Aditya Birla Fashion and Retail LTD - Initiating Coverage - ACMIIL IE - 121118

Initiating Coverage
Institutional Equities
12th November 2018 Aditya Birla Fashion And Retail Ltd
Recommendation HOLD Aditya Birla Fashion And Retail Ltd (ABFRL) is India’s largest pure-play fashion and
"CMP as on 9th Nov 18 Lifestyle Company with a strong bouquet of leading fashion brands and retail formats.
189 The company has a reach of ~2200 brand stores, 5,019 multi-brand outlets and 4,000+
(Rs)"
points of sale in department stores across the country.
Target Price (Rs) 191
Potential Return 1% ABFRL was formed post consolidation of Pantaloons Fashion and Retail (PFRL) and
Madura Fashion & Lifestyle (MFL) in May 2015. Madura includes lifestyle brands, Fast
Key Data Fashion and Other international brands while Pantaloons caters to the value fashion
"Department space. The company has forayed into brand extensions thereby extending their product
Sector Stores portfolio.
"
It is the custodian of several brands including the top 4 fashion brands- Louis Philippe,
Bloomberg Code ABFRL IN Van Heusen, Allen Solly and Peter England. ABFRL in 2016 had acquired exclusive online
and offline rights to market the global brand – ‘Forever 21’. To expand its international
Reuters Code ADIA.NS
portfolio, ABFRL entered into exclusive partnerships with two of UK’s fashion brands,
52 week high/low 215.55/132.15 ‘Simon Carter’ and `Ted Baker’.
No of shares (O/S) mn 770.53 We expect the company to post a revenue growth of 13% CAGR over FY18-21 led by
strong growth across its branded portfolio and pick up in Pantaloon sales. We further
Market Cap (Rs mn) 1,44,089
believe, Pantaloon is on the cusp of turnaround and Q1FY19 & Q2FY19 margins are a
Daily Average Volume strong indicator of that. We expect ABFRL to open close to 670 new EBO stores over
1150440
(BSE+NSE) - 1 year the next three years, while we expect 145 new Pantaloon stores to come up.
Sensex/Nifty 35,158/10,585 Thus we initiate with a HOLD rating on the stock with a target of Rs 191 (20X FY20E EV/
EBITDA) with a potential upside of 1%.
Shareholding Pattern (%)
Sep-18 Jun-18 Mar-18 Particulars FY15 FY16 FY17 FY18 FY19e FY20e FY21e
(Rs mn)
Promoters 59.2 59.2 59.2
Net Sales 18,507 60,339 66,029 71,721 81,809 91,831 1,03,995
MF/UTI/Insu./
14.2 13.0 11.3
Inst. YoY 226.0% 9.4% 8.6% 14.1% 12.3% 13.2%
FPIs 9.5 9.6 10.5 Gross Profit 8,502 32,822 35,942 37,820 43,010 48,995 55,845
Others 17.0 18.1 19.0 YoY 19.90% 286.10% 9.50% 5.20% 17.00% 15.00%
Total 100.0 100.0 100.0
GPM 45.94% 54.40% 54.43% 52.73% 52.57% 53.35% 53.70%
Price Performance EBITDA 727 3,784 4,375 4,683 6,205 8,001 9,655
140
YoY NA 420.5% 15.6% 7.0% 32.5% 29.0% 20.7%
130
120 OPM 3.9% 6.3% 6.6% 6.5% 7.6% 8.7% 9.3%

110
PAT -2,281 -1,098 535 1,178 1,328 2,361 3,248
100
90 YoY NA NA NA 120.2% 12.7% 77.8% 37.6%

80
PAT Margins NM NM NM 1.64% 1.62% 2.57% 3.12%
31-Jan -18
31-Jul-18
30-Apr-18
31-Aug-18
30-Jun-18
30-Sep-18
30-Oct -18
30-Oct-17
28-Feb-18
31-May-18
31-Mar-18
30-Nov-17
31-Dec-17
Source: ACMIIL Institutional Research, Company

SENSEX ABFRL NIFTY
Source: ACE Equity

Investment Rationale
Rebased to a scale of 100 Position across the value chain - ABFRL has steadily evolved its product offering from
primarily a menswear, to a complete fashion destination for men, women, youth and
children. Besides the lifestyle brands business of Madura which has both premium and
Economical offerings, ABFRL portfolio includes Pantaloons (value fashion for the family),
People (value fashion for the youth), Forever 21 (trendy and affordable fashion) and
branded innerwear. This helps ABFRL cover a wide range customer segments.
Analyst Over the past 4-5 years, ABFRL has successfully diversified into womenswear and kids
Rahul Dani wear. Further, nearly all its brands have clothing lines catering to casual and event
E: instresearch@acm.co.in wear needs.
D : (022) – 2858 3741
B : (022) – 2858 3333
Aditya Birla Fashion And Retail Ltd - Initiating Coverage - ACMIIL IE www.investmentz.com
Initiating Coverage
Lifestyle Brand making the right moves -ABFRL’s traditional cashcow business, Madura
went through a tough time in FY15/FY16 due to online retailers taking away some share
of consumers’ wallet on the back of heavy discounting, Demonetization.
To overcome such challenges, management decided to curtail its store expansion plan
and it decided to stay away from offering heavy discounts. We believe such steps have
started to bear fruits, with ABFRL’s lifestyle brands reporting 9%+ SSSG in FY18 and
~12% Comparable sales growth for the past two quarter.
We expect such a trend to continue going ahead. We expect the company’s EBO count
to increase from 1813 currently to ~2483 stores by FY21. We expect the lifestyle division
to post a growth of 13% growth over FY18 to FY21.
Pantaloons on the mends- Pantaloons has been eating into ABFRL’s profitability since
its acquisition in FY2013. However, the company’s recent measures to boost profitability
are bearing fruits. These include: (1) alignment of Pantaloon’s product pricing in order
to cater to a wider consumer set, (2) expansion in Tier-III/IV cities where competition is
limited, (3) increased reliance on private labels and (4) increased focus on cost controls,
with measures such as rent and store area rationalization, fixed cost controls, etc.
When the company acquired Pantaloons in 2013 it opened only 60 new stores from
FY13-16 in order to get the right mix. Since that it has opened close to close to 145 new
stores which show confidence in the business model. The company currently has 275
stores and we expect the company to open close to 145 new stores by end FY21. We
expect this to translate into a revenue growth of 13% CAGR over the same period.
Strong industry tailwinds- The overall apparel market size was pegged at US$50.9bn
in FY2017, and is expected to grow at a CAGR of 9% to reach a size of US$65.8bn by
FY2020. Growth of organized apparel retail is set to be faster and this channel is set
to account for a sizeable 33% of the overall apparel retail market by FY2020e. Greater
purchasing power in turn driving growth in primary discretionary spend, better access
and availability of products, higher brand consciousness, increasing urbanization and
increasing digitization are key drivers for strong growth of branded and organized retail.
Further we believe, increasing middle income population, greater awareness of
shopping experience and therefore a shift away from unorganized is leading to creation
of large value fashion market in India. This is likely to benefit value retail companies
like pantaloons.
Valuation
ABFRL is best placed among branded apparel peers to reap significant benefits of
the improving macroeconomic milieu due to the sheer quality & size of Madura’s 4
brands, presence in fastest growing segments such as value and fast fashion and an
unparalleled distribution network.
We expect the company to post a revenue growth of 13% over FY18-FY21, likely to be
supported by 13% CAGR growth in Madura Fashion and 13% growth in Pantaloons. We
further believe margins are likely to improve by 275bps during the same period to
9.3% aided by 188bps improvement in pantaloon margins (7.9% in FY21) and 110bps YoY
improvement in Madura to 9.8%.
At CMP of Rs.189 the stock is currently trading at 19.6x FY19E EV/EBTIDA and 16.0x its
FY20E EV/EBITDA. The company could be a potential re-rating candidate on account of
rapid margin expansion as well as robust revenue growth going forward (which would
be keenly watched by us)
We value the stock at 20x FY20E EV/EBITDA which yields a target of Rs.191, an upside of
1% from current levels. We assign HOLD rating on the stock.
Initiating Coverage
Investment Rationale
Position across the value chain
 The Collective
 Ted Baker
 Ralf Lauren
Luxury
 Hackett
 Louis Philippe
Semi Luxury  Van Husen
 Allen Solly
 Allen Solly
Premium  Peter England
 Forever 21
 People
Value  Pantaloon
Menswear womenswear kids Value Accessories

• Hackett • Van Heusen • Allen Solly Fashion • Louis Philippe
London • Allen Solly0 Junor (Across Footwear
• Ralph Lauren • The collective Categories) • Van Heusen
• Louis Philippe • Ralf Lauren • Allen Solly
• Pantaloons
• Allen Solly • Forever 21
• People
• Peter England • People
• Forever 21
• The Collective • Pantaloons
Source- Company
ABFRL has steadily evolved its product offering from primarily a menswear, to a
complete fashion destination for men, women, youth and children. Besides the lifestyle
brands business of Madura which has both premium and Economical offerings, ABFRL
portfolio includes Pantaloons (value fashion for the family), People (value fashion for
the youth), Forever 21 (trendy and affordable fashion) and branded innerwear.
So how does this fair for ABFRL

The Menswear market in India transitioned from tailor-made to ready-made clothing
due to the popularity of ready-made clothing among young and working Indian men.
But now, the trend of custom-fit clothing in India is reviving as more and more men who
have been buying premium or luxury readymade clothing brands want to wear a shirt
or a trouser that fits them perfectly.
The largest segment of the Indian fashion retail market (41% of market) $19bn market
size, expected to reach $45.5bn by 2026 9% CAGR expected for the next 10 year.
The Women’s Market in India as of FY17 is valued at $19bn and is expected to reach
$42bn by FY25 growing at a rate of 10%. The Women’s apparel market in India is
Initiating Coverage
growing faster than men’s largely due to an increase in number of women’s, a shift
towards aspiration rather than need based buying, emergence of home grown brands
in a market where Indian apparel contributes 71% and design innovation that appeal to
Indian sensibilities.
Men’s Wear Growth ($bn)

50 46
45
40
9%
35 GR
CA
30
25
19
20
15
10
5
0
2016 2026
Women’s Wear Growth ($bn)
50
41.9
40 9%
CAGR
30
19.3
20
10
0
2017 2025
Source: IBEF, Industry Report
We opine that Madura and Pantaloon together cover a wide range of customer
segments. Madura caters across the luxury to premium section for both men and
womenswear. While investment in Pantaloon and Forever 21 has led to increase focus
to towards womenwear which is likely to grow faster. Further entry in new segments
such as men innerwear and recent launch of women’s innerwear and athleisure is
further likely to provide an impetuous to growth.
Further, ABFRL’S geographical reach provides it with valuable insights with respect to
opening of stores of other brands within its portfolio.
Initiating Coverage
We believe the reason mentioned above provides revenue visibility comfort over the
long run and on a sustainable basic. We expect ABFRL to post a revenue growth of
13% CAGR over FY18-21e.
Lifestyle Brand making the right moves –

Madura Fashion & Lifestyle, a division of Aditya Birla Fashion and Retail Ltd., is one of
India’s fastest growing branded apparel companies and a premium lifestyle player in
the retail sector. The company’s brand portfolio includes product lines that range from
affordable and mass-market to luxurious, high-end style and cater to every age group,
from children and youth to men and women.
Madura is a powerhouse of 4 strong brands—Louis Philippe, Van Heusen, Allen Solly
and Peter England. Each brand generates turnover of ~Rs 10bn (at MRP), amongst the
highest in industry. While Louis Philippe and Van Heusen are positioned as premium
formal men’s wear, Allen Solly and Peter England are positioned as Sub-premium
brands, respectively. Thus, the company has a strong portfolio of brands across
different price points.
ABFRL is the owner of a majority of its lifestyle brands, enabling control on design
and distribution. In FY17, ABFRL shifted from a two-season cycle to a four-season cycle
(spring, summer, festive and winter) thereby enabling it to offer fresher merchandise
and keep in sync with the latest trends.
Madura went through a challenging time in FY15/FY16 due, to online retailers taking
away some share of consumers’ wallet on the back of steep discounting, Demonetization
and time taken by consumer to adapt to change in fashion trends.
To conquer such challenges management decided to curtail its store expansion plan
and it decided to stay away from offering heavy discounts. We believe such steps have
started to bear fruits, with ABFRL’s lifestyle brands reporting 9%+ SSSG in FY18 and
~12% Comparable sales growth for the past two quarter.
We expect such a trend to continue going ahead. We expect the company’s EBO
count to increase from 1813 currently to ~2483 stores by FY21. We expect the lifestyle
division to post a growth of 13% growth over FY18 to FY21.
Additionally, Madura has now diversified into adjacent categories such as men’s
casual wear, women’s wear, children’s wear and inner wear, either as sub-categories
of existing brands or as new brands. These new ventures should augur well for the
company as they are expected to grow at much faster pace as compared to men’s
formal segment.
Innerwear segment- massive untapped potential

After a successful foray into men’s innerwear segment, the company in 2018 entered
the women’s innerwear segment. Women’s innerwear segment controls close to 65%
of the total innerwear market in India and grows at much faster pace than the men’s
segment.
Overall we anticipate Madura (including lifestyle brands, fast fashion and others) to
post a healthy growth of 13% over FY18-21, while margins in this segment are expected
to improve by 110bps YoY to 9.8%.
Initiating Coverage
Number of EBOs
3000
2483
2500 2283
2033
2000 1877 1813
1761
1500
1000
500
0
FY16 FY17 FY18 FY19E FY20E FY21E
SSG Growth Lifestyle brands

12%
10%
8% 9%
7%
6% 6% 6%
4%
2%
0
0%
-2%
-4%
-6%
-6%
-8%
Madura Revenue (Rs mn)
13%
70,000 CAGR 62,959 18%
16.2% 56,333 16%
60,000
50,228 14%
50,000 43,210
40,810 12.2% 11.8% 12%
38,780
40,000 10%
30,000 8%
5.9% 6%
20,000 5.2%
4%
10,000 2%
- 0%
Madura YoY Growth
Initiating Coverage
Madura OPM
10.0%
9.8%
9.5%
9.4%
9.3%
9.0%
8.7%
8.5%
8.4%
8.3%
8.0%
7.5%
Initiating Coverage
Pantaloons on the mends
Pantaloons began in 1997 as a Future Group company in the quest to equip the
emerging Indian middle-class with an indigenous fashion retail format. Consistent
with the times, the model was of a discount fashion retailer. Post-acquisition by the
Aditya Birla Group, significant investments were made focused on store upgradation,
expansion, deeper pan-India penetration, portfolio enrichment, brand building and
organization processes to lay the foundation for its future growth.
The brand is now present in 136 Indian cities / towns. Pantaloons today retail over 200
licensed and international brands, including 20+ exclusive brands.
So how have things changed for Pantaloon post the Acquisition by ABFRL-
• Revamped the entire business model (gradually transitioned from being a discount
store to a full, but reasonably priced, value fashion player)
• undertaken some course correction primarily related to right and affordable pricing
• Refurbished Existing stores
• Hiring of new management team
• Expanding network
• Increased focus on cost rationalization
When the company acquired Pantaloons in 2013 it opened only 60 new stores from
FY13-16 in order to get the right mix. Since that it has opened close to close to 145
new stores which show confidence in the business model. The company currently has
275 stores and we expect the company to open close to 145 new stores by end FY21.
We expect this to translate into a revenue growth of 13% CAGR over the same period.
Further margins have increased from 4.78% in FY16 to 6% in FY18. We further expect
this trend to continue and we expect margins to further improve to 7.9% by FY21.
We also believe increasing middle class population; greater awareness of the shopping
experience has led to a shift away from unorganized is creating a large value fashion
market in India.
Number of stores Pantaloon

450 427
400 377
350 327
300 275
250
209
200 163
150
100
50
0
Initiating Coverage
SSG Growth
7%
6% 6%
5%
4.4%
4% 3.9%
3.80%
3% 3.20%
2% 2.0%
1%
0%
Revenue (Rs mn)

45,000 41,036 20%
%
40,000 CAGR 13 18%
35,498
35,000 31,581 16%
28,620 14%
30,000 25,520
12%
25,000 21,570
10%
20,000
8%
15,000 6%
10,000 4%
5,000 2%
- 0%
Revenue YoY
EBITDA Margins
9%
8% 7.85%
7.5% 7.60%
7%
6% 5.97%
5% 4.94%
4.78%
4%
3%
2%
1%
0%
Initiating Coverage
Category Mix
40% 36% 36%
35%
30%
25% 23% 22%
20% 19%
20%
15% 12% 13%
9% 10%
10%
5%
0%
Men Women's Women's Kids Non Apps
Western Ethnic
Q1FY18 Q1FY19
Initiating Coverage
Ownership Mix
Own Brand
MFL
Others
Strong industry tailwinds-

The apparel market for India is expected to grow at CAGR of 9% from $51Bin in FY
2017-18 to $65.8bn in FY 2019-20; backed by greater purchasing power leading to
higher discretionary spends, better access to products, higher brand awareness, rising
urbanization and increasing digitization. The share of organized retailing in apparel
swelled from 14% in FY 2007 to 24% in FY 2017-18. Over the past decade, organized retail
has not only captured new and incremental demand, but has also successfully shifted
demand away from unorganized retail.
Over the next three years, while branded apparel is projected to grow at CAGR of 19%,
organized 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 $38 in FY 2017-18 to
$ 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.
Further we believe, increasing middle income population, greater awareness of
shopping experience and therefore a shift away from unorganized is leading to creation
of large value fashion market in India. This is likely to benefit value retail companies
like pantaloons.
The likely driver for organized markets
• young demographics
• rising urbanization,
• increasing affluence with growing middle income segment,
• greater brand awareness
• improved availability driven by expansion from both offline and e-commerce
players and
• Accelerated formalization of the sector through demonetization and GST.
Initiating Coverage
Size of Apparel in US$ billion
31.6 21.7
7.9 6.4 18.8 12.2
48%
37% 24% 33%
25% 20%
FY12 FY17 FY20
Branded Apparel Organized Apparel Retail
Source- TSNS RHP
Valuation
Aditya Birla Fashion (ABFRL) is India’s largest pure-play fashion and Lifestyle Company
with a strong bouquet of leading fashion brands and retail formats. The Company
emerged after the consolidation of the branded apparel businesses of Aditya Birla
Group comprising Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle
(MFL) in May 2015. Its portfolio of brands includes major fashion brands of India i.e.
Louis Philippe, Van Heusen, Allen Solly and Peter England.
ABFRL portfolio brands are position across the value chain from Luxury to value fashion.
We believe the product position is key given the likely growth in organized retail.
Further, the likely pick up in value fashion category given the likely change in consumer
dynamic and socio-economic factors is likely to aid growth for Pantaloons.
Over the years, the company has introduced various brand extensions within lifestyle
brands which has helped it grow beyond the formal segment.
Given the factors mentioned above we believe ABFRL is best placed among branded
apparel peers to reap significant benefits of the improving macroeconomic due to the
sheer quality & size of Madura’s 4 brands, presence in fastest growing segments such
as value and fast fashion and an unparalleled distribution network. We reckon the stock
could be consistent performer over the long run.
We expect the company to post a revenue growth of 13% over FY18-FY21, likely to be
supported by 13% CAGR growth in Madura Fashion and 13% growth in Pantaloons. We
further believe margins are likely to improve by 275bps during the same period to 9.3%
aided by 188bps improvement in pantaloon margins (7.9% in FY21) and 110bps YoY
improvement in Madura to 9.8%.
At CMP of Rs.189 the stock is currently trading at 19.6x FY19E EV/EBTIDA and 16.0x its
FY20E EV/EBITDA. The company could be a potential re-rating candidate on account of
rapid margin expansion as well as robust revenue growth going forward (which would
be keenly watched by us)
We value the stock at 20x FY20E EV/EBITDA which yields a target of Rs.191, an upside
of 1% from current levels. We assign HOLD rating on the stock
Key Risk
• Slowdown in Apparel Industry
• Increase in competition
• Increase in threat from E-Commerce
• Unavailability of Requisite Real Estate/ Increase in rent rates
Initiating Coverage
Company overview
Aditya Birla Fashion
Madura Pantaloons
Other businesses Large Format

Lifestyle Brands Fast Fashion (Innerwear, Luxury retailers. Value
Brands stores
Van Heusen branded

Allen Solly, Louis
innerwear Luxury
Philippe, Peter Forever 21 People
brands: Hackett,
England, Van Heusen
Simon Carter etc.
Madura Fashion & Lifestyle, a division of Aditya Birla Fashion and Retail Ltd., is one of
India’s fastest growing branded apparel companies and a premium lifestyle player in
the retail sector. The company’s brand portfolio includes product lines that range from
affordable and mass-market to luxurious, high-end style and cater to every age group,
from children and youth to men and women. Madura Fashion & Lifestyle is defined by
its brands — Louis Philippe, Van Heusen, Allen Solly and Peter England — that personify
style, attitude, luxury and comfort. It also includes India’s first fast-fashion youth
brand, People; India’s largest fully integrated fashion multi-brand outlet chain, Planet
Fashion and India’s largest premium international brand retailer, The Collective.
Pantaloons Fashion & Retail Ltd began in 1997 as a Future Group company in the
quest to equip the emerging Indian middle-class with an indigenous fashion retail
format. Consistent with the times, the model was of a discount fashion retailer. Post-
acquisition by the Aditya Birla Group, significant investments were made focused on
store upgradation, expansion, deeper pan-India penetration, portfolio enrichment,
brand building and organization processes to lay the foundation for its future growth.
The brand is now present in 136 Indian cities / towns. Pantaloons today retail over 200
licensed and international brands, including 20+ exclusive brands.
Initiating Coverage
Revenue Contributor FY18 Margin Contributor FY18
Pantaloons
Pantaloons 31%
40% Madura
60% Madura
69%
Revenue Break up (Rs mn)

50,000
43,210
38,780 40,810
40,000
30,000 28,620
25,520
21,570
20,000
10,000
-
FY16 FY17 FY18
Madura Pantaloons
OPM
10%
9% 9.3%
8.4% 8.7%
8%
7% 7.1% 7.0%
6.7%
6%
5%
4%
3%
2%
1%
0%
FY16 FY17 FY18
Madura Pantaloons
Overall Revenue (Rs mn)
80,000
7.1%
CAGR 5 71,720.7
70,000 66,028.6
60,339.2
60,000
50,000
40,000
30,000
20,000 18,507.3
10,000
FY15 FY16 FY17 FY18
Initiating Coverage
Overall EBITDA (Rs mn) and OPM
5,000 4,682.8 7%
4,374.9
4,500
4,000 3,784.2 6.3% 6.6% 6.5% 6%
3,500 5%
3,000 4%
3.9%
2,500
2,000 3%
1,500 2%
1,000 727.0
1%
500
- 0%
FY15 FY16 FY17 FY18
EBITDA OPM

Initiating Coverage
Industry
Indian retail one of the fastest growing markets in the world due to economic growth.
India is the world’s fifth largest global destination in the retail space.
Retail market in India is projected to grow from US$ 680 billion in 2017 to US$ 1.2 trillion
in 2018.
Consumer expenditure in India (US$ bn)

4,000
3,600
3,500
3,000
2,500
2,000 1,824
1,500
1,000
500
0
2017 2020F
Retail market in India (US$ bn)
1,400
1245
1,200
1,000
800
680
600
400
200
-
2017 2018F
Source: Industry, IBEF
Advantage India
(Source IBEF)
Initiating Coverage
The apparel market for India is expected to grow at CAGR of 9%(3) from $51bn in FY
2017-18 to $ 65.8bn in FY 2019-20; backed by greater purchasing power leading to
higher discretionary spends, better access to products, higher brand awareness, rising
urbanization and increasing digitization. The share of organized retailing in apparel
swelled from 14% in FY 2007 to 24% in FY 2017-18. Over the past decade, organized retail
has not only captured new and incremental demand, but has also successfully shifted
demand away from unorganized retail.
Over the next three years (FY17-20E), while branded apparel is projected to grow at
CAGR of 19%, organized 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 $38 in FY
2017-18 to $66 in FY 2025-26, 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.
Online retail business is the next generation format which has high potential for growth.
Currently, it is estimated to be a $50bn opportunity. After conquering physical stores,
retailers are now foraying into the domain of e-retailing. It had a market size of $18bn
in 2017 and is forecasted to reach $ 32.70bn by 2018. Online retail market is estimated
to reach $ 60bn by 2020. The online retail market sale is forecasted to grow at the rate
of 31% YoY to reach $32.70bn in 2018. It is forecasted to reach $71.94bn by 2022.
Organized vs. Unorganized Retail

102%
100%
98%
96% 7%
10%
94%
92%
90%
88% 93%
90%
86%
84%
FY17 2020E
unorganized Retail Organized Retail
Online retail in India (US$bn)
80
70
60
50
40
30
20
10
0
2015 2016 2017 2018F 2020F 2022F
Source: Annual Report, IBEF
Initiating Coverage
Financial Matrix
Revenue (Rs mn)
1,20,000
1,03,995
12%
1,00,000 CAGR 91,831
81,809
80,000 71,721
66,029
60,000
40,000
20,000
-
FY17 FY18 FY19E FY20E FY21E
Revenue Split (Rs mn)
1,20,000
1,00,000
80,000
60,000
40,000
20,000
-
Lifestyle Brands Pantaloons Fast Fashion Others
EBITDA
12,000
10,000
-22%
CAGR 8,001
8,000
6,205
6,000
4,375 4,683
4,000
2,000
-
Initiating Coverage
Margin Profile
12%
10% 9.4% 9.8%

8.4% 8.7% 9.28%
8.3% 8.71%
8% 7.58% 7.9%
7.6%
6.63% 6.53% 7.5%
6% 6.0%
4.94%
4%
2%
0%
Madura OPM Pantaloon OPM Overall OPM
Net Profit
3,500 3,248
3,000
8% 2,361
2,500 R5
CAG
2,000
1,500 1,328
1,178
1,000
535
500
-
Return Ratios
20% 18.2%
18%
16.1%
16% 17.7%
14%
15.3%
12% 10.8% 10.8%
10% 11.5%
8% 7.8%
7.7%
6%
5.6%
4%
2%
0%
ROE ROCE
Initiating Coverage
FINANCIAL STATEMENTS
Income Statement
(in mn) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Total Income 16,612 18,507 60,339 66,029 71,721 81,809 91,831 103,995
Cost Of Revenues (incl Stock Adj) 9,523 10,006 27,518 30,087 33,901 38,799 42,837 48,150
Gross Profit 7,090 8,502 32,822 35,942 37,820 43,010 48,995 55,845
Employee Cost 1,497 1,837 6,205 7,058 7,723 9,105 10,014 11,023
Other Operating Expenses 5,259 5,938 22,832 24,509 25,414 27,701 30,979 35,167
EBITDA 334 727 3,784 4,375 4,683 6,205 8,001 9,655
Other Income 51 28 264 382 328 409 459 520
Net Interest Exp. 1,173 1,202 1,765 1,797 1,716 1,608 1,358 1,158
Depreciation 1,090 1,835 3,381 2,425 2,805 3,346 4,151 4,956
PBT (1,877) (2,281) (1,097) 535 490 1,659 2,951 4,060
Tax 0 0 0 0 (688) 332 590 812
Profit After Tax (1,877) (2,281) (1,097) 535 1,178 1,328 2,361 3,248
Net Profit (1,877) (2,281) (1,097) 535 1,178 1,328 2,361 3,248
EPS (20.1) (24.6) (1.4) 0.7 1.5 1.7 3.1 4.2
Initiating Coverage
Balance Sheet
Particulars (Rs mn) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Assets
Net Block 4,361 6,288 4,837 5,462 6,465 6,377 5,726 4,270
Capital WIP 179 157 254 250 459 200 200 200
Intangible Assets 11,971 441 443 812 763 763 763 763
Other Noncurrent Assets 69 20,240 20,705 22,441 23,121 23,586 24,060 24,628
Long term loans and advances 770 44 36 35 29 25 28 31
Current Assets
Current Investment 60 - - - - - - -
Inventories 3,584 11,503 14,105 14,313 16,912 19,051 21,134 23,648
Trade receivables 170 4,085 3,124 4,522 5,518 5,827 6,290 6,838
Cash and cash equivalents 108 270 192 497 728 522 769 915
Short-term loans and advances 167 40 44 38 47 82 92 104
Other Current Assets 94 1,566 2,084 1,989 3,298 3,600 3,857 4,160
Total Current Assets 4,183 17,463 19,550 21,358 26,503 29,082 32,141 35,665
Current Liabilities & Provisions

Trade payables 3,756 12,415 14,298 14,578 20,093 22,322 24,059 26,383
Other current liabilities 1,246 4,331 6,494 2,535 5,204 5,277 6,211 5,056
Short-term provisions 97 - - 859 709 737 771 819
Total Current Liabilities 5,098 16,745 20,792 17,971 26,006 28,336 31,041 32,258
Net Current Assets -916 718 -1,242 3,387 497 746 1,100 3,408
Total Assets 16,434 27,888 25,032 32,387 31,333 31,696 31,876 33,299
Liabilities
Share Capital 933 928 7,688 7,705 7,717 7,717 7,717 7,717
Reserves and Surplus 4,862 9,211 1,367 1,876 3,214 4,542 6,902 10,151
Total Shareholders Fund 5,795 10,139 9,055 9,582 10,931 12,259 14,619 17,868
Total Debt 10,155 16,479 14,764 20,317 17,584 16,084 13,584 11,584
Long Term Provisions 57 - - 1,071 1,211 1,309 1,377 1,456
Other Long Term Liabilities 428 1,271 1,213 1,418 1,607 2,045 2,296 2,392
Total Liabilities 16,434 27,888 25,032 32,387 31,333 31,696 31,876 33,299
Initiating Coverage
CASH FLOW
(in mn) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
PBT -1,877 -2,281 -1,098 535 490 1,659 2,951 4,060
Depreciation & Amort., Total 1,090 1,835 3,381 2,425 2,805 3,346 4,151 4,956
After other adjustments 1,110 1,199 1,586 1,895 1,906 2,145 1,677 1,333
(Inc) / Dec in Working Capital 408 -1,096 -741 -573 760 -455 -107 -2,161
Taxes -29 -15 -19 -30 -10 -332 -590 -812
Others - - - - - - -
Cash from Ops. 701.3 -359.1 3,108.70 4,251.90 5,951.20 6,363.60 8,082.20 7,376.10
Capital Expenditure on Fixed -950 -1,163 -2,128 -2,962 -3,391 -3,000 -3,500 -3,500
Assets
Capital Expenditure & invest- 7,763 75 269 -1,495 139 -461 -477 -571
ments
Cash from Investing 6,813 -1,088 -1,859 -4,456 -3,252 -3,461 -3,977 -4,071
Issue of Share capital - - -16 11 12 - - -
Net Borrowings 3,181 2,602 1,624 -385 -1,903 -500 -1,500 -1,000
Others -10,840 -1,191 -2,937 884 -578 -2,608 -2,358 -2,158
Issuance of Dividend - - - - - - -
Cash from Financing -7,659 1,411 -1,330 509 -2,469 -3,108 -3,858 -3,158
Net Change in Cash -144 -36 -80 305 230 -206 247 146
BF Cash 253 108 270 191 495 726 519 767
END Cash 108 72 190 496 726 519 767 913
Initiating Coverage
KEY RATIOS
FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
Profitability
Return on Assets (8.7%) (5.1%) (2.4%) 1.1% 2.1% 2.2% 3.8% 5.0%
Return on Capital (4.4%) (4.1%) 2.8% 7.8% 7.7% 11.5% 15.3% 17.7%
Return on Equity (32.4%) (22.5%) (12.1%) 5.6% 10.8% 10.8% 16.1% 18.2%
Margin Analysis
Gross Margin 42.7% 45.9% 54.4% 54.4% 52.7% 52.6% 53.4% 53.7%
EBITDA Margin 2.0% 3.9% 6.3% 6.6% 6.5% 7.6% 8.7% 9.3%
Net Income Margin (11.3%) (12.3%) (1.8%) 0.8% 1.6% 1.6% 2.6% 3.1%
Short-Term Liquidity
Current Ratio 0.8x 0.8x 0.7x 0.8x 0.8x 0.9x 0.9x 1.0x
Quick Ratio 0.1x 0.3x 0.2x 0.3x 0.3x 0.3x 0.3x 0.3x
Avg. Days Sales Outstanding 4 81 19 25 28 26 25 24
Avg. Days Inventory Outstanding 79 227 85 79 86 85 84 83
Avg. Days Payables 144 453 190 177 216 210 205 200
Long-Term Solvency
Total Debt / Equity 1.8x 1.6x 1.6x 2.1x 1.6x 1.3x 0.9x 0.6x
EBITDA / Interest Expense (0.6x) (0.9x) 0.4x 1.3x 1.3x 2.0x 3.2x 4.5x
Valuation Ratios
EV/EBITDA 82.2x 46.2x 41.8x 37.5x 34.4x 25.7x 19.6x 16.0x

PER (9.3x) (7.6x) (131.0x) 269.3x 122.5x 108.5x 61.0x 44.4x
P/B 3.0x 1.7x 15.9x 15.0x 13.2x 11.8x 9.9x 8.1x
Initiating Coverage
Notes:
Institutional Equities: Our Rating Scale

Buy: Expected return greater than 20% within the next 12-18 months.
Rajat Vohra
Accumulate: Expected return greater than 10% but less than 20% within the next 12-18 months.
Head-Institutional Equities Hold: Expected return of upto 10% within the next 12-18 months.
D: +91 22 2858 3734 Reduce: Expected return of upto (-) 10% within the next 12-18 months.
B: +91 22 2858 3333 Sell: Expected return of over (-) 10% within the next 12-18 months.
E: rajat.vohra@acm.co.in Information pertaining to Asit C. Mehta Investment Interrmediates Limited (ACMIIL):
ACMIIL is a SEBI registered Stock Broker, Merchant Banker and Depository Participant. It is also a AMFI registered Mutual Fund Distributor.
Dealing It does not have any disciplinary history. Its associate/group companies are Asit C. Mehta Commodity Services Limited, Asit C. Mehta
Realty Services Pvt. Ltd, Asit C. Mehta Forex Pvt. Ltd, Nucleus IT Enabled Services , Asit C. Mehta Financial Services Limited (all providing
E: instdealing@acm.co.in services other than stock broking and merchant banking).
Disclosures
Research Analyst Registration ACMIIL/its associates and its Research analysts have no financial interest in the companies covered on the report. ACMIIL/its associates
and Research analysts did not have actual/beneficial ownership of one per cent or more in the companies being covered at the end of
Number: INH000002483 month immediately preceding the date of publication of the research report. ACMIIL/its associates or Research analysts have no mate-
rial conflict of interest, have not received any compensation/benefits for any reason (including investment banking/merchant banking
CIN: U65990MH1993PLC075388 or brokerage services) from either the companies concerned/third parties with respect to the companies covered in the past 12 months.
ACMIIL/its associates and research analysts have neither managed or co-managed any public offering of securities of the companies
covered nor engaged in market making activity for the companies being covered. Further, the companies covered neither are/nor were a
client during the 12 months preceding the date of the research report. Further, the Research analyst/s covering the companies covered
herein have not served as an officer/director or employee of the companies being covered
Disclaimer:
This report is meant for the Institutional Investors only and anybody other than the intended recipient using this report for any purpose
whatsoever will do so at his risk and responsibility only. This report is based on information that we consider reliable, but we do not
Follow us on: represent that it is accurate or complete and it should not be relied upon as such. ACMIIL or any of its affiliates or employees shall not
be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained
in the report. To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however
not be treated as endorsement of the views expressed in the report

Aditya Birla Fashion and Retail LTD - Initiating Coverage - ACMIIL IE - 121118

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Initiating Coverage

120 OPM 3.9% 6.3% 6.6% 6.5% 7.6% 8.7% 9.3%

90 YoY NA NA NA 120.2% 12.7% 77.8% 37.6%

Source: ACMIIL Institutional Research, Company

Source: ACE Equity

Menswear womenswear kids Value Accessories

So how does this fair for ABFRL

Men’s Wear Growth ($bn)

Lifestyle Brand making the right moves –

Innerwear segment- massive untapped potential

SSG Growth Lifestyle brands

Madura Revenue (Rs mn)

Source: ACMIIL Institutional Research, Company

Number of stores Pantaloon

Source: ACMIIL Institutional Research, Company

Source: ACMIIL Institutional Research, Company

Revenue (Rs mn)

Source: ACMIIL Institutional Research, Company

Source: ACMIIL Institutional Research, Company

Strong industry tailwinds-

FY12 FY17 FY20

Branded Apparel Organized Apparel Retail

Source- TSNS RHP