RUPA & CO

Rupa & Company Ltd is almost 54 years old company engaged in the manufacture of knitted apparel, including hosiery. Rupa & Company Ltd offers textile, leather and other apparel products. There are 18 sub-brands under brand Rupa -Frontline, Jon, Air, Macroman, Euro, Bumchums, Torrido, Thermocot, Kidline, Footline, Softline, among others as well as Rupa & Company also have exclusive License for International Brands such as FCUK and FOTL.

Current Market Price at the time of publishing this report-: 461 Rs.

Rupa & Co was previously suggested on 9th May 2021 when the stock was trading at 295 Rs. Since then it hit 52 week high of 561 Rs there by delivering 90%+ returns in less than 1 year.

Rupa & Company began operations in 1968, but it wasn’t until 1985 that the company was formed. Rupa & Company primarily manufactured hosiery items such as knitted underwear, casual wears, and thermal wears. Aside from that, the corporation operates a Windmill Power Generation Unit.

Rupa is now one of India’s major knitwear brands, offering a wide range of knitted items from innerwear to casual wear. Rupa began as a vision in the far-sighted mindscape and has developed to become the forerunner in India and a prominent player in worldwide markets, with vast footprints and millions of delighted consumers.

The company has four state-of-the-art production facilities, one each in Domjur, Tirpur, Bangalore, and Ghaziabad, with a daily capacity of 7 lakh completed goods.

Company has the following 5 Wholly-owned Subsidiaries as on March 31, 2020:

• Euro Fashion Inners International Private Limited 
• Imoogi Fashions Private Limited, 
• Oban Fashions Private Limited 
• Rupa Fashions Private Limited 
• Rupa Bangladesh Private Limited 

The company exports its products to Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, Nigeria, Myanmar, Uganda, Algeria, Indonesia, and Congo, among other places, and it aims to strengthen its presence in existing markets while also introducing localised products to meet the diverse preferences of consumers.

Rupa offers an unrivalled product portfolio that includes inner wear, thermal wear, casual clothing, and athleisure wear. The company offers various brands in each of the five type groups, including knit, premium, and super-premium, as well as men, women, and children.

With a huge distribution network consisting of 4 central warehouses, 11 EBOs (Exclusive Brand Outlets) that it wants to extend to 25 by the end of the year, more than 1000 dealers, and 1,25,000 merchants, the company has a PAN-India as well as an international presence. As of Dec 2021 company  has over  7000 SKUs (stock keeping unit)

The firm also has a foothold in MODERN RETAIL TRADE via LFS segments, which comprise 150+ shops from various chains such as Walmart, Central,Lifestyle, V-mart, Pantaloons, and others, with intentions to extend this to 300 in the next two years.

BUSINESS / PRODUCTS

Over the course of its three decades in the domestic hosiery industry, the company has developed strong brands with strong market recall, as well as products that span the value chain from innerwear to comfort wear for men, women, and children, as well as all price segments (economy, medium, premium, and super premium).

For both the people and the classes, the Company has effectively established iconic brands of international scale. There are presently over 18 sub-brands. The firm offers a variety of brands and sub-brands in various pricing ranges. Frontline, Jon, Air, Macroman, Euro, Bumchums, Torrido, Thermocot, Kidline, Footline, Softline, and other sub-brands of the corporation cater to diverse sectors under the umbrella brand ‘Rupa.’ The firm also offers a premium brand, Macroman M-Series, and a premium brand, Macrowoman W-Series, for the female sector, which comprises lingerie, active wear, and leisurewear. The corporation has regularly invested 6-8 percent of its revenue in brand promotional costs throughout the years.

Company caters to following segments via various different brands under its portfolio -:  

• Men’s innerwear segment which is expected to growth of 7% over the next decade.
• Women’s innerwear segment which is poised to grow at an impressive growth rate over the coming period.
• Athleisure a new emerging segment of 21st century.
• Kids wear market segment which is expected to become the next organized sector play for innerwear industry.
• Enhancing women’s wear segment via introduction of new products in this segment.

Exploring some of the brands in brief as follows

Rupa frontline  -: This brand provides Expando briefs, Front Open briefs, and Xing briefs with Frontline Drawers, which provide pure cotton absorbency and a firm, flexi-fit construction. Ribbed, Interlock, Sinker, and Gym vests are among the vest styles available. Then there’s Frontline Kidz, a collection of quality sweat-wicking vests and underwear for boys. Ranveer Singh is the brand ambassador for this company.

Euro-: Euro was founded in 2001 in response to a dearth of trendy underwear for men in the Indian market. Sidharth Malhotra has been chosen as the brand ambassador for the Euro brand by the corporation for brand promotion.

Jon -: is a high-quality, low-cost toy with special stitching on 100 percent fine cotton. The firm sells Jon vests, Jon drawers, Aishwarya panties, slips, and children’s innerwear under the John brand (vests, briefs and drawers).

Bumchums -: This is one of the company’s trendiest brands. T-shirts, bermudas, tracks, and muscle tees are all part of the Bumchums collection. This firm also provides lounge wear, full-sleeve t-shirts, and classic attractive hoodies under this name.

Thermal Wear -: The company promises to make “the greatest thermal clothing in the world.” Thermal fabric is knitted on high-tech machines using a perfect combination of Cotton and Polyester to provide a comfortable and warm fit even in the coldest of climates. It is also embroidered using the most recent Japanese machinery to offer a better fit and durability. As a result, an incredibly thin fabric that moves with the body and keeps it warm even in extreme cold temperatures is provided. Company has two brands under Thermal Wear Torrido and Thermocot.

Torrido -: Torrido, the exquisite range of thermal wear from RUPA. It is Available in a variety of exciting colours, trendy styles and all sizes, it is ideal for every member of the family.

Thermocot-: Thermals under thermocot are available in 3 unique variants – Boiler, Volcano and Agni.

Softline -This is a firm that provides comfortable yet trendy lingerie, leggings, and casual clothing in a variety of colours to meet their every mood. Softline also features a selection of leggings, manufactured from unique 4D cotton stretch fabric for additional comfort and available in designs such as Churidar, Ankle, Capri, Shrimmer, and others, as well as outerwear such as Tees- V-Neck and Round Neck, Plazzo’s, Knitted Pants, and Western Kurti Pant. Anushka Sharma has been chosen as the brand ambassador for the Euro brand by the firm. Furthermore, for better quality , precision and knitting company’s majority of products are stitched using latest Japanese machines to ensure better fit and durability.

Macroman-: Under this brand company sells premium men’s under garments.

Footline-: This is one of the newest brands by the company under which company sells huge range of socks . These socks are designed in such a way to keep feet soft , smooth and warmer. 

Oban-: Rupa & Company launched Oban Fashions in 2016 with the purpose of providing its customers with a life of quality, comfort, and style by providing them with access to worldwide brands. Oban Fashions, Rupa’s WOS, began its journey in 2016 with the debut of FCUK innerwear. Oban’s adventure began in 2017 with the acquisition of the licence to produce, market, sell, and distribute Fruit of the Loom (FOTL) in India.

Fruit of the loom-: Fruit of the Loom was founded in 1851 in Warwick, Rhode Island, when brothers Benjamin and Robert Knight purchased their first mill and began producing cotton fabric and textiles. Fruit of the Loom® became an official trademark in 1871, making it one of the world’s oldest brands – predating the creation of light bulbs, automobiles, and telephones! Fruit of the Loom is today a multinational underwear and casualwear company with over 32,000 employees globally, more than 160 years later.

FCUK-: French Connection, founded in 1972 by Stephen Marks, set out to develop well-designed trendy apparel that appealed to a broad clientele. French Connection currently provides a fashion-forward apparel line with a humorous twist on design, emphasising quality and affordability. After establishing a solid core apparel company, it has recently expanded into intriguing new sectors such as men’s and women’s toiletries, sunglasses and opticals, watches, and shoes.

Ecommerce

E-commerce The industry is likely to grow dramatically in the future years. While traditional or unorganised retail forms continue to dominate the retail industry, organised retail is developing quicker and cutting into traditional retail. Online retail, which is expected to increase at a CAGR of 33% between fiscal years 2019 and 24, has been a primary driver of this high growth trajectory. Online retail development is mostly ascribed to reasons such as rising internet penetration, an increase in the number of smartphone users, and an increase in the number of online consumers.

Rupa made this move a few years ago, and it is now reaping the advantages of the ever-changing customer perspective. E-commerce is becoming one of its primary distribution avenues. Rupa has a presence on online platforms such as Rupaonlinestore, Amazon, Flipkart, Snapdeal, Myntra, Paytm, and others.

Rupa & Co is considering expanding its availability through e-commerce, multi-brand shops, and big format retail locations. The firm is also trying to quadruple its e-commerce platform reach through partnerships with Amazon, Flipkart, and other e-commerce platforms. The goal is to develop a small to medium-sized franchise shop with best-in-class SOPs. It aspires to build a franchise model in India’s top 50 cities. The company’s long-term goal is to roll out 30 EBOs by the end of the year and 100 EBOs in 2-3 years. Rupa is available on all e-commerce platforms, and the company’s long-term goal is to improve brand visibility by expanding its online presence. The company is concentrating its efforts on growing its e-commerce and EBO businesses.

Financials

For the 9 month FY22

• Revenue growth of 19% YoY at Rs. 1,019 Crin 9M FY22. 
• EBITDA growth of 17% YoY at Rs. 194 Cr in 9M FY22.
• EBITDA margin at 19.1% in 9M FY22. 
• PAT grew 30% YoY at Rs. 143 Crin 9M FY22. 
• PAT margin at 14% in 9M FY22

Consolidated Financials for December 2021 – Q3FY22

• Net Sales at Rs 433.16 crore in December 2021 up 25.33% from Rs. 345.60 crore in December 2020.
• Quarterly Net Profit at Rs. 58.27 crore in December 2021 up 34.3% from Rs. 43.39 crore in December 2020.
• EBITDA stands at Rs. 83.75 crore in December 2021 up 26.91% from Rs. 65.99 crore in December 2020.
• Rupa and Comp EPS has increased to Rs. 7.33 in December 2021 from Rs. 5.45 in December 2020.

Rupa’s revenue increased by 25% year on year, owing mostly to volume growth (which grew 15 percent YoY). Price hikes, as well as a stronger mix, accounted for around 10% of the topline rise. Rupa’s gross margins fell 160 basis points year on year due to an increase in raw material prices. However, the business was able to sustain EBITDA margins because a stronger product mix and economies of scale countered the impact of the material price rise. Net profit increased by 34% year on year.

Capex

Right now on average company does about 20-30 crores on a CAPEX every year which is normally on its warehousing and all the new packaging as well as some other stuff. But going  forward next year CAPEX would be around Rs.50 crores plus as reported by the management.

Sectorial Outlook

Demand for excellent knitwear items has increased in our nation as a result of rising income levels, better spending power, an increase in the number of working women, and a growing awareness of stylish products. The Covid-19 epidemic has had a huge impact on the textile and apparels industry, forcing many employees to work from home. As a result, individuals have begun to value comfort over fashion, driving up demand for athleisure and comfort clothing. As a result, quality-conscious manufacturers are always concentrating on product consistency and design throughout time in order to build customer trust in a particular brand. The knitwear business has been seeing a major rise as casualization tendencies gain traction.

Consumer research has shown that men now expect more from their innerwear and vital wear than ever before. Underwear is no longer only a utilitarian need. Indian men want more variety and style in their underwear drawer, and manufacturers must adapt and comply. Men’s shifting lifestyles have resulted in a need for previously unheard-of innerwear and loungewear categories.

Women’s innerwear dominates the Indian innerwear market, accounting for 64 percent of the entire innerwear market and 15 percent of the total women’s clothing market. Women’s innerwear is expected to increase at a 12 percent annual pace over the next decade, reaching Rs 56,364 crore by 2027 from the present market size of Rs 18,454 crore. Branded innerwear accounts for 38-42 percent of the entire women’s innerwear market, and this proportion is predicted to rise to 45-48 percent by 2022.

Expected Market Growth in the Coming Period for various segments

• In 2018, the men’s innerwear market was worth Rs 11000 crore, and it is predicted to rise at a CAGR of 7% over the following decade, reaching Rs 21800 crore by 2028.
• From a market size of roughly Rs 21000 crore in 2018, the women’s innerwear category is expected to increase at a rate of around 12.5 percent over the following decade, reaching around Rs 68000 crore by 2028.
• The athleisure market in India is now increasing at a rate of 18-20%, with a market value of Rs 54000 crore.
• In India, the market for children’s clothing is predicted to be around Rs 81900 crore, with a CAGR of roughly 8.5 percent expected over the next five years.

The proportion of the organised retail industry is predicted to nearly double, from 12 percent to nearly 25 percent in the next years till FY24.

Going Forward

• Management expects the business to come back to normalcy’s as well as exports to double in the current FY which were expected to be in earlier in FY23.
• Management had targeted 150 EBOs in the next two years’ time. Management is on the track of same and is looking forward to doing the same in coming period.
• Earlier management was expecting 15-16% growth in the current year however given the strong momentum of earnings with volume growth now it is expected that the growth for the current year could be around 17-18% on yearly basis as well as EBITDA margin PAT are expected to be in line of percentages last year or even somewhat better. 
• From an internal perspective management has an ambitious growth target which is to grow 5x in next two years off time and they have been working aggressively on it
• Exports as per management are expected to grow to 5x in 2-3 years from a mere 20 crore Rs to around 100+ crores in the coming period.
• Management expects to improve operational efficiencies and is looking to grow at 18%-20%.
• Three to Five years down the line management expects to see a 20%+ CAGR growth.

---

This were the future plans we had mentioned in our last research report and we are posting it as it is from the previous report so that users can evaluate whether management actions are in line with their comments.

Future plans (From previous report)

• Open 50 Rupa EBOs – through franchise route. Tie up with Amazon, Flipkart and other e-retailers as well as with renowned MBOs . 
• Company Plan to cross Rs. 200 crores of Thermal wear revenue in next 2 years.
• Rupa & Company had Exports Revenue of Rs. 25 crores in FY20 which it Plans to double by FY 2022

Future Outlook/ Managements comments (From previous report)

• Bumchum, which is one of the main outer wear brand, used normally to earn Rs.70 Crores and this year Company is expecting to cross Rs.100 Crores which is not just 15% – 20% growth but a whooping 40%+ growth.
• Traditionally company’s Ebitda margins were in range of 13% – 14% and this year company is expecting to end somewhere between 18%+ , which is a significant growth of 4% to 5%. Company further expects actually EBITDA margin around 17% on a sustainable basis going forward.
• On the operational efficiencies from company currently had working capital of 204 days last year which now has decreased to 171 days. Company further targets it to reduce to around 150 days or less and to stay there.
• On the exports front company is expecting 40% to 50% jump next year because it has acquired couple of big customers this year, which should be starting showing results next year. 
• Currently due to ongoing pandemic the Modern trade has been affected significantly that is the trade carried out through the LFS such as Shopping Malls , retail chains etc which include Walmart , Pantaloons , Central Mall etc . Fortunately Rupa Industries has a very significant share of revenues coming from this segment which is around 3% to 3.5% and company is expecting it to increase to around 4% in coming period. Thus it can be said that the disruption has very little effect on the Modern retail trade of the company.
• Company is looking at growth of 13% to 15% next year with its growth strategy. At the same time the way Indian companies are growing, there will be a general shift from unorganized to organized, which will be forever and that will be very big definitely big. 
• Although yarn prices over last few months has rose significantly that is around 20% to 25% it has been already covered through company’s price rise and already passed on to the distributor as well as the retail channel. Thus company does not see that impacting its profitability. Infact it has actually helped the company that is if the company raises price it will make dealers to take more stocks  thus liquidating the whole inventory thereby leading the market to grow. 
• On the capacity utilisation from company currently is utilising about 75% to 80% having 20% capacity available to take the growth and momentum jumps sometime.

Conclusion

Based on the strong growth prospects and management’s outlook for the future growth , increasing profitability via improved EBITDA margins as well as increased growth both in terms of volume and price is definitely going to add significantly in terms of value to the company. Additionally company’s plans to decrease working capital days as well as company has contained levels of debt which makes it definitely worth exploring for long term. Company’s direct competitor/peers such as Page industries do trade it highly premium valuations while dollar industries trades at almost similar valuations but does not have same Operating profit margins as Rupa. Thus classifying the business of the company to somewhat as Consumer Non Discretionary sector Rupa would be less affected by the Economic downturns which makes it worth exploring for long term. Based on the managements comments it can be expected that company should be able grow at least 15%-20% cagr over the coming period.