Dimensional Securities Pvt Ltd.

Date: 26th December, 2023

CMP: 222
Recommendation: BUY

Aditya Birla Fashion & Retail Ltd. Target: 300

Time frame 18 months
Fashion Powerhouse in the making

MARKET DATA Over the last 5 years, ABFRL has embarked on an acquisition-led growth entering
NSE TICKER ABFRL new brands (TCNS,, Reebok, Forever 21, American Eagle) and entering new fashion
Networth H1FY24 (Rs in Crs) 2,939
segments (Ethnic, Athleisure, Sports). However, the timing of brand acquisitions
P/BV Ratio (x) 7.1X
EBITDA (FY23- Rs. cr) 1,557 coincided with Covid lockdown and then the general slowdown in the consumption,
Market Price (Rs.) 222 which led to significant deterioration in the company’s performance. We believe
EV/EBITDA Ratio (FY23E) (x) 22X that ABFRL houses strong brands across all categories of fashion (men, women, kids,
52 Week High (Rs) 293
52 Week Low(Rs) 184 formal, casuals, ethnic, athleisure, accessories) and across all price points, giving
Market Capitalisation (rs. Cr) 21,033 the company an access to Rs. 6.5-7 lakh cr Indian apparel market. ABFRL has also
one of the widest retail presence among all the apparel retailers, which will help it
AVERAGE MONTHLY VOLUME (in lakhs) scale its business to the next level as the consumption cycle turns around.
BSE 0.81
NSE 29.4
Pantaloons- Value retailing with huge opportunity
Pantaloons is facing near term headwinds because of slowdown in the rural and
SHARE HOLDING PATTERN (%)
semi-urban markets. But once the consumption cycle turns around, Pantaloons, with
Promoter 55.5
its low price offerings, will be among the main beneficiaries. Value fashion is a
FII 14.0
significant opportunity in a price sensitive market like India. Pantaloons with its
DII 17.0
starting price category of Rs. 300 and average selling price of Rs. 600 caters to a
Public 13.0
huge target market of Rs. 5-6. Lakh cr. The management is confident on the
RETURN (%) 3M 6M 12M Pantaloons format and it is evident from continuous investment in new store
ABFRL 2.4 5.0 -24.8 additions. It is confident about generating enough cash to expand on its own, and
Nifty 8.5 13.7 17.8 it won’t eat into the profitability of other segments

Madura Lifestyle- Catering to the growing aspirational segment

Harsh Shah (Head- Research)
harsh.shah@dimensional.in
+91-22-66545231
The matured brands viz. Allen Solly, Louis Phillipe, Van Heusen and Peter England
will grow steadily at 8-10% and help the company generate cash, which will be
infused back to scale up the new brands and segments. Category expansion into
Innerwear, Athlesiure and accessories will provide further headroom for growth.
The new, youth brands- Reebok, American Eagle and Forever 21 – has significant
opportunity to scale up from its current nascent stage, as it begins to get the
synergistic benefit of ABFRL’s existing wide distribution network and economies of
scale.

Branded Ethnic, TMRW and TCNS synergy– Another key lever for growth
Ethnic segment is another growth driver identified by the company for which they
have acquired several brands and have also entered tie-ups. Company’s brand
portfolio includes Jaypore, Tasva, Sabyasachi, Shantanu & Nikhil, Tarun Tahiliani
and Marigold Lane (women). Rising preference for branded ethnic wear will help
the industry grow at 16-17% CAGR over the next 5 years to grow to Rs. 79,000 cr
industry.

Synergy from merger with TCNS, which will give company access to Rs. 75,000 cr
women Ethnic market along with youth-centric trendy brands under TMRW will add
to the company’s scale, and start contributing to profits from FY26 onwards.

Particulars FY22 FY23 FY24E FY25E FY26E

Revenue 8,136 12,418 13,751 17,064 19,427
EBITDA 1,138 1,557 1,153 1,884 2,629
EBITDA Margin 0 0 0 0 0
PAT -109 -36 -775 -485 -40
EPS -1.2 -0.4 -7.6 -4.8 -0.4
RoCE 0.7 2.4 -8.3 -3.2 3.8
(Rs. In cr)

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 1

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

Valuation & View:

At CMP of Rs. 233, ABFRL is trading at a market cap of Rs. 22,150 cr which is 1.5X P/Sales and 18X EV/EBITDA. ABFRL
has done a commendable job in building a bouquet of brands catering at all pricing points and across fashion categories
of apparels. The company has laid down the foundation to grow as a Fashion powerhouse of India and is all set for the
next phase of growth. Consolidation of mature brands, recovery in Pantaloons, scaling up of new brands/format and
benefits of scale will lift company’s profits significantly going ahead and translate into cash generation.

We believe ABFRL is available at an attractive valuation, and recommend a BUY on the stock with a price target of Rs.
300, presenting an upside of 35% from the CMP of Rs.222.

About the Company

ABFRL is India’s largest pure-play apparel retailer mainly operating through three segments, Madura Fashion and
Lifestyle, Pantaloons and Ethnic. Madura operates as a lifestyle/Aspiration brand with relatively higher ticket size while
Pantaloons is a value fashion category where company mainly sells its own private labels. Under Ethnic, the Company
has got gamut of own brands and tie-up with renowned designers.

ABFRL has a well-diversified portfolio across formals, casuals, inner/loungewear, footwear and now Ethnic wear.
Spanned across brands, the company has products across all pricing points starting from economy up to luxury brands.

Key Brands Pricing point Brand ownership

MADURA FASHIONS
Peter England Rs. 400 to Rs. 900 Own
Allen Solly Rs. 800 to Rs. 1400 Own
Van Heusen Rs. 1,000 to Rs. 2,600 Licensed from PVH
Louis Philippe Rs. 1,400 to Rs. 3,000 Own
Forever 21 Rs. 800 to Rs. 3,000 Licensed
American Eagle Rs. 1,400 to Rs. 4,000 Licensed
The Collectives (Hackett, Ralph Lauren, Ted Baker, etc) Rs. 8,000 to Rs. 50,000 Licensed

PANTALOONS
Pantaloons & Private Labels Rs. 300 to Rs. 1,000 Mostly owned

Ethnic
Tasva, Jaypore & Marigold Rs. 1,500 to Rs. 35,000 Own
Shantanu & Nikhil Rs. 35,000 to Rs. 100,000 51% ownership
Sabyasaachi Above Rs. 100,000 51% ownership

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 2

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

 Investment Rationale
 Pantaloons- Value retailing with huge opportunity

Pantaloons largely caters to the economy and the mass market with ticket price starting from Rs. 300 and Avg selling
price of Rs. 600. Post its acquisition from the Future Group, ABFRL has scaled up this format from merely 65 stores to
400 store footprint with healthy profitability

Particulars FY18 FY19 FY20 FY21 FY22 FY23 CAGR

Pantaloons revenue 2,713 3,086 3,309 1,776 2,443 3,777 5.6%
Pantaloons EBITDA 171 231 544 302 370 635
EBITDA Margin 6.3% 7.5% 16.4%* 17.0% 15.1% 16.8%
Nos of stores 275 308 342 346 377 431

Covid-19 impacted this format significantly, leading to sharp decline in sales and profitability, and the recovery on per-
store basis has been slow since then. Owing to industry wide slowdown, Pantaloons saw its performance deteriorate
further during H1FY24. The segment’s Like-to-Like (LTL) sales were lower by 11-12%, leading to lower operating
leverage and decline in margin by 500 bps over FY23 to 11.8%.

Having higher presence in Tier II and below markets, the current rural and semi-urban stress in consumption is impacting
Pantaloons performance. But once the consumption cycle turns around, Pantaloons, with its low price offerings, will be
among the main beneficiaries. Pantaloons is a high fixed cost format and increase in revenue will automatically flow
into profitability. At the same time, the management also continues to work on making this format leaner and reducing
the fixed operating expenses.

Pantaloons operating metrics

Pantaloons operating metrics
Particulars FY18 FY19 FY20 FY21* FY22 FY23 CAGR
Walk-ins (cr) 4.6 5.4 5.7 2.3 3.6 6.2 6.2%
Increase (YoY)% -2.1% 17.4% 5.6% -59.6% 56.5% 72.2%
Conversion 22.4% 24.3% 26.1% 31.5% 26.2% 21.6%
Avg Bill Value 1842 1880 2001 2075 2325 2468 6.0%
ASP 665 643 665 656.4 727 815 4.2%
Items per bill 2.8 2.9 3.0 3.2 3.2 3.0
Nos of stores 275 308 342 346 377 431 9.4%
Total Retail area (mn. Sq. ft) 3.76 4.02 4.36 4.46 4.92 5.72
Area per store 13673 13052 12749 12890 13050 13271
Revenue per store 10.4 10.6 10.2 5.2 6.8 9.3 -2.1%
Revenue per sq. ft. 7,588 8,111 7,986 4,005 5,178 7,044 -1.5%
*Impact from Covid-19

Segment wise revenue break-up:

Segment Revenue MIx
Men 36%
Women 22%
Women’s Ethnic 17%
Kids 15%
Non-apparel 10%

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 3

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

Way ahead and key triggers:

 The management is confident on the Pantaloons format and it is evident from continuous investment in new store
additions. It is confident about generating enough cash to expand on its own, and it would not eat into the profitability
of other segments.
 Post-acquisition from Future Group, ABFRL significantly reduced the size of the Pantaloons store from ~20,000 sq.
ft. to currently ~13,200 sq. ft. The focus is on improving per sq. ft unit economics.
 Going ahead, store addition will continue at a gradual pace and company will be looking to open in the Tier II and
II cities with average size of ~8,000 sq. ft.
 Value fashion is a significant opportunity in a price sensitive market like India. Pantaloons with its starting price
category of Rs. 300 and average selling price of Rs. 600 caters to a huge target market.
 The proposition of ‘Pantaloons’ is to give its customer a shopping experience and feel a of ‘brand’ at an economical
price, which should trigger the shift from unorganized, small retailers to chains like Pantaloons.
 The average selling price of India’s apparel industry is Rs. 225, highlighting that a major chunk of the industry falls
into a category below Rs. 600. Thus, out of total industry size of Rs. 7-8 lakh cr, the value fashion category (below
Rs. 600) could be estimated at Rs. 5-6 lakh cr. In comparison, Pantaloons does revenue of Rs. 3,800 cr.

Particulars FY22 FY23 YoY FY27E CAGR

Size of the Indian apparel market (Rs. Cr) 6.7 lakh 7.5 lakh 18.1% 12-12.5 lakh 10.5-11%
Volume in Indian apparel market (cr pieces) 3765 3353.5 3893 ~4%
Avg realization per apparel 178.0 223.9 32.5% 316.0 ~7-8%
(Source: Dimensional Research, ABFRL Annual Report, Go Fashions Annual Report, Go Fashion DRHP)

 Zudio, the value format of Tata Group’s Trent Ltd, is a case in study which has found right footing in the value
apparel segment. Zudio has expanded its store portfolio aggressively over last 4 years from 57 stores to 411 stores.
 The share of private label will continue to increase which will improve the margins of this segment.
Particulars ■ FY15 ■ FY20 ■ FY23 ■ FY26E
■ Private Labels ■ 52% ■ 62% ■ 65% ■ 75%
■ Madura Brands ■ 10% ■ 8% ■ 9% ■ 9%
■ Other Brands ■ 38% ■ 30% ■ 26% ■ 16%

 Madura Lifestyle- Catering to the growing aspirational segment

The Madura business caters to the aspirational class with premium and luxury brands. It could be divided into the following:

 Lifestyle Brands- Includes Co.’s core brands Allen Solly, Louis Philipe, Van Heusen and Peter England
 Inner wear & athleisure segment: Identified as the new growth lever, includes Allen Solly and Van Heusen.
 Youth Fashion segment: Consists of 2 young brands- Forever 21 and American Eagle which are at a very nascent
stage with significant headroom to grow.
 The Collectives – It includes luxury brands like Ted Baker, Polo, Hackett, Hugo, etc licensed by the company.

Segments FY18 FY19 FY20 FY21 FY22 FY23 CAGR

Lifestyle Brands Revenue 4264.0 4662.0 4626.0 2750.0 4522.0 6608.0 1.5%
Lifestyle EBITDA 397 487 797 340 788 1095
EBITDA Margin 9.3% 10.4% 17.2% 12.4% 17.4% 16.6%

Other Business (incl Reebok) 205.0 369.0 808.0 656.0 859.0 1352.0 43.1%
Other Business EBITDA -53.0 -85.0 -51.0 26.0 16.0 -27.0
EBITDA Margin -25.9% -23.0% -6.3% 4.0% 1.9% -2.0%

Madhura Segment revenue 4469.0 5031.0 5434.0 3406.0 5381.0 7960.0 4.8%
Madhura Segment EBITDA 344.0 402.0 746.0 366.0 804.0 1068.0
EBITDA Margin 7.7% 8.0% 13.7% 10.7% 14.9% 13.4%

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 4

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

The Core brands of Madura viz., Allen Solly, Louis Philipe, Van Heusen and Peter England have turnover of Rs. 1,000 –
2,000 cr. These have become stable brand and going ahead will continue to grow at 8-10% and will continue to generate
cash for the company to expand in adjacencies (Athleisure, Footwear, Accessories, etc) and new brands (Reebok, Forever
21, American Eagle, etc.).

The channel mix of the Lifestyle brands (4 core brands) is –

 23% Wholesale (sales to MBOs and LFS)

 50% Retail (EBOs)- 80% of the EBOs are franchised.
 27%- Others (online and other channels)

The Company matches its inventory levels with payables, which would lower its EBITDA margins by some % from its
margins points (higher payable days would mean higher price by vendor to cover their financing cost) but it helps the
company in avoiding inventory build-up in trade channels.

Key Triggers:

 The Masstige (Mass + Prestige) and branded category (Pricing point of Rs. 600-3,000) has been seeing strong growth
and will continue to grow at 12-14% CAGR over next 5 years.
 The company has identified new growth levers for the core brands which includes casual wear, active wear,
inner/lounge wear, denims and women’s fusion wear
 In addition to the core brands, the company has two other brands- Forever 21 and American Eagle- which are in
scale-up stage, and will drive the additional growth for this segment.
 Company’s peak losses in Innerwear and Athleisure will also play out during FY24, and the business will start moving
towards break-even before it starts its journey towards profitability towards the end of FY25.
 American Eagle and Forever 21
o Forever 21 and American Eagle are relatively new brands for ABFRL, which are in scale-up stage. Both of
these brands have strong appeal among the youth and will drive the additional growth for the Madura
Lifestyle segment.
o Globally Forever 21 and American Eagle are $4 bn (~Rs. 32,000 cr) and $5 bn (Rs. 40,000 cr) brand.

 Reebok – Huge headroom for scaling up:

o ABFRL acquired exclusive rights to own and operate Reebok brand in India.
o Reebok is a strong brand for sporting accessories and Athleisure, and we believe the brand’s full potential
wasn’t exploited by Authentic Brands Group
o ABFRL with its strong distribution reach and store-led expansion strategy will look to scale this business
significantly over the next few years.
o Co.’s strategy is to expand the brand in India through combination of franchise... and some exclusive
company-owned stores.
o In India, Puma is the biggest brand with revenue of Rs. 2,200 cr, while Reebok is lagging at ~300-350 cr,
and has a huge potential to grow significantly. Adidas does revenue of Rs. 1400-1500 cr; while Nike Rs.
900-1000 cr.
o The total footwear market in India is Rs. 72,000 cr and is growing at 8-10% CAGR. The share of branded
category is expected to grow at 12-14% CAGR over the next 5 years to become a 60,000 cr market. Out of
this, the Sports and Athlesiure wear market is expected to double from Rs. 11,000 cr in FY20 to Rs. 22,000
cr by FY25.

 Key growth drivers for branded industry:

o Rising per capita disposable income which will fuel discretionary spending.
o Benefit of a young demography (50% below the age of 25 and more than 65% below the age of 35).
o Growing urbanization which will foster upgradation of lifestyle.
o Generational shift from Savers to Spenders. The current cohort of population in he age group of 14-30 is
more spendthrift than the previous generation.
o Rising participation of women in work force will significantly boost demand for women apparel and
accessories market.

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 5

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

Ethnic wear- A little late, but enough room to accommodate…

Ethnic segment is another growth driver identified by the company for which they have acquired several brands and have
also entered into tie-ups. Company’s brand portfolio includes Jaypore, Tasva, Sabyasachi, Shantanu & Nikhil, Tarun Tahiliani
and Marigold Lane (women). These strategic additions to the portfolio are expected to further strengthen ABFRL’s position in
the branded Ethnic space. While Pantaloons with brands like (owmned + Licensed) Rangmanch, BIBA, Global Desi will cater
to the entry-level customers, the newly launched/acquired brand will open up Masstige, Premium and luxury market for the
company.

 Brand acquisitions:
■ Brand ■ Revenue at the time of
■ P/Sales multiple
acquisition
■ Jaypore ■ Rs. 110 cr ■ 2.8X Sales
■ Sabyasachi ■ Rs. 389 cr (51% stake) ■ 2.8X Sales
■ Shantanu Nikhil ■ Rs. 60 cr (51% stake) ■ 3.4X Sales
■ Tarun Tahiliani ■ Rs. 67 cr (33% stake) ■ 4X Sales

 Company’s own brands include following:

■ 100% owned brands ■ Partly owned brands
■ Jaypore ■ Shantanu & Nikhil- 51%
■ Marigold ■ Sabyasaachi- 51%
■ Tasva ■ Tarun Tahiliani (33%)

Increasing preference of branded apparels within Ethnic category is increasing the target market for the branded players. This
is further enhanced by higher penetration in Tier II and II cities and higher spending ability of consumers.

Ethnic business is scaling up steadily despite Covid-19 lockdown and overall slowdown. Most of the investment phase is
behind now, and as the brand continues to gain scale, the incremental revenues will trickle down to profitability. Given the
premium nature of company’s products, the Ethnic wear segment has potential to reach EBITDA Margin of 20-25% (Manyavar
does 45-50%).
Particulars FY20 FY21 FY22 FY23
Ethnic Revenue 45 68 312 400
Ethnic EBITDA -13 -39 29 -28
Ethnic EBITDA Margin -28.9% -57.4% 9.3% -7.0%

Going ahead, major investments will be made in Tasva format where the company has already opened 60 stores and plans
to open another 40-50 every year for the next 2-3 years.

Branded Ethnic wear Industry overview

The branded wedding wear industry is expected to grow at 16-17% CAGR between FY20 to FY25 from Rs. 35,900 cr to Rs.
79,000 cr. Despite such high growth, the share of branded category is expected to be ~32%, highlighting further room for
market share gains from the unbranded category.

CAGR
Particulars FY15 FY20 FY25E (FY20-25E)
Total Apparel Wear market 4,00,000 5,64,700 8,20,000 7.7%
Ethnic Wear of this 1,29,200 1,80,000 2,40,000 5.9%
% of apparel market 32% 32% 29%
Men 13,800 17,200 24,000 6.9%
Women 1,03,400 1,45,800 1,92,000 5.7%
Kids 12,000 17,000 24,000 7.1%

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 6

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

Ethnic Wear Market (A + B) 1,29,200 1,80,000 2,40,000 5.9%

Wedding Wear (A) 75,300 1,02,000 1,37,500 6.2%
% of total Ethnic Market 58.3% 56.7% 57.3%
Branded wedding wear 7,500.0 20,400.0 44,000.0 16.6%
% of total wedding 10.0% 20.0% 32.0%
Men Branded 1,000.0 3300.0 8000.0
Women Branded 3,300.0 14700.0 30100.0
Kids Branded 3,200.0 2400.0 5900.0
Other Celebration wear (B) 53,900 78,000 1,02,500 5.6%
% of total Ethnic Market 41.7% 43.3% 42.7%
Branded (Men + Women) 8,000 15,500 35,025 17.8%
% of Celebration Industry 15% 19.9% 34.2%
(Source: Manyavar RHP)

TMRW– Creating foundation for Millennial and Gen-Z led growth

 ABFRL has incorporated a subsidiary “TMRW” — focused on identifying and investing in D2C brands. The objective
is to partner with young entrepreneurs of the fashion and lifestyle world and help scale up their brands.
 It is a portfolio of youth centric and funky brands comprising of 8 brands. Some of these are Urbano, Bewakoof,
Nautinatie, The Indian Garage Co. (recently acquired and many other brands.
 Company will be investing Rs. 400 cr to scale up this segment further.
 For H1FY24, TMRW did revenue of Rs. 160 cr.

TCNS-ABFRL synergy to unlock business’ profitability and value

 ABFRL acquired 52% stake in TCNS clothing with a cash consideration of Rs. ~1608 cr. The company will complete
the merger over next 6-9 months.
 TCNS has an established presence in the ethnic salwar-kurta industry (est. 25% of women’s apparel spend) with its
W and Aurelia brand.
 The rational to acquire TCNS was to enter the premium women’s Ethnic wear segment, which is a significant market
(only Salwar-Kameez market est at 65-70,000 cr). It fills the gap with company launching and tying up for many
brands for Men’s Ethnic wear.
 ABFRL would use its capabilities in designing and wide distribution reach to scale up TCNS to next level and reap
benefits of scale.
 The company aims to scale up the brands, W and Aurelia, to Rs. 1,000 cr each, which will also improve margins to
mid-teen digits
 We believe that TCNS business will take 1 full weddings and festival season for its operations to normalize, and it
will start getting EPS accretive for ABFRL FY25 onwards.

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 7

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

 Apparel Industry- Overview

Global perspective:
Per Per % of
Rs. Lakh Expected capita capita per cap
Country wise split $ bn cr growth Share % $ INR. GDP
USA 231.4 1897480.0 4-6% 15.1% 844 69,208.0 1.4%
China 226.2 1854840.0 6-7% 14.8% 422 34,604.0 3.1%
India 101.4 831480.0 12-14% 6.6% 37 3,034.0 1.4%
Japan 75.2 616640.0 1-2% 4.9% 588 48,216.0 1.7%
Germany 65.3 535460.0 2-3% 4.3% 802 65,764.0 1.6%
UK 63.2 518240.0 3-4% 4.1% 889 72,898.0 2.0%
Brazil 54.9 450180.0 6-7% 3.6% 117 9,594.0 0.8%

India Apparel Market

Indian Apparel market (Rs. Cr) FY23 7.51 lakh cr
% of global market ~5%
Industry growth rate (FY22-FY26) 10-12% CAGR
FY26 estimated industry size (lakh cr) ~Rs.10-10.5 lakh cr

Particulars FY22 FY23 YoY FY27E CAGR

Size of the Indian apparel market (Rs. Cr) 670000 751000 12.1% 1230000 13.1%
Volume in Indian apparel market (cr pieces) 3765 3353.5 3893 3.8%
Avg realization per apparel 178.0 223.9 25.8% 316.0 9.0%

 India’s Apparel Industry is estimated at Rs. 6.5-8 lakh cr FY23 and is estimated to grow at a CAGR of

 Rising share of branded and organized apparel market:

■ Particulars ■ FY12 ■ FY20 ■ FY25E
■ Organized market ■ 20% ■ 33% ■ 40%
■ Branded out of above ■ 25% ■ 48% ■ 56%
■ Branded out of total apparel market ■ 5% ■ 16% ■ 22%
o Larger benefit will flow to popular and mass market brands (ticket size of Rs. 300-800) which forms almost
80% of the total fashion market.

 Innerwear market:
o The Indian innerwear market having a market size of Rs. 25,000 cr in 2016 (per capita spend of Rs. 185) is
expected to grow at 11% CAGR to Rs. 85,100 cr by 2026 (per capita spend of Rs. 650).
o There is increasing trend of shift from economy brand (VIP, Rupa, Dixy) to premium ones (Jockey, US Polo,
Van Heusen)

Key Drivers for Branded Apparel Industry growth:

 Rising per capita disposable income which will fuel discretionary spending.
■ Household income ■ 2018 ■ 2025
■ Low Income: Less than $4000 (below Rs. 300,000) ■ 43% ■ 15%
■ Middle Income: $4000-8500 (301,000 to 625,000) ■ 33% ■ 34%
■ Upper Middle: $8500-40,000 (601,000 to 28,00,000) ■ 21% ■ 44%
■ Affluent: Above $40,000 (More than Rs. 28L) ■ 3% ■ 7%

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 8

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

 Smaller towns which were earlier not a key market for brands and were catered by custom-made garments, is seeing
a strong shift towards branded apparels in ticket size of Rs. 300-800, and these markets constitutes ~65% of the
population.
 Rising internet penetration & easy payment infrastructure is giving access to a wider market to the consumers and
making shopping a very easy & convenient experience.
 Growing urbanization which fosters upgradation of lifestyle.
 Rising participation of women in work force will significantly boost demand for women apparel and accessories
market.
 Benefit of a young demography (50% below the age of 25 and more than 65% below the age of 35). The current
cohort of population in the age group of 14-30 is more spendthrift than the previous generation.
 Increasing influence of social media and exposure from the very young age has made the young generation brand
conscious.
 Shift of customer preference towards quality of a product than just price.

 Key Risks and Concerns:

 Threats from private labels and online players

o The online apparel market has grown at a rapid pace and grown to a huge Rs. 1.2-1.5 lakh cr
o Given the increase in digital infrastructure and convenience the online shopping offers in terms of choices,
easy return/exchange and higher discounts, the e-Commerce in Apparel is expected to grow at a CAGR of
20% over the next 5 years.
o The online platforms creates a level playing field for new brands and private labels at a very attractive price
points, which will intensify competition.

 High Debt
o ABFRL’s debt has swelled to Rs. ~4,900 cr (D/E of 1.8X) owing to recent acquisitions and losses.
o Cash generation is another challenge, as the company is not making enough margins (normalized for Ind-
AS 116) on its revenues.
o Company will receive remaining amount of Rs. 1,400 cr from Singapore GIC which will help it lower its
debt. (During FY23, ABFRL had issued 6.58 cr warrants to Singapore GIC at issue price of Rs. 288.75.
Despite current price being lower than the warrants price of Rs. 288.75, GIC will still be subscribing it by
paying the remaining 75% amount)

 Inability to profitably consolidate the brands:

o ABFRL could face problem of plenty as the company has assembled myriad of brands, many of which are at
a nascent stage and losing money.
o It will be a challenge for the company to scale its brand in a competitive environment while avoiding piling
up of inventory.

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 9

Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

 Valuation and View:

o At CMP of Rs. 233, ABFRL is trading at a market cap of Rs. 22,150 cr which is 1.5X P/Sales and 18X EV/EBITDA
o ABFRL has done a commendable job in building a bouquet of brands catering at all pricing points and across
fashion categories of apparels. The company has laid down the foundation to grow as a Fashion powerhouse
of India and is all set for the next phase of growth.
o We believe ABFRL is available at an attractive valuation, and recommend a BUY on the stock with a price target
of Rs. 300, implying an upside of 35% from CMP of Rs. 222. We are valuing the stock at 32X EV/Core-EBITDA
(excl impact of Ind AS 116), implying P/Sales of 1.35X.While our multiple might look stretched, but it doesn’t
factor in the sharp increase in profitability that ABFRL will witness in FY27E when all its segments turn profitable
and start generating cash. Also, in comparison, company’s peers (Page Industries, Metro Brands and Trent Ltd.
Trade at 36-65X 2-Yr Fwd EV/EBITDA with much lesser scale than ABFRL)
o Once ABFRL’s numbers stabilize and it begins to generate healthy cash, we believe the company will enjoy richer
valuations. Our first cut estimates suggest that ABFRL’s EBITDA will swing significantly from Rs. 1,001 cr in FY26E
to ~Rs. 1500 cr in FY27E.
o Company has achieved huge size in terms of distribution, which will make it relatively easier for them to scale
their newer brands, and this is a huge positive trigger for them. Plus, on a revenue scale of Rs. ~13,000 cr,
company has enough muscle power to invest in marketing and growth going ahead.
o The key challenge would be consolidating so many brands together without building up inventory or burning
cash on smaller brands.
o Pantaloons is a major overhang as it is not performing as intended but the opportunity is huge, and if things fall
in place the company will reap dividends from its investment in growing this format
o Cash generation is another challenge, as the company is not making enough margins (normalized for Ind-AS
116) which would help generate cash. But with scale, we expect company’s cash generation to improve
significantly.

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 1
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Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

ABFRL- Profit & Loss

Particulars FY22 FY23 FY24E FY25E FY26E
Net Sales 8,136 12,418 13,751 17,064 19,427

RM Cost 3,720 5,552 6,391 7,681 8,621

% of revenue 45.7% 44.7% 46.5% 45.0% 44.4%
Gross Margin 54.3% 55.3% 53.5% 55.0% 55.6%
Employee Cost 1,159 1,563 1,770 2,125 2,317
Other Opex 981 1,817 2,199 2,735 2,970
Admin Expsnes 705 1,070 1,274 1,502 1,662
Selling Overheads 433 858 964 1,143 1,259
Total Expenditure 6,998 10,861 12,598 15,186 16,828
EBITDA (Ex OI) 1,138 1,557 1,153 1,878 2,598
EBITDA Margin 16.3% 14.3% 9.2% 12.4% 15.4%
Depreciation 997 1,227 1,382 1,744 2,034
Interest 389 536 712 755 763
Other Income 101 116 141 113 120
PBT -147 -89 -800 -507 -80
Tax -27 -23 0 0 0
PAT -121 -66 -800 -507 -80
Share in JV/Mindority Interest 12 30 24 16 7
Consolidated PAT -109 -36 -775 -491 -73
EPS -1.2 -0.4 -7.6 -4.8 -0.7

ABFRL- Balance Sheet

Particulars FY22 FY23 FY24E FY25E FY26E
Share Capital 938 949 1,015 1,015 1,015
Total Reserves 1,835 2,395 2,978 2,493 2,452
Shareholder's Funds 2,773 3,343 3,993 3,507 3,467
Minority Interest 15 3 3 3 3
Total Borrowings 1,232 2,306 2,806 2,737 2,356
Other Long Term Liabilities 2,672 4,692 4,688 5,689 5,697
Total Non-Current Liabilities 3,904 6,997 7,495 8,426 8,053
Trade Payables 3,411 3,846 4,485 5,566 6,336
Other Current Liabilities 1,923 2,444 2,706 3,358 3,823
Total Current Liabilities 5,334 6,290 7,191 8,924 10,159
Total Liabilities 12,026 16,633 18,681 20,860 21,682

Non-Current Assets
Fixed Assets 6,162 8,563 10,041 10,602 10,609
Other Non Current Assets 529 900 987 1,205 1,360
Total Non-Current Assets 6,692 9,463 11,028 11,806 11,969
Current Assets
Inventories 2,930 4,214 4,298 5,208 5,840
Sundry Debtors 756 886 1,319 1,543 1,756
Cash/Bank/Current Investment 729 883 707 742 779
Other Current Assets 920 1,186 1,330 1,560 1,337
Total Current Assets 5,335 7,170 7,653 9,054 9,713
Total Assets 12,026 16,633 18,681 20,860 21,682

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 1
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Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

ABFRL- Key Ratios

Particulars FY22 FY23 FY24E FY25E FY26E
BV per share 29.6 35.2 39.4 34.6 34.2
RoE (%) -4.0 -1.2 -21.1 -12.9 -1.2
RoCE 0.7 2.4 -8.3 -3.2 3.8
F/A Turnover (excl Right of Use) 1.8 2.3 2.2 2.3 2.3
Debtor Days 34 26 35 33 33
Inventory Days 107 105 113 102 104
Payable Days 153 113 119 119 119
Net Working Capital Days -80 -34 -41 -50 -48
Current Ratio 1.0 1.1 1.1 1.0 1.0
Core Interest Cover 1.3 0.4 -1.9 0.0 2.0
P/BV 7.5 6.3 5.6 6.4 6.5
EV/EBITDA (excl Ind AS 116 impact) 48.4 66.0 -110.9 65.0 24.1
P/E NM NM NM NM NM

ABFRL- Cash Flow Statement

Particulars FY22 FY23 FY24E FY25E FY26E
PBT -147 -89 -800 -501 -47
Add: Depreciation 997 1,227 1,382 1,744 2,034
Add: Interest Expense 389 536 712 754 762
1,239 1,674 1,294 1,997 2,749
Changes in W/C 89 -1,060 210 162 79
Operating Cash flow 1,328 614 1,504 2,159 2,827
Less: Actual Rent Paid -698 -1,217 -1,375 -1,507 -1,627
Less: Core interest expense -173 -207 -280 -295 -276
Core Operating Cash flow 457 -810 -151 357 924
Less: Capex -348 -681 -1,952 -252 -506
Free Cash flow 109 -1,491 -2,103 105 418
Equity Fund Raised 0 769 1,425 0 0
Additional Borrowing/(Repayment) 13 877 501 -70 -381
Opening Cash 606 729 883 707 742
Closing Cash & Curr Investment 729 883 707 742 779

Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001. 1
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Investors are advised to refer through disclosures made at the end of the Research Report
 ABFRL Ltd.

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report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be
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Regd. Office: 298, Perin Nariman Street, 4th Floor, City Ice Building, Fort, Mumbai - 400 001.
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