Ladies and gentlemen, good evening, and welcome to the Second Quarter Earnings Conference Call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief discussion by the company's management on the Q2 and H1 FY 2024 performance, followed by a question and answer session. We have with us today Mr. Ashish Dikshit, Managing Director, Mr. Jagdish Bajaj, CFO, Mr. Vishak Kumar, Director and CEO, Lifestyle Business, Ms. Sangeeta Pendurkar, Director and CEO, Pantaloons. I want to thank the management team on behalf of all the participants for taking valuable time to be with us. I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarterly performance and to strategic questions only.
Housekeeping questions can be dealt with separately with the IR team. With this, I now hand the conference over to Mr. Jagdish Bajaj. Thank you, and over to you, sir.
Thank you. Good afternoon, and welcome to the Q2 Earnings Call of our company. Let me start with an overview of the operating environment. The market has remained sluggish, primarily due to slowdown in discretionary spending. This was further impacted by span of Adhik Maas, shift of festive season, and fewer wedding dates vis-à-vis last year. The combined effect of the above factors led to really sluggish demand environment, where at an overall level, fashion as a category suffered. During these times, our brands did what they do the best, offering consumer delight through addition of innovative and exciting products, elevating customer shopping experience, expanding consumer base, and improving brand salience through multiple marketing campaigns. Our brands remain steadfast on their growth agenda, with net addition of 48 stores during this quarter.
As you must be aware, we have completed acquisition of 51% stake in TCNS Clothing Company Limited in last week of September. With this critical step behind us, both ABFRL and TCNS teams have swiftly come together to work on creating collective growth plans with business synergies and operational efficiency, improving being core to it. The second leg of the transaction, that is merger of TCNS with ABFRL, will start soon, and it is expected to complete in next six to nine months. Both the teams are confident that this collaboration shall propel the growth of TCNS brands into their next phase of value creation. Now I will talk about financial performance of our company for this quarter.
The company delivered revenue of INR 3,226 crores, which reflects a growth of 5% over same quarter last year, mainly driven by its new lines of businesses. On like-for-like basis, the business stayed flat in a significantly slower market. Our standalone sales stood at INR 2,995 crores. The company achieved a consolidated EBITDA of INR 369 crores with 11.4% margin. Our standalone EBITDA margin was 14.2%. EBITDA for this quarter was impacted due to subdued sales on a cost base built for higher sales. You are aware that a large part of cost base is rentals, which are predominantly fixed in nature. The company's consolidated PAT was -INR 200 crores.
As at the end of Q2, our store network stood at 4,056 stores, spanning across a total retail area of 11.2 million sq ft. The net debt as of September 2023 stood at INR 4,355 crore. This is post completion of TCNS transaction. For H1 FY 2024, the company posted revenue of INR 6,423 crore, reflecting growth of 8% over same period last year. EBITDA for H1 FY 2024 was INR 722 crore. EBITDA margin stood at 11.2% for H1 FY 2024. I will now take you through the performance of individual businesses, starting with Lifestyle Brands. Lifestyle Brands, which has been growing steadily, was impacted this quarter, primarily on account of feeble wedding calendar, as these occasions drives a large part of its suits and leisure business.
Shift in festive and e-com slowdown were other factors responsible for the adverse impact. Quarterly revenue for the segment was INR 1,586 crore, which was 6% lower than last year. Led by cost measures and gross margin improvement, EBITDA for Q2 stood at INR 339 crore, reflecting a growth of 18% over last year. EBITDA margin for Q2 was 21.3%, an expansion of 430 basis points over last year. During the quarter, the retail channel declined by 4% over the last year, while the wholesale segment exhibited resilience, with sales remaining at par with the previous year. Our brands continued to launch innovative products and extensions. The business also expanded its distribution, adding a net total of 17 stores during the quarter.
The brands have consistently elevated their salience by enhancing product across various categories and executing impactful marketing campaigns. Let me now talk about youth western wear, which consists of American Eagle and Forever 21. American Eagle witnessed yet another quarter of strong performance, with 37% revenue growth over last year, led by strong distribution expansion. The brand is now available across 49 exclusive stores and across top departmental stores. Meanwhile, Forever 21 remains committed to streamlining its network, emphasizing operational efficiency and expansion of E-com channel. Now, about Reebok. With a year at ABFRL, Reebok's resurgence continues. The brand's quarterly revenue grew 77% over last year's same quarter on account of rapid distribution expansion and a strong L2L growth. The brand maintained its momentum by introducing new product offerings, optimizing store throughput, and extending its presence across various channels.
In this quarter, the brand expanded its network with addition of 15 stores, in line with its aggressive growth strategy. Let me now speak about innerwear business. Innerwear and athleisure wear as a category, has been under tremendous pressure since early quarters of last year. The sudden shift out of the athleisure wear category, post buoyancy experienced during COVID, where the category was doing well, has been a difficult one for the brands to assess and take quick corrections. The category, hence, has been under severe stress from growth point of view for last couple of quarters. The business in Q2 FY24 declined by 10%, led primarily by outerwear slowdown, and innerwear category within the business posted a low single digit growth over last year. The brand posted a retail L2L of 6% despite overall slowdown in the category.
During the quarter, brand extended its reach to exactly 33,600 trade outlets. Brand also launched its first ever celebrity campaign starring Indian cricketer, Hardik Pandya, as the campaign garners increased reach and influence amongst the consumers. The premium part of the portfolio continues to do well. The Collective and other super premium brands witnessed a stellar growth of 26%, with 11% L2L growth over last year. The Collective.in witnessed a 30% growth over last year, as it continued to be one of the top E-com luxury destinations for consumers in India. Moving on to Pantaloons business. Value fashion as a category, has been under constant impact since festival of last year due to sudden consumer slowdown in lower ASP segment, attributable to poor income and consumer confidence at lower end of the population pyramid.
The trends around lower tier markets doing poorly, high street struggling to catch up with malls, has continued even in this quarter. All factors indicating towards a real stress in rural, semi-urban markets and predominantly amidst the low-income households. Pantaloons recorded quarterly sales of INR 1,021 crore. The sales remained impacted because of subdued demand in the segment, marred further by the shift of Pujo to Q3. Pujo plays a big role in driving sales for Pantaloons, as the brand is amongst the most loved brands in Eastern part of the country. We saw that while non-Pujo markets showed a robust 7% year-on-year growth, the East market showed a double-digit decline due to shift of Pujo, affecting the overall performance of the business. The decline in sales had an adverse impact on the margins of Pantaloons due to negative operating leverage.
The store additions in Pantaloons continued, as it added net five stores during the quarter, taking the total to 439 stores by the end of Q2. The brand continued to enhance the in-store ambience and elevate the customer experience by rolling out new stores with new retail identity and launching multiple initiatives to drive footfall. Now, ethnic portfolio. This quarter, our ethnic segment achieved revenue of INR 144 crore, at a growth of 32% YoY. Business continued to invest in brand building initiatives and new store openings, with addition of six new stores during the quarter. Sabyasachi grew 39% year-on-year, led by 18% retail L2L growth and a strong performance in jewelry and apparel segment. Our men's premium ethnic wear brand, Tasva, is now available in 60+ stores.
We focus on driving quality in store experience, improving offerings with more variety and occasions, and increasing brand recognition through impactful marketing campaigns. Jaypore continued to expand its store network with addition of two stores during the quarter, and now has presence in 22 stores. Shantnu & Nikhil posted growth of 33% over last year, same quarter, while House of Masaba posted 18% YoY growth, with 12 stores in total. TMRW, TMRW portfolio brands grew to 7x of last year, as brands continued to benefit from operational enhancement. Post the quarter, as disclosed in our regulatory filings, TMRW has expanded its portfolio by adding eight brands, The Indian Garage Co, which specializes in men's casual space. To conclude, as we look ahead to the near future, our outlook is cautiously optimistic.
We anticipate an upswing in consumer sentiment during and post this festive, and plan to leverage on the positive consumer sentiment for the coming period. We are focused on building resilient businesses, leveraging our expansive retail network, formidable brand portfolio, execution excellence, digital prowess and organizational capabilities. ABFRL has continued to manage business with agility and take proactive measures to ensure that we not only build and nurture our brands, but also realize our long-term vision of value creation. Thank you, and wishing you all a very happy Diwali and festive season. We are open to question now.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions, may please press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may please press star and two. Participants are requested to use only handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.... We will take the first question from the line of Varun Singh from ICICI Securities. Please go ahead. Mr. Singh, I have unmuted your line. Kindly proceed with your question.
Am I audible?
Yes, sir. Please proceed.
Okay, thanks for the opportunity. So my first question is related to Madura Brands, Madura segment. Sir, our performance has been relatively weak compared to peers during the quarter. So how should we—I mean, given that everyone would have, everyone has faced a similar kind of a slowdown in the industry with regards to shift in festivals and lower wedding days, et cetera. But still, how should we read our relative underperformance in our case compared to peers? That's my first question.
Varun, I'll take the first question, which I can add to it. If you look at Lifestyle Brands' performance, it has delivered by far the industry-leading EBITDA margin for the quarter. In a tough quarter, that is, there is nobody in the industry who I know of has delivered, margins close to this, so I'm a little surprised by the question. If you're talking of revenue, it's a reflection of the choices you make on channels. There are parts of revenues which are not as healthy, which, you know, at times you don't chase them so much, and therefore, to that extent, the revenue growth will differ across businesses. It's a very high quality business, exceptionally strong brands, and therefore, I don't have a reason to believe that there is, any level of underperformance in that.
In fact, it's a strong performance on multiple accounts.
Sir, my question was, I mean, I meant to compare revenue growth only. In terms of profit, of course, we have done relatively better, but for example, -6%. My question is more restricted to Madura only, excluding other businesses. So -12% like-to-like growth, -6% revenue growth. So I was trying to understand more from the channel nuances point of view. Is this because of more primary, secondary growth differences or anything else that we wanted to call out to explain this difference that I'm calling out?
Yeah. Varun, two things. First of all, like you rightly said, there is the phasing effect of weddings and festival, et cetera, which you correctly understood. On top of that, like, like Ashish was trying to explain, the channel mix in our business, including some lower margin channels, liquidation channels, et cetera. So we have seen the revised phasing of business quite early. We kept inventory tight, and then hence, we did not have to do some of those things which give top line, but don't give bottom line. So we kept it, in that sense, a very high quality sale, which was at high margins. Also, tremendous amount of effort went into cost reductions, which led to a very strong EBITDA growth as well. Okay? And we're fairly well poised.
I mean, if you look at our brands and department stores, we are one, two, and three, you know, and so on. So in terms of market share also, perhaps we would have only gained share, not lost share. And all of this is on top of last year's performance, which is also a huge bumper growth. So, Varun, I would say that it's fine.
Okay. Okay. My second question is, looking at the losses over the last six months or in the first half, will we be recalibrating or toning down our retail expansion rate? That's my last question.
Which business are you talking about, Varun?
I mean, overall, at company level, retail expansion in Pantaloons and, Madura, stores. I mean,
Madura, Madura, as Vishak just explained, is operating with tremendous strength, with strong profitability. Business is doing exceptionally well. There's no reason to slow down anything there. It's a very high quality business currently, so there's absolutely no reason to slow down.
No, I meant the overall retail expansion rate of the company. For example, we are making losses in ethnic and TMRW, which is significantly having a drag on the overall EBITDA of the company, but that might be the construct of the business. But still, I thought maybe is there any reduction in the overall guidance for the financial year with regards to how we wish to expand our retail network?
Okay. Is your question complete?
Yes. Yes, sir.
Okay. So as I was explaining, there is absolutely no reason to slow down network expansion. And so as Madura Brand is concerned, we'll continue to remain with the guidance that we have given. In Pantaloons, we had given a guidance about 30 to 35 stores for the year. We've opened 15. We'll stay with that guidance. In Innerwear is where we have slowed down significantly our retail expansion, because the athleisure market is not responding as strongly, and that's the only place where there is a slowdown. That's why it's gone off to a very good start, so we'll continue to remain expansion on that. So, the strategy is different across different businesses. You have to see company as different pieces at different stage of their evolution, and we'll take you know, appropriate stage, appropriate step for each one of them.
Understood, Sir. That's it from my side. Thank you, and wish you all the best.
Thank you, Varun.
Thank you. The next question is from the line of Garima from Kotak. Please go ahead.
Yeah, hi. Thank you so much for the opportunity. Could you please remind us when does the GIC tranche come in and the exact amount?
Garima, GIC's warrant money is likely to come by March. Amount is around INR 1,400 crore.
Understood. So now that you've already made the 51% acquisition and money has gone towards that and the, the debt levels have increased, do you think debt levels can come down because of any other interventions that you make barring the warrant money that hits you by, let's say, March 2024?
Garima, you know, I would like to stick with the earlier guidance of debt of INR 2,800 crore by end of March. You know, this includes proceeds from GIC against conversion of warrants. The money will, whatever we generate, will be used for the CapEx, working capital, liquidation of-- and the investments, which is going to TMRW for INR 100 crore.
Okay. Understood. My next set of questions was regarding the, regarding TCNS itself. Any comments on, strategic steps that you might take to revise revenues there? Because that is the first half performance there maybe has been impacted due to the consumption slowdown. And particularly in the second quarter, could you clarify why margins of that business were really low, both gross margins as well as EBITDA margins?
So, Garima, I won't comment on quarter two performance. Most of it was before we came in. It wouldn't be fair for me to comment on that. But as far as we are concerned, we've seen the portfolio of these brands in our stores in Pantaloons, and post acquisition, we have started to look closely into the business. I think a lot of challenges which business suffered on account of slowdown in ethnic recovery post-COVID, and internal challenges with respect to some of the design failures that they had created, have been well understood by the business. The business is now fully back on track, and the current performance seems a lot better than what it is.
It may still take them a couple of quarters to come back to where they were, but at this point in time, there is a clear visibility of strong recovery in that business.
Understood, Ashish. My last question, could you make some comments or observations on how Q2 has panned out for you as we're almost in a halfway through the quarter across businesses? If there are any differences between business performances that you know you are observing.
So I wouldn't want to say anything that leads you to conclude anything about Q3. What I would say generally, however, is that, we have seen large part of festive period during Pujo and part closure to Diwali. Obviously, there is a natural demand revival that happened during this period. I would say also, on an overall level, the picture looks flattish to marginally positive for some businesses, extremely good for wedding-related businesses. But for the lower end, the business continues to suffer from the underlying demand challenges. However, festive period performance, naturally, as you would expect, will be far better.
Understood, Ashish. Thanks so much, and wish you and the team a very happy Diwali.
Thank you. Happy Diwali to you, and happy Diwali!
Thank you. A reminder to all the participants, anyone who wishes to ask questions may please press star and one. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, thanks for the opportunity and season's greetings to the team. So, you kind of indicated that the initial feeler from the festive season is somewhere mixed, except wedding pocket. I believe the rest is actually flattish to marginally positive. That's what you indicated. So just wanted to know, let's assume that the demand does not recover for the second half. How should we kind of think about our rollout expansion plan that we have you have just mentioned that we'll stick to it. Do you think that we'll have to revisit or we'll be calibrated on that guidance?
Tejas, to a large extent, we have sort of factored in some of these medium-term challenges that the economy is suffering, because it started practically from the post-festive period of last year. Therefore, if you look at our strategy shift or calibration, it was to slow down expansion in the lower end of our markets where, let's say, Peter England operates in smaller towns, Pantaloons, particularly in smaller towns, slowed down in north and east was more visible to geographical expansion. We therefore continue to see that similar behavior. A lot of that is already factored in. As I said, we will stay with our plan of about 30 to 40 stores for Pantaloons. Lifestyle Brands continue to expand largely by demand-driven, franchise-driven model. It's not really a push model where we decide how much we wanna grow.
There's a lot of demand, and therefore, franchises decide that. We've continued to. That business is doing very well, and I think you will see in the second half as the weddings come back, because there's a lot of suits and high-end purchases in Lifestyle Brands that are related to it. As far as ethnic business is concerned, I think the best part of the year is coming in now. We are already beginning to see tremendous shift in trajectory as far as wedding related and ethnic business are concerned, at that higher end, at least the designer wear, Jaypore, Tasva, et cetera. So to that extent, you know, the what we needed to do, we have factored in as a sense that we have. We'll not need to change dramatically any major shift, and while I've said it's flattish, that is it compared to last festive.
Compared to where we are, it's a significant uptick in demand versus what you saw in the Q2, but that was natural to be expected.
Okay. And second, considering the widespread brand and the entire distribution network that we have, you would have one of the most, I would say, studied and much more insightful kind of access to what consumer is thinking and why sudden slowdown post Diwali. So. And then you collect a lot of data digitally also. So just wanted to know both anecdotally and digitally, the feedback that you're getting. What's your sense on why consumer has kind of taken such a long time to come back, and when do you expect this to kind of change from, at least in the near term?
So it's a tough one, Tejas. We are also still evolving our thesis around the consumers. But as you rightly said, we are a retailer with 4,500 stores. We sell products at INR 15 lakh and INR 200 and INR 300. So we have a reasonably good sort of what consumer voice through its wallet, which is traveling back to us. There are a few things which are very, very clear. Clearly, the state of economy in different segments is almost directly proportional to the income levels. There is relatively lesser stress as you go up in the top and lower at the bottom.
Second, there are parts of the country which are more affected by this, and perhaps you can connect with the first, particularly parts of East, many states like UP, Bihar, even parts of North India, they are far more affected than the West and Southeast at this point in time. That's also visible in our geographical, sort of, the way sales numbers are playing out. The deeper underlying story is also really around... At some level, we feel that as the discretionary in a high inflation environment in, in a society where personal indebtedness is rising, consumer credit is, is more freely available, consumers are spending, on categories which are, I would say, more capital in nature. And to that extent, high inflation, not enough rise in wages, as you've seen, is squeezing the discretionary part for some time.
This is part of the cycle that happens. There is, of course, a K-shaped recovery or factor that people talk about, which is, you know, higher end of the market is less affected, but the lower end is where the squeeze is much more visible. So as we look ahead, we, you know, this is also cyclical. I think consumers, our category, fortunately, is somewhere between basic and discretionary, depending on what kind of products we are talking about. So there is a part of the segment you don't cut down on weddings and festivals, so it comes back. And also, perhaps to some extent, it's also a reflection of exuberance that you saw, and I would say slightly exaggerated exuberance that you saw in the first half of last year. So the base numbers reflect that.
The companies which are more stable and are not growing inorganically by distribution expansion, and you look at like-to-like picture, this is, to the best of our understanding, reflects the performance differential in our own portfolio. Of course, individual businesses could have factors related to their particular segment, but this broadly reflects what is our current understanding of consumers.
Got it. And, and the last one, if I may. So we, we have guided on bringing our debt to somewhere around INR 2,600 crore or INR 2,800 crore. And then obviously, there's the GIC money which will come through, which is roughly INR 1,400 crore. And then we have our, our own CapEx need also. So I just wanted to know, let's assume that this, this environment has to continue for slightly longer, this tepid growth environment, do we need some more infusion of equity capital to kind of revive the growth engine? Or you believe that managing between this infusion from the GIC and our own internal accruals will be able to kind of fulfill our near-term growth ambitions?
So I think for Tejas, for our near-term growth ambitions, we think we are well positioned. We have to go through a period of slightly inflated debt, as you said, INR 2,600 to INR 2,800 crores. That's our reality. But we had factored that in when we made the investment, and we were thoughtful and spent time thinking about how we see our business. And a period of elevated debt after a large acquisition is almost a natural outcome... and we are comfortable with that, and feel that most of our investment phase, if you think about it, where have we put capital and what have we, sort of how we have used capital in last 12-18 months? There is a large TCNS acquisition, investment that has gone in.
That part is over, only the merger part is left. 90% of TMRW investment is done. Our peak losses in Innerwear will perhaps play out this year, and after that we'll come closer to breakeven or much closer to that. I think except Tasva, where we would continue to remain aggressive because the response is absolutely phenomenal, what we are seeing, and it's a large opportunity. Perhaps all our businesses are coming to a phase where the deep investment phase will come down, and we feel that we are well structured to respond around that. And you'll start to see, you know, some of the less capital-needy business like Lifestyle Brands. Reebok is on a very good growth, but most of it's self-funded.
Pantaloons, despite going through a phase of very difficult period currently, as we see, despite these circumstances, we'll be able to generate enough cash to fund its growth. So we feel comfortable with, with what lies ahead. But I have to say that this level of debt is something that we'll have to get used to, slightly higher debt level for next maybe 18-24 months.
Yeah. Ashish, just an associated point or observation. So we had an opportunity to listen to Mr. Kishore Biyani on couple of popular broadcasts recently, and invariably, when the question was asked that what led to or what mistake he did in Pantaloons, and he very honestly kept on saying that elevated debt was actually an issue. And if he had to re-kind of redo it again, that is one mistake that he'll avoid. I can understand that we have our growth priorities and there is a tepid growth involved also. So between the two priorities, as you said, you are also not comfortable with high debt. Between the two priorities, to revive growth and reduce debt first, what will you prioritize, let's say, if you have limited capital and then the growth is not as you expected?
Of course, we will. There is no doubt that we will play the game as the constraints play out. But I would only say that as a significant consumer-focused business for Aditya Birla Group, we have the mandate and the opportunity in front of us to play out actively. If you look at where we have invested, whether it's TMRW, whether it's ethnic businesses, whether it's Reebok, these are very, very strong foundations that we are creating in a transformational journey at different points of time. Many of our good businesses have gone through this phase. We, in our own journey, have gone through a phase, post-acquisition in the past also.
I'm very comfortable that this is not something for us to worry about, but we remain, of course, responsible to what we have at this point of time and careful in how we invest. There was a phase in which we needed to grow many of these, sort of multiple canvas to build long-term growth levers, and that's what we have done in last four, five years. Perhaps next few years, we'll see a more steady and robust growth of the existing businesses, instead of multiple new opportunities that we have pursued and built. But, we think that was needed to done to diversify this company and take it into more, productive and future-ready state, which is what we have done in last few years.
Very clear. Thanks, and once again, best wishes to the team on the volume festivities. Thank you.
Thank you.
Thank you. We'll take the next question from the line of Richard Liu from JM Financial. Please go ahead.
Hi. Thank you. Hi, Ashish. First, can you explain the gross margin movement a bit, please? And I'm talking about the-
Richard, there is some noise on your side.
Okay, sorry. Is it better?
Yes, sir.
Okay, thank you. Ashish, sorry about that. Can you explain the gross margin movement a bit, please? And I'm talking about the standalone business here, you know, so as to not to confuse it with the, with the B2C piece. I see that your standalone margin is down by about 200 basis points, from 54% to sub 52%. And you seem to have attributed it to Pantaloons in one of the slides. Any perspective on how bad this is? And, is it a deliberate move to try and grow sales with this weak environment? And also in that context, if you can give some color on how the core Madura brand margin have been moving, you know, in recent times. Thank you.
So, I think, Richard, different parts of our businesses have played out gross margin differently, and, and, I'll just take some time to explain the differences. On Madura side of the business, as I was explaining in response to the first question that Varun asked, the gross margin has significantly improved, I think between 150 to 200 basis points. Much part of it is attributable to the softening of raw material prices, improvement in quality of channel choices that we have made in that. And so there you would find the gross margin has increased. The Pantaloons part, we have specifically called out, because this quarter, Pantaloons' performance got affected by between 250 to 300 basis point gross margin dilution.
It was primarily because in the period between November to March, we ended up, because we were on a very stable growth business at that point of time, we didn't anticipate the slowing of demand fast enough, and therefore, there was an inventory buildup, and we wanted to use quarter two end of season sales to liquidate that more deeply. It has made the business... and we are going forward to reduce our level of old inventory, and it was a call that we took to settle the Q2, and it's a combination of these two. Rest would be a mixed share of businesses mixed in between.
Okay. Okay, just moving on from there, you know, and I think you kind of alluded to part of this, you know, in one of the earlier questions. But, you know, I'm just referring to the sales breakup of the Madura brands, where EBOs have declined quite substantially, while wholesale has, you know, is kind of much better. I had thought that it would be the other way around, you know, given the festive season delay. Any color into this in terms of, you know, how much of pre-stocking, late stocking or, you know, what kind of a picture is this kind of a behavior due to?
So I think it's quite a reflection of the economy. Madura business, especially parts of Louis Philippe, Pantaloons, et cetera, have a large share in the weddings market. And when weddings do well, suits, which will be a quarter of our sales or something between a fifth to a quarter of our sales, that business does extremely well. We will see that reversing in quarter three, but in quarter two, as most of the wedding businesses, and now we have a portfolio of wedding businesses, we can clearly sort of associate the retail performance, where the share of wedding related sales is much higher. That's the part that has affected Madura deeply. Otherwise, the business stands on a very good stead.
All right.
You'll see, Richard, you'll see that reversing in the quarter three.
Okay. And what about the wholesale part? Is there any pre-stocking on account of festivals, or should we expect that later to come in Q3?
No, I think Q2... Vishak, do you want to come in here?
Yeah. So, Richard, it's both. You know, as you know, the Puja build-up, et cetera, would have happened, Onam, Pujo build-up, et cetera, happened in Q2. Some parts of it is in Q3, so it's in that sense, this year spread, as far as wholesale is concerned, between Q2 and Q3.
And earlier years, it used to be everything in Q2?
Not earlier. I mean, it depends on the years. I mean, there are years when Diwali is late versus early. Whenever Diwali is, November Diwali, this split happens.
Got it. Thanks. Thanks, Vishak. And lastly, I'm sorry for asking this again, but what was the comment you all had given with regards to how the festive season has been panning out in the last 40 days? I kind of missed that when you talked about it.
Richard, I think the question was more around Q3, so I want to qualify and say Q3 still a lot is to be played out, so don't read it in that context. But if I were to look at how consumers have reacted during Onam, Puja, large part of them lying in Q2, some in Q3, and to the parts of Diwali, I would say the festive performance have been mostly flat, in some businesses below, slightly small negative, except, you know, wedding related areas where you can see the revival much stronger. But, that, that's really been the overall comment.
Got it. Thank you very much. Wish you all the best.
Thank you, Richard.
Thank you. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, good evening, and thanks for taking my question. Sir, firstly, on the net working capital, the PPT mentions INR 1,360 crore. When I do a calculation from the balance sheet, I get a number of INR 2,000 crore. So just wanted that to be clarified. Also, between these two numbers, it will roughly translate to around 40 to 50 days if you include TCNS sales. Where do you see this number stabilizing? Because part of it, like Lifestyle, might have negative working capital, but your growing part of the business, like Sabyasachi or Tasva or these D2C businesses, so that naturally might have higher working capital. Also, there is some channel realignment going on in the Lifestyle Brands, wherein there is movement towards consignment. So just wanted your thoughts on that.
Where do you see this number on working capital stabilizing for the whole business?
So I think our business is very diversified now, that if you were to put it in very, very broad buckets of where substantive part of our inventory lies, it lies in our larger businesses, which is Lifestyle Brands and Pantaloons. If you look at these businesses, and current quarter is perhaps likely to reflect more inflated picture, because festivals have been pushed up, and therefore you build up inventory, you don't have sales at that point of time in the previous quarters. Lower Q2 sales, but higher inventory build-up. But broadly speaking, we have operated Pantaloons over a long period of time in high single digit net working capital to sales. It gets inflated during some period, but comes back to around that, so between 8%, 9%, 10%, maximum 11%, 12%.
As far as Lifestyle Brands is concerned, because the business is increasingly moving to retail shift, the net working capital as a revenue for large part has been between 13% to 15%. And we don't expect... These two are very strong, stable businesses, we don't expect that to move. Rest of the individual businesses currently are small and perhaps have greater volatility, if you were to say that, and elevated level of working capital, but that's because they're in a slightly high growth phase or still figuring out the right models, till they find the stable area. Does that answer your question?
Yeah, pretty much. Just a clarification on that, INR 1,360 crore to INR 2,000 crore, which number has, which number-
Actually, you have to look at it. We have equal inventory plus debtors this, but in published results, it goes into other current assets and other current liabilities for sales.
... Okay, got it. Second question is on TMRW. So you mentioned that 90% of investments in this, these businesses have been done. So just wanted a clarification as to how much amount cumulatively in debt plus equity you have invested till now in these businesses? How much more do you plan and the timelines related?
I think it's about INR 600 to INR 650 out of INR 750 is what we have invested, and that is a combination of debt and equity. And we expect over the next 6 months to invest the remaining.
Which would be around INR 100 crore.
INR 150 crore
Got it, sir. Another question, if I may squeeze in. At the others part in the Madura, which is basically your innerwear, youth western brands, et cetera, there I see a moderation in the EBITDA losses.
Yes.
Intuitively, that leisure or innerwear part has seen a decline. So just wondering, what is contributing to the losses moderation here?
The innerwear parts of the business, the innerwear because of the challenge in that market, that segment's losses haven't moderated. That segment losses, if anything, have actually increased. The most of the improvement in profits is coming from the higher end of the market, which is international brand, The Collective. Reebok is a profitable business. So all of them are actually countering slightly more elevated losses in the innerwear business.
Got it, sir. That's all from me. Will come back in the queue if I have any more. Thanks.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Yes, sir. Hi, thanks for the opportunity. Sorry for stressing again on this, but I just wanted to have a better understanding. In H1, our debt has increased by about INR 3,000 odd crore, and for TCNS, I guess we have paid about INR 1,600 odd crore. So, there is a requirement of about INR 1,400 crore in the existing business. You mentioned that working capital levels are relatively higher. So just wanted your clarity, as in, there is INR 1,400 to INR 1,500 crore, how much of it is because of this one-time working capital elevation? If you could help me explain that.
Of the INR 1,300 crore, about INR 400 odd crore would have gone into TMRW. For the remaining, it's a combination of, of course,
CapEx.
CapEx and working capital. It's the working capital part which will reverse in the second half, and that's really why Jagdish has indicated the closing debt number, which we had indicated even earlier, in the range of INR 2,700 to INR 2,800 crore.
But, sir, that also includes GIC investment of INR 1,400 crore that will come in?
Yes, sir. So we have been consistently stating that for last six months. That's what we have said at the beginning of the year, that's what we said at the end of Q1, and that's what we are repeating. So our guidance for the debt at the end of this year, including that, is INR 2,700 to 2,800 crores. So that hasn't changed at all.
Got it, Mr. Dikshit. Second question was to understand, since we have now acquired 51% and we'll be consolidating TCNS in our financials, just, just if you could provide, as a one-time, what is the current run rate, annual run rate, so that we, for the modeling purpose, both in terms of revenue and EBITDA and, down, four, five years down the lane, what is the kind of run rate that you expect in this business?
So very short term, I don't think it's, it's, possible for us to predict very short term. We have just sort of understood the business. It's going through a transitory phase. So I wouldn't want to comment on what you're looking for, if that's your question, on Q3 and Q4. In the longer term, as we stated at the time of acquisition, we strongly believe that this popular brand is, is the leader and the most profitable business that has existed in the women's ethnic wear business over a long period of time. We expect this to reach INR 2,000 crore to INR 2,500 crore in the next three to four years and achieve the double digits EPS Pre-Ind AS EBITDA margin, where it has operated for much of its life of last 10, 15 years.
So, I don't think that has changed, but from where the business is today, how long will it take, where would it? It's too early for us to comment.
Got it. Just one follow-up. What will be the current Pre-Ind AS run rate? Is it largely flat or is it slightly negative for TCNS?
I, I wouldn't want to comment. I think you'll have to look at the TCNS results, because the one time, so what is the normalized business situation, I wouldn't want to comment. Wait for a quarter, you'll get a clearer picture.
Sure. Thank you. Thank you, Mr. Dikshit. Thanks for taking my question.
Thank you. The next question is from the line of Vishal B from Bandhan Mutual Fund. Please go ahead.
Thank you for the opportunity. I mean, in the Madura part of the business and the other Lifestyle Brands, would you say that you would have lost some market share? The overall market has been weak, that I appreciate your views, but on an overall basis, when you look at our performance versus the market's performance.
Vishak, do you want to comment on that?
No, on the contrary, actually, Vishal, we've gained share. If you look at, like Ashish was explaining, you know, the overall volumes are impacted by some of our depletion volumes. But if you look at our regular business, we've actually in most places gained share, our position in department stores, our rank in mall throughputs, et cetera, if anything, have only consolidated even further.
This you would say across Madura and other youth brands as well?
I would say this, in Madura, definitely the four big brands. Reebok, we have significantly scaled up since we acquired. American Eagle continues to grow significantly. Yes, Ashish was talking to you about Collective, and that continues to scale strongly. So, yeah, across the board, I think we've gained share.
Okay. Okay. And lastly, are there any more white spaces that you're planning to fill? Are there any more acquisitions in certain areas that you would look for, or are we through?
Okay, we have created, we have laid out the strategy that we had laid out for ourselves. We have repeatedly communicated our intent to build a comprehensive portfolio, a self presence in the casual, innerwear, athleisure space, both through Van Heusen Innerwear and Reebok, and to enhance our digital presence, which is what we have done through TMRW. So we have multiple sort of strong platforms which we have invested in last four or five years, and, therefore, we feel that most parts of the market are very well covered. The next phase of company's growth will come from growing the businesses that we have, refining them, making them better, and getting them to the scale that and potential that they deserve.
Okay. Sorry, one more. For the innerwear, innerwear business, I mean, what, what is strategy for the coming... I mean, how, how do we improve the performance from here? Because the overall market doesn't seem to be that exciting.
Yeah. So short term, look, we'll have to go through these periods of challenges in different market conditions. It's a business which is very promising. Consumer proposition works very well. We have managed to establish a very strong consumer franchise, a reasonable distribution channel. At this point of time, we'll have to wait for conditions to improve before we start pressing lever on the next sort of dimension of growth, which is retail expansion. And therefore, we'll have to wait out this period of difficulty, continue to make sure that product innovation, brand visibility, continuous distribution expansion, that keeps coming.
Okay. Thank you.
Thank you. The next question is from the line of Gopal Nawandhar from SBI Life Insurance. Please go ahead.
Hi, sir, thanks a lot for the opportunity. I needed some clarification when you talked about, you know, trends on the festive side. You commented, you're expecting flattish to marginal positive trends. Is it related with the, like, same store level we are talking about or company level?
Yeah. Yeah. Yeah. This I'm talking about. This is about Onam. This is about Pujo, which has already happened. Diwali, still few days are left, so probably early to say, but, going by our experience of previous festive, that is the comments, which we would like to like for the previous periods that have gone.
Sure, sir. And, the second question on this recent acquisition of by TMRW for TIGC. Would you like to give any comment, you know, what kind of revenue and EBITDA that business, this brand have? And, at the same time, that's TMRW, this quarterly run rate of around INR 40 crore losses, will it go further up, or we should expect a declining trend on that loss trajectory for TMRW?
So, second part first, Gopal. I think the peak of TMRW's losses have happened in Q2, in the first half of the year. We will start seeing it slowing down as we go in the second half of the year. So for the full year, it will be moderated to some extent versus the run rate that you referred to. As far as TIGC acquisition is concerned, I don't want to give actual brand level profitability, but as our press release had announced, the business is close to INR 300 crore of revenue. A very strong business, one of the leading brands on multiple marketplace platforms. And it's a business that we feel will grow very, very rapidly going forward.
Any comments on the profitability, whether it is like a negative on EBITDA or?
No, it's a profitable brand. It's a profitable brand, completely self-funded so far. So it's a profitable brand.
Okay. And one clarification on gross margin front for Pantaloons, we have taken some correction. Are you talking about some inventory write-offs, or these are like strategic corrections on the pricing, which will have impact on the coming quarters also?
Hi, hi, Gopal. This is Sangeeta. So this is, as Ashish mentioned, you know, last year, our first half, if you recall, was very good. Post Diwali, we started seeing a little bit of a slowdown, and therefore, there was some carry forward inventory from last year, both from Spring/Summer and Autumn/Winter, as we started seeing some hints of slowdown. So I think what we did during the EOSS period is went into a little bit of a deep discounting to help us clear that inventory. And, you know, we've done that correction, as Ashish mentioned, to get the business into a healthy shape. And now we are-
... you know, going to manage whatever is the remaining inventory in a regular manner that we would do within otherwise.
So those are actual discounts, the markdowns that we gave to liquidate that inventory.
This, like, could be kind of one-off for this quarter. Ideally, the margins should have been better if this would not happen.
Yeah, so this is exceptional, and that's why we called that out. That's why Pantaloons' margin for this quarter compared to same quarter last year is markedly lower, between 250 to 300 basis points.
Is it right to assume that all those old inventories are through, or we will have some?
Yeah, the extent of stress, Gopal, that is there, that we have solved for. There is always some rollover that will happen in the inventory, but I don't think there's much to worry about now.
Sure, sir. Lastly, if you can just comment, because on the TCNS, we are seeing some, you know, policy-level changes and some inventory write-downs. Do you expect any more shocks when we take over this company?
No, not at all, Gopal. We are very confident because we've spent time on those, a lot more, during both the process of due diligence and subsequent management, interactions. We have aligned most of the policy, understood the policies and aligned, in line with what the broader policies that we follow. Some of them have resulted in one-time markdowns that they had to take, both in provisioning for return, discounting, markdown of the inventory, et cetera. So that is a one-off, that has happened. I don't expect that to continue.
Sir, lastly, on this lifestyle margins, do you expect these margins can be sustained or there could be some softness on the margins?
See, longer term, which is, the point that I think Vishak was making, quarter-on-quarter margin changes are both a reflection of markdowns, brand mix, and channel mix. If you look at the long-term margins, the business has operated closer to 18% to 19% margin. But in every, few good quarters, we get to 20% to 21%. This quarter has been particularly focused on quality of business. To that extent, we have not chased revenue in some of the low gross margin channels. To that extent, we have an upside on the gross margin side, just as we have let go of revenue on the revenue side.
Okay. Sure, sir. Thanks a lot, sir.
Thank you. The next question is from the line of Udhav Sinha from Locus Investment Group. Please go ahead.
Yeah, thanks for taking my question. So I just wanted some color from an overall channel perspective. So if there's any channels that we see that are, you know, performing well, and, on the same side, sort of any sort of channels which we're doing with some more hesitancy at this point in time?
Vishak, do you want to take this?
Yeah, sure. You know, Udhav, we've always believed that we should be where consumers want us to be. We continue to do that. We are very strong players in malls. We are strong players in high street. We have very, very deep connections with all department stores. We operate very deeply. We have a lot of convergence of IT systems, merchandise management, et cetera. So those will continue. I think our focus has been to continuously see how we can upgrade to quality of retailing, better, superior distribution with better realizations, et cetera. That is something which will continue. In terms of geographical channels, for short term, smaller towns had more pressure, okay? But that is, again, something which should change with this festival and wedding season.
I don't know, does that answer your question, Udhav, or you had something more specific in mind?
Sure. I mean, just within, say, even your department store versus your EBO channels, if there's any colors there that I could have, I mean-
They have both their own opportunities, they have both their own relevance. There are consumers who prefer shopping in a multi-brand environment, and I do believe that our brands need to be there for that. We have very, very deep ways of working with Shoppers Stop, Lifestyle, Pantaloons, all eight of these. We work very closely, Centro. We work very closely on those, and they have their own relevance, which is independent of the relevance of the EBOs in both malls and high streets. So I, I would say they, they are not mutually exclusive. They go together well.
Thanks, sir. Thank you. That's it from my side. Happy Diwali!
Yeah, thank you.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for their closing remarks.
Great. Thank you, everyone, for taking the call and wishing you all and your families a very happy Diwali. Happy Diwali, everyone. Our stores have a lot of good, exciting merchandise for you and your families across the brand portfolios that we have. So wish you all good time shopping, and have a great year ahead. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of the management, we thank all participants for joining us. In case of any further queries, you may please get in touch with Mr. Amit Dwivedi. You may now disconnect your lines. Thank you.