Aditya Birla Fashion profitability stays weak despite luxury and Pantaloons growth

Investment View and Recommendation

In its 10 August 2026 1QFY27 results update on Aditya Birla Fashion and Retail (ABFRL), Motilal Oswal Financial Services reiterated its Neutral rating and unchanged target price of Rs 60, versus a CMP of Rs 61.

The broker views consistent revenue growth and margin expansion at Pantaloons, supported by its refreshed brand identity, as a long-term catalyst. Loss reduction at TCNS and the scaling up of TASVA and OWND are additional potential drivers. However, continued investment and/or a slower profitability ramp-up at loss-making formats could weigh on consolidated profitability and cash flows.

1QFY27 Financial Performance

ABFRL reported consolidated revenue of Rs 2,026 crore in 1QFY27, up 10.6 per cent year on year and broadly in line with Motilal Oswal's estimate. Growth was led by Luxury Retail, TMRW and Pantaloons, while Ethnics growth was comparatively subdued.

Revenue growth was led by Luxury Retail at 29.8 per cent, TMRW at 11.7 per cent and Pantaloons at 10.1 per cent. Ethnics revenue increased 4.1 per cent, affected by fewer wedding dates, Adhik Maas and the TCNS drag. Higher employee, rent and other expenses, reflecting investments in OWND, TASVA, TCNS and Galeries Lafayette, constrained profitability.

Pantaloons and Pricing Outlook

Pantaloons delivered 4 per cent like-to-like growth in 1QFY27, with improved productivity at stores refurbished under the new identity. Management said demand softened in June ahead of EOSS, following a softer April and some improvement in May.

ABFRL plans around 20 net store additions in FY27, alongside selective closures, and is targeting high-single-digit like-to-like growth for the year. It intends to refurbish around 150 of its 400 Pantaloons stores over the medium term; these stores account for more than half of Pantaloons revenue.

Management indicated around 4 per cent raw-material inflation for Pantaloons and OWND. Roughly half of this is expected to be passed on through price increases, while the remainder will be absorbed to enhance value and sale-through, potentially limiting additional discounting.

Ethnic Portfolio, TMRW and Luxury Retail

Within Ethnics, growth excluding TCNS was around 14 per cent. TASVA grew 35 per cent, Jaypore grew 30 per cent and Sabyasachi generated more than Rs 100 crore of quarterly revenue. Management expects overall Ethnics portfolio growth of around 20 per cent in FY27, with a material skew towards the second half.

TCNS losses have reduced year on year as the drag from liquidation of older inventory declines. TMRW revenue grew 11 per cent, while secondary sales increased 16 per cent. Its operating loss narrowed 33 per cent year on year to Rs 42 crore. Management described 1QFY27 as an aberration and is targeting more than 20 per cent TMRW revenue growth in FY27.

Luxury Retail revenue rose 30 per cent, supported by Galeries Lafayette and double-digit growth at The Collective. Segment profitability weakened because of Galeries Lafayette scale-up losses and lower treasury income.

Cash Position and Funding Outlook

Management expects no incremental fund raise to fund losses during FY27-FY28. Standalone cash was Rs 1,150 crore at 1QFY27, compared with Rs 1,200 crore at the end of 4QFY26, and is expected to decline to about Rs 500 crore by FY27-end. Management expects the portfolio to become free-cash-flow positive from FY29.

Earnings Estimates and Valuation

Motilal Oswal reduced its FY27E and FY28E EBITDA estimates by around 4-6 per cent because of higher losses in currently loss-making formats. The broker forecasts revenue and reported EBITDA CAGRs of around 10 per cent and 20 per cent, respectively, over FY26-FY29E. However, it does not expect ABFRL to achieve pre-Ind AS EBITDA breakeven by FY29.

The target price is based on a sum-of-the-parts valuation using the following multiples:

• 9x EV/EBITDA for Pantaloons, including OWND.
• 11x EV/EBITDA for the designer-led ethnic portfolio.
• 1x EV/sales for attributable stakes in premium ethnic.
• 0.9x EV/sales for attributable stakes in TMRW.
• 1.5x EV/sales for attributable stakes in Luxury Retail.

Key Risks

• Slower-than-expected demand.
• Sustained losses from newer formats.
• Weaker-than-expected margin recovery.
• Pressure on cash flows.