Aditya Birla Fashion and Retail Ltd. :- Making India Fashionable

Fashion is perhaps the very first expression of success of a free nation. Fashion is a celebration and a joy. It is an expression that can manifest itself in different ways for different people and these ways are forever evolving.

Aditya Birla Fashion and Retail Ltd. (ABFRL) emerged after the consolidation of the branded apparel businesses of Aditya Birla Group comprising ABNL'S Madura Fashion division and ABNL's subsidiaries 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

"This consolidation will create India's largest pure play Fashion and Lifestyle Company with a strong bouquet of leading fashion brands and retail formats. This move brings India's #1 branded menswear and womenswear players together." - Kumar Mangalam Birla, Chairman, Aditya Birla Group.

ABFRL has been founded in the belief that the first sign of success of a modern nation lies in the ability of its citizens to celebrate. India's young working population and robust economic performance has led to rising incomes which, combined with increasing global exposure, are empowering many latent wants to morph into demands. With retail expanding independently through brick and mortar as well as e-commerce, the Indian fashion consumer now deserves futuristic and comprehensive omni-channel options. The time for ABFRL to arrive was ripe.

ABFRL aims to catalyse the business of fashion through superior infrastructure and experiences, towards a new future.

ABFRL brings together the learnings and businesses of two renowned Indian fashion icons, Madura Fashion & Lifestyle and Pantaloons Fashion and Retail. This will create a synergistic core that will act as the nucleus of the future fashion businesses of the Aditya Birla Group.

ABFRL is India's No 1. Fashion Lifestyle entity with a combined revenue of INR 7,181 crore for FY 2018 and EBITDA of INR 501 crore for FY 2018.

ABFRL hosts India's largest fashion network with over 11,000 points of sale, which include close to 2,500 exclusive ABFRL brand outlets across 700+ cities and towns, 4,900+ multi-brand outlets and 4000+ Department stores across the country. It has ~22 million Loyalty Members as of 31st March 2018.

Business Overview :-

 Company is India’s largest  pure-play fashion and lifestyle entity with an elegant bouquet of leading fashion brands and retail  formats. Lifestyle Brands Riding on extensive and deeply penetrated  distribution network, our lifestyle brands - Louis Philippe, Van Heusen, Allen Solly and Peter England, continue to be leaders within their respective segments. With continuous efforts towards offering consumer delight through high quality products and differentiated in-store  experience, we  expanded our loyal consumer base to  approximately 12 million this fiscal. These brands have created very strong equity amongst our loyal customers through years of persistent focus on product innovation, design development, consumer satisfaction and brand building.During this fiscal, business expanded its reach through new store openings, alongwith improving same store performance through focused store-level interventions. The business focused on integrating consumer feedback into product design and planning, aiming at  improving product satisfaction scores  amongst  consumers. Lifestyle business took significant strides towards adopting digital ways  of working both in terms of consumer engagement and brand building. We  were one of the early movers  to  adopt Omni-channel capabilities and our concerted  efforts helped expand the coverage  to more than 700 stores, giving our consumers unmatched access to wide variety and choice of products.

Global Economy :- 

The global economy is on a rebound. The International Monetary Fund (IMF) estimates indicate that global real GDP grew 3.8% in 2017. This is the highest  growth pace over the last six years. It is also the broadest  synchronised global growth upsurge, since 2010 as underlined by IMF. This impetus from a supportive monetary policy was further buoyed by a revival of investment spending in advanced economies. The expansionary fiscal and monetary policies in the US led to improve growth prospects. The US grew at  2.3% in 2017  as  against 1.5% in 2016. Growth accelerated in Europe and Asia too. The global economic recovery is expected  to  continue. For the current and the next  year, a strong growth at 3.9% is projected. This positive outlook is somewhat clouded. Increased trade protectionism, rising international crude oil prices, geo-political risks and the uncertainty about normalisation of monetary policies  in advanced economies from highly accommodative conditions in the past, are some of the factors that dim the outlook.

Indian Economy :- 

India’s economy is emerging strongly from the transitory effects of demonetisation and implementation of Goods and Services Tax (GST). Although India’s GDP growth slowed from 7.1% in FY17 to 6.7% in FY18, the economy recorded  a sevenquarter high GDP growth of 7.7% in the exit quarter of FY18. This reflects momentum. India’s macroeconomic indicators remain healthy. The fiscal deficit has been cut to 3.5% of GDP. India’s foreign exchange reserves as at  March end stood at  a comfortable level of $ 424 billion. Investors seem to be positive on India’s economic prospects. The Foreign Direct Investment (FDI) flows continue to be encouraging. India’s global ranking on the ease of doing business notched up to  100 from 142 in barely four years, while that on global competitiveness index has climbed from 71st  in 2014-15 to  39th  in 2016-17. The prevailing sense of optimism accentuates India’s continuing economic growth in the future as well. It is attributable to  the country’s solid fundamentals, such as deleveraging by corporates, resulting in much stronger balance sheets, better capacity utilisation with consumption demand becoming stronger, and insolvency and bankruptcy process weeding out non-performing assets, among others. The Government’s unwavering push for infrastructure projects – Bharatmala Pariyojana, airports, metros, affordable housing, urbanisation, smart cities and digitisation are excellent stimulators for the economy’s growth in the medium-term.

At the same time, we  cannot ignore near-term challenges. The bucket of concerns consist of rising oil prices, hardening inflation, firming bond yields and widening current account deficit. The ongoing global trade frictions, particularly between the US and China, are worrisome and can have a spillover negative effect on countries like India. So the terrain ahead  could be a tad bumpy depending on the economic and geopolitical environment.

Industry Structure and Developments 

Global Market  :-

Global apparel market is close to  2%(1)  of world GDP with Europe, USA and China being the largest  markets, holding combined share of more than 50%. Europe and US comprise of ~11% of World population while their combined apparel consumption share is 40%; indicating very high per capita expenditure on apparel in these markets. This implies large headroom for growth in per capita apparel consumption for India to  be played out over next  few decades. As per Mckinsey report(2), with the shift of economic growth from mature regions in West  to emerging markets in South and East  Asia, more than half of apparel and footwear sales will originate  outside of Europe and North America. This further reflects available opportunities in these regions and companies have  to seek new avenues of growth in emerging markets. The biggest  trend that’s  gaining momentum is that global fashion industry is moving towards a decisive phase of digital adoption by the mainstream consumers. The new age shoppers’ comfort with digital medium and content has changed the customer shopping journey from a linear process to  a complex trajectory traversing across online and offline touch points. This offers an immense opportunity for fashion brands to  create  consumer delight by offering 24X7, deeply engaging and much more premium shopping experience. In the fast  fashion segment, the robust 20% growth in the past  few years has led to incubation of new online fast  fashion players. This business has gained traction also partly because of rapid introduction of fashion trends by social media to an exponentially increasing consumer base. Source: (1) Reports by  Wazir Advisors (2) Mckinsey Fashion Scope 2017 and 2018.

Indian Market :- 

The apparel market for India is expected to grow at  CAGR of 9%(3)  from USD 51 Billion in FY 2017-18 to  USD 65.8 Billion in FY 2019-20; backed by greater purchasing power leading to higher discretionary spends, better access to  products, higher brand awareness, rising urbanisation and increasing digitisation. The share of organised retailing in apparel swelled from 14% in FY 2007  to 24% in FY 2017-18. Over the past decade, organised retail  has not only captured  new and incremental demand, but has also successfully shifted  demand away  from unorganised retail. Over the next  three years, while branded apparel is projected  to grow  at CAGR of 19%, organised retail  is expected  to outpace it with growth of 21%. Additionally, though the per capita spend of apparel in India is expected  to increase from USD 38 in FY 2017-18 to  USD 66 in FY 2025-26, it will still be lower than other developed and emerging markets, ushering apparel players into a phase of robust growth. Menswear still occupies larger share of apparel market  at 41%, while womenswear contributes 38%. However, womenswear across other countries constitutes  55% to  60% of total apparel market, highlighting the opportunity that exists  for Indian market. The industry continued with its rapid growth this fiscal, led by aggressive expansion by value and mass fashion players, strengthening of foreign brands and strong growth of e-commerce players. Over the past  few years, numerous International Brands established their presence in India. This year, many of these brands expanded their reach by setting up exclusive brand outlets, along with tailoring their products and price points to suit the Indian market. NSSO rural consumption survey has been showing continued trend towards more urban consumption pattern, with spends becoming more discretionary than need based in rural and urban markets. The expenditure on clothing, durables and consumer services is growing much faster than decadal average. Growth of these markets is characterised by increasing aspiration of owning brands and rising discretionary spends, though constrained by high price sensitivity. In line with the above, though Tier 1 cities continue to dominate  the consumption space, rest  of the country has been seeing a much faster shift from unorganised and unbranded play. It is expected that the total organized shopping space in top 10 cities will be lower than rest of India in next three years. With appropriate  positioning and carefully carved out retail model, value & mass fashion players  have  been able to grow exponentially in these markets. E-commerce continued to  build upon its strength of providing rapid scale and deep access to markets and consumers augmenting the opportunity that lies in strong brands to partner with them and recruit new buyers. Industry is still witnessing high discounting and promotions linked  to  aggressive growth being chased by key players. However,  with increased focus on profitability, the disruptive impact that the sector had on traditional offline players  few years back has somewhat diminished; creating a conducive ecosystem for offline and online players in India to partner and grow  the market  together. Omni-channel emerged as a promising bet as  both online and offline players dabbled with it – many online players started physical stores  while established offline businesses invested in developing online capabilities.

The ABFRL umbrella includes :-

Madura Fashion & Lifestyle

The custodian of several icons, including the top four fashion brands of India - Louis Philippe , Van Heusen, Allen Solly and Peter England — each of which clocked MRP sales in the vicinity of INR 1,000 crore. It also includes India's first fast-fashion youth brand,People; India's largest fully integrated fashion multi-brand outlet chain, Planet Fashion; India's largest premium international brand retailer, The Collective and the British fashion icon, Hackett London's mono-brand retail in India.

ABFRL has acquired exclusive online and offline rights to market the global brand – ‘Forever 21’ and its existing store network, in the fast-fashion segment in India.

To expand its international portfolio, ABFRL entered into exclusive partnerships with two of UK’s most successful fashion brands, ‘Simon Carter’ and `Ted Baker’.

Pantaloons

India's largest big box fashion retailer, Pantaloons is one of the fastest growing lifestyle apparel retail destinations in India. Constantly innovating designs, concepts and products by infusing the latest trends in fashion and clothing styles, Pantaloons has a repertoire of lifestyle brands to cater to every consumer's needs across multiple occasions. Pantaloons, is amongst the most widely present retailers in the value fashion segment with network of 275 stores spanning over 3.76 million square feet. During the year under review,  as the value fashion segment grew  strongly, Pantaloons added 66 new stores to  its network and entered many new Tier 2 and Tier3 markets. These new stores will mature over the coming years and will add to our growth and profitability. Pantaloons also undertook various costoptimisation initiatives, leading to  improved profitability. The business continues to  make sound progress towards increasing the share of franchisee stores in the network to improve capital efficiency. Pantaloons has been awarded the IMAGES Most Admired Affordable Fashion Retailer of the year for second consecutive year along with the Best  Turnaround Story Award - 2017. Pantaloons was also recognized  as “Most Trusted Fashion Retailer” in the Brand Equity Survey of Economic Times, 2016-17. Its customer relationship programme with over 10 Million deeply engaged  customers is one of the key drivers of the growth, contributing to  more than 90% of sales. 

ABFRL altogether hosts India's largest fashion network with over 8000 points of sale across over 700+ cities and towns, which include more than 2,000 exclusive ABFRL brand outlets. With ~19 million Loyalty Members as of 30th June 2017, ABFRL has a strong bouquet of loyalty programmes in India. ABFRL boasts of creating more than 20,000 new designs every year.

Fast Fashion  :- 

Company took an early bet on Fast  Fashion business by positioning itself in the segment through two “Youth fast fashion” retail brands – People and Forever 21. While Forever 21 is the iconic global fast  fashion brand that enjoys  an enviable following amongst young girls, People is a young and edgy brand that seeks to address the fashion aspirations of Indian youth. This fiscal, your Company took calibrated approach towards this portfolio with clear focus on improving profitability. Many long vintage  stores  were rationalised  during the year and new retail store models were  tested and established. These initiatives  led to  improved  profitability, thus establishing replicable profitable model for future expansion. Your Company is poised to capture significant share of the fast  fashion market through its varied offering across customer segments, wearing occasions and price points. 

Innerwear  :-

 Innerwear is a large and attractive market, currently under-penetrated in the premium branded segment. Your Company forayed into  this space with the launch of Van Heusen innerwear for men in mid of FY 2017-18 and is encouraged  with the outcomes in a short span of time. During this fiscal, Innerwear segment aggressively added points of distribution through pan India launches. Riding on product strategy focused on fit, fashion and innovation and favourable engagement models with channel partners, your Company considers this segment to become an important growth driver in coming years.

International Brands :-

International brands portfolio comprises The Collective, India’s largest multi-brand retailer of international brands and select mono brands. Simon Carter and Ted Baker, which were  signed in FY 2016-17, opened their first store this fiscal and were well received  by consumers. Additionally, during the year under review,  your Company signed few more premium international brands for the Indian market viz. Polo Ralph Lauren, American Eagle and Fred Perry. These brands will open their first store in the coming financial year. With aforesaid additions to its portfolio, your Company will continue on its trajectory on building a strong but selective play in the emerging Super Premium and Bridge to  Luxury Segments.

 India's widest distribution network

Financials :-  

Company’s Performance :- 

Company recorded a turnover of  7,181 crores in FY 2018; a growth of 8.3% over the previous year on the wings of better performance across all of your Company’s businesses. EBITDA grew to 501  croresvis-à-vis  476  crore last  year, driven by  improved  profitability in our Value fashion segment. Your Company’s profit after tax doubled at `  118 crores  versus to  `  54 crores in FY 2017. The Lifestyle Brands: Louis Philippe, Allen Solly, Van Heusen and Peter England, sustained their leadership position backed by a strong brand equity and an increasing base of discerning consumers. Your Company’s business underwent significant operational transformation with heightened focus on product design, innovation and multiple initiatives  centered around driving channel efficiency. Pantaloons extended through aggressive store additions and higher earnings. Spanning 275 stores across an area in excess of 4 million sq. ft. pan India, Pantaloons ranks amongst the leading players  in the Value Fashion segment in India. Your Company expanded its portfolio of super premium brands, in line with the overall movement of market  in this space. Partnerships with iconic international brands like American Eagle, Polo Ralph Lauren and Fred Perry were inked this year. In turn this has further strengthened its position in the growing segments of Premium and Super Premium brands. With the launch of men’s innerwear in FY 2017  under the Van Heusen brand, your Company entered the large  and growing innerwear market. With an already established distribution reach of over 7,000 outlets across 75  cities in a short span, your Company is scaling up the business .

Opportunities :- 

Huge market with growing opportunity Branded fashion is experiencing robust demand fuelled by rising incomes, increasing discretionary spending, improving access and growing aspiration for brands. Certain categories such as women and kids are expected to  grow much faster due to rising proliferation of brands in these segments, more women joining workforce and discretion-based purchase replacing need-based buying. Tremendous opportunity exists  in Tier 2 and 3 towns with increasing urbanisation, growing propensity to  spend and heightened aspiration to use branded products. The exposure  to  digital economy has greatly changed the aspirations and expectations of consumers in these markets. These markets will also see rise of high grade mall space, driving entry of numerous brands trying to  address the needs of brand seeking consumers in better quality shopping space. Rising affluence and increasing global exposure have led to  growth in premium international brands business in India. 

Digital Influence  :- 

 Digital has emerged as the biggest  force powering B2C businesses by creating digitally influenced and digitally enabled transactions. Your Company has embraced the digital revolution, upgrading the consumer shopping experience through Omni-channel play, blending post purchase consumer feedback in its product design process and digitally enabling the brick and mortar stores to  offer more efficient and holistic shopping experience.

Threats and Risks :- 

Increased discounting in industry :-

The unprecedented growth story of e-commerce created huge disruption in consumer retail  over the last  few years. Chasing customer acquisition and aggressive growth, the new/ e-commerce players rampaged offline commerce by resorting to  aggressive discounting. End of Season Sale (“EOSS”), in its current form, heavily encouraged discount seeking behaviour and shifted a large portion of sales to discounting season; adversely impacting margins. Increasing discounts is perceived  as big risk for apparel industry – players  are working on improving the core  customer propositions comprising of innovative product, sharp pricing and delightful pre and post purchase experience, to  shift consumers back to a full price sale regime. 

Inadequate supply of good quality retail space  :-

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

 Limited  availability of talent :-

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

Outlook – Way Forward  :- 

Company expects FY 2018-19 to be better as the after-effects of demonetisation and GST implementation seem to  have  subsided. As per economic surveys, India continues to  be the fastest growing economies in the world, and is expected  to continue in FY2018-19 as  well. This is supported well by favorable factors such as policy reforms and encouraging monsoon forecasts. Improving economic scenario is expected to  translate  into increased consumer spend. Furthermore, the fundamental themes driving consumer businesses such as increasing share of younger population, rising urbanisation, growing affluence, increasing discretionary spending and deeper penetration of digitisation continue to  gain momentum. In view of the above  trends, the outlook is likely to remain positive  for the sector.   Company is well positioned to leverage  the opportunity in this growing market  with its diverse product offerings across varied categories, price points and portfolio of strong brands that will enable it in addressing changing consumer needs.

                            I think long term investors consider ABFRL  between 145-200 range in small lots and one can start adding in SIP mode for long term portfolio investment to handover to the next generation for the real wealth creation, stock runs a lot from 140 to 200 in short span of time  in the last one month so add on every dips is best strategy for long term retail investors with time frame of 3-5 years, stock  trading around cmp 202 , all the best guys and happy investing !!!!!!! [ Disclosure :- It  is safe to assume that abfrl is in my long term portfolio hence my view may be biased so kindly do your own research before taking any positions. ] 

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The information herein is used as per the available sources of bseindia.com, company’s annual reports & other public database sources. Author is not responsible for any discrepancy Disclain the above mentioned data. Investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents

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