Arvind Fashions Ltd (ARVINDFASN) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to Arvind Fashions Limited Q2 FY '27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded, and now hand the conference over to Mr. Girdhar Chitlangia from Arvind Fashions Limited. Thank you, and over to you, Mr. Girdhar.
Girdhar Chitlangia (Arvind Fashions Limited): Thanks, Siddhant. Hello, welcome, everyone, and thank you for joining us on the Arvind Fashions Limited's earnings conference call for the second quarter ended 30th September 2026. I am joined here today by Pulin Lalbhai, Vice Chairman and Non-Executive Director; and Amisha Jain, Managing Director and CEO.
Girdhar Chitlangia (Arvind Fashions Limited): Please note that results, press release and earnings presentation have been mailed across to you yesterday, and these are also available on our website www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We will commence the call with Kulin providing his strategic thoughts on our second quarter performance. Post that, Amisha will cover the financial performance and business highlights. At the end of the management discussion, we will have a Q&A session. Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties we face. A detailed a detailed statement of these risks is available in this quarter's earnings presentation. The company does not undertake to update these forward-looking statements publicly. With that said, I would now turn the call over to Kulin to share his views. Thank you, and over to you, Kulin.
Kulin Lalbhai (Arvind Fashions Limited): Thanks, Girdhar. A very good afternoon to you all. Thank you for joining us for the Q2 results. We are pleased to share that AFL has delivered its highest ever quarterly revenue and EBITDA for the quarter ended 30th September 2026. This is backed by a strong performance across channels despite geopolitical uncertainty and inflationary pressures. The demand environment for us remains stable and positive. This trajectory of impressive growth and high-performing business outcomes is as a result of sustained efforts across all fronts in our business. Despite festive and online tower event shifts, this quarter, we have achieved a top-line growth of 10% aided by higher marketing investments. Adjusted for the shifts in festive and online tower events, we grew by nearly 15%. I am happy to share that the business delivered a very strong 67 basis points EBITDA expansion. Better channel mix, a strong like-for-like growth, and lower discounting led to a strong gross margin expansion. Our investments in brand and people coupled with focus on superior retail execution have enabled us to deliver a very healthy like-for-like growth of 7.3% in retail and 28% in the online direct-to-consumer channel. Again, adjusted for festive and online tower events, we delivered a 10% LFL growth and a 45% growth in the online D2C business. Our PAT grew by nearly 30% as compared to the same quarter in the previous year. We remain committed to maintaining our growth trajectory through investments in tech and AI initiatives, keeping the consumer at the core, and building a strong direct-to-consumer business by expanding the retail network and continuing to grow in the online D2C channel. We remain watchful of external headwinds and will manage pricing and costs proactively to mitigate any downside impact and continue to stay focused on our mantra of profitable growth, resulting in further improvement in capital on return on capital employed and strong cash flow generation. I would like to now hand it over to Amisha Jain to take us through the specifics and more details about our financial performance.
Amisha Jain (Arvind Fashions Limited): Good afternoon, everyone, and a warm welcome to our investor call for Q2 FY27. Continuing our trajectory that was set in FY26, all our drivers of performance are firing and have helped us deliver a very strong Q2 despite the festive and online tower event shifts. We have continued our double-digit growth trajectory in Q2 with GM, EBITDA margins and ROCE up. All our brands have delivered as per our expectation. Three things that I would like to highlight: revenue momentum continues as per guidance. Q2 revenue grew by 10% with NSV at 1,559 crores versus 1,418 crores in the same quarter last year. Adjusted for festive and online tower event shifts, we have grown nearly 15%. Two, profitability is structural. Gross margins have increased by 136 basis points year-over-year aided by strong LTL with lower discounting and better channel mix. Our investment in marketing is also up by 24 basis points on a year-over-year basis. And our focus on costs have helped us help EBITDA expansions. EBITDA excluding other income was 216 crores versus 187 crores last year. That is a 67 basis points improvement and 15.5% growth over last year in absolute terms. PAT came in at 48 crores versus 37 crores in Q2 last year, a growth of 29%. On a pre-Ind AS basis, EBITDA and PAT grew by 18% and 38%, respectively. Third, inventory and working capital. While inventory days have gone up, there is a corresponding decline in receivable days.
Amisha Jain (Arvind Fashions Limited): This keeps GWC days stable at 157 days, the same as the previous quarter closing. NWC days are flat at 65. Now, moving on to channel performance. Our D2C engine is continuing to fire. Direct channels now account for 53% of sales, up nearly 380 basis points year-over-year. Retail grew by 15.4%. We delivered a robust like-for-like of 7.3% in retail. And adjusted for festive and calendar shift, retail LFL is at 10%. 24 EBOs were added in this quarter. Our online B2C grew by 28% in Q2, taking its share from 12% to 13%. This is in line with our intent to pivot away from B2B online. Adjusted for festive and online power event shifts, online B2C grew by 45%. We also launched the Tommy Hilfiger website and app in September, and the remaining brands will follow in quick succession. Moving on to wholesale, primary sales grew at a high double-digit in Q2. The channels are now well stocked to cater to to the upcoming festive season. On that On brand performance, USPA continues to deliver strong performance with high revenue growth, LTL and profitability expansion. This growth is on top of a high base in Q2 last year. PVH brands are gaining momentum and have recovered from the GST setback. Arrow and Flying Machine are are are in a transition here. Our focus is deliberately on enabling structural efficiency over near-term scale, and on setting the brands up for success going forward. FY '27 balance of year outlook: as we enter H2, both Puja and Diwali sales are tracking well ahead of our expectations, and we are clocking nearly high double-digit LTL. The overall consumption pattern remains positive during festive, and with consumer sales across all channels showing encouraging offtake. On the macro, we continue to remain watchful of external factors like inflation, geopolitical developments, a potential El Niño effect, and repo rate changes. We will take proactive steps to mitigate any inflationary impact through smart pricing and cost controls. Our focus remains firmly on four things: 1, accelerating profitable growth across our brands; deepening our consumer engagement, increasing the share of direct channels, and driving efficiency across our business. We are confident of delivering our guided growth and EBITDA objectives. I will touch upon CapEx, cash and debt in the next few minutes. In H1, almost 100 crores of CapEx was spent on the following: a new shirt manufacturing factory in Madhya Pradesh; a new corporate office. We have been in the current office location for nearly two decades and our business requirements have outgrown our current office. And third is store expansion. As mentioned in our previous call, we have been working to further strengthen our India-based sourcing. And as a step towards this, we are setting up a shirt factory in Madhya Pradesh. This will serve as a de-risking strategy for imports from Bangladesh, which, over the last three, four seasons have been impacted due to geopolitical disturbances. The depreciating rupee is also adding to our sourcing cost. This is a state-of-the-art, new-age manufacturing setup and will serve as an important proof of concept to get us closer to the market. At a steady state, this factory will produce 3 lakh units month per month, and will meet 25% to 30% of total shirts requirement for us. We expect a payback of about three to three and a half years on this investment. Moving to cash: cash requirement in our business is at its peak in Q2, and given the seasonality in our business, there will be a natural unwinding in working capital in H2. In H2 of fiscal '27, we estimate cash release of about 150 to 175 crores of free cash flow. A large part of this will be used to pare down our debt. Next, I'll take a few minutes to highlight and revisit our vision and way forward. As you may recall, we spoke about this two quarters back. Our strategy rests on five pillars, and over the last two to three quarters, we have steadily moved from strategy to execution on each of them. Just as a reminder, I will list out the five pillars. The first one is portfolio diversification. We aim to deepen our leadership in menswear by establishing a top position in our largest five apparel categories: shirts, polos, denims, T-shirts and blazers. At the same time, we are
Amisha Jain (Arvind Fashions Limited): on on adjacencies like footwear and innerwear, which are already contributing to 25% of our business. Second, building a differentiated brand of scale and desire. Our portfolio of five brands has meaningful headroom to grow. The unlock is sharper positioning, deeper consumer connection, and a strong merchandising grid led by innovation across our brands. Along these lines, we continue to scale U.S. Polo and on Arrow and Flying Machine, we have initiated focused work across brand positioning, product-market fit, and channel and marketing strategy. Third, building a world-class direct-to-consumer organization. We will continue to double down on our D2C journey, with a vision to take the share of D2C to 65%. Driving retail excellence and building a digital powerhouse remains our priority. On offline retail, we will continue our expansion and up-sizing journey with a relentless focus on LTL and conversion, driven by right product, brand experience, and service. Building a digital powerhouse through our .com and marketplace partnerships remains a priority. We expect each brand to have its own .com and app live this fiscal year. These will be the foundation for a great brand experience and scalable commerce. Number four, transforming with data, analytics, and AI. This is a growth driver for us and not a back-office initiative. Our investments will target two outcomes: One is leveraging AI to drive cost efficiencies across functions, where we have already piloted use cases in finance and sourcing, and the second is leveraging analytics and AI to drive frontend effectiveness in areas such as retail excellence, pricing, assortment, and marketing effectiveness. As mentioned earlier, we have put together a specialist team that is now working on tech, AI, consumer analytics, and growth. Further, we have also set up an AI Governance Council. This will ensure that each of our use cases deliver measurable productivity gain and the knowledge gets institutionalized within the organization. Last, but not the least, a nimble supply chain that sits closer to demand, which should yield shorter cycles, faster resets, and less inventory risk. As mentioned earlier, we are setting up a new shirt manufacturing facility, which will help us get closer to market. As we've spoken about before, in order to deliver against these strategic pillars, we have reorganized ourselves into a business unit structure for sharper accountability and speed. At the same time, we have centralized consumer brand marketing, digital, data, and AI initiatives to build deep, leverageable capabilities. To summarize, with a clear strategy and the right organizational design now in place, we are confident of sustaining mid-double-digit growth in the balance of the year with 30 to 40 basis points of EBITDA margin expansion. With the unifying goal of one team, one mission, driving cohesiveness and collaboration in Arvind Fashions Limited, we are poised to embark on the next phase of growth. Thank you so much. We're now happy to take your questions.
Moderator: Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press * and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press * and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Avinash Karumanchi from MOSL. Please go ahead.
Avinash Karumanchi (MOSL): Yeah. Hi, sir. Hi team, good afternoon. My first question is regarding the gross margin. So, for the last few quarters we have been front-loading the inventory in anticipation of price hikes. So, my question is like, out of this 140 bps, how much of the margin expansion would be attributed to this, and how much would be to the savings for discounts or higher premium products?
Girdhar Chitlangia (Arvind Fashions Limited): So, I will answer that Avinash. You see, as we have explained in our previous quarters, we are in a very long lead cycle inventory cycle, right? So, the cost impact for us will come only when we launch the new season products in SS '27. So, right now, most of the gains are because of GP, sorry, most of the gains are because of the discount improvement and changing channel mix.
Avinash Karumanchi (MOSL): Okay, you're saying that even in the third quarter you will still be sitting on a low-cost inventory? Is that understanding right? Yes, our our our earliest impact will be when we start inverting products in January.
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