MUMBAI: Aditya Birla Fashion and Retail Ltd’s (ABFRL) standalone March quarter revenues declined a modest 2% year-on-year to Rs1,783 crore. The company saw strong year-on-year recovery in the months of January and February. Towards the end of the March quarter though localised shutdowns due to the second wave of the coronavirus pandemic led to lower consumer footfalls, pausing the growth momentum. With challenges persisting in the June quarter as well, outlook on revenues is not particularly encouraging.

In keeping with tough business conditions, analysts have cut future estimates with the June quarter set to be a washout. Kotak Institutional Equities have cut FY2022 revenues/ Ebitda by 17%/48% on sharply lower 1QFY22 sales. “We also trim FY2023E Ebitda by 5% as we bake in higher losses from the ethnic wear business," added the broker a report on 30 May. Ebitda is earnings before interest, tax, depreciation and amortization.

This comes at a time when investors are likely to track revenue performance more closely. “Going forward, revenue growth would be most critical, we believe, given that costs-savings have likely played out to the maximum possible (evidenced by the fact that Mar-Q’s cash-profits is lower versus Dec-Q by almost exactly the same quantum as the lost gross profit attributable to the qoq drop in revenue)," said analysts from JM Financial Institutional Securities Ltd in a report on 29 May.

Coming to the March quarter results, lifestyle brands, contributing about 55% of revenues, saw a decline of 6% year-on-year. This performance was led by around 8% and 30% growth in retail and other channels (including ecommerce), respectively. On the other hand, the wholesale channel struggled reporting around 40?cline.

Revenues from the Pantaloons segment declined by around 5%. Like-to-like sales declined by 10.6% reflecting the impact of second covid wave in March. “Revenues from smaller towns grew year-on-year while metros / tier 1 cities still lagged behind last year levels," said the company, adding, high street stores recovered faster than malls.

Overall, Ebitda margins have expanded by 582 basis points year-on-year whereas the measure is lower by 557 basis points vis-à-vis the December quarter. One basis points is one-hundredth of a percentage point. Sequential margin decline can be attributed to higher staff costs and other expenses.

Further, ABFRL has done well on the net debt front, reducing it to Rs654 crore from Rs2511 crore at the end of financial year 2020. Debt reduction was facilitated through a mix of operating cash flows and equity infusion.

To be sure, it is well known that the retail sector has been one of the worst affected by the pandemic. Shares of ABFRL are about 30% away from their pre-covid highs seen in February 2020. Near-term demand woes could well limit meaningful upsides hereon.