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Aditya Birla Fashion and Retail Ltd
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Ladies and gentlemen, good evening, and welcome to the Fourth Quarter and Full Year Earnings Conference Call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief discussion of the company's management on the Q4 FY '23 and full year FY '23 performance, followed by a question-and-answer session.
We have with us today Mr. Ashish Dikshit, Managing Director; Mr. Jagdish Bajaj, CFO; Mr. Vishak Kumar, Director and CEO, Lifestyle Business; Ms. Sangeeta Pendurkar, Director and CEO, Pantaloons. I want to thank the management team on behalf of all the participants for taking valuable time to be with us.
I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarter and full yearly performance and to strategic questions only. Housekeeping questions can be dealt with 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, and welcome to the Q4 and FY '23 earnings call for our company. Let me start with the highlights of the quarter. The quarters are the highest ever Q4 revenue for the company at both stand-alone and consolidated level, which was driven by strong retail L2L, omnichannel play and network expansion. This is despite the fact that overall industry continued to face subdued demand post festive period, especially in Value and masstige segment. Our brands on account of their inherent strength, loyal customer base and brand building initiatives have continued to grow from strength to strength. Our strategic growth levers have enabled us to maintain an impressive revenue growth for the sixth consecutive quarter post recovery from COVID.
Our company has remained committed to its ongoing marketing investments, which have been in place for the few quarters. The [indiscernible] are aimed to strengthen our brands, increase our market share, and be ready to see the longterm of surge in [indiscernible] spending.
Additionally, we have continued to aggressively grow the distribution network and enhance our capabilities for existing as well as new businesses. It gives me immense pleasure to tell you that our company in FY '23 added a record more than 500 stores and also added 1.6 million square feet of retail space to the network.
Now I'll talk to you about financial performance. Company delivered sales of INR 2,880 crores, which is a growth of 26% over the same quarter last year. The company achieved a consolidated EBITDA of INR 232 crores.
EBITDA for this quarter was impacted due to subdued sales, building organizational capabilities for all our businesses and investment plan building, which were INR 550 crores higher than Q4 last year. The company's consolidated PAT was negative INR 195 crores.
In terms of expense, our branded business added 104 stores led by addition of 25 by ethnic business. Pantaloons also continued to expand as the business achieved a net addition of 25 stores during this quarter.
The company experienced remarkable 77% year-on-year growth in e-com sales across its portfolio primarily due to successful B2B partnership in the e-comm space and strong emphasis on enhancing our own brand website.
Our lifestyle brands launched in new [indiscernible] that aims to offer customers a seamless experience and curated range of options across our four lifestyle brands.
Now let me update you on full year performance. I'm very glad to inform you that our company has made a remarkable recovery post-COVID as demonstrated by 53% growth in sales versus last year to reach INR 12,418 crores. Our resilience and strategic initiatives propelled us to reclaim this momentum and strengthen our position for a strong future growth. Company posted EBITDA of INR 1,617 crores, an increase of 34% versus last year. EBITDA margin stood at 13% for the year.
As our company significantly surpassed pre-COVID levels in terms of revenue, we also intensified our product focus on brand building initiatives. Our marketing expense was more by INR 350 crores versus last year. The company's consolidated PAT was negative INR 59 crores. The [indiscernible] number would have been a profit of INR 57 crores.
I'm pleased to tell you that in line with our strategic initiatives, Lifestyle and Pantaloons are now 1.5x of last year's reaching INR 6,608 crores and INR 469 crores respectively in revenues.
Apart from the established businesses, I'm delighted to share with you that the total size of our newer ventures, which comprised of businesses in high growth areas, is already more than INR 2,000 crores. We have added this scale to the ABFRL portfolio in the last 5 years, while our established businesses, Lifestyle and Pantaloons have also grown almost 2 folds over the same period.
Our innerwear, youth fashion and international brands together have grown more than 48% over last year. Ethnic business grew 84% over last year to reach INR 574 crores.
Reebok is now well placed to become a major player in Indian sportswear segment. TMRW has acquired 7 brands and is on track to build an exciting portfolio of nextgen digital cloths brands for next decade.
Our consolidated net debt stood at INR 1,422 crores as we continue to invest in our operations and new businesses. I will now take you through the performance of individual businesses, starting with Lifestyle brand. Lifestyle brand posted highest ever Q4 revenues on the back of robust retail performance and strong e-commerce performance. Revenue for the quarter was INR 1,535 crores, 14% higher than last year. EBITDA stood at INR 225 crores.
For the quarter, retail business grew by 31% over last year on the back of solid addition of 128 stores during the last 1 year and consistent same-store sales growth.
Further, e-commerce continued to be a strong sales channel and e-com sales grew by 49% Y-o-Y. For FY '23, sales stood at INR 6,608 crores, a 46% growth over last year. This growth was driven by premiumisation and casualization as the brands continue to build on the leadership position and gain market share. The business EBITDA crossed INR 1,000 crores for the first time to reach INR 1,095 crores, growth of 39% year-on-year. EBITDA margin was 16.6% for the year.
This year, women's wear business within Lifestyle brands achieved more than 70% year-on-year growth in FY '23. Also, our presence in small town India has aggressively expanded now totaling 600 stores.
Moving on to Pantaloons business. The Pantaloons division recorded quarterly sales of INR 798 crores with a growth of 18% over last year, with a 13% LTL growth. This was achieved despite demand slowdown in value segment. The performance in metro cities continue to remain strong, but sales in Tier 2 and Tier 3 cities remained sluggish as inflationary pressures and weak consumer sentiments impacted demand.
The sales for FY '23 stood at INR 4,069 crores, a 55% growth over last year. Pantaloons posted EBITDA of INR 635 crores with a margin of 15.6%. Pantaloons continued to expand its private label portfolio with new launches addressing diverse spaces like casual, innerwear and youth segment.
This year, Pantaloons significantly ramped up its store addition with 54 net additions, 25 of which opened during Q4. We plan to sustain this momentum in the coming fiscal year as well.
Now let me speak about other businesses within Madura. Madura businesses segment continues with its outstanding performance. The portfolio comprises of 4 business lines, Active, Athleisure and Innerwear, Youth fashion brands, Super Premium brands and Reebok.
During the quarter, this portfolio has posted revenue of INR 392 crores and 81% growth over last year. This portfolio recorded revenue of INR 1,352 crores, a growth of 57% Y-o-Y in FY '23.
Let me start with innerwear business performance. The business in FY '23 posted 33% Y-o-Y growth with retail revenue doubling over last year. During the year, brand strength has reached to exit with 32,000 trade outlets and 175 exclusive brand outlets. The business also unveiled [indiscernible] new retail identity, setting the stage for a more dynamic and personalized shopping experience.
Youth fashion brands consisting of American Eagle and Forever 21 delivered strong performance. American Eagle in FY '23 delivered 89% revenue growth with 67% LTL growth.
Brand opened 6 new exclusive brand stores in Q4 and now available at 37 [indiscernible] . Forever 21 continues to expand its newer market as the brand posted 40% revenue growth over last year in FY '23. The brand also added 9 stores via asset light model in last 1 year, showing the trust the brand has gained over the years.
The Collective and other Super Premium brands business witnessed a sharp growth of 60% over last year in FY '23 with a very strong 41% LTL. The Collective is growing profitably not only in metro, but in non-metros as well.
Online revenues continue to surge as our e-com site, thecollective.in is on par to the premier luxury e-com destinations in India.
Ethnic business, as you all know, in 2018, we outlined our growth strategy to be built around ethnicwear, the largest segment in the Indian [indiscernible].
Over these years, our company has made several organic, inorganic moves with an objective to build comprehensive portfolio of brands in this key segment.
This quarter, our ethnic segment achieved revenue of INR 174 crores and has grown 72% Y-o-Y. This portfolio recorded revenue of INR 574 crores in FY '23, growing to 1.8% of last year. Business continued to invest in brand building initiatives and strategic mini-store openings.
In FY '23, Sabyasachi grew 50% Y-o-Y as the brand launched 2 new stores. Men's premium ethnicwear brand, Tasva, has continued to expand its network aggressively and is now available across more than 50 stores. Brand Tasva and its products continue to be well, recognized by the consumers and the industry.
Jaypore's FY '23 revenue grew 90% Y-o-Y as the brand in FY '23 added 8 stores to the network to exit the year with 18 stores. Shantnu Nikhil posted its highest ever yearly revenue with 53% growth Y-o-Y. SNCC by S&N, a sports inspired lifestyle brand continues to gather customer interest. Also, if you are already aware, and we had a separate conference call as well for it, ABFRL Board has approved the company to acquire 51% stock in TCNS Clothing Company Limited through combination of an SPA with founder promoters and conditional public open offer.
Subsequently, it also proposed that TCNS will be merged with ABFRL through a scheme of amalgamatio post receipt of necessary approvals. These deals will help us complete our ethnicwear portfolio and expand our existing ethnicwear portfolio into premium women's ethnicwear segment. As I am talking to you today, we have made rapid progress in the process and already filed the necessary applications with the regulators for the approval. Leveraging our strong brands and their category extensions, our ethnicwear portfolio is primed for rapid growth. We are confident in establishing a substantial and profitable business in the coming years.
To conclude, company continues to be on track to follow its long-term strategic objective. Our branded strategy has been key driver of our success till date. It has enabled us to differentiate ourselves, bring customer trust and loyalty and effectively deliver our value propositions.
Now with portfolio of very strong brands in fast growing segment, we are confident to build comprehensive portfolio of offerings for all our consumer segments, varying locations and price points.
Thank you, and we are open to questions now.
[Operator Instructions]
We have our first question from the line of Nihal Mahesh Jham from Nuvama.
Sir, 3 questions. First is specifically on the margins for the Lifestyle brands, that have been around 8% kind of Y-o-Y contraction. If you could just help us what part of this was related to the incremental marketing spend that you've highlighted and also the asset per operating deleverage? I'll come to the other question after that.
First thing, sir, usually, we grew about 16% to 17% EBITDA in a quarter. This quarter was about a couple of percentage points lower than that. Last year Q4 has some exceptional gains that we had onetime gain. So don't go by 1 quarter per se, okay? But this quarter, fundamentally, the difference was additional investments in advertising by a couple of percentage points. Plus, there were some rent concessions we had last year which we did not have this year. If you remember last quarter was the last of the COVID rent relief we had received from landlords which were spread through the 4 quarters of last year. This year, we did not have any such gain.
But otherwise, basically, fundamentally, the difference between our typical average quarterly EBITDA versus this is about a couple of percentage points largely because of advertising delta.
And you will see our brands very strongly advertise through various events even as we speak right now.
Sure, Vishak. Vishak, a follow-up on Madura was on the wholesale channel. Again, while retail has done recently, while we see that channel has some against a bit of contraction. So what is the outlook or thought on that channel going forward?
Actually, wholesale is fairly strong for us. Q4, you will see a negative primarily because we had done some accounting changes of a lot of buy and sell stores which we have converted to consignment. If you take that away and also if you look at it from a full year perspective, it's a fairly healthy growth. Also, that channel is quite for a lot of growth. In fact, we just concluded our partner meet in the end of March where there's a lot of optimism around the kind of thing that we're entering in the wholesale channel.
So my sense is that we continue to be leading brands across various large chains. So it's a strong channel, don't go by the one quarter number which is primarily because of conversion of set of stores, a large number of stores from buy and sell to consignment to enable superior replenishment models.
So this is a one-off adjustment in Q4 after that is -- okay. I'll maybe take those some of those lines. Last question was on the debt part. Now from Q3 to Q4, there has been a reasonable increase in debt that was as per expectations. And second is at the time of the TCNS call, we did highlight a target of debt to EBITDA? And how is the bridge to that if we could just discuss that, that would be helpful.
So Nihal, let me answer your first part of the question. I think the increase in debt in this quarter has been slightly higher than what we had anticipated. Primarily, and I would say almost entirely led by dropping sales versus the estimates that we had across our businesses. Effectively, from the base that we were, if you look at our growth rate in first 9 quarters -- first 3 quarters, the company as a whole was growing at a very rapid pace. And to that extent, despite [indiscernible] in this quarter, our sales growth has been slightly lower than our internal estimates. And that's what has resulted into higher inventories. And to that extent, some large part of debt has come through that.
Additionally, we've made investments in subsidiaries to borrow and ethnic subsidiaries during this quarter, and that has further increased the debt to this level.
Sure. And just on the outlook on once you consider the TCNS acquisition, GIC money, how do we see -- how do we reach that target debt to EBITDA, like what would be the investments next year?
So at this point of time, Nihal, we probably don't have the exact outlook on that. But to give you a sense of where that range would be, I think what Jagdish had mentioned in the call from where you've picked up this number during the TCNS investment call, that was the outer range that Jagdish was indicating towards what we might look at, considering that we continue to invest in both of our businesses.
We continue to see an opportunity both in new businesses as well as the existing businesses to grow. You've seen Pantaloons investing in close to 60 stores this year. All the ethnic businesses put together have opened close to 70, 75 stores, Madura businesses have more than 250 stores, which were opened this year. So we see that trajectory to continue. And therefore, while we don't have an exact number for debt for next year, Jagdish wanted to highlight that there will be a potential increase in debt towards the end of next year.
We have our next question from the line of Gaurav Jogani from Axis Capital.
So my first question is with regards to the Pantaloons margin. Now if you see the Pantaloons margin even on a reported basis, that has come to around 8.5%. Now even if see 8.5%, we consider one-off, what kind of margins should we build going ahead? And what has impacted the margins during this quarter for Pantaloons specifically?
Hi, Gaurav, this is Sangeeta. Gaurav, our margin in quarter 4 is 8.9%. And it's largely on account of the fact that we saw a little bit of sluggishness in our top line. If you look at the full year picture In fact, FY '22, our margin was 14.4% versus that. We've ended the year at 15.6%. And therefore, our margin versus the full year has improved. I think it's just the sluggishness of the fourth quarter, which has resulted in a slightly lower margin in quarter 4.
Sure. And so one follow-up here. Even if you see the annual sales per square feet, I mean that comes to around INR 7,700 odd. And I mean, tried to say in [indiscernible] We were at around INR 8,800 per square feet. I think the sales per square feet has been picked up over the last, I would say, 5, 6 years, even pre-COVID levels. So how are we looking to drive that sales per square feet? And in that event, do you think that including increasing cost is impacting the margins on the other hand?
Right. So I think our SSPDs we've seen versus last year, we have absolutely improved and we've been constantly adding stores, as you know, to our network. And this time, if you see in the -- we've been presenting to you every quarter a lot of our store addition has been back ended. And therefore, you don't see that kind of a shift. We are, however, very confident of the strategy that we've been on track on over the last few years in terms of improving our product investments that we've made in our stores to improve the in-store experience, the fact that we've invested in our operations and IT, et cetera. And all of that has given us initial improvements in the productivity, I think again this year with a little bit of slowdown that we saw in quarter 4 and the fact that our stores are back ended, the numbers may not be stacking up, but we stay confident of the potential of Pantaloons and equally of our strategy. And as the demand comes back, we definitely see that number lifted.
Sangeeta, just one thing. You have guided a year of 70 stores in Pantaloons, I think we ended around with 54, so for the next year, do we maintain the guidance for 70-plus stores or it will be moderated around like 54 to 55 levels.
So we had given the guidance of 60 to 70 stores. We actually opened 63 stores, and we've shut about 9 stores, which is a standard practice every year as you look at stores that are not profitable. I think going forward this year, too, we're looking at opening 40 to 50 stores.
Okay. That's [indiscernible] the 40 to 50 stores?
[indiscernible].
And just one last bit on the TMRW subsidiary. If you look at the exit basis, the run rate for the TMRW subsidiary sales, it's around INR 220-odd crores that you get. And if you remember, for FY '23, the total sales for all the subsidiaries '22 was around INR 313-odd crores. So [indiscernible] there are losses of around INR 60-odd crores to INR 65-odd crores also that we impact. So anything on why the field A has been down versus the last year levels on [indiscernible] and B, the losses?
So you're asking about TMRW subsidiaries number?
Yes. Yes. TMRW subsidiaries total revenue numbers on an exit basis. So if you see it's around INR 55 crores per the quarter, so around INR 220-odd crores for the year. Even if you adjust for the seasonality, I think it will still be lower [indiscernible]
So if you -- so TMRW business started this year and even those brands that we've invested in the first 7 set of brands, we've come over a time period started from October to as late as February, March. So what you're seeing is reflection of a very small period for some of the brands, full quarter for some of the brands. Therefore this is not surely reflective of where the run rate of those businesses. It's much higher than what is projected with quarterly revenue rate.
[indiscernible] like what will be the possible exit run rate for the same and also on the losses part, if you can help us out can we expect more losses going ahead as we invest in believe businesses and how these losses will be funded?
So it's very early stage for me to give an actual number of losses in projection. Just to give you a sense of the run rate in revenue. These brands have been, as I said, acquired. Many of the brands have just had 1.5, 2 months, some were at 4 months. To that extent therefore this revenue run rate is significantly higher than where we are. There is less in a concern recognize that this business will have losses for the first couple of years. We'd also mentioned and repeated it several times over the last 1 year that we have committed a certain fixed amount of equity to this business, which is INR 500 crores. A large part of it, which we have already invested about INR 350-odd crores has got invested in FY '23. The remaining part will get invested over next year and further equity to both fund acquisitions, operations of the business as well as losses will be raised through external sources.
We have a next question from the line of Tejash Shah from Spark Capital.
Three questions from my end. First, Vishak, you spoke about we moving our terms of trade from buy and sell to consignment. So just wanted to understand what led us to change these terms of trade? And how should I account for this change in my model in terms of accounting purpose?
Okay. So Tejash, we had exclusive stores, which were on a buy and sell with the franchisee, and we have exclusive stores, which are on consignment. So we found -- and we found this over a period of years. The consignment model allows you to do a certain amount of -- we have a special software for replenishment, which allows it to function very effectively when it's on consignment. So we took the effort of converting all the stores that we had to consignment in Louis Philippe, Van Heusen and Allen Solly. Now that has already created a very smooth transition in terms of inventory management, assortment planning. So it was a one-off thing. So the excise has been completed now, except for some stores of Peter England, which are still on the old model of buy and sell, all other stores have already been converted. It just improves the quality of assortment planning, the amount of analytics and information that you have on each store, the way you replenish on a daily basis for whatever sold the previous day in the store. All of that becomes of a superior nature with this model.
And how will it impact the working capital [indiscernible] ?
Yes. In some way, it is working capital neutral because the inventory investment is offset by a deposit from the partner from the franchisee.
Okay. Got it. Got it. And second question pertains to Pantaloons. So a lot of experiment in terms of model we are seeing in large performance stores across brands now in terms of whether COCO, COFO, and FOCO also in some cases. So just wanted to understand where are we in terms of leveraging the franchise-led expansion strategy for Pantaloons? And if you can share some thoughts on how you are seeing this space also evolving because we are seeing a lot of changes happening in the whole landscape itself in terms of the model, how large format store has been operated in the last 2, 3 years.
So Tejash, I'll just give a quick response till Sangeeta has something to add, she'll add to it. Essentially, over the last few years, if you see, we have maintained a franchisee mix of between 18%, 15%, 18%, 20%, 22% kind of range year-on-year over last 3, 4 years. We continue to believe that's the balance that we will have. We don't -- and this is franchisees, which have not come in 1 year, so there's no drastic shift in our model as far as we are concerned. We started moving to franchisees, started testing them in small stores in smaller markets and slowly over a period [indiscernible] We think this number will probably be range-bound where we're it is. And as we expand the network, a similar amount will stay in franchisee, we don't see in our model a dramatic shift in this model.
I have a follow-up there. So when I see our success in Madura piece in terms of engaging with franchise and how much working capital efficient and scalable it can be? And now looking at other large performance stores also kind of leveraging that part very efficiently, I was just wondering why we are kind of restricting it to 20%, 22% only. I can understand the better brand control you have always spoken about, but now seeing that others are doing it, managing both polarity of objectives very efficiently, why are we not actually leveraging that part?
So Tejash, there are -- I'm taking away financial accounting jugglery of having financial investment being made by somebody else and counting it as franchisee model. We have found that in a multi-category, large-format, multiple-product consumer segment, the kind of retail experience that's required is not necessarily easily replicable by our franchisees. We are testing it, and we continue to sort of improve on that which is why I'm saying the number won't come down. But we didn't believe a retailer should sort of completely let go of the primary business of retailing. And we -- as a consequence in quality of franchising and experience, consumer experience, merchandising, et cetera, improves over a period time. This number may increase but we're at certain step from our experience right now, large-format retailing is more complex for a franchisee to manage in terms of merchandising, consumer experience, et cetera.
There's always a case of financially engineering it with somebody else investing and securing their profit, et cetera, but we believe, at this point of time, it's important to take control of operations, manage consumer experience. We'll have greater flexibility in moving merchandise and replenishment, et cetera, which you yourself, as you have pointed out, it's not that we don't know how to do franchising. We have India's largest franchisee network on the Madura side of the business. Many of them have experimented and many others have tried Pantaloons franchising. I think it's a little bit more complex operationally as well as the level of control that we want to exercise, and this is why we are more careful. At any stage if we feel more comfortable that the idea of actually it being seamless for consumers, we'll probably do it faster. But right now, where we are is where we are most comfortable.
Sure. Last one if I may. When I look at our portfolio on Ethnic side now, it looks very wide and deep also. So just wanted to understand, just from the operating leverage perspective, how should we think about it whether these brands will interact with each other on the supply chain side or on the retail expansion side to bring on the operating leverage part of having such a diverse portfolio? Or do you believe that they will individually compete against each other in some segments and then let the efficiency of each brand speak out in terms of operating leverage?
So I think 2 parts. You know that these brands are very diverse. The portfolio is very, very diverse. And to some extent, we want to make sure that we do justice to individual brands. At the same time, we are building management structures, which allow both synergy of operations in some areas where the brand is not directly involved like front-end retail expansion as well as some areas, common back-end sourcing knowledge, et cetera. We are right now not integrating any operations of the business because we believe it's best run within each individual brand, but key functional areas of sources in some areas of retail business development, front end is where we are looking at synergy through common leadership management in some of these places. We need to initially make sure these brands remain distinctive and true to themselves to get to a certain size before the impact of synergy and some of those benefits start to play out more.
[Operator Instructions] We have our next question from the line of Aliasgar Shakir from Motilal Oswal.
A few questions. First, I just wanted to get a sense on the revenue trends in this quarter as well as in the coming period. So if I see Lifestyle and Pantaloons, we have done mid-teens growth and maybe if I do some adjustments of Omicron benefit in the base, [ expand them ], maybe price increase benefit, company would have seen flattish to maybe I don't know if at all declining volumes. And in some of the other companies, retailers also, we are seeing similar trends. So since we are catering to multiple categories, both at a premium and as well as in the value end, just wanted to get a sense from you in terms of the current quarter as well as the outlook. How is the trend? Because price increase that we may have taken in the previous quarters from passing on the raw material price would have lost -- more or less got adjusted. So how do you see the revenue outlook in that context and across both premium as well as value category? Are we seeing any divergent trends?
Ali, let me first address the reference to price increase. The price increase in apparel industry, and that's not just true for us, I think, for all the players in the market, is almost 12 to 15 months back. The real price increase from the cost side pressure and textile value chain came 12 to 15 months back, almost 3 seasons back. Price increases were made then. If anything, we are on the other side of the argument where there is deflationary or at least some readjustment of cost, as well. So pricing is not really a factor right now.
Having said that, I think you have the right observation, at mid-teen growth in a quarter where the base includes an Omicron effect, reflects softness of sales. Our overall growth rate this quarter has been affected significantly across our segments, and that's really the point that you have made. It has also resulted in higher inventory, higher debt apart from some of the other external reasons that I mentioned about the debt. But effectively, this is probably the first full quarter where the impact of slowdown is fully visible across all segments of our business. If you recall our earlier conversations in quarter 2 and quarter 1, I had referred to the lower end of the market being more affected by it. Now it appears that it is a more widespread sort of slowdown in this period. Some of the actions are looking slightly excessive or just because in lifestyle brands, we [ shall ] talk about a bigger vessel we have taken for conversion of stores. But overall, there is a softness in the market that is clear compared to the pre-festive period.
In terms of our outlook, hard to get a number, but our sense is perhaps it's closer to the festive period when we'll start seeing the kind of buoyancy that we had seen in the pre-festive period last year.
Understood. And you made a comment on deflationary trends. Do you think that any softness in raw material prices will be passed on which could help you revive demand?
All done. See, which is why I'm saying here your references are behind because the reduction in raw material prices was also a 6-month back story. And all of it, as we started to get a benefit of it, got passed on to some extent whenever brands felt it was useful and necessary. I don't think pricing alone is a factor. I think there are larger demand pressures across not just apparel industry, across discretionary pocket, inflation, overall slowdown in the economy and there are many other macro factors beyond the textile price value equation.
Got it. This is very useful. Second question is on Pantaloons. So we have reduced our guidance from about 60, 70 stores last year to now 40, 50 stores. How do I read this? Is this maybe we are now closer to the 450 stores? So probably, do you think that with the 18,000, 20,000 square feet size store, you have reached a fair amount of base effect and therefore, to that extent, you're doing [ incremental ] store hence -- I mean, it should kind of be lower? Or I mean, is there anything else that I should read into it? I mean I was frankly expecting a much faster or larger run rate of store addition.
So I think there is a -- there's absolutely no change in either ambition for the business nor a sense of opportunity. I think Pantaloons continues to have a very large runway for it over a long period of time. We continue to believe that we are in early stage as the market to organize [ players' ] growth. Pantaloons is well positioned with a familiar brand, and it has tremendous opportunities in existing and new markets.
I think the moderation is coming primarily in 2 accounts. One is we have added something like 30 to 40 stores just in the last 4, 5 months. And that's a very large addition. Close to 25 stores have got added just last quarter. We are doing it at times when there is a pressure on discretionary consumption and particularly for a sustained period of time at the value end of the market where smaller towns, if you look at the growth rates or performance of Pantaloons stores in metro versus Tier 1 and Tier 2, we can clearly see that the pressure is much larger as we go away from larger cities. And to that extent, we are concurrently moderating the rate of new openings, at least in the smaller towns. And that's why it's resulting into a slightly smaller number than what we ended up with last year.
Got it. So the pace of acceleration will be a function of recovery in the market?
Yes, yes. And we could come back maybe in the second half if things change with a higher number. But at this point of time, we want to sort of acknowledge the reality that is facing the business for the last couple of quarters and the softness that we continue to experience, particularly in smaller towns. And that's where -- that's a part of expansion that we want to slow down and see that.
[Operator Instructions] We have our next question from the line of Sameer Gupta from India Infoline.
Just wanted some clarity on the net debt number. Now I understand you have mentioned that it is unusually high inventory, which is leading to this bloating of net debt. But we've traditionally always kind of followed a model where we have a high amount of creditors which match the inventory even in a case that it goes up. So have we changed this factor? So -- and another question here is that we're already at INR 1,400 crore level, I mean, given that margins are under pressure, demand is sluggish, you mentioned that, we also see net debt levels to increase in FY '24. So just wanted to understand, are we ready for this kind of an increase in debt from our balance sheet hygiene perspective? Or can we not cap our losses and our new investments for the time being?
You're asking 2 questions. One is really about this year's closing net debt situation, and second is about strategy for next year. So let me answer each separately. See, what happened was when last 4 months as the sales started to come below our expected numbers, it resulted in higher inventory [ resulting ], which effectively meant we curtailed some of the purchases for fresh inventory. We still had to pay, which we should for the inventory that we have purchased during September, October, November. To that extent, therefore, the payables because it follows in about 120 to 140 days, payables came down. But because of loss, the sales inventory didn't come down.
So therefore, what we are experiencing right now, at a point of time of 31st March, is a position where inventory hasn't adequately reduced, but payables have reduced. Now this will offset in the coming quarters as we move forward because we have purchased less inventory during this period. And therefore, to that extent, inventory will come down as we go forward, and we have less payables left to be made. And to that extent, net working capital will come down. As we have explained, we have consistently followed the larger principle that your front-end inventory should be adequately and reasonably matched with the credit period on the back end. That is a consistent philosophy. We have followed it for many years, and it has kept our net working capital in the ratio that it exists today.
But in a temporary period, at the moments of time, inventory will be higher, payables will be low -- payables will be higher because we are not buying and selling at the same level. There is an increase in purchase before the end of -- beginning of the season, which falls due later, 3, 4 months later. And the sales also have similar peaks and troughs. Therefore, at all points of time, the picture, at that point of time, may look different. But overall, as you average it over a period of time, the net working capital cycle that we have established over the last 4 or 5 years stays good. So don't worry about it. It's a temporary and transient phase. This balance will get corrected very soon.
On net sales number, I think your suggestion is, is there a way we could expand less either on CapEx or on the losses side. As I just mentioned, we are moderating our businesses in line with the reality, in response to the previous question on Pantaloons expansion. We look at it carefully every time and right through the course of the year. I don't see a major shift in strategy because I think many of these strategies are built to succeed over a long period of time. Many new businesses we have gone into are very early phase. In some sense, our company is in a transformation phase for the last couple of years, and I think we'll have to complete that journey over the next 2, 3 years. So you won't shift -- you won't see a significant or dramatic shift in strategy, but minor adjustment and calibration that we'll have to do, we'll keep doing that.
We have our next question from the line of Devanshu Bansal from Emkay Global Financial Services.
Sir, as you have been indicating that our inventory levels have been slightly on a higher side, so just wanted to check, do you expect our margins getting impacted in FY '24 pertaining to this liquidation of inventory?
No, not at all. See, this is a transitory phase in which one period we're consistently adjusting our inventory purchase with future sales estimates. In a long lead time industry like us, it takes a few months for it to show up. There is no risk or expectation of any loss of inventory on this account. And to the extent that it exists in fashion industry, I think it's already there in the base and is a more continuous process.
Got it. And sir, previously, we had indicated about [ $1 billion ] loss in [ SME, you commented on ] annual basis [ $1 billion ] in D2C and about [ $0.5 billion ] in Reebok. So are we still maintaining similar outlook for '24 as well?
So let me start first by Reebok. I don't think Reebok will have a loss. We are beginning to see the first signs of success in this. Reebok has already sufficiently given us confidence to believe that it's a business which will be a profitable business right from year 1. As far as D2C is concerned, I think we will continue to invest. I wouldn't give a number at this point of time because we're still trying to get a sense of individual brands as well as overall portfolio that we'll build. But no shift and difference from where we probably are today at this point of time. I don't see a change. On the Ethnic portfolio, our primary losses are coming from our investment, deep investments Tasva. I think that's something that will have to continue for some more time before the brand gets the early footing and a basic level of scale for us to ramp down. I think that will remain slightly at a higher level, perhaps for a year, 18 months more.
Got it. And our CapEx has been about [ $5 billion ] in stand-alone operations and about [ $7 billion ] for consolidated operations in FY '23. So if you could provide a ballpark breakout for this as in where -- in which segments this money has gone.
Not very different. So you ask me details of where that has gone?
Yes.
So that's mostly in retail stores. And there is a shop-in-shop CapEx at this. But the large part of our CapEx goes into building new stores, valuations or shop-in-shops. And that's across the businesses.
Sir, stand-alone, I guess, includes -- Lifestyle is majorly on a franchisee basis, so broadly about 60-odd stores that we have opened in Pantaloons and maybe the innerwear EBOs that we will be opening, right? Is this a fair understanding?
It is reasonably fair but not fully correct to say Lifestyle brands will open as one of the things that we are doing in Lifestyle brand, as you're seeing the phase, scale and size of our brands, 2 of our Lifestyle brands have crossed INR 2,000 crores, and we see potential for next level of growth for these brands. We are opening large-format stores in many of our brands. And therefore, our share of capital, which is own capital in large-format stores in Lifestyle brands is increasing slightly, at least for a short period until there is enough franchise confidence that gets built in with these large-format stores. So that's another reason why some of our capital expenditure is higher even in the stand-alone business. And all the new businesses that we are building, whether it's Jaypore, Tasva at this point -- were, to a large extent at this point, apart from Pantaloons, are largely own CapEx business.
Last one from my side, sir, these Style Up stores, are these included in the Pantaloons number? Or the Pantaloons number is only Pantaloons and does not include Style Up?
It doesn't include Style Up.
Okay. So what would be year-end store count for Style Up as of now?
Mr. Bansal, sorry to interrupt. Can we keep this housekeeping questions? You can discuss it with the IR team.
Sure.
We have our next question from the line of Varun Singh from ICICI Securities.
Sir, just wanted to understand that the total number of stores that we have added in FY '24 and in Q4 in Pantaloons, like what percentage would that be into Tier 1, 2, 3 cities? Give us estimate, if you can help us understand.
So we've added about 25 stores in this quarter, as you know, just for quarter 4. And we've added net about 54 stores, as we told you. A total of 63, with about 9 closures as what we've opened. Our Tier 1 -- of the 63 stores, about 40 stores are in metro and Tier 1, split equally, and the rest of the stores are in Tier 2, Tier 3. So it would be about 20 stores.
Okay. Metro would be about?
20-odd stores.
20 stores or 40 stores?
20. Metro and Tier 1, as I said, is about 40 stores. So metros include the metro and some capital towns, about the top 10, 12 cities, about 20 stores are in those cities.
Understood. So as we highlighted earlier, that there is some amount of stress in Tier 2, 3 cities. So if you can help us understand that, how has been the performance? I mean, objective assessment in the metro and Tier 1 cities, maybe like-for-like performance or anything of that sort.
So as we mentioned earlier, I think Ashish mentioned a couple of times and I said it at the beginning as well, that we started seeing a little bit of a slowdown post-festive starting from November, December. Our growth in metros are relatively better versus the Tier 1, Tier 2, Tier 3 towns. And that's again collaborated well with all the reports that you read given the inflationary pressures. Growth across sectors and the sector also has got impacted most heavily in Tier 1, Tier 2 and Tier 3.
However, as we said before that it's too early to comment on the new stores because most of our stores are back-ended. And we do believe that all these markets, the Tier 1, Tier 2, Tier 3 markets, they are still underpenetrated market. There is potential. But this last 5, 6 months of slowdown has impacted the performance of, I think, most organizations.
Okay. And Madam, overall at portfolio level, what would be the total number of stores in metro and Tier 1?
So our -- about half our -- about 50-odd percent of our stores, 55%, 56% of the 430 stores that we have are in metro and Tier 1.
Understood. Understood, Madam. And just last question on Reebok. I just wanted to understand, what is the distribution scale-up program out-year?
Okay. So first things first, we -- when we took over the business, we moved about 110 stores. By the end of September, we should have added another 40 stores to this. So we should have a cumulative tally of about 150 stores. We're also significantly strengthening the wholesale network. So we've already launched in about 30 doors of Shoppers Stop, many other department store doors will follow; likewise, in multi-brand stores. So it's an effort which is on full pelt, with huge momentum, to be able to scale up the business, to be available in the kind of outlets that the brand deserves to be in.
Got it. Got it, Sir. That's it from my side. Wish you all the best.
Thank you.
We have a next question from the line of Ankit Kedia from PhillipCapital.
Sir, my first question is on Pantaloons. Is it fair to assume Pantaloons on [ reinvest ] basis EBITDA would have made a loss for the first time in this business at forward quarters?
See, I think we don't want to get into different accounting that's given. But yes, the -- overall, this quarter performance, not just for Pantaloons where, as you can make out overall, at the company level itself is much softer.
Sure. Sir, from a customer perspective, we have started franchisee expansion. So we always had that initially we will have a [ company-owned ] expansion, and then we can have a franchise expansion. So for FY '24 expansion, how is the mix between franchise and [ company-owned ]?
I guess we'll have one more year at least of majorly company-owned expansion. And during this course of this year, we'll perfect the model, figure out the retail operations, merchandising and other aspects of the business before we start handing over to franchisee. See, one of the things that you have to consider, and this also goes back to the earlier question, that for a company which runs 2,500 stores through franchises and close to 700 franchisees, making franchisees successful is one of the most important things for us. And that's what has set us into 20, 25 years of relationships with franchisees. We are not in a hurry to hand over our businesses to franchisees until the model is well-proven. It doesn't mean that we haven't tried even in Tasva, a couple of stores out of the first 50 stores that we have. I don't have the exact number, but about 6, 7 stores already are franchisee stores, but we're being watchful that share -- we'll not let it grow too rapidly until we have established the business.
Sure. And my last question is on Galeries Lafayette. The first one in Bombay is expected to open in FY '24. So what will be the CapEx for this? And how much losses should be building for the first 2 years for this store?
See, I don't think at this point of time, I want to give you a number on that because we are still figuring out the model around. I expect in a good case scenario, we should not be losing money in that business in the -- at least in the second year. First year, so there are sometimes preoperative and initial investments. But I don't expect to lose money in that business even from year 2 onwards.
And is it fair to build in around [ 100-plus cover ] CapEx for that in FY '24 opening?
I think it will be split between '24 and may run into a little bit of '25.
Sure. That's great. And sir, one more question, if I can squeeze in. While off-line, you are seeing some pressure on demand. Online, are you seeing any channel pressure out there as well emerge or that's very resilient now?
So I think the demand pattern is more organic. It's channel independent, channel agnostic and similar across channels, especially for the portfolio of brands that we run, which is widespread, covers multiple consumer segments. All of our brands have online and off-line presence. The outlook on the business in consumer behavior is no different online and off-line, and it's a macro trend, which is actually leading to a softening of demand. It's no different in any channel.
All the best.
Thank you.
We have our next question from the line of [ Sree Ji ] from Swan Investments.
Can you hear me?
Yes.
Sir, my first question is, I just wanted to understand the CapEx number for FY '24 and '25, what would that be?
We haven't given out an indication, but as you saw, we see the overall CapEx for FY '23, '24 and '25 perhaps -- at least 24 would be roughly in a similar range.
Okay. And do we envisage any further investments in our newer businesses, be it Ethnic, [ Tomorrow ] or the other businesses?
I've indicated [ Tomorrow ] investment. We have said that repeatedly, and that's what we will stay with. We have not made the full investment as yet. As far as Ethnic businesses are concerned, yes, Tasva will take more investments. Smaller bit of investment may be required for smaller Ethnic businesses, which is Jaypore and some of the designer business, but those won't be large. I think most of the meaningfully large investment will stay with us as well and within Jaypore.
Why I'm asking you, sir, we are about INR 1,400-odd crores of net debt. So maybe we'll -- you spoke about the expansion in stores for Pantaloons as well as Lifestyle businesses and you're seeing Ethnic also. So just wanted to understand, is this INR 1,400 crores the peak? Or how should we look at this? Just wanted to understand on that front, that's why the question.
So I think if you refer to my response on the Pantaloons question, the calibration of network expansion is more driven by demand side factors and not necessarily from the balance sheet alone. As we said, we'll have to remain watchful, but we wouldn't change our strategy dramatically at the current level. We feel we have the strength in the business to be able to generate cash to deal with situations of higher debt if it comes to that. We have indicated a higher level of debt towards the end of next year primarily because we believe that we need to continue and there's an opportunity to continue on multiple platforms that we have built during the course of last 2 or 3 years. To do justice to them, to the opportunity in front of us, we will continue to invest in the businesses at scale. We'll, of course, be watchful looking at the market realities as we actually invest on ground.
Okay. And just my last question on the inventory. Now we've seen about INR 1,000-odd crores of increase in the inventory. So what kind of reductions can we see in this year or maybe this quarter, if you can just help us understand that.
Please remember this INR 1,000 crore inventory has come on an increase of INR 4,000 crores of sales. So to that extent, it's an increase, which is matched, to a large extent, by the sales increase that you see. Sales has also grown by 50%. Inventory has grown slightly lower than that. But yes, a fair point that you made. To the extent of about INR 300 crores to INR 400 crores is the level of inventory which we believe is higher than ideal than what we should have had at this point of time, and that's equally reflective in what you think was the opportunity for us in the last 2 quarters as the additional sales that we would have planned for. As we go down, as the sales situation soften, if it remains at that level, that's the opportunity that we have, about INR 300-odd crores of investment.
Thank you. Ladies and gentlemen, that was the last question for today. On behalf of the management, we thank all participants for joining us. In case of any further queries, you may please get in touch with Mr. Amit Dwivedi. You may now disconnect your lines. Thank you.