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Aditya Birla Fashion & Retail Ltd.

BSE: 535755 Sector: Industrials
NSE: ABFRL ISIN Code: INE647O01011
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VOLUME 45281
52-Week high 281.15
52-Week low 180.10
P/E 103.86
Mkt Cap.(Rs cr) 20,498
Buy Price 262.00
Buy Qty 3.00
Sell Price 265.00
Sell Qty 1970.00
OPEN 264.50
CLOSE 265.50
VOLUME 45281
52-Week high 281.15
52-Week low 180.10
P/E 103.86
Mkt Cap.(Rs cr) 20,498
Buy Price 262.00
Buy Qty 3.00
Sell Price 265.00
Sell Qty 1970.00

Aditya Birla Fashion & Retail Ltd. (ABFRL) - Director Report

Company director report

(INCLUDING MANAGEMENT DISCUSSION AND ANALYSIS)

Dear Members

Your Company's directors hereby present the Twelfth Annual Report of the Companytogether with the audited financial statements of the Company for the financial year endedMarch 31 2019 ("year under review/ FY 2019").

management discussion and analysis

Overview

The global economic outlook has weakened as compared to the forecast in 2017. The 3.6%growth in 2018 was due to significantly weaker performance in some economies in the secondhalf of 2018. International Monetary Fund (IMF) projects the global economy growthto decelerate to 3.3% in 2019 and return to 3.6% in 2020. The decline in forecast ismajorly due to US-China trade tensions tighter credit policies in China macro-economicstress in Argentina and Turkey and financial tightening alongside the normalisation ofmonetary policy in the larger advanced economies.

IMF however expects a strong growth in Indian economy while the rest of the worldreels under the effects of high trade uncertainty which threatens to disrupt globalsupply chains. The Indian economy is estimated to recover from mild slowdown experiencedin 2018 to grow by 7.3% in 2019 and 7.5% in 2020 supported by continued recovery ofinvestment. The future forecast of low oil prices continuing has eased inflationarypressures causing the RBI to ease the pace of monetary tightening.

Industry structure and developments

Global apparel market

Global apparel market is close to 2.3% (1) of world GDP with Europe USA and Chinabeing the largest markets expected to grow at a compound annual growth rate (CAGR)of 5% by the year 2025. With the shift of economic growth from mature regions in West toemerging markets in South and East Asia more than half of apparel and footwear sales willoriginate outside of traditional markets of Europe and North America. This hints at thelarge opportunity available in these regions which local and global apparel players willchase in the coming years.

In 2017 India and China collectively accounted for a market of ~ 16% with 36% of theworld population. Currently India and China are expected to grow at a higher steady CAGRof 12% and 10% respectively vis-a-vis overall world average of 5%. The growth in apparelmarkets in these countries is being driven by continued high economic growth and rise inper capita income. As a result China will be the largest apparel consumer in the world by2025 while India will topple Japan to become the fourth largest.

Global consumer trends

As customers globally embrace multiple modes of shopping consumer footfall to physicalstores continues to remain under pressure. This is driving most of the brands andretailers across market segments to develop an omni-channel play to address customersacross channels. In the last few years social media has played a key role in shaping theconversation around fashion and will continue to make fashion more democratic accessibleand aligned with the aspirations of evolving consumers.

At the back end speed in production will be increasingly more critical to everyfashion label and retailer. With new technologies such as robotics and 3D printingcompanies will be able to deal with time pressures and offer customers greaterpersonalisation at the same time. Taking cue from some of the widely successful fastfashion models several apparel players are moving to digitise their supply chain forspeed and flexibility.

The trend of digital adoption by consumers is now mainstream and it will continue to bethe biggest driver of change in the global fashion industry. The consumer's interactionwith fashion is changing fast with discovery moving online. Digital media and content nowinfluences the way consumers perceive fashion trends and how they transact. This creates aneed for the fashion brands to create strong online presence to assist and guide thecustomers in their non-linear exploration and consumption patterns.

Indian market

The apparel market for India is expected to grow at CAGR of 12% (1) during the period2017 to 2025. This growth is backed by greater purchasing power leading to higherdiscretionary spends; majorly riding on increase in youth population shift toaspirational buying higher brand affinity urbanisation and increased penetration oftechnology.

Similarly from the supply side the factors driving growth are innovation in retailexperience with digital marketing displays and improved check out mechanisms andinvestment by large organised players. Innovation on products and services has benefittedthe consumers in improved product quality product availability competitive pricing andpleasant shopping experience. These changes have been driving growth for the organisedapparel business in our country wherein still majority of the market remains unorganised.

The share of organised retailing in the apparel space is expected to increase from 23%in FY 2017 to 28% (1) by FY 2020. This growth would be aided by improved investments newstores roll out and increased aggression by online players. Increased penetration oforganised players in tier 2 and 3 cities along with the higher disposable income levelsare expected to contribute to the growth story. This also shows the magnitude of theopportunity available for the organised apparel and retail players in India.

While the current share of women's wear in the overall apparel market is 37% (1) it isexpected to outpace the men's wear category and occupy a majority market share of 41% (1)by 2025. This trend is led by an increase in the number of working women higherdisposable income more experiential lifestyle and higher autonomy in decision making.

The industry continued with its rapid growth this year led by aggressive expansion invalue and mass segments rise of women's and kid's categories and continued scale up ofe-commerce.

On e-commerce side due to clearer reinforcement of Foreign Direct Investment (FDI)policy the top e-commerce players had to re-evaluate their business models and strategicpartnerships. The industry was also forced to focus more on convenience and service as thekey driver with minor reductions in discounting and promotions. Despite few initialhiccups e-commerce continued to build upon its strength of providing rapid scale and deepaccess to markets and consumers. However with increased focus on profitability thedisruptive impact that the sector had on brick and mortar players few years back hasdiminished; creating a conducive ecosystem for offline and online players in India topartner and grow the market together.

With the developments in e-commerce policy and resulting business model omni-channelor online-to-offline (O2O) has started emerging as a more suitable model for bothonline and offline players to test. Both new as well as established players are testingout different models of engaging an O2O framework for their products and services.

Business overview

Your Company is India's largest pure-play fashion and lifestyle entity with an elegantbouquet of leading fashion brands and retail formats.

Lifestyle brands

Lifestyle brands reported revenue of र 4304 Crore during the year recording a growthof 11% over the previous year (comparable Ind AS and GST adjusted growth rate of 13%).The growth is fuelled by new store additions growth in e-commerce channel productinnovation and expansion in newer categories. Lifestyle brands recorded a like-to-likegrowth of 5.3% for the full year. The EBITDA has improved to र 519 Crore a growth of 15%over previous year. Higher profitability is achieved despite more than 60% increase inbrand building spends as compared to the previous year.

Louis Philippe Van Heusen Allen Solly and Peter England continue to be leaders withintheir respective segments. The brands expanded its loyal consumer base to approximately 15Million this year providing high quality products and services to the consumers. With adeeply penetrated distribution network across India these brands are synonymous with highquality fashion and top-notch consumer experience. The growth in women's and kidssub-brands has strengthened the overall performance of Lifestyle brands. With three of itsbrands having revenue of more than र 1000 Crore Lifestyle brands constitutes thestrongest brand portfolio in the industry.

These brands have created very strong equity amongst its loyal customers through yearsof persistent focus on product innovation design development consumer satisfaction andbrand building.

During this year the business further expanded its scale through new store openings inuntapped markets. The business focused on integrating consumer feedback into productdesign and planning aiming at improving the product satisfaction score amongst consumers.Lifestyle brands business took significant strides towards adopting digital ways ofworking both in terms of consumer engagement and brand building.

Your Company has expanded Peter England deep into tier 3 and 4 towns providing thesemarkets an access to high quality branded products and consistent retail experience. Highdecibel and localised marketing launches with robust operational execution has ensuredtremendous customer response across all stores.

Pantaloons

This has been a turnaround year for Pantaloons with revenue of र 3194 Crore duringthe year a growth of 12% over the previous year (comparable Ind AS and GST adjustedgrowth rate of 15%). This growth was driven by significant improvement in productfreshness design and quality and improved assortment. The EBITDA improved to ' 231 Crorea growth of 35% over the previous year. EBITDA margins have improved by 120 basis pointsto 7.2% despite more than 60% increase in brand building spends as compared to theprevious year.

Pantaloons is a continuously growing retailer in the value fashion segment with anetwork of 308 stores across the country spanning over 4 Million square feet. During theyear under review Pantaloons added 40 new stores to its network and entered many newtowns and markets. It also launched its B2C e-commerce platform (www.pantaloons.com)during the year and plans to build it in the coming years. Through focused interventionson understanding key customer needs and applying those insights to enhance product qualityand assortment Pantaloons was able to increase its share in private label and ethnicwear.

It also increased spends on marketing to strengthen the brand and create greater brandvisibility. Pantaloons has a pool of over 15 Million deeply engaged customers which isone of the key drivers of the growth contributing to more than 90% of its sales.

Fast fashion

Your Company has created and is working towards revamping its fast fashion segment.Forever 21 is one of the most iconic fast fashion brands globally providing trendyfashion apparel and accessories to girls women and men.

This year your Company showed unwavering focus on improving the business model andreducing losses by store rationalisation and cost optimisation. Retail store models werecalibrated further to establish proof of success which will allow for future expansion inForever 21.

Further in line with its continued focus on prudent capital allocation your Companyhas decided not to pursue "People" brand as a standalone retail format goingforward. Considering the brand equity of "People" brand amongst young consumersit is being transitioned into a private label brand within Pantaloons.

Innerwear

The Innerwear category is evolving from being a basic commodity to a need which hasmore involvement by the customer who wants both; styling without compromising on comfort.Van Heusen (VH) innerwear for men has made significant scale and established itselfas a rapidly growing brand in two years' time. In the mid of FY 2019 the Company alsolaunched VH innerwear for women and encouraged to receive extremely positive customer andpartner feedback.

During this year innerwear segment aggressively added more than 6000 points ofdistribution through pan India launches. The business also launched its own e-commerceplatform for women innerwear (www.vanheusenintimates.com). which gives the consumer apersonalised and engaging experience. It is a one-stop solution for all lingerie fitconcerns. An in-depth consumer research across 1800+ respondents gave insight into thekey consumer pain points and each of the product is crafted to address the same. Riding onproduct strategy focused on fit fashion and innovation and favourable engagement modelswith channel partners your Company considers this segment to become an important growthdriver in coming years.

Global brands

Global brands portfolio comprises of 'The Collective' one of India's largestmulti-brand retailer of luxury brands and select mono brands. The mono brands portfolioincludes Hackett Ted Baker Simon Carter American Eagle Ralph Lauren and Polo RalphLauren. In this financial year your Company expanded the mono brands foot print bylaunching new stores of Polo Ralph Lauren Ralph Lauren American Eagle and Ted Baker.American Eagle has created a strong brand imagery amongst its target segment striving tobecome the most exciting denim-led casual brand for the youth.

With the addition of these brands in its portfolio your Company will continue on itstrajectory on building a strong but selective play in the emerging super premium andbridge to luxury segments.

Others

Your Company continuously explores growth opportunities in identified white spaces. InFY 2019 the Company has launched a new retail format "Style Up" to address thelarge opportunity in mass segment for small town India. Your Company is also evaluatingvarious options to increase its presence in ethnic market. Both these opportunities offertremendous long-term growth potential.

Business strategy

Your Company will continue to build on its leadership position through investments inkey strategic themes.

Building strong brands

In order to maintain its leadership position your Company will continue to invest inbuilding strong vibrant brands that evolve with the changing customer needs. The brandfocus will be extended into enhanced product design and a refreshed store experience. Thefocus on product innovation will continue to drive the differentiation supplemented withinitiatives to interact with customers continuously. The Company will continue to test andimplement latest methods of engagement with the customers and create strong associationsto strengthen its brands. The organisation's consumer-centricity framework is based oncontinuous research big data analytics real-time feedback from retail outlets and anengaged customer loyalty programme.

Enhancing portfolio

Your Company has laid out a clear growth path to create value by strengthening itsexisting businesses and accelerating play in emerging business segments. The Companycontinuously identifies emerging segments in the market and seeks to enhance its playthrough a combination of brand extensions new product launches and strategicacquisitions.

In the last few years your Company expanded its presence in casual wear through brandextensions and also gained a strong position in the fast growing value fashion segmentthrough Pantaloons. The portfolio has been strengthened with inclusion of Forever 21 inwomen's fast fashion and men's and women's innerwear under the brand Van Heusen. TheCompany has also enhanced focus on women's and kids wear through strengthening the play inthese segments through its Lifestyle brands.

Moving forward your Company will continue to explore further growth opportunities infast growing segments such as ethnic wear casual and super-premium categories.

Building agile design and supply chain

Design and product development is at the core of the apparel business and your Companywill continue to invest in these functions. It will drive product innovation byincorporating customer feedback in the design cycle. From a 4-season model the Companywill move to a 12-season model allowing it to reduce lead times significantly. This willenable the Company to continue with the journey of being closer to market in terms ofidentifying and addressing latest fashion trends. It is a significant shift that isenabling your Company to offer greater freshness and latest fashion in line with thechanging consumer trends.

Expanding distribution footprint

Your Company has been growing rapidly through its multi-channel distribution strategyand is now present in more than 750 cities.

With the expansion of retail opportunity across India the Company intends to continuebuilding reach and penetration through physical stores along with strong omni-channelplay. Together with increasing its penetration in existing territories the Company hasidentified markets for further expansion. It sees tremendous opportunity in the vast tier2 3 and 4 towns of the country and plans to expand presence through appropriate businessmodels. This will help in gaining strong position across markets to meet the growingdemand for high-quality ready-made branded apparel.

Digital transformation

Digital as a way of life is emerging as a key theme for organisations of tomorrow.The Company needs to embrace digital not only to enhance the customer experience side ofit but also internally to enhance processes and ways of working. Your Company has takensome key steps in this direction and internal and external focused digital transformationinterventions will be a core strategy parameter for it.

Digital transformation is significantly disrupting the fashion retail industry. InIndia e-commerce players have rapidly grown over the last 5 years creating new businessmodels which are both an opportunity and a threat to the business. Your Company has beena front-runner in adoption of transformational digital and analytics technology. Whileworking closely with leading e-commerce players to extend the reach of its brands theCompany continue to focus on developing the online focus of its own brands. Theomni-channel initiatives are rapidly scaling up by leveraging the Company's uniquestrength of a large store network along with online e-commerce capabilities. Your Companyhas also launched an initiative to design products digitally using advanced 3D designtechnology which will enable digital commerce across trade and retail channels.

Your Company recognises the need for adoption of digital to ensure internaltransformation and external market readiness. Significant investments are made in dataanalytics capabilities by setting up a central data warehouse for aggregating all customertransactions and interactions both in-store and online. It's focus is on enablingpersonalised consumer campaigns leveraging the rich data that it has from the loyaltyprograms and building single-view of customer data models. This has been successfullypiloted in Pantaloons and is now being scaled up to extend across brands as well. Whileanalytics led customer engagement is a key priority the Company has also initiated pilotsto knowledge enable core business processes including design merchandising allocationand markdown management. The customer-shopping journey is not linear thus there is asignificant focus to drive transformation using digital platforms as the Company continueon its journey to build a future-ready organisation.

Financial performance and analysis

(Amount in र Crore)
Particulars Year ended March 31 2019 Year ended March 31 2018
Revenue from operations (1) 8118 7181
EBITDA (2) 619 501
Finance costs 187 172
Depreciation 282 281
Earnings before tax 149 49
Current tax 22 -
Deferred tax assets/ (liabilities) (3) 194 69
Net profit/ (loss) (2) 321 118

 

Particulars As at March 31 2019 As at March 31 2018
Net fixed assets (including CWIP) 718 769
Goodwill (4) 1860 1860
Deferred tax asset (3) 263 69
Net working capital 291 256
Capital employed 3132 2954
Net worth 1429 1093
Debt (5) 1703 1861

Notes:

(1) Revenue from operations for the year ended March 31 2019 are not comparable withprevious period corresponding figures of March 31 2018 due to:

a. GST: Effective July 1 2017 sales are recorded net of GST whereas earlier the samewas recorded gross of excise duty which formed part of expenses.

b. Ind AS 115: Sales is lower by र 84 Crore for the year ended March 31 2019 onaccount of impact of purchases on 'sales or return basis' arrangements.

(2) Includes other income of ' 65 Crore (Previous year: ' 33 Crore).

(3) Recognised deferred tax assets as at March 31 2019 of ' 194 Crore (Previousyear: ' 69 Crore) on brought forward accumulated losses and deductible temporarydifferences based on reasonable certainty in coming years.

(4) As on March 31 2019 goodwill (after testing for impairment in accordance with theInd AS - 36 issued by the Institute of Chartered Accountants of India) stands at ' 1860Crore.

(5) Comprises of non-current borrowings current borrowings and current maturities oflong-term borrowings.

Net working capital

(Amount in र Crore)
Particulars As at March 31 2019 As at March 31 2019 As at March 31 2018
(As reported) (Adjusted) (As reported)
Inventories 1921 1788 1691
Trade receivables 787 536 552
Cash and bank balances 57 57 73
Other assets 1016 893 721
Less: Trade payables 2399 2143 2009
Less: Other liabilities 1091 840 772
Net working capital 291 291 256

Notes on adjustment:

(1) Revision of agreements with vendors pursuant to change in model from sale or return(SOR) basis to outright (OR) basis has resulted in increase in inventory and tradepayables - Impact of ' 256 Crore.

(2) Impact of Ind AS 115 on provision for sales return:

(i) Provision for sales return (refund liabilities) - was netted off from tradereceivables now reclassified in other liabilities and trade receivables is reflected at agross level - ' 251 Crore;

(ii) COGS value of sales return (return assets) - which was earlier part of Inventoriesis now required to be reduced from Inventories and reflected in Other assets - ' 123Crore.

Overall impact is that both assets and liabilities has gone up by ' 507 Crore.

Revenue

Your Company reported revenue of र 8118 Crore during the year recording a growth of13% over the previous year (comparable Ind AS and GST adjusted growth rate of 15%)due to overall improved performance in both segments.

Your Company has implemented Ind AS 115 - "Revenue from Contracts withCustomers" which became mandatory for reporting periods beginning on or after April1 2018 replacing the existing revenue recognition requirements. Accordingly the Companyhas applied the modified retrospective approach and the revenue for the year ended March31 2019 are not comparable with the previous years. However this does not have anyimpact on the profitability of the Company.

Segment performance: Madura Fashion and Lifestyle

Madura Fashion and Lifestyle (MFL) segment includes lifestyle brands fastfashion and other businesses. MFL reported revenue of र 5032 Crore recording growth of13% over the previous year (comparable Ind AS and GST adjusted growth rate of 14%).

MFL is expanding its presence in the retail channel by opening new stores and exits theyear with 2161 exclusive brand outlets (EBOs) and 245 value stores. MFL's share ofrevenue from retail channel has increased to ~ 43% from ~ 35% in the previous year.

Segment performance: Pantaloons

Pantaloons reported a revenue of र 3194 Crore recording growth of 12% over theprevious year (comparable Ind AS and GST adjusted growth rate of 15%). During theyear it added 40 stores taking the total number of stores to 308 spanning 4 Millionsquare feet. Pantaloons reaches out to large middle class Indian households with itsdiversified offerings for men women and kids

Earnings before interest tax depreciation and amortisation (EBITDA)

EBITDA of the Company including other income is र 619 Crore (previous year र 501Crore) and grew by 24%. The EBIDTA margin for the Company improved from 7.0% to 7.6%in FY 2019 with a continuous improvement in both the segments.

Finance cost

Finance cost for the year was र 187 Crore as compared to र 172 Crore in the previousyear. The increase is mainly on account of increase in market interest rates. The averageborrowing cost for the Company is at 8.0% as compared to 7.7% in the previous year.

Depreciation

Depreciation during the year remains at र 282 Crore as compared to ' 281 Crore in theprevious year.

Dividend

The Board of Directors of your Company after considering holistically the relevantcircumstances and keeping in view the Company's Dividend Distribution Policy has decidedthat it would be prudent not to recommend any dividend for the year under review.

Borrowings

In order to ensure greater financial flexibility and an optimal financing structurethe Company at the Eleventh Annual General Meeting held on August 28 2018 obtainedapproval of the shareholders by way of a special resolution to raise funds by issuance ofnon-convertible debentures for an amount of upto र 1250 Crore on private placementbasis within the overall borrowing limits of the Company as approved by the shareholdersfrom time to time.

Key financial ratios

Particulars As at March 31 2019 As at March 31 2018
Debtors turnover ratio (1) 12.13 14.31
Inventory turnover ratio (2) 4.49 4.60
Interest coverage ratio 1.80 1.29
Current ratio 0.81 0.84
Debt equity ratio 1.19 1.70
EBITDA margin 7.6% 7.0%
Operating profit margin 4.1% 3.1%
Net profit margin 4.0% 1.6%
Return on net worth 23.6% 20.2%
Return on average capital employed 11.1% 7.4%

Notes:

(1) Adjusted debtors turnover ratio for FY 2019 -14.93 (FY18 -14.31)

(2) Adjusted inventory turnover ratio for FY 2019 - 4.67 (FY18 - 4.60)

The formulae used in the computation of the above ratios are as follows:

Ratio Formula
Debtors turnover ratio Revenue from operations/ Average of opening and closing trade receivables
Inventory turnover ratio Revenue from operations/ Average of opening and closing inventories
Interest coverage ratio Earnings before interest and tax/ Finance costs
Current ratio Current assets/ Current liabilities
Debt equity ratio Debt/ Net worth
EBITDA margin EBITDA/ Revenue from operations
Operating profit margin Earnings before interest and tax/ Revenue from operations
Net profit margin Profit after tax/ Revenue from operations
Return on net worth Earnings before interest and tax/ Net worth
Return on average capital employed Earnings before interest and tax/ Average capital employed

Details of significant changes (i.e. change of 25% or more as compared to theimmediately previous financial year) in the key financial ratios:

(1) Interest coverage ratio and Operating profit margin - Ratios have improved due tobetter operational performance by the Company.

(2) Debt equity ratio Net profit margin and Return on average capital employed -Ratios have improved due to better operational performance and higher deferred tax assetrecognition for the period.

SWOT analysis

Strengths

Ability to build strong timeless brands

Your Company has been able to create many of the most iconic apparel and lifestylebrands in the country. This was achieved through continuous efforts in marketing buildingan evolving distribution network and product innovation. The Company's brands are itsstrongest and most fundamental strategic asset enabling it to maintain a differentiatedand competitive position in the domestic apparel industry. The hallmark of success of theCompany has been to transform these brands with the change in customer behavior. YourCompany ensures that the brands it build are not only the leaders in their core segmentbut evolve and extend to cater needs of new customers and changing market.

The Company will continue to selectively add and build new brands furtherstrengthening its brand portfolio and expanding its presence across untapped segments.

Deep expertise in design product development and sourcing

Your Company's brands derive the strength from the products it creates. Hence theCompany has invested deeply in building robust design and product developmentcapabilities. Our teams are transforming the way we think about fashion cycles by aimingto improve towards closer-to-market creation. Your Company has enabled itself to swiftlyand appropriately respond to ever-changing fashion trends by delivering innovativeproducts satisfying consumer needs. This is supported by adoption of global sustainabilitypractices.

Large distribution network

Your Company runs a wide and extensive distribution network of 2714 stores and 23000+points of sale; making it one of the largest distribution networks of any apparel businessin the country. The Company is also at the forefront of expansion into tier 3 and 4markets as it aim to expand the brands to travel even further and deeper creating adistribution network that will become its dominant competitive advantage.

Strong people processes

Your Company is the preferred choice for talent in the industry due to its focusedefforts on building a people focused meritocratic professional and progressiveorganisation. People development is at the core of the business strategy reflected in itsextensive management trainee programs with top design and business schools across thecountry. The Company has also lead many initiatives on people development individualcareer mapping mentoring for young women leaders and employee engagement.

Leadership capability and corporate governance

Home to some of the finest talent in the industry most of the leadership team in theCompany is home grown and has contributed to many important milestones in its long journeyof more than two decades. Your Company is governed by a board comprising of industrystalwarts with rich experience across diverse consumer facing industries and multiplegeographies.

Weaknesses

Sub-optimal presence in some high growth segments

Over the last few years the Indian apparel industry has witnessed rapid growth in thecasual denim and women's segments. Due to its strong legacy of men's formal wear brandsthe Company has been able to extend its offering to some of these opportunities but withmoderate success. Company's portfolio still needs more strength in growing categories suchas womenswear and kidswear; and across wearing occasions such as casual wear denims etc.In order to build a strong and balanced portfolio that addresses these gaps and is alignedto the future configuration of the apparel market your Company is taking aggressiveactions to enhance the business.

Opportunities

Large fast growing market

Organised retail in India is experiencing rapid transformation and growth. This hasbeen aided by robust demand due to rising incomes aspiring middle class population anddemocratisation of fashion aided by easy access to digital medium for the masses. Certaincategories such as women and kids are expected to grow much faster due to a lot of newbrand proliferation and discretion-based purchase replacing need-based buying.

The other big story for Indian market is the tremendous opportunity that exists in tier2 and 4 towns. These towns have a high propensity to spend are witnessing urbanisationand have an increasing aspiration to use branded products. The exposure to digital hasgreatly changed the aspirations and expectations of consumers in these markets. Thesemarkets will also see rise of high grade retail space driving entry of numerous brandstrying to address the needs of brand seeking consumers in better quality shopping space.

Rising affluence and increasing global exposure have led to growth in premiuminternational brands business in India.

Digital influence

Digital has emerged as the biggest force powering B2C businesses by creating digitallyinfluenced and enabled transactions. Your Company has embraced the digital revolutionupgrading the consumer shopping experience through omni-channel play blending postpurchase consumer feedback in its product design process and digitally enabling the brickand mortar stores to offer more efficient and holistic shopping experience. Your Companyis also creating an engaged digital presence across all media channels which have becomea primary source of brand discovery for customers.

Threats and risks

Increased markdown in industry

E-commerce growth across the industries created a huge change in customer expectationsfrom brands and now they seek even higher value for every rupee spent. This has forcedorganisations to either provide more value in the product or use high discounts to competein the market. EOSS led by big sale days by online and offline players heavily encouragesdiscount seeking behaviour and shifted a large portion of sales to discounting season;adversely impacting margins.

Year-on-year discount increases are a big risk for the apparel industry. Many playersare working on improving the core customer proposition comprising of innovative productsharp pricing and delightful pre- and post- purchase experience to shift consumers backto a full price sale regime.

Commoditisation of fashion

Many regional and national players have rapidly expanded value fashion formats inuntapped new markets. These towns are experiencing quality retail for the first time andthe nature of these retail offerings might commoditise fashion for the customer. There isa need to create brands and propositions that provide access to high value products butcreate a customer connect to the brand identity as well.

Inadequate supply of good quality retail space

With larger part of FDI in real estate focusing on residential development in the lastfew years commercial real estate development had slowed down. This has led to most of thecities having insufficient supply of grade A malls and good quality commercial spacetranslating into higher rentals and unviable economics for retail companies.

Limited availability of talent

Apparel industry experiences the demand for talent exceeding supply in many criticalareas of analytical thinking technical competency and leadership skills. Growth ofe-commerce companies and advent of international players in India has also createdtremendous challenge in terms of retaining key talent. The above two factors have madetalent development and management an extremely crucial component of business strategy.

Outlook - Way forward

As per economic survey India continues to be amongst the fastest growing economies inthe world and is expected to continue to remain so in FY 2020 as well.

The policy environment is expected to be stable with a focus on reviving credit andinvestment in the economy. The government will continue its focus on enhancing ease ofdoing business infrastructure development and digital India programs. These investmentswill help the economy recover back to past levels of growth. The improving economicscenario is expected to translate into positive consumer sentiments. The key factors thatare driving the India consumption story are large proportion of young population risingurbanisation growing affluence increasing discretionary spending and deeper penetrationof digital content and processes.

However the sector outlook is expected to be cautiously optimistic basis recenteconomic indicators on growth. Your Company is well positioned to leverage the opportunityin this growing market with its diverse offerings across varied market segments pricepoints and portfolio of strong brands.

Risk management

Effective governance and risk management form the bedrock of a company's sustainedperformance. The framework revolves around rigorous implementation of standardisedpolicies and processes and development of strong internal control systems.

Your Company has constituted a Risk Management Committee (RMC) foridentification evaluation and mitigation of operational strategic and external risks.RMC is supported by an internal committee which consists of experts from various businessprocesses and segments. The internal committee assists the RMC in defining the frameworkfor risk management and compliance and undertakes assessment of risks adopts the riskmitigation plans and regularly monitors them in a structured and controlled environment.It also reviews the developments in socio-economic environment and identifies internalthreats and opportunities updates the framework and refines processes and systems formitigation. Details of the composition of the RMC and the Risk Management Policy adoptedby the Board have been disclosed separately.

The key identified risks are covered as part of threats in SWOT analysis. internalcontrol systems and their adequacy

The Company's internal control systems are commensurate with the nature of its businessand the size and complexity of its operations. Internal control systems comprisingpolicies and procedures are designed to ensure sound management of your Company'soperations safekeeping of its assets optimal utilisation of resources reliability ofits financial information and compliance. Systems and procedures are periodically reviewedand these are routinely tested and certified by statutory as well as internal auditors andcover all functions and business areas. The audit committee reviews adequacy andeffectiveness of the Company's internal control environment and monitors theimplementation of audit recommendations including those relating to strengthening of theCompany's risk management policies and systems.

Human resources

Your Company's People Vision is "To drive a High Performing and Customer CentricCulture with Happy and Value Oriented Employees" The Company's performance isanchored on its capabilities and productivity; customercentric culture through a strongservice orientation; happiness through purposeful behaviour by high quality talent;value-oriented through a deep commitment to the values of the Aditya Birla Group.

The Company has a diverse workforce of 23000+ employees consisting of mix of peoplefrom diverse backgrounds educational experience and wealth of experience from variousindustries. It also has a healthy gender diversity with 52% of the workforce comprising ofwomen employees. 55% of the employees of the Company are in less than 30 years of agegroup.

Your Company has maintained healthy cordial and harmonious industrial relations at alllevels through proactive employee relation development initiatives gender diversity andcommunity development.

Delivering 'Employee Value Proposition' (EVP) through people strategy

"The Biggest Brands and Best People" is the philosophy that drives ABFRL. TheCompany has well-known brands and it is the people behind the brands who have made thebrands what they are. The unique EVP of the Company - "A World of Opportunities"makes it a preferred employer for professionals in the industry. Your Company is committedto strengthen its employee value proposition in every aspect - career growth learning& development rewards & recognition enrichment of life through healthy workenvironment and well-being programs.

• Career growth

Your Company believes in harnessing the leadership and people capabilities throughsharp focus and initiatives on talent development. The Company has institutionalised anactive talent review process to take stock of succession planning for key roles of thebusiness. The talent is reviewed based on the performance and potential to assess theirreadiness for future role of high scale and complexity. The Company has created a strongownership and governance on careers through talent council which run at both apex andbusiness unit level and are chaired by business leaders and meet at periodic intervals. Italso invests in hiring bright entry level talent through the Company's young talentmanagement program (striders) from B-Schools and fashion institutes (such asNational Institute of Fashion Technology) to create a strong future pipeline.

• Learning and development

The Company's initiatives equip its employees to develop taller leadership capabilitiesarmed with strong management capabilities in both domain specific and behaviouraldisciplines.

The Company invests in multiple initiatives such as Gyanodaya Aditya Birla GroupGlobal Centre for Leadership Learning for its leaders and management development programson various managerial capabilities. In-house structured learning program (ABFRLuniversity) has also strengthened and it has also expanded its wings to other lines ofbusinesses.

There are also significant opportunities for on the job development through variousbusiness and functional projects. Apart from classroom and on the job training modulesemployees are also provided opportunity to self-learning through digital interface whichhosts a variety of content. These not only help employees perform to their potential inthe current roles but also prepare them for higher responsibilities.

• Rewards and recognition

The Company's initiatives are aligned to drive the culture of meritocracy and ensuringmarket competitiveness. They celebrate successes and also help in raising the bar onperformance and achievement.

Celebrating success through recognition programme are at the core of building vibrantABFRL culture. Well- entrenched annual engagement events are forums where it celebratesand recognises team and individual achievements value champions and feats achieved byemployees beyond the call of duty.

Your Company has various forums where it recognises outstanding performance of theemployees in the stores warehouse manufacturing facilities and offices.

• Enrich the life of employees

Your Company embarks on multiple initiatives to create a wholesome approach for itsemployees. These include retail olympics focused on sports events leading to employeebonding and competitiveness. It also encourages the employees to volunteer in various CSRinitiatives of the Company offering them an opportunity to work together for the commongood of the community. The Company's initiatives also focus on the physical and mentalwell-being of its employees. It also offer flexible working arrangements for the employeesto encourage them to balance their work family and personal commitments & priorities.

directors' responsibility statement

The audited financial statements of your Company for the year under review ("financialstatements") are in conformity with the requirements of the Companies Act 2013read with the rules made thereunder ("Act") and the Accounting Standards.The financial statements fairly reflect the form and substance of transactions carried outduring the year under review and reasonably present your Company's financial condition andresults of operations.

Your directors confirm that:

a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures if any;

b) accounting policies selected have been applied consistently and reasonable &prudent judgments and estimates were made so as to give a true and fair view of the stateof affairs of your Company as at the end of the year under review and the profit &loss of your Company for the year under review;

c) proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of yourCompany and for preventing and detecting fraud and other irregularities;

d) the annual accounts of your Company have been prepared on a 'going concern' basis;

e) adequate internal financial controls were laid down & followed by your Companyand such internal financial controls were operating effectively; and

f) proper systems have been devised by your Company to ensure compliance with theprovisions of all applicable laws and such systems were adequate and operatingeffectively.

Compliance with Secretarial Standards

Your directors confirm that during the year under review the Company has been incompliance with the applicable Secretarial Standards issued by the Institute of CompanySecretaries of India.

share capital

Equity share capital

The paid-up equity share capital of your Company as at the end of the year under reviewstood at र 773.48 Crore vis-a-vis र 771.69 Crore as at the end of previous year.

Details of shares allotted during the year under review are as under:

(i) Allotment to non-resident shareholders of Aditya Birla Nuvo Limited (now GrasimIndustries Limited) ("ABNL") holding shares on repatriation basis.

In terms of clause 21 of the Composite Scheme of Arrangement amongst the Company ABNLand Madura Garments Lifestyle Retail Company Limited and their respective shareholders andcreditors under sections 391 to 394 of the Companies Act 1956 ("CompositeScheme") allotment of 3782178 equity shares ("said shares")to 3475 non-resident shareholders including 4 overseas corporate bodies ("OCBs")of ABNL ("NRE shareholders") was kept pending until receipt of applicableregulatory approvals. Thereafter from time to time the Company has allotted 2071265equity shares to 1407 NRE shareholders who held accounts in India on non-repatriationbasis and provided such valid details.

During the period under review in view of the amended provisions of the "ForeignExchange Management (Transfer or Issue of Security by a Person Resident Outside India)Regulations 2017" ("FEMA Regulations") and the authority granted bythe Board of Directors (on February 4 2019) 1694060 equity shares were allottedto 2064 NRE shareholders of ABNL (excluding OCBs) on March 19 2019.

Further post this allotment out of the said shares 16853 equity shares held by 4OCBs shall remain pending for allotment until receipt of regulatory approvals. YourCompany continues to evaluate various options for settling the matter with respect to thepending allotment to 4 OCBs in terms of the applicable FEMA Regulations and any furtherdevelopment in this regard will be separately intimated to such OCBs.

(ii) Allotment made pursuant to the Employee Stock Option Scheme - 2013 ("Scheme2013") 51435 equity shares of र 10/- each were allotted to the eligibleemployees of the Company pursuant to the exercise of stock options granted to them underthe Scheme 2013.

(iii) Allotment made pursuant to the Aditya Birla Fashion and Retail Limited EmployeeStock Option Scheme 2017 ("Scheme 2017") 41981 equity shares of र 10/-each were allotted to the eligible employees of the Company pursuant to the exercise ofstock options granted to them under the Scheme 2017.

Preference share capital

Details of preference share capital of the Company as at March 31 2019

(Amount in र Lakh)
Particulars As at March 31 2019
A Authorised preference share capital
10000000 8% Redeemable Cumulative Preference Shares of र 10/- each 1000.00
15000 6% Redeemable Cumulative Preference Shares of र 100/- each 15.00
Total 1015.00
B Issued subscribed and paid-up share capital
500000 8% Redeemable Cumulative Preference Shares of र 10/- each 50.00
500 6% Redeemable Cumulative Preference Shares of र 100/- each 0.50
Total 50.50

Details of redemption/ variation in terms of preference shares issued by the Company

Pursuant to the terms of issuance the due dates for redemption of 8% RedeemableCumulative Preference Shares and 6% Redeemable Cumulative Preference Shares were March30 2019 and October 13 2019 respectively.

While the Company had net profits for the year it did not have distributable profitsin terms of section 123 of the Act as it had past accumulated losses.

Accordingly pursuant to the unanimous consent of all the preference shareholders andin terms of the applicable provisions of the Act the Board of Directors of the Companyvide a circular resolution dated April 11 2019 approved the variation in terms of thepreference shares to the extent of extending their respective redemption dates by a periodof 5 years more particularly as under:

Class of preference shares Revised redemption date
500000 8% Redeemable Cumulative Preference Shares of र 10/- each March 29 2024
500 6% Redeemable Cumulative Preference Shares of र 100/- each October 12 2024

DISCLOSURES IN TERMS OF THE PROVISIONS OF THE ACT & SECURITIES AND EXCHANGE BOARDOF INDIA (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS 2015

A. Board of Directors ("Board")

(i) Number of meetings

The Board met 5 (five) times during the year under review. The details of suchmeetings are disclosed in the Corporate Governance Report forming part of this AnnualReport. The maximum gap between any two consecutive meetings was less than 120 (onehundred and twenty) days as stipulated under section 173(1) of the Act and regulation17(2) of the Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations 2015 ("SEBI Listing Regulations") and theSecretarial Standards issued by the Institute of Company Secretaries of India.

(ii) Appointments/ resignations

During the year under review no directors were appointed or have resigned.

Further in accordance with the provisions of the Act and the Articles of Associationof the Company Mr. Pranab Barua Non-executive Director of the Company is due to retireby rotation at the ensuing 12th AGM and being eligible he has offered himself forre-appointment. Business with respect to his re-appointment forms part of the notice ofthe ensuing AGM of the Company.

In addition to the above re-appointment business with respect to following mattersalso forms part of the notice of the ensuing AGM of the Company:

(a) re-appointment of Ms. Sukanya Kripalu an Independent Director of the Companywhose tenure will expire during the year; and

(b) continuation of directorship of Mr. Arun Thiagarajan an Independent Director ofthe Company who will attain the age of 75 years during the year.

As required under regulation 36(3) of the SEBI Listing Regulations particulars ofdirectors seeking appointment/ re-appointment at the ensuing 12th AGM are given in theannexure to the notice of the AGM.

(iii) Board evaluation

The Company has devised a framework for performance evaluation of Board its committeesand individual directors in terms of the provisions of the Act SEBI Listing Regulationsand the Nomination Policy of the Company.

During the year under review the Board carried out the evaluation of its ownperformance and that of its committees and the individual directors. The performanceevaluation of non-independent directors and the Board as a whole was carried out by theindependent directors.

The evaluation process consisted of structured questionnaires covering various aspectsof the functioning of the Board and its committees such as composition of the Board andcommittees experience and competencies performance of specific duties and obligationsgovernance issues etc. The Board also carried out the evaluation of the performance ofindividual directors based on criteria such as contribution of the director at themeetings strategic perspective or inputs regarding the growth and performance of theCompany etc.

Further pursuant to the applicable provisions of the Act the performance evaluationcriteria for the independent directors is disclosed in the Corporate Governance Reportforming part of this Annual Report.

Outcome of the evaluation

The Board of your Company was satisfied with the functioning of the Board and itscommittees. The committees are functioning well and besides the committee's terms ofreference as mandated by law and important issues are brought up and discussed in thecommittee meetings. The Board was also satisfied with the contribution of directors intheir respective capacities which reflects the overall engagement of the individualdirectors.

(iv) Declaration of independence

The Company has received necessary declaration from each independent director of theCompany stating that they meet the criteria of independence as provided in section 149(6)of the Act and regulation 16(1)(b) of the SEBI Listing Regulations ("saiddeclarations").

Based on the said declarations received from independent directors in the opinion ofthe Board of Directors the independent directors of the Company fulfil the conditions ofindependence and are independent of the management.

B. Committees of the Board

(i) Audit committee

Your Company has a duly constituted audit committee with its composition quorumpowers role and scope in accordance with section 177 of the Act and regulation 18 of theSEBI Listing Regulations. Details regarding the composition of the audit committeealongwith the dates of meeting and the terms of reference of the committee are disclosedin the Corporate Governance Report forming part of this Annual Report.

The recommendations made by the audit committee to the Board from time to time duringthe year under review have been accepted by the Board.

Vigil mechanism

The Board has on recommendation of its audit committee duly adopted a Vigilmechanism/ Whistle Blower Policy and the details of which are provided in the CorporateGovernance Report forming part of this Annual Report.

Adequate safeguards are provided against victimisation to those who avail of themechanism and direct access to the Chairperson of the audit committee is provided to them.The details of establishment of vigil mechanism is also available on the website of theCompany i.e. www.abfrl.com.

(ii) Nomination and Remuneration Committee ("NRC")

Your Company has a duly constituted NRC with its composition quorum powers role andscope in accordance with section 178 of the Act and regulation 19 of the SEBI ListingRegulations. Details regarding the composition of the NRC alongwith the dates of meetingand the terms of reference of the committee are disclosed in the Corporate GovernanceReport forming part of this Annual Report.

Nomination Policy and Executive Remuneration Policv/Philosophv

In terms of section 178 of the Act and regulation 19 of the SEBI Listing Regulationsthe Board of your Company had on recommendation of the NRC adopted a Nomination Policywhich inter alia enumerates the Company's policy on appointment of directors KMPand senior management. Further the Board has on recommendation of NRC also adopted apolicy entailing Executive Remuneration Philosophy which covers remuneration philosophycovering the directors KMP senior management and other employees of the Company.

Both the aforesaid policies as amended from time to time pursuant to the amendment inthe applicable regulatory provisions are available on the website of the Company i.e.www.abfrl.com.

Salient features of the aforesaid policies alongwith the changes therein during theperiod under review are as under:

(a) Nomination Policy

The Nomination Policy is enacted mainly to deal with the following matters fallingwithin the scope of the NRC:

• To institute processes which enable the identification of individuals who arequalified to become directors and who may be appointed as key managerial personnel and/orin senior management and recommend to the Board of Directors their appointment and removalfrom time to time;

• To devise a policy on board diversity;

• To review and implement the succession and development plans for managingdirector executive directors and officers forming part of senior management'

• To formulate the criteria for determining qualifications positive attributesand independence of directors;

• To establish evaluation criteria of board its committees and each director.

During the year under review the Nomination Policy of the Company was amended toincorporate the change in evaluation process and the definition of Senior Managementpursuant to amendment in the SEBI Listing Regulations.

(b) Executive Remuneration Policy/ Philosophy

This Policy supports the design of programmes that align executive rewards - includingincentive programmes retirement benefit programmes promotion and advancementopportunities - with the long-term success of the stakeholders of the Company.

The executive remuneration program of the Company is designed to attract retain andreward talented executives who will contribute to our long-term success and thereby buildvalue for our shareholders and intends to:

• Provide for monetary and non-monetary remuneration elements to our executives ona holistic basis.

• Emphasize "Pay for Performance" by aligning incentives with businessstrategies to reward executives who achieve or exceed Group business and individualgoals.

During the year under review the Executive Remuneration Policy/ Philosophy of theCompany was amended to incorporate the extended scope of NRC pursuant to amendment in theSEBI Listing Regulations wherein the NRC has to recommend to the Board all remunerationin whatever form payable to the senior management.

(iii) Risk Management Committee ("RMC")

Your Company has a duly constituted RMC which is inter alia entrusted with theresponsibility of monitoring and reviewing the risk management plan and the cyber securityof the Company and such other functions as may be delegated by the Board from time totime.

The composition quorum powers role and scope of the RMC are in accordance with theapplicable provisions of the Act and regulation 21 of the SEBI Listing Regulations.Details regarding the composition of the RMC alongwith the dates of meeting and the termsof reference of the committee are disclosed in the Corporate Governance Report formingpart of this Annual Report.

Mr. Jagdish Bajaj Chief Financial Officer of the Company is also the Chief RiskOfficer of your Company.

Risk Management Policy

Your Company has framed and implemented a Risk Management Policy in terms of theprovisions of regulation 17 of the SEBI Listing Regulations for the assessment andminimisation of risk including identification therein of elements of risk if any whichmay threaten the existence of the Company.

The policy is reviewed periodically by the RMC alongwith the key risks and relatedmitigation plans. More details on risks and threats have been disclosed hereinabove as apart of the Management Discussion and Analysis.

Further in view of the ever increasing size and complexity of the business operationsyour Company is exposed to various risks emanating from frauds. Accordingly the Boardhas on recommendation of the audit committee also adopted an Anti-Fraud Policy and aWhistle Blower Policy to put in place a system for detecting and/or preventing and/ordeterring and/or controlling the occurrence of frauds.

(iv) Corporate Social Responsibility Committee ("CSR committee")

Your Company has a duly constituted CSR committee with its composition quorumpowers role and scope in accordance with section 135 of the Act. Details regarding thecomposition of the CSR committee alongwith the dates of meeting and the terms of referenceof the committee are disclosed in the Corporate Governance Report forming part of thisAnnual Report.

Corporate Social Responsibility Policy ("CSR Policy")

The Board has pursuant to the recommendation of the CSR committee with a vision"to actively contribute to the social and economic development of the communities inwhich your Company operates and in doing so build a better sustainable way of life forthe weaker sections of society and raise the country's human development index"adopted a CSR Policy and the same is available on the website of the Company i.e.www.abfrl.com.

The scope of the CSR Policy is as under:

i. Planning project or programmes which a Company plans to undertake falling within thepreview of schedule VII of the Act;

ii. Monitoring process of such project or programmes.

The CSR Policy of the Company inter alia includes the process to be implementedwith respect to the identification of projects and philosophy of the Company alongwithkey endeavours and goals i.e.

• Education - to spark the desire for learning and knowledge;

• Health care - to render quality health care facilities to people living in thevillages and elsewhere through our hospitals;

• Sustainable livelihood - to provide livelihood in a locally appropriate andenvironmentally sustainable manner;

• Infrastructure development - to set up essential services that form thefoundation of sustainable development; and

• Social cause - to bring about the social change we advocate and support.

CSR initiatives taken during the year

Your Company's CSR activities are mainly focused towards girl child educationskilling health and sanitation.

An annual report on CSR activities of the Company for the financial year 2018-19 isannexed as Annexure I to this Report.

C. Key Managerial Personnel

Pursuant to section 203 of the Act the key managerial personnel ("KMP")of the Company are:

i. Mr. Ashish Dikshit Managing Director;

ii. Mr. Jagdish Bajaj Chief Financial Officer; and

iii. Ms. Geetika Anand Company Secretary.

Board had at its meeting held on January 9 2018 in terms of the applicableprovisions of the Act and on recommendation of the NRC appointed Mr. Jagdish Bajaj as theChief Financial Officer of the Company with effect from April 1 2018.

Further Mr. Vishak Kumar Chief Executive Officer of the Madura Finance and Lifestyledivision ("CEO") of the Company was appointed as a KMP of the Companywith effect from November 24 2016. Pursuant to the approval of the Board he has ceasedto be a KMP of the Company under the provisions of section 203 of the Act with effect fromMay 11 2018. However Mr. Kumar will continue to be the CEO of the Company.

Detailed profiles of the KMP and other key executives of your Company are available onthe website of the Company i.e. www.abfrl.com.

D. Remuneration of directors and employees

Disclosure comprising particulars with respect to the remuneration of directors andemployees as required to be disclosed in terms of the provisions of section 197(12) ofthe Act and rule 5(1) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 is annexed as Annexure II to this Report.

Further a statement containing such particulars of employees as required in terms ofthe provisions of section 197(12) of the Act read with rules 5(2) and 5(3) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 forms partof the Annual Report. However in line with the provisions of the first proviso to section136(1) of the Act the reports and accounts as set out therein are being sent to allshareholders of the Company excluding the aforesaid information and the same is open forinspection at the registered office of the Company during working hours. Further anyshareholder interested in obtaining such information may write to the Company Secretary atthe registered office of the Company.

E. Employee stock option scheme and share based employee benefits

Grant of share based benefits to employees is a mechanism to align the interest ofemployees with those of the Company to provide them with an opportunity to share thegrowth of the Company and also to foster the long-term commitment.

Your Company regards employee stock options as instruments that would enable theemployees to share the value they create for the Company in the years to come.Accordingly in the year 2013 the 'Employee Stock Option Scheme - 2013' ("Scheme2013") was instituted by the Company to reward its employees for their pastassociation and performance as well as to motivate them to contribute in the Company'sfuture growth and profitability.

Further pursuant to the approval of shareholders of the Company at the 10th AGM heldon August 23 2017 the NRC at its meeting held on September 8 2017 instituted andimplemented the 'Aditya Birla Fashion and Retail Limited Employee Stock Option Scheme2017' ("Scheme 2017").

Both the Schemes of the Company i.e. Scheme 2013 and Scheme 2017 are governed by theSecurities and Exchange Board of India (Share Based Employee Benefits) Regulations 2014 ("SEBISBEB Regulations") and in terms of the approvals granted by the shareholders ofthe Company the NRC inter alia administers implements and monitors the aforesaidschemes thereby governing the grant of share based benefits to its employees in the formof options and restricted stock units ("RSUs") (collectively referred to as"stock options").

A certificate from the Statutory Auditor of the Company confirming that the aforesaidschemes have been implemented in accordance with the SEBI SBEB Regulations will be openfor inspection at the ensuing 12th AGM.

Disclosure pursuant to the regulation 14 of the SEBI SBEB Regulations

In terms of the provisions of regulation 14 of the SEBI SBEB Regulations details ofthe aforesaid schemes are available on the website of the Company i.e. www.abfrl.com and asummary of the stock options granted vested and lapsed during the year under review isas under:

Particulars

Scheme 2013

Scheme 2017

Options RSUs Options RSUs
No. of stock options granted Nil Nil 90039 30349
No. of stock options vested Nil Nil 865024 Nil
No. of stock options exercised (1) 5843 22760 46483 Nil
Total no. of equity shares of र 10/- each arising as a result of exercise of stock options 5843 22760 41981(2) Nil
No. of stock options lapsed 5843 Nil 479678 196655

Note:

(1) No loan was provided by your Company to exercise any of these stock options.

(2) 4502 options were exercised during the year ended March 31 2019. However theconsequent allotment of 4502 equity shares was pending as on March 31 2019 ("saidshares"). The said shares were allotted on April 30 2019.

The aforesaid details have been also disclosed in the financial statements of yourCompany for the year under review.

Stock Appreciation Rights ("SARs")

Your Company has also instituted a 'Plan for Stock Appreciation Rights Plan 2013' ("SARPlan 2013") in the year 2013 which is a cash based plan linked to the actualstock price movement over the plan tenure.

Further pursuant to the enforcement of SEBI SBEB Regulations in the event of transferof employee to any Group Company ("said transfer") all the options andRSUs granted to an employee under the employee stock option scheme of the Company if notexercised by such employee before the last working day in the Company shall lapse as onthe date of said transfer.

In view of the above in order to compensate the loss to an employee due to the lapseof options and RSUs in the event of said transfer and pursuant to the approval of theBoard vide a resolution passed at its meeting held on February 4 2019 the NRC at itsmeeting held on May 15 2019 instituted and implemented the 'Aditya Birla Fashion andRetail Limited Stock Appreciation Rights Scheme 2019' ("SAR Scheme 2019")to grant SARs in the form of 'Option SARs' (in place of options) and 'RSU SARs' (inplace of the RSUs) to such employees.

The above SAR Plan 2013 and SAR Scheme 2019 does not give rise to any right towardsany equity share of the Company and hence they are not covered under the provisions ofSEBI SBEB Regulations. On exercise of the SARs granted under the said plan/ scheme theemployee exercising the SARs becomes entitled to receive cash in terms of the respectiveplan/ scheme.

Details of the SARs granted by your Company under the SAR Plan 2013 and the SAR Scheme2019 are available on the website of the Company i.e. www.abfrl.com.

F. Related party transactions

All related party transactions entered into during the year under review were approvedby the audit committee and the board from time to time and the same are disclosed in thefinancial statements of your Company for the year under review. Further pursuant to theprovisions of the Act and the SEBI Listing Regulations the board has on recommendationof its audit committee adopted a Policy on Related Party Transactions and the said policyis available on the website of the Company i.e. www.abfrl.com. Also during the year underreview pursuant to the amendments in the SEBI Listing Regulations the aforesaid policywas reviewed and amended by the board.

Further in terms of the provisions of section 188(1) of the Act read with theCompanies (Meetings of Board and its Powers) Rules 2014 and regulation 23 of the SEBIListing Regulations all contracts/ arrangements/ transactions entered into by the Companywith its related parties during the year under review were:

• in "ordinary course of business" of the Company;

• on "an arm's length basis"; and

• not "material".

All transactions with related parties are in accordance with the policy on relatedparty transactions formulated by the Company.

Accordingly Form no. AOC-2 prescribed under the provisions of section 134(3)(h) ofthe Act and rule 8 of the Companies (Accounts) Rules 2014 for disclosure of details ofrelated party transactions which are "not at arm's length basis" and also whichare "material and at arm's length basis" is not provided as an annexure of thisReport.

G. Dividend Distribution Policy

In terms of regulation 43A of the SEBI Listing Regulations your Company has formulateda Dividend Distribution Policy with an objective to provide the dividend distributionframework to the Stakeholders of the Company. The policy sets out various internal andexternal factors which shall be considered by the board in determining the dividendpay-out. The policy is annexed as Annexure III to this Report and is also available on thewebsite of the Company i.e. www.abfrl.com.

H. Subsidiaries joint ventures associate companies

During the year under review no company became/ ceased to be a subsidiary/ associate/joint venture of the Company. Also the Company did not become a part of any joint ventureduring the year.

Accordingly as at the end of the year under review and also as on the date of thisReport your Company does not have any subsidiary and/or associate company and yourCompany is also not a part of any joint ventures.

I. Conservation of energy technology absorption foreign exchange earnings and outgo

Your Company consciously makes all efforts to conserve energy across all itsoperations. A report containing details with respect to conservation of energy technologyabsorption and foreign exchange earnings and outgo required to be disclosed in terms ofsection 134(3)(m) of the Act read with the Companies (Accounts) Rules 2014 is annexed asAnnexure IV to this Report.

J. Sustainability and business responsibility report

Your Company's sustainability initiatives are aligned with the Aditya Birla Group'ssustainability vision which mainly comprises of responsible stewardship stakeholderengagement and future-proofing. Accordingly under the aegis of the Aditya Birla Group'ssustainability vision your Company is strengthening its 'ReEarth' programme to design aroadmap which will align with the group level sustainability policies and internationalframeworks.

Through this mission we hope to create a future ready organisation which addressesthe needs of all stakeholders thereby securing a sustainable future for tomorrow.

In accordance with our sustainability vision and in terms of regulation 34(2)(f) of theSEBI Listing Regulations a Sustainability and Business Responsibility Report forms a partof this Annual Report.

K. Auditors and auditors report

During the year under review no frauds in terms of the provisions of section 143(12)of the Act have been reported by the statutory auditor and secretarial auditor in theirreport for the year under review.

(i) Statutory auditor

M/s. S R B C & CO LLP Chartered Accountants (ICAI registration no.324982E/E30003) were appointed as the statutory auditor of the Company at the 9th AGMfor a term of 5 years i.e. till the conclusion of the 14th AGM subject to theratification of their appointment by the members at every AGM. Accordingly business withrespect to the same forms part of the notice of the ensuing 12th AGM of the Company.

Further the auditors' report "with an unmodified opinion" given by thestatutory auditor on the financial statements of the Company for FY 2018-19 is disclosedin the financial statements forming part of this Annual Report. There has been noqualification reservation adverse remark or disclaimer given by the statutory auditor intheir report for the year under review.

The notes to the financial statements are self-explanatory and do not call for anyfurther comments.

(ii) Secretarial auditor

Pursuant to the provisions of section 204 of the Act M/s. Dilip Bharadiya &Associates Company Secretaries were appointed as the secretarial auditor of the Companyto conduct secretarial audit of the board processes for the year under review.

The Secretarial Audit Report given by the secretarial auditor of the Company is annexedas Annexure V to this Report. There has been no qualification reservation adverse remarkor disclaimer given by the secretarial auditor in his report for the year under review.

(iii) Cost auditor

During the year under review your Company was not required to maintain cost recordsunder sub-section (1) of section 148 of the Act. Hence the provisions related toappointment of Cost auditor is not applicable.

L. Other disclosures

In terms of the applicable provisions of the Act and SEBI Listing Regulations yourCompany additionally discloses that during the year under review:

• there was no change in the nature of business of your Company;

• your Company has not accepted any fixed deposits from the public falling undersection 73 of the Act read with the Companies (Acceptance of Deposits) Rules 2014. Thusas on March 31 2019 there were no deposits which were unpaid or unclaimed and due forrepayment hence there has been no default in repayment of deposits or payment ofinterest thereon;

• your Company has not issued any shares with differential voting rights;

• your Company has not any sweat equity shares; and

• no significant or material orders were passed by the regulators or courts ortribunals which impact the going concern status operations of your Company in future.

It is further disclosed that:

• There is no plan to revise the financial statements or directors' report inrespect of any previous financial year.

• There have been no material changes and commitments which affect the financialposition of the Company which have occurred between the end of the financial year towhich the financial statements relate and the date of this Report.

• Particulars of the loans guarantees and investments as required under section186 of the Act are disclosed in the financial statements of your Company for the yearunder review.

• Details pertaining to unclaimed shares demat suspense account of your Companyare disclosed in the General Shareholder Information forming part of this Annual Report.

• Your Company does not engage in commodity hedging activities.

corporate governance

Your Company is committed to follow the best practices of corporate governance and theBoard is responsible to ensure the same from time to time.

Your Company has duly complied with the corporate governance requirements as set outunder chapter IV of the SEBI Listing Regulations and the M/s. Dilip Bharadiya &Associates Company Secretaries vide their certificate dated May 14 2019 have confirmedthat the Company is and has been compliant with the conditions stipulated in the chapterIV of the SEBI Listing Regulations. The said certificate is annexed as Annexure VI to thisReport.

Further a separate report on corporate governance forms part of this Annual Report.

extract of annual return

Pursuant to the provisions of sections 92(3) and 134(3)(a) of the Act and the Companies(Management and Administration) Rules 2014 an extract of the annual return in Form no.MGT-9 is annexed as Annexure VII to this Report and is also available on the website ofthe Company i.e. www.abfrl.com .

disclosures pursuant to the sexual harassment of women at the workplace (preventionprohibition and redressal) act 2013

Your Company has in place a policy on Prevention of Sexual Harassment at Workplacewhich is in line with requirements of the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013 ("POSH Act"). Theobjective of this policy is to provide an effective complaint redressal mechanism if thereis an occurrence of sexual harassment.

This policy is applicable to all employees irrespective of their level and it alsoincludes 'third party harassment' cases i.e. where sexual harassment is committed by anyperson who is not an employee of the Company.

Your Company has also set up an internal complaints committee at each of itsadministrative office which is duly constituted in compliance with the provisions of thePOSH Act. Further the Company also conducts interactive sessions for all the employeesto build awareness amongst employees about the policy and the provisions of POSH Act.

During the year under review no cases were filed under the POSH Act.

awards and recognitions

Your Company has been proud recipient of many awards and recognitions during the yearunder review and significant ones amongst them are as under:

• ABFRL won the 'Retailer of the Year Award (Fashion & Lifestyle)' conferredby ET Now Global Awards for Retail Excellence.

• ABFRL bagged 'Stars of the Industry Award 2018' by ET Now for Excellence in CSR.

• ABFRL received a Social Impact Award from the Indian Chamber of Commerce (ICC)for Empowering the Rural Population in the Mega Enterprise Category.

• ABFRL was recognized as a 'Leader in Employee Volunteer - 2018' by iVolunteerAwards.

• ABFRL has been conferred a Silver Rating by IGBC (Indian Green Building Council)for its manufacturingunit Crafted Clothing Limited.

• ABFRL received the First Prize at the Lean Six Sigma Excellence Awards 2018conducted by Symbiosis Centre for Management and Human Resource Development in twocategories such as 'DMAIC' and 'Kaizen'.

• Van Heusen Innerwear was adjudged IMAGES Most Admired Fashion Brand of the Yearfor Innerwear (Men).

• Pantaloons was ranked amongst Top Two Most Trusted Brands in the Retail categoryby ET Brand Equity.

• Pantaloons was ranked amongst Top Twenty Most Trusted Brands in the Servicecategory by ET Brand Equity.

• Pantaloons won the IMAGES Most Admired Retailer of the Year: Enterprise SolutionImplementation in recognition of Excellence in Deployment of Technology in Retail.

• Pantaloons received the 'Segment of One - Top Project Award' by Aditya BirlaGroup at its Quantum Jump Conference 2018.

• Pantaloons won big in the Customer Loyalty Awards by Kamikaze. It won the 'Bestuse of Direct Marketing in a Loyalty Program' Award.

• Pantaloons was awarded Merit Certificate in the Visual Merchandising and RetailAwards for 'Best Window Display - Festivals and EOSS - Kids Festive Fun'.

acknowledgement

We take this opportunity to thank all the customers members investors vendorssuppliers business associates bankers and financial institutions for their continuoussupport. We also thank the central and state governments and other regulatory authoritiesfor their co-operation.

We acknowledge the patronage of the Aditya Birla Group and above all we place onrecord our sincere appreciation for the hard-work solidarity and contribution of each andevery employee of the Company in driving the growth of the Company.

For and on behalf of the Board of Directors
Place : Mumbai Ashish Dikshit Arun Thiagarajan
Date : May 15 2019 Managing Director Independent Director