Aditya Birla Fashion and Retail Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Aditya Birla Fashion and Retail Ltd (ABFRL) Q3 FY22 Earnings Concall

Management Update:

• The company saw its highest ever quarterly sales and profitability in 3Q22, with all its business lines individually posting their new highs in terms of revenue, profit and cash generation.

Q&A Highlights:

• Tejas Shah from Spark Capital asked about Pantaloons margins going forward. Sangeeta Pendurkar said that from cost standpoint, last year the company made some decisions in terms of overheads, and investment in marketing. This year again, some tight cost control measure have been enforced that have become intrinsic to the business. Overall, ABFRL feels confident that it will be able to sustain some of the costs and keep it under control.

• Tejas Shah from Spark Capital also asked about Athleisure VanHeusen and any trailing 12 month run rate and profitability. Jagdish Bajaj CFO said that the company is tracking somewhere between closer to INR500 crore and is growing rapidly YoY.  The company added that even through the COVID it’s been growing 20% plus.

• Tejas Shah from Spark Capital enquired about the profitability of Athleisure business. Jagdish Bajaj CFO said that on profitability, some quarters it’s breakeven, some quarters marginally lower. But its profitability is moving very rapidly from initial days of deep investment to now coming to a point where it’s also generating enough to sort of fund its growth but at a very nominal level right now.

• Chirag Shah with CLSA asked that on the working capital, as the company grows how the inventory turns will be kept in context to benefit in terms of higher return on capital. Ashish Dikshit MD answered that the company is very focused on working capital returns. ABFRL’s total capital employed at an operating level is about INR3,500 crores. Taking out investments and goodwill from that the company is operating potentially between INR10,000-12,000 crore of a post-COVID scenario at an operating capital of less than INR800 crores.

• Richard Liu from JM Financial asked about Pantaloons margin for 3Q declining from about 23.5% to 20% despite a strong YoY growth. Ashish Dikshit MD said that it’s because the rental saving the company got during the phase 2, a lot of it was flowing over in 3Q last year. In 3Q22, as the overall impact by the time it was 3Q, the savings were lesser. However, inherently the business has improved in 3Q22.

• Aliasgar Shakir from Motilal Oswal asked about the 200 plus gross margin improvement . Ashish Dikshit MD said that gross margin is more often than not reflective of the mix of the businesses that ABFRL is selling. So one should not literally convert gross margin into either premiumization or discounting. Gross margin will change quarter-on-quarter because the mix of businesses in various quarters keep changing.

• Aliasgar Shakir from Motilal Oswal asked if the company expects any impact due to the increase in GST in 4Q. Ashish Dikshit MD said that the government has decided to not proceed with that. As of now ABFRL is not seeing it coming through.

• Swagato Ghosh from Franklin Templeton asked that in ten years’ time where does the company see the contribution of Madura and Pantaloons combined for the company, if it would be sizable or will it come down. Ashish Dikshit MD replied that these are very large businesses and have their own growth story. However, other small business, since they are smaller, will growth faster. But ABFRL doesn’t see Madura and Pantaloons significantly lower at least in next 2-3 years than where it is today.