While the entire fashion industry is still reeling under the effects of COVID-19 pandemic, Aditya Birla Fashion & Retail (ABFRL) has managed to outperform peers by focusing on the ethnic wear and inner wear segments. Media reports say, the company has not only reduced its debt levels but also expanded store network, and ramped up e-commerce offerings.
Ethnic foray to define future success
One major milestone achieved by ABFRL is the 51 per cent stake it recently acquired in Sabyasachi Couture. Besides, the company has tied up with designer Tarun Tahiliani to acquire a 33 per cent stake in Tahiliani’s existing luxury couture business. As a part of this deal, ABRL and Tahiliani plan to launch a contemporary men's ethnic wear brand. Performance of the new brand will define the success or failure of ABFRL’s five-year vision.
Currently, ABRFL’s share in the formalwear business is less than 55 per cent, with Louis Philippe, Van Heusen achieving 48 and 45 per cent of their revenue from casuals, sports and leisure wear. The share of formalwear in women’s westernwear brand Allen Solly is also limited to just 5 per cent.
Revenue grow to result in higher PAT
As per Economic Times, till December-end 2020, ABFRL had an outstanding debt of Rs 2,593 crore which it managed to reduce to Rs 580 crore by February-end. The company was able to achieve this due to the recent capital infusion of Rs 2,250 crore by various entities in it. Of this, 1,500 crore was invested by Flipkart while the remaining Rs 750 crore worth was acquired from the recently-concluded rights issue – coupled with the internal cash flows.
From FY13-20, ABFRL recorded a 32 per cent compound growth in its revenue while Ebitda grew by 52 per cent. However, the company’s profit level remained subdued due the COVID-19 led lockdown.
In FY21, the company expects revenues to grow 7 per cent while Ebitda is expected to grow 14 per cent over FY20-23. Revenue growth may also boost the company’s PAT in FY22 as it expects strong growth in Pantaloons and innerwear segment and its pan-India distribution network.
ABFRL’s e-commerce channels are also expected to penetrate newer cities while capital infusion will result in high ROE and ROCE.
Store expansion to boost revenues
From FY 20-26, ABFRL aims to achieve a 15 per cent annual revenue growth with profits expanding 11 per cent, resulting in 3.4 times FY20 Ebitda and pre-tax RoCE of 25 per cent by FY26. The company also expects to generate Rs 1,000 crore FCF with its revenues from innerwear segment growing to Rs 1,500 crore by FY26. Additionally, revenue from ethnicwear segment is expected to reach Rs 2,000 crore by FY26 with 11 per cent Ebitda margin. To achieve this, the company plans to expand Peter England Red store network from 300 to 1,000 in the next three years. ABFRL also plans to open 500 Allen Solly Prime stores in next three years.
Bright outlook for new businesses
As per ICICIdirect, new businesses are expected to constitute 22 per cent revenue by FY26 from less than 10 per cent in FY20. Online/omni-channels are likely to grow fastest during the period and make up 8-10 per cent revenue in FY26. For instance, revenues from Kotak’s ethnicwear business are expected to grow by 4-9 per cent over FY2022-23. The company also expects sales to grow two times of FY2023 sales compared to 2.5 times growth expected by TCNS Clothing during FY2023.