Rupa & Company Limited (533552) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q3 FY 2021 Earnings Conference Call of Rupa & Company Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Dinesh Kumar Lodha, CEO of Rupa & Company Limited. Thank you and over to you sir.

So hello, and good afternoon, everyone. First and foremost, I hope you are keeping safe and healthy. Today on the call, I am joined by our promoter, Mr. Vikash Agarwal; and Orient Capital, our Investor Relation partner. We have uploaded our investor deck and results highlighted on the stock exchange and company website. I hope everybody had an opportunity to go through the same. Since we are doing the quarterly earning call for the first time, I would like to share a brief overview of our company, its journey so far and a growth strategy going forward, which will be followed by operational and financial performance of the quarter and 9 months ended fiscal year 2021. Post that, we can have the -- we will open the floor for question and answer and then we can have a discussion. Rupa is, today, one of the leading knitwear brand in India covering the entire range of knitted garments from the innerwear to casual wear. Started as a dream in the far-sighted mindscape of 3 men of reason, and Enterprise Rupa has evolved to become the frontrunner in India and a leading player in global market with a far-reaching footprint and millions of satisfied customers. This is because Rupa believes in staying ahead, not just in terms of volumes, but also in technology and product innovation. In line with the evolving customer preference and market demand, Rupa periodically introduces new variety of each sub-brands. These products have the latest fabric innovation, cutting-edge production techniques and advanced design element to give the finest experience of style and comfort to end user. Rupa has unparalleled product portfolio of innerwear, thermal wear, casual, athleisure. And we time-to-time change our products based on the requirement and evolvement in the market. We have multiple brands across all the 5 segments, whether it be economy, mid segment premium and super-premium segments and also across men, women and kids. We have 4 state-of-art manufacturing facilities, one in Domjur, Tirupur, Bangalore and Ghaziabad, with a capacity of 7 lakhs finished products per day. Quality and innovation, we feel one of the -- we feel proud of, and we keep investing on the same year to year. Innerwear, thermals and hosiery products are made from superior and natural fabrics that are grown in sustainable farming methods. We make soft, breathable, lush and comfy knitted wear that also replenish the environment in every way we can. Coming to distribution, the company has pan-India presence with over 1,200 dealers and over 1,25,000 retail touch points. Rupa enjoys a very strong position in East of India and has gained significant presence in North followed by Western India. Rupa is increasing its footprint in South India and plans to expand and improve markets going ahead. Our strategy is to foray in newer markets by appointing new distributors and business experience team and further strengthening our shares in existing markets. Rupa exports in multiple countries, and recently, we started our business in Russia, Nigeria and other countries. We are continuously investing in brand development and investing more than INR 1,000 crore on brand development in last decade. The company has a strong brand recall value. The company is planning to scale up a high-margin revenue business to include the brand like FCUK, Fruit of the Loom and M Series. The vision is to occupy the consumer mindscape in this category and where the aspiration India consumer can show off his style content and different taste. Our aim is to make premium innerwear based on comfort accessible to the consumers. The company is also reinforcing high-growth segment that is athleisure, women's wear and thermal wear segments. Export is muted this year, but we are expecting this to double in the next 2 years' time. The company has a good presence in modern trade, having presence in more than 150 stores, more on the LFS segment. Our strategy is to increase brand footprint across all brands, creating a special product line more relevant to modern trade and improve on time and serviceability. Future plan is to have presence in more than 300 counters in the next 2 years. I am happy to say that company has also started opening EBOs, and we have now 11 EBO in place, and we are expecting to be 25 by the year end. We're expecting 150 EBOs in next 2 years' time. Rupa is present across all e-commerce site, and future plan is to enhance brand visibility and -- through increasing online presence. Now coming to financial numbers. Our company has reported a strong growth for the quarter and 9 months ended 31 December 2020. Revenue for quarter 3 fiscal year '21 stood at INR 346 crore versus INR 308 crore, registering a growth of 12% on year-on-year basis. EBITDA has been strong with 40% -- with growth of 40%, which stood at INR 64 crore as compared to INR 46 crore in quarter 3 of fiscal year '20. We've seen an improvement of 370 basis point in our EBITDA margin due to change of product mix, improved operating efficiency and cost of reduction and such. Our EBITDA margin for the quarter stood at 18.6% as compared to 14.9% in quarter 3 fiscal year '20. Profit after tax for the quarter stood at INR 43 crore versus INR 29 crore in the same quarter last year. PAT margin in the quarter stood at 12.6%, showing improvement of 330 basis points compared to 9.3% last year the same quarter. Coming to 9 months performance. Our revenue stood at INR 859 crore versus INR 795 crore, registering a growth of 8%. EBITDA for 9 months stood at INR 167 crore compared to INR 106 crore in last year the same time, registering a 57% year-on-year growth. Margin -- EBITDA margin also a healthy improvement of 610 basis points, which stood at 19.4% versus 13.3% last year. Profit after tax for the 9 months stood at INR 109 crore compared to INR 66 crore last year the same time, recording a growth of 65%. PAT margin stood at 12.7%, a stellar improvement of 440 basis point as compared to 8.3% in the last year. And with this, we will open the floor for question and answers. And as I said, I have with me Mr. Vikash Agarwal, promotor of the company; and myself.

[Operator Instructions] The first question is from the line of [ Shalini ] from Goldman Sachs.

I had 2, 3 questions. One is that you -- sir was -- in his presentation, sir, was saying that the reason for the change in the EBITDA margin -- basically EBITDA margins have gone up because of a change in the product mix, so if you could just talk about that? That's question number one.

Absolutely. I think the high-margin product mix like thermal, we had seen an incremental growth of 25%-plus, which, again, gave us almost 10% to 15% extra margin when compared to normal what we see on average margin. Same way with the outerwear, which is Bumchum, we have seen almost growth of 50%-plus till now, again a very stellar performance. So the mix of higher-margin product like outerwear, premium segment like M Series, where we are seeing a huge growth against last year; we had growth about 30%-plus against last year; and thermal again a 25%. So these are the mix, which is a high-margin product is helping us to -- beside that, as you know, some of the margin improvement has happened because of some of the cost part, but product mix is also helping to some extent.

And sir, if you -- could you speak about athleisure? I mean athleisure, how much are you growing there? And if -- and -- but the sense I get is that probably you are not growing as much as the market because lot of players in the market are growing at 15%, 20%. So if you could just speak about your growth in the athleisure market?

So the -- we have -- just to give you on a Bumchum, which is our main outerwear brand, we used to normally do INR 70 crore and this year we're expecting to cross INR 100 crore, so you can understand not 15%, 20%, we're talking 40%-plus growth here. So clearly, I think we are taking lead and taking share in our outerwear. Yes.

It is a mix of athleisure and casual wear growth.

Okay. And sir, -- and I mean, if you could just -- I mean when you are saying premium, I'm assuming you are talking about FCUK and Fruit of the Loom. So if you could talk about how these 2 brands have grown?

So when we say premium, our in-house premium, which is our own brand called M Series, that is one of the -- Macroman M Series, that has huge growth this year. So that is the main growth engine from the premium side. Besides that, FCUK and FOTL also has growth, but I think on FCUK and FOTL, our whole idea this year was to really come back on the profitability path more than growth. So what we have -- you have seen both these brands used to have EBITDA INR 10 crore loss, and we're expecting this to be a positive EBITDA this year. So there is a huge turnaround of the business from the profitability point of view and the business is very stable now to take the next jump in terms of growth mode. As I said M Series, we've seen a growth, almost 30% to 35% this year against last year. And also, even in the past trend, I think we have seen a growth in the M Series segment. Yes.

And sir, my last question. I mean we've seen a huge jump in EBITDA margins in these 9 months. I mean, for example, in the quarter gone by, I think the EBITDA margins were probably close to 16%, if I am not mistaken. I mean whatever it is, there has been a huge jump. So what kind of margins should one expect going into FY '22?

So traditionally, if you have seen our number, we used to do at 13%, 14%. And this year, we will be ending somewhere between 18%-plus, which is a significant growth of 4% to 5%. We expect, actually, to be -- EBITDA margin to remain may be 1% here and there, but we should be like 17% EBITDA margin as a sustainable basis going forward.

17%-plus.

17%-plus.

[Operator Instructions] The next question is from the line of [ Dhruv Kashyap ] from Edelweiss.

Congratulations on a stellar job that you guys at Rupa have been doing in the last few years. I had 3 questions. The first is, would you be just able to share a bit of color on how the industry players stack up in terms of Jockey, Rupa, Lux, et cetera, et cetera, in terms of national sort of value and volume market shares? And also if you could give some sort of regional flavor and rural/urban mix?

So I think I'll give you first the rural and the urban mix. The rural and urban, we have 60:40 sort of mix. And what we've seen this year, just to give you a little snapshot of this year because we're just reviewing this year, I think what we are seeing that the first 2 quarters, after the lockdown opened, we're seeing the rural has come back very strongly after the lockdown opening up, whereas the urban has started showing results from the last quarter, the quarter which just went by. So we are seeing now the growth coming from across both the segments, but the first 2 quarters, which is till September, we're seeing rural is something which is sailing up the port. As far as competition is concerned, this year, clearly Jockey, as you must have seen, they -- overall, they are leading the market, but they have a huge degrowth in the first half, where we have a pretty large growth as far as number is concerned. Lux and Dollar both first 9 months, I will say that, they are either negative or almost on the last year number, and those numbers are already visible, already has reported, so I will not be commenting more on that. We will be -- as I said, we will be expecting a pretty solid growth as well as solid growth on EBITDA this year. We will be almost doubling our PAT. So that's the way I see right now in the industry. So I think Jockey may have this quarter turning back in terms of growth path. Yes.

But sir, more in terms of like AC Nielsen reports in the FMCG segment, would you be able to share some color on market shares or size of which player -- what's the position on each of them ranked in the market? I mean some color, because we really don't have access to that information.

There is no published data frankly on a brand label, but on the 5 players what you -- the major 5, 6 players what we have the data, which has been listed and which has been there in the market, Jockey is leading the show and Lux, and we will be almost there together -- very near to that number at a market share of 14% to 15%, yes. And Dollar is a little bit below that and then Amul and others also will be very similar. So I'm very, very near to -- all the companies are very nearby number except Jockey, but we're expecting to take lead in the industry as we go forward.

Sir, just to clarify, sir, before I move to my second question. This is -- you are saying that #1 is clearly Jockey and #2 and #3 keeps changing between Lux and Rupa?

Yes.

Okay. And regional-wise, sir, which -- where are the opportunities for Rupa? I am guessing you must be extremely fortified in the East, but what about North, West and South in terms of opportunity?

So we -- again, we have a very strong presence in North, take UP or Delhi, we've a very strong presence. But within that, there may be a space where we are focusing right now where we may not be doing that great. So again, in the West, we are doing very well in Maharashtra and Gujarat and Rajasthan, again, we are doing pretty well. But within those states also, there are spaces where we have to do more and that's something we are focusing on. South is one area where we've not done well in the past. We are doing pretty good in Karnataka, but besides Karnataka, I think we have a challenge, which are -- where we are working right now.

Sir, my second question is that is there any benefit to your industry through the performance-linked incentive exports scheme?

Yes. At the moment nothing, but for manmade fibers and all, if we get into that and if there is a clearance on FTA agreements and all later, we might get into that, but at the moment nothing.

So that means, Agarwal Saab, currently, none of your products would qualify under the -- as is your current portfolio that is?

Clearly, PLI scheme says irrespective of whatever turnovers we have in textile, which has to be above INR 100 crores and if you add on to any of those products which qualify for PLI scheme, which is manmade fibers and technical apparels, you qualify for the PLI scheme. So once we get into that space, we are qualified for PLI scheme.

Great. My last question, sir, is that given that this has been a difficult year, there was a lockdown, then things started to come back, e-commerce came back, then people started visiting stores. How are you seeing demand now, especially with the winters having passed and since you have a significant play in the winter category as well, how do you see the demand progressing from, let's say, the start of last year to now the start of this year?

Demand will be definitely there. Definitely after pandemic, we all understand like after food and medicines, we have to use hosiery on an everyday basis. And with lifestyle change, we understand the casual wear, leisurewear, athleisure is into a big trend now, and this trend will sustain because of change in lifestyle. So yes, -- but I think this demand is sustainable. And with the government's thrust on agriculture and on the rural areas, the demand will grow -- keep growing. And...

And are you seeing that currently in the last few quarters numbers?

Sorry?

Are you seeing that in the last few quarters numbers in terms of demand progressively picking up?

Yes, definitely. December was a bit low, but January again it is picking up well.

It is picking up well. Okay. You guys are doing a great job.

Thank you so much.

[Operator Instructions] The next question is from the line of Anuj Sehgal from Manas Asian Equities Value Fund.

[Technical Difficulty]

I'm sorry, Mr. Sehgal, your audio is not very clear. [Operator Instructions]

Is it better now?

No, sir, it is not clear at all. [Operator Instructions] The next question is from the line of [ Pankaj Jain ] from [ Mahaveer Investments ].

Sir, I would like to know what is the current working capital usage for the business as on 9 months? And what are the debtor levels and creditor levels?

Your voice is not clear, but I suppose you are taking about working capital, right?

Yes, yes, yes.

Okay. So I think working capital, we are seeing a significant improvement from -- if you see the number, we have working capital of 204 days last year in the same time. Now we are over 171 days. Our target is to move to 150 and below and that is where it will be, and we're working towards that -- we are working on towards that. So clearly, we are moving toward makings this significant down from the past.

Okay. Sir, and a couple of more. What would be our targets for export business? And how do we plan to grow that business? And what would be the target going forward?

The export this year is muted in that sense. We may not be growing in export that much this year, but we're expecting 40% to 50% jump next year because we've acquired a couple of big customers this year, which we should be starting -- showing up results next year. As I said earlier, I think we are expecting doubling down export numbers, though it is still a very small number in overall scenario, but we are expecting to double down on export number in 2-year time.

Okay. And sir, last question from my end would be, sir, since this -- everything is now pandemic time and the omnichannel is taking space, so what would be our e-commerce strategy? And how are we planning to get some shares from the e-commerce business, like e-selling it somewhere on websites or apps or through shopping channels?

We have presence across all the top sites, whether it is Amazon or Flipkart or Myntra. And we have seen almost doubling down this year. We will be double the number of e-commerce what we have last year, but again it is still a pretty early stage from where we can see the growth, and we're expecting this growth to continue going forward and give us incremental growth. As far as our website, we've also developed -- we're also working on that to gain more share to our own site, but we have a large presence on all the top sites where we are focusing more.

The next question is from the line of Anuj Sehgal from Manas Asian Equities Value Fund.

Sorry about the connection last time. I had a few questions. My first question is, can you share the average ASP of your innerwear, athleisure wear and outerwear? And secondly, in terms of your channel mix between the multibrand outlets and e-commerce and modern trade, can you share how -- what percentage of sales you get from each segment and each channel? And how has the growth been across these 3 channels year-to-date for this fiscal year? And then lastly, you did mention that -- so your growth, of course, has been much stronger. So what has been the main driver of this growth relative to your peers so far this year?

Okay. So I think ASP -- I think you have so many questions, I hope I remember all, but let me just try to answer. As far as ASP is concerned, this is very broad, actually. Average is not going to make any sense because you start at INR 350 a box to move up to INR 2,000 a box. But just to answer you, it will be -- on an average, it will be between INR 600 to INR 700 as far as the ASP is concerned what we have. And on the premium segment, it will go up to INR 2,000. So again, it's a broad range where we play and a super premium and premium where it goes to INR 3,000 also. So this is a different category, different ASP will be there. As far as segment is concerned, as I said...

So by category -- sorry, so just to clear, by category if you can give some sense? So for example, innerwear, what is the range? What is the range for outerwear? And what is the range for your thermal?

So thermal will be in the -- ASP on terms of, I will say the retail price. The retail price will be in the range of INR 300 to INR 400 per piece, I'll say. That is the range. And it goes up to -- some of the range may be at INR 600, but more than all INR 300 to INR 400. As far as innerwear is concerned, per piece will be -- it will start from INR 70, INR 80 to move up to INR 400. Outerwear, you asked -- outerwear, starting range will be about INR 700 to INR 800. It goes up to INR 2,500 to INR 3,000.

Okay. Understood. That's very clear. And then, yes, so, my other question was on the channels between modern trade, multibrand outlets, exclusive brand outlets and online. What is the mix of your sales? And what -- which channel has sort of driven the growth this year so far?

So the channel which has -- I mean this will be across, actually, for most of the companies. But for us, e-commerce, we will be doubling this year, as I mentioned earlier. And though the modern trade as a segment is still very early stage from an overall growth perspective, we are seeing some downfall in LFS because of the first 2 quarters. But quarter 3, LFS has turned around, and we are seeing quarter 4 again a big number on LFS. So as far as modern trade, which is compromised -- which has e-commerce and the LFS and the EBOs, all together, I think quarter 4 onwards we'll see growth across all the 3 segments. But because the first 2 quarters, LFS has a downfall because of the lockdown and also not open complete market, e-commerce had lead the show with a growth of 100%.

Right. And what is the mix of your sales across these channels?

Mix -- when you say mix, means innerwear, outerwear?

What percentage of your turnover comes from multibrand outlets...

Yes. Modern trade is the overall number is just a 3% to 3.5% right now. And -- so may be a 4% -- we'll be ending the year at 4%. So -- but we are expecting this to touch 10% in the next 2 years' time and that is our focus area. And within that space, e-commerce will be about 70%.

And rest is gradually general trade only, other than...

Yes. Most of the business is export and general trade. General trade is a major part of our business, as we said.

Sir, basically, just to be clear, general trade is about 96% of the business and 4% is the modern trade plus exclusive brand outlets and online, of which 70% is online right now?

So 4% modern trade, 2% export and then 94% will be GT. That's the split.

Okay. Okay. And then the growth largely, therefore, this year again has been essentially -- because as you said modern trade was slow and even LFS was slow, so it's online which has doubled, but it is still a small percentage, but bulk of the growth has basically come from the general trade this year?

Absolutely.

But at the same time, by the next couple of year, like 10% should come from the modern business and another 4% to 5% will contribute to our export, at least.

So one of the key strategy...

And then...

Again, [indiscernible] the key strategy which we mentioned earlier in our presentation also, we're expecting modern trade to contribute 10% of our numbers from what we have right now in the next 2 years' time -- 2 to 3 years' time. And the same with export, we will be doubling the number in 2 years. So those contributions will go up to 13% to 14% from what we have right now.

Right. And then lastly, in terms of your growth for this year so far, you've grown better than the industry and some of your peers. So what has driven that? Have you gained market share? Or is it a function of lot of new product launches? Or -- can you just give us some sense of what has driven that growth?

I think it's a mix of all. So some new -- and launches also, some shift from unorganized to organized as well. And of course, online and e-commerce is there. And market share is also we have penetrated deep also, so that is also there.

Right. And then -- sorry, just to be -- just on the last question. So the growth that you've seen, would you have a sense of whether this is also the growth that your retailers have seen? Or there could be some level of inventory build in the channel?

No, no. Inventory is actually light in the channel because in pandemic, the supply was very bad. So across all the channels, whether it is retailer or dealer, they've sold off all their old inventories also. So the channel is light now than what was in the past.

[Operator Instructions] The next question is from the line of Nilesh Doshi from Green Lantern Capital.

Sir, a couple of questions from my side. First is on this growth what we have seen in the last 9 months, and you did elude that there is some shift from unorganized to organized. So the question is that is it because of COVID and lockdown this unorganized sector was not able to come back from -- for manufacturing in terms of their working capital, their raw material requirement, et cetera? So as things normalize and when they come back, do we see a degrowth for us? Or we see a -- we don't see this kind of a growth going forward?

So it is not a significant move from unorganized to organized because of COVID. I mean there may be some extend in the initial first 1 month or 2 months, but after that everybody had catch up. So I don't see that will be the reason for not growing. As I said, we are looking growth of 13% to 15% even next year easily with our growth strategy. So I don't see that as a challenge. But yes, to some extent in the initial part of the lockdown opening, there may be some shift happen, but I think that has been catch up in the quarter 2, quarter 3.

Yet, at the same time, the way Indian economy is growing, there will be a general shift from unorganized to organized, which will be forever, which will last, and that will be very big, definitely big.

Yes. So when we say unorganized to organized shift, yes, everyone has come under GST structure, but going forward, is the brand going to play a differentiation or still the pricing point is going to be? Because invariably, I have seen that there is no pull for the brand in innerwears and outerwears. I think most of the time the retailers display all the products and then location-wise, there could be a different product selling. So how do we see if we have to...

Of course, there is always a pull for the brand. And as we have all the segments, we have a bottom of the segment also like we've economy segment also. So that works against all the local players and all. So we have -- we play across all the segments. So that helps us to work in different dynamics.

Sir, how big would be the unorganized market today?