Ladies and gentlemen, good day and welcome to second quarter and first half FY 2022 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 FY 2022 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 quarter and half yearly performance and to strategic questions only.
Housekeeping questions can be dealt with separately with the IR team. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. With this, I hand the conference over to Mr. Jagdish Bajaj. Thank you, and over to you, sir.
Good evening and welcome to Q2 earnings call for our company. Let me take this opportunity to first wish you all and your families a very happy festive season. The quarter under review shows a phenomenal recovery after the first quarter, which was dented due to COVID second wave effect. The demand comeback has been very encouraging, which set the stage for a strong festive ahead. Consumer footfalls show a sharp rebound in the second quarter as the COVID restrictions were relaxed across the country and malls and high street stores opened up, except in few states. Smaller cities across lower tier towns witnessed a very fast-paced recovery of business. The excellent recovery in sales across brands and channels from the slump in Q1 stands testimony to the increased appetite of consumers to spend on fashion, footwear and accessories.
The e-commerce traction has continued to outpace itself, aided well by a growing omni-channel trajectory. Now let me give you a snapshot of the financial performance of our company. The revenues of Q2 are close to 90% of pre-COVID levels, indicating a much faster rebound in sales versus what we saw at the end of first wave. The recovery could have been even better, but for delayed/restricted opening of malls in a few states where our stores are operating. The revenues for Q2 FY 2022 have doubled to INR 2,054 crore compared to INR 1,028 crore in Q2 FY 2021. The recovery momentum continues to be strong and the businesses have exceeded the pre-COVID levels closer to the festive period. Alongside increasing footfall in our stores, our e-commerce continued to grow by 74% compared to last year.
The overall revenue of H1 FY 2022 was INR 2,866 crore, which is 65% recovery over pre-COVID levels and 112% over H1 FY 2021. A swifter recovery in revenue ahead of cost has resulted in a turnaround EBITDA performance for this quarter, posting an EBITDA of INR 333.8 crore, recovering from the negative EBITDA posted last quarter and a growth of 142% over last year. Losses at PAT level too were turned around from losses of INR 253 crore in Q1 to an INR 5 crore profit during this quarter. I will now take you through the performance of individual businesses, starting with our lifestyle brands.
Our Lifestyle brand business has posted a 92% recovery at the back of a consistent quarter-on-quarter industry-leading retail performance, strong omni-channel revenue jump 3x over last year, and a rapid rise in its e-commerce businesses. This performance is a testimony to its strong brands that have remained relevant for their customers in all times. Lifestyle brands have continued to innovate and reinvent their product portfolio, increasing the share of casual wear in its portfolio. In addition to its Van Heusen Denim Labs and Allen Solly Tribe to build its casual wear portfolio, this quarter Louis Philippe also launched its range of premium casual wear under the brand LOUIS. These sub-brand extensions continue to make our brands stay contemporary with their evolving consumer needs.
In line with the same strategy of diversification into newer segments and categories, we are glad to announce that Peter England is soon going to venture into kidswear, offering excellent product for value conscious customer. As you are aware, kidswear comprises of 12% of overall apparel market, growing at 5.9% CAGR and is mostly unorganized. Through the PE and AS kidswear formats, we will create a strong foothold in this space and gain well from the unbranded to branded shift segment. On the digital front, the business continued building on its transformative journey, retaining the focus on delivering a delightful shopping experience to its customers. The own website business grew 2.5x over last year numbers, suggesting a strong customer affinity for our brands and a seamless shopping experience through our website.
We are making critical investments in enhancing the website experience in partnership with global players. We feel this would add significantly to our scale on brand.com in the long term. E-commerce revenue of the business almost doubled over last year levels. On a path to build one of the largest fashion omni-channel play in the branded fashion business, the company expanded the omni-channel coverage to more than 1,000 stores across all our brands for both own as well as partners e-com together. Our hyper local and buy online, ship from store have rendered encouraging results this quarter too, reinforcing our faith in these innovative models. Our brands are now in process of extending these models into newer markets, servicing an even wider customer base. While the business gradually built its digital mode, it has now not slowed down its offline expansion.
The business added 140 new stores this quarter, mainly through the franchisee route, which reflect the confidence our partners have in us. The brands continue on their aggressive expansion strategy into deeper pockets of India to cater to the needs of consumers in the vicinity of their homes. The period stores have grown significantly, adding 36 more stores in H1. Building on the successful pilot in Q4 last year, Allen Solly Prime continued with its expansion with 18 more stores. During the quarter, the business recorded revenues of INR 1,156 crore and posted an EBITDA of INR 188 crore with EBITDA margin at 16% this year, versus 17% in FY 2020 in the normalized period. Moving on to Pantaloons business. Pantaloons business this quarter recovered to 73% of its pre-COVID performance.
This should be seen in light of higher mall share of this business, which is approximately 58% coming from mall business. Extended shutdown in markets of UP, Maharashtra and Bihar, where Pantaloons has a relatively higher share of business vis-a-vis other retailers, and also new retail identity related renovation across six large stores. For these specific factors, the recovery in Pantaloons would have been much higher. While stores resumed operation gradually, the business continued its acceleration across its digital channel, investment into highly targeted digital marketing campaigns, additions of e-commerce specific product lines contributed significantly in driving much higher traffic to the e-commerce channels. Pantaloons remarkably accelerated its e-commerce presence with a revamped pantaloons.com experience alongside remarkable sales performance with partners e-commerce website as well.
Pantaloons has expanded its omni presence across 250+ stores in H1 amidst very positive consumer feedback. Signaling the start of the recovery journey, Pantaloons has reignited its expansion plan for this year by adding seven new stores to its network in the preceding quarter. The business also relaunched its six iconic stores, four in Kolkata and two in Hyderabad, with a renewed and reinvigorated retail identity which garnered from its customers. Let me assure you that we are well back on track to 60+ stores during this fiscal. In the month of October itself, we set an internal record of sorts by launching 12 Pantaloons stores in 12 consecutive days of the month. As we move forward, our plans are to rapidly accelerate this expansion to more than 100 stores every year for next couple of years.
Pantaloons has significantly strengthened its private label portfolio this quarter through new launches in women's ethnic and active athleisure and loungewear category, as well as strengthening its previous offerings. This Pujo sale has been blockbuster performance compared to pre-COVID, showing 91% overall recovery and with the closing run rate of Pujo sales being ahead of pre-COVID levels as of FY 2020. The Pantaloons business has achieved revenue of INR 665 crore for the quarter and posted EBITDA of INR 125 crore versus EBITDA of INR 71 crore last year. H1 sales are at INR 885 crore compared to INR 451 crore last year. Other business segments continue with its outstanding performance for more than six quarters now post the outbreak of pandemic. The portfolio comprises of three business lines, innerwear, activewear and athleisure business under the Van Heusen brand.
Youth western wear brands, namely Forever 21 and American Eagle, and its super premium western wear business under The Collective and other mono brands. During this quarter, the entire portfolio has posted a 12% growth over pre-COVID with size of operations of revenue of INR 1,000 crore on an annualized basis with EBITDA margins of 10%. Innerwear and athleisure business continued with its aggressive momentum that it displayed all through this pandemic. Consistently building on the same momentum, the business this quarter grew by 41% over last year. The products are now available across 23+ trade outlets and over 54 EBOs. Business is well on track to achieve its aggressive expansion target of adding 50 more stores this year. E-commerce posted significant growth over last year with the scale of business growing 71% over last year.
The business is looking to aggressively expand its trade and EBO footprint with a stronger presence on the e-commerce channel as well. Youth western and super fashion, including Forever 21, American Eagle and super premium brands have kept their growth trajectory firm throughout the first half of FY 2022. Revenues of Forever 21 have grown to 1.5x of last year's sales and have recorded 73% recovery to pre-COVID levels. American Eagle has doubled its sales over pre-COVID levels and is EBITDA positive now. Forever 21 has piloted franchisee-led expansion model across towns in India, gaining strong traction. The super premium brands have grown by more than 60% over pre-COVID levels, alongside continued acceleration in e-commerce. Our own brand dotcom channel, thecollective.in, continues to perform well with 4x growth and continues on its journey to become India's leading luxury shopping portal.
Ethnic business, we have executed our comprehensive strategy to build a complete portfolio of strong ethnic wear brands across multiple occasions and price points. Our earlier acquisition, Shantanu & Nikhil, has grown 3x over last year, and Jaypore grew 1.5x over last year. The Jaypore business continue to do well online. In parallel, we are building our offline presence and have planned to open six stores during the next quarter. With the acquisition of Sabyasachi, the revenues have grown to INR 58 crore in all ethnic subsidiaries. Sabyasachi has opened a new jewelry boutique in Dubai during this quarter. I am pleased to inform you that we have also launched our premium women's ethnic wear brand, Marigold Lane, to address the large mid-market ethnic wear opportunity in women's ethnic market.
Furthermore, the new men's ethnic brand under partnership with Tarun Tahiliani will be launched this month as we are giving finishing touches to the stores and market plan. Our ethnic brands have laid down a strong foundation and are now set for accelerated growth plan. We expect to add more than 100 stores next year in our ethnic business portfolio across brands, starting from Q3 of this year. Our consolidated net debt as on September 30, 2021 was INR 873 crore, lower by INR 327 crore from June 2021 in view of the sharp business recovery. As the festive draws to a close, the net debt has further reduced, and as on today, the debt is approximately INR 450 crore. This reflects strong cash generating capabilities of the company.
We hope to continue to generate strong operating cash flow, which will be used for accelerating growth of our businesses once the economy start recovering fully. To conclude, the festive season sale has brought about a complete recovery to pre-COVID level of sales, and some markets have been surpassed the pre-COVID performance. With the most diversified play across large segments of the apparel market and a portfolio of very powerful brands, ABFRL is uniquely set to leverage the emerging consumption opportunities in coming quarters and years ahead. Thanks a lot, and we are open for Q&A now.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Aditya Soman from Goldman Sachs. Please go ahead.
Hi, good evening, and thanks for the opportunity. So firstly, you mentioned that you've seen almost a full recovery in sales during the festive season. Now, would this apply to Pantaloons as well? In other words, would sales have exceeded or equaled pre-COVID levels? The second question is on these new businesses, particularly Innerwear and ethnic wear. Can you give us a sense of the absolute size of the businesses and where we stand on profitability for both of these? Thanks.
Hi, Aditya. This is Ashish Dikshit. Can you hear me?
Yes, I can. Thanks.
Okay. On the recovery part, I think as Jagdish had mentioned, towards the end of the festive season, what you're seeing here is a quarter two performance, which is obviously impacted by July and August as well. If you look at Puja to Puja or Diwali to Diwali, even Pantaloons has recovered completely to the pre-COVID levels. On the second question about new businesses, I think cumulatively, if I were to combine all businesses put together, we are clocking something like. Just let me try and get the numbers. A quarterly business of close to INR 250 crores. So that's about a run rate of about 1,000 crore as we speak. You must remember, you know, most of our new businesses are almost at infancy.
Just to give you a sense, we expect Innerwear business to continue to grow at 40%-50%. It's just got to a reasonable platform. Our ethnic wear business is very early. We had held back expansion of Shantanu & Nikhil in Jaypore, and you'll probably see about 10-15 stores this year and another close to 25-30 stores next year. Marigold Lane, Jagdish talked about the new ethnic wear brand, has just launched. Tarun Tahiliani association is leading into a men's premium ethnic wear line, the first of which stores is gonna get launched in later this month. We expect to launch about 50 stores in next 12 months. A lot of these are sort of set for very, very rapid expansion. Overall, if you look at it, just in ethnic wear, we'll probably launch close to 100 stores next year.
Innerwear will continue to ride on this trajectory. You know, from INR 1,000 crore annualized run rate at this point in time, we are very hopeful that this will be up to a much larger trajectory very soon. In terms of profitability, at this point of time, at all businesses put together at this point of time, they have just broken even. In all other businesses put together, you can see from quarter two EBITDA performance, our other businesses which does not include ethnic, all of them combined together have delivered a post-IndAS EBITDA of about 10% and a pre-IndAS EBITDA, which is breakeven plus. In ethnic subsidiaries, we are just marginally ahead and a small loss in that business because we are in investment phase.
This is a journey that, we are very confident will soon be a profitable journey.
No, I understand. That's very clear. Just on the Innerwear bit, can you give us a sense whether we are gaining market share in the premium space, or is it just that the premium space itself is expanding and as we expand our presence?
Our sense is we are gaining market share. We have grown very well every quarter right through this COVID period and continue to do that. It's hard to predict, but if you look at, I mean, if I were to talk about just this quarter, we have grown close in excess of 40% for this quarter. We'll have to wait and see how others have grown, but our sense is in a full recovered quarter, we'll perhaps accelerate this growth rate. 40%-50%, our sense is we are gaining market share in this space. We're still very small, though I think that must be noted.
Thanks, Ashish. Thanks. Very clear.
Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, am I audible?
Hello. Tejas, may I request you to unmute your line from your side and go ahead with your question, please.
Yeah. Am I audible? Hello? Hello.
Hi, Tejas. You're probably on mute.
I'm not on mute. Hello.
Tejas, I'm able to hear you.
Audible?
May I request you to unmute your line from your side and go ahead with the question.
Yeah. Can you hear me now? Hello.
Due to no response, we move on to the next participant. The next question is from the line of Nihal Jham from Edelweiss. Please go ahead.
Yes, sir. Good evening to the entire management. Just checking, am I audible? Hello? Chorus operator, am I audible?
Yes, you're audible now.
Yes, you are.
Sure. Three questions from my side. First is, you know, just to understand better on the margin part of it. What is very clear is that at least the e-com share is something that has significantly increased, whether you compare it to last quarter pre-COVID or even versus last year. Our gross margins are more or less similar to what they were pre-COVID. Anything that is worth highlighting there or maybe something to, you know, give further details on. A related question to that is that despite the recovery still being at around 75% for Pantaloons, the margins are obviously much better off than even what they were in pre-COVID, as you've highlighted.
What are the kind of measures that we have taken, that is leading to this kind of performance and is it something that is sustainable? I'll come to the other two questions after this.
I'll give a quick response and then call in Sangeeta for more specifically on Pantaloons. On the gross margin level, you're right, even though the share of e-commerce has grown, but as retail share has also continued to grow and you can see the mix change that's happening in the lifestyle brands, far more starkly. Our gross margins have continued to improve. A part of it is also because, as we have learned to operate with leaner inventory, fresher turnarounds, we are clearly able to sort of reduce the markdowns. And that's a phenomenon which is across all businesses. Of course, at ABFRL level, Nihal, you must remember that it's a mix of businesses between lifestyle brands, Pantaloons, Innerwear and other businesses, which actually also affects the margins.
At a high level, our gross margins have improved because high share of retail and lower markdowns almost consistently across all businesses. On Pantaloons' overall margin, I'll get Sangeeta to come in, but suffice to say that we have kept our costs completely in line. Even before that, what I would like to recall is that Pantaloons has been a sharply increasing profitability curve even before pre-COVID. The organic business performance has been significantly improving every quarter. Some of it has got hidden due to COVID period, and therefore, you're not able to see the trajectory of improvement as clearly. It will become more obvious as recovery happens. Fundamentally, it's a higher quality business which is continuing to improve. Sangeeta, would you want to come in and talk about margins in Q2.
Sure.
At similar level last year despite lower sales?
Yeah. Sure. Hi, Nihal. I think three points that I want to make in terms of what's really contributed to this. First is-
I'm sorry to interrupt you, but your voice is not coming clear.
Okay. Are you able to hear me now?
Yes, ma'am.
Thank you. Okay. Three things, Nihal, that I wanted to point out. The first thing is, in terms of, you know, certain actions that we took, last year in terms of what contributed to the margins. We used actually the pandemic period very effectively to make some, very bold decisions in terms of how we managed our inventory last year. Actually helped us in terms of, improving our, markdowns in terms of reducing them, and I think that's one big contributing factor to this. Therefore, Ashish alluded to this. We've been on this journey of creating a better quality business with better, you know, health of the business. That's the first part.
Second is I think versus FY 2020, our private label share has actually improved, and that is on account of a slew of actions that we have taken in terms of our new category launches that Jagdish alluded to, so that's helped us as well. Third is the strong cost control measures across every single cost line. We've taken many of those last year. Some of those contributed this year. Whether it's occupancy or whether it is in terms of how we managed our overhead in the front line, et cetera. I think better costs led by markdown and other line items that improved our share of private label, I think, are the two factors that have contributed to this.
That's helpful, Sangeeta. I just had one follow-up.
Sure.
Also includes somewhere the rental waivers that we are getting in terms of as how we are reflecting the margin. Is it fair to assume that is a component maybe that gets reversed in the future and the other aspect that you're highlighting is something that will sustain?
Yeah, you know, our rental waivers, for example, this year with better sales, it's in line with sales. It's obviously not as low as what we got last year. It is in sync with sales. As we feel very confident about scaling up this business, as long as we are able to keep our rentals in line with sales, I think we are very confident of delivering a business which is healthy in terms of its margins really going forward.
Sure. My second question was, I had this clarification that as a part of a press release, you're mentioning that we expect our debt to stay stable for the remaining part of the year. While I think it's already down by around INR 400 crore just in a month itself since the quarter has ended. Just how should we look at it, and what is it that internally we are targeting?
Sorry, Nihal. You made some point about debt being stable in the second half. Is that what you said?
I'm saying that that's something I picked up from the press release. I'm not sure if that is an-
Nihal, there are two things which are happening. Fundamentally, the business is exceptionally strong, and as markets are coming back, our cash flow generation capability is visible. Remember, this was the trajectory in FY 2020 also before we got into the COVID, and we have used the in-between period actually to sort of raise capital to lower debt as well as to use some of the cash generation to acquire. Now as we get into this next phase of growth, we will obviously be able to expand our business much faster. Jagdish has indicated the accelerated pace of Pantaloons expansion with 12 stores opening in 12 days and indication of 40-50 stores in just next 4-5 months, and with an objective to sort of open about 100-odd stores.
While 25% of it will be franchise stores, a part of it, significant part of it will be owned stores. Similar would be trajectory for ethnic wear business. We have acquired some very precious and very valuable brand properties. We now need acceleration in growth which we had held back, whether it's Jaypore or Shantanu & Nikhil or Sabyasachi or the new menswear brand that we are launching or the womenswear brand. We will balance our expansion in line with the cash flow. I think the short point that Jagdish was making is that the business's organic capacity to generate cash is very, very high. Our growth we had held back for last 18 months, you will see a very different trajectory on growth side as we start to play out the game in next 6-12 months.
Understood. I just had one last question that if you could give me the casual wear for lifestyle brands for this quarter and the last quarter of same and same year. That would be helpful analysis.
Vishak, will you have response to that?
Yeah. Not very different, Nihal. It's from a Q1 to Q2 perspective, not too much has changed. All I can say is that both lines have grown, Nihal. Casual wear continues to grow, especially the athleisure side. This, you know, the smart casual, they've grown well. Having said that, we've also seen a very strong lift of the wedding business and the festive lines. I would say similar percentages. Okay? More than half of our business, 52%-53% would be casuals. It's not changed too much between the two quarters.
Sure. Thank you so much.
Sure.
Thank you. The next question is from the line of Jiten Doshi from Enam Asset Management. Please go ahead.
Yeah. Firstly, Ashish and team, many congratulations for an extraordinary performance in challenging times. I also wish to compliment your entire team for one of the best presentation and annual report with great transparency for the investors and some wonderful ESG initiatives covered in that. Many compliments for that. I also just have one question on your working capital. How sustainable are your current levels of working capital?
First of all, thank you, Jiten bhai, for the appreciation. We are continuously working on several parts of our businesses, and a part of our feedback that we take from investors is to improve transparency of reporting because we are a multi sort of segmental businesses, and a lot of investors have sought greater clarity.
It's one of the best in corporate India, I would like to tell you that.
Thank you, sir. Thank you. On working capital side, I think if you look at it, our individual businesses. Our net working capital ratio in Pantaloons will be high- to mid-single digits as a percentage of sales, and that's very sustainable. That's something that we delivered in the past, we'll continue to do that. In lifestyle brand business, because business is increasingly turning retail and at this point of time it's 75%-80% of the business is retail. Even then, the number of NWC to sales will be early double-digit, 13%-14%, and we hope to bring it down as we go forward. If you net it off against the deposits that we get on security, the number would probably be even lower.
I think the level of NWC to sales are very strong and competitive by any industry benchmark. Where we are operating, we are very confident we'll continue to operate. Of course, what will happen as we go for better times because the future revenue growth rate assumptions change as we start to open more stores and start to take more optimistic view of the business as it's playing out. Some of those numbers will marginally worsen, but not materially and would not significantly be different from where they are today.
Okay, excellent. My, you know, second question pertains to, you know, a presentation that was made earlier, sometime back pre-pandemic by Chairman, highlighting the future for the next five-year vision. Of course, that was pre-pandemic. Do those numbers still hold good or are you still chasing those targets, both in terms of growth, and profitability and also the return on capital employed, which was, you know, a very high benchmark that you all had set in the journey earlier?
Short answer is absolutely, yes. I think while this may have set us back from current year performance, I don't think our view of even immediate future has changed. It's pretty much in line with what we have said. We will come back, Jiten bhai, towards the beginning of next year and give a status update on everything that we had said before. I'm reasonably confident that we'll, if anything, positively surprise.
Okay, fantastic. Keep up the good work and many congratulations to you and the entire team. Thank you so much.
Thank you.
Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, I hope I'm audible now.
Yes, sir.
Yeah, thanks. Yeah, season's greetings to the team and thanks for the opportunity. I have three questions. My first question pertains to general consumer sentiment and demand environment. Obviously, the kind of headlines that we have seen in last 15, 20 days have been very encouraging and it's actually heartening to see that the recovery is happening. A lot of it was actually expected because the kind of base that we have created for industry at large, retail in particular for last 18 months, this recovery was kind of expected. If it would not have come, it would have been a major disappointment. Ashish, just wanted to understand from you, how are you reading the consumer sentiment?
Is it just a pent-up or you are seeing a sustainable recovery that we can build on from here for next two quarters and beyond?
It's a tough question, Tejas. You've put me in a spot. I would have to say, unlike you, recovery has somewhat positively surprised us. We remain tentative and worried about the third wave coming in and, you know, impact on at least some parts of the country. Clearly, I think the circumstances have turned out to be far more positive than what we had imagined internally. Would it be a one-time thing versus a sustainable thing? I think it's a sustainable recovery. If you go back and look in context of where we were in FY 2020, I think most parts of the economy have started to come back. There is, there may be a little bit of exuberance which is excessive at this point of time for a very short period.
I don't think there is any sign that this recovery is either artificial or a one-time thing. I feel we are headed for a more democratic natural growth that economies like ours should see.
Great. Second question that pertains to Madura lifestyle brands. So we are seeing this divergence in recovery trend for a while between wholesale and retail within that portfolio. Now, Vishak just spoke about aggressive expansion on the retail side as well. So is it that our wholesale partners are actually migrating or graduating to become our retail channel partners, and that's why we are seeing capital also from that part of the channel getting deployed or getting redeployed on the retail side, and hence there's a structural change in the business model?
I think they are both temporary and structural changes. Vishak will be able to elaborate, maybe at a greater length on that. Vishak, you wanna come in?
Yeah. I think it is at one level, you know, as far as wholesale partners are concerned, please understand that there is a lag between primary and secondary sales. While secondary sales would have caught up in the last couple of months, there is a bit of lag for primary. That would explain some fair amount of the delta and wholesale numbers that you would have seen. The larger point you're talking about is there a shift from wholesale partners moving into retail? You know, it doesn't shift, they add on. When they add on, they are adding on more to exclusive retail. A lot of our multi-brand partners have become our franchisees for exclusive stores.
We continue to deal with them in their multi-brand outlets as well, but the pace of growth is much larger in exclusive stores. COVID has changed some of that, and hence, you know, you see the numbers starkly for the wholesale part. But the reality is, even before COVID, there was a lot of our business partners who were putting up exclusive stores along with, along with us.
Purely from capital efficiency perspective, we have taken a lot of pride in past also in wholesale channel being our source of funds, and the way we have actually developed that business over the last two decades. How do you see that business? Obviously, as of now, we are saying it is transient, but where do you see future of that business, let's say two years, three years down the line in our overall business plan for Lifestyle Brands?
You're absolutely right. You know, the wholesale business has been our strength, continues to be that. To the extent that that network grows, our shares will only grow within that. Okay? And we have some of the best operating systems to manage that channel. For example, you know, even in the peak of pandemic with a digital trade show, we were able to take orders from retailers without even having to do a physical visit with them. So some of these things we've been ahead, we are able to give them 12 drops in a year, so every month is a fresh season. We've been able to create many things which are very, very multi-brand retailer friendly. We also have very, very strong, you know, relationships with the business partners, so that's something which continues.
Having said that, how much of more new multi-brands will come up in this country? Unlikely that pace will be very high in the trade segment.
Fair enough.
Tejas, in terms of the working capital impact on trade versus retail, I think, the way our retail channel is structured, it's extremely working capital efficient. Most of our retail and Lifestyle Brands is through franchisees. Our stock at value is covered by deposits and security to a large extent, if not fully, and our debtors are practically one day. You can imagine it's a very high NWC positive network. Don't worry about it. Don't have a concern that if we grow in retail, our working capital will get affected adversely. In fact, it's very well managed.
Fair point. Just one technical part there. When we bill from retail, it shows up only when retail offtake happens or when we bill it to the franchise?
No, no. When consumer buys.
When the consumer buys. The last one pertains to Pantaloons. We spoke about very aggressive target of 100 stores per year. Usually this kind of expansion also requires a lot of backend investment in terms of supply chain, so if you can speak on that part of the business as well.
Sangeeta, if you can come in, but just very quickly, Tejas, this has been a part of our plan, and we've made necessary investment in the back end, in teams and everything else. I think Pantaloons was about to sort of express itself after just before the COVID hit. You know the trajectory we had started to hit. The COVID has sort of slowed down the growth trajectory, but our quality of business has further improved. Sangeeta talked about several private label brands. We expanded into new categories, sarees, home, launched new casual wear portfolio. The store experience has significantly improved. If any of you have not seen Pantaloons' new stores, I would advise you seriously to have a look at it.
Now is the time really to sort of express and take that business to its true potential. Sangeeta, the question is, are there other aspects that we need to invest in-
Yeah.
To support this growth?
Sure. Tejas, as Ashish said, we feel very confident that we are poised now, well poised for that acceleration given the journey that we have been on in terms of, you know, addressing some fundamental challenges that we had in the business historically, as-
Ma'am, sorry to interrupt you. The voice is not coming very clear.
Okay. Is that any better? Try and move closer to the mic. Is that better?
Yes, ma'am.
Yes, that's it.
I think from everything that we have improved, whether it is our product execution we've alluded to, improvement in the private label share, the new category mix that Ashish talked about. I think that gives us the confidence and the improvement in the margins that we've seen that now we are kind of ready to really scale this business up with everything being in place. We need to obviously think about both capabilities to get to that level of expansion with great agility, and therefore investments being made in terms of building an organization can deliver this in the front end. Whether it's in the business development team, whether it's in our people who actually create the stores and the back end in terms of the supply chain.
Looking at consolidating our vendor base, you know, and creating the right kind of warehousing model. I think all of it, every element in our value chain, whether it's at the back end or the front end, is gearing up for this expansion. I think the timing of which is absolutely right, given where we have gotten to the business, and I think if we invest in the organization in the right manner, there's no reason why we should not be able to deliver. I hope I've answered your question, Tejas.
Yes, it does. Thanks, and all the best to the team.
Thank you.
Thank you.
The next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead.
Hi, thank you. My first question is regarding the government's proposal to increase GST in value fashion sub INR 1,000 from 5% to 12%. You know, given the increase in yarn prices, we would have taken some price hike as well. Do you think the industry can pass on this price increase to the consumers?
Ankit, that decision to increase GST rate is still under consideration. As an industry, we are representing to the government to show them the impact that it has on the lower end of consumers. Having said that, I think if it does happen, and it happens on costs on top of the raw material inflation that we are seeing, there would be no choice, I think, for the industry as a whole but to pass on a significant part of it. Obviously, there will be efforts to improve efficiency, but I don't think there is a choice but to pass on that increase.
Sure. Sir, my second question is, you know, again, on Pantaloons and ABOF. You know, we have launched ABOF after two years, exclusively on, you know, Flipkart group. Pantaloons, inventory is also now available only on Flipkart group, outside, you know, marketplace. Is it a conscious decision to move, you know, value fashion products only on Flipkart group and not on other marketplace?
What happens is, typically, Ankit, we get different level of response from different marketplaces for different brands, depending on the customer profile. We need to consolidate where we see maximum value. Unlike brands which are relatively something like Pantaloons has a very large range of offering. Therefore, to get maximum play, we need to integrate very deeply with them, and that's really what is being done. As far as Abof is concerned, it's a brand which, you know, we have sort of resuscitated in some manner in last 18-24 months. It was lying dormant, but we realized that it has a lot of equity, and we have created a value fashion play on that. Right now, it is being tested on one platform. It doesn't stop us from taking to other platforms as we scale it up.
Sure. That's helpful. Thank you so much.
Thank you. The next question is from the line of Ritesh Shera from Kotak Investment Managers. Please go ahead.
Yes, sir. Thank you for the opportunity. My questions are slightly from a medium-term perspective. One on the debt, and how do we see the net debt part moving, considering that we, in our business had rounds of equity raising, had rounds of leverage and deleverage? An associated question, incrementally, when we expand our network, is it more asset light or, it continues to have your own stores? Where's my third question? Yeah. The third question is, are there any more white spaces in our portfolio which needs an acquisition?
A quick response, and Jagdish, you can come in and sort of throw more light on that. On the medium-term debt level, I think we stand where we were. Jagdish had made this point earlier. We had made it in the investor call that for medium- to long-term, we wanna keep debt level between 1-1.5x EBITDA. In all likelihood, we will do better than that, but we keep ourselves some sort of boundaries in which we want to play with. That's the first remark, but that's on medium-term level. Your second question was expansion. I think, as you know, Madura part of the brand side, which is small store format, is 85% and increasingly more through franchise routes, so that remains capital light.
On Pantaloons side, we are at about early 20s as far as franchisee share of the total new business is concerned. That number may grow as we grow fast, but it is nowhere likely to be, you know, anywhere close to 50, 60%. We would like to keep it between 25%-30% at a medium level. To that extent, that part of the business will continue to. Remember, it's a high ROC, high capital return business from a single store economics. We had demonstrated that in an investor call. Therefore, as long as we have access to capital within the bounds that we have set for ourselves for debt, we would like to invest in that. Pantaloons will remain 70-75% of stores coming through our capital.
White spaces in your portfolios, if any?
I think, in terms of big white spaces, we have covered ethnic wear, which was one-third of the market. We have made significant gains. As you know, multiple brands are being launched as we speak. Few acquisitions have happened. That remains a large space in which we need to grow. Our casual wear portfolio will continue to sort of keep looking for opportunities, if anything, in that side. On the menswear side, we don't see a scope. We are very, very strong. Therefore, I think to that extent, it's about growing the new spaces as the markets evolve.
Okay. Sir, just on the first answer which you gave about debt, how does it match with our FY 2026 vision, which was shared, let's say a year from now? Yeah, it was shared on March 21.
Yes, yes.
Yeah.
It's our debt projection. I'm just reiterating what we said then. We remain committed to that as a longer term trajectory. Currently, we may end the year with a forward-looking debt to EBITDA ratio, which is much better than what we may have thought about for the short period. I think on average, as Jagdish has mentioned in the previous call, 1 to 1.5 is what we have indicated as our medium-term goal, and that's very much in line with what we have said in FY 2026 projections also.
Sir, what is our usual maintenance CapEx that we need to run our setups?
Not much. I think it would be a small part because we have factories with gross fixed assets of less than INR 100 crore. There may be a small part that goes there. Our stores require a little bit of refurbishing every year.
Yeah.
That would be only on the COCO part of the stores, and typically the stores have life of 5-6 years in small format and 7-8 years in the bigger format stores.
Any guess as a percentage of your depreciation. It will be.
Jagdish, would you have any sense of that? I could not get it. Can you repeat the question, please?
No, maintenance CapEx as a percentage of depreciation.
No, actually, our maintenance CapEx is even smaller than the regular CapEx.
It'll be much, much smaller than. I don't think we have large maintenance CapEx.
Cool. Okay. Thank you very much, and all the best to you, sir. Thank you very much.
Thanks. Thank you.
Season's greetings. Thanks.
Thank you.
Thank you. The next question is from the line of Gaurav Jogani from Axis Capital. Please go ahead.
Thank you for taking my question, sir. My question is with regards to those Pantaloons, you know, while you know we are looking to aggressively expand to 100-odd stores every year, do we see a scenario, you know, wherein the margins in the near term might get diluted? Because you know these stores might take some time to catch up to the system sales system changes, number one, and hence a short-term dip in the margin could be coming in.
Gaurav, just to give you a sense, if you're talking of EBITDA margins, we have demonstrated in past, our EBITDA margin grew from 4.5% to nearly 8%+ in a pre-Ind AS period as we expanded our network. Which could mean only two things, and we had tried to cover it in our investor deck in greater. Pantaloons stores are profitable from year one. The full box ROC, which is incremental capital to incremental EBITDA, is in high double digits. There is a lot of leverage over the fixed costs of operation, which is the corporate fixed costs of overheads, of supply chain, warehouses, advertising, et cetera, which further gives the operating leverage on that. Our experience so far is expansion has brought about expansion in margins, and we expect the same journey to continue.
Okay. For sure, sir. That's helpful. My other question is with regards to the Marigold, the brand that you launched under the ethnic space under the Pantaloons. The sales there would be clubbed under Pantaloons or would be separately shown under the ethnic side? How this will be done?
At this stage, it's because mostly inside Pantaloons stores, it is getting reflected within Pantaloons. It just got launched a month and a half back. As we go forward and expand the business outside, we will sort of take it out as separately counted. What happens inside the Pantaloons would lie in Pantaloons, and what happens outside can be reported separately as ethnic. I think it's too small for us to separate at this stage.
Sure. Sir, the last question is with regards to, you know, the ethnic foray for you. You know, it's been very heartening to see that it's already at an EBITDA reported level, but pre-interest it's already a big profit pool. But how you see the trajectory going ahead as you expand there, and that would be from me.
There are two businesses, which are sort of in very, very early stages. If you see our Jaypore business we had acquired in FY 2019, and by the time we had got control over the business, fully understood the dynamics and started to expand, we hit COVID. That is a business that we now have a fairly good understanding, control, and confidence about. That would expand over the next 18-24 months rapidly, and therefore that will require a little bit of investment in early year, first two years. Similarly, our men's ethnic wear business, we think it's a very large opportunity. When we launched that business, we had announced in the transaction call that, we wanna build a INR 500 crore business in five years with 150-200 stores.
That is the second business which will require. New businesses which are starting from zero and rapidly scaling up will incur losses for first two years at least. The existing ethnic wear businesses are quite profitable, so that's not an issue at all.
Sure. By existing, you mean Sabyasachi, and the ones that you do already sell through your stores are the Pantaloons ones. Would you mean that?
Businesses like Sabyasachi, Tarun Tahiliani, et cetera, are profitable businesses, and those will continue to generate profit. I think where we'll have to invest in the first few years are the businesses which we are either starting or have to scale significantly, which is primarily Jaypore and the men's ethnic wear brand that we are launching.
Sure, sir. Thank you. That's all.
Thank you. The next question is from the line of Sarvanan Vora, an individual investor. Please go ahead.
Hello, am I audible?
Yes, sir.
Yes, Mr. Vora.
Hi. Thanks for the opportunity and many congratulations to the team on a great performance and happy festive season to everyone present on the call. I had a very simple question, which was on our e-com strategy. During the investor day and in the successive calls, we had spoken about having a consolidated app or a brand a website where you would have all our offerings, all our brands. Are we looking at that right now or sometime in the future?
Mr. Vora, that is, work in progress right now. As we speak, we are developing the underlying technology and consumer experience pieces of that. At the first stage, this super app of brands will carry four or five brands and see how consumers are able to get combination of rich individual brand experience and yet the ability to move across brands. That's something that we'll perfect.
I think it'll take us another 5-6 months before we hit the market with that, but that's our medium-term strategy, which you would understand that as a company which has some of the most desirable brands from consumer point of view and a large portfolio of that. This will create quite a traction for consumers when they're looking for meaningfully powerful brands with wide portfolio. That's really the plan. We have a separate plan for Pantaloons, which operates in a different segment. That's really how our strategy for e-commerce is.
Right. Thanks. Just a little bit on the strategy for the Innerwear segment, and please correct me if I'm wrong. Our Innerwear is more towards the premium women's wear segment. Are we planning to keep it that way or do we have separate plans to expand really quickly in the men's Innerwear? How should we look at that?
Vora, we have a fairly decent and fast-growing men's innerwear business on top of the women's business which actually got launched subsequently. Our womenswear business is still yet to fully scale up. Over the next 12-18 months, you will see rapid growth on that. The menswear will continue to grow. If you look at the innerwear segment, it is not just innerwear, it's innerwear, it's athleisure, it's activewear, and therefore we feel that for any healthy living, men or women, this can create a destination retail concept. Next part of our growth strategy will be to build exclusive stores where you can buy innerwear, athleisure, activewear, loungewear, sleepwear in one sort of from one brand in one place. That would be a compelling proposition from consumer point of view, and we'll grow that.
It's not limited to either women or men, and both parts of the portfolios will grow.
Right. Good. Great. Thanks a lot. Thank you.
Thank you. Ladies and gentlemen, we'll take the last question from the line of Kunal Bhatia from Kotak Mahindra. Please go ahead.
Yes, sir. Thanks for the opportunity. Sir, I just had one question in terms of what was the discounting in this quarter on overall basis vis-a-vis last year during the end of season sales kind of period?
I don't have the exact number. We'll try and pull it out, but I can tell you right away it was much lower than last year, as there was really no need to discount. Even last year was lower than year before. That's a testimony of how we have managed merchandise at these points of time, and overall discounting across businesses. You can see the reflection of that in the improved gross margins for this quarter over the same time last year.
Right, sir. Just to add on to the question which was asked earlier. In terms of this gross margins, when we come to a normalcy kind of a period, do we see this, say, 100-150 basis point of raw material costs going up again going forward?
I think we had answered that. Our endeavor would be. I think this is not a choice that industry will have any other way. When the organic material-wide cost inflation hits you, I think we'll have no choice but to take price increases at this point of time. We are not sure what will be the final extent of the price increases we'll have to take as some of the industry, some of the raw material side is still evolving. But let me just assure you, as we have demonstrated in case of rent, when the situation came, our leverage, our strength of our brands allowed us to get best possible situation on that. Same would be on the sourcing side.
We would, however, you know, if the situation continues, we'll definitely take price increases to account for it.
Okay. My final question, what would be the ballpark CapEx figure for the current year and next year?
Maybe about INR 400 crore, around that. INR 400 crore or so.
Okay. Okay, sir. Thank you so much, and happy festive season to you as well.
Thank you. Thank you too.
Thank you very much. Ladies and gentlemen, on behalf of the management, we thank all the participants for joining us. In case of any further queries, you may please get in touch with Mr. Rahul Desai or Mr. Amit Dwivedi. You may now disconnect lines. Thank you.