New Delhi, Oct. 16 -- On Dec. 21, 1999, as the world prepared to welcome the new millennium, Aditya Birla Group made its first major inorganic move towards establishing a leadership position in the Indian readymade garment industry. That day, the conglomerate signed a deal to acquire Madura Garments from the local unit of British clothing supplier Coats Viyella for Rs 236.23 crore, or a little more than $54 million at the time.
Since then, the group has made several other acquisitions in various segments of the apparel industry-from mass-market offerings under Pantaloons to designer labels such as Sabyasachi and digital-first brands like Bewakoof. It also brought all its apparel brands under Aditya Birla Fashion Retail Ltd.
Now, almost 25 years since the Madura acquisition, the group is spinning it off as a separate publicly listed company to be called Aditya Birla Lifestyle Brands Ltd.
But how have the company's various brands performed in recent years? Which segment is growing at the fastest pace? To figure that out, VCCircle dug into the in-house data platform VCCEdge as well as the company's annual reports and talked to analysts. Here's what the analysis found.
The analysis shows that high-end designer labels acquired over the last few years are standing their ground even amid a plethora of local and international retail brands that crowd the apparel giant's portfolio. Most brands under the company's ethnic division, which houses top-notch designer brands, have been registering double-digit growth in topline since they came onboard the Aditya Birla Fashion-verse.
Before getting into the details of what the analysis found, here's a quick overview of the company's various brands.
Aditya Birla Fashion has four main divisions. The designer labels come under the 'Ethnic Business' division. This includes haute couture designers such as Sabyasachi, 'S&N' by Shantnu & Nikhil, Tarun Tahiliani's Tasva, House of Masaba as well the group's artisanal lifestyle brand brand Jaypore.
Madura Fashion & Lifestyle-the erstwhile Madura Garments-caters to premium shoppers with international brands such as Louis Philippe, Van Heusen, Allen Solly, Peter England, Reebok, Forever 21, Simon Carter, and American Eagle.
Pantaloons Fashion and Retail, acquired in 2012 from Kishore Biyani's Future Group, is Aditya Birla Fashion's accessible apparel retail chain with more than 400 stores in India.
Lastly, the company has an 'Emerging Brands' division with a portfolio of international brands under 'The Collective', such as Ralph Lauren, Hackett London, Ted Baker, and Fred Perry, in addition to its direct-to-consumer digital brand 'Tmrw'.
In 2023-24, the company's revenue from all its businesses grew 12.7% to Rs 13,995.86 crore. However, high expenditure led to a net loss of Rs 738.01 crore, bringing down the bottom-line to levels last seen in the aftermath of the pandemic in 2020-21.
The cash burn remained a key concern for the conglomerate. Except for TG Apparel, which houses premium brands and is nearing breakeven, and the designer label Sabyasachi, all its other companies showed high burn rates. In fact, profit before tax of almost all the brands slumped after being consolidated into the Aditya Birla Fashion fold. For instance, Pantaloons posted a loss before tax of Rs 83 crore for the year ended March 2024.
Demerger impact
Despite the spree of acquisitions made by Aditya Birla Fashion, Madura and Pantaloons continue to be the company's torchbearers. These two mammoth retail brands accounted for almost 100% of group revenue in FY19, before the conglomerate embarked on an acquisition spree. Five years down the line, they still make up around 88% of the topline.
Given the strong financial metrics Madura Fashion has posted over the years, it could grow better as an independent entity, the company believes. In an earnings call with investors earlier this year, group Chief Financial Officer Jagdish Bajaj said that the demerger could be completed by March 2025.
The demerged entity will not just "improve the growth prospects of both businesses in the long run" but also lead to better management for independent businesses, operational rationalisation, organisational efficiency, and optimum utilisation of various resources, a research report from Sharekhan said.
After the demerger, Aditya Birla Fashion will focus on budget-friendly stores like Pantaloons and Style Up, traditional apparel brands such as TCNS' Clothing's 'W', online brands under TMRW, and luxury brands, VCCircle has gathered.
Also, since the lifestyle brands under Madura were a big source of income, the separated Aditya Birla Fashion will need to raise money within the next year to grow. Bajaj, too, hinted at an equity raise plan post the demerger.
Designer labels hold strong
The Indian designer labels' share in the overall pie of the company's revenue has steadily climbed.
Finesse International Design Ltd, which is designer duo Shantnu & Nikhil's label, and Jaypore were among the first brands to come onboard the Aditya Birla Fashion verse in 2019. These were followed by celebrity designer Sabyasachi's Sabyasachi Calcutta LLP and Tarun Tahiliani's Tasva (operated by Indivinity Clothing Retail) in 2021, and Masaba Gupta's quirky diffusion brand House of Masaba in 2022.
Most of these brands have recorded double-digit revenue growth in recent years. This has helped increase their share to 6% of the group's topline in FY24 from barely 1% in FY21.
Acknowledging this feat, the group took note of the business coming in from its ethnic and emerging divisions after its March results. Much of the revenue growth came from the new business of the ethnic division, Tmrw, and Reebok, ABFRL said, adding that the ethnic wear portfolio now has an annual revenue run rate of over Rs 2,000 crore.
Sabyasachi Calcutta led the labels with a 42% rise in revenue to Rs 486.8 crore in the year ended March 31, 2024. It was the sole profitable designer brand with a net profit of Rs 31.61 crore.
During the same period, Tasva's revenue doubled to Rs 100.06 crore while House of Masaba was close on heels with a topline of Rs 69.58 crore, registering a year-on-year growth of 39%. S&N's business grew 21% to Rs 85.43 crore. Jaypore, the only non-designer brand within the ethnic division, posted a 5% rise in revenue to Rs 79.59 crore.
In terms of compounded annual growth rates in revenue, Tahiliani's Tasva tops the chart with a whopping 716% CAGR, followed by Sabyasachi with 190%, since they joined the Aditya Birla Group, according to the analysis. Other labels such as Jaypore and S&N recorded double-digit annualized growth of around 40%.
CRISIL Ratings noted that the company's entry into the ethnic segment through tie-ups with the designers "may bolster its market position as this segment has less competition and huge untapped potential."
Although the luxury segment constitutes a small section of the population in India, the rise in demand for luxury items is reflective of the shift in consumer preferences.
Going digital
In early 2022, Aditya Birla Fashion's attempts at reaching younger customers digitally led to the formation of a new subsidiary, Aditya Birla Digital Fashion Ventures Ltd, under its Emerging Business vertical. The digital-first brands are being marketed under the umbrella brand of TMRW. Over the past year or so, the company has acquired a number of digital-first brands including Awesome Fab Shopping Pvt Ltd, Imperial Online Services Pvt Ltd, Pratyaya E-Commerce Pvt Ltd, NautiNati, Bewakoof Brands Pvt Ltd, and Styleverse Lifestyle Pvt Ltd.
Until FY23, the direct-to-consumer digital brands contributed around 1% to Aditya Birla Fashion's total revenue. However, the acquisition of Bewakoof, Imperial, Pratyaya, and Styleverse in 2022-23 boosted the contribution of such brands to 3% of overall sales with revenue of Rs 421 crore in FY24, as per VCCircle's analysis.
Post-acquisition, except for Pratyaya E-commerce, which recorded a CAGR of 67% in FY24, other digital brands recorded less than 10% growth. For comparison, designer labels posted a CAGR of 26% on average in FY24.
However, Flipkart's investment of Rs 1,500 crore into Aditya Birla Fashion for a 7.8% equity stake in 2020 seems to have offered some support given the vast reach of the Indian e-commerce giant.
Karan Kamdar, an analyst at DR Choksey Finserv Pvt Ltd, said that e-commerce now accounts for 15% of Aditya Birla Fashion's total sales compared with 10% before the partnership.
"Prior to the investment by Flipkart, Aditya Birla Fashion's digital sales were growing at a slower pace, around 10-12% annually," he said. "Since the investment, that growth rate has accelerated to approximately 30%, showcasing the positive impact of the e-commerce strategy."
Published by HT Digital Content Services with permission from VC Circle.