently acquired by [ SN ]. So if you could throw some light because this business was expected to be this way, right? So that we acquired at certain valuation and then sort of improve and scale and then sell it off, right? So what have we been able to create some value in this particular transaction?

No, Devanshu, I think just to correct you, we did have an intention, but we didn't complete the transaction for Berrylush, which is about 3, 4 years back. It was never a part of tomorrow's portfolio. So whatever has happened is outside our portfolio. we have not either sold or any of the business.

Got it. So this brand itself was not acquired at that point in time.

Yes.

The next question comes from the line of Sameer Gupta with IIFL Capital.

Sir, firstly, on TCNS, I know it has been asked multiple times during this call, but we acquired the brand in October of '23. And it has, on an overall basis, seen consecutive years of decline. Now I understand that when you acquired it, it wasn't in the best of health, but 2.5 years now, we are still cleaning up the non-retail portion. So one, why is this cleanup taking more time? And two, by when do we envisage this to be completed so that overall business can then return to a healthy growth trajectory?

I think we have got to that point now. There was a lot of cleanup, which had to be done with the old inventory, both in terms of quality and design sensibility. That shift has been going on. It did take time for us to understand the extent of challenges the business had. And as you know, fashion supply chain is a little longer than other categories. And therefore, even when you find that out, the change takes longer. But I think we are past that. We are behind that phase. And we expect that from this season onwards, which is festive period this year onwards, we'll start to turn the business around.

Got it. Got it. And with the profitability that you have basically got to in this brand when the scale-up happens eventually?

Sorry, I couldn't get that. Was that a question?

Basically, the profitability that has improved with this cleanup on that profitability only, you would want to scale up and there is no risk to profitability as you scale up, right?

Yes, absolutely. We will only scale up to the extent that profitability of the business is good. There's no hurry or need to scale up beyond that. I think we've taken quite some time to fix the business. We would like to scale up only the quality and profitable part of the business.

Got it, sir. Second question is on TMRW. Now again, this has also been asked, but maybe you can also elaborate on the specific point. So 16% secondary growth for a portfolio where the expectation is 20% plus, and this is probably the least impacted from lower weddings or Adhik Maas. So any particular reason why the growth has been even on a secondary basis, below expectations this quarter?