Correction, growth hopes may cap downside in Aditya Birla Fashion & Retail

Growth in consolidated sales at Rs 4,305 crore were led by the ethnic and direct to consumer business which were up 7-26 per cent

Apparel major Aditya Birla Fashion and Retail (ABFRL) had the weakest revenue print in the December quarter of the current financial year (Q3FY25) among listed apparel retailers. The retail major posted a 3.3 per cent year-on-year (Y-o-Y) growth on a consolidated basis while its peers reported a high single-digit or double-digit growth. While revenue growth was muted across key segments, the results were in line with Street estimates.

 

Growth in consolidated sales at ₹4,305 crore was led by the ethnic and direct-to-consumer (D2C) businesses, which were up 7-26 per cent. Larger segments such as Madura and Pantaloons, which together accounted for 72 per cent of consolidated sales, had muted sales, reporting flattish to 2 per cent fall in the quarter. Excluding the 20 per cent decline in the acquired TCNS business, the ethnic portfolio growth jumped 39 per cent, led by 50 per cent growth in Tasva and traction in designer brands.

 

The company pointed out that consumer sentiments remained weak with urban markets continuing to exhibit demand moderation. Demand remained inconsistent with higher footfall during the wedding and festival period while the rest of the quarter saw a tapering of the same. The company highlighted that growth is healthy in lower price points and rural/Tier-2/Tier-3 markets, and in the premium segment.

 

ABFRL is demerging the Madura or lifestyle business, casual wear, sportswear, and innerwear into a separate listed entity called Aditya Birla Lifestyle Brands, or ABLBL. The rest of the business (Pantaloons, Style Up, ethnic and designer portfolio, and digital-first fashion brands under TMRW) is to be housed under the current listed entity, ABFRL.

 

ABFRL is positioning itself for long-term profitable growth, with brand re-imaging for Pantaloons (mid-market vs value), ramp-up of Style Up (value retail), aggressive expansion of Lifestyle business in Metro/Tier-1 markets, and ramp-up of ethnic/D2C portfolio to cater to the large and growing total addressable market of festive/GenZ demand. 

 

A positive for the company from the debt perspective is the raising of $490 million through a QIP (qualified institutional placement) and preferential issuance. This will be used to make the company debt-free and accelerate the growth of recently established platforms of value retail, ethnic wear, and luxury retail within the demerged ABFRL.

 

The company is expected to end FY25 with ₹700 crore debt in the free cash flow (FCF)-generating ABLBL and ₹1,300 crore cash in FCF-negative ABFRL, which should suffice for scale-up of Tasva/Style Up to profitability.

 

Though the company commentary suggests healthy growth revival for the Lifestyle business in FY26, brand reimaging for Pantaloons (mid-market vs value) is likely to impact its growth, say Devanshu Bansal and Mohit Dodeja of Emkay Research. Its better margin delivery with lower participation in discounts, product cost reengineering, and store rationalization largely offsets the weak revenue growth outlook for Pantaloons, says the brokerage. It has upgraded the stock to “add” (from “sell” rating) on a 30 per cent stock correction from its recent highs.

 

While Kotak Research has trimmed its forecast given weaker-than-expected revenue growth in the near term and a challenging FY26 for the two demerged entities, absolute loss estimates decline “as we bake in the fundraise”. The brokerage has upgraded the rating a notch to “reduce”.