ABFRL - Aditya Birla Fashion and Retail Limited Share Price

In the Q1 FY 26 Earnings Call, management provided an optimistic outlook, highlighting their focus on sustained profitable growth and operational efficiency. They specifically noted that despite a challenging market environment, revenue for the quarter increased by 9% year-over-year to INR 1,831 crores, with EBITDA rising 38% to INR 169 crores. The company attributed this growth to strong performances in their ethnic and TMRW businesses, with growth rates of 25% and 38% respectively.

Key forward-looking points include:

1. Emerging Consumer Segments: These segments have increased their contribution to overall revenue from 37% to 44% year-over-year, signaling robust demand.

2. Ethnic Business Growth: The ethnic segment's revenue surged to INR 436 crores, up 25% YoY, with EBITDA margins expanding by 1600 bps, indicating strong profitability.

3. Store Network Strategy: Implementation of a new strategy in Pantaloons involving larger store formats (20,000 to 25,000 sq. ft.) is aimed at enhancing retail experiences, which bodes well for future revenue generation.

4. Cash Position: ABFRL has a strong cash position of INR 2,070 crores, which will support ongoing expansions and strategic investments.

5. TMRW Capital Raise: The recently completed fundraise of INR 437 crores from ServiceNow Ventures will enhance TMRW's growth trajectory and accelerate its offline expansion.

6. Future Plans: Management expressed intent to scale core market-leading brands and newly emerging segments, anticipating higher growth rates in the upcoming festive season.

Overall, ABFRL's strategy emphasizes innovation, improved retail productivity, and a clear focus on consumer engagement, aiming to create long-term value in the Indian fashion and lifestyle market.

1. Question by Aditya Soman: "Can you give us some sense of how you see the strong EBITDA trajectory of the ethnic business evolve over the short and medium term? Where do you feel steady-state EBITDA for this business should be?"

   Answer: Our ethnic portfolio shows consistent improvement. The wedding season heavily influences our profits, and we expect a much sharper increase in profitability in H2. Designer brands could stabilize their margins in the high 20s to 30s, Tasva should reach breakeven by FY '27, and TCNS is showing strong recovery. We anticipate a 20% growth rate for ethnic wear overall, aiming for EBITDA margins above 20% as our ethnic business expands.

2. Question by Aditya Soman: "Would there be further store reductions for Pantaloons, or are we good in terms of store count and expect to see an increase?"

   Answer: We've completed significant store closures over the past 18 months. We've hit the bottom for store counts and will focus on opening larger, more impactful stores now. While the total number may remain stable short term, we foresee net additions moving forward, emphasizing large, modern stores measuring 20,000 to 25,000 sq. ft.

3. Question by Archana Menon: "What is the marketing spend as a percentage of revenue for Pantaloons, and how has that been in the past? Do you plan to increase it?"

   Answer: Marketing spends have historically ranged from 1.5% to 2%. We anticipate this will slightly increase over the short term, particularly as we promote the revamped Pantaloons identity. Although the long-term average will remain around 1.5%, we'll spend more seasonally during key periods to drive awareness of our new offerings and aesthetics.

4. Question by Archana Menon: "What percentage of your total 400 stores are under the old retail identity? How will renovations progress?"

   Answer: About 50% of our stores carry the new identity. We plan gradual renovations, particularly since not all remaining stores are located in large cities where upgrades can happen quickly. We'll pace our rollout over the next few years as we examine market conditions.

5. Question by Kunal Shah: "What areas will be targeted with TMRW's capital raise, and are acquisitions planned?"

   Answer: Capital will primarily fund business growth as TMRW isn't yet cash-flow positive. We'll focus on accelerating brand growth and expanding our EBO presence. A portion will support offline expansions, making our various digital-native brands more omnichannel accessible.

6. Question by Gopal Nawandhar: "When can we expect the addition of network in TCNS once we see profitability improvements?"

   Answer: Given TCNS's recent positive trajectory in same-store sales, we might see a start of network expansion with up to 40 new stores planned in the second half of this year. If the positive trends continue into next year, we're confident about accelerating store expansion.

7. Question by Gopal Nawandhar: "Can you clarify the losses in TMRW this quarter compared to previous quarters?"

   Answer: While revenue grew, TMRW's absolute losses did rise slightly this quarter. However, the percentage of losses remained consistent with prior periods. The increase in losses is tied to the investments needed for both growth and increasing offline presence.

8. Question by Harsh Shah: "What is the store addition plan for Tasva this year, and can you comment on the cash position?"

   Answer: We aim to add around 40 Tasva stores this year. Our gross cash stands at INR 2,070 crores, with a net cash after debt obligations around INR 1,900 crores, affording us flexibility for expansion plans while maintaining sufficient reserves for future projects.

9. Question by Gaurav Jogani: "What kind of capex are you looking at for this year?"

   Answer: For regular capex across businesses, we anticipate spending around INR 300 crores. Including the one-time capex for the Galeries Lafayette store, total capex could extend to INR 500 crores this year.

10. Question by Sameer Gupta: "What performance metrics do you have for stores under the new retail identity at Pantaloons?"

    Answer: We're witnessing a jump in margins from 14-15% to about 18%, reflecting successful performance under the new retail identity. Although I'm unable to share specific store-level metrics, the strategy is yielding positive outcomes, showing that new stores perform better than the legacy ones, though detailed tracking continues at all store levels.