RUPA & COMPANY LTD : ALL ABOUT COMFORT !!!

Scrip Code: 533552 / RUPA

CMP:  Rs. 229.10; Market Cap: Rs. 1,821.90 Cr; 52 Week High/Low: Rs. 253.75 / Rs. 192.70;

Total Shares: 7,95,24,560 shares; Promoters : 5,95,86,390 shares –74.93 %; Total Public holding : 1,99,38,170 shares – 25.07 %; Book Value: Rs. 34.30; Face Value: Rs. 1.00; EPS: Rs. 8.34; Dividend: 250 % ; P/E: 27.47 times; Ind. P/E: 12.03; EV/EBITDA: 14.40.

Total Debt: 180.77 Cr; Enterprise Value: Rs. 1,998.08 Cr.

RUPA & COMAPNY 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 came with an IPO at Rs. 10 in the year 1995 and was initialy listed on Culcutta Stock Exchange & Jaipur Stock Exchange. And it got itself listed in BSE in 2010 & at Rs. 200 on NSE in 2011. 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. Rupa & Company Ltd has a comprehensive portfolio of product offerings in the knitted innerwear, casual wear and thermal wear segment for men, women and kids. The company offers its products principally under the Rupa, Frontline, Jon, Air, Macroman, Macroman M' Series, Euro, Kidline, Bumchums, and Thermocot brand names. Rupa & Company Limited sells its products primarily through own retail outlets, as well as through independent retailers in India and the Middle East. The company also exports its products. The Company manages more than 6000 stock keeping units (SKUs), each of them for a particular brand, segment colour and size. The Company has its two wholly owned subsidiaries- M/s Euro Fashion Inners International Private Limited which sells premium men’s innerwear products under the brand “EURO” and Imoogi Fashions Private Limited which has recently launched apparel for kids of 0-12 years of age under the brand “IMOOGI”. Rupa also operates a Wind mill for power generation. The company is locally compared with Lovable Lingerie Ltd, Page Industries Ltd, V2 Retail Ltd , Trent Ltd, Brandhouse Retail, CESC Ltd, Future Retail, Arvind Ltd, Kewal Kiran Clothing Ltd, S Kumars Nationwide Ltd, Koutons Retail Lyd, Maxwell Industries Ltd and Globally with I.T Limited of Hong Kong, Dickson Concepts (International) Limited also from Hong Kong, Industria DE Diseno of Spain, Inditex SA of Spain, Gunze Ltd of Tokyo, Levi Strauss & Co of US, Gucci Group NV of Netherlands, Tommy Hifiger BV of Netherlands, Marc Jacobs International LLC of USA Calvin Klein Inc of USA and Donna Karan International Inc. form USA.

Investment Rationale:

Rupa & Company Limited is one of the leading textile companies, operating across the country and abroad. It is into manufacturing, processing, designing and selling hosiery and fashion wear products for men, women, and kids. It provides knitted garments, including innerwear, casual wear, and footwear. Rupa & Company Limited sells its products primarily through own retail outlets, as well as through independent retailers in India and the Middle East. The company also exports its products. Rupa, a branded innerwear player & has created and nurtured over 100 brands and manages a portfolio of 6000 stock keeping units (SKUs) comprising different range for men, women and kids. The company has a product offerings catering to different sections of society covering various price points. Over the years, the company has invested in brand building and moved up the value chain from a commodity centric marketing strategy to a brand led market positioning. The company is looking to capture a higher share of the in the premium innerwear segment by introducing premium category products, which would enable it to have better margins, going ahead. The share of super-premium products in the overall mix has gone up from 4 % in FY09 to 9% in FY13. Rupa has a pan–India presence with a large distribution network consisting of three central warehouses, 19 exclusive business outlets, 20 branches, 859 sales & marketing professionals, 950 dealers and 1,10,000 retailers. The company has already set up extensive touch points with customers, which would enable it to achieve consistent growth. Rupa is looking at having a higher proportion of the customer’s wallet by introducing newer products. The company has recently launched jeans under the Euro brand and leggings under the brand “Femmora”. The company is also looking at leveraging its brand equity by entering the kids’ innerwear segment. The Indian textile industry is set for strong growth, buoyed by both rising domestic consumption as well as export demand. Abundant availability of raw materials such as cotton, wool, silk and jute and skilled workforce has made India a sourcing hub. The most significant change in the Indian textile industry has been the advent of man-made fibres (MMF). India has successfully placed its innovative range of MMF textiles in almost all the countries across the globe. Manmade fibre production recorded an increase of 2 per cent during the year 2012-13. India is the one of the world's largest producers of textiles and garments. The potential size of the Indian textile and apparel industry is expected to reach US$ 22,100 Cr by 2021, according to the reports by Technopak's Textile and Apparel Compendium. Textile industry has made a major contribution to the national economy in terms of direct and indirect employment generation and net foreign exchange earnings. This sector contributes about 14 % to industrial production, 4 % to the Gross Domestic Product, and 17 % to the country's export earnings. It also provides direct employment to over 3.5 Cr people. The textiles sector is the second largest provider of employment after agriculture in India. Thus, the growth and all round development of this industry has a direct bearing on the improvement of the economy of the nation. The hike in FDI limit in multi-brand retail will bring in more players, thereby providing more options to consumers and this will be in all very good for Textile Industry. It will also bring in greater investments along the entire value chain – from agricultural production to final manufactured goods. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with several international players like Marks & Spencer, Guess and Next shop having entered the Indian market. The organised apparel segment is expected to grow at a compound annual growth rate (CAGR) of more than 13 % over a 10-year period. Rupa will be surely a beneficial as it competitive advantage lies in its owned Brands which have grown over the years with a vast popular product line & with decades-long experience in successfully launching, nurturing and managing several winning brands in a pre-dominantly unorganized industry Rupa surely has its upper hand.

Outlook and Valuation:

Rupa & Company is India’s largest hosiery brand, covering the entire range of knitted garments from innerwear to casual wear & also operates a Wind mill for power generation. 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 8 consecutive years. Rupa sells more than 12 million 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 $ as a brand across all categories, a formidable reputation of “Great Quality at Great Price points”, and a fact that it accepts the Buyer’s specification. Also RUPA is the first Indian company to launch bacteria-resistant briefs under its exclusive brand Euro. Rupa & Company Limited own three state-of-the-art manufacturing facilities at Delhi, Tirupur and Domjur with an overall capacity to produce 7,00,000 pieces a day. It has one of the largest distribution networks through 1 lakh retail outlets across 600 locations with a dedicated support of more than 950 dealers and distributors. Rupa had seen an accelerated revenue growth over FY07-10 with a CAGR of 21 %. Even in FY11-13, Rupa abled to maintain its double digit growth at CAGR of 13 %. Over FY09-13, the company was able to increase the share of super-premium segment from 4 % in FY09 to 9 % in FY13. Geographically, the north region contributes the highest with 48 % contribution to FY13 revenues while east contributes 26 %. Rupa is strategically focusing on increasing its share of the super-premium category. The super-premium category has grown at a CAGR of 41 % over FY09-13 while the other category has grown at a CAGR of 17 % over the same period. Among products, men’s and thermal category have grown at a CAGR of 20 % and 22 %, respectively, over FY09-13. Among other categories, women’s has grown at a CAGR of 15 % while kids (on a low base) have grown at a CAGR of 44 %. Among brands, Jon, Frontline and Macroman contributed 33 %, 26 % and 10 %, respectively. Rupa reported 9 % YoY revenue growth in FY14. Over the years, Rupa has progressed from a commodity centric marketing to brand led market positioning enabling it to register a drastic transformation in EBITDA margin. Rupa’s EBITDA margin improved from 8.2 % in FY07 to 15.2 % in FY13, which has been its peak EBITDA margin. However, in FY14, the EBITDA margin declined 80 bps YoY to 14.4%. EBITDA margin is expected to improve over the next two years driven by higher share of super-premium category and introduction of new high margin products. Driven by improvement in EBITDA margin, it is expected that its EBIDTA to grow at 10 % over FY14-16E and PAT to grow at a CAGR of 14 % over the period. It is expected that the company surplus scenario is likely to continue for the next three years which will keep its growth story in the coming quarters also.  

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	829.00	904.00	973.00	1,053.00
NET PROFIT (₹ Cr)	65.00	66.00	75.00	82.00
EPS (₹)	8.10	8.30	9.40	10.20
PE (x)	28.10	27.60	24.30	22.40
P/BV (x)	7.50	6.40	5.40	4.60
EV/EBITDA (x)	16.20	15.50	14.10	12.70
ROE (%)	26.60	23.10	22.10	20.50
ROCE (%)	25.80	24.40	24.00	24.10

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