AB Fashion likely to report 2-fold jump in FY20 profit

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The Aditya Birla Fashion and Retail (ABFRL) is flying on industry expectations that the company will continue to report better performance in the coming quarters. Analysts anticipate that the owner of Louis Phillipe, Allen Solly and Peter England brands and Pantaloon chain of stores may report near two-fold jump in earnings by FY20.
In the September 2018 quarter, the company, which also has licence to sell apparels under the Forever 21 brand, reported 62 per cent year-on-year jump in operating profit before depreciation (EBIDTA) at Rs 162 crore. Revenue grew by 11 per cent to Rs 2,007 crore. The earnings shot up to Rs 43 crore against a loss of Rs 10 crore a year ago. Analysts expect FY20 net profit to be Rs 263 crore, EBIDTA of Rs 760 crore and revenues of Rs 9,200 crore.
The company’s strategy to offer lesser discounts on its brands has resulted in better profitability amidst falling discounts by the industry especially online retailers. The EBITDA margin of Madura Garments division which owns these brands expanded by 200 basis points to 13 per cent in the September 2018 quarter.
The Forever 21 segment for which ABFRL acquired licence from DLF in 2016 to enter women’s wear is also showing signs of turnaround. Since acquisition, it has rationalised the store sizes, closed high cost legacy stores, renegotiated rentals and taken other cost optimisation measures. Though the segment continued to report operating loss in the September quarter, it reduced to Rs 10 crore from Rs 12 crore a year ago.
For the Pantaloon chain, EBIDTA margins expanded to 6.6 per cent in the September quarter from 4.8 per cent year-on year, thanks to higher operating leverage with more stores maturing. The consolidated EBIDTA margin of ABFRL jumped to 8 per cent from 5.5 per cent.