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Aditya Birla Fashion and Retail Ltd

Story is not old that enough to discard.
Is there anybody tracking on PFRL

Courtesy:- The Hindu
Aditya Birla Group (ABG) has consolidated its fashion retail business
under the listed entity, Pantaloons Fashion and Retail Post, which has
been rechristened as Aditya Birla Fashion and Retail. As part of the
reorganisation, Aditya Birla Nuvo will spin off its wholly-owned
subsidiary, Madura Garments Lifestyle Retail Company, to merge it with
the new entity, which will have a combined turnover of ₹5,290 crore.

Investors of Aditya Birla Nuvo will get 26 shares of Aditya Birla
Fashion and Retail for every 5 shares they currently hold, while
investors of Madura Garments will get 7 shares of the new company for
every 500 shares they hold now.

Post the transaction, ABG, the holding company will own a 56.1 per cent
stake in the new entity; Aditya Birla Nuvo will have 9.06 per cent; and
public holding will be 39.84 per cent. ABG currently owns 58 per cent in
Aditya Birla Nuvo.

Kumar Mangalam Birla, Chairman of ABG, said the realignment would create
the largest pure play fashion and lifestyle company with a presence in
each and every price point.

“Investors of Aditya Birla Nuvo have been demanding for consolidation of
the retail business for long. Now that we have fulfilled their wish, it
shows that we not only listen to our investors but also carry out their
plans,” he said.

Stemming losses
The move is aimed at stemming the losses from the retail businesses by
driving synergies between the various formats. Pantaloon Fashion &
Retail, for example, with a sales turnover of ₹1,661.21 crore in FY-14,
had recorded a loss of ₹187.73 crore. Sushil Agarwal, whole-time
director and CFO, said the merger would result in huge savings when the
combined entity negotiates for retail space, sourcing and adopting
technology at a cheaper cost.

The new entity would have a debt of ₹473 crore transferred from Madura
Garments and ₹1,300 crore already on the books of Pantaloons. The net
worth of the new company will be ₹1,030 crore, including ₹350 crore of
Pantaloons and ₹680 crore of Madura Garments. Aditya Birla Fashion will
have the widest network in the fashion space with 1,869 exclusive stores
covering 4.8 million sq ft.

Analysts said the combined entity will help margins grow faster. “Madura
Garments has more cash flow than it needs to grow while Pantaloon is
seeking cash to grow. Madura Garments is nearly double the turnover of
Pantaloon. The combined entity will tap into synergies across brands,
manufacturing, sourcing and real estate,” said Pankaj Jaju, Group Head,
Strategic Corporate Group, Axis Bank.

‘More’ not included

The apparels category is the largest contributor to the organised
retailing market, which is expected to register a compounded annual
growth rate of 18 per cent over the next few years, said CFO Agarwal.
The residual holding of Kishore Biyani, who sold Pantaloons to the Birla
Group two years ago, will come down to 2.5 per cent from 18 per cent.
The equity base of Pantaloons will increase to 77.28 crore from 9.28
crore. Aditya Birla Group’s food and grocery brand ‘More’ will not be
part of the merged entity. Abhishek Ranganathan, Vice-President
Research, Phillip Capital, said: “Keeping out the hypermarket business
is a good move since it was a loss-making company and had no synergies
with the fashion business.”

Recently Frankilin templeton picked up the stake to the extent of 8.5% from old promoters recently.

Attaching management presentation on the merger dated 03-05-2015

Not able to attached the file so pasting the link

http://pantaloons.com/pdf/investors/announcement/Press_Release_May_3rd_2015.pdf

Does any one having idea about how much the AB Nuvo price will reduce once the Madhura garments de-merges from AB Nuvo?

IMHO, This is an interesting special situation and, if things work out well, good long term opportunity. Anyone has worked out the arbitrage in the given scheme of arrangement?

@rr1980
Thanks very much for the detailed explanation…
Invested at Rs1165/-

When will be the Querterly Financial Result date for combine entity Aditya Birla Fashion and Retail?

I think It’s on 12th Feb

Aditya Birla Fashion and Retail Ltd (Formerly known as Pantaloon Fashion and Retail Ltd)

Is India’s largest pure-play fashion company. ABFRL has been formed by the consolidation of the branded apparel businesses of Aditya Birla Group comprising of Aditya Birla Nuvo Limited’s (“ABNL”) Madura Fashion division and ABNL’s subsidiaries Pantaloons Fashion & Retail (“PFRL”) and Madura Garments Lifestyle Retail Company through a Scheme of Arrangement.

Operates Department Stores to offers a range of brands for men, women and kids in the retail sale of clothing, footwear and leather articles. 2,004 Retail stores (: 1,842 EBOs + 162 Value Stores) & 7,000+ additional points of sale (~4000 Multi Brand Outlets and ~3000 SISs across all Department Stores)

Consolidation of apparel business under one umbrella. Included powerful brands such as Collective, People, Pantaloon, Louie Philip, Van Heusen, Allen Solly and Peter England.
Pantaloons retails over 200 brands, which comprises a mix of exclusive brands, licensed brands and international brands, which include Rangmanch, Ajile, Honey, Akkriti, Chalk, Annabelle, Trishaa, Alto Moda, Poppers, SF Jeans, Byford, JM Sports, Lombard and Candies.

Misc : Mkt Cap : 11,155 Cr (as on 02-Mar-2016), Total No of shares: 9,27,93,529, Shareholding of the Promoter and Promoter Group: 59%

Management : Run by people who are with the company for a long time.
Promoters : Aditya Birla Group

Opportunity Size :
Key trends driving industry growth : Rapidly growing prosperity across all strata of society and India is the world’s youngest nation, 54% below the age of 25 years would ensure a long runway. Company has strong brands and wide network of sales point.
Louis Philippe, Van Heusen, Allen Solly, Peter England make it India’s #1 Menswear Player
Pantaloons: India’s #1 Women swear Retailer, India’s largest big-box fashion retailer, 68 cities & 151 stores (: 123 stores + 28 Factory Outlets)

Valuation: Numbers are not matured in this case as the story has just started to unfold. Going by the AR (2014-2015) of Aditya Birla Nuvo it’s available at a trailing PE of below 30. Here are the details :

FY 20114-15	          Remarks

Revenue 5450
EBIT 261
Interest 187.88 Assumed 11% as ROI for debt of 1708 Cr
EBT 73.12
Earnings 51.184
EPS 5.52
No of shares(Cr) 9.2793529
CMP 150
Trailing PE 27
Debt 1708 As per latest results for Qtr ending Dec2016

It needs patience to mature before numbers are available to decipher the story. In comparison to jockey which trades at premium multiples (50+), this might be at PE of around 20 once all the noise settles down.

Competitive Advantages:

  • Aspirational Brands
  • Wide Reach
  • Wide Portfolio - Men, Women, Kids
  • Strong promoter group
    Risks :
  1. Huge Debt (1708 Cr on Balance sheet……Yearly Rent expense of around 650Cr.) to equity Ratio – Mitigation : Cash flow of Madura brands should help to repay the debt going forward. Group is capable to refinance the debt at competitive rates.
  2. Intense competition from e-Commerce due to heavy discounts – Mitigation : Own online portal (trendin.com) and brand pull.
    Disclosure : This note is shared so that Valuepickr members could help me to avoid my biases with their probing involvement. I am novice and trying to overcome my biases. I do hold and bought more in last 30 days and intend to add/sell as and when new facts make me reinforce/change my decision.

The risk is not only from e-commerce but from competitive stores selling branded clothing. From my experience in Delhi-NCR, Shoppers Stop and Lifestyle has gained a more premium position and Pantaloons is reduced to lower segment of brands. Even within the stores you can find lesser known brands housed by Pantaloons and proportionately cheaper stuff while SS and Lifestyles pull customers who are ready to spend more on per piece of garment they purchase.

3 Quarter results showed them delivering positive EBIT (profit after depreciation) in Pantaloons segment for the first time in many quarters. If this trend gets established, overall numbers will start looking good. Valuation is cheap when compared with Trent Ltd, though more expensive than Shoppers Stop. While Trent has 49% ownership in the fast growing and highly profitable Zara franchise, its standalone EBIT margin rose to 9% after many quarters of weakness. If, as expected, Pantaloon starts showing rising margins on EBIT basis in the coming quarters, then valuation can rise to much higher levels.

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Request to Admin : Is it possible to rename the thread to \Aditya Birla Fashion and Retail Ltd (Formerly known as Pantaloon Fashion and Retail Ltd)\ instead of someone ends up creating a new one? Thanks in advance.

Thanks Anil and Aashish for sharing your notes.

Pantaloons was a patient in ICU with future group and Business transformation began after it was acquired by Aditya Birla Group. Renovating stores, Launching new stores with focus on Tier-2/3 cities, developing in-house brands, cross selling of brands are the few steps taken to ensure this.Competitiors are at matured level while Pantaloon is a journey in progress as of today. Business performance seems to have improved YoY.
As far as I think, keeping stuff affordable in Pantaloon umbrella might be a concious effort from management as focus is on Tier-2/3 cities.As of now, **Pantaloon is like CV business of Eicher motors and super brands from Madura are like Royal Enfield.**I would like to monitor QoQ basis \How the Mgt of Madura would focus to scale up Pantaloon going fwd post this merger?\

Looks like retail is not an exciting business for valuepickr memebers, as this thread did not inspire probing questions which could encourage us to dig deeper and find \what might kill this idea?.Anyone who is an expert in retail or holds interest in this kind of business, please pitch in.

Disclosure : No holding in Eicher and used just as an analogy. Do hold Pantaloons as disclosed earlier.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/8BBAE3A1_2009_4BF6_B3C1_5B7214B46920_142210.pdf

Sales improved slightly due to a huge boost from the pantaloons division sales, but still a loss making company.

Key Positives for me

-> Even Pantaloons division is growing rapidly (31%) now. Best ever Q1 from them. The exclusive brands of pantaloons are generating more revenue now.

-> Entry into men’s innerwear will definitely help from the next quarter and a huge boost in the long run.

-> They have reduced discounts in the madura division resulting in lower revenue. It will help in the future when online players run out of cash and stop burning money.

Disclaimer: Invested

I am wondering why is this not a very active thread. This company is now India’s largest fashion brands owner and has started to post positive results. Although predictions are for astrologers, this seems like a business with an incredible moat, the type of which comes around only a few times in an investors lifetime. Has also started posting positive results since the last quarter. Currently looks so very undervalued and ignored by everyone that I found it very interesting.

If the stock is of interest to anyone, lets start discussing.

Disclosure - Large holding of my portfolio invested in this stock and have been buying at all provided opportunities.

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Investment guide to new investors. Disclaimer : Investment in equities is subjected to significant risk. Need to read and follow the SEBI guidelines under ‘Combined Risk Disclosure Document’ before taking any decision to invest in equities. This blog contains only my personal view about market and equities. Any investment decision should be taken with your own analysis and risk.

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Friday, July 1, 2016
ABFRL - Galaxy of Super Brands

Aditya Birla Fashion & Retail
CMP -143

Aditya Birla Fashion and Retail Limited “ABFRL” has become India’s largest pure-play fashion company in men’s and women’s branded garments segment after the consolidation of the branded apparel businesses of Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle (MFL) in May 2015. Post the consolidation, PFRL was renamed Aditya Birla Fashion and Retail Ltd.

Madura Fashion & Lifestyle (MF&L), a division of Aditya Birla Fashion & Retail Limited (ABFRL) is a true Indian icon and owner of iconic brands like Louis Philippe, Allen Solley and Peter England. It has acquired the global rights for these brands. It also got perpetual license rights of premium brand Van Heusen from PVH (Philips Van Heusen) USA for India, Middle East and SAARC countries. Four of its brands are among India’s top fashion names, with MRP sales in excess of INR 1,000 crore each.

Louis Philippe leads the aspiration for fashion excellence, giving its customers access to the finest in global fashion. MFL operation also include India’s largest fully integrated fashion multi-brand outlet chain ‘Planet Fashion’ , premium international brand retailer ‘The Collective’, the country’s largest fully integrated, full collection, fashion e-retailer ’ Trendin’ and the British fashion icon Hackett London’s mono-brand retail in India.

Pantaloon Fashion & Retail a division of ABFRL is one of the most loved and fastest growing large format fashion retailer in India. Pantaloons retails over 200 licensed and international brands, including 14 exclusive in-house brands. The Pantaloons exclusive brand bouquet include Rangmanch, Ajile, Honey, Akkriti, Chalk, Annabelle, Trishaa, Alto Moda, Poppers, Chirpie Pie; besides, it also features brands licensed on a long-term basis: Bare, Rig, SF Jeans, Byford, JM Sports, Lombard and Candies. It also retails partner brands such as John Miller, Celio, Spykar, Levis and Lee Cooper in menswear, Jealous 21, 109*F, AND, Chemistry and KRAUS in women’s, western wear BIBA, Global Desi, and W in women’s ethnic wear Barbie and Ginny & Jony in kidswear. PFRL offers a wide range of brand offerings across apparel and non-apparel categories and across varied price points. It operates across categories of casual wear, ethnic wear, formal wear, party wear and activewear for men, women and kids. Womenswear is the lead category contributing to half of total apparel sales. Non-apparel products include footwear, handbags, cosmetics, perfumes, fashion jewellery and watches.

Investment Rationale

Branded apparel business is fast-growing and it has high growth potential possibilities in future. ABFRL enjoys best-in class profitability and management pedigree in its branded apparel business.

MFL has four most powerful fashion brands of India- Louis Philippe, Van Heusen, Allen Solley and Peter England. Fast growing popularity of these brands among young generation will lead exponential growth for ABFRL. MFL has the ownership / perpetual license of its brands, It will give freedom of brand extensions to new categories like including sportswear, footwear, bags & accessories products and new geographies.

In fact MFL has already working on strategy of product extensions from last couple of years by launching ‘LP Young’, a colorful, classy version of Louis Philippe to cater to the youth and launched a new product brand ‘LP Shoes’ with three Exclusive Brand Outlets (EBO) for LP Shoes operational in Bangalore. Brand ownership also results in savings of royalty expenses. No any other fashions retailing company in India is having similar strength to compete with unique business model of ABFRL.

Madura has very strong presence in the menswear segment. Pantaloons fills the product gaps on the womenswear and kids wear portfolio of ABFRL. It has niche in women’s ethnic wear market and kids market. The combination of Madura and Pantaloons is highly synergetic to reduce the cost by utilizing retail space, inventory management, distribution, manpower under ABFRL. Ultimately it will help to improve operational efficiencies which will result in better margin and profit.

Both Madura and Pantaloons have wide range of products for different genders, age groups and different affordability from luxury to mass segment.

Recent tie-up with the global brand ‘Izabel London’ and ‘Forever 21’ will enable the company to strengthen its position in premium womenswear segment.

ABFRL altogether hosts India’s largest fashion network with over 7,000 points of sale across over 375 cities and towns, which include more than 2,000 exclusive ABFRL brand outlets. ABFRL’s e-commerce business, Trendin.com reaches out to multiple destinations across India and world. With more than 13.5 million Loyalty Members as of Mar '16, ABFRL has a strong bouquet of loyalty programmes in India. ABFRL boasts of creating more than 20,000 new designs every year.

Recent approval and implementation of the 7th Pay Commission recommendations for pay hike of 20 -25 percent will increase the purchasing power of mass public. With increase in per capita income and disposable income will lead middle class young population towards branded apparel segment. Branded apparel business is expected to grow CAGR in between 15 -20% for next five year. ABFRL is strong beneficiary and it is well set to capture rising opportunities in next 2-3 years.

Madura’s distribution model comprises COCO, COFO or FOFO stores, depending on the place of function. Its flexible model helps in tapping regional markets efficiently. ABFRL has very aggressive expansion plan to add 300 -350 new stores under MFL, mostly FOFO or ‘Buy & Sell’ light asset business model stores. It require low capex and expansion will take place quickly. Company has three consignment stores format of exclusive brand outlets (EBOs) - Company Owned Company Operated (COCO), Company Owned Franchisee Operated (COFO), Franchisee Owned Franchisee Operated (FOFO). Madura also sells its brands through Buy and Sell (B&S) stores.

ABFRL has launched online sales portal TRENDIN.com to scale-up e-commerce business. It will also showcase its entire range of brands and products and capitalize on the growing importance of online as a sales channel. The management also plans to empower its current offline presence with an OMNI channel network, wherein consumers can pick a particular design/product even if it is not available in the store and ABFRL can deliver the product to the consumer’s address either from a nearby store of the nearby warehouse. ABFRL has direct supply agreements in place with e-commerce players. ABFRL sells directly to third party e-commerce channels and has agreements in place with its traditional channel ensuring discipline in sales through the e-commerce model. The company also operates independently through its website www.trendin.com The rapid growth of e commerce provides sufficient scope to ramp up in this channel.

Madura is alone generating annual profit around 300 crores and debt of 1200 crores came in the books of Pantaloons can be easy retired within few years. ABFRL will also get tax rebate due to carry forward losses by Pantaloons. In FY 15-16 losses are mainly due to lease rentals of Pantaloons stores for 6 years and company has given details about it under results notes # 8 and 9.

http://www.bseindia.com/corporates/resultNotes.aspx?Scrip_cd=535755&scripName=Aditya%20Birla%20Fashion%20and%20Retail%20Ltd&qtrcode=89.50

Recently GOI has approved 6,000 crore special package for the textile and apparel sector. It is specially helpful for the people working in garment sector. Final draft of the policy will be announced in coming weeks.

Conclusion

ABFRL is already undisputed market leader in branded apparel segment. Recent initiative by government for textile sector and implementation 7th pay commission will further boost the growth prospects of apparel industry. Average industry PE for fashion retail segment is around 75 but ABFRL will trade on higher PE for being best in class. Several retail investors and fund houses bought this gem above 200 but market has given best opportunity to buy at much lower price at right time.

ABFRL is already blue chip stock, Madura Fashion & Retail was highest profitable segment demerged from Aditya Birla Nuvo to merge with loss making Pantaloons with aim to create super brand fashion company. The debt of Pantaloons is very small if we see business volume and profit of Madura Fashion. Aditya Birla group will not take much time to make Pantaloon highly profitable, capabilities of group chairman Kumar Mangalam Birla are well known to the market and investors. He is master in converting loss making business into profitable. Recently they have acquired major cement asset from loss making JP Group. UltraTech Cement, Grasim, Aditya Birla Nuvo and Hindalco Industries are other major listed companies from Aditya Birla group.

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the above link has got almost all details of ABFRL

Disc; Invested for long term

I recently walked into a Pantaloon fashion store. The experience was nice and you can sense these guys are trying to do something different and good. So from customer acceptance point of view I think ABFRL will do very well. The second consideration is the valuations and on that front I think Future Lifestyle is better placed than ABFRL atleast on Market Cap/Revenue valuation metrics. That along with smaller market cap of Future Lifestyle (around 3000 cr) suggest to me that Future Lifestyle is a better investment option than ABFRL. My understanding and assumption here is that Future Lifestyle enjoys same brand recall as that of ABFRL and profit margins for both the business will eventually converge.

Disc: Not invested in Future Lifestyle or ABFRL but tracking both of them. I am relatively new to stock investing and hope that more experienced members will chip in with their wonderful insights on this thread.

It seems to me that every other day they are issuing new shares literally, Equity capital: ₹ 768.84 Cr. as of now is pretty huge which has given its BV at just Rs 13. and stock is trading 10 times book value . it will take sometime and positive results to get this moving. Lots of brands under its kitty . Once they service the debt it will start moving, but it can take 1-2 years plus to happen. Better to stay invested with a 10 year horizon . Huge outflow in term of rent is there is balance sheet I think around 600cr

Disc : Invested

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