RUPA & COMPANY LTD : A MATTER OF COMFORT !!!

Scrip Code: 533552 /RUPA

CMP:  Rs. 152.20; Buy at 145-150 levels.
6 month Target – Rs. 250; STOP LOSS – Rs. 133.40; Market Cap: Rs. 1,210.37 cr; 52 Week High/Low: Rs. 300.00 / Rs. 137.00

Total Shares: 7,95,25,560 shares; Promoters : 5,95,86,390 shares –74.93 %; Total Public holding : 1,99,39,170 shares – 25.07 %; Book Value: Rs. 21.68; Face Value: Rs. 1.00; EPS: Rs. 11.73; Div: 65.00 % ; P/E: 13.21 times; Ind. P/E: 9.17; EV/EBITDA: 2.32

Total Debt: Rs. 122.28 cr; Enterprise Value: Rs. 1332.65 cr.

RUPA AND COMPANY LTD: Rupa was incorporated in 1985 by the Agarwala brothers. In 1995, they took over the business of Binod Hosiery, a partnership firm incorporated in 1979. They have emerged, over the years, as the largest hosiery manufacturer in India. The company produces and markets knitted garments such as innerwear, casuals wear and also footwear. The company launched Thermocot, the first branded winter wear in India. The company is also pioneered in printing of the brand name in front of the vest. This made the logo as a design element which made the product to be flaunted. RUPA is one of the earliest brands which introduced celebrity endorsement. This created huge impact and recall value. The Company has a comprehensive portfolio of product offerings in the knitted innerwear, casual wear and thermal wear segment for men, women and kids. The Company manages more than 2000 stock keeping units (SKUs), each of them for a particular brand, segment colour and size. The Company has two wholly owned subsidiaries- (1) Euro Fashion Inners International Private Limited which sells premium men’s innerwear products under the brand “EURO” and (2) Imoogi Fashions Private Limited which has recently launched apparel for kids under the brand “IMOOGI” Rupa is the number one knitwear manufacturer in India in terms of revenues, in the year ended FY11 revenues was Rs. 650 crore and is the largest knitted innerwear Company. Rupa sells more than 1.20 cr pieces of inner wear every month. Rupa’s competitive advantage lies in its owned Brands which have grown over the years, a product line range named $ across all categories have a great reputation of “Great Quality at Great Price points” and a fact that it accepts the Buyer’s specification. Due to decades-long experience in successfully launching, nurturing and managing several winning brands in a pre-dominantly unorganized industry, RUPA & Co is acclaimed by the Limca Book of Records as the largest hosiery and innerwear manufacturing and marketing company in India, for a record period of six years. Also RUPA is the first Indian company to launch bacteria-resistant briefs under its exclusive brand Euro.

Investment Rationale: From September 09, 2011, the equity shares of RUPA & Company Ltd (Scrip code: 533552) were listed only at BSE at Rs. 202.00 and is traded in the list of 'T' Group Securities (So no Intra day square off allowed). It made its all time high of Rs. 300 on BSE. RUPA & Co is also listed from 1996 onwards on Jaipur stock exchange (Scrip code: 811) and Calcutta Stock exchange (Scrip code: 028161). The company announced that it plans to launch its brands across countries in South-Asia and Africa. The company would be launching its renowned products in Bangladesh and Sri Lanka, where it would offer licenses to local partners for production and marketing. After implementing the expansion plans for its plants in West Bengal and Tripura & its plans to enter in different geographies, it is expected that RUPA expects to have CAGR of 20 % on top line; PAT of up to 36 % . Rupa has well established brands name like “Rupa, Rupa- Frontline, Macroman M’Series, Air, Macroman, Euro, Bumchums and Thermocot”. These brands promoted by the company enjoy great visibility in the market and are all owned by the Company. Lovable Lingerie has not created brands but have acquired “Lovable” & “Daisy dee” from the third party. Rupa Industries has created all its Brands and owned all the brands in the company. The average advertisement spend during the last five years has been around 8 % of its sales. During FY 2010-11, Rupa & Co. Ltd had spent Rs. 52.1 cr on advertisement. This amount was incurred towards brand building and promoting the various brands of the Company. Since the Company is continuously spending on Advertising for promotion and building brands, there lies a significant brand value in the company, yet to be unlocked. To enhance effectiveness, its laboratory monitors shop-floor developments to protect established quality standards. Over the years, this commitment to cutting-edge technology has been reinforced through the following investments: Spectraflash SF450 (a high-performance spectrophotometer) with colour matching software from DATACOLOR of USA, this makes it possible for the Company to dispatch a lab-tested colour sample within 24 hours of receipt from the client.

Outlook and Valuation:

According to CRISIL Research’s estimates, the Indian inner-wear market was worth about Rs. 13,000-14,000 cr in terms of value in 2010. It is estimated to have recorded a CAGR of 12.7 % over the past 4 years (2006 to 2010) in value terms. CRISIL Research expects the Indian innerwear industry (value terms) to post a 15.9 % CAGR over the next 5 years (2010 to 2015).  In volume terms, the domestic innerwear industry grew by 6 % over the past 4 years (2006 to 2010) and is expected to grow by 9.8 % over the next 5 years (2010 to 2015). Of the total innerwear segment, men’s innerwear is estimated to be around 42 % of market share. The men’s organised segment would be around 65 % of the overall men’s innerwear market & rest with small local manufacturers. The organised segment is estimated to have a growth of CAGR of 16 %-18 % over the past five years, while the unorganised segment  will have growth of CAGR of 12 % during the same period. Increasing per capita income and higher level of quality consciousness has resulted in higher growth in the branded innerwear segment. The growth of per capita disposable income is at 6.8 % over the period FY06-10 & is expected to continue at similar rates over the next five years thereby driving growth to the innerwear sector. The demand among-st the consumers is shifting from the basic necessities to lifestyle products; mans are now preferring more on innerwear brands which offers style, color, pattern and comfort as compared to the previous times when it was sold as a commodity with limited colors and patterns.  An estimated 34 cr people (30 % of the total population) lived in Urban India by 2008. By FY2025 the number of Indians living in cities is expected to grow to 64 cr. Increase in urbanization would drive the demand for the branded innerwear of new styles and fashions to match new lifestyles. The median age of the Indian population stands at 25.1 years as compared to the world's median age of 28.1 years. The huge size of the working population with higher purchasing power implies a very large market for branded and lifestyle products. The Kids wear apparel market is expected to grow from Rs. 22,500 crs in 2009 to Rs. 33,100 crs by 2014, at a CAGR of around 8 %. Branded Kids wear still has few established players who have created a niche market for themselves and holds a large opportunity which is clearly untapped. 

Indian Knitwear Industry has been commanding a relatively higher P/E Ratio when compared to other sectors. Page Industries (Jockey Brand) is the most established listed player in the knitwear Industry. The stock discount it’s FY12E EPS by 34.6x and its FY13E EPS by 26.5x . Lovable, a newly listed player, discount it’s FY12E EPS by 43.8x and its FY13E EPS by 36.7x. RUPA could command a P/E multiple of 25x based on its FY13E EPS of Rs. 7.70 to arrive at a value of Rs. 192 per share. At the Target price of Rs. 192.00, the P/BV for FY13 comes around 6.0 based on the Book Value of Rs. 32 per share. As per Bloomberg Consensus, the P/BV of Page Industries and Lovable for FY13E comes around 11.95 and 5.5 respectively based on the Book value of Rs. 216.80 and Rs. 111.90 per share respectively.

WHATS THE BUZZzzzzz.....

There is the buzz in the market that RUPA will soon get itself listed on NSE which needs minimum paid up capital of Rs. 10 cr for listing. It’s already listed on BSE which needs Rs. 3 cr as min. paid up capital, this listing is done as per the alliance between BSE & CSE.

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	650.00	750.80	878.40	1,036.50
NET PROFIT (Rs. Crs)	33.70	44.20	61.70	76.20
EPS (Rs.)	4.20	5.60	7.70	9.60
BVPS	21.00	26.00	32.00	41.00
ROCE (%)	22.00	24.00	27.00	26.00
RONW (%)	21.10	22.60	26.90	28.30

I would buy RUPA & COMPANY LTD with a price target of Rs. 175 for the short term and Rs. 250 for the 6 month target. As this scrip in "T" group I will keep a strict stop loss of 8 % or Rs. 133.40 on every purchase. ONLY HIGH RISK TAKERS SHOULD BUY THIS SCRIP