Growth takes breather in FY14- Rupa :: ICICI Securities, link

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Rupa & Company : ICICI Securities, PDF link

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http://content.icicidirect.com/mailimages/ICICIdirect_IndianInnerwearSector_InitiatingCoverage.pdf


P o i s e d   f o r   g r o w t h   o n   i n h e r e n t   b r a n d   s t r e n g t h …
Rupa & Company (Rupa), one of India’s oldest innerwear players, is well
poised for growth on the back of multiple factors ranging from increasing
share of premium products to increasing retail presence, to name a few.
With a strong brand portfolio (all owned by the company), Rupa has been
a leading player in the mid-level innerwear segment. On the back of
economic exuberance, the company is increasing its presence in the
super premium segment as well. The share of super premium products in
the overall mix has increased from 1%  in  FY08  to  7%  in  FY11,  thereby
leading to an operating margin expansion of 227 bps to 10.6% during the
period. Going forward, an increased retail presence will further increase
the visibility of the brand.
Presence across all segments with self-owned brand portfolio
Apart from its flagship brands – Rupa and Euro — the company has
created various brands. As on date, the company manages over 2000
stock keeping units comprising different products ranging from men’s and
women’s innerwear to casual and  thermal wear. Going forward, the
company can leverage these brands  to introduce new products, either
under the same brand or in the form of brand extensions.
Retail expansion to fuel topline growth
The company plans to expand its retail presence through an asset light
franchising model. This will not only ensure lesser burden on the balance
sheet but also boost the topline growth for the company. We expect sales
to increase at a CAGR of 13.4% during FY11-14E.
Foray into premium segments to boost operating margin
Rupa has gradually increased the share of super-premium products to 7%
of sales in FY11. Consequently, the  EBITDA margin has also increased
from 8.3% in FY08 to 10.6% in FY11. With increasing share of premium
and super premium products and stabilising raw material prices, we
expect operating margins to further increase to 12.5% by FY14E.
Valuations
At the CMP, the stock is trading at 22.7x and 18.0x FY13E and FY14E EPS
of | 6.3 and | 7.9, respectively. Considering the growth potential in
earnings due to the retail expansion and improving financials, the stock is
trading in line with its peers in this segment.

Rupa- management meet:: ICICI Securities, (pdf link)

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C h a n g i n g   p r o d u c t   m i x   t o  a i d   p r o f i t a b l e   g r o w t h …
We met the management of Rupa  & Co (Rupa) to understand the
company’s business model and get a sense about the company’s future
plans. Rupa was incorporated in 1985 by the Agarwala brothers. The
company has a comprehensive portfolio of product offerings in the
knitted innerwear, casual wear and thermal wear segment for men,
women and kids. Rupa has a large number of stock keeping units (SKUs),
each of them for a particular brand, segment colour and size catering to
customers of all age groups. Over the years, the company has created
over 10 sub-brands catering to various socio-economic classes. Rupa has
outlined various plans for growth; both organic (increasing retail
presence) and inorganic. The company is also evaluating various options
ranging from brand licensing to joint ventures.
Higher share of premium categories to aid margin expansion
Rupa has ventured into the premium and super-premium categories over
the last few years. The share of premium and super-premium products
has increased from 3.5% in FY07 to 14.3% in FY11. Accordingly, the
company witnessed an operating margin expansion from 7-8% in FY07 to
10.2% in FY11.
Expanding retail presence to enable topline growth
Rupa’s topline has grown at a CAGR of 22.1% during FY08-11. Going
forward, the company plans to expand its retail presence to further aid
growth. Rupa has opened two outlets in Pune and Ranchi as a pilot
project. The company plans to gradually increase its retail presence,
going forward. Rupa plans to add these stores on a franchising model,
whereby the inventory will not be held on the company’s books.
Improving return ratios
With the increasing share of premium and super-premium category
products, the company has witnessed an improvement in the return
ratios. The return on net worth has improved from 11.3% in FY09 to
19.6% in FY11. Similarly, the return on capital employed has improved
from 15.2% in FY09 to 17.4% in FY11.
V i e w
Rupa has been one of the oldest players in the Indian branded innerwear
market. The company operates on an asset light business model, wherein
~70% of the units sold are outsourced. Going forward, Rupa’s plans to
grow; both organically (increasing retail presence) and inorganically will
support revenue and profitability growth.

Rupa & Co :Good brands + strong distribution reach < Valuation ::ShareKhan,

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We attended the analyst meet of Rupa & Co (Rupa). We
present below the key takeaways from the meet. Amongst
the listed innerwear players we continue to like Page
Industries.
Present in fast growing underpenetrated men’s innerwear
segment
India’s domestic branded innerwear market is currently
valued at Rs13,000 crore (CRISIL estimate) of which men’s
innerwear segment is worth close to Rs5500 crore. The
men’s segment has grown at a compounded annual growth
rate (CAGR) of 12.7% over the last four years and is
expected to grow at 17.3% for the next three years.
Further, the penetration of brands is abysmally low in
India, providing huge opportunity for branded players to
encash on the strong consumer wave.
Largest men’s innerwear company with bouquet of brands
Rupa is the largest men’s innerwear player by volume (in
FY2011, it sold 168 million pieces). It has presence across
the value chain with products in categories ranging from
basic to mid premium, premium and super premium
(entered into the last category recently). Its flagship

brands Rupa, Frontline, Jon and Air are in the basic and
mid premium categories while brands like Euro, Macro
Man and Macro Man M Series target the premium and
super premium categories.
Strong distribution reach—deep and wide
The company sells its products through multi-brand
outlets, hosiery stores and national chain stores. It does
not have any exclusive outlets at present. It has an
enviable distribution network, serving one lakh retail
outlets through a strong network of 950 distributors.
All set to focus on high-end premium and super
premium category
Amongst the three listed innerwear players, Rupa earns
relatively lower operating profit margin (OPM) in the band
of 10-11% vs 18-19% enjoyed by the peers Page Industries
and Lovable Lingerie. This is largely due to the fact that
the company is present in mainly mass and basic segments
because of which it has to compete with unbranded/
regional players. Its margins are therefore low. In an effort
to enhance its margins, productivity and move up the
value chain the company is now focusing on the premium

and super-premium brands like Macro Man, Macro Man M
Series and Euro.
Raw material sensitivity high: Its basic products constitute
around 40% of its overall top line. Thus Rupa’s margins
and volumes are most sensitive to the vagaries of the
raw material prices (cotton yarn), as the brands/products
compete with the regional/unbranded players. Thus any
sharp movement leads to a constant revision in the price
of the final product and in the margin.
We prefer Page Industries: Amongst the listed innerwear
players, we continue to be bullish on Page Industries,
given its superior growth levels, brand equity strength
(which is creating strong entry barrier for new players),
enviable margins, return ratios (best in the industry,
averaging 45-48%), and proactive management approach
(it has now entered the swimwear and sportswear
categories by bagging the exclusive Speedo licence for
Indian operations).