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One of our personal favourite darkhorsestock idea.

Aditya Birla Fashion and Retail Ltd. (ABFRL) is a fashion power house of India with more than 40+ brands under its portfolio and combined store presence of around more than 3200+ touch points in India. ABFRL has presence across all the categories staring from mens wear to women wear as well as inner wear and all the way to ethnic wear.

Current Price-: 288 Rs

(At the time of publishing this report)

This is one of the rare times were we have suggested company with such a low profitability other than the two loss making companies we had suggested in past RPSG Ventures and Raymond both of which ended up giving more than 100% returns.

ADITYA BIRLA FASHION AND RETAIL

Aditya Birla Fashion and Retail Ltd. (ABFRL) is engaged in the business of manufacturing and retailing of branded apparels and runs a chain of apparels and accessories retail stores in India. 

ABFRL, formerly known as Pantaloons Fashion & Retail Limited, was formed in May 2015 following the consolidation of Aditya Birla Group’s branded apparel businesses, which included Aditya Birla Nuvo Ltd.’s (ABNL) Madura Fashion division and ABNL’s subsidiaries Pantaloons Fashion & Retail Limited (PFRL) and Madura Garments Lifestyle Retail Company Limited (MGLRCL). Following the merger, PFRL was renamed Aditya Birla Fashion and Retail Limited.

ABFRL is India’s No 1 Fashion Lifestyle entity. It altogether hosts India’s largest fashion network with over 3200+ points of sale in over 850+ cities and towns, which include more than 2,161 exclusive brand outlets (EBOs) and 245 value stores serving more than 36.7mn loyal customers

BUSINESS

ABFRL caters to a modern client that is aware of foreign trends as well as historic traditions. Its portfolio includes the artisanal brand ‘Jaypore,’ as well as strategic relationships with designers like as ‘Shantanu & Nikhil,’ ‘Sabyasachi,’ and ‘Tarun Tahiliani,’ all of whom reflect Indian decadence and modern grandeur. ‘Van Heusen’s Innerwear, Athleisure, and Activewear’ is making a name for itself in India. ‘The Collective,’ India’s leading international multi-brand store, select’mono brands,’ and certain ‘premium global brands’ comprise our international business.

SABYASACHI

Sabyasachi has been telling the world a unique tale of Indian brilliance since 1999. The brand has evolved as one of the country’s most significant cultural voices, defining modern fashion and lifestyle while celebrating handmade workmanship and traditional processes in every product.

Sabyasachi continues on its road to becoming the first global luxury house to emerge from India, with a strong foothold in the domestic retail environment, many important worldwide partnerships, and foreign flagships on the horizon.

In January 2021, ABFRL brought 51 percent share in Sabyasachi, an Indian premium designer label owned by Sabyasachi Mukherjee.

ABFRL invested about 398 crore for 51 percent stake in Sabyasachi Couture, which is engaged in the production, distribution, and sale of designer clothes, jewellery, and accessories under its own brand ‘Sabyasachi.’ Sabyasachi Couture was founded in 1990. It generated a revenue of 274 crore in FY20. 

In 2021 Sabyasachi launched its first jewellery store in Dubai. 

Numerous celebrities have from time to time preferred Saybyasachi as their foremost designer for their wedding garments may it be Anushka Sharma or Katrina Kaif or Mouni Roy etc.

ABFRL’s third investment in an Indian ethnic wear brand since mid-2019 will be Sabyasachi. In July 2019, the firm announced a collaboration with prominent fashion designers Shantanu & Nikhil by acquiring a 51 percent ownership in Finesse International Design Pvt. Ltd, their company that manufactures customised clothes for men and women under the brand Shantanu & Nikhil.

SHANTANU & NIKHIL

For around Rs 60 crore, ABFRL purchased a 51 percent share in Finesse International Design Pvt. Ltd, which owns the custom garment brand Shantanu & Nikhil.

Shantanu & Nikhil, founded in 2007, distinguishes progressivism and uniqueness by capturing the vitality of classic India and fusing it with the fun and enthusiasm of modern India. Through its own outlets, it sells modern Indian designs. In addition, it sells footwear and accessories. According to its website, the business has entered the sportswear design market by teaming with Adidas and the Mumbai Indians of the Indian Premier League. It has also entered the interior design market.

JAYPORE

Jaypore is a well-known ethnic brand known for making India’s most exquisite handcrafted items available to clients all over the world.India has a rich heritage of handmade crafts and traditional products. Jaypore as a brand is committed to design, source and retail authentic Indian products suited for a modern lifestyle. Jaypore’s menswear line includes kurtas, shirts, muktasari sets, jackets, slacks, and more in a variety of sophisticated fabric stories like as Mangalgiri, Tussar Silk, Linen, Cotton, and more. The whole collection retains the brand’s signature qualities, such as true handmade details, exquisite shapes, and rich materials. Each item is embellished with delicate craft touches like Kantha embroidery or pintucks, making it an exquisite complement to the men’s ethnic wardrobe. This collection’s colour palette is inspired by the vast spectrum of Indian culture and geography, with pleasant tints and startling colours.

Puneet Chawla and Shilpa Sharma founded Jaypore in 2012. The firm began as an internet platform for the US market. However, owning to high demand from the home market, it was launched in India in 2013.In 2019 ABFRL acquired ethnic apparel and lifestyle retailer Jaypore for ₹110 crore. The brand is available in over 60 countries.

Jaypore in the current FY grew 1.5 times over last year as well as in parallel AFFRL is building offline presence with plans to open 60 stores during the next quarter. (Q2FY22)

TARUN TAHILIANI DESIGN STUDIO

Tarun Tahiliani Design, founded in 1995, skillfully combines modern sartorial prowess and the nuances of Indian workmanship. These lavishly textured, structural curtains are designed to give Tahiliani’s modern, Indian woman a contemporary edge. Through the rich crafts and fabrics of India, the designer’s workshop develops unique blends of historical luxury and contemporary style throughout couture, event dress, and ready-to-wear.

The brand’s distinctive signature has evolved as a fusion of intricate detail, refined luxury, and meticulous tailoring. The Tarun Tahiliani Design Studio creates couture, diffusion and prêt-a-porter which are Indian in their sensibility, yet international in their appeal. The rich heritage of the subcontinent is reinvented as contemporary high fashion through the genius of Indian craftsmanship and finest textiles

In 2021, ABFRL paid Rs 67 crore for a 33.5 percent share in fashion designer Tarun Tahiliani’s premium apparel-to-jewellery firm, with an option to grow the investment to 51 percent in the coming years.

Later, abfrl announced the formation of a new corporation in order to create a modern men’s ethnic clothing brand. The new brand will compete in the premium event wear category, offering a full variety of high-quality, elegant celebration clothing for men at reasonable prices.

In the next five years, the new brand hopes to create a Rs.500 crore business with more than 250 locations across the country. The first set of retail outlets will open in September 2021, according to the company. Tarun Tahiliani will own the remaining 20% of the new firm, with ABFRL owning the remaining 80%. 

LIFFESTYLE BRANDS

ABFRL’S lifestyle brands include following brands under its portfolio.

Lifestyle brand business posted a 92% recovery at the back of consistent quarter- on-quarter industry-leading retail performance. Omni-channel revenue jumped 3x over last year and a rapid rise in its e-commerce businesses. 

Lifestyle firms have continued to develop and reinvent their product portfolios, increasing the proportion of casual wear in their portfolios. Allen Solly Tribe, in addition to Van Heusen Denim Flex, is expanding its casual wear offering. This quarter, Louis Philippe also debuted its Louis line of luxury casual apparel. These sub-brand extensions ensured that the brand remained relevant in the face of changing customer requirements. In keeping with the same goal of diversification into other areas and categories, Peter England will shortly move into Kids wear, delivering outstanding products at a reasonable price to value-conscious customers. Kids clothing accounts for 12% of the entire apparel industry, which is increasing at a 5.9% CAGR and is mostly unorganised.

On the digital front, the company continues to expand on its transformative journey, focussing on providing a wonderful shopping experience to its customers. The on-online business increased 2.5x over the previous year, indicating a strong customer affinity for our brands and a frictionless buying experience via its website.

On its way to becoming one of the leading fashion Omni channel players in the branded fashion industry, the firm expanded Omni-channel coverage to over 1000 outlets across all of its brands for both own and partnered e-commerce.

While the company steadily developed its digital mode, it has not hindered its offline expansion. This quarter, the company added 140 additional outlets, primarily through franchisees.

The companies’ aggressive growth plan into deeper pockets of India continues, in order to meet the demands of people close to their homes. The PE Red retail network has expanded dramatically, with 36 new locations opening in the first half of the year. Building on the success of its pilot in Q4 of last year, Allen Solly Prime expanded with the addition of 18 more outlets. During the quarter, the company reported revenues of Rs. 1,156 crores and EBITDA of Rs. 188 crores, with an EBITDA margin of 16 percent this year, compared to 17 percent in FY20 in the same period.

PANTALOONS BUSINESS

Over the last two decades, Pantaloons has been one of the most powerful brands in the Indian fashion retail business. The business provides contemporary garments and accessories of exceptional quality and freshness to Indian middle-class clients across the country. With over 340 big format outlets, it boasts one of India’s largest retail networks. Pantaloons concentrated on building Pantaloons.com, its online business, this year. Pantaloons provides an enhanced Omni-channel shopping experience to its customers through strong design skills, creative product development, an agile supply chain, and customer-centric operations.

This quarter, Pantaloon’s company returned to 73 percent of its pre-COVID performance. Pantaloons significantly increased its e-commerce presence with a new digital experience, as well as exceptional sales performance with partners and an E-commerce website. Pantaloon extended their omnipresence across 250+ locations in H1 due to extremely good consumer response.

Pantaloon has restarted its development strategy for this year, adding 7 new outlets to its network in the preceding quarter, signalling the start of the recovery path. The company also relaunched its six famous locations, four in Kolkata and two in Hyderabad, with a refreshed and revived retail identity, which piqued the interest of its consumers.

Pantaloons is on track to open 60 or more outlets this fiscal year. On the month of October alone, we created an internal shooting record by launching 12 Pantaloon stores in 12 consecutive days.

ABFRL intends to significantly accelerate its expansion to more than 100 outlets each year over the following few years.

Pantaloon has expanded its private label portfolio considerably this quarter, with new releases in the women’s ethnic and Active Athleisure and Loungewear categories, as well as improving its existing products.

The Pantaloons company generated revenue of Rs. 665 crores for the quarter and reported EBITDA of Rs. 125 crores, compared to EBITDA of Rs. 71 crores last year. H1 sales are at Rs. 885 crores, up from Rs. 451 crores last year.

REEBOK INDIA

Authentic Brand Group, based in the United States, has licenced ABFRL to sell and distribute Reebok items in India (ABG). It has also entered into a purchase agreement for inventories and other current assets and liabilities between $ 75-100 crore.

Reebok operates around 180 outlets in India, with sales of 429 crore as of FY20. The firm would also use its extensive distribution network to market the brand’s items through Pantaloons and other MBOs.

Historically, Reebok’s income from Indian operations has been restrained under the Adidas group, with a revenue CAGR of 5% from FY14 to FY20. However, with the change of ownership, the brand is ideally positioned to write a turnaround, since Reebok has enormous worldwide brand value. The collaboration is consistent with ABG’s worldwide Reebok strategy of integrating great brands with best-in-class licensees and a network of partners to maximise value in the marketplace.

Sportswear is the fastest growing sector in the Footwear industry, with peers expanding to 2—3x Reebok India’s size in recent years – indicating a huge potential possibility. The agreement would represent ABFRL’s entry into India’s fast-growing sports and active wear category, which is estimated to reach US$13 billion by FY24E at a 14 percent CAGR.

Other Business Segments

The portfolio includes three business lines: innerwear, activewear, and athleisure under the Van Heusen brand, youth western wear under the Forever 21 and American Eagle brands, and super premium western wear under collective and other mono brands. During this quarter, the total portfolio grew by 12 percent over the previous quarter, with sales of Rs. 1000 crores on an annualised basis and EBITDA margins of 10%. Innerwear and Athleisure company maintained its aggressive momentum throughout the pandemic, continually building on the same vigour.

This quarter’s revenue increased by 41% over the previous year, and the items are now accessible at over 23,000 trade outlets and 54 EBOs. The company is on track to meet its aggressive expansion goal of opening 50 new outlets this year.

E-commerce grew significantly over the previous year, with the scope of business increasing by 71%. The company is trying to aggressively increase its trade and EBO footprint, as well as have a greater presence on the e-commerce channel. Youth Western and Super fashion companies, such as Forever 21, American Eagle, and Super Premium, have maintained their growth trajectory throughout the first half of FY22. Forever 21’s revenue has increased to 1.5x that of the previous year, with a 73 percent return to pre-COVID levels. American Eagle has more than quadrupled its pre-pandemic COVID sales and is now EBITDA positive.

Forever 21 has successfully implemented a franchisee-led expansion approach across towns in India. The Super Premium brands have increased by more than 60% compared to pre-COVID levels, while e-commerce has continued to accelerate.

Financials

For Q2FY22

Revenues in Q2 are close to 90% of pre-COVID levels, indicating a far quicker sales comeback than what were observed at the conclusion of the first wave.

Revenues for Q2 FY22 have more than quadrupled to Rs. 2,054 crores, up from Rs. 1,028 crores in Q2 FY21.

EBITDA performance for this quarter was Rs. 338 crores, a recovery from the previous quarter’s negative EBITDA and a 142 percent increase over last year. PAT losses have been reduced from Rs. 352 crores in the first quarter to Rs. 5 crores this quarter.

Consolidated net debt as of September 30th, 2021 was Rs. 873 crores, down Rs. 327 crores from June 2021 due to the rapid business turnaround. As the Christmas season draws to a close, the net debt has been decreased further, and it now stands at around Rs. 450 crores.

As company is aggressively pursuing growth by leveraging upon the brands it has acquired In the past as well as increasing brand presence in the country we are thereby not focussing on the financials of the past. As the debt levels are in check and positive operating cash flows company is generating, which is more than sufficient for now to look at the other amazing opportunities which stands in front of the company. 

GOING FORWARD

ABFRL aims to add more than 100 stores in our ethnic business portfolio across brands next year, beginning in the third quarter of this year.

The quarterly business of innerwear and ethnic wear is presently close to Rs. 250 crores. This equates to around Rs. 1000 crores every year. However, customers should be aware that the majority of ABFRL’s new enterprises are still in their infancy. Management anticipates that the Innerwear business will continue to grow at a rate of 40-50 percent. The ethnic clothing industry is still in its early stages, since the company has been hampered in its expansion of Shantanu, Nikhil, and Jaypore due to Covid. However, we should expect to see roughly 10 to 15 outlets this year and another 25 to 30 stores next year.

Tarun Tahiliani’s luxury ethnic apparel for men was just released, and ABFRL is projected to open 50 outlets in the next 12 months. Overall, if we simply look at ethnic apparel, ABFRL will most likely open close to 100 outlets next year. So, from a current annualised run rate of 1000 crores, management is optimistic that this will soon be on a considerably greater trajectory.

Women’s innerwear is still in its early stages of growth. We will see substantial growth in that area over the next 12 to 18 months. Men’s clothing will continue to rise in popularity. When we look at the inner wear category, we see that it is not just inner wear, but also athleisure and active clothing, and we believe that for any healthy living man or woman, this may generate a destination retail concept. The next step in the expansion plan will be to develop exclusive stores where customers can buy inner wear athleisure, active wear, lounge wear, and sleepwear from a single brand in one location, which would be an attractive offer from the consumer’s perspective.

Sectorial Outlook

The Indian textiles and clothing sector is the sixth largest in the world, with an estimated value of USD 70 billion and a contribution of roughly 4% to the global economy. It employs approximately 45 million people and is the world’s fifth largest exporter of textiles and clothing, with USD 36.4 billion in exports. Many tendencies in this area have been accelerated as a result of the epidemic. The transition from unorganised to organised in the clothes retail business has accelerated, as ambitions for better fashion and brands are combined with larger and deeper supply.

Ethnic Wear

The expanding Indian diaspora, along with an increase in Indian pride and faith in items of Indian origin, has driven the Indian ethnic wear industry, which is predicted to reach Rs 1.70 trillion by 2023, up from Rs 925 billion in 2018. Aside from the general premiumization of the category, this gain may also be credited to the recession-proof wedding wear market, which has been supplemented by increased consumption of ethnic wear for special events, traditional festivals, and even work wear.

Ethnic wear is the most important section in the women’s apparel category, accounting for more than 74% of the market. Ethnic wear accounts for 70.7 percent of the whole womenswear market of USD 21.2 billion, but just 6.6 percent of the total menswear market of USD 23.5 billion, allowing tremendous possibility for growth in this category.

Active wear & athleisure is the new trend .

Conclusion

ABFRL is the power house of brands in India with more than 45 brands under its portfolio and aggressively expanding across each of its brands. Backed by the Aditya Birla group  ABFRL is one of the strongest plays in the Indian retail market due to its brand strength and strong parentage. With a leaner balance sheet , strong bouquet of brands, clean cash flows and reduction in Debt levels as well as aggressive management in pursuit of new opportunities with eyes set on its long-term revenue target of INR21,000cr by FY26 we are extremely bullish on ABFRL for long term perspective. 

Users are advised to do their own research before investing in this company. Darkhorsestocks or any of its members would not be responsible for any loss.

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