ABFRL - Aditya Birla Fashion and Retail Limited Share Price

During the Q4 and FY 2025 earnings call, management provided an optimistic outlook for Aditya Birla Fashion and Retail Limited (ABFRL) following its demerger. Key highlights include:

1. Revenue Growth and Margin Expectations: For FY 2025, demerged ABFRL posted a revenue of INR 7,355 crores, a 14% increase compared to the previous year. The company aims to achieve a threefold increase in revenue and double its margins over the next five years, targeting an EBITDA margin of 18%.

2. Financial Strength: ABFRL has a robust cash position with INR 2,350 crores available for aggressive growth initiatives. This strong balance sheet places the company in a favorable position to navigate market challenges.

3. Growth Trajectories: Over the next 12 months, ABLBL plans to open over 300 new stores, enhancing its market presence. Meanwhile, the Pantaloons format is set for further expansion with a margin forecast of 18% for FY 2025.

4. Strategic Focus: Management highlighted the importance of profitable growth amidst challenging macroeconomic conditions. The focus will be on turning around currently loss-making segments, particularly within the ethnic wear business and digital-first brands.

5. Cash Utilization: Management confirmed that the cash on hand is sufficient to fund the planned expansion and investment across various business segments. The company is also in the process of raising additional capital for its TMRW segment, further strengthening its financial outlook.

6. Long-term Ambitions: The combination of strong cash flows, a diversified brand portfolio, and a disciplined approach to inventory and cost management are expected to support sustained growth and profitability in the coming years.

Overall, ABFRL's management remains confident about its trajectory, emphasizing that both entities are well-capitalized and positioned for long-term value creation.

Here are the key questions and their detailed answers from the Q&A section of the Aditya Birla Fashion and Retail Limited's earnings call transcript:

1. Question: "What will drive the increase from FY '25 margins to 18% in the next 5 years for ABFRL?"

   Answer: "The largest margin uptick will stem from turning around currently loss-making businesses like TCNS and TMRW, which have suppressed overall profitability. While other segments will see margin expansion, the turnaround of these specific entities will significantly influence our overall margin target."

2. Question: "What sustainable margins do you foresee for Pantaloons after the store closures?"

   Answer: "While it's true we've closed 50 stores, much of our margin improvement in Pantaloons results from gross margin expansion due to better products and lower markdowns, not solely from store closures. We anticipate at least 300 basis points of margin improvement in the coming years while continuing strategic store openings."

3. Question: "Is the current cash balance of ABFRL sufficient to fund planned expansions?"

   Answer: "Yes, we have adequate capital, close to INR2,000 crores in gross cash available. This, alongside anticipated capital raises for TMRW, positions us well to fund expansion across various business segments over the next 3-4 years."

4. Question: "What are the projections for store expansions in Pantaloons for FY '26 and '27?"

   Answer: "For FY '26, we expect to open 15 to 20 new Pantaloons stores, with future expansions guided by a more strategic approach focusing on larger store formats in metropolitan areas."

5. Question: "How do you see the working capital levels for ABFRL sustaining?"

   Answer: "Currently, ABFRL exhibits negative working capital due to the efficient Pantaloons segment. Over time, we expect this to balance out to a level where it reflects around 5-6% of sales, enabling productive operations and profitability."

6. Question: "When do you expect EBITDA positives for ABFRL?"

   Answer: "We anticipate becoming EBITDA positive in FY '26, although TMRW may take longer due to its developmental stage. All other business segments should achieve profitability by FY '27."

7. Question: "What are the margins expected for Sabyasachi's business?"

   Answer: "Sabyasachi operates with very high profitability, with future growth expected to average around 20% per annum. The focus will be on organic growth rather than a rapid store expansion strategy."

8. Question: "What's the outlook for TCNS and Tasva in terms of profitability?"

   Answer: "While TCNS is currently loss-making, we expect it to reach double-digit margins over the next 3-4 years. Tasva, on the other hand, is already excelling with significant quarterly growth and expanding its footprint."

These answers cumulatively reflect the company's strategic direction post-demerger, emphasizing growth, profitability, and efficient capital use.