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.