Aditya Birla Fashion and Retail Ltd

NSE:ABFRL

Earnings Call Analysis

Revenue Growth and Investment Phase Summary

The company reported a revenue increase of 5% year-over-year, reaching INR 3,226 crores, largely fueled by new business lines, albeit in a slower market. EBITDA margin stood at 11.4% for the consolidated group, with a slightly higher 14.2% for stand-alone businesses. Net debt was reported at INR 4,355 crores. The company anticipates an uptick in consumer demand, noting significant growth of the TMRW portfolio brands, which have now expanded to include an eighth brand. Despite the current losses, particularly in the innerwear segment, 90% of TMRW investment is complete and management expresses confidence in their positioning, pointing to a period of high debt as a natural consequence of recent acquisitions.

Market Sentiment and Company's Strategic Response

The backdrop of this story begins with a challenging market environment characterized by sluggish consumer spending, impacting demand for the company's offerings. Despite these market constraints, the brands under the company's umbrella remained committed to their core principles, which involve constantly innovating their product lines, enhancing the customer experience, expanding their consumer base, and improving brand salience through vigorous marketing campaigns. Amidst a tough quarter, the company responded with strategic store expansion, adding 48 new stores across its portfolio.

Acquisition and Future Growth Plans

A significant narrative twist occurred with the company's acquisition of a 51% stake in TCNS Clothing Company Limited, marking a critical move aimed at synergy and increased operational efficiency. This acquisition represents a transformative step for the company, setting the stage for a merger and promising future collective growth plans.

Brand Performance and Expansion

Certain brands within the portfolio showcased impressive growth, with Shantnu & Nikhil and the House of Masaba posting 33% and 18% year-over-year growth, respectively. In particular, the TMRW portfolio witnessed significant expansion, growing to seven times its size from the previous year, further expanded by the addition of a new brand, The India Garage Company. Such growth narratives underline the segments within the company that are flourishing and continue to be ripe for investment.

Future Outlook and Value Creation Vision

Looking forward, the company portrays a cautiously optimistic stance, with an expectation of a rebound in consumer sentiment during the festive period and a strategy to capitalize on this optimism. In a broader context, the company emphasizes its focus on resilience, leveraging its comprehensive retail network, robust brand portfolio, and excellence in execution alongside digital initiatives and organizational strengths. This conveys a story of a dynamic company adept at navigating business challenges and continuing on its path to long-term value creation.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good evening, and welcome to the Second Quarter Earnings Conference Call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief discussion by the company's management on the Q2 and H1 FY '24 performance followed by a question-and-answer session.

We have with us today Mr. Ashish Dikshit, Managing Director; Mr. Jagdish Bajaj, CFO; Mr. Vishak Kumar, Director and CEO, Lifestyle Business; Ms. Sangeeta Pendurkar, Director and CEO, Pantaloons. I want to thank the management team on behalf of all the participants for taking valuable time to be with us.

I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarterly performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team.

With this, I now hand the conference over to Mr. Jagdish Bajaj. Thank you, and over to you, sir.

[Jagadish Bajaj, executive]

Thank you. Good afternoon, and welcome to the Q2 Earnings Call of our company. Let me start with an overview of the operating environment. The market has remained sluggish primarily due to slowdown in discretionary spending. This was further impacted by span of a big mask, shift of festive season and fewer wedding dates vis-a-vis last year. The combined effect of the above factors led to really sluggish demand environment where at an overall level, certainly the category suffered.

During these times, our brands did what they do the best: offering consumer delight through addition of innovative and exciting products, elevating customer shopping experience, expanding consumer base and improving brand salience through multiple marketing campaigns. Our brands remain steady fast on their growth agenda with net addition of 48 stores during this quarter.

As you must be aware, we have completed acquisition of 51% stake in TCNS Clothing Company Limited in last week of September. With this critical step behind us, both ABFRL and TCNS teams have swiftly come together to work on creating collective growth plan with business synergies and operational efficiency, improving [indiscernible] to it.

The second leg of the transaction, that is merger of TCNS with ABFRL will start soon, and it is expected to compete in the next 6 to 9 months. Both the teams are confident that this collaboration has propelled the growth of TCNS plan into their next stage of value creation.

Now I will talk about financial performance of our company for this quarter. The company delivered revenue of INR 3,226 crores, which reflects a growth of 5% over the same quarter last year mainly driven by its new lines of businesses. On a like-for-like basis, the business take place in a significantly slower market.

Our stand-alone sales stood at INR 2,995 crores. The company achieved a consolidated EBITDA of INR 369 crores with 11.4% margin. Our stand-alone EBITDA margin was 14.2%.

EBITDA for this quarter was impacted due to subdued sales on a cost base built for higher sales. You are aware that a large part of cost base is rentals, which are predominantly fixed in nature. The company's consolidated PAT was negative INR 200 crores.

As at the end of Q2, our store network stood at 4,056 stores spanning across the total retail area of 11.2 million square feet. The net debt as of September '23 stood at INR 4,355 crores. This is post completion of TCNS transaction.

For H1 FY '24, the company posted revenue of INR 6,423 crores, reflecting growth of 8% over the same period last year. EBITDA for H1 FY '24 was INR 722 crores. EBITDA margin stood at 11.2% for H1 FY '24.

I will now take you through the performance of individual businesses, starting with Lifestyle Brands. Lifestyle Brands, which has been growing steadily was impacted this quarter primarily on account of feeble wedding calendar as these occasions drives a large part of its suits and blazer business. Shift in festive and e-comm slowdown with other factors responsible for the adverse impact.

Quarterly revenue for the segment was INR 1,586 crores, which was 6% lower than last year. Led by cost measures and gross margin improvement, EBITDA for Q2 stood at INR 339 crores, reflecting a growth of 18% over last year. EBITDA margin for Q2 was 21.3%, an expansion of 430 basis points over last year.

During the quarter, the retail channel declined by 4% over the last year, while the wholesale segment exhibited resilience with sales remaining at par with the previous year. Our brands continue to launch innovative products and extensions.

The business also expanded its distribution, adding a net total of 17 stores during the quarter. The brands have consistently elevated their salience by enhancing product across various categories and executing impactful marketing campaigns.

Let me now talk about Youth Western wear, which consists of American Eagle and Forever 21. American Eagle witnessed yet another quarter of strong performance with 37% revenue growth over last year led by strong distribution expansion. The brand is now available across 49 exclusive stores and across top departmental stores. Meanwhile, Forever 21 remain committed to streamlining its network, emphasizing operational efficiency and expansion of e-comm channel.

Now about Reebok. With the year at ABFRL, Reebok's resurgence continues. The brand's quarterly revenue grew 77% over last year's same quarter on account of rapid distribution expansion and a strong L2L growth.

The brand maintained its momentum by introducing new product offerings, optimizing store throughput and extending its presence across various channels. In this quarter, the brand expanded its network with the addition of 15 stores, in line with its aggressive growth strategy.

Let me now speak about innerwear business. Innerwear and athleisure wear as a category has been under tremendous pressure since early quarters of last year. The sudden shift out of the athleisure wear category [indiscernible] experienced during COVID, where the category was doing well has been a difficult one for the brans to assess and take quick collections.

The category, hence, has been under severe stress from a growth point of view for the last couple of quarters. The business in Q2 FY '24 declined by 10% led primarily by outerwear slowdown. And innerwear category within the business posted a low single-digit growth over last year. The brand posted retail L2L of 6% despite overall slowdown in the category.

During the quarter, brand expanded its reach to execute 33,600 trade outlets. Brand also launched its first ever celebrity campaign starring Indian cricketer, Hardik Pandya, as the campaign garners increased reach and influence amongst the consumers.

The premium part of the portfolio continues to do well. The Collective and other super premium brands witnessed a stellar growth of 26%, with 11% L2L growth over last year. The Collective in -- witnessed a 30% growth over last year as it continued to be one of the top e-comm luxury destination for consumers in India.

Moving on to Pantaloons business. Value fashion as a category has been under constant impact since festival of last year due to sudden consumable slowdown in lower ASP segment, attributable to core income and consumer confidence at the lower end of the population pyramid.

The trends around lower tier markets doing poorly, high street, struggling to catch up with malls have continued even in this quarter. All factors indicating towards a real stress in rural semi-urban market and predominantly amid the low-income households.

Pantaloons recorded quarterly sales of INR 1,021 crore. The sales remained impacted because of subdued demand in the segment, marked further by the shift of Pujo to Q3. Pujo plays a big role in driving sales for Pantaloons as the brand is amongst the most loved brands in Eastern part of the country.

We saw that while non-Pujo markets showed a robust 7% year-on-year growth, the East market showed a double-digit decline due to shift of Pujo affecting the overall performance of the business. The decline in sales had an adverse impact on the margins of Pantaloons due to negative operating leverage.

The store additions in Pantaloons continued as it added net 5 stores during the quarter, taking the total to 439 stores by the end of Q2. The brand continued to enhance the in-store ambience and elevate the customer experience by rolling out new stores with new retail identity and launching multiple initiatives to drive footfall.

Now ethnic portfolio. This quarter, our ethnic segment achieved revenue of INR 144 crores at a growth of 32% Y-o-Y. Business continued to invest in brand-building initiatives and new store openings with addition of 6 new stores during the quarter.

Sabyasachi grew 39% year-on-year led by 18% retail L2L growth and a strong performance in jewelry and apparel segment. Our men's premium ethnic wear brand Tasva, is now available in 60-plus stores. We focus on driving quality and store experience, improving offerings with more variety and occasions and increasing brand recognition through impact through marketing campaigns.

Jaypore continued to expand its top network with the addition of 2 stores during the quarter and now at present in 22 stores. Shantnu & Nikhil posted growth of 33% over last year same quarter while the House of Masaba posted 18% Y-o-Y growth with 12 stores in total.

TMRW. TMRW portfolio brands grew to 7x of last year as brands continue to benefit from operational enhancement. Post the quarter, as disclosed in our regulatory filings, TMRW has expanded its portfolio by adding eighth brand, The India Garage Company, which specializes in men's casual space.

To conclude, as we look ahead to the near future, our outlook is cautiously optimistic. We anticipate an upswing in consumer sentiment during and partly festive and plan to leverage on the positive consumer sentiment for the coming period.

We are focused on building resilient businesses, leveraging our expansive retail network, formidable brand portfolio, execution excellence, digital processes and organizational capabilities. ABFRL has continued to manage business with agility and take productive measures to ensure that we not only build and nurture our brand but also realize our long-term vision of value creation.

Thank you, and wishing you all a very Happy Diwali and festive season. We are open for questions now.

[Operator]

[Operator Instructions] We will take the first question from the line of Varun Singh from ICICI Securities.

[Varun Singh, analyst]

Am I audible?

[Operator]

Yes, sir.

[Varun Singh, analyst]

Sir, my first question is related to Madura brand, Madura segment. Sir, our performance has been relatively weak compared to peers during the quarter. So how should we -- I mean, given that everyone would have -- everyone has faced a similar kind of a slowdown in the industry with regards to shift in festivals and lower waiting days, et cetera, but still, how should we read relative underperformance in our case compared to peers? That's my first question.

[Ashish Dikshit, executive]

Varun I'll take the first question, Vishak can add to it. If you look at Lifestyle Brand's performance, it has delivered by far the industry-leading EBITDA margin for the quarter. In a tough quarter, that is -- there is nobody in the industry who I know of has delivered margins close to this. So I'm a little surprised by the question.

If you're talking of revenue, it's a reflection of the choices you make on channels. There are parts of revenues which are not as healthy, which at times you don't chase them so much. And therefore, to that extent, the revenue growth will differ across business.

It's a very high-quality business, exceptionally strong brands. And therefore, I don't have a reason to believe that there is any level of underperformance in that. In fact, it's a strong performance on multiple accounts.

[Varun Singh, analyst]

Sir, my question was -- I mean, I meant to compare revenue growth only. In terms of profit, of course, we have done relatively better. But for example, minus 7%. And my question is more restricted to Madura only, excluding other businesses. So minus 12% like-for-like growth, minus 6% revenue growth.

So I was trying to understand more from the channel nuances point of view. Is this because of more primary, secondary growth differences or anything else that we wanted to call out to explain the -- this difference that I'm calling out as?

[Vishak Kumar, executive]

Varun, there are 2, 3 things. First of all, you're right. You rightly said there is the fading effect of weddings and festival, et cetera, which you correctly understood. On top of that, like Ashish was trying to explain, the channel mix in our business including some lower-margin channels, liquidation channels, et cetera, so we have seen the revised phasing of business quite early.

We kept inventory tight. And then hence, we did not have to do some of those things which give top line but don't give bottom line. So we kept it in that sense, a very high-quality sales, which was at high margins. Also tremendous amount of effort went into cost reductions, which led to a very strong EBITDA growth as well, okay?

And we're fairly well poised. I mean, if you look at our ranks in department stores, we are 1, 2 and 3 and so on. So in terms of market share also, perhaps we would have only gained share not lost share. And all of this is on top of last year's performance, which is also a huge bump of growth. So Varun, I would say that it's fine.

[Varun Singh, analyst]

Okay. Okay. And my second question is looking at the losses over last 6 months or in the first half, will we be recalibrating or turning down our retail expansion rate? That's my last...

[Ashish Dikshit, executive]

Which business are you talking about, Varun?

[Varun Singh, analyst]

I mean, overall, at company level, retail expansion in Pantaloons and Madura stores. I mean...

[Ashish Dikshit, executive]

Madura as Vishak just explained, is operating with tremendous strength with strong profitability. Business is doing exceptionally well. There's no reason to slow down anything there. It's a very high-quality business currently. So there's absolutely no reason to slow that.

[Varun Singh, analyst]

No, I meant the overall retail expansion rate of the company. For example, we are making losses in Ethnic and TMRW, which is significantly having a drag on the overall EBITDA of the company, but that might be the construct of the business. But still, I thought maybe is there any reduction in the overall guidance for the financial year with regards to how we wish to expand our retail network?

[Ashish Dikshit, executive]

Okay. Is your question complete?

[Varun Singh, analyst]

Yes. Yes, sir.

[Ashish Dikshit, executive]

Okay. So as I was explaining, there is absolutely no reason to slow down network expansion. And so as Madura brand is concerned, we'll continue to remain with the guidance that we have given.

In Pantaloons, we have given a guidance about 30, 35 stores for the year. We opened 15. We'll stay with that guidance. In innerwear is where we have slowed down significantly our retail expansion because the athleisure market is not responding as strongly, and that's the only place where there's a slowdown.

Tasva has gone up to a very good start. So we'll continue to remain expansion on that. So the strategy is different at different businesses. You have to see company as different pieces at different stage of their evolution. And we'll take appropriate step for each one of them.

[Operator]

The next question is from the line of Garima from Kotak.

[Garima Mishra, analyst]

Just can you remind us when this GIC tranche coming and the exact amount?

[Jagadish Bajaj, executive]

So Garima, GIC's warrant money is likely to come by March. The amount is around INR 1,400 crores.

[Garima Mishra, analyst]

Understood. [indiscernible] has already made the 51% acquisition, and money has gone towards that and debt levels have increased. Do you think debt levels can come down because of any other interventions that you make barring the warrant money that you see by, let's say, March 2024?

[Jagadish Bajaj, executive]

Garima, I would like to stick with our earlier guidance of debt of INR 2,800 crores by end of March. This includes cost from GIC against conversion of warrants. The money will -- whatever we generate will be used for the CapEx, working capital liquidation and the investments, which is going to [indiscernible] INR 400 crores.

[Garima Mishra, analyst]

Okay. Understood. My next set of questions is regarding [indiscernible]. Any comment on strategic steps that you might face to revise revenues there because at least the first half performance there has been impacted due to the consumption slowdown. And particularly in the second quarter, could you clarify why margins of that business were really low both gross margins as well as EBITDA margin?

[Ashish Dikshit, executive]

So Garima, I won't comment on quarter 2 performance. Most of it was before we came in. It wouldn't be fair for me to comment on that.

But as far as we are concerned, we have seen the portfolio of these brands in our stores in Pantaloons. And post acquisition, we have started to look closely into the business. I think a lot of challenges which business suffered on account of slowdown in ethnic [indiscernible] post COVID and internal challenges with respect to some of the design failures that they had created have been well understood by the business.

The business is now fully back on track, and the current performance seems a lot better than what it is. It will still take them a couple of quarters to come back to where they were. But at this point of time, there is a clear visibility of strong recovery in that business.

[Garima Mishra, analyst]

Understood, Ashish. And my last question, could you make some comments of compilations on how Q2 has panned out for [indiscernible] almost in the halfway through the quarter across businesses? And if there are any difficulties between business performances that you are observing?

[Ashish Dikshit, executive]

So I wouldn't want to say anything that leads you to conclude anything about Q3. But I would say generally, however, is that we have seen large part of [indiscernible] during Pujo and part closure to Diwali. Obviously, there is a natural demand revival that happened during this period.

I would say also on an overall level, the picture looks flattish to marginally positive for some businesses, extremely good for wedding-related businesses. But for the lower end, the business continues to suffer from the underlying demand challenges. However, festive period performance naturally, as we would expect, will be far better.

[Operator]

[Operator Instructions] The next question is from the line of Tejash Shah from Spark Capital.

[Tejash Shah, analyst]

So you've kind of alluded that the initial figures on the festive season is somewhere mixed except wedding pocket. I believe and the rest is actually flattish to marginally positive that's what perhaps you indicated.

So just wanted to know, let's assume that the demand does not recover for the second half. How should we kind of think about our rollout expansion plan that you have just mentioned that we'll stick to it? Do you think that we'll have to revisit or we'll recalibrate it on that guidance?

[Ashish Dikshit, executive]

To a large extent, we have sort of factored in some of these medium-term challenges that the economy was suffering because it started practically from the post festive period of last year. And therefore, if you look at our strategy shift or calibration was to slow down expansion in the lower end of our markets where, let's say, Peter England brand operates in smaller towns, Pantaloons, particularly in smaller towns, slowdown in North and East, West more visible to geographical expansion.

We, therefore, continue to see that similar behavior. Lot of that is already factored in. So as I said, we will stay with our plan of about 30 to 40 stores for Pantaloons. Lifestyle Brands continue to expand largely by demand-driven, franchise-driven model. So it's not really a push model where we decide how much we want to grow. There's all demand and therefore, franchisees decide that.

We'll continue to -- that business is doing very well. I think you will see in the second half as the weddings come back because there's a lot of suits and high-end purchases in Lifestyle Brands that are related to it.

As far as ethnic business is concerned, I think the best part of the year is coming in now. We are already beginning to see tremendous shift in trajectory as far as wedding-related and ethnic business are concerned. That higher end, [indiscernible] the designer wear, Jaypore, Tasva, et cetera.

So to that extent, what we needed to do, we have factored in is the sense that we have. We'll not need to change dramatically any major shift. And while I've said it's flattish, that is it compared to large festive. Compared to where we are, it's a significant uptick in demand versus what you saw in the Q2, but that was naturally to be expected.

[Tejash Shah, analyst]

Okay. And second, considering the widespread brand and the entire distribution network that we have, you would have one of the most, I would say, steady and much more insightful kind of access to what consumer is thinking and why sudden slow down post Diwali.

So -- and then you collect a lot of data digitally also. So just wanted to know both anecdotally and digitally the feedback that we are getting. What's your sense on why consumer has kind of taken such a long time to come back? And when do you expect this to kind of change from at least in the near term?

[Ashish Dikshit, executive]

So it's a tough one, Tejash. We are also still evolving our thesis around the consumers. But as you rightly said, we are a retailer with 4,500 stores. We sell products at 15 lakhs and INR 200 and INR 300. So we have a reasonably good sort of what consumer voice through its wallet, which is traveling back to us.

There are a few things which are very, very clear. Clearly, the state of economy in different segments is almost directly proportional to the income levels. There is relatively lesser stress as you go up in the top and lower at the bottom.

Second, there are parts of the countries which are more affected by this. And perhaps you can connect with the first, particularly parts of East, many states like UP, Bihar, even parts of North India, they're far more affected than the West and Southeast at this point of time. That's also visible in our geographical sort of the way the sales numbers are playing out.

The deeper underlying story is also really around at some level, we feel that as the discretionary in the high inflation environment in society, where personal indebtedness is rising. Consumer credit is more freely available.

Consumers are spending on categories which are, I would say, more capital in nature. And to that extent, high inflation, not enough rise in wages, as you've seen, is squeezing the discretionary part for some time. And this is a part-time cycle that happens.

There is, of course, a K-shaped recovery or factor that people talk about, which is higher end of the market is less affected, but the lower end is where the squeeze is much more visible.

So as we look ahead, we -- this is also cyclical. I think consumers -- our category, fortunately, is somewhere basic and discretionary depending on what kind of products you are talking about.

So there is a part of the segment you don't cut down on weddings and festivals, so it comes back. And also perhaps to some extent, it's also a reflection of exuberance that you saw, and I would say slightly exaggerated exuberance that you saw in the first half of last year. So the base numbers reflect that.

So the companies which are more stable and are not going inorganically by distribution expansion and you look at like-to-like picture, this is to the best of our understanding, reflects the performance differential in our own portfolio. Of course, individual businesses could have factors related to their particular segment, but this broadly reflects what is our current understanding of consumers.

[Tejash Shah, analyst]

Got it. And then the last one if I may. So we have guided on bringing our debt to somewhere around INR 2,600 crores or INR 2,800 crores. And then obviously, there's GIC [indiscernible] which will come through, which is roughly INR 14 crores, INR 15 crores, and then we have our own CapEx need also.

So I just wanted to know, let's assume that this environment has to continue for a slightly longer, this tepid growth environment. Do we need some more inclusion of equity capital to kind of provide the growth engine? Or do you believe that managing this infusion from GIC and our own internal accruals will be able to kind of fulfill our near-term growth ambitions?

[Ashish Dikshit, executive]

So I think for -- just for our near-term growth ambitions, we think we are well positioned. We have to go through a period of slightly inflated debt, as you said, INR 2,600 crores, INR 2,800 crores. That's a reality. But we had factored that in when we made the investment. And we were thoughtful and spent time thinking about how we see our business. And a period of elevated debt after a large acquisition is almost a natural outcome.

And we are comfortable with that and feel that -- most of our investment phase, if you think about it, where have we put capital and what are the -- sort of how we've used capital in the last 12 to 18 months. There is a large TCNS acquisition investment that has gone in. That part is over. Only the merger part is left.

90% of TMRW investment is done. Our peak losses in innerwear will perhaps play out this year. And after that, we'll come closer to breakeven or much closer to that.

I think except Tasva, where we would continue to remain aggressive because the response is absolutely phenomenal, what we are seeing and it's a large opportunity, perhaps all our businesses are coming to a phase where the deep investment phase will come down. And we feel that we are well structured to respond around that.

And you will start to see some of the less capital media business like Lifestyle Brands, Reebok is on a very good growth, but most of it is self-funded. Pantaloons, despite going through a phase of very difficult period, currently as we see, despite these circumstances, we'll be able to generate enough cash to fund this growth.

So we feel comfortable with what lies ahead. But I have to say that this level of debt is something that we'll have to get used to slightly higher debt level for next maybe 18 to 24 months.

[Tejash Shah, analyst]

Ashish, just and this time associated point or observation. So we had an opportunity to listen to Mr. Kishore [indiscernible] on a couple of popular broadcast recently. And invariably, when the question was asked that what led to -- or what mistake he did in Pantaloon, and he very honestly kept on saying that elevated debt was actually an issue. And if we had to kind of redo it again, that is one mistake that he'll avoid.

I can understand that we have our growth priorities, and there is a tepid growth in market also. So between the 2 priorities, as you said, you are also not comfortable with hybrid. Between the 2 priorities to revive growth and reduce debt first, what will you prioritize, let's say, if you have limited capital and then the growth is not as you expected?

[Ashish Dikshit, executive]

So, of course, we will -- there is no doubt that we will play the game as the constraint play out. But I would only say that as a significant consumer-focused business of Aditya Birla Group, we have the mandate and the opportunity in front of us to play out actively.

If you look at where we have invested, whether it's TMRW, whether it's ethnic businesses, whether it's Reebok, these are very, very strong foundations that we are creating in a transformational journey at different points of time. Many of our group businesses have gone through this space.

We, in our own journey, have gone through a sales post acquisition in past also. I'm very comfortable that this is not something for us to worry about, but we'll remain, of course, responsible to what we have at this point of time and careful in how we invest.

There was a phase in which we needed to grow many of these sort of multiple canvas to bring long-term growth levers. And that's what we have done in the last 4, 5 years. Perhaps next few years, we'll see a more steady and robust growth of the existing businesses instead of multiple new opportunities that we have pursued and built. But we think that we needed to done to diversify this company and take it into more productive and future-ready state, which is what we have done in the last few years.

[Operator]

We'll take the next question from the line of Richard Liu from JM Financial.

[Richard Liu, analyst]

Ashish, can you explain the gross margin movement a bit please? And I'm talking about the...

[Ashish Dikshit, executive]

Richard, there is some noise on your side.

[Richard Liu, analyst]

Okay. Sorry. Is this better?

[Operator]

Yes, sir.

[Richard Liu, analyst]

Okay. Ashish, sorry about that. Can you explain the gross margin movement a bit, please? And I'm talking about the standalone business here so as not to confuse it with the DTC piece.

I feel that your standalone margin is down by about 200 bps from 54% to sub 52%. And we seem to have attributed into [indiscernible] one of the slides. Any perspective on how bad this is? And is it a deliberate move to try and grow sales in this weak environment? And also in that context, if you can you give some color on how the core Madura brand margin have been moving in recent times.

[Ashish Dikshit, executive]

So I think, Richard, different parts of our businesses have played out gross margin differently, and I'll just take some time to explain the differences. On Madura side of the business, as I was explaining in response to the first question that Varun asked, the gross margin has significantly improved, I think, between 150 to 200 basis points.

Large part of it is attributable to the softening of raw material prices, improvement in quality of channel choices that we have made in that. And so -- but there you would find the gross margin has increased.

The Pantaloons part we have specifically called out because this quarter, Pantaloons performance got affected by between 250 to 300 basis point gross margin dilution. It is primarily because in the period between November to March, we ended up -- because we are on a very stable growth business at that point of time, we didn't anticipate the slowing of demand fast enough. And therefore, there was an inventory buildup, and we wanted to use quarter 2 end-of-season sales to liquidate that more deeply.

It has made the business healthier going forward, reduced our level of old inventory. And it was a call that we took to settle the Q2. And it's a combination of these 2. Rest would be a mixed share of businesses mixed in between.

[Richard Liu, analyst]

Okay. Okay. Just moving on from there. And I think you kind of alluded to part of this year in one of the earlier questions. But I'm just referring to the sales breakup of the Madura brand, where [indiscernible] have declined quite substantially while wholesale has -- is kind of much better.

I had thought that it would be the other way around, given the festive season delay. Any color into this in terms of how much of restocking, late stocking or what kind of a picture is this kind of behavior due to?

[Ashish Dikshit, executive]

So I think it's quite a reflection of the economy. Madura business, especially parts of Louis Philippe, Van Heusen, et cetera, are -- have a large share in the weddings market. And when weddings do well, suits, which would be 1/4 of our sales or something between 1/5 to 1/4 of our sales, that business does extremely well.

We will see that reversing in the quarter 3. But in quarter 2, as most of the wedding businesses and now we have a portfolio of wedding businesses, we can clearly sort of associate the retail performance where the share of wedding-related sales is much higher. That's the part that has affected Madura [indiscernible]. Otherwise, the business stands on a very good fit.

[Richard Liu, analyst]

All right.

[Ashish Dikshit, executive]

And you'll see, Richard, you'll see that reversing in the quarter 3.

[Richard Liu, analyst]

Okay. And what about the wholesale part? Is there any restocking on account of festival? Or should we expect that also to come in Q3?

[Ashish Dikshit, executive]

No. I think Q2. Vishak, do you want to come in here?

[Vishak Kumar, executive]

Yes. So Richard, it's both. As you know, the Puja buildup, et cetera, would have happened, Onam Puja buildup, et cetera, happened in Q2. Some parts of it is in Q3. So it's in that sense, this year is spread as far as wholesale is concerned between Q2 and Q3.

[Richard Liu, analyst]

And earlier years, it used to be everything in Q2?

[Vishak Kumar, executive]

Not earlier. I mean, it depends on the years. I mean, there are years when Diwali is late because Diwali -- whenever Diwali is November Diwali, this split happens.

[Richard Liu, analyst]

Got it. And lastly, I'm sorry if I'm asking this again, but what was the comments you all have given with regards to how the festive season has been panning out over the last 40 days? I kind of missed that when you talked about it.

[Ashish Dikshit, executive]

I think the question was more around Q3. So I want to qualify and say Q3, still lots to be played out. So don't read it in that context. But if I were to look at how consumers have reacted during Onam, puja, large part of them lined in Q2, some in Q3 and to the parts of Diwali, I would say the festive performance had been mostly flat, in some businesses below, slightly small negative except wedding-related areas where you can see the revival much stronger. But that's really been the overall comment.

[Operator]

The next question is from the line of Sameer Gupta from India Infoline.

[Sameer Gupta, analyst]

Sir, firstly, on the net working capital, the PPT mentioned INR 1,360 crores. When I do a calculation from the balance sheet, I get a number of INR 2,000 crores. So just wanted that to be clarified. And also, between these 2 numbers, it will roughly translate to around 40 to 50 days if you include TCNS sales. Where do you see this number stabilizing?

Because part of it like lifestyle might have negative working capital, but you're growing part of the business like Sabyasachi or Tasva or D2C businesses. So that naturally might have higher working capital.

Also, there is some channel realignment going in the Lifestyle Brands wherein there is movement towards consignment. So just wanted your thoughts on that. Where do you see this number on working capital stabilizing for the whole business?

[Ashish Dikshit, executive]

So I think our business is very diversified now. But if you were to put it in very, very broad buckets of where a substantial part of our inventory lies, it lies in our larger businesses, which is Lifestyle Brands and Pantaloons. And if you look at these businesses and current quarter is perhaps likely to reflect more inflated picture because festives have been pushed up, and therefore, you build up inventory. You don't have sales at that point of time in the previous quarters, lower Q2 sales but higher inventory buildup.

But broadly speaking, we have operated Pantaloons over a long period of time in high single-digit net working capital to sales. It gets inflated during some period but comes back to around that. So between 8%, 9%, 10%, maximum 11%, 12%.

As far as Lifestyle Brands is concerned, because the business is increasingly moving to retail shift, the net working capital as a revenue for large part has been between 13% to 15%. And we don't expect -- these 2 are very strong, stable businesses. We don't expect that to move.

Rest of the individual businesses currently are small and perhaps have greater volatility, if you were to say that, and elevated level of working capital. But that's because they're in a slightly high growth phase or still figuring out the right model until they find the stable area. Does that answer your question?

[Sameer Gupta, analyst]

Yes. Pretty much. Just a clarification on that INR 1,360 crores to INR 2,000 crores, which number has...

[Ashish Dikshit, executive]

Actually, you have to look at it. We have [indiscernible] data there. But in public results, it goes into other current assets and other current liabilities [indiscernible].

[Sameer Gupta, analyst]

Okay. Got it. Second question is on TMRW. So you mentioned that 90% of investments in these businesses have been done. So I just wanted a clarification as to how much amount cumulatively in debt plus equity you have invested till now in these businesses, how much more do you plan and the timelines related?

[Ashish Dikshit, executive]

I think it's about 600 to 650 out of 750 is what we have invested. And that is a combination of debt and equity. And we expect over the next 6 months to invest the remaining.

[Sameer Gupta, analyst]

Which would be around INR 100 crores?

[Ashish Dikshit, executive]

INR 150 crores.

[Sameer Gupta, analyst]

Got it, sir. Another question if I may squeeze in. The other part in the Madura, which is basically your innerwear, youth Western brand, et cetera, there I see a moderation in EBITDA losses. And intuitively, the athleisure or innerwear part has seen a decline. So just wondering what is contributing to the losses' moderation here?

[Ashish Dikshit, executive]

So the innerwear parts of the business, the innerwear because of the challenge in that market, that segment's losses haven't moderated. That segment losses, if anything, have actually increased, the most of the improvement in profits is coming from the higher end of the market, which is international brand, The Collective. Reebok is a profitable business. So all of them are actually countering slightly more elevated losses than the innerwear business.

[Operator]

The next question is from the line of Devanshu Bansal from Emkay Global.

[Devanshu Bansal, analyst]

Sorry for stressing again on this. But I just wanted to have a better understanding. In H1, our debt has increased by about INR 3,000-odd crores. And for TCNS, I guess, we have paid about INR 1,600-odd crores.

So there is a requirement of about INR 1,400 crores in the existing business. You mentioned that working capital levels are relatively higher. There is more with your clarity as in the rest INR 1,400 crores, INR 1,500 crores? How much of it is because of this onetime working capital elevation, if you could help me explain that?

[Ashish Dikshit, executive]

So after INR 1,300 crores, about INR 400-odd crores would have gone into TMRW. For the remaining, it's a combination of, of course, CapEx and working capital. And it's the working capital part, which will reverse in the second half. And that's really why Jagdish has indicated the closing that number, which we had indicated even earlier in the range of INR 2,700 crores to INR 2,800 crores.

[Devanshu Bansal, analyst]

But sir, that also includes GIC investment of INR 1,400 crores that we...

[Ashish Dikshit, executive]

So we have been consistently stating that for last 6 months. That's what we have said at the beginning of the year. That's what we said at the end of Q1, and that's what we are repeating. So our guidance for the debt at the end of this year, including that is INR 2,700 crores, INR 2,800 crores. So that hasn't changed at all.

[Devanshu Bansal, analyst]

Got it [indiscernible]. Second question was to understand since we have now acquired 51%, we'll be consolidating [indiscernible] in our financials, does -- if you could provide as a onetime, what is the current run rate, annual rate so that we -- for the modeling purpose, both in terms of revenue and EBITDA and down 4, 5 years down the lane, what is the kind of run rate that you expect in the business?

[Ashish Dikshit, executive]

So very short term, I don't think it's possible for us to predict very short term. We have just sort of understood the business. It's going through a transitory phase. So I wouldn't want to comment on what you are looking for, if that's your question on Q3 and Q4.

In the longer term, as we stated at the time of acquisition, we strongly believe that this portfolio brand is the leader and the most profitable business that has existed in the Women Ethnic wear business over a long period of time. We expect this to reach INR 2,000 crores to INR 2,500 crores in the next 3 to 4 years and achieve a double-digit of pre-index EBITDA margin where it has operated for much of its life of last 10, 15 years. So I don't think that has changed. But from where the business is today, how long will it take? Where is it? It's too early for us to comment.

[Devanshu Bansal, analyst]

Got it. And just one follow-up. What will be the current pre-index [indiscernible]? Is it largely flat? Or is it slightly negative for TCNS?

[Ashish Dikshit, executive]

I wouldn't want to comment. I think you'll have to look at the TCNS results because they are onetime. So what is the normalized business situation, I wouldn't want to comment. Wait for a quarter, we'll get a clearer picture.

[Operator]

The next question is from the line of Vishal B from Bandhan Mutual Fund.

[Unknown Analyst]

I mean in the Madura part of the business under Lifestyle Brands, would you say that you would have lost some market share? The overall market has been [indiscernible] appreciate your views. But on an overall basis, when you look at our performance versus the market's performance?

[Ashish Dikshit, executive]

Vishak, you want to comment on that?

[Vishak Kumar, executive]

No, on the contrary actually, Vishal, we've gained share. If you look at, like Ashish was explaining, the overall volumes are impacted by some of our depletion volumes. But if you look at our regular business, we actually in most places gained share. Our position in department stores, our rank in mall throughputs, et cetera, if anything have only consolidated even further.

[Unknown Analyst]

And this you would say across Madura and other unique brands as well?

[Vishak Kumar, executive]

I would say this in Madura, definitely the 4 big brands. Reebok, we have significantly scaled up since we acquired. American Eagle continues to grow significantly. Yes, Ashish was talking to you about collective, and that continues to scale strongly. So yes, across the board, I think we have gained share.

[Unknown Analyst]

Okay. Okay. And lastly, are there any more white spaces that you're trying to fill? Are there any more [indiscernible] in certain areas that you would look for or are you through?

[Ashish Dikshit, executive]

We have created -- we have played out the strategy that we had laid out for ourselves. We have repeatedly communicated our intent to build a comprehensive portfolio, excel presence in the casual, innerwear, athleisure space, both through Van Heusen innerwear and Reebok and to enhance our digital presence, which is what we have done through TMRW.

So we have multiple sort of strong platforms which we have invested in the last 4 or 5 years. And therefore, we feel that most parts of the market are very well covered. The next phase of company's growth will come from growing the businesses that we have, refining them, making them better and getting them to the scale that -- and potential that they deserve.

[Unknown Analyst]

Okay. And sorry, one more. For the innerwear business, I mean, what is the strategy for the coming -- how do we improve the performance from there because the overall market doesn't seem to be that excited?

[Ashish Dikshit, executive]

Yes. So short term look, we'll have to go through these periods of challenges in different market conditions. Its business is very promising. Consumer proposition works very well. We have managed to establish a very strong consumer franchise, a reasonable distribution channel.

At this point of time, we'll have to wait for conditions to improve before we start pressing lever on the next sort of dimension of growth, which is retail expansion. And therefore, we'll have to wait out this period of difficulty, continue to make sure that product renovation, brand visibility, continuous distribution expansion, that keeps coming.

[Operator]

The next question is from the line of Gopal Nawandhar from SBI Life Insurance.

[Gopal Nawandhar, analyst]

I needed some clarification. When you talked about trends on the festive side, you commented you're expecting flattish to marginal positive trends. Is it related with the like same-store level you are talking about or company level...

[Ashish Dikshit, executive]

Yes. This I'm talking about. This is about Onam. This is about Puja, which has already happened. Diwali, still few days are left so probably early to say. But going by our experience of previous festive, that is the comment was like-to-like for the previous periods that have gone.

[Gopal Nawandhar, analyst]

And the second question is on this recent acquisition by TMRW for TIGC. Would you like to give any comment what kind of revenue and EBITDA that business -- this brand have? And at the same time, that TMRW, this quarterly run rate of around INR 40 crores losses, will it go further up? Or we should expect a declining trend on that last trajectory for TMRW?

[Ashish Dikshit, executive]

So second part first, Gopal, the -- I think the peak of TMRW's losses have happened in Q2, in the first half of the year. We will start seeing it slowing down as we go in the second half of the year. So for the full year, it will be moderated to some extent versus the run rate that you referred to.

As far as TIGC acquisition is concerned, I don't want to give actual brand level profitability. But as our press release had announced, the business is close to INR 300 crores of revenue, a very strong business, one of the leading brands in multiple marketplace platforms. And it's a business that we feel will grow very, very rapidly going forward.

[Gopal Nawandhar, analyst]

And any comments on the profitability? Whether it is like a negative on EBITDA or...

[Ashish Dikshit, executive]

So it's a profitable brand. It's a profitable brand, completely self-funded so far. So it's a profitable brand.

[Gopal Nawandhar, analyst]

Okay. And one clarification on gross margin front for Pantaloon, we have taken some correction. Are you talking about some inventory write-offs or these are like strategic corrections on the pricing, which will have impact on the coming quarters also?

[Sangeeta Pendurkar, executive]

This is Sangeeta. So this is -- as Ashish mentioned, last year, our first half, if you recall was very good. Post Diwali, we started seeing a little bit of a slowdown. And therefore, there were some carryforward inventory from last year, both from spring, summer and autumn, winter as we started seeing winter slowdown.

So I think what we did during the [indiscernible] periods -- went into a little bit of a deep discounting to help us clear that inventory. And we've done that correction, as Ashish mentioned, to get the business into a healthy shape. And now we are going to manage whatever is the remaining inventory in a regular manner that we will do within otherwise.

[Ashish Dikshit, executive]

So there's the actual discount, the markdowns that we gave to liquidate that inventory.

[Gopal Nawandhar, analyst]

This like could be kind of one-off for this quarter? Ideally, the margins should have been better if this would not...

[Ashish Dikshit, executive]

So this is exceptional, and that's why we called that out. That's why Pantaloons margin for this quarter compared to same quarter last year is markedly lower between 250 to 300 basis points.

[Gopal Nawandhar, analyst]

And is it right to assume that all those old inventories are through or will it have some...

[Ashish Dikshit, executive]

Yes, the extensive stress, Gopal, that is there that we have solved for. There is always some rollover that will happen in the inventory, but I don't think there's much to worry about now.

[Gopal Nawandhar, analyst]

Sure, sir. And lastly, if you can just comment because on the TCNS, we are seeing some policy level changes and some inventory write-downs. Do you expect anymore [indiscernible] when we take over this company?

[Ashish Dikshit, executive]

No, not at all. We are very confident because we spent time on those a lot more during both the process of due diligence and subsequent management interactions.

We have aligned most of the policy, understood the policies that are aligned in line with what the broader policies that we follow. Some of them has resulted in onetime markdowns that they had to take, both in positioning for returns, discounting, markdown of the inventory, et cetera. So that is a one-off that has happened. I don't expect that to [indiscernible].

[Gopal Nawandhar, analyst]

Sir, lastly, on the lifestyle margins, do you expect these margins can be sustained? Or there could be some softness on the margins?

[Ashish Dikshit, executive]

Say, longer term, which is the point that I think Vishak was making, quarter-on-quarter margin changes are both a reflection of markdowns, brand mix and channel mix. If you look at the long-term margins, the business has operated closer to 18% to 19% margin. But in every few good quarters, we get to 20%, 21%.

This quarter has been particularly focused on quality of business. To that extent, we have not chased revenue in some of the low gross margin channels. To that extent, we have an upside on the gross margin side just as we have let go of revenue on the revenue side.

[Operator]

The next question is from the line of Udhav Sinha from Locus Investment Group.

[Udhav Sinha, analyst]

So I just wanted some color from an overall channel perspective. So there's any channels that we see that are performing well and on the same type or any sort of channels which we're viewing with some more hesitancy at this point of time?

[Ashish Dikshit, executive]

Vishak, do you want to take this?

[Vishak Kumar, executive]

Yes. Sure. We've always believed that we should be where consumers want us to be. We continue to do that. We are very strong players in malls. We are strong players in high street. We have very, very deep connections with all department stores.

We operate very deeply. We have a lot of convergence of IT systems, merchandise management, et cetera. So those will continue. I think our focus has been to continuously see how we can upgrade to quality of retailing, better superior distribution with better realizations, et cetera. That is something which will continue.

In terms of geographical channels for short term, smaller terms had more pressure, okay? But that's again something which should change with this festive and wedding season. I don't know. Does that answer your question or you had something more specific in mind?

[Udhav Sinha, analyst]

Sure. I mean, just within, say, even your department store versus your EBO channel, if there's any color that I could have? I mean...

[Vishak Kumar, executive]

They have both their own opportunities. They have both their own relevance. So there are consumers who prefer shopping in a multi-brand environment. And I do that our brands need to be there for that. We have very, very deep ways of working with Shoppers Stop, lifestyle, Pantaloon, all -- we work very closely on this.

And they have their own relevance, which is independent of the relevance of the EBOs in both small and high streets. So I would say they are not mutually exclusive. They go together.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for their closing remarks.

[Ashish Dikshit, executive]

Great. Thank you, everyone, for taking the call. And wishing you all and your families a very Happy Diwali.

[Jagadish Bajaj, executive]

Happy Diwali, everyone.

[Ashish Dikshit, executive]

Our stores have a lot of good, exciting merchandise for you and your families across the brand portfolios that we have. So I wish you all a good time shopping, and have a great year ahead. Thank you.

[Operator]

Thank you, members of the management. Ladies and gentlemen, on behalf of the management, we thank all participants for joining us. In case of any further queries, you may please get in touch with Mr. Amit Trivedi. You may now disconnect your lines. Thank you.