Aditya Birla Fashion and Retail Limited — Q3 FY25 earnings call

Call held 17 Feb 2025

Management summary

Aditya Birla Fashion and Retail Limited (ABFRL) reported a mixed Q3 FY25, with consolidated revenue growing 3% YoY to INR 4,305 crores and EBITDA increasing 13% YoY to INR 683 crores, driven by margin expansion across segments. However, the company posted a consolidated PAT loss of INR 42 crores amidst a subdued consumption environment. Strategic initiatives like network optimization, premiumization, and a significant capital raise are underway, with the demerger of western wear brands (ABLBL) expected to complete in 2-3 months, aiming to unlock value and strengthen balance sheets for both entities.

Highlights

  • Consolidated EBITDA grew 13% YoY to INR 683 crores, with EBITDA margin expanding to 15.9% from 14.5% YoY.

  • ABLBL Lifestyle Brands reported a strong 12% retail Like-for-Like (LTL) growth across its network of over 2,500 stores.

  • The Ethnic business achieved a remarkable 1,160 basis points YoY EBITDA margin expansion, reaching 19.2% on INR 588 crores revenue.

  • Tasva, the men's ethnic wear brand, delivered positive EBITDA for the first time, with sales growing over 50% YoY and 18% LTL growth.

  • TMRW, the digital brand portfolio, recorded 26% sales growth YoY with improved margins.

Concerns

  • Overall consumption remained subdued, with inconsistent footfalls outside the festive and wedding seasons.

  • Consolidated PAT was a loss of INR 42 crores, though an improvement from INR 108 crores loss in the prior year.

  • Pantaloons reported an overall LTL decline of 2.5%, impacted by store closures and Pujo shift to Q2.

  • TCNS experienced a revenue decline of over 20% due to ongoing distribution optimization efforts.

  • Investment in the Galeries Lafayette store contributed to bringing down the overall margin for Luxury Retail.

Key financials

  1. Revenue ₹4,305 Cr +3%YoY
  2. EBITDA ₹683 Cr +13%YoY
  3. EBITDA Margin 15.9%
  4. PAT ₹-42 Cr
  5. YTD Revenue ₹11,376 Cr +7%YoY
  6. YTD EBITDA Margin 13.2%

What they filed

Q1 FY27: revenue up 10.6%, net profit down 6.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,761 2,201 1,719 1,831 1,982 +13%2,374 +8%1,990 +16%2,026 +11%
EBITDA77 293 199 106 62 −19%302 +3%188 −6%111 +5%
Net profit-175 -42 -24 -234 -295 −69%-137 −226%-164 −583%-249 −6%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • ABLBL (proposed)
    ₹2,151 Cr Revenue₹355 Cr EBITDA16.5% EBITDA Margin12% Retail LTL Growth
  • Brands (within ABLBL)
    ₹1,817 Cr Revenue₹357 Cr EBITDA19.6% EBITDA Margin
  • Demerged ABFRL (proposed)
    ₹2,218 Cr Revenue3% Revenue Growth₹320 Cr EBITDA14.4% EBITDA Margin
  • Pantaloons
    ₹1,305 Cr Revenue19.3% EBITDA Margin2.5% LTL Growth (excl. East zone)-2.5% Overall LTL Growth
  • Ethnic business
    ₹588 Cr Revenue7% Revenue Growth19.2% EBITDA Margin39% Growth (excl. TCNS)
  • Designer-led brands (within Ethnic)
    41% Growth
  • Tasva (within Ethnic)
    50% Sales Growth18% LTL Growth
  • Luxury Retail (Collective & Mono)
    13% Growth10% LTL Growth
  • TMRW
    26% Sales Growth

Capital allocation

high confidence
  • Debt Net ₹1,800 Cr
    The total net debt of consolidated ABFRL at the end of January 2025 stood at approximately INR1,800 crores after receiving INR1,860 crores of QIP money. This will further come down post receipt of preferential issue of INR2,379 crores. We expect ABLBL to start the next year with opening debt of INR700 crores, whereas demerged ABFRL will have a likely cash balance of approximately INR1,300 crores.
  • M&A Western wear brands business Divestment · Pending regulatory

    To unlock value through 2 independent entities, both with attractive growth potential and a strong balance sheet through a resilient growth-oriented business model sharpened over time.

    First, the demerger of western wear brands business into a separate entity, that is Aditya Birla Lifestyle Brands Limited, or ABLBL, is progressing well and set for completion within the next 2, 3 months. The NCLT hearing is scheduled in third week of March 2025.
  • M&A Tarun Tahiliani's Couture business Acquisition · Integrated

    Increased our stake in the company to 51%.

    This also has the addition of Tarun Tahiliani's Couture business, which got added in Q2 of this year, as we increased our stake in the company to 51%.
  • Liquidity Cash ₹1,300 Cr Secured USD 490 million equity capital through QIP and preferential issue. Demerged ABFRL will have a cash balance of approximately INR 1,300 crores. TMRW fundraise expected in 9-12 months.
    Number two, the company has successfully secured USD 490 million equity capital through a mix of QIP and preferential issue. The fundraise within demerged ABFRL will strengthen its balance sheet by making it debt-free and leaving enough cash in the books to take care of the growth needs of its businesses until they become self-sustainable...whereas demerged ABFRL will have a likely cash balance of approximately INR1,300 crores.

Guidance & targets

Demerger

  • Demerger completion timeline Demerger · Q4 FY25 / Q1 FY26 · High confidence within next 2-3 months
    First, the demerger of western wear brands business into a separate entity, that is Aditya Birla Lifestyle Brands Limited, or ABLBL, is progressing well and set for completion within the next 2, 3 months. The NCLT hearing is scheduled in third week of March 2025.

    — Jagdish Bajaj

Store Expansion

  • ABLBL new stores Store Expansion · next 12 months · High confidence 300-plus
    Over the next 12 months, the brands are poised for an aggressive expansion with a significant rollout of 300-plus new stores across the portfolio.

    — Jagdish Bajaj

  • Pantaloons store openings (FY25) Store Expansion · FY25 end · High confidence 13 to 15 stores
    So specifically for this year, I think by the end of the financial year, we would have opened about 13 to 15 stores.

    — Sangeeta Tanwani

  • Pantaloons store openings (FY26) Store Expansion · FY26 · High confidence 15 to 20 stores
    Next year, we are looking at, again, opening about 15 to 20 stores.

    — Sangeeta Tanwani

  • Style Up store network (FY25 end) Store Expansion · FY25 end · High confidence 45 to 50 stores
    expect this year to end with a network between 45 to 50 stores

    — Ashish Dikshit

  • Style Up new stores (FY26) Store Expansion · next year · High confidence about 50 more stores
    Next year, we'll definitely, at the minimum level, double it. As we go along during the course of the year, we'll see if we can expand faster than that. But at this point, I think the number that I would play out is about 50 more stores next year.

    — Ashish Dikshit

  • Tasva store network (FY25 end) Store Expansion · FY25 end · High confidence about 70-odd stores
    we end this year at about 70-odd stores

    — Ashish Dikshit

  • Tasva new stores (FY26) Store Expansion · next year · High confidence closer to 50 stores
    we should be able to probably add closer to 50 stores next year.

    — Ashish Dikshit

Growth

  • TMRW organic growth rate Growth · ongoing · High confidence 25% to 30%
    that business is growing organically at about 25% to 30%. And that's really the kind of growth rate we think we'll continue to maintain.

    — Ashish Dikshit

  • Innerwear segment scale Growth · future · Medium confidence grow by another 40% to 50%
    So we are closer right now to about INR500 crores. I think we'll have to grow by another 40% to 50% from this level to get to that kind of margin structure.

    — Ashish Dikshit

Debt

  • ABLBL debt-free status Debt · next 2-2.5 years · High confidence debt-free
    Over next 2, 2.5 years, we expect this to become a debt-free company.

    — Ashish Dikshit

Profitability

  • Pantaloons premiumization journey Profitability · another 12 to 18 months · Medium confidence more coherent across stores
    I would expect that it's a journey of another 12 to 18 months for us to look more, shall I say, coherent across each of our stores.

    — Sangeeta Tanwani

Fundraise

  • TMRW fundraise timeline Fundraise · next 9 to 12 months · High confidence next 9 to 12 months
    In terms of time line, we'll look at, when markets are right in the next 9 to 12 months, to raise this capital.

    — Ashish Dikshit

What to watch in Q4 FY25

Demerger Completion Status

Next quarter (within 2-3 months)
Current NCLT hearing scheduled in March 2025, progressing well.
Target Demerger completed.

Why it matters

Completion of the demerger is crucial for unlocking value and establishing two independent entities with distinct growth strategies and balance sheets.

First, the demerger of western wear brands business into a separate entity, that is Aditya Birla Lifestyle Brands Limited, or ABLBL, is progressing well and set for completion within the next 2, 3 months. The NCLT hearing is scheduled in third week of March 2025.

Risks & concerns

  • Subdued consumption environment

    medium

    Overall consumption remains subdued, with inconsistent footfalls outside festive and wedding seasons.

    Management acknowledged

  • Strategic shift of department store partners

    medium

    One of the biggest trading partners in department store formats is undergoing a strategic shift, impacting wholesale business, with recovery expected in 1-2 quarters.

    Management acknowledged

  • Tepid winter impact on sales

    low

    A tepid winter season prevented even better growth, indicating weather sensitivity for certain categories.

    Management acknowledged

  • Headwinds in smaller towns

    low

    Smaller towns have experienced more headwinds compared to overall market conditions, impacting growth aggression in those areas.

    Management acknowledged

Q&A highlights

7 direct
Lifestyle Brands LTL performance and margin expansion drivers Direct
I think the biggest drain in our business on margins is the discounting. And as we keep getting better and better at tightening discounting, getting into more and more of channel mix play, et cetera, which drives for reduced discounting, I think the stronger our business keeps getting.

Management clarified that strong LTL was driven by festive/wedding season and margin expansion by better discounting control and channel mix.

Asked by Tejash Shah

Pantaloons store closure strategy and future expansion for Pantaloons and Style Up Direct
So we've closed, as the commentary has told you, about 40 stores in the last 1 year. We'll have a few more in this quarter. And for next year, of course, we'll review, based on performance and the market conditions, how things progress...Style Up is clearly playing in the value segment category...Pantaloons operates, we will continue to expand in the relevant markets.

Management detailed the strategic rationale behind Pantaloons' store rationalization for premiumization and outlined distinct expansion plans for Pantaloons (metros/Tier 1 mid-market) and Style Up (value segment).

Asked by Tejash Shah

Impact of network optimization on inventory and asset write-offs Direct
I'll chip in here. I think the results that you see here are inclusive of any 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.

Management assured that any potential negative impacts from store closures and network optimization have already been accounted for in the reported results.

Asked by Devanshu Bansal

Sufficiency of capital post fundraise for ABFRL's growth and ABLBL's debt Direct
So our current analysis, and that's why this level of capital was raised, is that with the capital that we have raised, 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.

Management provided confidence that the raised capital is sufficient to fund growth for new ventures and that the demerged ABFRL will become free cash flow positive within 3 years.

Asked by Devanshu Bansal

TMRW's growth trajectory, profitability, and fundraise plans Direct
that business is growing organically at about 25% to 30%. And that's really the kind of growth rate we think we'll continue to maintain...Barring 1 out of 6 brands, I think most others are close to being profitable...In terms of time line, we'll look at, when markets are right in the next 9 to 12 months, to raise this capital.

Management provided specific organic growth targets for TMRW, indicated improving profitability across its brands, and outlined a timeline for its next fundraise.

Asked by Sheela Rathi

Sustainability of Q3 margins (near 20%) given seasonality Partial
I think we should look at margins not on a quarterly basis, because fashion is very seasonal and festivals and especially quarters like this are very profitable in that sense. Look at YTD numbers...quarter 3 margins are...exaggerated in the wedding and ethnic markets, simply because of amount of weddings and the festival period.

Management cautioned against extrapolating Q3's high margins due to seasonal factors, suggesting YTD figures are more representative of underlying profitability.

Asked by Jignanshu Gor

Luxury Retail margin decline from 20%+ to 13% Direct
the existing operating business, which is the Collective and the international brand, continues to remain same healthy margin that you talked about. There is currently an investment going on in the Galeries Lafayette store and that's really what has brought down the overall margin.

Management clarified that the margin compression in Luxury Retail was due to specific investments, not a deterioration in core business profitability.

Asked by Sameer Gupta

Impact of phasing out Forever 21 offline business on EBITDA Direct
So it will be positive because we were not making money in that business...There will be a positive impact on EBITDA.

Management confirmed that exiting the unprofitable F21 offline business will have a positive impact on the company's EBITDA.

Asked by Sameer Gupta

3 min read 6 chapters

Detailed narrative

Q3 FY25 Consolidated Performance Overview

Aditya Birla Fashion and Retail Limited reported consolidated revenue of INR 4,305 crores for Q3 FY25, marking a 3% year-on-year growth. Consolidated EBITDA stood at INR 683 crores, growing 13% YoY, with the EBITDA margin expanding to 15.9% from 14.5% in the prior year. Despite these operational improvements, the company recorded a consolidated PAT loss of INR 42 crores, though this was an improvement from a loss of INR 108 crores in the same quarter last year. Year-to-date figures show revenue of INR 11,376 crores (7% YoY growth) and an EBITDA margin of 13.2%.

Strategic Demerger and Capital Infusion Progress

The demerger of the western wear brands business into Aditya Birla Lifestyle Brands Limited (ABLBL) is progressing well and is expected to be completed within the next 2-3 months, with the NCLT hearing scheduled for the third week of March 2025. ABFRL successfully secured USD 490 million (approximately INR 4,000 crores) in equity capital through a mix of QIP and preferential issue. Post-demerger, ABLBL is projected to start with an opening debt of INR 700 crores, while the demerged ABFRL will have a cash balance of INR 1,300-1,500 crores, with a target for ABLBL to become debt-free in the next 2-2.5 years.

Segmental Profitability and Growth Drivers

The proposed ABLBL segment reported INR 2,151 crores in revenue with a 16.5% EBITDA margin, driven by a 12% retail LTL growth in Lifestyle Brands. The demerged ABFRL segment achieved 3% YoY revenue growth to INR 2,218 crores and an EBITDA margin of 14.4%, a 250 bps increase from the previous year. The Ethnic business demonstrated strong performance with a 7% YoY revenue growth to INR 588 crores and a significant 1,160 bps EBITDA margin expansion, reaching 19.2%. This was notably supported by Tasva, which recorded over 50% YoY sales growth and achieved positive EBITDA for the first time.

Pantaloons' Premiumization and Store Network Strategy

Pantaloons' revenue for the quarter was INR 1,305 crores, achieving a 19.3% EBITDA margin, reflecting a 170 bps improvement YoY. The brand is executing a strategic shift towards premiumization, which involved exiting over 40 less productive stores in the last 12 months, primarily in Tier 2 and smaller markets. Future expansion for Pantaloons will concentrate on metros, mini-metros, and Tier 1 towns, while the value-segment Style Up format, currently operating 39 stores, is planned for independent expansion, targeting approximately 50 new stores next year.

Emerging Businesses and Future Expansion Plans

TMRW, ABFRL's digital brand portfolio, continued its strong trajectory with 26% sales growth YoY and improved margins, validating the potential of digitally native brands. The company aims to sustain a 25-30% organic growth rate for TMRW and plans a fundraise for this segment within the next 9-12 months, having already invested around INR 1,000 crores. Across the ABLBL portfolio, an aggressive expansion is planned with over 300 new stores expected to be rolled out in the next 12 months, including targets of 40-50 new Tasva stores and doubling Style Up's store count next year.

Operating Environment and Efficiency Focus

The company operated in a challenging consumption environment characterized by subdued overall consumption and inconsistent footfalls outside of festive and wedding seasons. Management's strategy focused on driving operational efficiencies, leveraging existing assets, and strategic capital deployment. This included rationalizing distribution channels, tightening inventory management, and reducing operating costs. The phasing out of the unprofitable Forever 21 offline operations is also expected to have a positive impact on EBITDA.

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