MANAGEMENT DISCUSSION & ANALYSIS Economic Overview World In 2014-15, global growth remained in low gear. The drivers of economic activity are changing and downside risks persist. China and a growing number of emerging market economies are coming off cyclical peaks. Their growth rates are projected to remain much above those of the advanced economies but below the elevated levels seen in recent years, for both cyclical and structural reasons. The United States had seen several quarters of solid private demand. Although public sector demand has been pushing in the opposite direction, this counterforce had diminished in 2014, setting the stage for higher growth. Japan's economy is enjoying a vigorous rebound but was tapered in 2014 due to tightening of fiscal policy. The Euro area is crawling out of recession, but activity stayed tepid. In these three advanced economies, much slack remains and inflation brssure is expected to stay subdued. These changing growth dynamics raise new policy challenges and policy spill-over may pose greater concern. Two recent developments will likely shape the path of the global economy in the near term. First, markets are increasingly convinced that U.S. monetary policy is reaching a turning point. Talk by the Federal Reserve about tapering its quantitative easing measures led to an unexpectedly large increase in long-term yields in the United States and many other economies, much of which has not been reversed despite a subsequent decision by the Federal Reserve to maintain the amount of asset purchases and policy actions in other countries. Second, there is strengthening conviction that China will grow more slowly over the medium term than in the recent past. India With 'Make in India' initiative adopted by the Government of India, the Indian economy in 2014-15 has emerged as one of the largest economies with a promising economic outlook on the back of controlled inflation, rise in domestic demand, increase in investments, decline in oil prices and reforms among others. Exports in 2014-15 recorded a growth of just 0.9 per cent as compared to 7.3 per cent in 2013-14. Imports, on the other hand, increased from -8.4 percent in 2013-14 to -0.5 per cent in 2014-15, primarily due to the sharp decline in international oil prices in the current year that combrssed the oil import bill. Average retail inflation, measured by Consumer Price Index (CPI), moderated to 6.3 per cent in 2014-15 (April-December) from 9.5 per cent in 2013-14. During the year, the macroeconomic situation in India has improved significantly. Also, acceleration in services and manufacturing growth in the face of subdued global demand conditions point to the strengthening of domestic demand. In the light of the government's commitment to reforms, the outlook for domestic macroeconomic parameters is generally optimistic and a growth of around 8.5 per cent is in the realm of possibility in 2015-16. Indian Innerwear Market The Indian Textile and Apparel (T&A) industry has emerged from the economic slowdown and is regaining momentum. T&A, being an important industry, contributes 5.4 percent of India's GDP. It was worth US$ 95 billion (75, 21, 000 crores) in 2013 and is estimated to grow at a promising Compound Annual Growth Rate (CAGR) of 9 per cent in the coming 10 years. This includes both the domestic market and exports. The value of the domestic T&A market is US$ 59 billion (737,51,000 crores) which exceeds the value of the exports market, reflecting higher domestic demand and consumption. Shifting demographics, shrinking households, a greater number of educated consumers, the growing number of working women, changing fashion trends, rising disposable incomes, awareness levels, new retail formats, technological innovations and changing consumer behavior are the trends fuelling the growth of the domestic market. The apparel sector comprises 70 per cent of the total domestic market, which in turn becomes the result of an increase in the per capita consumption by Indian consumers. Innerwear as a Promising Segment Among the core apparel categories, innerwear appears to be a potential growth category across all segments. With rising incomes, higher discretionary spending, greater number of working women and growing fashion consciousness, the innerwear segment is expected to continue to progress. The Indian innerwear is estimated to grow at 13 per cent to reach 759,540 crores by 2023. The innerwear market has traditionally been largely unorganized, although in the past few years, the organized innerwear segment has shown promising growth in both men's and women's categories. Until the br-1970 era, innerwear was viewed as an essential 'commodity' with no focus from any retailer. The market was highly fragmented and was dominated by local and unorganized brands. Since the 1970s, governmental restrictions dissuaded foreign tie-ups, but many Indian brands got launched successfully. Unorganized Multiple Brand Outlets (MBOs) dominated the innerwear market until the 1990s, after which there was an influx of Indian and foreign brands. Organized brands came up and there was a gradual increase in the demand for them. Between 2000 and 2008 brmium international brands started foraying into the Indian market. Indian brands showcased new designs and styles to woo the new age Indian women. The focus was mainly on the width of the product range. Men's and women's innerwear began to be sold through a variety of retail formats such as Exclusive Brand Outlets (EBOs), Departmental Stores and Large Format Stores (LFS). Although MBOs selling innerwear alone are still considered to be the most significant retail format for this category, women are becoming comfortable with walking into EBOs for purchasing innerwear. Organized EBOs and Departmental Stores cater primarily to urban consumers in major cities while, in the smaller cities, neighborhood stores are brferred for the purchase of innerwear. LFS, with their shop-in-shop concept, have carved a niche by showcasing the entire product range. They help in differentiating the brand from key competitors. Since 2008, there has been greater focus within EBOs on assisting customers with selecting the right styles and sizes through employing trained staff. Online retailing is also gaining momentum, with brmium brands pioneering. There is now greater emphasis on customer service and experience; however, product depth is still an issue. This growth and change is primarily due to increased exposure, media brsence, influx of both domestic and international western wear brands, and the increase in the number of working women. The growth of the innerwear category is primarily centered in urban India with 38 per cent of the market sbrad across the top cities comprising metros, mini metros, tier -I and -II cities. On the basis of consumers' attitude towards innerwear products and their buying behavior, they can be segregated into the following four core groups: • The first group comprises of men and women employed in high-paying jobs, earning high disposable incomes, having high aspirations, seeking only branded innerwear; • The second group also consists of consumers with well-paying jobs, but these consumers assess value along various parameters of which price is just one; others are convenience of purchase, easy availability, style, quality, etc. Again, these consumers do not have any issue with paying a brmium for innerwear products of a particular brand as long as the quality is assured; • The third group includes consumers from mostly tier -I, -II and -III cities having high aspirations and eager to have a metro-like lifestyle. They are open to experimenting through purchase of aspiring brands; • The last group of consumers consists of men and women who have low disposable incomes but have big dreams and aspirations. They have cautious buying patterns and value price over brands. For them comfort, price and quality are most crucial while purchasing innerwear. The women's innerwear market, which is driven by value-added innerwear products, contributes around 60 per cent to the market. This market is worth 710,880 crores, and is growing at a promising CAGR of 15 per cent. The growing number of working women and the increased share of western wear in their wardrobe have propelled this growth. Further, with the increase in exposure, there is an increased demand for better fits and quality alongside the demand for a wider range of colors, styles and accessories. Western wear usually encompasses specialized innerwear, which the branded players can provide for the most part. Brand consciousness is no more restricted to external apparel. Among women's innerwear brands, strong single brands emerge for bottoms and heritage innerwear brands are brferred for bras. Women are increasingly getting conscious about the brands and styles of their intimate wear. In fact, this changing brference is no longer restricted to just the metros, but has sbrad to mini metros, tier -I, -II and -III cities. This openness to indulge in branded lingerie has led to a growth in the number of international and domestic innerwear brands brsent in India. Women tend to exhibit a strong comfort factor in buying lingerie from regular unorganized local stores, brdominantly due to price, but departmental stores are also very popular as they provide range and product displays and also have trial rooms. Exclusive brand stores are explored when looking for depth in styles and variety in colors. Even though there is an increase in the purchase frequency and average spends on innerwear, this category is brdominantly a 'planned purchase' or an 'occasion-based purchase' category, especially among women, who tend to purchase and even splurge around such occasions as weddings, anniversaries, holidays etc. However, promotions and offers tend to induce impulse purchases. Again, experimentation in terms of styles is most often done when buying for special occasions; for daily wear, known styles and brands are brferred. On the basis of product pricing, the innerwear market is further divided into super-brmium, brmium, medium, and economy segments. Due to the increased awareness, the increase in number of brands, and rising discretionary spending, all segments have registered growth. Foreign brands have brought in variety through international styles and fabrics. Indian women are also willing to spend higher-than-before amounts on innerwear. This has provided an exponential boost to brmium and super-brmium innerwear brands. Mid-segment brands have started extending their product portfolios. In women's innerwear, the mid-brmium segment makes up 52 per cent of the market and is expected to grow the fastest, at a CAGR of 22 per cent over the next 5 years. Within the women's innerwear segment, there is potential growth in maternity wear segment. Currently only select brands, mostly international ones, offer multiple styles of maternity products. Most other brands offer only one or two styles in this category. The men's innerwear market is pegged at 76,870 crores and is growing at 9 per cent. Even in this segment various domestic and international brands can be found. Various apparel brands and retailers have extended their product portfolios to men's innerwear segment to leverage its growth. Apparel players brdominantly focusing on active wear, casual wear and even formal wear have launched dedicated sub-brands in men's innerwear. Even so, consumers largely brfer, due to their stronger association with, dedicated innerwear players. The various sub-categories of men's innerwear available widely and in most brands include vests, briefs or boxers, basic t-shirts, shorts, pyjamas, sleep wear and active wear. Consumers mostly purchase branded vests and briefs or boxers, which are the largest category with offerings from most leading innerwear brands. Similar to the segments in the women's innerwear market, men's innerwear can also be divided into super-brmium, brmium, medium, and economy segments. Unlike women's segment, however, within men's innerwear, the economy segment is the highest contributor at 55 per cent. The mid-price segment contributes 36 per cent and the brmium and super-brmium segments together constitute 14 per cent. It is expected that the brmium and mid-price segments will grow fastest, and exponentially, in the next few years. This is largely due to consumers becoming more informed. They seek high fashion quotient along with comfort, hygiene, brand image and smart prices. Youth residing in metros and mini metros engage mostly with brmium brands. It emerges that keenness to show off the brands, coupled with a desire to look good, is a significantly strong attribute in the choice of innerwear products and sub-categories. A high fashion quotient within the product range helps increase the brand's image and engage consumers. This is usually achieved by incorporating a variety of colors, prints and designs. Most brmium value brands add new products to their range of offerings at regular time intervals. This way, consumers find something new in their chosen brand each time they shop. Regular product innovation helps these brands engage their target customers and not switch brands. Whereas consumers residing in tier -I, -II and -III cities are not necessarily fond of brmium brands alone, they straddle all segments including the mass segment. Premium brands are still an aspiration for these consumers. For them, price, comfort and easy availability forms the basis of purchase Neither the brand nor its image has, as yet, played a vital role in the purchase decision. Most innerwear brands, across both men's and women's segments, are gradually expanding their product portfolios. Across consumer segments, it also emerges that products are associated with varying activities packed in the day, viz. lounging at home; outdoor lifestyle activities, etc. Active wear and sleep wear are perceived to be the natural avenues for growth. A merchandise mix of innerwear with such other product categories as active wear and sleep wear is currently not being offered to Indian consumers. Products within active wear, such as sports bras, running shorts and tops, track pants, jackets, gym bottoms, socks, etc. are not widely available, although consumers' demand is increasing. A limited range is available at intimate wear stores as the focus there is on innerwear alone. Despite women increasingly indulging in active lifestyle activities, most products tend to get segmented under comfort wear. Women are aware that different types of fitness activities require different attire. For casual fitness activities such as walking and jogging, they are not very specific about the attire. But for serious activities like gym and yoga, they brfer to put on specific sportswear. This is explained by the limited offerings in the women's active wear category. Even traditional sportswear brands have very limited offerings for women and the untapped opportunity can be cashed in on by brands and retailers. Foreign brands dominate this category and along with private labels, are available in major cities through departmental stores, for the most part. These stores offer greater variety, but the most diverse range is still seen at sportswear stores. Traditionally, a few strong Indian brands and manufacturers provided the variety within this category, until the brvious decade. Foreign sportswear brands created visibility through a strong distribution network, even into tier -II and -III cities via EBOs, organized MBOs, Departmental Stores and unorganized stores. Indian brands continue to be available mainly through the unorganized route. Smaller local and regional players have greater brsence through unorganized stores, in regions closer to the manufacturing units. Further, within the sleepwear category for women, the core sub-products are chemise, pyjamas sets, short length and long robes, tube dresses, nightgowns and nightshirts. Married women and single women staying with their families tend to wear more conservative nightwear such as top-pyjama night suits, full-length night gowns etc. Sleepwear constitutes a fairly significant part of all lingerie outlets, with lower product width and depth compared to intimate wear. In comparison, for men its shorts, t-shirts and pyjamas that form the core product range. In this category, consumers are not very brand-driven but are design-, style- and comfort-driven. Indian and foreign brands, as well as private labels, are available in metros and mini metros through Department Stores and EBOs. Local, smaller players display a retail brsence similar to that for active wear, with product availability concentrated regionally. Departmental Stores enjoy a good standing with customers; however, it is the local unorganized stores which are most popular for this category. Within the men's innerwear segment, there are limited players which cater to all segments. Within the kid's inner wear space, innerwear is primarily unorganized and features strong regional players. Only some brands have more than a few styles to offer for boys and girls. Although some brands offer teen's innerwear (especially teen's bras) there is again only limited product range. Local MBOs and the private labels of Departmental Stores are the main points-of-purchase for kid's innerwear. Briefs and vests in packs of 3-4 with cartoon characters tend to be highly popular among kids. On the supply side, most national, foreign and regional brands have a similar distribution model. Most of them have multiple distributors in each city who handle individual, retailers and regions. Thus, there is no stress about handling extremely large volumes or restricted distributor growth and distributors can offer better services as well. Brands do conduct regular distributor meets where they showcase their complete product range and where selections can be made and orders booked. Brands also provide good distributor incentives like foreign trip packages, electronic items, etc. Distributors remain motivated by these to walk an extra mile and in return increase sales and profitability. Some brands have their own warehouse and no distributors. They cater directly to MBOs and LFS. This model is usually suitable for the brmium product range with small volumes. Here, the margins are higher as there are no intermediaries. Brands in this space also tend to have higher marketing budgets. Apart from trade promotions and meetings, they usually have dedicated marketing plans and teams. Most brands use multiple formats for marketing and promotions. From celebrity endorsements to using print media and other mass media, all formats are employed in order to capture the young Indian consumers' attention. Brands need to engage and build an association with consumers through a complete, 360-degree marketing strategy. Innerwear has moved out of the 'basic necessity' bracket and is now associated with a 'feel good' factor. Indian consumers have come out of the shyness cocoon and are willing to experiment with new varieties, styles, colors and brands. This growth in demand has carved out a potential market for innerwear in India. As women's innerwear is expected to grow faster, brands should widen their share thereof. They also have to vary their product offerings and heighten the fashion quotient. Existing brands have the opportunity of expanding beyond just innerwear. Active wear, comfort wear and sleep wear are some natural extensions and promising categories. Changing trends in Apparel Market Indian consumers have become more fashion conscious and want to change or upgrade their wardrobe more frequently. For instance, casual apparel is referred more nowadays. Consumers now demand apparel with better designs and a trendier look at an affordable price and reasonably good quality. Therefore, the demand for knit apparel is growing faster than that for woven apparel owing to the casual look and comfort provided by knit apparel. There has been an increase in the purchasing power and purchase frequency among Indian apparel consumers. They now brfer occasion-based dressing, want to look trendy and visually appealing and are willing to accept fashionable silhouettes and styles in attractive colors. They do not hesitate in buying clothes which catch their attention, thus, displaying an impulsive buying behavior. There is, as a result, an increased demand for latest fashion. Trousers, denims, woven shirts, innerwear, active wear, t-shirts, suits, winter wear, ethnic wear and daily wear are the core categories in the men's apparel segment. The shirts category is pegged at 728,330 crores and is the largest, with trousers and denims following. Categories like denim, active wear, innerwear and t-shirts have high growth forecast within the menswear segment with CAGRs of 14 per cent, 13 per cent, 9 per cent and 12 per cent, respectively, over the next ten years. Indian men today are comprised mainly by youth who brfer occasion-specific clothing. They want to dress in active wear while playing sports or going to the gym; in formal wear, which comprises of shirts, trousers, and suits, at the office; ethnic wear during marriages, festivals and social functions; in casuals in the evening; and in sleepwear at night. They want to look good yet different in terms of what they wear and therefore, want to try different styles, silhouettes, and colors. There is a trend towards casual wear leading to an increased brference for denim bottoms and t-shirts among Indian men. Comfort and trendy look are the two most important factors behind this rise in brference. Indian men have also shown an inclination towards purchasing innerwear, leading to a steady growth in this segment. Men are now displaying the waistband of their innerwear above their low-waist trousers as this is considered a fashion statement. Men no longer mind paying a high price for innerwear. Various styles and a variety of brands are now available in this promising segment. Ethnic wear, tops, shirts, trousers, skirts, innerwear, winter wear, sleep wear, denim and t-shirts are the core categories within the women's apparel segment. Apparel categories like denim, innerwear, tops or shirts and t-shirts have come to be brferred over the ethnic wear category, each promising growth at a CAGR of 15 per cent. Capabilities • Rupa has a daily capacity to produce over 700,000 pieces of finished goods; • Rupa products are made from the finest yarns; • Rupa uses imported technology for dyeing and bleaching to maintain competitive quality standards; • Rupa invests in considerable research to produce environment friendly clothes and minimize carbon footprints. Milestones • Launched Thermocot, the first branded winter wear in India; • Won the T-excellence Award for Best Winter for Best Knitwear Brand, 2003-04; • Pioneered the printing of the brand name in front of the vest. This made the logo a design element to be flaunted; • One of the earliest brands to introduce celebrity endorsement creating huge impact and recall value; • Acclaimed by the Limca Book of Records as the largest hosiery and innerwear manufacturing and marketing company in India, for ten consecutive years. • First Indian innerwear manufacturer to become a license of SUPIMA, the brmier organization of American Pima Cotton growers. Rupa-Frontline AIR is the first vest in India to be made of 100% American Pima Cotton, one of the most exclusive and luxirous natural yarns in the World. • First Indian company to launch bacteria-resistant briefs under its exclusive Euro brands. Brand baskets Your Company is well positioned to cater to the market needs through its basket of brands ranging from economy to super brmium. Rupa, Frontline, Jon, Air, Macroman, Macroman M'Series, Euro, Bumchums, Thermocot, Femmora and Imoogi are the major brands of the Company. The total Stock Keeping Units (SKU) stands to 6000 across different brand verticals. The brsence of your Company in both, apparel and innerwear segment, helps it to harmonize its growth, comprising of contribution from both, Urban and Rural market. Customers' response towards brands, like, Femmora, Imoogi and Euro is encouraging and the Company is rapidly capturing market share. The Company with its unparallel reach and distribution network has already been a market leader in the innerwear segment and with a slew of product launches in the brmium and super brmium segment, the Company has further moved up in the value chain. Your Company also exports its products to Africa and other Asian Countries. Strengths • Your company has a focused approach on growth and margin improvement, which aids in creating increased value for its stakeholders; • Usage of cost efficient manufacturing model has lead to higher returns; • Your Company's brmium products and value addition helps in growing consistently and improving EBIDTA and PAT margin; • In-house brands with more than 100 registered trademarks across segment, with no royalty payments, have strengthened the gross margin of your Company; • Your Company is the first innerwear manufacturer to become a licensee of SUPIMA (brmier American Prima Cotton growers) in India; • Your Company focuses on design and product development through: • Continuous investments in product designing and innovation; • Control over procurement and handling of raw materials; and • Its own logistics and supply chain set up for strong control of inventory. • Your Company has state of the art dyeing, bleaching and knitting facilities across West Bengal, Tamil Nadu and Delhi; • Your Company has outsourced stitching and 50% of its knitting requirements, which in turn has lead to cost efficiency in manufacturing process. Opportunities • For the apparel industry in general and our market in particular, more organized retail market and better consumer retail experience will lead to opportunity creation; • Increasing fashion consciousness and consumers becoming more aspirational, discerning and brand savvy will boost up demands and thus, an opportunity for the Company to grow; • The factors determining consumption such as, education, occupation, urbanization, rise in nuclear families will lead to creation of opportunities; • Increasing urban women population and women corporate workforce creates an impact on the demand, thus, generating new prospects; • Higher disposable income lead and increasing requirements of consumers have opened up new avenues for the Company; • Increasing demand for kids products have enhanced the Company's opportunities in that range; • With the increased opportunities and expansion in the online business platform due to brference of consumers to buy products online over other modes of purchasing things and seeing the advantages of online retail the company is trying to cope up with the increased opportunities in online retail business by expanding its online retail market. Threats Realizing that the Indian market is likely to emerge as one of the largest markets in the world in the next few decades, many major international apparel brands have commenced operations in India, thus, giving cut-throat competition to the Textile Industry. Risk and Concern Cotton yarn and fabric accounts for 70% of the total raw material cost. The inability of your Company to mitigate the impact of the increase in raw material prices will have an adverse impact on the Company's profitability. Also, too many price hikes will take a toll on the volume growth of your Company. The textile industry is a highly labour intensive industry and lack of availability of skilled labour will hinder its expansion plans. The improving Indian demographics have given credence to the Indian consumption story. Any blip in economic growth for an elongated period will impact the discretionary spends thereby negatively impacting the earning potential of your Company. Changing customers' brference rapidly from one brand to another makes it difficult for the Company to establish a permanent connect and in gaining brand loyalty, consequently, leading to loss of business to its competitors. The segment where your Company belongs to is a capital intensive segment and any fluctuation in the interest rates affects the profitability of the Company. Proper leveraging of financial resources aids your Company in mitigating such risks. Internal Control System and its Adequacy Your Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively. In this regard, your Board confirms the following: 1. Systems have been laid to ensure that all transactions are executed in accordance with management's general and specific authorization. 2. Systems and procedures exist to ensure that all transactions are recorded as necessary to permit brparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements and to maintain accountability in all aspects. 3. Access to assets is permitted only in accordance with management's general and specific authorization. No assets of the Company are allowed to be used for personal purposes, except in accordance with terms of employment or except as specifically permitted. 4. The existing assets of the Company are verified/ checked at reasonable intervals and appropriate action is taken with respect to differences, if any. ANCIAL PERFORMA The same has already been discussed in the Directors' Report. The Human Resources (HR) function is instrumental in creating and developing human capital in alignment with the Company's requirement. Your Company has set up a scalable recruitment and human resource management process. One of the key focus areas in the Company's objective is to groom and to train employees. Your Company firmly believes that employee motivation, development and engagement are key aspects of good human resource management. Further, the focus is on enriching the quality of life of its employees, developing their potential and maximizing their productivity. The human resources strategy enables the Company to attract, integrate and retain the best talent required for driving its business growth. Hence, the focus is on enriching the quality of life of its employees, developing their potential and maximizing their productivity. Environment, Health and Safety (EHS) The Company is conscious of the importance of environmentally clean and safe operations and brservation of natural resources. The Company's policy ensures the same. Segment-wise Performance The Company has two segments - Domestic and Overseas. The revenue generated from each segment have been narrated in the Notes to the Accounts. Future Outlook In the men's wear and women's innerwear segment, your Company has made its brsence felt. The growing demand and spending capacity of consumers has lead them to spend on these products without thinking of the pocket pinch. It is no longer treated as merely an undergarment but is worn as a fashionable part of clothing that can be flaunted. Innerwear has moved out of the 'basic necessity' bracket and is now associated with a 'feel good' factor. Indian consumers have come out of the shyness cocoon and are willing to experiment with new varieties, styles, colors and brands. This growth in demand has carved out a potential market for innerwear in India. As women's innerwear is expected to grow faster, brands should widen their range. They also have to vary their product offerings and heighten the fashion quotient. Existing brands have the opportunity of expanding beyond just innerwear. Active wear, comfort wear and sleep wear are some natural extensions and promising categories. A smart pricing strategy must be employed in order to attract consumers and boost brand brference. Further, for brands and retailers, there are opportunities to identify and increase their focus across key consumption sectors. Thus, in order to be successful, brands must take the initiative to create a differentiating factor; only then can they establish a loyal customer base in this promising and developing segment. Rupa is the biggest knitwear brand in India, covering the entire range of knitted garments from innerwear to casual wear. Constantly meeting the changing demands of the customers and coming up with innovative designs with the help of modern technology has always been the hallmark of Rupa. Cautionary Statement Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations are 'forward-looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations includes economic conditions affecting demand/ supply and price conditions in the markets in which the Company operates, changes in Government regulations, tax laws, statutes and other incidental factors. |