The Future Bluechip : Aditya Birla Fashion Retail Ltd (ABFRL) CMP - 142

“We don’t need fashion to survive, we just desire it so much.” — Marc Jacobs

 Fashion is perhaps the very first expression of success of a free nation. Fashion is a celebration and a joy. It is an expression that can manifest itself in different ways for different people and these ways are forever evolving.

Aditya Birla Fashion and Retail Ltd. (ABFRL) emerged after the consolidation of the branded apparel businesses of Aditya Birla Group comprising ABNL'S Madura Fashion division and ABNL's subsidiaries Pantaloons Fashion and Retail (PFRL) and Madura Fashion & Lifestyle (MFL) in May 2015. Post the consolidation, PFRL was renamed Aditya Birla Fashion and Retail Ltd

"This consolidation will create India's largest pure play Fashion and Lifestyle Company with a strong bouquet of leading fashion brands and retail formats. This move brings India's #1 branded menswear and womenswear players together." - Kumar Mangalam Birla, Chairman, Aditya Birla Group.

THE BRAND FACTOR

Be it Apple, Microsoft, Nestle or P&G ,  If we closely track the history of huge wealth creating stocks around the globe, in majority  cases we can find out one common factor – the company owns or entitled to use one or more  successful brands. Indian market is not an exception . We have many examples like Page Industries ( Jockey), Jubilant Foodworks ( Dominos) ,Eicher Motors ( Royal Enfield) , Whirlpool ,Laopala ..etc. The new kid on this block is Aditya Birla Fashion Retails. Ltd. Let us look into this which I consider as a true multi bagger in making for long term investors. 

What make this loss making company suddenly attractive is the scheme of arrangement announced by Aditya Birla Group few days back. To  consolidate all its branded apparel business into a single entity AB Group now bringing many super brands under AFRL’s fold. It will de-merge Madura Fashion (the branded apparel retailing division) and Madura Garments Lifestyle (luxury branded apparel retailing division) and merge them with Pantaloons.

Madura Fashion & Lifestyle (MF&L), a division of Aditya Birla Fashion & Retail Limited (ABFRL) is a true Indian icon and owner of iconic brands like Louis Philippe, Allen Solley and Peter England. It has acquired the global rights for these brands.  It also got perpetual license rights of premium brand Van Heusen from  PVH (Philips Van Heusen) USA  for India, Middle East and SAARC countries. Four of its brands are among India's top fashion names, with MRP sales in excess of INR 1,000 crore each. 

 

Pantaloon Fashion & Retail a division of ABFRL is one of the most loved and fastest growing large format fashion retailer in India. Pantaloons  retails over 200 licensed and international brands, including 14 exclusive in-house brands. The Pantaloons exclusive brand bouquet include Rangmanch, Ajile, Honey, Akkriti, Chalk, Annabelle, Trishaa, Alto Moda, Poppers, Chirpie Pie; besides, it also features brands licensed on a long-term basis: Bare, Rig, SF Jeans, Byford, JM Sports, Lombard and Candies. It also retails partner brands such as John Miller, Celio, Spykar, Levis and Lee Cooper in menswear,  Jealous 21, 109*F, AND, Chemistry and KRAUS in women's, western wear BIBA, Global Desi, and W in women's ethnic wear Barbie and Ginny & Jony in kidswear. PFRL offers a wide range of brand offerings across apparel and non-apparel categories and across varied price points. It operates across categories of casual wear, ethnic wear, formal wear, party wear and activewear for men, women and kids. Womenswear is the lead category contributing to half of total apparel sales. Non-apparel products include footwear, handbags, cosmetics, perfumes, fashion jewellery and watches.
 

When we consider any business depends on brands , we should look into the ownership of brands too . If such a company loose its brand in any circumstances , the entire business may collapse and hence some understanding about this part is very important for an investor. As you are aware Page industries is not the owner of Jockey brand but they are using that brand name as an exclusive licensee of Jockey Brand products from Jockey International Inc till 2030. Like  this ,Jubilant Foodworks using Dominoz brands through an exclusive franchise agreement with Dominos International which is valid till 2025. Why I bring these examples here is just to point out the fact that these agreements are made with a time frame and it should be renewed thereafter for another fixed period, time to time.Though chances are rare for a termination , we can’t rule out possibility for introduction of more  and more covenants by original brand owner at the time of each renewal. Even in some rare cases, relation between both parties may go beyond this and ends in never ending disputes.The recent incident of the dispute between the owner of McDonald brand and one of its Indian franchise owner Mr Vikram Bakshi is one best example for such unfortunate incidents.In this back ground let us look into the brand ownership scenario of some of its major brands viz- Louis Philippe, Van Heusen, Allen Solly and Peter England . Louis Philippe is a brand currently owned by Madura itself.Van Heusen is originally owned by Philips Van heusen company ( US )  but Madura owns the perpetual right to use this brand .The world rights of Peter England brand acquired by Madura in 2000. The brand ‘Allen Solly’ is originally started by a company named ‘William Hollins & Company’ in 1744  and Madura Garments taken over this company in 1990.In nutshell , uncertainties surrounding the ownership and usage of AFRL’s major brands are nil or less compared with brands of many of the highly flying listed players like Page or Jubilant.( I believe brands like Louis Philippe, Van Heusen, Allen Solly , Peter England..etc  are equal or above the brands of mentioned other companies in their respective category .More than that when others own one good brand ,here in this case all these four brands are extremely strong .Existing brands of Pantaloon ( Byford,Factor,annabelle..etc..etc) will continue in this company itself.In addition to this branded apparel manufacturing ,the combined entity will own a retail network of 1,869 stores across India and a strong e-sale platform - http://www.trendin.com/ .

 Investment Concept

Branded apparel business is fast-growing and it has high growth potential possibilities in future. ABFRL enjoys best-in class profitability and management pedigree in its branded apparel business. 

MFL has four most powerful fashion brands of India- Louis Philippe, Van Heusen, Allen Solley and Peter England. Fast growing popularity of these brands among young generation will lead exponential growth for ABFRL. MFL  has the ownership / perpetual license of its brands, It will give freedom of brand extensions to new categories like including sportswear, footwear, bags & accessories products and new geographies. 

In fact MFL has already working on strategy of product extensions from last couple of years by launching  ‘LP Young’, a colorful, classy version of Louis Philippe to cater to the youth and launched a new product brand ‘LP Shoes’  with three Exclusive Brand Outlets (EBO) for LP Shoes operational in Bangalore. Brand ownership also results in savings of royalty expenses. No any other fashions retailing company in India is having similar strength to compete with unique business model of ABFRL.

Madura has very strong presence in the menswear segment. Pantaloons fills the product gaps on the womenswear and kids wear portfolio of ABFRL. It has niche in women’s ethnic wear market and kids market. The combination of Madura and  Pantaloons is highly synergetic to reduce the cost by utilizing retail space, inventory management, distribution, manpower under ABFRL. Ultimately it will help to improve operational efficiencies which will result in better margin and profit.

 

  Recent Tie-Ups

·   Simon Carter 

ABFRL has signed an exclusive deal to bring the Simon Carter designer wear brand into the country. Simon Carter is a London based designer brand with a quirky English touch, soon to make its debut in the country in collaboration with ABFRL.

Simon Carter began his career in 1985 with a wholesale business, going on to open his first store in London's famous Regents St. The visionary man with a penchant for revolutionizing the men’s fashion industry and with an acute business sense was recently named the ‘Most stylish Man of the Year 2015’, while the brand was named the ‘Menswear Brand of the Year 2013’, among other accolades. Simon Carter holds the distinction of being the most successful international designer with seven standalone designer brand stores in some of the most posh locales in the UK. His much sought - after collections are retailed in some of the most exclusive department stores and independent retail outlets in 40 countries around the world including Liberty, Bloomingdales USA, Seibu Japan, Brown Thomas Ireland, and David Jones Australia. In the 30th anniversary of its business, Simon Carter will now be available to consumers in India as well, in an exclusive partnership with ABFRL.

·        Forever 21 

Forever 21 is one of the fastest growing fashion retailers in the world with a large network of more than 700 stores across the globe. 

Forever 21, Inc., headquartered in Los Angeles, California, is a fashion retailer of women’s, men’s and kids clothing and accessories and is known for offering the hottest, most current fashion trends at a great value to consumers. Forever 21 is ranked as the 5th largest speciality retailer in the United States.

Founded in 1984, Forever 21 operates more than 730 stores in 48 countries with retailers in the United States, Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Israel, Japan, Korea, Latin America, Mexico, Philippines and United Kingdom. Forever 21 has brands like Forever 21, XXI Forever, Love 21 and Heritage in its portfolio.

Online Portal

ABFRL has launched online sales portal TRENDIN.com to scale-up e-commerce business. It will also showcase its entire range of brands and products and capitalize on the growing importance of online as a sales channel. The management also plans to empower its current offline presence with an OMNI channel network, wherein consumers can pick a particular design/product even if it is not available in the store and ABFRL can deliver the product to the consumer’s address either from a nearby store of the nearby warehouse. ABFRL has direct supply agreements in place with e-commerce players. ABFRL sells directly to third party e-commerce channels and has agreements in place with its traditional channel ensuring discipline in sales through the e-commerce model. The company also operates independently through its website www.trendin.com The rapid growth of e commerce provides sufficient scope to ramp up in this channel.

Madura is alone generating annual profit around 300 crores and debt of 1200 crores came in the books of Pantaloons can be easy retired within few years. ABFRL will also get tax rebate due to carry forward losses by Pantaloons. In FY 15-16 losses are mainly due to lease rentals of Pantaloons stores for 6 years and company has given details about it under results notes # 8 and 9. 

http://www.bseindia.com/corporates/resultNotes.aspx?Scrip_cd=535755&scripName=Aditya%20Birla%20Fashion%20and%20Retail%20Ltd&qtrcode=89.50

Recently GOI has approved 6,000 crore special package for the textile and apparel sector. It is specially helpful for the people working in garment sector. Final draft of the  policy will be announced in coming weeks.

Conclusion :

ABFRL is undisputed market leader in Branded Apperal sector. Considering Government  initiative to boost the texttile sector and Possibility to increase the domestic consumption due to 7th pay commission, I firmly believe that ABFRL will become multibagger  in upcoming years.