ABFRL Ambit Oct16 PDF

Aditya Birla Fashion & Retail
BUY
ABFRL IN EQUITY
October 13, 2016
There is more in store
Retail
A unique combination of people, processes and now more brands!

Combined managerial experience of ABFRLs top3 executives is the highest in the
industry. Consistent impetus on brandex (10% of sales for first 10 years!) and
processes around working capital management created asset-light yet scalable
model. Recent portfolio additions like Forever 21 can replicate Zaras growth in
India (34% CAGR over FY11-16) on the back of these processes.
Over
the next
three by
years
the combination
a mature
Madura
business,
Valuations
masked
near-term
expansion;ofcash
generation
to pick
up
Accounting:
Predictability:
Earnings Momentum:
AMBER
AMBER
AMBER
Catalysts
Turnaround in Pantaloons to drive

EBITDA margin expansion of 250bps
by FY19E.
Sustained cash generation;

deleveraging from FY19E.
Performance (%)
ABFRL IN
SENSEX
Source: Bloomberg, Ambit Capital Research
We build in industry leading revenue growth of 15% over next decade with
industry leading capital employed turnover. At 23x/17x FY18E/FY19E EV/EBITDA,
stock will appear inexpensive gradually as CFO/EBITDA growth picks up in new
platforms. As Pantaloons (50% of stores <3 years old) closes in on Trents
operating metrics using Maduras experience and scale and Forever 21s
potential, investors could start ascribing higher multiples to ABFRL.
Key financials
As Pantaloons closes on Trent like operating metrics using Maduras experience,
Year to March
Net Revenues (Rs mn)

Gross Profit (Rs mn)
EBITDA (Rs mn)
EPS
RoE (%)
EV/EBITDA
P/B (x)
FY16
FY17E
FY18E
FY19E
FY20E
60,601
33,051
3,968
(1.4)
-11.0%
32.1
11.6
69,089
38,933
4,848
0.2
1.3%
26.9
11.4
77,962
44,632
5,794
1.0
7.6%
22.6
10.6
90,856
52,506
7,719
2.8
18.8%
16.6
8.8
105,482
61,455
10,016
5.6
29.4%
12.3
6.5
Research Analysts
Abhishek Ranganathan, CFA
+91 22 3043 3085
abhishek.r@ambit.co
Mayank Porwal
+91 22 3043 3214
mayank.porwal@ambit.co
Source: Company, Ambit Capital research

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Sep-16
Jul-16
Aug-16
Jun-16
May-16
Apr-16
150
130
110
90
70
50
Mar-16
Pantaloons getting better

Post-acquisition, ABFRL bettered Pantaloons model by increasing share of own
brands and maintaining near zero working capital by replicating processes
governing Madura. Barring leverage overhang, we build 17% revenue CAGR
(FY16-19E) led by increased SSG (9%; FY16-9E) and store network (163 in FY16
to 293 in FY19E). Pantaloons clocks revenue of Rs8.8K/sq ft (value-segment
leader Max at Rs12K/sq ft), which we see rising to Rs9,543/sq ft.
Flags
Jan-16
Mens wear competitive advantages are replicable

Madura (has top 4 Indias menswear brands) is built around customer width and
brand range while maintaining tight working capital. Whilst mens wear has
category limitations (global experience, est. 11% revenue CAGR over FY16-19),
we believe foundations of supply chain management and price-value-design
proposition can be replicated in womens wear and high-growth value segment.
Globally successful examples of such replication and abundant cashflows portend
continuing high-growth decade.
`110/US$1.6
`129/US$1.9
`142
`182
29
Feb-16
Changes to this position: STABLE
Mcap (bn):
6M ADV (mn):
CMP:
TP (12 mths):
Upside (%):
Dec-15
Competitive position: MODERATE
Recommendation
Oct-15
ABFRLs brands business (Madura) is built on industry-lowest working

capital (82 days; FY16), brand extensions and expanding reach. Madura
provides steady cash generation (Rs4bn-5bn CFO) for funding and
eventual deleveraging of Pantaloons, but importantly culture and
experience to manage critical factors for new retailing platforms. We
already see improvement in gross margins and working capital at
Pantaloons. Post successful integration of Pantaloons and Forever 21,
ABFRL could mimic global retailers like Hugo Boss or Ted Baker which
replicated mens retailing success in womens; Trent-like operational
performance, experience and large operating spectrum (across value,
men/women) make ABFRL the most unique Indian retailing story. We
expect premium valuations to peers given decreasing debt:equity (1.5x;
FY19E) and expanding RoCE (15% by FY19).
Nov-15
INITIATING COVERAGE
Aditya Birla Fashion and Retail Limited
Snapshot of Company Financials

Profit and Loss
Year to Mar (Rs mn)
Net revenues
FY16
FY17E
60,601
69,089
77,962
EBITDA
3,968
4,848
5,794
Depreciation
3,380
2,402
2,606
Interest expense
1,749
2,434
2,434
(1,041)
154
922
Adjusted PBT
Tax
28.55
170.61
Adjusted net profit
(1,041)
126
752
Reported net profit
(1,041)
126
752
6.5
7.0
7.4
Profit and Loss Ratios

EBITDA Margin (%)
Company Background
Indian Rayon acquired Madura Garments and its brands
Louis Philippe, Van Heusen, Allen Solly and Peter England
from Madura Coats in FY2000.
Launched Trouser Town and Planet Fashion in FY01.
Invested heavily in advertising in FY00-03 (12% of sales) to

market product extensions which affected margins.
Paid Rs425mn to subsidiary Aditya Vikram Global Trading

House Ltd., to acquire trademarks and brand rights in FY04.
Tied up with international brand Esprit in FY06; Indian Rayon

is renamed Aditya Birla Nuvo (AB Nuvo) in 2006.
Launched retailing formats People and Collective in FY09.
Severed ties with Esprit in FY13.
Future Group sold 50% stake in Pantaloons to AB Nuvo in

FY13; AB Nuvo acquired 18% in FY14 and another 5% in
FY15.
Madura was demerged from AB Nuvo into Pantaloons in

FY16 to form Aditya Birla Fashion & Retail.
FY18E
Net profit margin (%)
(1.7)
0.2
1.0
EV/ EBITDA (x)
32.1
26.9
22.6
(104.8)
867.9
101.7
2.1
1.9
1.7
FY16
FY17E
Total Assets
17,290
20,474
21,373 PBT
Fixed Assets
23,217
26,072
26,443 Depreciation
Current Assets
19,993
22,760
24,626 Tax
P/E on adjusted basis (x)

EV/Sales (x)
Balance Sheet
Cash flow
Year to Mar (Rs mn)
Investments
FY18E Year to March (Rs mn)
Total Liabilities
7,853
10,911
- Net Working Capital
Total networth
9,437
9,563
Total debt
18,493
21,993
21,993 Investment
Current liabilities
17,168
19,988
21,970 CFI
FY16
FY17E
FY18E
(1,041)
154
922
3,380
2,402
2,606
(19)
-28.55
-170.61
(3,482)
(102)
(1,065)
511
4,718
4,558
(11,078)
(5,257)
(2,977)
11,058 CFO
10,314 Capital Expenditure
(4)
(10,991)
(5,114)
(2,809)
Deferred tax liability
Issuance of Equity
6,762
Balance Sheet ratios
Inc/Dec in Borrowings
5,387
3,500
RoCE (%)
RoE (%)
2.1
8.4
10.2 Net Dividends
-11.0
1.3
7.6 Interest paid
(1,764)
(2,434)
(2,434)
2.0
2.3
2.1 CFF
10,422
1,066
(2,434)
2.1 Net change in cash
(57)
669
(685)
101.7 Closing cash balance
203
872
188
Gross Debt/Equity (x)

Net debt (cash)/ Eq (x)
P/B (x)
1.9
2.2
(104.8)
867.9
Mix change will boost growth
while cash generation drives de-leveraging and RoE
Forever 21's revenues (Rs bn)
Pantaloons' revenues (Rs bn)
Madura revenues (Rs bn)
EBITDA margin (%)
CFO (Rs bn) (LHS)
FCFF (Rs bn) (LHS)
RoE (%) (RHS)
150
10
10
25
8
8
100
50
15
10
-2
FY16
October 13, 2016
FY17E
FY18E
FY19E
FY20E
20
FY16
-4
Ambit Capital Pvt. Ltd.
FY17E
FY18E
FY19E
FY20E
5
-
Page 2
Formidable competitive advantages

Madura, in many ways the bellwether of the Indian apparel industry, has
been the gold standard to benchmark peers. The business has been built on
strong retail (70% of which is franchised) network, branding and tight
working capital management. The business has transitioned from only
wholesale to a mix of retail, wholesale and departmental stores across 375
towns (second-largest in India). Revenues have grown at 21% CAGR over
FY05-16 with median RoCE (post tax) at 11% driven by margin expansion
through brand extensions and improving asset turns.
Exhibit 1: ABFRL vs peers in many ways the bellwether of the sector
Arvind
ABFRL (Madura)
Customer (brand extension)
Brand (range, life cycle)
Architecture and processes
Few brands in the portfolio have the

customer reach as well brand
extensions to serve larger wardrobe
needs.
Large portfolio of brands with an offering

appealing to customers of all ages and at
various price points.
Established credentials of nurturing

brands, focusing on execution and
working capital management.
Most brands in the portfolio have the

customer reach as well brand
extensions to serve larger wardrobe
needs.
A small portfolio of brands with offering

appealing to customers of all ages and
various price points.
History of large brand portfolio

including foreign brands,
perseverance with loss-making
formats and focus on width.
A small portfolio of brands with offering

appealing to customers of a certain age
and economic class.
Historically, focus has been on fabrics

business and brands business was run
with similar architecture.
While the brands in the portfolio have

the customer reach, their brand
extensions are limited.
Raymond
Franchise built on strong foundations

Maduras journey to becoming one of the most profitable Indian apparel brands has
been built on the strong foundation of customer experience (ranked 1st among
brands), range (brand extensions) and expansion along with working capital
management.
Learning curve and losses part of the journey
Madura evolved from a wholesale model to one with a mix of retail and wholesale
(much like Hugo Boss and Ted Baker) since it was acquired in FY2000. The growth,
driven by retail, had its share of bumps in the form of incubation losses between
FY09-11. However, from FY12, the companys investments in exclusive brand outlets
(EBOs) opened up the franchising ecosystem, thus driving revenue growth as well as
RoCE. As 75% of its stores are franchised, capex intensity is low and, thus, has kept
overall capital employed low.
Exhibit 2: Maduras evolution to a bellwether of the Indian apparels sector
FY16
FY15
FY14
FY13
FY11
FY10
FY09
FY08
Investment in
e-commerce
60
50
40
30
20
10
0
-10
-20
-30
Began
franchising
EBOs
Pursued own
store
expansion
FY07
FY06
FY04
Continued
wholesale
model
FY03
FY02
FY01
FY00
Integration
after
acquisition
FY05
45
40
35
30
25
20
15
10
5
-
RoCE (RHS) (%)
FY12
Revenues (Rs bn) (LHS)
Source: Company, Ambit Capital research. Note: RoCE is post-tax
October 13, 2016
Page 3

Exhibit 3: Evolution of Madura from a wholesale business to retail-driven franchise
Time period
Key metrics
Revenue CAGR 16%
FY00-03
Integration
after
acquisition
Avg. EBITDA margin 2.2%

Median RoCE -5.1%
EBOs 42 + others
Area 0.21mn sq ft
Revenue CAGR 20%
FY04-07
Continued
wholesale
model
Median RoCE 6.6%

EBOs 168
Area 0.31mn sq ft
Revenue CAGR 30%
FY08-11
Pursued own
store expansion
Average EBITDA margin

0.6%
Median RoCE -2.6%
EBOs 895
Area 1.3mn sq ft
Key developments
Indian Rayon acquired Madura Garments and its 6 brands (incl. Louis Philippe, Van Heusen, Allen Solly
and Peter England) for Rs1,878mn.
Company invested in 2 new retailing formats Trouser town and Planet Fashion.
Paid 2.5% of revenues as royalty for royalty and know-how and a spent staggering 12%/14% of revenues
on brandex (building brand equity and marketing its product extensions which included Louis Philippe and
Van Heusen suits and blazers) in FY01/FY02 and as a result margins dipped from 3.8% in FY01 to 1.6% in
FY02.
Revenues dipped by 8% in FY03 due to a decline in volumes with Peter Englands progress posing
concerns. Margins, as a result dipped to 0.3% and RoCE fell to -6.8% in FY03 from -3.3% in FY02.
Madura expanded its footprint to 0.21mn sq ft with 30 Planet Fashions and 12 Trouser Towns.
Led by strategic initiatives in Peter England by introducing lower price points, Madura managed a
successful turnaround with revenues growing by 20% in FY04 wherein Peter Englands volumes grew by
23%.
EBITDA margin grew by an impressive 560 bps to 5.9% in FY04 led by cost efficiencies and acquisition of
trademarks from its subsidiary and therefore, royalty was not payable henceforth.
Louis Philippe and Peter England became the first Indian brands to cross the Rs1,000mn mark in FY05.
Tied up with Esprit to strengthen its brand portfolio.
Effective media buying and focused advertising led to advertising costs coming down from 10.1% to 6.7%
of revenues and consequently EBITDA margin surged to 12.1% in FY07.
Expanded retail space to 0.31mn sq ft panning 168 stores comprising EBOs, Planet Fashion and Trouser
Town.
Revenue growth during the said phase was led by brand extensions, experimenting with new formats and
expansion with EBOs increasing from 168 in FY07 to 895 by FY11 spread over 1mn sq ft.
Margins during the phase stuttered; a fall from 8.1% in FY08 to -13.8% in FY09 led by high rentals on
increased retail space, prolonged discounting and reduction in footfalls.
The phase saw launch of new formats catering to different markets in the form of People (family store
format) and The Collective (international apparel and accessory brands).
Cost efficiency measures in the form of rent and manpower rationalisation, exit from unviable stores and
rightsizing led to EBITDA margin recovering to 0.6% in FY10.
Despite increasing prices in FY11 to pass on introduction of excise duty on branded garments and increase
in cotton prices, revenues increased by 45% YoY led by 28% growth in volumes.
Revenue CAGR 20%

FY12-14
Began
franchising
EBOs

Median RoCE 19.2%
EBOs 1,541
The uptick in revenues continued during this phase led by same store sales growth and retail expansion.
Sales during the period grew at a CAGR of 20%.
The phase also saw Madura exiting its association with the unprofitable Esprit and launch of online portal
TRENDIN in FY13. EBITDA margin expanded from 8.8% in FY12 to 12% in FY14.
Retail footprint expanded to 2.2mn sq ft in FY14 from 1.3mn sq ft in FY11 with EBOs increasing from 895
in FY11 to 1,541 in FY14.
Area 2.2mn sq ft
Revenue growth 7%
FY15-16
Median RoCE 41.3%
Investment in
e-commerce
EBOs 1,877
Revenues in FY16 grew by a meagre 7% largely due to muted consumer sentiment and pressure from ecom.
EBITDA margin fell from 12.4% in FY15 to 9.1% in FY16 as the company invested in building its omnichannel platform and building product extensions and as a consequence RoCE fell to 51% in FY16.
Brands also expanded their reach to more than 3,000 Departmental stores and over 4,000 MBOs.
Area 2.9mn sq ft
Source: Company, Ambit Capital research. Note: RoCE is post-tax
Systems and processes an integral part of the organisation culture

Maduras penchant for investment in systems helped it grow sustainably. In FY05,
when revenues formed only Rs3.95bn (one-tenth of FY16 revenues), it moved to ERP
(enterprise resource planning) systems to overcome the challenges of scale. The early
move to ERP helped it manage scale, gross margins (lower unsold stock) and lower
working capital (see Exhibit 4). These traits are evident even after a decade given the
largest omni-channel rollout across 400 stores in FY17.
October 13, 2016
Page 4

Exhibit 4: Madura - impact of ERP adoption on working capital and discounting
FY05
Order fulfilment
Order release-dispatch
Inventory (% of sales)
Receivables
Unsold stock
Pre-ERP
Post-ERP
70%
90%
22 days
18 days
13.0%
11.7%
55 days
40-45 days
Around 30%
10%
Source: Company
Supply chain and branding are competitive advantages aided by scale

As the largest player in the apparel space with over 1,856 stores (2.6mn sq ft), the
company benefits from scale and better terms of credit (70 days as against the
conventional 30 days) as it provides vendors predictable business. The company has
invested in inventory planning, forecasting, demand forecasting and strong control
over supply chain and delivery. An example of control is that a vendor mill cannot sell
the design outside for six months from the date of the collection hitting stores.
Maduras unrelenting focus on working capital is evident from consistent commentary
in AB Nuvos annual report (till the time Madura was a part of it).
Exhibit 5: Working capital management is a deeply ingrained culture of the business
Commentary on supply chain/ working capital
FY01
Strengthening of supply chain and process management efforts by the Company also enabled
it to improve dormancy and reduce idle stock in the supply chain, in turn contributing further
towards better divisional performance during the year.
FY02
SAP-ERP systems implementation
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Our intent has been to build significant competences in a multitude of areas such as design,
IT, retail and spawning new product categories such as womens wear, formal suits, jackets
and jeans
Besides control over costs, effective supply chain management through SAP further improved
efficiency.
focusing on cost efficiencies through efficient management of discounting and outsourcing
Focused efforts on optimisation of inventory to control discount and dormancy added further
strength
The business is focusing on cost efficiencies by efficient management of discounting, supply
chain and outsourcing.
The business is also laying thrust on cost efficiencies by efficient management of discounting,
supply chain and outsourcing
The business is also laying thrust on achieving cost efficiencies through rent re-negotiation, exit
from unviable stores, manpower rationalisation, efficient supply chain management, improving
inventory turns and reducing overheads.
Focus on rent re-negotiation, manpower rationalisation, exit from unviable stores, overheads
reduction and rightsizing measures led to an improvement of more than Rs150cr in EBITDA
and savings of about Rs75cr in the working capital requirements.
Product innovation, retail excellence and improving service levels will be the key focus areas
for Madura in the direction of differentiating itself from the competition
Led by sound profitable growth and improved working capital management, return on capital
employed grew significantly from 11% to 21%. Over the past two years, Madura has almost
doubled its turnover while managing capital employed at similar levels
employed grew significantly from 20% to 29%
employed grew significantly from 29% to 64%.
employed surged from 64% to 72
October 13, 2016
Page 5

Exhibit 6: Maduras revenues have grown consistently
Capital Employed (Rs bn) (RHS)
7
50
Exhibit 7: and so has its network

EBOs (LHS)
Retail space (mn sq ft) (RHS)
2,000
3.5
3.0
1,500
2.5
2.0
1.5
1.0
0.5
-
40
30
20
1,000
10
500
1
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY07
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY08
Brand extensions have been instrumental in growth

The companys brands business has grown 9x over FY04-15 and established itself as
the largest mens wear brand portfolio, at Rs37bn vs Rs12.5bn for the second-largest
brand Arvind. One of the key drivers was growth of non-formal-wear share, which
grew at 36% CAGR over FY10-15. Successful product extension resulted in capturing
a higher share of customers wardrobe and wallet share. Moreover, extension to
value-added categories (colored pants, denims, etc.) aided gross margins. New
initiatives such as shoes (already clocking revenues of Rs800mn), luggage, innerwear
and kids wear boosted growth, margins and, more importantly, RoCEs.
Exhibit 8: Maduras brand extensions
FY05
Made to
Measure suits
Cool Pants;
Intelligent
Clothing;
Innerwear
Louis Philippe
Van Heusen
Peter England
FY06
FY10
FY11
FY13
FY15
FY16
Bags and
accessories
Time wear
X-Lifestyle Fashionable
formals
MYFITCustomised
shirts
Elite Sport, True

Travellers
Fashion formals
Luxure
Golf collectionLP; Footwear
Van Heusen
women and
Vdot Casuals
V
Casuals
Vdot
Jeans
Van Heusen
Sport
Innerwear
Allen Solly
FY08
Peter England
Peter England
Peter England
Elite
Sporty collection
Party
Allen Solly Kids
Peter England
Bags
Friday DressingWomen
Exhibit 9: Change in product mix
Exhibit 10: from formals to casuals and non-formals
Mix of top 4 brands in FY10
Mix of Top 4 brands in FY15

Luxure/Elit
e/Others,
17%
Luxure/Elit
e/Others,
14%
Jeans, 7%
Jeans, 7%
Women,
3%
Women,
5%
Sports, 4%
Mainline,
72%
Mainline,
55%
Sports,
16%
Exhibit 11: Maduras brand portfolio

Brand
Segment (Casual/Formal)
Brand positioning
Reach (EBOs)
FY11-16 CAGR
Formal
Super Premium
250
17%
Van Heusen
Formal/Casual
Premium
317
17%
Peter England
Formal/Casual
Sub Premium
779
17%
Casual
Premium
220
17%
Louis Philippe
Allen Solly
October 13, 2016
Page 6

Exhibit 12: Porters analysis of the branded apparel industry
Bargaining power of suppliers
Bargaining power of buyers
Moderate
High
Companies source their products from various

suppliers and hence, are considered to be
dispensable.
With entry of foreign brands, malls have a choice of

tenants to choose from and command higher rentals.
Availability of brands, especially in mens wear across

price points, gives large choice to consumers.
Additionally, through ecommerce, consumers can

switch to lower priced products.
Competitive intensity
High
Fiercely competitive industry fuelled further by ecommerce, which gives all the brands a level
playing field.
Most retailers offer similar products, which shifts

focus to gaining pricing advantage.
Entry of global brands such as H&M and Zara will

increase competition for wallet share.
Threat of substitution
Barriers to entry
Low
Moderate
Managing inventory and fashion cycles (design to

store takes up to a year) is challenging.
E-commerce has emerged as a channel to create

new or support brands with lower capital outlay.
Improving
Unchanged
Unorganised sector poses low threat of

substitution to brands due to inferior shopping
experience.
However, counterfeit products and their

improving quality pose a threat to brands
Deteriorating
Source: Ambit Capital research
Exhibit 13: SWOT analysis

Strengths
Weaknesses
Well established brands; 3 brands have revenues of Rs10bn each and
Mens wear business growth prospects will be lower given their high
are leaders in their respective segments.
base.
A strong distribution network of 1,856 EBOs and is present in 3,200

departmental stores and 4,300 MBOs.
Formal heavy portfolio (55%) and absence of a strong pure casual wear
(a fast brand in the portfolio limit growth prospects.
Presence in value fashion through Pantaloons across 65 cities with 168

stores
Formats such as Collective (luxury) and People (fast fashion) havent

taken off and yet to be profitable despite 9 years of existence.
Cash conversion of over 80% driven by tight working capital

management differentiates ABFRL from peers.
Madura controls manufacturing (8 plants) of high-end products such

as suits etc. which accounts for 40% of revenues, thus maintaining
higher control over quality.
Opportunities
Threats
Potential to build on the future of retailing omni-channel; will have
Competitive landscape has changed with foreign brands like Zara and
500 stores digitised by mid-October.
H&M having entered Indian and gained substantial wallet share.
Forever 21 franchise has immense potential in fast fashion space given

its positioning (teenagers) and price value proposition.
Brands business is vulnerable to e-commerce, which continues to disrupt

categories such as formal shirts, which are fairly standardised.
Product extensions in existing brands like Van Heusen (innerwear)

have the potential to grow given their current reputation.
October 13, 2016
Page 7
Proven ability to deliver asset turns, generate cash

Maduras ability to operate torrents of cash emanates from its working capital
management and franchised network. The ability of business to generate operating
cash is evident from the operating cash flow of Rs3bn (built on pro forma financials)
in FY16 despite an operationally underwhelming year.
Asset turns have strengthened ability to invest in new categories
The franchised model, coupled with brand extensions and control over working
capital, have resulted in asset turns improving from 2x in FY05 to 7x in FY16. Madura
operates high working capital turns despite nearly 60% of its revenues coming from
consignment sales.
Exhibit 14: Story of Maduras success capital employed and working capital turns
Capital Employed turns (x) (LHS)
Working Capital turns (x) (LHS)
Inventory days (RHS)
Creditor days (RHS)
8
7
6
5
4
3
2
1
-
200
150
100
50
FY14
FY15
FY16
..as generation is assured even in a bad year

In FY16, despite a fall in EBITDA and margins, ABFRLs cash conversion improved due
to tight working capital management led by Maduras operations. This strong cash
generation gives visibility of re-investment in new categories like value fashion and
fast fashion.
Exhibit 15: Maduras pro forma income statement FY16 drop in margins led by
higher discounts and ad-spend
Rs mn
FY14
FY15
FY16
Revenue from operations
30,978
35,993
38,955
COGS
11,947
14,236
15,932
GP
19,031
21,757
23,023
61.4%
60.4%
59.1%
2,953
3,483
3,755
GP Margin
Employee Benefits Expenses
9.5%
9.7%
9.6%
Other Expenses
12,482
14,031
15,769
As a % of sales
40.3%
39.0%
40.5%
As a % of sales
EBITDA
3,596
4,243
3,499
EBITDA margin
11.6%
11.8%
9.0%
Depreciation and Amortisation Expenses

As a % of sales
EBIT
EBIT margin
860
806
625
2.8%
2.2%
1.6%
2,736
3,438
2,874
8.8%
9.6%
7.4%
October 13, 2016
Page 8

Exhibit 16: Pro forma operating cash flow statement for FY15 and FY16
Rs mn
FY15
FY16
907
(1,041)
Interest
1,773
1,749
Depreciation
2,640
3,380
Operating Profit before changes in WC
5,320
4,088
PBT
Adjustments for:
Changes in WC:
Current Investments
60
Inventory
(1,590)
(2,851)
(880)
461
(60)
(424)
90
(36)
Trade Payables
(240)
2,017
Other Current liabilities
(260)
376
170
105
Trade Receivables
Short Term loans and advances
Other Current Assets
Short Term provisions

Cash generated from operations
Less: Capex
FCF
EBITDA margin (%)
CFO/EBITDA
2,610
3,735
(1,630)
(2,000)
980
1,735
9.6%
6.5%
49%
94%
Source: Company, Ambit Capital research. Cash flow has been prepared on the basis of pro forma capital
employed statement for FY14 and FY15 provided by ABFRL.
Exhibit 17: ABFRL vs Arvind Ltd better asset turns but poor margins from Pantaloons
ABFRL
Arvind Lifestyle
Brands Ltd.
Revenues (Rs mn)
60,601
26,409
Gross Margin (%)
54.5%
48.4%
6.5%
7.6%
EBITDA margin (%)

Employee cost (as a % of sales)
9.8%
8.0%
10.7%
7.6%
Ad spend (as a % of sales)
6.7%
6.1%
Security and housekeeping charges (incl. contract labour) (as a % of

sales)
4.0%
3.6%
EBIT margin (%)
1.0%
3.1%
2.2
2.3
27,930
15,046
21.4
3.1
184
147
24
109
190
188
Rent (as a % of sales)
Capital employed turnover (x)

Capital employed (Rs mn)
Working capital turnover (x)
Inventory days
Debtor days
Creditor days
Arvinds asset turns falls to 0.7x

due to lower turns in textiles,
uncollated assets and other
businesses
Significant opportunity lies beyond the large cities

While the company has a network of 1,856 stores, more than 50% are in the top 10
cities. Hence, there is headroom to not only enter new towns but add stores in
existing towns. Nevertheless, we appreciate that growth rates will moderate hereon
as acceptance of branded apparel in these markets evolves. Hence, we expect only
11% CAGR over FY16-20E compared with 17% over FY11-16.
Reach is modest so far

October 13, 2016
Page 9

Maduras 21% revenue CAGR over FY05-16 was driven by retail expansion across
multiple brands. But there is scope to expand reach given that Louis Philippe and Van
Heusen have EBOs across 110 cities while Allen Solly, the casual wear brand, has
EBOs across only 50 cities. Moreover, Louis Philippe and Van Heusen have over 50%
of their stores in the top 10 cities of India and can extend their presence in existing
towns.
Exhibit 18: Madura brand-wise revenue break-up for FY16
FY16 revenues
(Rs mn)
10,754
Number of
EBOs
250
69
No. of EBOs in
top 10 cities
140
10,433
317
106
160
Peter England
9,095
779
283
300
Allen Solly
5,992
220
58
100
Collective
1,070
People
1,070
110
Louis Philippe
Van Heusen
Exports + others
No. of cities
1,546
Total
39,964
Madura has strengthened its brand reach and connect.

Madura has consistently focused on branding and spent nearly Rs5bn between FY0109. Even till date the company spends between 4-5% on branding. Very brands have
exhibited this consistency. Maduras thrust on EBO expansion began in FY06 with
investment in own stores. Once the own store models unit economics was
established, the company began franchising its EBOs. As of FY16, only 30% of the
EBO network is operated by the company with the rest being franchises. The company
has been channel agnostic and has used channels such as departmental stores to
reach customers who are category loyalists (brand loyalists tend to shop at EBOs).
Exhibit 19: Madura has adopted a consistent branding strategy
Brandex (% of revenues)
Net Revenues(Rs mn)
10000
15%
8000
10%
6000
4000
5%
2000
0
0%
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
Source: Company, Ambit Capital research Note: Advertisement spend data for Madura is available only till FY09
Exhibit 20: Channel mix (FY10)
Others
26%
Exhibit 21: Channel mix (FY15)
Others
16%
Trade
26%
Dept. Stores
8%
Retail
44%
Retail
40%
Trade
24%
Dept.
Stores
16%
Asset-light model; control over inventory aids a scalable model

October 13, 2016
Page 10

Contrary to perception, Madura carries inventory for not only own but also for
franchised stores, i.e. over two third of the retail network. Working capital in the form
of inventory rather than debtors (due to channel filling) not only gives a more
accurate picture of demand but also real time feedback on fast/slow moving stock.
Moreover, by adopting a consignment model, Madura not only mitigates inventory
risk for franchisees but also reduces the capital outlay of franchisees.
with increasing share of retail and departmental stores
Exhibit 22: Madura's stock model number of EBOs
2,000
Buy-n-sell
1,800
Exhibit 23: Madura's store break-up

MBOs
Consignment
SIS
EBOs
10000
1,600
1,877
8000
1,400
1,200
1,095
6000
3,200
1,000
4000
800
600
393
400
640
200
698
440
2000
4,300
1945
305
FY10
FY13
FY15
FY16
Exhibit 24: Maduras LTL growth
Exhibit 25: Maduras sales per consignment EBO
Madura LTL growth
Sales per consignment EBO (Rs mn)
30%
20
25%
15
20%
15%
10
10%
5
5%
0%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Exhibit 26: ABFRLs brand portfolio

Own & in-Licensed brands (Pantaloons)
Men
Women-Western
Bare, BARE Denim, JM SPORT (CLASSIC), RIG

(UTILITY CLOTHING), Ajile, Lombard, F Factor,
Byford, Alto Moda, SF Jeans, Urban Eagle, Indus
Route, Richard Parker
Honey, Bare, Annabelle, RIG, Ajile, Alto moda,
Candie's New York, Izabel London, SF Jeans
Women-Ethnic
Rang Manch, Trishaa, Akkriti, Jamini, Alto moda
Kids
Chalk, Bare, Akkriti, Chirpie Pie, Poppers
Madura brands
Licensed/
franchised brands
External brands
Peter England, Van

Heusen, Louis
Phillipe, Allen Solly
Simon Carter, Hackett London
John Miller, Celio,

Spykar, Lee Cooper,
Levis
Allen Solly, Van

Heusen
Forever 21
Kraus, Jealous 21,

AND, 109F
Biba, Global Desi, W
Allen Solly (Junior)
Barbie, Gini Jony
October 13, 2016
Page 11
Filling gaps in womens wear, fast fashion

Pantaloons was acquired by AB Nuvo to gain a foothold in the women and
kidswear space. Forte of working capital management is evident in
Pantaloons despite integration challenges. Issues such as absence of
merchandising team, supply chain and positioning of Pantaloons are finally
nearing resolution as evident in SSG and improvement in margins (2% in
FY14 to 5% in FY16). With fast fashion gaining popularity in India through
brands like Zara and H&M, having a fast fashion offering like Forever 21 to
participate in this segment became imperative.
Exhibit 27: Pantaloons is adopting right template from established business models
Customer and brand appeal
Store to Design
Appeals to a large set of customers across

age and income group.
Works on short inventory cycles and has
Womens wear accounts for 38% while highest sales density in space
kidswear accounts for 25% of revenues.
Max
Pantaloons
Westside
Appeals to a large set of customers across

age and income group. Women and kids
wear accounts for 60% of revenues.
Appeals to relatively no smaller set of

customers across age groups as pricing is
relatively premium. Women and kids wear
accounts for over 75% of revenues
Works on short inventory cycles but has

lower sales density compared to Max
Works on short inventory cycles but has

lower sales density compared to Max
Experience
Spread across 110 cities and 140 stores offer

the convenience of reach. Also, Look and feel
of the store offers an elevated shopping
experience.

the convenience of reach. Also, Look and feel
of the store offers an elevated shopping
experience.

the convenience of reach. Also, the look and
feel of the store is sophisticated , premium an
d hence offers enhances the shopping
experience
Source:, Company, Ambit Capital research
Pantaloons acquisition to fill portfolio gaps

The largest mens wear brand portfolio and reach of 1,853 stores presented a
challenge of another kind replicating past growth rates. The gaps of womens wear
and kidswear in the portfolio couldnt be filled in by existing brands given the ethnicheavy womens wear market as against western-heavy mens wear market. The
Pantaloons acquisition was done to fill these gaps.
Womens wear is a large opportunity
The womens wear market in India is not only smaller than mens wear (globally it is
vice versa) but also more unorganised. Well-run brands can replicate Maduras
achievement of 9x growth between FY04-15.
Exhibit 28: Womens wear and kidswear dominate Pantaloons revenue mix
Womens Wear
Mens wear
Kids Wear
Non Apparel
100%
80%
60%
40%
20%
0%
FY13
FY14
FY15
FY16
October 13, 2016
Page 12

Exhibit 29: Unlike global trends, womens wear is smaller than mens wear in India
Girls,
9%
Boys, 10%
Womens,
38%
Mens, 43%
Brand extension into womens wear is difficult in India, unlike in the West
The Indian womens wear market is predominantly ethnic wear whereas the mens
wear market has a strong 62% share of western wear (shirts and trousers).
Consequently, prospects of making brand extensions under existing western wear
mens brands are limited. Given Maduras positioning as a mens wear brand,
Pantaloons has helped ABFRL make this extension.
Exhibit 30: Composition of Indian womens wear market
skewed towards ethnic wear
Western
Tops, 3%
Winterwear,
4%
Exhibit 31: Projected growth of womens wear market

(Rs bn) in India
Western
Bottomwear
, 2%
Others, 1%
1800
1600
1400
1200
1000
Intimate
Wear, 15%
800
600
Ethnic
Wear, 75%
400
200
0
2012
2013
2014 2015E 2016P 2017P 2018P
Exhibit 32: Geographical distribution

Geography
Lifestyle
Pantaloons Shoppers Stop
Trent
Central
Max
Tier-1
71%
39%
49%
40%
37%
68%
Tier-2 & 3
33%
61%
51%
60%
63%
32%
43
163
78
95
31
111
54
33
58
24
45
Total stores
Number of
28
cities
October 13, 2016
Page 13
Integration issues have been largely addressed

The company faced multiple issues after the acquisition of Pantaloons, including
availability of merchandise, lack of a merchandising team, vendor support and poor
walk-ins. While availability of inventory was an issue, the problems were more
centred on income statement (rent escalation, central costs, low gross margins, etc).
Most of these issues were corrected over FY13-16.
Exhibit 33: Pantaloons post-acquisition issues and steps taken to mitigate them
Issues when acquired
Current Status
Absence of core merchandising and

design team
Hired 280 people across design, merchandising and sourcing
Rentals escalated
FY12 there was one time concession from landlords therefore rent
costs jumped in FY13
Shared costs with Future group in

FY13
Overheads increased from FY14; account for 7% of revenues
Share of own labels - own brands

20% of mix; licensed brands from
Future Group 25%; total at 45%
Launched three brands in Spring Summer (SS)14 and two more in

Autumn Winter (AW) 14. Introduction of Madura brands largely
peter England and other brands in selective outlets. Own and
exclusive brands now account for 62% of revenues.
Issues of stock availability during

transition, acceptance of product
Creating own merchandise on Spring Summer (SS) 14
and lower inventory levels
Repositioning as value fashion
After building the necessary supply chain, price points of products
offering
were lower by 8-10%
Addressing product mix

When Pantaloons was acquired in FY13, the share of own brands was 45% of
revenues and non-apparels (largely third-party brands) formed 18% of revenues.
Moreover, when the business was acquired it came without a core merchandising and
design team, which has been built now and accounts for a significant portion of
central costs. The in-house merchandising team of over 280 members began
launching more in-house brands from FY14, taking the share of own brands
(including Maduras brands) to 63% in 1QFY17.
Exhibit 34: Pantaloons gross margins have improved as own brands share increased
Own brands share (incl. Madura brands) (LHS)
Gross margin (RHS)
70%
48%
60%
46%
50%
44%
40%
42%
30%
20%
40%
10%
0%
38%
36%
At the time of
acquisition
FY13
FY14
FY15
FY16
Clear repositioning of Pantaloons opens doors to value fashion market

The issue of poor walk-ins was a function of availability of product and shift from
third-party brands to own brands. However, these transient issues are being
addressed through re-positioning of Pantaloons as a value fashion player. The value
fashion market in India is pegged at US$7bn with Max (Rs20bn revenues) and
Reliance Trends (Rs22bn revenues). The re-positioning, along with investments in
stores and refurbishment of all pre-acquisition stores, have helped drive SSG.
October 13, 2016
Page 14

Exhibit 35: Maxs growth trajectory has been nothing short of extraordinary
20
Revenues (Rs bn)
120
YoY growth (%)
100
15
80
10
60
40
20
0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Exhibit 36: Pantaloons SSG has improved as store count increased

Pantaloons' stores (LHS)
200
Pantaloons' SSG (RHS)
8%
6%
150
4%
100
2%
0%
50
-2%
-4%
FY13
FY14
FY15
FY16
Forever 21 rebooting fast fashion

While the company has been present in fast fashion/young casual through People,
the emergence and, more importantly, popularity of Zara (40% CAGR over FY11-16
with 45% FY16 RoCE) and H&M in India underscore the opportunity for foreign
brands such as Forever 21. The existing retail operations of Forever 21 are more than
promising with revenue per store of Rs200mn per annum. ABFRLs working capital
management and retail store management skillsets can improve this and make this a
profitable vertical.
Young but popular franchise with scope to improve operations
Forever 21 have been in India since 2010 and with the erstwhile franchisee DLF
brands since 2013. During this short time, the business achieved revenues of Rs2.5bn
with just 12 stores. Forever 21s ambition in India was to scale up, but this didnt
happen and the franchise was loss-making.
Exhibit 37: Forever 21 has not performed to potential
10
EBIT margin (RHS)
5%
0%
-5%
-10%
-15%
The operations under erstwhile

franchise had sub-optimal
revenues (Rs250mn/store) , high
rentals (Rs46mn/store) and high
inventory days (119 days as
against 60 of Zara in India).
-20%
FY14
FY15
FY16
FY17E
FY18E
FY19E
October 13, 2016
Page 15

Exhibit 38: Forever 21s operating metrics set to improve
400
Revenue per store (Rs mn)
Rent per store (Rs mn)

47
350
46
300
Exhibit 39: driven by better working capital

management
Inventory days
300
250
45
250
44
200
43
150
42
100
41
50
40
200
150
100
50
FY14
FY15
FY16
FY14
FY17E FY18E FY19E
FY15
FY16
FY17E
FY18E
FY19E
Forever 21 holds potential to be a material business

With gross margins in the range of 40% and estimated royalty at 5%, inventory turns
and asset turns are key to profitability. ABFRLs forte of working capital management,
combined with the value proposition of the brand, can improve operations. Forever
21 offers its core target audience of teenagers fast fashion (with lower shelf life than
peers such as Zara and H&M whose target age group is 24-35 years) at low prices.
Given the pricing (lower than Zara and H&M) and a teenage-focused brand, the
business can create its own niche and replicate Zaras growth trajectory in India.
Exhibit 40: Price comparison Zara vs H&M vs Forever 21
Brand
Shirt
T-shirt
Tops/Tees
Trouser/Jeans
Zara
1,990
1,190
799
2,290
H&M
1,299
399
399
1,799
759
329
299
679
Forever 21
Exhibit 41: Zara has been one of the fastest growing fashion apparel brands in India
EBITDA margin (%) (RHS)
10
30
25
20
15
4
10
0
FY11
FY12
FY13
FY14
FY15
FY16
October 13, 2016
Page 16
The trinity comes together

The trinity of cash generating entities Madura, value fashion Pantaloons
and fast fashion Forever 21 will make ABFRL a unique company in the next
decade. Ted Baker is an example of diversifying from a largely mens wear
business to womens wear business while maintaining cash generation
capabilities (92% in FY16). We expect ABFRL to replicate this through
Pantaloons (20% revenue CAGR FY16-20E), Forever 21 (43% CAGR over FY1620E) and Madura (13% EBITDA CAGR). With capex intensity peaking in FY18E,
we expect the company to reduce debt from FY19E.
The Ted Baker case study

Ted Baker transitioned from a predominantly mens wear brand to a womens wear
brand. This amazing journey over 18 years with revenue CAGR of 18%, stability in
gross margins (>55% since CY98) and 23% RoCE (CY15) is a fine example of right
strategy, execution and perseverance. Like Ted Baker, ABFRL has a healthy channel
mix, cash generation capabilities and a womens wear business which it can grow.
Evolution from a single store to retail-dominated chain
The brand started out as a single-shirt specialist store in 1988 and has graduated to
a global lifestyle brand catering to men, women and kids. Like most successful brands
Ted Baker grew it revenues through brand extensions as well as network reach (share
of retail increased from 59% in FY99 to 76% in FY16. The growth trajectory of
Maduras in Indias evolving retail market is similar and has immense potential given
the reach potential of brands (discussed above).
Exhibit 42: Ted Bakers revenues have been led by retail expansion
Retail ( mn) (LHS)
Wholesale ( mn) (LHS)
No. of stores (RHS)
500
500
400
400
300
300
200
200
100
100
CY15
CY14
CY13
CY12
CY11
CY10
CY09
CY08
CY07
CY06
CY05
CY04
CY03
0
CY02
Increasing share of womens wear

They launched a womens wear line in FY95. Consistent additions in women lines
and dedicated stores nearly doubled the womens wear share to 56% in FY16 from
29% in FY99. Meanwhile, mens wear too grew at steady pace of 15% CAGR over
FY99-FY16. We believe ABFRL will chart a similar path where womens wear will
become the growth engine and mens wear will clock steady growth.
An investors delight sustained RoE and cash generation
Over a decade, Ted bakers growth rates have not compromised on cash generation
and capital efficiency. Cash generation (CFO/EBITDA) has averaged 100% over
FY06-16 whereas RoEs have remained healthy ranging from 21% (in down years) to
33% in great years. In ABFRLs context, cash generation profile is evident whereas
RoE capabilities are camouflaged by the Pantaloons acquisition.
October 13, 2016
Page 17

Exhibit 43: Ted Bakers consistency in cash generation and capital efficiency is
remarkable
CFO/EBITDA (LHS)
RoE (RHS)
160%
140%
120%
100%
80%
60%
40%
20%
0%
35%
30%
25%
20%
15%
10%
5%
CY15
CY14
CY13
CY12
CY11
CY10
CY09
CY08
CY07
CY06
CY05
0%
Mix change to drive ABFRLs growth and margins

ABFRLs revenue CAGR of 16% over FY16-25E will be driven by value fashion and
fast fashion (both predominantly womens wear). Pantaloons, which has started
showing signs of profitability, will attain EBITDA margins of 7% by FY19E while
Forever 21, with its near zero working capital, will start generating cash as new stores
mature. Thus, scale coupled with asset turns would maintain cash generation and
improve asset turns from 2.2x in FY16 to 3.2x in FY20E.
Change in revenue mix towards value and fast fashion
Value and fast fashion dominated by womens wear will drive revenue growth for
ABFRL. We expect Pantaloons to grow at 20% and Forever 21 at 43% revenue CAGR
led by new stores and SSG over FY16-20E, thus increasing the share of the nonMadura business to 47% in FY20E from 38% in FY16.
Exhibit 44: Revenue mix to be skewed towards fast fashion
Madura's revenues
Pantaloons revenues
Forever 21 revenues
140
120
Rs bn
100
80
60
40
20
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY20E
Increasing clarity on Pantaloons profit trajectory

Pantaloons turned materially profitable in FY16 on the back of product mix changes,
scale (absorbing the central costs) and own brands (higher gross margins). Moreover,
with increasing impetus on its most profitable category, womens wear, gross margins
should sustain at 46% if not improve. We expect Pantaloons to clock margins of 7%
by FY19E on the back of maturing stores (57% of stores are <3 years old). Moreover,
Pantaloons store-level margins have headroom to improve driven by improvement in
sales density (currently half that of Max) and better absorption of corporate costs.
October 13, 2016
Page 18

Exhibit 45: Pantaloons EBITDA margins will improve as mature stores increase
Number of stores (>3 years old) (LHS)
Number of stores (<3 years old) (LHS)
400
8.0
300
7.5
200
7.0
100
6.5
6.0
FY16
FY17E
FY18E
FY19E
Source: Company, Ambit Capital research. Note: Stores exclude factory outlets
Exhibit 46: Pantaloons has scope to track Westsides operating metrics

FY16
Pantaloons
Trent (Standalone)
Shoppers Stop
21,645
8,835
14,568
35,373
8,462
8,368
GM
46%
53%
36%
Rent (as a % of sales)
15%
14%
9%
Employee cost (as a % of sales)
11%
9%
7%
4%
3.4%
2.7%
Opex per sq ft
7,933
7,042
7,555
EBITDA per sq ft
902
1,420
814
Store level EBITDA margin
10%
17%
10%
1,200
1,399*
1,238
5%
7%
6%
Revenues (Rs mn)

Sales per sq ft
Ad spends (as a % of sales)
Corporate Costs (Rs mn)

Format level EBITDA margin (%)
Pantaloons can improve its sales

density. Its peer Max operates at
Rs12,000 sales per sq ft even after
adding 30% new store area
Central costs will be better

absorbed with more stores and
better sales density translating to
higher format level margins.
Source: Company, Ambit Capital research, * included e-commerce costs whereas there was no contribution on
revenues
Exhibit 47: Pantaloons post-acquisition metrics


6
25
20
4
15
3
10
2
5
FY13
FY14
FY15
FY16
October 13, 2016
Page 19

Womens wear is the most profitable category for Pantaloons
Exhibit 48: Pantaloons' revenue mix (FY15)
Exhibit 49: Pantaloons' rupee gross margin mix (FY15)

Non Apps
10%
Kids
9%
Non Apps
14%
Kids
9%
Men
35%
Men
36%
Woman
Ethnic
20%
Woman
Ethnic
19%
Woman
Western
23%
Woman
Western
25%
The final outcome will be improvement in margins and capital efficiency

Redeploying cash flows of Madura in growing Pantaloons and Forever 21 will not
only sustain growth rates for ABFRL but also improve margins and capital efficiency.
Incremental capital employed will be a fraction of current balance sheet size as over
60% of the FY16 balance sheet is goodwill.
Exhibit 50: ABFRLs growth trajectory
140
Madura revenues (Rs bn)
Pantaloons' revenues (Rs bn)
Forevrer 21's revenues (Rs bn)
EBITDA margin (%)
10
120
100
80
60
40
2
20
0
FY16
FY17E
FY18E
FY19E
FY20E
Exhibit 51: ABFRLs capital employed turns will improve as 60% of it is goodwill
Capital Employed turns (x) (LHS)
20
Working Capital turns (x) (LHS)
RoCE (%) (RHS)
25
20
15
15
10
10
5
FY16
FY17E
FY18E
FY19E
FY20E
October 13, 2016
Page 20
Valuation: There is more in store

The brands business can not only incubate new ventures (e.g. innerwear) but
also sustain near-term store expansion of brands as well high growth
potential formatsPantaloons/Forever 21. With Pantaloons turning the
corner and Forever 21 stores showing promise (Rs250mn per store p.a.), we
model improvement in EBITDA (25% CAGR; FY16-19E) and full tax payment in
FY19E. Our DCF model assumes improvement in asset turns from 2.2x in FY16
to 3.2x in FY19E led by ramp-up of Pantaloons and Forever 21 stores. We
pencil in only 10% revenue CAGR in Madura given the low base and threat
from e-commerce. As demonstrated by Ted Bakers performance, we believe
there is an opportunity for ABFRL to transition to a multi-platform company;
with large opportunity in India implying upside to our assumptions. Our DCF
value of Rs182 implies 28x/21x FY18E/FY19E EV/EBITDA, which is inexpensive
given RoE of 19% in FY19E driven by deleveraging (debt-equity of 1.5x).
Cash flow to precede earnings

Investment in Pantaloons stores and Forever 21 and low growth in Madura will limit
margin expansion over F16-18E. The traits of Madura working capital management
and asset turns are replicable in high-growth pockets of value fashion and fast
fashion. EBITDA margin improvement of 100 bps over FY16-19E will be driven by
Pantaloons and Forever 21. Consequently, we expect CFO to more than double to
Rs7bn during the period.
Profitability not contingent on Maduras growth
The companys profitability is not contingent on Maduras growth. We pencil only
11% CAGR over FY16-20E in Maduras revenues despite the potential to expand to
more cities. As new stores of Pantaloons and Forever 21 mature in FY18, margins will
improve to 7.8% in FY19E from 5% now.
Exhibit 52: Growth projections for Madura, Pantaloons and Forever 21
60%
Madura's revenue growth

Forever 21's revenue growth
Pantaloons' revenue growth
50%
40%
30%
20%
10%
0%
FY16
FY17E
FY18E
FY19E
FY20E
Exhibit 53: EBITDA margins improvement will be led by Pantaloons and Forever 21
Madura EBITDA Margins
Pantaloons EBITDA Margins
Forever 21 EBITDA Margins

15%
10%
5%
0%
FY16
FY17E
FY18E
FY19E
FY20E
-5%
October 13, 2016
Page 21

Cash generation will supersede near-term profits
While near-term profitability will improve, the stock will still look expensive on P/E
basis as new store costs, depreciation and interest costs weigh on earnings. However,
with more than doubling of CFO over FY16-19E and cash conversion of nearly 100%,
EBITDA is fair indicator of long-term, steady state profitability.
Exhibit 54: Healthy cash flows led by strong working capital turns
CFO (Rs bn) (LHS)
12
WC turns (x) (RHS)
14
13
10
13
8
12
12
11
11
2
10
10
FY16
FY17E
FY18E
FY19E
FY20E
DCF valuation
Our DCF value of Rs182 per share factors in significant margin improvement as well
as debt repayment from FY19E. We assume 17% revenue FY16-19E CAGR (14%
excluding Forever 21) with Madura delivering only 10% CAGR. We assume cash
generation remains at 90% despite the fast turning value fashion and fast fashion
driving growth. The debt which was a part Pantaloons acquisition doesnt represent
the companys ability to fund its own growth. We expect the company to be debt-free
by FY22E as capex intensity reduces.
Exhibit 55: Healthy free cash flows led by cash flow
generation
CFO (Rs bn) (LHS)
Exhibit 56: will fund repayment, making the company

debt-free by FY22E
FCFF (Rs bn) (LHS)
Debt repayment (Rs bn)
RoE (%) (RHS)

25
10
8
20
6
4
15
10
-2
FY16
FY17E
FY18E
-4
FY19E
FY20E
9
8
7
6
5
4
3
2
1
FY18E
FY19E
FY20E
FY21E
FY22E
Terminal growth assumptions

We build in 5% terminal growth rate, in line with the long-term sustainable GDP
growth rate of India.
WACC assumptions
We build in a WACC of 12.5% despite FY17E debt:equity of 1.9x as we expect the
company to pare debt from FY19E.
October 13, 2016
Page 22

SOTP valuation
Exhibit 57: SOTP valuation mirrors DCF value on FY19E estimates
SOTP
Multiple
(x)
Madura (Rs mn)
20
Pantaloons (Rs mn)
18
Forever 21
Revenues
(Rs mn)
EBITDA (FY19)
Rs mn
EV
4,783
95,659
2,682
48,274
7,700
15,400
EV (Rs mn)
159,333
Debt
19,116
Market cap (EV less debt) (Rs

mn)
140,217
Fair value Rs per share
182
Exhibit 58: Key assumptions

FY16
FY17E
FY18E
FY19E
Revenues
Rs mn
61,610
69,089
77,962
90,856
Comments
Madura
39,964
42,362
46,598
53,448
Driven by retail expansion and SSG of 5%
Pantaloons
21,646
26,727
31,364
37,408
Driven by retail expansion and SSG of 9%
Forever 21
2,500
3,400
5,300
7,700
Gross Margin:
54.5%
53.7%
53.6%
53.3%
Madura
59.8%
60.0%
60.0%
60.0%
Pantaloons
45%
Driven by retail expansion and SSG of 15% (still lower than Zara)
Due to lower discounting initiatives taken
46%
46%
46%
As a value a fashion offering gross margins are unlikely to increase
-135
254
Turnaround driven by scale and improving operations- Sales per store
6.7%
6.4%
6.2%
6.2%
3,968
4,848
5,794
7,719
6.4%
7.0%
7.4%
8.5%
1,877
2,027
2,177
2,277
Pantaloons
163
213
253
293
Forever 21
12
16
20
24
Madura
1,056
1,056
704
Pantaloons
2,109
1,704
1,721
EBITDA level losses from Forever 21

Ad spend (% of total sales)
EBITDA
EBITDA margin
Non recurring costs
Number of stores
Madura
Capex
Forever 21
216
216
216
11,104
5,257
2,977
2,642
Inventory days
184
165
160
154
Creditor days
126
116
110
110
2.2
2.3
2.4
2.8
10.9
11.6
11.7
12.6
1.9
2.2
2.1
1.5
2.1%
8.2%
10.0%
15.2%
Total
Asset turnover (x)

WC turnover (x)
Net Debt:Equity (x)
RoCE (pre-tax)
Peer comparison
Trent (standalone) with its improving operations in women-centric Westside (sales per
sq ft improved from Rs7,200 per sq ft in FY11 to Rs8,700 per sq ft in FY16) and
EBITDA margins expanded from 4% to 8.5%. This, coupled with 35% CAGR revenue
and 40% EBITDA growth in Zara over FY11-16, was instrumental in re-rating of the
stock.
October 13, 2016
Page 23

Exhibit 59: Operating margins are key to capital efficiency; Trent sets an example
FLF
Pantaloons Fashion
Shoppers Stop (Standalone)
Trent (Standalone)
Capital employed per sq ft
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
-6%
-4%
-2%
0%
2%
4%
6%
8%
EBIT margins
Source: Bloomberg, Ambit Capital research. Note: Size of the bubble indicates Share of own label.
Ted Baker has commanded premium valuations (5-year mean of 30x EV/EBITDA) with
growth sustained by mix change and RoE (due to working capital management).
ABFRL trades at a discount to Ted Baker due to its current RoE profile of -11%.
However, growth driven by Pantaloons and Forever 21 not only justifies valuations of
23x FY18E EV/EBITDA but will also possibly elevate its valuation closer to Ted Bakers.
Exhibit 60: Ted Bakers EV/EBITDA
Ted Baker's EV/EBITDA (x)
5-yr avg. EV/EBITDA
Oct-16
Jul-16
Apr-16
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
70
60
50
40
30
20
10
0
Source: Bloomberg, Ambit Capital research.
Exhibit 61: Ted Bakers mix change helped it sustain growth as well as RoE
Ted Baker's Womenswear revenues ( mn ) (LHS)
Ted Baker's Menswear revenues ( mn) (LHS)
RoE (RHS)
500
40%
400
30%
300
20%
200
10%
100
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
0%
FY05
October 13, 2016
Page 24

ABFRL trades at a premium to its peers due to Maduras high RoCE (FY11-16 average
post tax RoCE of 28%) and low working capital of 82 days (lowest among peers).
Amongst Indian peers, ABFRLs brands business has superior operating asset turns
whereas in womens wear business it trails Trent. However, with increasing visibility
of turnaround in Pantaloons, valuations will resemble that of Trent while maintaining
a premium in the mens wear business.
Exhibit 62: Relative valuations
Companies
Mcap
EV/EBITDA (X)
P/E (X)
US$ mn
FY17E
FY18E
ABFRL
1,870
27
23
Arvind Ltd.
1,365
10
994
28
Shoppers Stop
467
15
Raymond Ltd.
543
10
Kewal Kiran
Clothing Ltd.
353
FY16 FY17E
CAGR (FY16-19E) (%)

FY18E
Revenue EBITDA
RoE (%)
EPS
RoCE (%)
FY16 FY17E FY18E FY15
FY16
Indian players
Trent Ltd.
1,350
115
54
14
25
NA
18
-7
22
22
16
14
11
19
13
11
13
14
13
20
107
45
34
27
50
72
10
12
12
123
49
34
15
18
69
10
12
39
25
17
20
50
11
11
18
15
35
26
24
16
19
20
22
26
24
24
22
22,628
12
11
19
17
15
12
22
25
29
15
15
9,146
11
10
16
17
15
13
11
11
Global players
VF Corp.
PVH Corp.
Hugo Boss
3,928
11
16
14
-3
-5
35
23
27
Ted Baker
1,451
14
13
2,566
2,315
2,034
12
13
13
28
NA
NA
24
23
Source: Bloomberg, Ambit Capital research. Note: Raymond Ltd.s and Kewal Kiran Clothing Ltd.s Revenue, EBITDA and EPS CAGR are for FY16-FY18E.
October 13, 2016
Page 25
Risks & catalysts

Risks
Continuing disruption by e-commerce: Continued discounting by e-commerce
channels will erode Maduras growth prospects as customers migrate towards
competing brands which are discounted. If Maduras growth rate erodes by 300bps it
would erode EBITDA margins by 80bps from and delay deleveraging beyond FY19E.
Delay in store ramp-up: Delay in ramp-up of new stores of Pantaloons will not only
impact margins but also delay debt repayment.
Merger with loss-making group entities: A merger with loss-making group
entities such as Aditya Birla Retail (loss of Rs6bn in FY15) and/or Century Textiles
(FY16 loss of Rs0.5bn) is not synergistic and will compromise the capital efficiency of
ABFRL.
Catalysts
Turnaround in Pantaloons: With SSG above 9% over FY17-19E, EBITDA margins of
Pantaloons will improve by 200bps and sustain ABFRLs margins despite initial losses
of Forever 21.
Cash generation and de-leveraging: Sustained operating cash flow will help fund
incremental capex, maintain absolute debt levels till FY18E and thereafter help deleveraging from FY19E.
Exhibit 63: Explanation of flags
Segment
Score
Comments
Accounting
AMBER
ABFRL has a decent cash conversion ratio of 82% (ex-merger) as against 69% for peers in addition to
tight control over working capital (FY16; 82 days).
Predictability
AMBER
In FY16, the company missed margin guidance on Madura due to disruption by e-commerce. However it
has met its guidance on Pantaloons.
Earnings momentum
AMBER
Consensus EPS estimates have been lowered post 1QFY17 earnings on the back of muted consumer
sentiment.
October 13, 2016
Page 26

Balance Sheet
Year to March (Rs mn)
FY16
FY17E
FY18E
FY19E
Share capital
7,694
7,694
7,694
7,694
Reserves and surplus
1,706
1,831
2,583
4,722
Total Networth
9,437
9,563
10,314
12,453
18,493
21,993
21,993
20,093
Minority Interest
Deferred tax liability (net)
Sources of funds
27,930
31,556
32,307
32,546
Net block
23,217
26,072
26,443
26,297
254
254
254
254
Loans
Capital work-in-progress
Investments
Cash and bank balances
Sundry debtors
Inventories
Loans and advances
203
872
188
977
3,909
4,457
5,029
5,861
13,881
15,153
16,887
19,479
1,754
1,998
2,205
2,438
Other current assets
246
280
316
368
Total Current Assets
19,993
22,760
24,626
29,124
Current liabilities and provisions
17,168
19,988
21,970
26,173
5,535
6,376
6,903
7,501
27,930
31,556
32,307
32,546
FY16
FY17E
FY18E
FY19E
60,601
69,089
77,962
90,856
Net current assets

Application of funds
Income statement
Revenue
yoy growth
Total expenses
EBITDA
yoy growth
Net depreciation
EBIT
Interest and financial charges
Other income
14%
13%
17%
56,632
67,641
77,468
90,837
3,968
4,848
5,794
7,719
22%
20%
33%
3,380
2,402
2,606
2,788
588
2,446
3,188
4,931
1,749
2,434
2,434
2,224
120
143
168
187
(1,041)
154
922
2,895
Provision for taxation
28.55
170.61
756
Consolidated adj PAT
(1,041)
Adj PBT
yoy growth
Consolidated reported PAT
126
752
2,138
-112%
497%
185%
(1,041)
126
752
2,138
EPS basic (Rs)
(1.4)
0.2
1.0
2.8
EPS diluted (Rs)
(1.4)
0.2
1.0
2.8
October 13, 2016
Page 27

Cash flow statement
FY16
FY17E
FY18E
FY19E
(1,041)
154
922
2,895
3,380
2,402
2,606
2,788
(75)
(143)
(168)
(187)
1,749
2,434
2,434
2,224
CFO before change in WC
4,013
4,848
5,794
7,719
Change in working capital
(3,482)
(102)
(1,065)
405
PBT
Depreciation
Others
Interest paid
Direct taxes paid
(19)
(29)
(171)
(756)
CFO
511
4,718
4,558
7,368
(11,078)
(5,257)
(2,977)
(2,642)
Net capex
Net investments
(4)
Interest received
61
143
168
187
CFI
(10,991)
(5,114)
(2,809)
(2,455)
Inc./(Dec.) from borrowings
5,387
3,500
(1,900)
Change in share capital
6,762
(1,764)
(2,434)
(2,434)
(2,224)
10,422
1,066
(2,434)
(4,124)
(57)
669
(685)
790
FY16
FY17E
FY18E
FY19E
14
13
17
Interest & finance charges paid

Dividends paid
CFF
Net increase in cash
Ratio analysis
Year to March (%)
Revenue growth
EBITDA growth
22
20
33
PAT growth
(112)
497
185
EPS norm (dil) growth
(112)
497
185
EBITDA margin
6.5
7.0
7.4
8.5
EBIT margin
1.0
3.5
4.1
5.4
Net margin
-1.7
0.2
1.0
2.4
RoCE (pre-tax)
2.1
8.2
10.0
15.2
RoCE (post-tax)
2.1
6.7
8.1
11.2
RoIC
2.1
8.4
10.2
15.5
-11.0
1.3
7.6
18.8
FY16
FY17E
FY18E
FY19E
P/E (x)
(104.8)
867.9
101.7
51.1
P/B(x)
11.6
11.4
10.6
8.8
Debt/Equity(x)
2.0
2.3
2.1
1.6
Net debt/Equity(x)
1.9
2.2
2.1
1.5
EV/Sales(x)
2.1
1.9
1.7
1.4
32.1
26.9
22.6
16.6
RoE
Valuation parameters
Year to March
EV/EBITDA(x)
October 13, 2016
Page 28
Institutional Equities Team

Saurabh Mukherjea, CFA
CEO, Institutional Equities
(022) 30433174
saurabh.mukherjea@ambit.co
Research Analysts
Name
Industry Sectors
Nitin Bhasin - Head of Research
E&C / Infra / Cement / Industrials
(022) 30433241
Desk-Phone
E-mail
nitin.bhasin@ambit.co
Aadesh Mehta, CFA
Banking / Financial Services
(022) 30433239
aadesh.mehta@ambit.co
Abhishek Ranganathan, CFA
Retail
(022) 30433085
abhishek.r@ambit.co
Achint Bhagat, CFA
Cement / Home Building
(022) 30433178
achint.bhagat@ambit.co
Anuj Bansal
Mid-caps
(022) 30433122
anuj.bansal@ambit.co
Aditi Singh
Ashvin Shetty, CFA
Economy / Strategy
Automobile
(022) 30433284
(022) 30433285
aditi.singh@ambit.co
ashvin.shetty@ambit.co
Bhargav Buddhadev
Power Utilities / Capital Goods
(022) 30433252
bhargav.buddhadev@ambit.co
Deepesh Agarwal, CFA
Power Utilities / Capital Goods
(022) 30433275
deepesh.agarwal@ambit.co
Dhiraj Mistry, CFA
Consumer
(022) 30433264
dhiraj.mistry@ambit.co
Gaurav Khandelwal, CFA
Automobile
(022) 30433132
gaurav.khandelwal@ambit.co
Girisha Saraf
Mid-caps / Small-caps
(022) 30433211
girisha.saraf@ambit.co
Karan Khanna, CFA
Strategy
(022) 30433251
karan.khanna@ambit.co
Mayank Porwal
Retail
(022) 30433214
mayank.porwal@ambit.co
Pankaj Agarwal, CFA
(022) 30433206
pankaj.agarwal@ambit.co
Paresh Dave, CFA
Healthcare
(022) 30433212
paresh.dave@ambit.co
Parita Ashar, CFA
Metals & Mining / Aviation
(022) 30433223
parita.ashar@ambit.co
Prashant Mittal, CFA
Strategy / Derivatives
(022) 30433218
prashant.mittal@ambit.co
Rahil Shah
(022) 30433217
rahil.shah@ambit.co
Rakshit Ranjan, CFA
Consumer
(022) 30433201
rakshit.ranjan@ambit.co
Ravi Singh
(022) 30433181
ravi.singh@ambit.co
Ritesh Gupta, CFA
Oil & Gas / Chemicals / Agri Inputs
(022) 30433242
ritesh.gupta@ambit.co
Ritesh Vaidya, CFA
Consumer
(022) 30433246
ritesh.vaidya@ambit.co
Ritika Mankar Mukherjee, CFA
Economy / Strategy
(022) 30433175
ritika.mankar@ambit.co
Ritu Modi
Automobile
(022) 30433292
ritu.modi@ambit.co
Sagar Rastogi
Technology
(022) 30433291
sagar.rastogi@ambit.co
Sudheer Guntupalli
Technology
(022) 30433203
sudheer.guntupalli@ambit.co
Sumit Shekhar
Economy / Strategy
(022) 30433229
sumit.shekhar@ambit.co
Utsav Mehta, CFA

Vivekanand Subbaraman, CFA
E&C / Industrials
Media
(022) 30433209
(022) 30433261
utsav.mehta@ambit.co
vivekanand.s@ambit.co
Sales
Name
Regions
Sarojini Ramachandran - Head of Sales
UK
Desk-Phone
Dharmen Shah
India / Asia
(022) 30433289
dharmen.shah@ambit.co
Dipti Mehta
India / USA
(022) 30433053
dipti.mehta@ambit.co
Hitakshi Mehra
India
(022) 30433204
hitakshi.mehra@ambit.co
Krishnan V
Nityam Shah, CFA
India / Asia
USA / Europe
(022) 30433295
(022) 30433259
krishnanv@ambit.co
nityam.shah@ambit.co
Parees Purohit, CFA
UK / USA
(022) 30433169
parees.purohit@ambit.co
Praveena Pattabiraman
India / Asia
(022) 30433268
praveena.pattabiraman@ambit.co
Punitraj Mehra, CFA
India / Asia
(022) 30433198
punitraj.mehra@ambit.co
Shaleen Silori
India
(022) 30433256
shaleen.silori@ambit.co
Pramod Gubbi, CFA Director
Singapore
+65 8606 6476
pramodgubbi@ambitpte.com
Shashank Abhisheik
Singapore
+65 6536 1935
shashankabhisheik@ambitpte.com
+44 (0) 20 7886 2740
E-mail
sarojini.r@ambit.co
Singapore
USA / Canada
Ravilochan Pola - CEO
Americas
+1(646) 361 3107
ravipola@ambitpte.com
Production
Sajid Merchant
Production
(022) 30433247
sajid.merchant@ambit.co
Sharoz G Hussain
Production
(022) 30433183
sharoz.hussain@ambit.co
Jestin George
Nikhil Pillai
Editor
Database
(022) 30433272
(022) 30433265
jestin.george@ambit.co
nikhil.pillai@ambit.co
October 13, 2016
Page 29

Aditya Birla Fashion and Retail Ltd (ABFRL IN, BUY)
300
250
200
150
100
50
Aug-16
Jun-16
Apr-16
Feb-16
Dec-15
Oct-15
Aug-15
Jun-15
Apr-15
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aditya Birla Fashion and Retail Ltd

Source: Bloomberg, Ambit Capital research
October 13, 2016
Page 30

Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>10%
SELL
NO STANCE
<10%
We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW
We will revisit our recommendation, valuation and estimates on the stock following recent events
NOT RATED
We do not have any forward looking estimates, valuation or recommendation for the stock
POSITIVE
We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs
NEGATIVE
We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs
Disclaimer
This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically,
and, in some cases, in printed form.
Additional information on recommended securities is available on request.
Disclaimer
1.
AMBIT Capital Private Limited (AMBIT Capital) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio
Manager and Depository Participant registered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI
2.
AMBIT Capital makes best endeavours to ensure that the research analyst(s) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s) believes
to be reliable. However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the
accuracy or completeness of any information obtained from third parties. The information, opinions, views expressed in this Research Report are those of the research analyst as at the date of this
Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein.
3.
This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatisfied with the contents of this complimentary Research Report or with the terms of
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If this Research Report is received by any client of AMBIT Capital or its affiliate, the relationship of AMBIT Capital/its affiliate with such client will continue to be governed by the terms and conditions
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Recipients should consider this Research Report as only a single factor in making any investment decisions. This Research Report is not an offer to sell or the solicitation of an offer to purchase or
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and persons into whose possession this Research Report comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition.
Ambit Capital Private Limited is registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. SEBI Reg.No.- INH000000313.
7.
Conflict of Interests
8.
In the normal course of AMBIT Capitals business circumstances may arise that could result in the interests of AMBIT Capital conflicting with the interests of clients or one clients interests conflicting
with the interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified and managed and that clients interests are protected. AMBIT Capital has policies and
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9.
AMBIT Capital and/or its affiliates may from time to time have or solicit investment banking, investment advisory and other business relationships with companies covered in this Research Report and
may receive compensation for the same.
Additional Disclaimer for U.S. Persons

10. The research report is solely a product of AMBIT Capital
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12. Any subsequent transactions in securities discussed in the research reports should be effected through Enclave Capital LLC. (Enclave).
13. Enclave does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports.
14. The research analyst(s) preparing the email / Research Report/ attachment is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that
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Additional Disclaimer for Canadian Persons
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Additional Disclaimer for Singapore Persons
24. This Report is prepared and distributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP
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October 13, 2016
Page 31

Additional Disclaimer for UK Persons
26. All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover. No part of this research
analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report. This report may not be
reproduced, redistributed or copied in whole or in part for any purpose.
27. This report is a marketing communication and has been prepared by Ambit Capital Pvt Ltd of Mumbai, India (Ambit) and has been approved in the UK by Ambit Capital (UK) Limited (ACUK)
solely for the purposes of section 21 of the Financial Services and Markets Act 2000. Ambit is regulated by the Securities and Exchange Board of India and is registered as a Research Entity under the
SEBI (Research Analysts) Regulations, 2014. ACUK is regulated by the UK Financial Services Authority and has registered office at C/o Panmure Gordon & Co PL, One New Change, London,
EC4M9AF.
28. In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(1) (persons who have professional experience in matters relating to investments) or Article
49(2)(a) to (d) (high net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended) or (ii) are professional
customers or eligible counterparties of ACUK (all such persons together being referred to as "relevant persons"). This report must not be acted on or relied upon by persons in the UK who are not
relevant persons.
29. Neither Ambit nor ACUK is a US registered broker-dealer. Transactions undertaken in the US in any security mentioned herein must be effected through a US-registered broker-dealer, in conformity
with SEC Rule 15a-6.
30. Neither this report nor any copy or part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes
should inform themselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of UK or US securities laws, or the law of any
such other jurisdictions.
31. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in
connection with, any contract or commitment whatsoever. The information in this report, or on which this report is based, has been obtained from publicly available sources that Ambit believes to be
reliable and accurate. However, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It has also not been independently
verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.
32. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors
individual circumstances and should not be taken as specific advice on the merits of any investment decision. Investors should consider this report as only a single factor in making any investment
decisions. Further information is available upon request. No member or employee of Ambit or ACUK accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or
indirectly, from any use of this report or its contents.
33. The value of any investment made at your discretion based on this Report, or income therefrom, maybe affected by changes in economic, financial and/or political factors and may go down as well
as go up and you may not get back the original amount invested. Some securities and/or investments involve substantial risk and are not suitable for all investors.
34. Ambit and its affiliates and their respective officers directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add
to or dispose of any such securities (or investment). Ambit and ACUK may from time to time render advisory and other services to companies referred to in this Report and may receive compensation
for the same.
35. Ambit and its affiliates may act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies discussed in this Report (or
in related investments) or may sell them or buy them from clients on a principal to principal basis or may be involved in proprietary trading and may also perform or seek to perform investment
banking or underwriting services for or relating to those companies.
36. Ambit and ACUK may sell or buy any securities or make any investment which may be contrary to or inconsistent with this Report and are not subject to any prohibition on dealing. By accepting this
report you agree to be bound by the foregoing limitations. In the normal course of Ambit and its affiliates business, circumstances may arise that could result in the interests of Ambit conflicting with
the interests of clients or one clients interests conflicting with the interest of another client. Ambit makes best efforts to ensure that conflicts are identified, managed and clients interests are
protected. However, clients/potential clients of Ambit should be aware of these possible conflicts of interests and should make informed decisions in relation to Ambit services.
Disclosures
37. The analyst (s) has/have not served as an officer, director or employee of the subject company.
38. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities.
39. All market data included in this report are dated as at the previous stock market closing day from the date of this report.
Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this
report.
Ambit House, 3rd Floor. 449, Senapati Bapat Marg,
Copyright 2015 AMBIT Capital Private Limited. All rights reserved.
Lower Parel, Mumbai 400 013, India.
Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100
CIN: U74140MH1997PTC107598
www.ambitcapital.com
October 13, 2016
Page 32

Additional Disclaimer for UK Persons
26. All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover. No part of this research
analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report. This report may not be
reproduced, redistributed or copied in whole or in part for any purpose.
27. This report is a marketing communication and has been prepared by Ambit Capital Pvt Ltd of Mumbai, India (Ambit) and has been approved in the UK by Ambit Capital (UK) Limited (ACUK)
solely for the purposes of section 21 of the Financial Services and Markets Act 2000. Ambit is regulated by the Securities and Exchange Board of India and is registered as a Research Entity under the
SEBI (Research Analysts) Regulations, 2014. ACUK is regulated by the UK Financial Services Authority and has registered office at C/o Panmure Gordon & Co PL, One New Change, London,
EC4M9AF.
28. In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(1) (persons who have professional experience in matters relating to investments) or Article
49(2)(a) to (d) (high net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended) or (ii) are professional
customers or eligible counterparties of ACUK (all such persons together being referred to as "relevant persons"). This report must not be acted on or relied upon by persons in the UK who are not
relevant persons.
29. Neither Ambit nor ACUK is a US registered broker-dealer. Transactions undertaken in the US in any security mentioned herein must be effected through a US-registered broker-dealer, in conformity
with SEC Rule 15a-6.
30. Neither this report nor any copy or part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes
should inform themselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of UK or US securities laws, or the law of any
such other jurisdictions.
31. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in
connection with, any contract or commitment whatsoever. The information in this report, or on which this report is based, has been obtained from publicly available sources that Ambit believes to be
reliable and accurate. However, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It has also not been independently
verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.
32. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors
individual circumstances and should not be taken as specific advice on the merits of any investment decision. Investors should consider this report as only a single factor in making any investment
decisions. Further information is available upon request. No member or employee of Ambit or ACUK accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or
indirectly, from any use of this report or its contents.
33. The value of any investment made at your discretion based on this Report, or income therefrom, maybe affected by changes in economic, financial and/or political factors and may go down as well
as go up and you may not get back the original amount invested. Some securities and/or investments involve substantial risk and are not suitable for all investors.
34. Ambit and its affiliates and their respective officers directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add
to or dispose of any such securities (or investment). Ambit and ACUK may from time to time render advisory and other services to companies referred to in this Report and may receive compensation
for the same.
35. Ambit and its affiliates may act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies discussed in this Report (or
in related investments) or may sell them or buy them from clients on a principal to principal basis or may be involved in proprietary trading and may also perform or seek to perform investment
banking or underwriting services for or relating to those companies.
36. Ambit and ACUK may sell or buy any securities or make any investment which may be contrary to or inconsistent with this Report and are not subject to any prohibition on dealing. By accepting this
report you agree to be bound by the foregoing limitations. In the normal course of Ambit and its affiliates business, circumstances may arise that could result in the interests of Ambit conflicting with
the interests of clients or one clients interests conflicting with the interest of another client. Ambit makes best efforts to ensure that conflicts are identified, managed and clients interests are
protected. However, clients/potential clients of Ambit should be aware of these possible conflicts of interests and should make informed decisions in relation to Ambit services.
Disclosures
37. The analyst (s) has/have not served as an officer, director or employee of the subject company.
38. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities.
39. All market data included in this report are dated as at the previous stock market closing day from the date of this report.
Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this
report.
Ambit House, 3rd Floor. 449, Senapati Bapat Marg,
Copyright 2015 AMBIT Capital Private Limited. All rights reserved.
Lower Parel, Mumbai 400 013, India.
Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100
CIN: U74140MH1997PTC107598
www.ambitcapital.com
October 13, 2016
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Aditya Birla Fashion & Retail

October 13, 2016

There is more in store

A unique combination of people, processes and now more brands!

Turnaround in Pantaloons to drive

Sustained cash generation;

Source: Bloomberg, Ambit Capital Research

As Pantaloons closes on Trent like operating metrics using Maduras experience,

Net Revenues (Rs mn)

Source: Company, Ambit Capital research

Pantaloons getting better

Mens wear competitive advantages are replicable

Changes to this position: STABLE

Competitive position: MODERATE

ABFRLs brands business (Madura) is built on industry-lowest working

Aditya Birla Fashion and Retail Limited

Snapshot of Company Financials

Adjusted net profit

Reported net profit

Profit and Loss Ratios

Launched Trouser Town and Planet Fashion in FY01.

Invested heavily in advertising in FY00-03 (12% of sales) to

Paid Rs425mn to subsidiary Aditya Vikram Global Trading

Tied up with international brand Esprit in FY06; Indian Rayon

Launched retailing formats People and Collective in FY09.

Severed ties with Esprit in FY13.

Future Group sold 50% stake in Pantaloons to AB Nuvo in

Madura was demerged from AB Nuvo into Pantaloons in

Net profit margin (%)

EV/ EBITDA (x)

P/E on adjusted basis (x)

Year to Mar (Rs mn)

FY18E Year to March (Rs mn)

- Net Working Capital

Deferred tax liability

Balance Sheet ratios

10.2 Net Dividends

7.6 Interest paid

2.1 Net change in cash

101.7 Closing cash balance

Gross Debt/Equity (x)

Mix change will boost growth

while cash generation drives de-leveraging and RoE

Forever 21's revenues (Rs bn)

Pantaloons' revenues (Rs bn)

Madura revenues (Rs bn)

EBITDA margin (%)

CFO (Rs bn) (LHS)

FCFF (Rs bn) (LHS)

RoE (%) (RHS)

October 13, 2016

Ambit Capital Pvt. Ltd.

Aditya Birla Fashion and Retail Limited

Formidable competitive advantages

Customer (brand extension)

Brand (range, life cycle)

Architecture and processes

Few brands in the portfolio have the

Large portfolio of brands with an offering

Established credentials of nurturing

Most brands in the portfolio have the

A small portfolio of brands with offering

History of large brand portfolio