Earnings Call Transcript Analysis Report #
Financial Performance #
- Consolidated Revenue: INR4,305 crores, a growth of 3% Y-o-Y.
- Consolidated EBITDA: INR683 crores, growing 13% Y-o-Y, with a 15.9% margin vs. 14.5% in Q3 last year.
- Consolidated PAT: Loss of INR42 crores vs. loss of INR108 crores in the same quarter last year.
- YTD Revenue: INR11,376 crores, up 7% Y-o-Y.
- YTD EBITDA: INR1,499 crores, with a margin of 13.2% vs. 12.5% YTD December last year.
- ABLBL Revenue: INR2,151 crores with EBITDA of INR355 crores, and an EBITDA margin of 16.5%, a 90 bps expansion Y-o-Y.
- Demerged ABFRL Revenue: INR2,218 crores, a 3% Y-o-Y growth. EBITDA was INR320 crores, with an EBITDA margin of 14.4%, a 250 bps increase Y-o-Y.
- Pantaloons EBITDA Margin: 19.3%, an improvement of over 170 bps Y-o-Y.
- Ethnic Business Revenue: INR588 crores, up 7% Y-o-Y. Excluding TCNS, the growth was 39%.
- Ethnic Business EBITDA Margins: 19.2%, a 1,160 bps Y-o-Y expansion.
- Luxury Retail Growth: The Collective & Mono brands grew by 13% Y-o-Y.
- TMRW Sales Growth: 26% Y-o-Y with margin improvement.
- Guidance: “Over the next 3 years, we should be able to accelerate the growth of these new businesses to a point that at the end of that cycle, the company as a whole, which is the demerged ABFRL, will be free cash flow generating company.”
Strategic Initiatives & Business Updates #
- Demerger: The demerger of western wear brands into Aditya Birla Lifestyle Brands Limited (ABLBL) is progressing well and is set for completion in the next 2-3 months. NCLT hearing is scheduled in the third week of March 2025.
- Fundraising: Secured USD 490 million equity capital through QIP and preferential issue.
- Store Network: 4,492 stores spanning 11.9 million square feet.
- ABLBL Expansion: Plans for an aggressive expansion with a rollout of 300+ new stores across the portfolio over the next 12 months.
- Pantaloons Store Closures: Exited over 40 stores in the past 12 months, mostly in Tier 2 and smaller markets.
- Style Up Expansion: Operates across 39 stores and is expanding its retail footprint.
- TCNS Distribution Rationalization: Focus on profitable channels.
- Forever 21: Phasing out of its F21 offline operations.
- Galeries Lafayette: Investment into the first store.
- Tasva Expansion: “Post this fundraise and a stronger balance sheet, Tasva will be able to expand much faster.”
Market & Competitive Landscape #
- Consumption: “The overall consumption remains subdued this quarter as well with periods of high to moderate consumption.”
- Premiumization: Pantaloons has been driving a premiumization strategy, moving away from the overcrowded value retailing space.
- Competition: “Our proposition is both relevant to the customer and differentiated versus competition.” (Style Up)
Risk Factors & Challenges #
- Consumption Environment: “Despite a challenging consumption environment, especially for discretionary category, our focus on driving productivity, efficiency, profitability, coupled with continuous improvement in products and services has been able to guide us through this tough environment.”
- Inventory Management: “Inventory dormancy or any potential – we have a very conservative but a consistent policy on that. So there will be no surprises on that account.”
- Wholesale Channel: One of the biggest trading partners in the department store formats has been going through a strategic shift.
Forward-Looking Statements #
- ABLBL Growth: Brands are poised for an aggressive expansion with a significant rollout of 300-plus new stores across the portfolio over the next 12 months.
- Ethnic Portfolio: The balance sheet of demerged ABFRL is well placed to support the accelerated expansion of our Ethnic portfolio.
- TMRW: Capital raise expected in the next 9-12 months. “Overall picture may change post the fundraise, but that’s something that we can talk about when that actually happens.”
- Tasva: Will see a far more accelerated expansion in Tasva.
- Capital Allocation: “Over the next 3 years, we should be able to accelerate the growth of these new businesses to a point that at the end of that cycle, the company as a whole, which is the demerged ABFRL, will be free cash flow generating company.”
Q&A Insights #
- Lifestyle Brands LTL Performance: Driven by a very strong festive and wedding performance. Prepared with the kind of assortments and a tepid winter. “We also, in some sense, consolidated our retail network… So that also augurs well for the overall network. And to that extent, we are also cranking up the expansion machinery once again.”
- Pantaloons Premiumization: “Distribution strategy is in line with our overall brand strategy, which is about premiumization…This is a bit of a reset to make sure that as a brand, we come together and we come through as a consistent brand across the pop strata.”
- Style Up Strategy: “Two-pronged strategy, 2 brands addressing 2 different consumer sets with their own separate distribution agenda.”
- Store Closures and Learnings: Lifestyle Brands closures due to smaller towns taking longer to recover. Pantaloons closures were a strategic call on a shift in premium positioning. TCNS rationalization post-acquisition.
- TMRW Growth and Profitability: Business is growing organically at about 25% to 30%. “The intrinsic profitability of each of these brands is on a continuously improving path… We think over a period of time, as intrinsic profitability of the constituent brands of TMRW improves, that will be able to leverage the overhead that currently exists.”
- Debt Levels: ABLBL business is expected to start with a debt of INR700 crores, and ABFRL to start with a cash of between INR1,300 crores to INR1,500 crores.
- Ethnic Wear Margins: Quarter 3 margins are exaggerated in the wedding and ethnic markets.
Management Tone & Sentiment #
- Confident: About the strength of the brands and the potential for future growth, particularly in Lifestyle Brands, Ethnic, and TMRW.
- Strategic: Focused on driving productivity, efficiency, and profitability.
- Cautious: Aware of the challenging consumption environment and macroeconomic factors.
- Optimistic: About the benefits of the demerger and the fundraise in unlocking value and accelerating growth.