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Edited Transcript of ADIA.NS earnings conference call or presentation 6-Aug-19 10:30am GMT

Q1 2020 Aditya Birla Fashion and Retail Ltd Earnings Call

MUMBAI Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Aditya Birla Fashion and Retail Ltd earnings conference call or presentation Tuesday, August 6, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashish Dikshit

Aditya Birla Fashion and Retail Limited - MD & Director

* Jagadish Bajaj

Aditya Birla Fashion and Retail Limited - CFO

* Vishak Kumar

Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division

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Conference Call Participants

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* Abneesh Roy

Edelweiss Securities Ltd., Research Division - SVP

* Aditya Gupta

Goldman Sachs Group Inc., Research Division - Associate

* Aliasgar Shakir

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Ankit Kedia

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

* Kunal Bhatia

Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst

* Niraj Mansingka;Goldman Sachs;Analyst

* Richard Liu

JM Financial Institutional Securities Limited, Research Division - Research Analyst

* Ritesh Gupta

AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals

* Samir Kshirsagar;Motilal Oswal Financial Services Ltd;Industrial Trainee

* Tejash Shah

Spark Capital Advisors (India) Private Limited, Research Division - VP of Research

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the quarter 1 FY '20 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 quarterly performance followed by a question-and-answer session.

We have with us today, Mr. Ashish Dikshit, Managing Director; Mr. Jagadish Bajaj, CFO; and Mr. Vishak Kumar, CEO, Lifestyle Business.

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 question to the quarter 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. Jagadish Bajaj. Thank you, and over to you, sir.

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [2]

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Good evening, ladies and gentlemen, and welcome to the earnings call of our company. The company has posted a good set of numbers for quarter 1 FY '20 despite a general slowdown in consumption and discretionary spending. The company has been able to continue with its strong performance through its sustained efforts in the directions of product innovation, the store network expansion, increased marketing efforts, higher digitization, customer centricity and entry into newer areas of growth.

Now let me give you a snapshot of the financial performance of ours. Please remember that the company has to make adjustment to its P&L and balance sheet due to implementation of Ind AS 116 with effect from 1st April 2019. The reported numbers, therefore, are not comparable with last year's numbers on account of this, which required us to treat -- Ind AS requires us to treat all our leased assets on our balance sheet. This has resulted in a reduction of rent expenses with a corresponding improvement in EBITDA but offset by increase in depreciation and amortization expenses and finance costs. I will try to give the comparable numbers.

The revenue of the company is INR 265 crores, registering a growth of 8% over Q1 FY '19. The comparable EBITDA of the company stand at INR 156 crores versus INR 122 crores in Q1 FY '19, thereby registered a growth of 28%. However, the reported EBITDA now is INR 332 crores after taking Ind AS 116 adjustment into account. The comparable PBT of the company is INR 53 crores versus INR 6 crores in Q1 FY '19, almost 9-fold increase. Reported PBT after Ind AS adjustment is INR 35 crores.

Impact of Ind AS 116 is felt on rent, which is lower by INR 172 crores, depreciation higher by INR 143 crores, and finance cost higher by INR 50 crores. The impact is also detailed out in note #5 of published results.

Due to impacts of Ind AS 116, the segment assets are also higher by INR 1,931 crores; in Madura, INR 1,096 crores; and Pantaloons, INR 835 crores. The segment liabilities have increased by INR 2,170 crores: Madura, INR 1,119 crores; and Pantaloons, INR 980 crores.

I will now take you through the performance of individual businesses, starting with Lifestyle brand. The business continues to focus on product innovation, category extensions, digitization of operations and distribution expansion leading to improved business performance.

The revenue of the division is INR 1006 crores, registering a growth of 6% over Q1 FY '19. The comparable EBITDA at INR 94 crores versus INR 77 crores in corresponding quarter FY '19, which is a growth of 22%. Reported EBITDA post Ind AS adjustment is INR 174 crores. The EBITDA margin has also improved by 120 basis points from 8.2% to 9.4% this quarter.

Moving on to the Pantaloons, Pantaloons posted a robust growth on back of continued product value enhancement, strong brand investments and store expansion. Business posted a positive LTL growth of 4.1% and increased its private label from 62% to 64%.

The revenue of Pantaloons division is INR 890 crores, registering a growth of 10% over Q1 FY '19. The EBITDA stands at INR 87 crores versus INR 78 crores in Q1 FY '19, registered a growth of 11% without considering Ind AS adjustment. Reported EBITDA for the quarter post Ind AS adjustment is INR 164 crores. The higher EBITDA was despite 34% higher expense on marketing.

Next, we move to Fast Fashion business. The transition of People brand from a stand-alone retail format into Pantaloons has commenced, and will gradually move fully as part of Pantaloons private label by end of this fiscal year. We continue to focus on improving the performance of Forever 21 business. The Fast Fashion business has posted comparable EBITDA losses of INR 9 crores for the quarter versus losses of INR 6 crores in Q1 FY '19. Reported EBITDA loss for the business is INR 1 crore.

And lastly, our other businesses, which includes innerwear and global brands. The innerwear business continues to scale up rapidly and has reached approximately 16,000 outlets by the end of this quarter. The revenues of this segment continues to grow led by increased acceptance of our menswear and recently launched womenswear. Van Heusen innerwear is received well in the market and will continue with aggressive expansion plans by further capitalizing on the momentum we have created.

In Global Brands business, we continue to steadily grow our multi-brand format, the collective and the mono brand businesses.

Revenue from this segment of other businesses witnessed 76% growth over same quarter last year from INR 71 crores to INR 125 crores.

In a strategic move post this quarter, the company has announced its foray into ethnic space by making an investment of INR 161 crores towards acquiring 100% stake in ethnic brand Jaypore and forging a strategic partnership in India's leading designers, Shantanu and Nikhil, by way of acquiring 51% in the business to participate and grow in the Indian men and women ethnic wear. As you all would know, Indian ethnic wear is a large segment in Indian apparel market, and we've identified as an important growth opportunity.

Jaypore is an Indian retailer offering curative collections of apparel, jewelry, home textiles and accents based on craft forms from all over India. Its FY '19 turnover was INR 39 crores. Jaypore has 2 retail stores, which account for 20% of its revenue, while the major contributor is its e-commerce website. The company plans to ramp up the retail operations in the next few months.

Shantanu and Nikhil is a partnership with one of the India's finest ethnic couture brand. FY '19 revenue of the company was INR 35 crores with partner and growth existing business and also launched new pipelines to extend the apparel and reach of fashion across more consumers and markets. The partnership will further deepen our presence in this important and fast-growing segment and extend our leadership position in the overall branded apparel market.

Finally, the diverse portfolio of the strong brands encompassing varied consumers and varying occasions will enable ABFRL to grow its shares in the multibillion-dollar fashion and opportunity in India.

Thank you, and we are now open to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Abneesh Roy from Edelweiss Securities.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [2]

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Sir, congrats on good margin improvement. My first question is on the Innerwear, so 67% is a very good number. My question is, ex of women's innerwear, how much is the growth?

Second is, if I see number of outlets, it's almost doubled, but the growth in sales is 67%. I'm sure there is a lagged impact of distribution increase, but is there any slowdown in existing same store which you could highlight? So is the repeat purchase also happening?

And third question on innerwear only, what's the impact of Virat Kohli's foray in terms of the One8, will it take share from you or will it take share from the #1 player?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [3]

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So I think, let me start with the last one. It's difficult for us to say how other brands will do in the market. It takes a lot in terms of brand awareness, distribution, product innovation for consumers to take up new products. I think it's too early for us to comment on how that would perform.

In terms of our own performance, most of the growth currently is driven by the men's side because the women's business is still very small. At this stage, we've just launched it in the last quarter of last year and that business still is a small part of the overall revenue. So large part of growth is driven by the men's business.

In terms of number of outlets versus sales expansion, you would understand, any distribution has a weighted distribution curve around it. As we entered the category, we entered the larger markets first, bigger cities, larger retailers over a period of time. As we'll continue to expand the overall reach of this distribution, it -- obviously, the revenue will not grow in proportion with that because the large -- significant part of the weighted average distribution gets covered in the first year, 1.5 years.

The business continues to perform exceptionally well in terms of secondary uptake, which is reflective in the retailers' purchase from us continuously and there is absolutely no doubt that that's only gaining momentum with time.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [4]

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Sir, 2 follow-ups here. In terms of the premium part of the industry, wherein you're competing, how much will be the women's innerwear as a percentage of the sales? And with your 16,000 outlets, how much has womenswear already been launched?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [5]

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So I'll have to come back to you on the women's distribution in terms of exact number of outlets. Maybe, by the end of the call, we'll get back to you. In terms of how much is the share of women's in the premium segment, it's a very small organized play segment, and you can recognize that by just counting the number of brands that exist and their revenues. It's probably, maybe INR 1,000 crores at this point of time or a little bit more than that, maybe INR 1,500 crores. The opportunity there is that overall market is very large and our intent is not just to play in the market that exists today, but to create further growth opportunities, expand the market with women options that don't exist today, and therefore, grow the pie of branded share, which is very, very small today. Our own assessment is, perhaps it's just about 10% in terms of organized branded premium versus the overall size of the market. So there is long way to go.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [6]

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Sir, my second and last...

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [7]

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Current -- finally, just current distribution of women's wear is just about 1,500, 1,600 outlets.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [8]

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So around 10%?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [9]

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Yes.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [10]

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Yes.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [11]

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Sir, my second and last question is gross margins, very good improvement. So is this sustainable? Is it largely because of the deflation or the e-commerce and other discounts have come down?

And second is, you've seen very good e-commerce growth, so it's a related question to the gross margins. So now with today's development also wherein the e-commerce regulations are getting further tightened, wherein the agreements would need to be disclosed, et cetera, would you see this as a positive for you because you are seeing very good growth? So you -- can this be negative from a sales perspective, but positive from a margins perspective?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [12]

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So Abneesh, you would know and we have repeated that over a very long period of time, 3, 4 years, our view is e-commerce is a new channel for consumers, more and more consumers will migrate to that. That should not change the brand proposition that we have in pricing or in our own expectation of margins and so on. So to the extent that we have exercised discipline in pricing and promotion as far as channels are concerned, that will continue to remain same. To that extent, we'll remain -- we remain neutral to all these changes in policies. We fundamentally treat the channel for its own merit and have a very consistent multichannel approach, which we don't change just because a channel becomes more favorable today or tomorrow. I don't think, therefore, it would have significant effect on us in terms of our own margin realization.

On the overall gross margin question, that's a combination of our consistent efforts and planning closely, monitoring, ensuring that the level of discounting is controlled and balanced. This quarter has seen some of those benefits coming through, and that's constantly an important piece for a company like ours where markdowns and discounts are a large part of the value. Managing them well will remain a consistent effort. And some of it is showing up in this quarter.

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Operator [13]

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The next question is from the line from Ashish Kanodia from AMBIT Capital.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [14]

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This is Ritesh from AMBIT. Sir, just wanted to check on the Pantaloons margin improvement. Are you kind of -- so is this in line with what your expectations were? Or is there something more which can be done on that side?

And secondly on the acquisitions -- on the ethnic side, like what really made the management go for acquisition? I know these are -- cater into specific subparts in the ethnic segment, but what really made the management to go for acquisitions rather than try to build these businesses organically? So I mean just that bit, please.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [15]

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So first on Pantaloons margin. You would look at last year's performance, it was not very different from this year. So it's pretty much in line with expectations that we had internally and therefore, it's just a consistency of performance that Pantaloons has shown over a fairly long period of time. So that's pretty much the way we had anticipated, and that's the way it turned out.

On the acquisition strategy, clearly, when we look at white spaces, we evaluate them from long-term growth and profit potential point of view and decide combinations of strategies. We would have gone for an organic play and -- if the opportunity had not presented itself. We were building towards that. In Jaypore, we found a business, which is well positioned in terms of its equity, the customers, the product categories it serves, the aesthetics of the brand and we felt that we'll be able to scale it up and shorten our learning cycle as well as speak to the market.

In Shantanu and Nikhil, we had the opportunity to collaborate and partner one of the finest designer duos in the country who have made a very strong name for themselves as a brand and have a very strong design language. Again, an opportunity where the whole learning curve can be shortened very significantly, and we could combine together to take their design, design aesthetics and the brand name to a much larger number of markets and consumers by creating a prêt line, which is what we are working on right now.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [16]

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Got it. So both the formats will continue to operate separately is what the understanding? Or you would create them as 2 sub-brands in a separate store chain that you may launch?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [17]

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So these are independent, strong brands, and they will have their own chains of stores in off-line.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [18]

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Got it. And just on the comments that you made on the consumption slowdown, and then kind of I -- then the second part of that is that, on the wholesale channel, we've kind of seen a decline on a y-o-y basis. So could you just take us through, I mean, like and let's say, if I have to split by city wise also, let's say, Tier 1 versus Tier 2, Tier 3 markets? Because I think my understanding is Tier 2, Tier 3 market is where you'll be expanding a bit more. So could you just tell us that is there a consumption slowdown, which is like how can urban consumption -- because I think you would be getting market share from the MBO channel typically? And -- so that's one and the second part is that, is that an imperative that gradually you'll have to increase your retail presence much more as wholesale kind of -- other traditional channels kind of slowdown or kind of see some bit of liquidity challenges, et cetera?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [19]

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Okay, Ritesh. First things first, it's not as bad as you sound. There is -- especially in the apparel business, there are multiple factors which are there beyond the macroeconomic ones, including seasons, weddings, festivals and so on so forth. So there has been -- I mean June and July have been dull months. We had a fabulous May so and, so on. There has been, you're right, some amount of slowing down in the wholesale business. But it's not directionally slowdown, it's -- we've had a couple of bad or relatively lesser months in that sense.

The mood is actually quite buoyant, for instance, when it comes to Onam. In fact, if you recall last year, Onam was very bad because of the floods in Kerala and so on. So from that perspective also, there is a lot of expectation of significant growth in Onam markets.

There is also the dynamic of an early puja and an early Diwali this time. So let's see how that pans out, but it should be good for the business. So I think, while there is -- in other industries, very different dynamics which are at play; in our business, I would expect that things should be good in the next few months.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [20]

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Sure, sure. And just on the like growth, I mean, the consumption patterns and let's say, Tier 1, Tier 3, which is where I think most of the expansion is happening. Is there a change which is happening from the MBOs to, say, organized retail there? How strong is the trend there? And what has been your experience over the last few quarters?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [21]

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Ritesh, I don't know if you are aware, we have this format called Peter England RED, which goes into smaller towns, and we go right up to Tier 4, Tier 5 towns.

And at one level, it's very easy for me to say, yes, it's done very well and numbers are good, and so on so forth. But I also will tell you that it's requires very different ways of working, different thinking, different supply chain, product solutions, customizing product to market, and so on. So I don't think it is a one size fits all that yes, smaller towns are doing better than larger towns. But the fact is that some of these towns are underserved. And when you create product solutions which cater to these markets, they responded beautifully.

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Operator [22]

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The next question is from the line of Tejash Shah from Spark Capital.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [23]

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The first question pertains to how -- if you look at Madura's margins, core Madura portfolio, in spite of a not so favorable channel mix margin, the expansion has happened. So just wanted to understand what all factors led to this quarter?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [24]

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Okay, 3 or 4 things. One is we had 6.5% growth in sales, okay. Second, we had a very aggressive new store, exclusive store expansion. So we put up about 100 stores in the quarter. So that was quite an aggressive play of expansion. Third, like Ashish said in the earlier -- to the earlier caller, we had a very strong cost effort also. So many programs have been in place to make sure that the cost systems are very tight, including markdown management, discount management and so on, to keep cost structures tight.

In fact, as we go along, many of our initiatives are to become more nimble in the market to keep our costs, especially our markdowns very, very tight and efficient. I guess that's really the components of the margin play that we had.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [25]

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Was the proportion of EOSS participation much lower this quarter versus last year?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [26]

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I think so. I think the whole industry has to recognize that extending the EOSS beyond a point doesn't help, okay. So we are now increasingly moving towards a tighter EOSS, where we introduce fresh merchandise even while there are a few shelves in the store which are still catering to previous seasons' clearance. We find that consumers are a lot more receptive to fresh merchandise if you give innovative nice exciting new products to them.

So there is a role for EOSS, which is to clear your previous seasons' leftovers, but then you have to very quickly be able to move towards fresh merchandise

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [27]

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Lastly, on Madura. In the annual report, if I recall correctly, there was some mention of shrinking the seasons further. So from 4 seasons, we are targeting, if I recall correctly, somewhere around 10 to 12 seasons. Is that understanding correct? Or is it just an aspiration as of now to move in that direction?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [28]

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I think it's a model change. Our earlier model was a two-trade-show model, where we took orders twice a year from all our wholesale partners and from our own retail channels and we produce as per that. As we need to move ahead, we realized the importance of being more nimble in the market, being able to respond faster to the changes keeping your inventory tighter, we moved to a 12-season model, which is basically a monthly model, where there's freshness, newness every month, and we have a much greater nimble supply chain, which delivers every month to the market.

So this means significantly lesser lead times and much faster play in the market. This is enabled by a lot of investment internally on digital platforms and so on, a lot of changes in the ways in which we work. Our channel partners have also been very, very encouraging. They're all excited with this whole prospect that they don't have to lock in their buys 8 months, 10 months in advance that they can do so on a monthly basis. So you're right, you heard it right, it is to move to towards a monthly model, which basically, hence, means 12 seasons in a year.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [29]

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But does it apply to Madura as well?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [30]

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This is for Madura.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [31]

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So in a formal -- so correct me if I'm wrong, but in a merchandise which is largely formal, and I believe that 70%, 80% will be basic, fashion element will be lesser. This approach should -- might be putting a lot of pressure on supply chain with not commensurate benefit on the front-end. Is that understanding correct? Or...

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [32]

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No, I think it's slightly off. First of all our business from what you call formal, is a lot lesser than that, okay. We are, in that sense, a lot more a lifestyle brand business than a formal business. But even in the formal space, I think there is a consumer who is not served enough if you do not have the flexibility. I think consumer tastes are changing much faster. Their expectations are that their favorite brands should be able to respond to those changes and needs, okay. Things like fits change much faster now, even some of the color directions, print directions, design directions change much faster. We need to have the ability to be able to keep pace with our consumer's aspirations. So I think, it will be quite useful. What it also does is to also allow our retail partners, our wholesale partners, to be able to be a lot more flexible with their inventory, so they can order exactly what they want, when they want.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [33]

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Great, this helps. Just 1 question on Pantaloons. I believe this quarter had a highest ever private label share. Does this include People as well in the numbers? Or this is largely organic improvement?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [34]

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No, this doesn't include People. It's all organic.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [35]

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So any thoughts there where we would like this number to settle in future or any directional call there?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [36]

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I think we've been talking about it. We should get to a number, 70 plus for us to be reasonably satisfied with the progress that we've made. Our current efforts have got us closer to 64%, 65%. As we move People in, in a couple of seasons, that should move, maybe, another percentage or 0.5%, around that. Rest will have to come from organic growth of our existing private label business.

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Operator [37]

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The next question is from the line of Richard Liu from JM Financial.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [38]

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Ashish, is there anything you would like to call out just to close that conversation on gross margin? Is there anything you would like to call out for Q2 where this higher margin seen in Q1 could backfire? Shift in EOSS date, some movement of costs here and there, some movement of revenue here and there, anything like that that we should be aware of?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [39]

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No. I think Richard, first of all, our business as you see, consists of many businesses. So the margin profile of Lifestyle brands is different from Pantaloons, which is different from Innerwear, which is different from other Fast Fashion or other element. So I would first of all not ask you to look for consistency in that because different parts of the businesses grow differently in different seasons and time themselves. Retail-led businesses grow a lot more in the second half of the year. Wholesale businesses grow more in Q2 and Q4. So there are different mixes, which primarily results into the gross margin thing.

In terms of what we are doing, I think our efforts are very systematic and they are continuous. So Vishak talked about multiple-season cycle. We're trying similar thing in Pantaloons, where we're dropping merchandise more often. The whole focus on planning and inventory management to reduce the markdown into the gross margin effect. So these are continuous efforts. I don't think I'll be able to call out anything which is onetime discretionary or something which happened in 1 quarter versus the other. The eventual gross margin that you see on the table is actually a mix of the channel and the individual businesses in the overall profile of ABFRL.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [40]

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Okay, simply put, I was just trying to avoid the shock of probably seeing a much lower-than-expected margin for core Madura in Q2 and being asked to take average for H1, is what I was trying to ask. There is nothing like that on the table as of now, right?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [41]

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No, see, if you look at Madura business, Richard, not just for now, but for a very long period of time, our margin profile has been -- I don't think we've delivered shock. There is seasonality fundamentally built into the apparel business. And some of the shift of seasons, yes it creates a little bit timely quarterly aberration, but I don't see our business creating. There are -- of course there are pieces like advertising, which are more discretionary and which comes in, but I guess you are talking gross margin before that. But things like advertising, obviously they go up in the festive period as a percentage of sale, while they're lower during the year sales in the early part of year. So those are the mixes that are inherent. Best thing is to look at the broader trend over the quarters previously and that creates a certain stability around that. But it would be very difficult to comment 1 quarter versus the other.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [42]

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Okay. And quick one, this 12-season model, is that being applied to Pantaloons as well?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [43]

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See, the shortening of supply chain and multiple drops happening across the business, Pantaloons being a primarily wholesale business, it's easier to do and therefore, happening at one level. It's more complex when you run multi-channel operation across multiple brands, which is the Madura business. And there, it's important that our channel partners also come on board. We are able to go as frequently as we want to them, and that's really why Vishak was explaining on what it takes to make that happen. The level of digitization which is required inside the supply chain in designing the product, in go-to-market, so that you're able to go as frequently as you wish, is a very large change which is almost spiraling in the industry and has to be executed across channels with partners. And that's why the task is so Herculean and large as far as Madura business is concerned.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [44]

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Okay. So in terms of Forever 21, how do you suggest we track progress on that at this stage, losses target, revenue movement target, store expansion target? How do we -- or, let's say, how do -- what have you planned for ourselves for Forever 21, let's say, 1 year, 3 years down the line?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [45]

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Okay. So I think, the first part is, as we've always said, we will not grow a business which doesn't deserve to grow and it needs to earn its capital. And therefore, as long as we don't get the full profitability mix right and we're comfortable with the overall model, we will not grow it rapidly, and we've been, therefore, sort of rationalizing the business for last 1.5 years, 2 years.

On significant positive development, we have just agreed to a large local sourcing model in this brand. It will start to play out in the next 5, 6 months. And over a period of time, we'll increase the share of local sourcing, which does 2 things. One is positively impacts the gross margin because the duty element gets eliminated. And also, it creates a much larger control over merchandise, which is locally attuned. So both these elements will start playing. We will still wait and see 6, 12 months on how we are able to change the dynamics of the business before we take a more aggressive call. So Richard, we'll have to keep watching and letting the business get to a stage where we feel more confident that we grow.

On the consumer side, the brand continues to remain strong, and we will continue to make sure that, that opportunity remains for us as and when and as quickly as we get the model right, and that's really our position today.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [46]

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Sure. Last one if I may. This is regarding Shantanu and Nikhil and since you've just taken a step into ethnic with Jaypore, did you really require another brand at this stage? And related to this, is there a key-man thing involved out here? Because Shantanu and Nikhil is not Shantanu and Nikhil if Shantanu and Nikhil doesn't -- don't stay on with you after the lock-in period is over, whatever that may be.

And the second question in this regard is, will Shantanu and Nikhil fit into the mainstream retailing model that your business represents?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [47]

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So Richard, first the construct is this is a partnership and therefore, it's as much beneficial to both sides to create a long-term value for each other, and that's how the business is being structured. And then I can't get into details, but beyond that, it's meant to be a long-term partnership and various clauses enable that.

In terms of what our plan is, it's to take the equity of the brand, the design aesthetics and create a new prêt line, which will emerge from that house, which will have the effect of that brand and the benefit of their design skills, which we should be able to scale up at price points lower than where it exists and create a market for itself. It's a very different aesthetic. It's more men versus Jaypore, which is more women, jewelry, home, et cetera, and therefore, it's an independently different opportunity for us to pursue.

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Operator [48]

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The next question is from the line of Niraj Mansingka from Goldman Sachs.

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Niraj Mansingka;Goldman Sachs;Analyst, [49]

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A few questions. One is on the 12 season that you're planning to launch, how much you've already invested? And how much pressure would it put on your supply chain management as well as the cost?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [50]

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I think first things first, there is a continuum Niraj, okay. So we are going in to this very gradually, very carefully. We have been doing pilots on this for the last 6 months, where channel by channel we have tested this in multi-brand. We have tested this with department stores. They have been very comfortable ordering through this, and so on. And still we will take another 3 months before we really go into the process of moving fully into this model. So I guess the concern is the right one that have you guys thought this through and have you guys planned this through, does the technology work, and so on.

I think the simple answer is yes. We are going through that. The good news is also that we as an organization over decades have been through this process of monthly booking at various points of time. We understand what it takes, right from ability to create [swap sets], ability to create suitcase samples, salesman samples, and so on. And now with a whole lot of digital thrust, ability to -- with some fantastic draping software and ability to show it digitally, allow the retailer to able to order digitally, and so on. Those are force multipliers that we have built into the system. So I see this as a very gradual transition into a new process with huge benefits which come both for retailer and us in terms of being able to adapt a lot closer to market.

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Niraj Mansingka;Goldman Sachs;Analyst, [51]

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Got it. Any output you have seen when they have done a pilot test on your realization per square feet for the stores you might have launched?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [52]

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Sorry, can you ask that again, please?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [53]

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Niraj, it's a mechanism to design and go to market multiple times. It is a process which is going on, being tested, and there is lot of technology involved. It is not something that we have already rolled out and seen the impact of. But it is fundamental truth in the industry that supply chain cycles are getting shorter. We need to infuse fashion more frequently and this is an enabling mechanism which uses end-to-end digitization in supply chain and in the front end to deliver faster fashion more often to the market. And therefore, it's not yet in a stage where we could go back and tell you whether it's in the store and that is the output.

In terms of the original question of how much investment we have made and is there more to be done? I think most of the investment in technology in perfecting the product, et cetera, has been done. There would be a continuous refinement in something like this, which will be more incremental in nature.

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Niraj Mansingka;Goldman Sachs;Analyst, [54]

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A few more questions. One was on the -- in wholesale, you had a de-growth y-o-y in revenues, but how much was the growth in the LFS stores? There are 2 parts here, the MBO distribution and the LFS.

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [55]

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So LFS went through a tough time in Q1, okay. So I guess it was a muted period in Q1 for large format stores.

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Niraj Mansingka;Goldman Sachs;Analyst, [56]

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What was the contribution in terms of revenue percentage?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [57]

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Both are similar. I think our wholesale business, which is the multibrand wholesale business, is slightly larger.

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Niraj Mansingka;Goldman Sachs;Analyst, [58]

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But I thought, LFS actually is growing faster than MBOs in -- across few companies. So any thoughts you had with regard to the LFS growth?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [59]

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I think you should look at this way, Niraj. The multibrand business continues to grow as more entrepreneurs come into the field, as they look at opportunity. Even if some of the additional trade retailers feel the pressure of exclusive outlets, department store is a much bigger box. It takes longer to travel. The growth will be what the organized players are able to do and there are only a few players, 3 or 4 large players in that segment. So I don't think -- it's been 15 years that I have seen where people have written off multibrand channel. It continues to find a way to reinvent itself and remain relevant. It's obviously not growing at the pace the rest of the supply-led retail models are growing where you go and open stores. But organically, that business continues to have steam.

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Niraj Mansingka;Goldman Sachs;Analyst, [60]

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And the last one, the innerwear, you have any thoughts on how you're seeing the revenues and when do you see the breakeven on the EBITDA? I know you've spoken about it, but since last one quarter, I wanted to have an update on that.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [61]

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So I think we continue to grow on the men's side at about 50%, 60%. The women's business will be additional business that will come after -- and we see that for another year at least going forward. And as we had -- when we have started this business, we had set ourselves an objective to get to INR 500 crores in 4 to 5 years. I think in fourth year, we would get somewhere close to that. So that's a number that seems realistic to target next year, while there is a long way to go from where we are today. So 18, 20 months is a long time, but we think we're pretty much on our trajectory in terms of market penetration, product acceptance, extension of product categories, and so on.

To your question of profitability, we would look at next year, perhaps, getting closer to the breakeven thing, which is what we had indicated in our previous call. At this point, we haven't changed that goalpost.

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Operator [62]

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The next question is from the line of Aditya Gupta from Goldman Sachs.

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Aditya Gupta, Goldman Sachs Group Inc., Research Division - Associate [63]

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A couple of questions on Pantaloons: One on the margins. I guess you must have seen some gross margin expansion given lesser discounted sales, et cetera, and higher private label, but the EBITDA margin expansion is 20 basis points. So do you think this can -- we have the strategy for the next year or so wherein all the gross margin benefits is going to be invested back into EBITDA and maybe the 100 basis point improvement doesn't happen for maybe this year?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [64]

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So in a sense, Aditya, you're asking this year's EBITDA margin projection. I would hesitate to go on and put that number on the table. But as you have seen from our past performance, we've continuously been improving our EBITDA margin and this is coming despite continuous increase in our investments in brand because I think that's one piece we'll have to do in Pantaloons business to make it more contemporary brand. And therefore, some part of gains that we have, maybe a couple of years, we'll have to keep putting it back into that.

Our margin trajectory has remained steady. We look at close to 1% margin improvement. In last few years, we've been delivering that. At this point, I won't go out and put a number for the full year.

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Aditya Gupta, Goldman Sachs Group Inc., Research Division - Associate [65]

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Second on the Pantaloons store addition. Again, I think we have 6 more for the quarter, do we still maintain that 60% to 70% guidance, if I'm not wrong, you had given earlier for this fiscal year?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [66]

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Absolutely.

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Aditya Gupta, Goldman Sachs Group Inc., Research Division - Associate [67]

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Okay. And one more on employee cost. Last quarter, we had some one-offs. The employee cost was up 36% year-on-year. It's still up 20% again this quarter on y-o-y basis. Anything happening over there? Or this is just timing issue or something?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [68]

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No, Aditya. There is an increase in the cost of employment in June quarter, primarily because of the minimum wages impact, which has flown to -- come to us and second is in Karnataka and in -- last year, we added Odisha factory, and we have recruited headcount across organization with increment and all, so that's why there is an increase of around INR 42 crores in our overall cost.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [69]

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So just to give a sense, Aditya, on that. The Odisha factory normally should go into cost of goods. In typical accounting, you're reporting it because these are employees on it, therefore goes into headcount thing. The rare increase is coming out of the minimum wages in Karnataka that had come and accounted for in last year -- in the last quarter.

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Operator [70]

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The next question is from the line of Aliasgar Shakir from Motilal Oswal.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [71]

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My question was on the ethnic wear. So we've done a couple of acquisitions. Could you just share your thoughts on the opportunity in ethnic wear? What are your goals over the 3- to 5-year period? And what kind of investments would we require to do there?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [72]

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So clearly, as we have indicated, this is a white space that we felt is likely to grow in next few years. We are looking at how consumer trends are growing, what kind of design aesthetics are developing and the growing affinity towards Indian design and ethnic products. So that's the broader trend in the market on which we are playing. The ethnic wear is a very large market. You would know that in the women's side, nearly 70% of the market is ethnic wear, and womenswear is about 40% of the apparel market. So net-net, it's between 25% to 30% of overall industry that lies just in the women's ethnic.

On the men's ethnic, the market is today small and fragmented, but it's likely to grow as men look for design and fashion, more inspired by local taste and we've seen both these trends.

So these are very large markets in which we've taken first few steps. Instead of organic, we've taken partnerships where the speed to the market, the learning, et cetera -- curve, et cetera, can be shortened, and we can take these propositions deeper into the market very quickly.

So at this stage, the effort will be to make meaningful business out of what we've acquired, roll them out in next 18 to 24 months into a reasonable number of stores across the network in both these brands and see how we grow from there and further look at opportunities if they present themselves.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [73]

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Okay. So would you be able to call out any numbers in terms of what is the kind of goal you would have over a 3- to 5-year period?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [74]

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See, our 3- to 5-year numbers, I would not like to articulate at this point in time. I think what we will do is, each of these businesses, Jaypore, for example, we will look at next 12 to 15 months to open maybe 15 to 20 stores that's various models of sizes, propositions, categories, and then decide the pace of growth that we want to do.

Similarly, the prêt offering from Shantanu and Nikhil will start with 5, 7 stores in next 6 to 8 months, 10 months, and then we'll see how we scale that up. I think some of it will be learning as we go along, but clearly the size of the market, our intent on it is very clear. We'll take a little while to refine up a model perfectly before we take a number around that.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [75]

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And what kind of investments do we expect?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [76]

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So I think both these businesses do not require very large investment because the propositions are reasonably well fleshed out. The brands are those which are familiar and have got certain equity around that. So it's only about little bit back-end, but largely front-ending and stores. And we open -- we are talking of opening 30, 40 stores between 2 of them over next 18 to 24 months. So it's not very investment heavy in that sense.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [77]

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Okay. And these stores will be across different formats or you have a specific size in mind?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [78]

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So we will learn. In Jaypore, the current stores that exist are 2 stores, which are 1,200, 1,500 kind of thing. We will look at store sizes from 1,500 to 2,500, 3,000 square feet. And depending on the category, the size of the market, and catchment sizes, et cetera, we'll grow that.

On the prêt brand from Shantanu and Nikhil, the store sizes will be 1,000 to 1,500 square feet; those will be smaller stores. Maybe, we'll open a couple of large stores, 2,500 to 3,000 to show the entire merchandise in some of the more mature markets. But these are things as we go along, we'll refine.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [79]

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Okay. But given the way you highlighted the kind of opportunity, it does not seem that over the next 2 years we are looking to grow very aggressively in tackling that opportunity.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [80]

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No, we will be aggressive. It's just that we want to make sure that our first -- both the business models require a little bit of refinement. Jaypore was a largely online business. As you take it off-line, you need to give yourself time to perfect that model. And Shantanu and Nikhil is a couture brand right now. As you make the prêt label, we'll have to get the pricing product category proposition right. So that may take a little bit time, but the expansion after that could be fairly fast.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [81]

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Got it. That's helpful. Just one last thing, could you just let me know what is the full price sale or rather the discounted sale for the -- since you mentioned that it has come off the discounted sales [that's come up]. What was the portion of full price sales in this quarter or maybe for the season?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [82]

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See, we -- you don't disclose those operational numbers. Fair to say, it gets reflected in our gross margin at different level. Discounting sales is also difficult to measure increasingly in the industry because while there are defined periods of end of season, there is almost near continuous discounting that keeps happening, some at various channels, some inside stores, and so on. So it's difficult to capture that as a 1 number. Effectively, therefore, what we look at is, what is the discounting off the table that we are doing and therefore track that number as a measure of our performance.

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Operator [83]

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The next question is from the line of Kunal Bhatia from Dalal & Broacha.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [84]

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Just wanted to know in terms of your store openings in Q1 Madura, we were skewed towards which brand? And also secondly wanted to know the current target in terms of the overall store openings in case of Madura lifestyle. And in Q4, you had mentioned that there would be more of Allen Solly stores, which we would want to open, so just wanted to have a overview of what kind of -- which brand you will be more skewed to in coming quarters? And my second question was on the women's innerwear, wherein -- in that case also are we planning to reach all the 16,000 outlets?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [85]

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Okay. Kunal, I'll take the first one. And I'll request Ashish for the second one. As far as expansion is concerned, Kunal, it's been across brand. So the first big statement I want to make is that this was our largest expansion quarter. We opened a little over 100 stores, okay. And this also hence, looks like our potentially largest expansion year.

So we're going to be able to put up -- I mean it's going to be a very, very aggressive expansion effort. Which brand? I think it's across brands. You're right, at one level, there is a huge energy around Allen Solly in terms of expansion going into many more markets. We're also, in Allen Solly, opening women's store, junior stores and overall house of Allen Solly stores.

Peter England, similarly, is going through large-format Men's Obsession Stores. Peter England is also opening Peter England RED stores in small towns. Louis Philippe is opening lots of stores for House of Louis Philippe large format stores, which are the temple stores of Louis Philippe. Louis Philippe is also opening LP sports stores and jeans stores. Likewise, Van Heusen is opening House of Van Heusen stores. Van Heusen is also opening Van Heusen women's stores. So all in all, there are lots of formats and very -- and the good news is they are [so speedy], the sales per square foot is pretty good in all of them to make the stores viable right from start. So the expansion effort is very aggressive. What we are also doing, I think we've also sharpened the way we launch our stores so that they get off to a flying start. So there has also a big focus area for us to be able to create very strong expansion.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [86]

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Sir, in terms of this quarter, I believe so the net additions was 77, we closed about, say, around 30-odd stores?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [87]

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Yes. So I'm not sure, 25 to 30 stores we would have closed, but yes, that's right. But that is -- the nature of the leased, in terms of leases expiring or malls becoming less relevant at this point of time and so on. So our net expansion this year is going to be a little over 400 stores. Our internal goal is 500 stores, but I can safely tell you that we'll open 400-plus net stores this year. Ashish, on women's innerwear business.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [88]

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Okay, your question was will women's innerwear be sold in all 16,000? The answer today is, perhaps, no. Because while a large number of these stores have both men and women, a small -- smaller subset is where the concentration of women's wear is there. In the women's business, we also are looking at opening some exclusive stores because I think the consumer is looking for experience which is uniquely designed for them. We also have launched a special website for innerwear, but largely focused on the women's side because there is both education in the product and detailing of the product, which is involved.

So perhaps in terms of channel, this business will undergo a slightly different strategy, which will be more customized for the consumer that we are targeting and not necessarily follow exactly the same menswear distribution.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [89]

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And Sir, finally, you gave the number for Madura and what would be your current plan for Pantaloons store openings?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [90]

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We've said 60% to 70%, it's the same number.

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Operator [91]

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The next question is from the line of Samir Kshirsagar from Motilal Oswal.

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Samir Kshirsagar;Motilal Oswal Financial Services Ltd;Industrial Trainee, [92]

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My questions is regarding the Madura Lifestyle branch. How do you perceive the demand for this franchise? Is it primarily from the Tier 1 cities or do you have like equal distribution from all the cities?

And second question, how happy are you with the Madura lifestyle revenue growth like -- because considering the fact that Madura lifestyle is a large chunk of the revenue?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [93]

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First question first Samir, I think the growth opportunity is probably a little more in smaller towns at this point of time, but it doesn't mean that large towns don't have juice. There's lots of juice in every town in this country.

And I think our brands have relevant product offerings across up to Tier 5 towns, we have solutions for consumers. Plus the few markets, which are, in that sense, not reached by that, we have omnichannel strategies where we are able to reach beyond that as well with consumers. So I think to answer your question, the growth opportunity in this country is across town sizes, across formats, residential, malls, city centers, and so on, so the opportunities are large.

Obviously, single-digit growth is never exciting, okay. So Samir, if you're asking are we happy with 6.5% growth, the answer is no. We want to do a whole lot more. But having said that, I think, it's important that we keep doing the fundamental things right, okay? So keep building brands, keep innovating on product, keep getting better and better advertising, keep getting distribution better, keep serving our partners better, keep expanding better quality stores. I think keep doing that, there will be the off quarters where markets are tough or not tough, but fundamentally, if we are doing the right things, growth has to keep coming.

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Samir Kshirsagar;Motilal Oswal Financial Services Ltd;Industrial Trainee, [94]

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Okay. And just one point, regarding the point you made about the relevant product offerings, in every city, do you compete on cost and -- as you go deeper into every city or what is the strategy when you go more deeper into the Tier 4 and Tier 5 cities?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Madura Fashion & Lifestyle Division [95]

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No, Samir, it's not one dimension there. I think cost of value, as you call it, is very relevant in every market. It's just that consumers want an entire basket, for instance, a lot of markets are very strong on wedding shopping, and there the kind of offerings that you create for weddings are very critical. There are a lot of markets where the right kind of casual attire is very critical, which you need to create. Then we also have to consider festivals, we have to consider the impact of seasons, summers. There are markets where there is summer, summer and more summer, the kind of product offerings you create there. So I think it's not just even the right fits getting the right fit. The Northeast deals fits very differently from, let's say, a Punjab would do. So it's creating the entire product offering. Price is one of the -- or value is one of the dimensions in the mix.

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Operator [96]

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The next question is from the line of Ankit Kedia, PhillipCapital.

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Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [97]

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One question is on the innerwear. When can we expand the innerwear range to the other brands like Peter England and Allen Solly? Because on the Peter England website, I can see some SKUs of innerwear already present.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [98]

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So we do have -- we do have some innerwear in these brands, particularly in Peter England for quite some time. We will wait for first our brand -- one brand to get to some level of scale so that we have synergies of scale in one business before we launch more aggressively other brands. It's something which is very much in our radar, but I don't think we'll look at a more aggressive play in other brands, for next 18 to 24 months until we have fully sort of resolved this size and profitability for the values and brand.

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Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [99]

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And so on the EBOs for the innerwear, what's our target number of stores for the core innerwear EBOs?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [100]

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So we would look at maybe 50 to 60 stores at this point of time, but that's something we will scale up pretty quickly. The idea here was first to get the women's part right so that the viability of the total proposition is fully established.

And that's why we were hesitant only with menswear to go into the EBOs. So we think in the long run, the opportunity is very large once we crack this model because it's a product which is -- which can be distributed out of a reasonably small retail format and which can be practically everywhere in the country. But we would start slowly to ensure the model is viable and profitable, it works well for franchises because that's a primary sort of philosophy for distribution and get the model economics right this year before we press the button.

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Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [101]

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Sir, my last question on the innerwear is regarding the SKUs. From the market leader, our SKU count is significantly lower and now that given we are 2.5 years, 3 years in the business, when do we think the SKU counts could increase and when do you think is the right time for the profitability to step in with the SKUs?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [102]

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So we keep working, we keep looking at it. I think we're looking in markets through consumer lens and opportunity, and we don't need to necessarily want to do everything that other players in the market do. In fact the differentiation is the reason why we have succeeded so far, and that we'll keep looking at it. So our products are different, they're more innovative, they bring something new to the consumer, they solve some problems, and therefore we don't just look at SKUs as a number which we need to extend in the market. We do know there are gaps and -- in the portfolio and we will address them as we go along, but we are already playing in the meaningful parts of the segments.

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Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [103]

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So can you share the breakup between athleisure and core innerwear for ourselves?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [104]

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No, we don't disclose this at this stage. We will -- when become meaningfully large enough, we'll probably start doing that.

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Operator [105]

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