Ladies and gentlemen, good day 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 FY 2026 performance followed by a question and answer session. We have with us today Mr. Ashish Dikshit, Managing Director, ABFRL, Mr. Jagdish Bajaj, CFO, ABFRL, Mrs. Sangeeta Tanwani, Director and CEO, Pantaloons Segment. 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 today's discussion may include certain forward-looking statements and must be viewed therefore, in conjunction with the risk that the company faces. Please restrict your questions to the quarter performance and to strategic questions. Only housekeeping questions can be dealt separately with the IR team. With this, I hand the conference over to Mr. Jagdish Bajaj.
Thank you. And over to you sir.
Thank you.
Good evening everyone. Thank you for joining us today. I would like to welcome you all to the Q2 FY 2026 earnings call of Aditya Birla Fashion and Retail Limited. Looking back at the quarter, the overall demand environment remained largely in line with previous quarters with cautious consumer sentiment across key categories. The early onset of Pujo in Q2 acted as a catalyst for apparel demand, driving higher footfall and improved conversions across retail stores. However, there were issues related to rains in Kolkata and closure in Northeast India which impacted the shopping momentum for a brief while during peak festive period. Amidst this, our business continued to perform strongly, delivering robust double-digit growth during the quarter.
All segments reported healthy like-for-like growth reflecting the depth and relevance of our product portfolio, the consistency and quality of our retail experience, and the growing trust and loyalty of our customers across brands. Before we move to the financial performance, I would like to highlight a few key business milestones. In this quarter we launched OWND!, our new Gen Z-focused brand, opening its first store in Bengaluru. OWND!, the brand's curated youth-centric range, has been promising early traction, strengthening our connect with the target younger consumers. Additionally, in partnership with Galeries Lafayette, ABFRL unveiled its first India store in Kala Ghoda, Mumbai. Spanning 90,000 sq ft, this flagship destination opening to the public in November underscores ABFRL's plan of building its luxury play and sets a new benchmark for world-class experiences in India.
As communicated last quarter, TMRW successfully raised INR 450 crore and this capital infusion was completed in Q2. Now moving to the financial performance of the quarter, Aditya Birla Fashion and Retail Limited delivered another quarter of strong performance driven by the strength and diversity of its high potential business portfolio. The Luxury, Ethnic, and TMRW segments continued their robust trajectory, each reporting double-digit growth during the quarter. On a consolidated basis, ABFRL reported revenue of INR 1,900.82 crore, translating into a 13% YoY growth. All key segments recorded healthy like-for-like growth with Pantaloons at 7% and overall Ethnic business more than 20%. Overall, EBITDA grew by 7% with margins at 5.9% for the quarter compared to 6.2% in the same period last year.
The moderation in margins were primarily driven by higher investment in brand building and marketing initiatives with advertisement spends higher by 200 basis points versus same quarter last year. Within segments, our Ethnic business sustained its profitable growth trajectory achieving a 280 basis points year-on-year improvement in margins reflecting improved operating leverage. Depreciation was higher on account of new store additions and new leases signed in Pantaloons segment. PAT stood at a loss of INR 295 crore in Q2 FY 2026 compared to a normalized loss of INR 277 crore in the same quarter last year. After excluding the impact of exceptional gains in Q2 last year, as of September 25, ABFRL held gross cash of INR 2,150 crore at consolidated level. Moving to the first half of the year, we delivered strong performance with revenue of INR 3,813 crore up 11% YoY.
EBITDA gave 24% in absolute terms to INR 286 crore versus INR 231 crore in H1 FY 2025 with margins improving by 85 basis points to 7.5%. Our retail network is today 1,190 stores spanning 7.5 million sq ft as of Q2 and with 30+ new additions during the quarter, further extending our presence. Now let me brief you on performance of individual segments. Turning to the Pantaloons segment, the business delivered a growth of 6% with revenue reaching to INR 1,142 crore for the quarter. Like-for-like growth stood at 7% supported by the early onset of festive season which helped drive higher footfalls. Though overall sales momentum was partially moderated by localized disruptions in East during peak Pujo week, Pantaloons continues to be on track of improving its margin profile. At retail network level, the profitability of Pantaloons this quarter is higher by 180 basis points over last year.
However, due to higher marketing investments in Pantaloons and launch of OWND!, the segment profitability got impacted versus last year with reported EBITDA at 13.7% and else would have been higher year-on-year. Among other key developments for the format, Pantaloons launched curated collections and rolled out new marketing campaigns, reinforcing the brand's commitment to staying fashion forward and deepening engagement with newer audiences. Pantaloons also signed up its first ever brand ambassador while expanding its all new modern store identity. OWND! continued to gain strong traction with revenue up 43% YoY. The brand expanded its footprint by adding 10 new stores in Q2 and now have 59 stores and is on track to add 30+ stores in the second half of the year, strengthening its position in the youth and Gen Z fashion segment.
Coming to the Ethnic Business, our Ethnic portfolio, the most comprehensive in the country, continues to deliver consistent growth in both revenue and profitability with another strong quarter in L2L over 20%. It remains a key contributor to our overall performance. Despite a muted wedding season, the Ethnic portfolio grew 11% YoY with revenue at INR 505 crore. Excluding TCNS, growth stood at 34%. The portfolio also saw a 200 basis point YoY EBITDA margin expansion driven by operating leverage and significant progress on the turnaround of TCNS. Our designer-led portfolio grew 32% YoY driven by strong L2L growth, category expansion, and elevated retail experiences. Sabyasachi and, good view, that is Tarun Tahiliani, delivered 39% and 26% L2L growth respectively in Q2. The brands continued to strengthen their global appeal through high-profile collaborations and Fashion Week showcases catering to both Indian and international audiences.
Now within premium Ethnic wear brands, TASVA continues its strong trajectory, posting 58% YoY revenue growth and achieving its fifth straight quarter of double-digit L2L growth, with L2L at 38%. In Q2, the brand added eight new stores, expanding its network to 78 stores. With strong momentum, TASVA is poised for continued growth, targeting to exit this fiscal year with more than 100 stores. TCNS delivered strong L2L growth of 19%. Over the past few months, TCNS has maintained robust double-digit L2L growth alongside a notable improvement in profitability, reflecting the success of its ongoing initiatives. Margin was up by approximately 900 basis points, driven by improved product performance and retail execution. Building on its momentum, we plan TCNS to become a key profitable growth driver within our Ethnic portfolio.
With already a sizable business, we plan to take TCNS into segments with higher relative growth while consistently leveraging its core to drive profits. As a first step this quarter, the business forayed into the high growth and large occasion wear segment with the launch of Wishful. On luxury retail, currently comprising of the multi-brand format, The Collective and the other mono brands delivered another strong quarter with 13% YoY growth driven by robust E-Com performance and healthy L2L growth. The format added two new stores to the network and now is spread across 46 stores. Our digital brand portfolio in TMRW grew by 27% versus last year, driven by portfolio expansion, premiumization, and impactful campaigns with new celebrity associations. The portfolio has strengthened its omnichannel play, closing the quarter with 29 stores, 75+ including Rome, across key markets nationwide.
In conclusion, despite a challenging consumer environment this quarter, our business have continued to demonstrate strong and broad-based growth underpinned by solid L2L performance across all key segments. The strategic initiatives we set in motion in the past are now beginning to deliver the desired results, reaffirming that we are firmly on the right path. Our focused investment in brand building, partnerships, and retail excellence are extending our foundation for sustainable, profitable growth. We remain confident that this momentum will continue to build through the rest of the year and beyond. We are open to questions now.
Thank you.
Thank you, Mr. Bajaj. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on the 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. We will take our first question from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Yes sir. Hi, thanks for the opportunity, Ashish. I wanted to sort of first check whether my calculation is correct or not. Have we consumed about INR 900 of. INR 900 crore of cash in first half from the balance sheet and this ballpark correct?
No Devanshu, we started my March cash was roughly INR 2,072 crore in ABFRL standalone which is today INR 1,600 crore. So roughly INR 500 odd crore.
But we have raised another INR 400 crore. Right. I'm talking about the consolidated number. I'm talking about consolidated.
If you see at the console level, March was 2,367 which is now 2,150 approx. Because TMRW raised the money and TMRW is consuming it separately.
It's a little bit more than INR 600 crore.
That is right.
Okay, so at this run rate sir, do you first of all is there any one off in this which may? Sort of come back in the second half. Secondly, at this run rate, do. You think that we would need to raise additional capital going ahead in ABFRL?
I think the first part, Devanshu, the first half of the year is when most of the inventory buildup and everything happens for the season. Second half, if you look at our company level sales, it is almost 60:40 first second half versus first half. And so is our cash collection. Dramatically higher cash collection in the second half versus first half while the inventory buildup happens in the first half versus second half. From a cash point of view, the situation actually improves quite significantly in the second half of the year. That is not new this year. It is just that as the share of wedding related business grows in our portfolio and that is what has happened in the last couple of years, the share of H2 to overall sales, both in profit and in sales and therefore cash generation is much higher.
At this point of time there's no cause of concern on that account.
Yes, this 600, you are just comparing the cash, right? There is an increasing debt as well. Are you excluding that or including that in the 600?
No, no Devanshu, I am comparing the cash. The borrowings are in subsidiary companies. Please understand. What Ashish was trying to say, this Ethnic business is heavily loaded in H2 there. The cash realization will be better in H2.
So you. We don't have any concern around the case availability across all the businesses of. ABFRL.
Pantaloons must have benefited the two specific requirement. There is a very good SSD that the vessels reported. Can you help us better understand maybe the comparable?
I'm sorry, Devanshu, can you use your handset mode please? The audio is not very clear.
Yeah. Is it better now?
Yes.
Yeah. I was checking if you could. Just help me understand the underlying like-to-like L2L for Pantaloons because there must be some benefit of estate preponement to this quarter.
Yes.
Yeah. Hi Devanshu, this is Sangeeta. Pantaloons overall, if I look at Pujo, is of course critical, and a large part of Q2 saw the preponement of Pujo while Diwali continues into October. Yes, there was a benefit with this being advanced. In fact, if you see that we started with a very, very strong Pujo, and a week before Pujo ended, we were actually growing at an overall level in east at a double-digit growth. Unfortunately, the last seven or eight days that we saw, you know, a terrific amount of rain there and the disruption in Assam, a lot of that growth got wiped out. It is hard to kind of separate the two. The advancement, of course, did give us higher footfalls and gave us good traction, but that got wiped off.
All I can say at this point of time, if it was not for the external disruption, our growth would have been even higher. Though overall we believe that the quarter has been quite good for Pantaloons.
Fair enough. Sangeeta. I also wanted to understand.
There has been a good L2L performance in Pantaloons plus we have closed unprofitable network also. There is still a margin drop in Pantaloons. You have indicated that it is because of new value format OWND!. On a like-for-like for Pantaloons, can you help us understand what has been the margin performance this quarter versus last quarter?
Right. Let me also add one more thing. For Pantaloons, as I said, we've seen strong like-to-like growth. It's also important to understand the basis for that like-to-like overall strategy in we have stayed consistent in Pantaloons with, of course, our product improving as is evinced by very significant improvement in our sell-throughs every single season. If you have seen some of our new stores, we've refurbished those stores. There is, of course, a new retail identity and we have continued to invest. I think a big investment that Jagdish alluded to is also the marketing investment that we have made in this quarter. It's very important that both for Pujo and for Festive, which was part of quarter two and quarter three, the work that we've been doing consistently over the last 18 months on Pantaloons is coming to fruition.
It was important for us to communicate and it continues to be important for us to communicate our new positioning to the customer. Therefore, the margin impact has also been because of the significantly higher marketing investments versus, in fact, last year. In terms of percentage, we have doubled our marketing investments. Overall, our margins are pretty good in Pantaloons. We continue to maintain what we had called out before. The little bit of impact that you see today just on the Pantaloons segment is on account of the higher marketing investment.
Fair enough, fair enough.
Last question from my end for TCNS. While the L2L you reported very encouraging 19% but basic calculation based on the numbers that we have for the past overall on a business perspective, it is still a 15% sort of a decline in H1, right. Firstly the expectation was that the business should return to growth on an overall basis as the network rationalization was largely done with. Can you help us better understand if the calculation first is right on an overall growth perspective and what is.
The outlook ahead for this business.
For numbers, Devanshu, let me take this. Ashish will take on the outlook and all. You remember that we integrated TCNS with us from last September when the merger took place and we changed the accounting because TCNS is to P&L. With that, we reported revenue last year was INR 254 crore approximately. The comparable of that would have been lower by INR 40 crore. Against that, if you see, there is a double-digit growth in TCNS, around INR 240 crore this quarter.
Just to summarize, in previous years TCNS revenue accounting was done on secondary sales. We had corrected it as a one-time thing, and therefore if you look at like-to-like revenue for TCNS, this quarter has grown by 13% for similar accounting. Yeah.
Fair enough. For overall business again there must be some preponement benefit and encouraging the H1 performance from a margin perspective from Ethnic overall business has been pretty encouraging.
But do you foresee that H2? May see some amount of losses just because some of the business must have precon. So any.
Which business are you talking about? Devanshu
Overall overall Ethnic, sir.
Overall Ethnic on the other side will see a very sharp increase in profitability in second half over first half.
Okay.
If you look at our last year's numbers you can do it yourself. We've been reporting Ethnic as a segment. You look at H1 and H2 profitability, a similar picture emerged this year. There's been very little preponement in the Ethnic, which is largely driven by wedding, which is in the second half of the year.
Sure sir, very helpful.
Thank you. We'll take our next question from the line of Gaurav Jogani from JM Financial. Please go ahead.
Thank you for taking my question sir. This is a question regarding the CapEx. If we see from the cash flow statement, the CapEx for H1 is around INR 261 million, and I'm assuming that we have also a strong store expansion plan both in old and also in TASVA and the other PCs. What should be the CapEx for the H2 part of the business?
CapEx primarily will be in on around 30 stores and that's why around 30 stores. I don't think more than INR 100-220-25 crore will be spent on capex in these two businesses and then other capex are very small. Yeah.
Okay. There is just one thing, classification. There is also a new retail identity for financing that has been rolled out. How many stores are we planning to convert to the new green identity, and what could be the related refurbishment cost for that?
We've just started this journey. We've got three stores with new retail identity. All the stores, and we had committed to opening about 15 stores this year. All the stores that you will see opening now in terms of design will follow the new retail identity. Therefore, we would over a period of time like to have more and more stores looking consistently with that. In terms of absolute cost, our CapEx on this new retail identity, for any new retail entry initially, the cost seems to be a little higher till you kind of get to a steady state. Overall, in our end state, we do not think the cost per sq ft in terms of CapEx of this new retail identity will be significantly different versus the current CapEx that we are spending.
Okay, so my question was more for the refurbishment. I mean, the older ones, are we planning to, you know, refurbish those into the new identity or it will only be for the newer ones that you would see?
We also renovate stores. Parallel. Right. We renovate anywhere between eight to 15-20 stores every year. The new retail identity will extend to the renovated stores as well. Parallel, we have also done another exercise where we are doing some marginal kind of improvement in terms of space, space planning, how we represent brands. Like we said, our store experience is one of the important pegs of our strategy and that will continue to improve in all three ways. New stores opening with the new retail identity. Some of the existing stores, especially the older ones, getting converted directly into the new retail identity. The other stores where we believe there is an opportunity to optimize density, improve a little bit of infrastructure, those investments will also happen.
Sure, thanks for that. My last question is towards the Ethnic side of the portfolio. The margin that we have seen for the Ethnic piece, if you exit out for the TCNS losses, you know, we can better appreciate the profitability that's between every other features. If you can help us out. I think actually TCNS and I think.
I'm assuming. What kind of profitability are we making in the other parts of the piece of business?
Sorry, you're asking the split of Ethnic business and profitability?
So I'm. I'm assuming, you know, that the losses in the Ethnic fee would be largely because of TASVA and TCNS.
We have very marginal losses in TCNS now. Most of the losses are TASVA and some of the other smaller designer businesses. Do not go by quarterly performance as mentioning in Ethnic businesses, particularly related to wedding, the revenues in second half is about 70%. The designer, I think if you take TCNS out, the remaining portfolio has close to 70% of its revenue coming in second half and close to 80-85% of its profit coming in second half. It is a very skewed business. Unfortunately, that is the nature of the business.
Annual front, not on the continent. Actually, it was more on the annual. Front
on your annual level. TCNS losses as you're seeing are significantly coming down. TASVA still has losses and rest of the business is profitable.
From next year onwards. These parts of the business also put on profitable at least by the exit basis.
Yes, yes. I think by next year the only losses will still be remaining in TASVA. TCNS would have completely turned around and designer portfolio as a whole is quite profitable.
Okay, thank you. That's ok.
Thank you. Before we take the next question, would like to remind participants to ask a question. Please press Star and One on your phone. We'll take our next question from the line of Archana Menon from Morgan Stanley. Please go ahead.
Hi. Thank you for the opportunity. My first question was on bank loans. Just from the SSD number that.
You've reported, it's good to see you. Know the 7% for our L2L. How do you think of this in terms of how it can sustain? Should we be thinking of all the. Metrics that you have done actually driving. This kind of growth even in the quarters ahead?
Secondly, for Pantaloons itself, you know there's been a lot of store renovation and other exercises that you've been doing. Do you see a performance divergence between stores which have been renovated or the new stores versus the earlier ones? Any numbers that you can share either in terms of revenue throughput or SSS, that would be very helpful.
Right. Hi Archana, this is Sangeeta. I think as I mentioned earlier, I think it's been a good performance for us in the second quarter. I think a lot of the efforts that we have made over the last year in terms of your question in terms of what's really driving this growth and I'll come to a second question on the performance of the new stores, etc. I think one of the significant shifts that we also made in this quarter is the marketing investments. Because the new positioning and the new proposition that we've launched. We've gone along with the celebrity. We have ensured that there is a very strong digital plan that it has been supported by.
I think it's a question of time that once our story is deeply entrenched and reaches more people, we feel pretty confident given the performance of the second half that we will continue to sustain our growth. As far as because all elements today now are in place, right, our product has significantly improved, our stores are looking much better, our store experience is better, there is a strong repositioning of the brand or a new positioning of the brand, shall I say. With the marketing investment we believe that we are on the right track to continue to drive growth. On your second question in terms of the stores, I think the shifts that we've made are pretty recent.
We are seeing, for example, in some of our stores a very distinctive difference in the kind of consumer profile that we are seeing entering the store with the new retail identity. Given that it looks a lot more, shall I say, premium with a lesser density, with a completely new design, the store looks a lot more attractive and we are seeing, therefore, that we are able to attract a different profile of customers. I think it's still early days, it's just been two, three months and of course there has been a lot of noise with festive shifting, etc. It's something that we track very closely internally. I think we'd wait for another six odd months to kind of come to a conclusion on the net result incrementality of it.
Understood. Thanks for this margin side for Pantaloons. How are you thinking firstly about marketing spend for the full year? Is this more of a timing difference or should that be going up? Secondly, when we look at the Pantaloons reported segment EBITDA margin, how should we be thinking of that for the full year versus last year when we also factored in the marketing as well as some losses from home.
You know we indicated when we met investors in the month of April that this segment margin should be. In a range of around 15-17%.
We will, you know, aspire to go to, you know, we like to maintain that. In the intermittent period for next three, four quarters you may see some, you know, more advertisement and marketing spend in both the business line in one segment called rental loan segment.
Understood. Thank you so much.
Thank you. Next question is from the line of Tejash Shah from Avendus Sp ark Institutional Equities. Please go ahead.
Hi, thanks for the opportunity. Three questions, all three on Pantaloons. First, Sangeeta, you partly answered on the previous question that the new brand identity what it brings to the table. I just wanted to know that. I'm sure we would have done some brand perception study before kind of doing this exercise. What was the gap or feedback that we found in the study that led us to do this massive revamp? As you also called out, for the first time in history they are hiring a brand ambassador as well. First, I wanted to understand what was the feedback where the brand was lagging versus consumer perception.
Right.
It was not a question of lacking. I think it was a question of where we have been on the journey with Pantaloons. As you know, you have been hearing us right through on our calls that there was a very concerted effort over the last few years to make sure that Pantaloons owns a particular space. In order to do that, we had a very chartered course. The first was in terms of ensuring that our product, the fashion quotient of our product, improves. The second was in terms of our store experience. We were very clear that once we do both of these is when we will go out and communicate to the consumer equally.
To your point, the work that we have done in terms of what should our advertising and communication strategy be is backed by very strong consumer work, perhaps one of the most robust and largest work that the industry would have seen. Basis that, we figured first, very sharply, who's the consumer segment that we are targeting. Everything that we did was in fact to make sure that we significantly are able to drive our relevance with this consumer segment, equally make sure that we have distinctiveness versus competition. Over the last few years, the consumer today definitely sees us as being more fashionable, more premium, versus perhaps where we were five, six years ago. We have traveled that journey. It's a question of now making sure that in this new competitive landscape, how do we kind of continue to win.
Therefore, the insights that we got with the sharp definition of the consumer segment allowed us to identify white spaces in terms of positioning. Our key insight has been that the consumer segment that we are targeting really wants to curate fashion in her own manner. Therefore, our positioning of spark your imagination, where Pantaloons really becomes the playground for the consumer to experiment to get the latest fashion, is where this came from. It was not from a gap, but it came from a journey to say, this is our North Star, this is the journey, this is the quadrant where we want to be, or this is the space we want to be. This is what the consumer wants, this is what will offer us distinctiveness versus competition.
It is a very large body of work over the last 18 months that led us to this.
What percentage of our network would be kind of representing this new echoes of the brand? I'm assuming you would have done a controlled launch also in a particular region. Where have we done that launch, and are the numbers in that territory kind of giving us this confidence that if we roll it out Pan India, we will have similar number?
Yeah. It depends on what you are defining as the launch, right. As I said, this has been a journey. Our product has continued to improve and this product in a relevant manner backed by science of planning, assortment planning goes to the right stores and curation of rain, etc., something again that we have developed a very strong muscle on. That has been a continuing journey. I think the fact that we have started communicating now with strong marketing investment is the only new thing. The stores have gotten better and will continue to improve. The new retail identity is just about two, three months old. As I said, this will continue to expand. The store bit and the communication bit are the two new pieces.
The product has been an ongoing journey and I'd like to believe that the strong growth that we've seen in the second quarter, a large part of that comes from the improvement in our product, the relevance of our merchandise. We should be able to see greater traction on the brand with now the recent investments in the marketing and in the stores. There isn't one particular point, the launch, if you're referring to the communication, that is the new thing. The store design is the new thing. Both of these are very, very recent and they are national, so the communication is national. The store launches, as I explained before, will happen sequentially.
I was just trying to see the initial response from consumer because three months also means that we had at least 12 Sundays or 12 weekends that we would have seen footfalls, we would have seen conversion rate, footfall will take perhaps.
Yes, but have you seen initial good? Conversion rates, good billing.
The two, three stores, three stores that we have launched, the first one is just about three months old, as I said, and we have seen an improvement in the traction from the consumer. We have got qualitatively extremely positive feedback and in terms of discoverability of merchandise and therefore leading to conversions, etc. Directionally we have seen improvement. As I said, it is only early days. There is only one store which is three months old. The other stores are more recent. Something that we will track and expand accordingly. Along the way also see if there are any learnings. We will pick those up as well.
Perfect. The last one. How should I think about store economics with this new identity? Because with OWND! launch you have much legroom to play. Slight premiumization here. Because OWND! will take care of fast fashion Gen Z oriented customer. Should I assume that this brand will be ballpark north of 35%-40% gross margin positioning or will it be INR 12,000-INR 13,000 per sq ft model? Just wanted to understand with this new identity, if I have to convert it into Excel sheet, how should I think.
About this new format
you're talking about or Pantaloons?
No, I'm talking about Pantaloons.
No, Tejash, Pantaloons margins are closer to 50%, not 25%.
No, no, I'm. No, I'm saying. I'm saying now that you have that room to play both sides, how should I think about both? All the key parameter economics, right from revenue per sq ft to inventory turns to gross margin. How are you kind of planning with this new identity?
I think Pantaloons, as we have established over a period of time, is closer to 50%. We would like it to be north of 50% gross margin, where we have not yet reached. That is the progression we have made over a period of time. With the journey of premium, as Sangeeta said, you know, Tejash, you are feeling that there is a moment of time that something has changed. Actually, three, three and a half years of cumulative work, which started for several seasons with product, then a few small stores, then refurbishment, then new retail identity, spreading it to it, and now leading to communication. It is a consistent strategy over three, three and a half years. Benefits have also therefore come incrementally and cumulatively over a period of time.
As far as the desired model is concerned, Pantaloons would aspire to be north of 50% gross margin. We are just short of that. So about 200 basis point improvement is what we need to get to that. The business is operating, this four and a half thousand crore business is operating in negative working capital. We will continue to maintain that. In terms of store productivity, it varies region by region. You know, that's more a function of where the store is, not the proposition itself. I think the measure to look at is store profitability, which is what is the single store profitability at a network level or overall level. That number needs to be closer to 25% to be able to leverage the overheads, advertising and everything else.
That will come both through a small part through productivity and a small part through gross margin improvement over 2%-2.5% points.
Any private label ambition you want to share there?
I think we've been somewhat around 64%-65% at different points of time and the performance of external brand sometimes overtakes and therefore it's not moved much beyond mid-60s. Our ambition would be to get closer to 70%-75% but that's a journey that private brands have to deserve that space and therefore it will come through the product performance incrementally.
To add to that, I think if I just look at the share of ABFRL plus ABLBL, the 63-64 that we see in private label including the ABLBL portfolio, TCNS, etc., we already are at about 75%. In terms of our own portfolio.
Sorry to stress this, but this 75%, does it have a better throughput versus rest of the portfolio?
It has. Go ahead, Greg.
No, no, we just put all businesses through the same test of Jim Rof, which is return on inventory and return on space. At that stage we do not sort of—we want all businesses to deliver that level of gross margin, which would come either through higher throughput or through higher margins. In private label, margins are higher. As you know, extreme brands have lower margin, and therefore it is a mix that we aspire to get right.
Very clear. Thanks. All the best for coming quarters.
Thank you. We'll take our next question from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, good evening and thanks for taking my question first. Is just a clarification. On Pantaloons' new retail identity, I. Think the last call you mentioned that. 50% of the overall network is now on the new retail identity. I'm not sure what are the three stores that Sangeeta was referring to earlier in the call.
Yeah, sure. Sameer, this was the retail identity that we had launched about four years ago. We, prior to that, had a retail identity that was launched in 2016-2017. The next version of that came in 2021. The 50% I referred to was that identity, as I said, with all the consumer work and a sharper definition of the consumer that we defined for ourselves. Given the way the retail formats have evolved, we saw there's an opportunity to once again refresh our retail identity. Therefore, the new retail identity I'm referring to is the latest, greatest that we just launched.
By what time do you foresee to establish this retail identity across the 400 store network?
I think the stores that we have opened in the last three, four years and that identity in itself is also pretty good. Good.
This is just the newer version as I said. Given that we will open about 15-20 stores in the coming years, the new stores will all carry the new retail entity. You can assume on average about 8-15 stores that we will kind of renovate, and we will pick the most important and the iconic stores and the most deserving stores. You can safely assume that over the next three years there will be probably another 50 stores that will undergo this change, and there will be probably another 50 new stores that will come in with this new retail identity.
This would take multiple years, if I have to look at it, to encompass a large part of the whole network. Will that be a correct understanding?
We've already got out of the 400, as I said, 200 stores are pretty good. We will have another of the, of the other 200, the top 30-40-50 stores will kind of get prioritized on that. Yes, as the stores come up for renovation, it will probably take us another three to five years to kind of get across to the most deserving stores. That's how all, yeah, all retailers I guess would have this journey in terms of evolution of both the brand and how that gets represented in the stores.
Got it. Coming to the question on, you know, this retail identity again. So marketing spends and a new brand ambassador, is this a pivot in the strategy or is it part of this new retail identity? And given that if, let's say it is part of, then this is going to be an ongoing thing. It is not a 1/4 or a 2/4 thing. This probably will be an ongoing thing. Will, is that, is this correct?
Understanding first of all?
The detail identity, this is the new communication, is not on account of the detail. Both the communication and the retail identity are part of a well-defined strategy. In many ways, the brand comes to life in the store. As the brand positioning got defined in a sharp manner, it has to come through in our product, it has to come through in our store experience, and it has to come through in our communication. It is just anchored in one strategy, Sameer. We are being consistent with that. On the second part of your question, yes, we felt that to break through the clutter and to ensure that we build the desired fashion quotient for the brand, there was a need to have a celebrity. The celebrity association will, of course, continue for some time.
However, the marketing investments are phased out in any given year based on the desired sales plan. We will continue to invest in the brand. Having got a lot of other elements of the consumer experience right, the investments in the brand will continue. Of course, Festive is heavier than the rest of the year, so it will phase out accordingly based on the sales plan.
Let me put it in another way. Whatever marketing that you used to do earlier, is there going to be a slight increase going forward because of the changes that you are making in the brand communication?
For an initial period, yes, because one has to build awareness of the new brand positioning or the new communication on which the positioning is anchored. It is not something that we will continue to do in terms of perpetuality. We have leveraged a purchase occasion in terms of festive to announce that we would have anyway spent on the brand. We have spent a little bit more to be able to make sure that we are able to reach more number of people at a time which is very relevant for us.
Got it. Another question on Pantaloons. You mentioned 15 store addition plan for this year. Just if you can quickly clarify, last six months what have been the gross additions and the closures, and is the store closure exercise now largely behind, or we still continue, like we still have some bit of closures left.
In H1 we have added eight stores and closed six stores. Sorry, added six stores, include eight stores.
Yeah.
Are we at the end of this exercise of closures or do we foresee?
See, there's a normal phenomenon to close around 10-15 stores here based on the development in the store locations and development in that market.
We have covered a large part of our closures.
Restructuring is done.
Yeah, there is a. Just like Jagdish said, as a normal, in normal costs, and we have just a little bit of the last lap left. A large part of the closures is done.
Fifteen store additions, normal closures of ten to fifteen. Net net. We might not be adding stores in this format for some time, is that correct?
Only this year.
Okay, got it.
One more question. If I miss squeezing. Sorry for this, there is another portion which is largely luxury retail. Now if I look at the margin performance of this business, it's been extremely up and down. Last two quarters we were clocking 40% plus, this quarter is 25%. I understand there is Galeries Lafayette, but that is yet to open. Just your thoughts on what is exactly happening here.
It's a very small business right now and Galeries Lafayette. While the store may not have opened, expenses are still going on and the revenue will start counting once we store open. On a small business when you add something like this there will be a choppiness for some time.
The choppiness only pertains to the unit, not the base luxury.
The Collective and the monofan part of the business is very stable. It's growing at about this quarter, about 13%. In general, for a long period of time it's managed to retain about double-digit like-to-like and similarly healthy margins.
Yeah, got it sir. That's all from me. Thanks again for taking all the questions and I'll come back in the queue for any follow ups.
Thank you. Next question is from the line of Kunal from Jefferies. Please go ahead.
Hi, thank you for the opportunity. Just one question on TMRW. The losses in that business have. Gone up in the last two quarters. Anything to read or there's some bit of seasonality here as well.
No, I think you're right, Kunal. The losses are a little higher than what we would have liked. We have been trying to sort of push higher growth rate in this business, especially post investment. We felt that some of the brands which had not shown that kind of revenue growth, we should inject more marketing and therefore early stage. The revenue to advertising spend has been slightly adverse compared to what we would have liked. That is a journey that we'll go through. We'll adjust as well.
We go forward.
Understood. And this INR 400 crore which you had raised. Apart from let's say funding these.
Losses, any other thought process on how that will be used and repaying that in that subsidiary of cops?
I mean if your question is are you doing any inorganic action? No, large part of the capital there is required for growth, which is growth in terms of working capital, which is marginal. More importantly, loss funding as many of the businesses are currently loss making. Little bit goes into the offline CapEx as we are converting some of these brands into omnichannel plays.
Understood, Understood. That's all from me. Thank you.
Thank you. We'll take our next question from the line of Hemant Shah from ENAM AMC. Please go ahead. Thank you. Hemant, please use your handset mode. Your audio is muffled. Yes, please go ahead.
Thank you for the opportunity. Reading from the consolidated cash flow, the lease rent liability appears to have moderated. Is it going to moderate going forward? How would, what would be the trend of the lease rent from here?
Lease rent, you know, it depends on when we sign agreement and the new stores which we add. At the same time, whatever we have added in past, because you know, past it will keep on reducing it. It works on that EMI methodology. Right now, as I said, we have signed agreements for new stores in Pantaloons' own stores as well as in TASVA, so it may go up, but the benefit will also flow as you know the way my network is also. It is difficult for me to give you the exact numbers, but you know, let me work and come back to you on that.
No, just wanted to understand whether year-on-year is it going to increase from here or the spread of moderation in year to year figures will continue.
There's no chance of moderation because you know we have rent renewal agreement also and the size of our stores are also rising at the same time we have to add stores in our two mainline business so let me work on it. I will come back to you. I have given you this guidance.
Sure sir. Second is on the. Just touched.
Upon the profitability of the Ethnic business. Just wanted how is the second half wedding season panning out, and with the recent change in the GST rates, do you see any change in the consumer sentiment or consumer shifting towards the value pricing category?
See I think most of our Ethnic business is operating from especially wedding related Ethnic businesses operating from premium to bridge to premium to all the way up to luxury. The only I would say regular premium wear is TCNS which as you are seeing this quarter has grown by 13%. Like-to-like growth of 19% is a strong recovery path. All this is happening while the GST action has been going on on the higher end of Ethnic wear. The GST as you know has increased from 12% to 18%. I do not think at this point of time that this 5%-6% increase in GST almost all of which we have to pass to customer will have any significant shift because the price points at which it operating consumer is unlikely to move to value option.
You don't get that kind of product, that quality of product, so that customer will obviously not shift many steps level. A little bit of up and down for a short period might happen, but we don't expect that to be a large phenomenon.
Thank you. That's it from my side.
Thank you. We'll take our next question from the line of Aditya Bansal from Motilal Oswal. Please go ahead.
Thanks for taking my question. Just wanted to understand what exactly is. Being addressed through the brand identity change in the value retail and how have been the trends in that segment for us?
Sangeeta, you want to comment?
Yeah, yeah. I presume you're talking about OWND!, right? Yeah, the new retail entity. I think this comes from a very good deep understanding of the fact that we are targeting the Gen Z here and our deep understanding of this segment. Of course, if you see the value segment with the level of competitiveness, it is very, very important for us to build distinctiveness and to make sure that we break through this clutter of several brands. Therefore, there are different elements in terms of the OWND! brand. We redefined both the store design to make it look different and distinctive.
As we go forward, there will be certain things in terms of how do we strengthen our engagement with this set of customers, a sharper definition of which product categories really matter to this customer and defining those. Of course, again the brand positioning, which in terms of language, etc., and communication is based on, again, an understanding of this segment. This is again a great opportunity. Based on our learnings of the last two years, having seen the success of what we established over the last two years, we felt there were opportunities for us to further strengthen the brand and therefore further strengthen this proposition and therefore the brand, the identity, the store design, the sharper focus on product are all part of that. From here on we intend to continue to invest in this format.
Having seen the success gives us confidence to build on this more aggressively.
Sure. Any trends on the. How the industry has been performing and how we have performed on the value details end.
Yeah, so I think it's. It is. You know, we've been here for the last couple of years. We have evolved this format and made changes with a great sense of agility. I think we are pretty. You've seen the growth numbers that Jagdish talked about at 43% and of course we've added 10 new stores. I think we are pretty. We feel pretty good about our performance of the first half of this format.
Thank you very much, 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 Trivedi. You may now disconnect your lines. Thank you.
Thank you.