Aditya Birla Fashion and Retail Ltd

Stock Opportunities
106

Completely agree with you @omsingla!
We need to understand that the company is into retail business which primarily works on “brand” and it’s proposition.

Abfrl acquired Madura (Vh, Pe, As etc.) in 2000 with the brands already clocking 325 crores with decently established brands as per those standards.
That portfolio has gone on to become ~ Rs.8k cr (including some additional segments like Reebok & VH innerwear) giving ~15% revenue CAGR.
Entering India’s fashion retail with owned brands at such an early stage, this growth is at best an abt average.
Also, the brands which at once point of time had a strong image, positioning also has also got diluted massively with brands crossing each other here & there in terms of positioning.

In retail, the brands & its positioning pulls crowd towards it, other things comes to consideration much later. (Case in point: Zudio, Westside, Ethnyx & even Abfrl’s very own Tasva).

This brands’ unique identity isn’t there. You dont know what to expect from which brand & the collection varies widely store to store. (Different for factory owned, SIS, FOCO, COCO, Multi brands)

Basically, the entire retail game in opposite direction.
This has been shown by AB group with other brands also.
(Pantaloon, ABCL - not a strong enough for such a long history group)

The same highlighted by the ken: Kumar Birla takes yet another shot at fixing his spotty record in retail - Trade Tricks by The Ken

Add to this is relentless buying/starting of brands without focus on creating strong brands, the company needs to focus more on profitability than growing it. Rs. 16k cr is not a small number.

With new blood of Ananya & Aryaman on board, hopefully we see that change, finally.

Disclaimer: Invested at Rs.210

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107

This is largest holding in my portfolio as of now, Ashish Dixit is a real disappointment here, just playing on demerger to see what value market will give to demerged entities. 9000 cr topline and 19% margin gives EBIDTA of 1700 cr for ABLBL, with conservative EV/EBIDTA of 20-25, it many list between 340- 400, ABFRL don’t know what price market will give with pathetic balance sheet, still hoping combined valuation of 500 before of after merger by Jan 25.

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108

When will TCNS shareholders get the ABFRL shares, anyone has idea?

109

Have the ABFRL shares been allotted the TCNS shareholders?

110

A little surprised that ABFRL is still being considered a big bet. The strategy over the last decade has been a lot underwhelming. New brands added haven’t done much.

Legacy brands haven’t been able to reinvent anything. Lifestyle division still rests on the old shoulders of 4 brands. I think you are playing on the demerger theme.

Once they were cautious about what to add to their portfolio and come today they are cautious enough to not leave anything out :sweat_smile: Too many brands added. Execution seems to be very very lacklustre. My two cents :slight_smile:

Note: Not invested

111

They are slow and steady and think long term. At times that does feel slow and lack lustre.

They do have a ticking clock with all the luxury brands added. The deal has a time and a cost deadline built into it (Sabyasachi, Masaba).

While RIL is doing JVs with brands abroad, ABFRL is wooing designers locally. I think the strategy is great and they can move to Tier 1 and smaller towns also eventually - selling them an expenive wedding lehnga.

The demerger would be good, let the growing brands grow and let the cash making business be independant. The question here is when you get shares for both, it will unlock value for one. Which one will you keep and for how long?

D-I (Disclosure - Invested)

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112

Got it. Wish you the best :slight_smile: Wasn’t tracking this much. Know that they’ve done a lot of JVs over the last few years and it’s a strategy that’s very very different from what they used to have back in 2015 when their focus was on building on the strength of their core brands and a sustainable business.

Haven’t followed them much post 2022. But knowing a little their brands in other spaces like Simon Carter and American Eagle haven’t done well. Ethnic was a big white space they identified but it’ll be interesting to see if the thesis as pointed by you actually plays out.

Raymond will also go aggressive and Manyavar also won’t sit back and then Reliance has its own muscle and Arvind might be eyeing a revival. The retail space will only get hotter :slight_smile:

Let’s see if they are able to build something that’s value accretive to shareholders as well. As a customer I’m happy since a lot of brands they’ll be expanding with offline. But they have missed quite a golden period eg like how Trent scaled up Zudio as a small example.

P.S. Have seen the business very closely from 2015-2021 as I started my career with ABFRL and hence can be biased with my observation and not tracking the business recently

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113

You’ll have the inside scoop then. What was your profile there?

There is space for ethenic designer wear like you mentioned. Execution is key.

Manyawar and Zudio have a lower price point. Reliance is going with Reliance Brands. Arvind, well… They have Arrow and Lee but nothing ethnic. Raymonds will be in a premium space but not luxury (designer wear).

The threat perhaps will come in later years from Myntra’s and Tata Neu’s luxury offerings.

The company split revived my interest. I will hold the Madura Garment’s division. That’s a profit centre.

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114

Have worked with brands like LP and AS as Regional retail head looking after EBO and Key account channels and with Pantaloons as the Regional Category head. We can discuss this offline :slight_smile: As told I’ve not been keeping a tab on latest happenings post 2021 end from the time I had left the group :sweat_smile:. My biggest miss from this sector was Raymond in terms of value for which I still kick myself. Of course promotor issue was the biggest deterrent.

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115

Lets review it after 2 years, I was holding force motors for 5 years when all capex was done, year 2023 it turned to 10000 from 1200. It is undervalued as if now hence holding it.

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116

Absolutely. Hopefully things should fall into place :slight_smile: I’ve held a bias but looking at the recent thread will have relook :grin:

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117

Let’s explore Aditya Birla Fashion and Retail Ltd.’s diverse business areas, strengths, and areas of concern.

Business area of the company:

ABFRL is a prominent player in the Indian retail industry, known for its wide-ranging portfolio of brands. Let’s take a closer look at ABFRL:

  • Lifestyle Brands: It houses some of India’s most iconic names: Louis Philippe, Van Heusen, Allen Solly, and Peter England. These brands are market leaders within their respective segments. Their signature styles, high-quality products, and differentiated in-store experiences have earned them immense customer loyalty and recall.

  • Pantaloons: Pantaloons, India’s favorite fast fashion destination, caters to the modern Indian’s apparel and lifestyle needs. It offers a variety of house labels and national brands, spanning casual wear, ethnic wear, formal wear, party wear, activewear and Non-apparel.

  • Fast Fashion: In July 2016, ABFRL secured exclusive rights to the India network of California-based fast fashion brand, Forever 21. This partnership marked a significant milestone for ABFRL, positioning it as the largest integrated branded fashion player in India. The popularity of fast fashion among the country’s young demographics further fueled this achievement.

  • Notable brands in their portfolio include:

  • Van Heusen Innerwear: Offering comfort and style in innerwear.

  • Jaypore: Celebrating Indian decadence.

  • Shantanu & Nikhil: Representing modern grandeur.

  • Simon Carter: Part of their international business.

  • The Collective: India’s largest international multi-brand retailer.

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Using Finology’s Ticker platform we found some concerns in ABFRL’s business:

  1. Sales vs. Profitability: ABFRL seems to have shifted its focus toward sales growth, but at the cost of profitability. The graph shows increasing sales over the last 5 years, but profitability has taken a hit, resulting in losses in the past 3 years.

As investors, we need to closely monitor this trend. While growth is essential, sustainable profitability matters equally.

  1. Interest Coverage Ratio (ICR): Despite having a debt-to-equity ratio below 1, ABFRL’s ICR is weak. An ICR below 1 indicates that the company’s earnings aren’t sufficient to cover its interest payments. This can be concerning.
    Although ABFRL benefits from strong parentage, we should still pay attention to this observation. Remember the cautionary tale of Vi (Vodafone Idea) and its debt struggles.

  2. Du Pont Analysis: The drivers of ROE—profit margin, asset turnover, and leverage - reveal interesting insights:

  • Profit Margin: Net margins have been poor over the last 5 years.
  • Asset Turnover: A declining trend suggests inefficient asset utilization.
  • Leverage: Indicates a debt burden on the company.
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118

Any new update on demerger?

121

Get your basics correct, QIP will increase overall stocks hence promotor holding showing down, Promoter infused money at 317 two days back. 4 cr shares.

122

Any idea when the demerged shares will start trading?

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124

Before demerger the market cap was around 30000 crores. After demerger, ABFRL is around 10000 crore, so ABLBL will be getting the valuation of 20000 crore. Wouldn’t it be too expensive as it will be around 3x of annual sales?

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125

Trent is 10X Price to sales and 100X EV/EBIDTA, Vishal mega mart is 6X price to sales and 5X EV/EBIDTA. ABLBL has 1235 cr EBIDTA post InD AS and 645 cr pre Indas. With a 10% growth price should be between 200-240 at least.

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