Beauty scale

Acquisition of major influential brands; Is it enough for your long-term investment?

ABFRL is part of a major Indian conglomerate, the Aditya Birla Group. With income of Rs. 8,136 cr. Covering a retail space of 9.2 million square feet (as of March 31, 2022), it is India’s first billion-dollar fashion powerhouse with a stylish bouquet of top fashion brands and retail formats.

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

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

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

Gradual recovery from the impact of COVID restrictions

FY22 saw a partial recovery in activity, with management focusing on retail expansion, as well as balance sheet discipline, a key focal point, given the challenges faced during the fiscal year. FY20. Hit by the second wave of COVID, consolidated sales recovered, while remaining 7% below pre-COVID (FY20) levels.

The EBITDA margin remained stable at 13.5% thanks to good cost control. On a pre-Ind AS 116, the EBITDA margin was 2.2% v/s

5.1% in FY20. Lifestyle segment revenues remained resilient, reaching pre-COVID levels. Pantaloons’ revenues were 25% below pre-COVID-19 levels as its large-format stores and increased mall presence were severely impacted by the COVID-19 pandemic. The EBITDA contribution of the Ethnic Wear and Other segments fell from 5% to 4%, driven by a recovery in Fast Fashion, Innerwear and its recent foray into Ethnic Wear.

Brand performance

Lifestyle brands

Strong operational performance led to quarterly revenue of Rs. 1,519 cr. 51% growth vs. pre-COVID period (Q1 FY20) 40% EBITDA growth vs. pre-COVID period. LTL retail growth of 29% (compared to the first quarter of FY20) across a network of over 2,000 stores reflects a strong brand franchise. Best quarter for our women’s clothing. Business increased by more than 50% compared to the pre-COVID period ‒ The share of casual activities continued to grow rapidly ‒ Ecom business increased by more than 50% compared to LY pants

The highest first quarter in the company’s history with Rs. 1027 Cr. Revenue. Strong EBITDA performance due to longer full price period ‒ The Ecom channel grew 70% year-on-year, driven by strong traction on its own platforms. Successful Application Driver: 5 lakh+ downloads at launch. Continued expansion of its private label portfolio with new launches in distinct spaces.

Vanheusen

Highest quarterly sales on record with business growing around 2.5x per year. Aggressive network expansion. Expanded Trade

MBO counts to exit with ~29,000 stores. Ecom sales at ~3x of pre-COVID level. The portfolio is now well balanced between Innerwear & Athleisure. Continuous launch of innovative products. The new launch “AIR” has met with huge consumer enthusiasm ‒ The company is ready to expand rapidly.

American Eagle Youth Western Clothing

Revenues increased approximately 3x pre-COVID levels ‒ Continued distribution network expansion with 5 new stores in the quarter

forever 21

Improved margin profile through local sourcing leverage.

Super premium brands

One of the fastest growing companies in the ABFRL portfolio with revenues more than 2x the pre-COVID level. Continued to post a double-digit EBITDA margin.

Super premium brands

Ethnic collection

Jaypore

Revenue grew 3.5x vs. LY with both channels showing robust growth ‒ Physical store network expanded to 11 stores – Planned for further scaling ‒ Upgraded the continued scale of its own website through advances in technology and one-to-one marketing ‒ New categories such as Home, Jewelry and Menswear contributing to growth.

Shantnu & Nikhil

12% growth in turnover, EBITDA up 35%. The retail network posted 8% LTL despite difficult market conditions. E-

Trade is showing aggressive growth. Strong growth in women’s and children’s clothing business Shantnu & Nikhil ‒ Highest Q1 sales ever, more than 2x higher than LY ‒ Added 2 more stores to the network. Now available in 12 stores (50% above LY) ‒ Strong efforts to grow the brand ‒ Retail overhaul in 50% of existing couture network ‒ Promising traction on new sales channels ‒ Ecom & SIS now generates about 30% of bridge revenue.

Sabyasachi

Revenue increased approximately 160% from pre-COVID levels ‒ Strong profitability with EBITDA up 4x from last year ‒ Strong consumer acceptance of jewelry and accessories, creating new growth platforms.

Tasva

The brand finds strong traction based on winning products and a value-for-money proposition. This is reflected in impressive store visits, high conversions and positive consumer reviews. Rapid store expansion planned for this fiscal year. Addition of 6 stores to the network during this quarter. Plans to end the year with more than 60 stores.

Masaba’s house

Completion of the transaction to acquire the majority stake (51%) in House of Masaba during this quarter. The company has begun executing its long-term growth plan. Beauty launch planned for Q2

The Lifestyle segment, thanks to brand extensions, performed well, with around 50% contribution coming from the men’s casualwear segment, which is growing outside of the brand line.

Management seeks to exploit opportunities in India’s smaller cities, through locally-tailored merchandise offerings, value-priced quality product offerings and its asset-light growth model. It focuses on its small town specialty store formats for its Peter England, Allen Solly, Pantaloons and Style Up brands. Retail formats like the Style Up brands have been around for the past four to five years, but have seen limited scale, despite the large-scale growth seen in the Value segment.

Launch new brands and revitalize existing ones. In line with changing demand in the apparel segment, the company has expanded its brands into categories such as loungewear, sports leisure and sportswear, and ethnic apparel. This is evident from the additions of brands across all categories, including Van Heusen for Innerwear, Jaypore, Tasva and others within Ethnic Wear, and the acquisition of the Indian business for sportswear brand Reebok. .

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

To note: This article is for informational purposes only. Please consult an investment adviser registered with SEBI before making any investment decision.