Arvind Fashions Ltd Management Discussions.

Global Market

2020 was one of the most challenging years for the world battling with a once-in-a-century kind of pandemic event of Covid-19. The global economy contracted for the first time in last many years with the world output de-growing at -3.5 percent since the global economic crisis in 2009, when the contraction was -1 .7% [1] Global lock downs, trade freeze, stretched healthcare systems and economic activity coming to a standstill in large geographies, created further stress on already stretched economies of emerging markets, including India. Most countries, including India, saw a halt in manufacturing activities ranging from 60-120 days in the calendar year in an unprecedented move necessitated by outbreak of Covid-19 and migration of labor. A period of stabilization was seen in second half of 2020 before 2nd wave of Covid-19 started sweeping across the geographies again.

The McKinsey Global Fashion Index (MGFI) predicted global fashion industry contraction of 27 to 30 percent in 2020 y-o-y with potentially a strong recovery to pre pandemic levels in 2021[2]. The global fashion Industry saw a steep decline in 2020 with profits declining by ~93% from 2019 levels[3].

While Covid-19 led disruptions and uncertainties for most part of the year led to the fashion industry posting record-low economic profits, it also forced brands & fashion houses to innovate while continuing to engage with their core constituencies. Most industry players have reshaped their business models, streamlined their operations and sharpened their customer propositions during the crisis. There are two key long term implications of the pandemic a, Consumer Behavior: There was a significant change in the consumer behavior in the year gone by and It is likely to shape up further in 2021. with 2nd and possibly 3rd wave of the pandemic. Safety concerns, economic turmoil and varying levels of impact on disposable incomes have led to strong brands with focus on relevant offering gaining strength. Fashion system is evolving with new work from home & flexi work practices. Great focus on health and Do-it-Yourself (DIY) has increased the salience for comfort wear, athleisure and DIY beauty. Environmental concerns have also heightened during the pandemic and that is another theme likely to play out. with environmentally aligned brands likely to be preferred.

b. Digital Focus: A common thread across fashion players that have performed relatively well in 2020 is offering a compelling digital proposition. Convenience and immediacy became key differentiators and fashion players optimized their store network and reduced friction in the customer journey via in-store experience, localized assortments and truly omni-experience. Given the strong performance of digital in 2020 and the current macro-economic trends, the companies treading the path of digital adoption are likely to rule the roost.

Industry experts believe that the themes that will define the future of fashion industry are the fact that we will have to live with the virus and hence industry players have to evaluate the distribution model to optimize the retail ROI, make a fashion offering for the new remote working health, safety and environment conscious consumer and be digitally ready to reach the consumer wherever and whenever he / she wishes to shop[3]

Indian Market

The slowdown of the Indian economy, already visible in 2019-20 turned into a contraction in 2020-21. Q1 (Apr-Jun20) was a complete washout for the Indian economy, with almost a quarter worth of industrial output being lost due to the pandemic induced national and regional lock downs, followed by a very gradual reopening. While the economy posted positive growth in the last 2 quarters of FY20-21, overall for the year 2020-21, India economy contracted by 7.3% [4]. This is the first full-year contraction of our economy in the last four decades since 1979-80, when GDP had shrunk by 5.2%. The economy came out of technical recession in the October-December quarter of the financial year 2020-21 and expanded by 0.5 percent

The sectoral performance in Q4FY21 shows that manufacturing, construction, finance, real estate had a reasonable recovery and would have been a good indicator of things for FY21-22. However, the second wave leading to a series of regional lockdowns, is likely to impact this fiscal as well, especially for services sector, with most agencies downgrading the original growth estimates. Lockdowns impact fashion retailing more than the overall impact on the economy. With a potential 3rd wave the economy could witness further dips in 2021 -22. However, there is a near consensus that with increased levels of vaccinations, improvements in medical and oxygen infrastructure and heightened levels of awareness around Covid-19 appropriate behavior, economic consequences of any potential 3rd wave are likely to be less severe. The second wave of Covid-19 has already witnessed less severe economic costs even though unfortunately the human costs of the second wave have been far more severe.

Indias apparel market in 2020 was estimated to be US $41.4Bn witnessing de-growth of 27% over FY19 [5]. While the pandemic has led to a temporary setback, the long term growth prospects of the apparel market remains intact for the country with the market estimating to grow at a CAGR of 8% to US $89Bn by 2025 on the back of higher brand consciousness, improved digital access and greater purchasing power. Branded apparel is likely to have a lion share of 56% of the total apparel market, with Mens wear continuing to lead the market with large share in casual wear with product categories like T-Shirts & Active wear. In the new post pandemic normal where flexible work routines are likely to be a norm, the need for casual wear is likely to increase further. The online apparel e-tailing market grew by 51 % in FY21[6] with a very high level of digital adoption in view of offline retail being inaccessible. A number of digital innovations were introduced by e-tailers and fashion houses in a range of areas covering both consumer engagement, commerce and fulfilment. Rising adoption of D2C (Direct to consumer) and omni channel is likely to shape the future of fashion shopping in the country.

Post the near melt down of 2020, following the global trend, the apparel sector is expected to grow in excess of 25% this year [5]. Despite the first quarter being impacted by localized lockdowns, there is likely to be a better sales recovery quarter on quarter owing to the low base of last year. Partial recovery has started in this fiscal over a muted FY21, though caution is still advised on account of potential infection waves. Changes in consumer behavior and greater access to brands and assortment through D2C platforms are likely to result in rising share of Tier 2 - Tier 3 towns. Companies which are ready to reach this digital native consumer, when & wherever he / she wants them to be, is likely to outpace their peer group in next few growth years. This year also the focus on direct to consumer, online channels would be of significant importance for the organization.

Trends in the Fashion Industry

In the recent past there has been a high digital adoption in the country both from point of view of share of voice and also as commerce opportunity. Digital penetration is 2nd highest in the world. Online apparel and lifestyle market is expected to grow to $28.7 Bn by FY25[7]

AFL is a Leading Omni player with own e-commerce & 3rd party marketplaces

Real India, which resides in Tier 2 & Tier 3 towns, is warming up to the idea of ready to wear branded apparel. Reverse migration during Covid-19 has only accelerated the adoption of branded wear. The Indian middleclass consumer in these locations is seeking quality, fashion at affordable

AFL Brand portfolio is ready to cater to this consumer and has successfully piloted FM

Prestige beauty market is growing at a rapid pace and is estimated to be $1.5 Bn by FY23(5). The Indian consumers is going through a fast rate of transition from mass to premium to prestige brands

Sephora is the leading prestige beauty retailer in India

With flexi working practices in the post pandemic world the consumers share of wardrobe is becoming more casual wear and athleisure oriented. Within casual, active wear and T-shirts have shown promising growth with CAGRs of 12.7 percent and 10 percent respectively, owing to changing preferences[7]

AFL positioned as Leading casualwear player In India

Branded innerwear is likely to remain a fast growing category across men, women and kids, as consumers are looking at innerwear & loungewear as a fashion statement. Leading innerwear brands have invested heavily in brand promotions and portfolio expansion into track pants, sweat

AFL among top 3 players in premium innerwear has category extension in Lounge & comfort wear

The kids wear market in India was estimated to be $11.7 Bn in FY19, growing with a CAGR of 9% and is expected to become $19.1 Bn by FY25.29% of Indian population is in the age group 0-14 years, presenting a huge growth potentia[7]

AFL among top 3 pLayers in premium kids wear

Arvind Fashions Limited - A Leading D2C & Omni Player in India

Arvind Fashions Ltd is Indias leading direct to consumer (D2C) & Omni player in the branded apparel space, primarily with a casualwear offering through its powerful portfolio of brands straddling across price points and fast growth categories. The companys portfolio of brands is available directly to the evolved customer in his / her shopping journey from offline to online and vice versa. Your company has many successful category expansions that cater to the changing consumer preference as well such as comfort wear, athleisure, Prestige Beauty, Premium Kidswear, Premium Innerwear, Footwear & Accessories under its portfolio of brands. Your company has a long history of working with international brands and scaling up brands through multi-channel distribution capabilities along with full scale omni-channel channels would be of significant importance for the organization.

Key Characteristics of the Arvind Fashions Portfolio

• Lifestyle offering across International and aspirational brands

• Across price points & usage occasions to cater to large consumer segments

• Distribution strength to expand into real India - Tier 3 & 4 towns

• Future ready digitally capable with presence across all D2C touch points : own website, strong market place & very large partner portal play

• Strong possibility of brand extensions into adjacent categories post success of innerwear, footwear, kids, accessories across brand portfolios

• Strong play in prestige beauty

• Six high conviction brands - Most with market leading positions

U.S. Polo Assn. #1 Casuals brand
Flying Machine Among top 3 Denim brands
Arrow Among top 5 Formalwear brands
Tommy Hilfiger #1 &#2 in super premium casuals
Calvin Klein
Sephora #1 Prestige beauty retailer

Brands and Product Groups

Focus Brands

Your company has decided to focus on six high conviction brands namely U.S. Polo Assn., Tommy Hilfiger, Flying Machine, Arrow, Calvin Klein and Sephora. These brands have a strong historical performance and robust longterm growth potential.

U.S. Polo Assn, is Indias leading casualwear brand in relevant price points and on track to become Indias leading Lifestyle Brand with strong multi-category & multi-channel play. U.S. Polo Assn, is set to grow steadily with multiple growth drivers. Retail and product upgrades, fresher marketing and digital journeys at stores will help in improving store productivity. Your companys strong omni-channel capabilities will allow for seamless offline-online customer journey. Distribution expansion in smaller towns with brand stores, deeper penetration of M80s and expansion in online through channel specific categories and ranges provide immense growth opportunities. Further, category expansions into adjacencies such as kidswear, innerwear, footwear and accessories, are emerging as large incremental opportunities. Improving retail sell- through with closerto market buying lean cost structure, increasing operating leverage and leveraging the power of analytics in pricing and discount optimization are set to further increase the brands profitability.

Tommy Hilfiger has a strong play in super-premium segment with the classic American cool styling and high quality. With potential to expand store footprint in 40+ cities, accelerated growth in online channel, growth in premium department stores through shop in shops (SIS) and expansion into adjacent categories such as tailored line, women and kids wear, innerwear and accessories, Tommy Hilfiger has multiple growth opportunities. In H2 FY21, the brand delivered its highest ever EBIDTA margins.

Flying Machine is among Indias top 3 denim brands with strong millennial connect. It is a digital first youth oriented brand with strong online presence. It straddles across premium and value segments through a distinctive product and retail strategy. In FY21, AFL entered into a strategic partnership with Flipkart for Flying Machine through a joint venture, with Flipkart having a significant minority stake. This helped the brand double its revenues from online channel in Q4 FY21. This partnership will help accelerate its journey to become Indias #1 youth brand. This alliance has helped leverage consumer insights to drive product innovation/communication/ distribution strategy and enable building a low inventory-fast turnaround supply chain for online. It also provides good opportunity to expand into adjacent lifestyle categories such as footwear, watches, eyewear and backpacks to build this iconic youth brand. It is also expanding its distribution footprint in Tier3/4 towns with its value retail format FMX, to capture the small town opportunity, in premium retail and department stores Flying Machine is constantly evolving and enriching premium product line and expanding footprint of premium SIS and stores in metros and mini-metros.

Arrow is a heritage American brand and its core target is a customer who already buys into premium menswear brands and is keen to experience aspirational international brands. With upgradation of top stores, fresher marketing communication (With Hrithik Roshan as brand ambassador) and product upgrades such as launch of premium range, expansion of Arrow New York modern line and relaxed workwear offerings, Arrow is all set to increase its brand appeal. The brand will also leverage strong omni-channel capabilities for seamless offline-online customer journey. With robust distribution expansion and increased focus on accessories such as footwear, ties, belts and wallets, the brand has significant growth opportunities.

Calvin Klein is Indias #2 casualwear brand in the superpremium segment. The brand aims to improve store productivity through store upgrades and through launch of multi-category Calvin Klein lifestyle brand stores, Through continued communication of brands positioning as an ultra-chic and cool brand with glamour quotient the brand continues to build its consumer appeal, it is eyeing rapid growth in online channel by strengthening the entry level price point products. Accessories such as footwear and wallets provide additional growth opportunity for the brand. With increasing share of Indias production, brands profitability is also set to improve.

Your company is present in the prestige beauty market through Sephora. Prestige beauty market is growing at an accelerated pace in India and is estimated to become $1.5 Bn by FY23, thereby presenting a large opportunity. Sephora has already been established as a leading prestige beauty retailer in India. With its unparalleled assortment of prestige products in many beauty categories, unbiased service from the beauty experts in an interactive shopping environment, expanding stores footprint with retail excellence and a tremendous opportunity in online, Sephora is well placed to consolidate its leading position and keep growing at a fast pace.

In H2FY21, the focus brand portfolio delivered a healthy EBIDTA in spite of Covid-19 impacted Mar21. Also with significant inventory corrections across the focus brand portfolio, gross working capital reduction in the year was over 450+ Cr. With improved working capital and a lean cost structure, focus brands are set up for accelerated growth with improved ROCE, once the 2nd wave of Covid-19 subsides.

Other Businesses

In addition to the focus brands, your company also operates Unlimited - a value department store chain and brands like Aeropostale and Ed Hardy.

Unlimited is a chain of value department stores with offerings for the entire family. Value fashion market in India is estimated to have a majority share of the total apparel market. Urbanization and rurbanization are leading to emergence of middle tiers and smaller towns as fast growing consumption centers. With increasing income and attitudinal change to look better, there is a shift from unbranded to branded. These factors are aiding the growth of the branded value fashion market in India, and Unlimited is well positioned to tap this opportunity, Since FY20, your company initiated many actions to restructure Unlimited to minimize losses. Unprofitable stores and stores in unrelated geographies were closed, multiple initiatives were taken to rationalize operations and restructure team to reduce cost base. The new flexible and agile sourcing strategy has been implemented to move away from seasonal to once in two months buy to improve sell through and optimize inventory, product assortment and pricing proposition has been revamped.

Aeropostale brand is positioned around teens and young consumers focused on active oriented and fashion basics at compelling values. Aeropostale business has been de-risked by enhanced focus on shop in shops in department stores and in the online channel, while limiting the number of retail stores. The product offering has been upgraded with new design language. Your company is also exploring value opportunity in the denim category through Aero Jeans.

Ed Hardy is an alternative lifestyle fashion brand that celebrates the classic American tattoo as an art form.

Discontinued Operations: Your Company decided to discontinue few brands either with limited long term potential or the ones that did not fit its post-Covid strategy. GAP Inc and your company mutually decided to terminate the franchise agreement in the light of post Covid-19 circumstances. Along with this, your company decided to also discontinue operations in The Childrens Place and Hanes, in addition to a few Unlimited private brands. This will help to focus management bandwidth and channelize resources to the portfolio of other brands with higher growth potential.

Powerful Platforms

Leader in digital

Your company has made significant investments in digital over the years and has been at the forefront of digital commerce even before the pandemic. Investments in digital commerce were further strengthened during FY21 enabling the company to mitigate the impact of Covid-19 led disruptions in offline retail. Today we are able to reach the consumer through all means of e-commerce channels whether it is 3rd party portals, brand websites or market places on all major fashion & apparel websites.

Omni-channel: Our early investments in technology have helped us during the Covid-19 year with share of direct to consumer business (D2C) scaling up multifold to reach ~30% of our online revenues. We have been connecting offline stores and warehouse inventory to our own fashion portal and third party marketplaces to create "One view of inventory". This enables reduced discounting through better pricing control, higher inventory turns and helps in improving store productivity as well. We have strengthened our e-commerce service capacity of the warehouses multifold with ~5 dedicated B2C warehouses to specifically address the needs of discerning e-commerce customer, coupled with processes for higher efficiency and better turn around time. There has been a significant reduction in turnaround time post integration of a large network of company operated stores through Omni. We have been leveraging analytics to have more curated product offering for our loyal customers across the various online commerce platforms.

We foresee digital to remain a critical growth driver for your company. We are in the process of integrating franchisee stores as well for Omni deliveries that will further help improve customer offering and reduce delivery timelines. We are adapting to the new normal in post pandemic world by further strengthening our digital and omni capabilities and transform into a truly agile multi-channel, digitally enabled organization.

In FY22, we are further investing in our already strong D2C infrastructure to connect our entire store network of own and franchisee stores and further strengthen our integration with the online platforms. Through our initiatives we intend to maintain our position of leadership on 3rd party websites, improve customer experience in D2C commerce and digitally enable our offline retail to increase throughput

Tier 2 & Tier 3 expansion

Your company has strong multi-channel distribution capabilities with a pan India footprint in 150+ cities and presence on all major e-commerce platforms. It has ~1250+ brand stores (as of 31 st Mar 2021), 3500+ counters in department stores and presence in 10.000+ MBOs. Your company brand stores are present in all the major mails of the country and featuring amongst the most productive stores in those malls. By having a common sales structure & a centralized business development team across brands, your company will be able to bring in cost efficiencies and leverage the synergies across the portfolio to expand to a larger geography comprising of Tier 2 & Tier 3 towns where the real India resides. With the successful pilot of Flying machine in small town India your company is ready with the know-how on assortment price-points and retail identity that can help reap benefits both for your company and its business partners / franchisees. Your company sees an opportunity to open 400 stores in next 3 years in this Real India.

Strong Supply Chain capabilities to improve ROI

Your company has an established strong warehousing & logistics supply chain, through which we are able to service our partners and customers effectively. In FY21, we were able to consolidate our B2B warehouses from 11 to 4 thus helping us bring in cost and service efficiencies. We have tied up with top logistics partners to ensure on time delivery to our partners and customers.

In FY22, your company will further work on enhancing our back end with state of the art supply chain tools. These new tools will help deploy "Theory Of Constraints" principles to increase inventory turns and ROI through process improvements across various touch points of the value chain from design through delivery.

Sourcing expertise

Our company has been able to move forward steadily in these times through its strategic sourcing function, it has achieved functional excellence and is able to source more than 4 Cr units per year while handling large operational complexities across multiple categories. This has been possible through strong supplier relationship management processes such as "Unnati - annual vendor partner meet", vendor scorecard system, etc.

Our digitized back end has improved productivity and quality, and this has made our company one of the preferred customers in the industry, attracting the most reputed vendors. Today, the digitized back end has become a single source of truth for the company as well as the vendors, leading to transparency across the supply chain, helping us improve stock turns and achieve operational excellence.

We are now making strides in reducing sourcing lead times and react faster to market demands through initiatives such as the flexible manufacturing process that has led to path-breaking process improvements, making the supply chain agile and the business sustainable.

Business Strategy

Your company has strong growth, profit and ROCE drivers to help deliver steady performance over the coming years. After rapid growth until FY19,you company went through a period of consolidation over the last two financial years (2019-20 and 2020-21). Rationalization of portfolio through exit of loss making brands and Covid-19 induced economic slowdown had an adverse impact on the revenue and profitability of your company during these years. But scale up of digital & omni capabilities during the pandemic coupled with rationalization of cost structure & working capital has made your company leaner and agile for future growth in the "new normal", that is emerging post pandemic world.

• Six high conviction focus brands with market leading positions to drive growth

• Strong Omni-channel capabilities to drive growth in the online channel

• Expand the offline network to small town India

• Product portfolio well suited for changing consumer needs

• Category expansion through kids-wear, innerwear, footwear & other accessories by leveraging existing brand equity

• Cementing position as the #1 prestige beauty retailer in Sephora with greater online focus

• Elimination of loss-making parts of the portfolio

• Improved full price sell through from retail upgrade and stronger buying and merchandising

• Lean cost structure: Managing costs effectively to ensure operating leverage

• Optimization of store operating costs and closure of tail stores

* Reduced warehousing costs through consolidation of multiple B2B warehouses

• Centralized sales team leading to cost synergies and improved efficiencies

* Overheads control

• Analytics led discounts/markdown optimization

• Better working capital management leading to higher turns

• Agile sourcing to enable replenishment based buying of market right products closer to the launch

• Primary sales aligned to consumer off-take

• Greater operational controls over inventory buying process

Financial Performance and Analysis

Consolidated Financial Performance and Analysis (Rs. Crores)
Particulars Year Ended March 31, 2021 Year Ended March 31,2020
Revenue from Operations 2,201 3,614
>Other Income 128 59
Total Income 2,329 3,673
EBITDA 121 318
Finance Costs 225 274
Depreciation 302 421
Profit Before Exceptional Item and Taxes (406) (377)
Exceptional Items 45 60
Profit Before Taxes (451) (437)
Tax Expense Charge/(Credit) 42 (97)
Profit / (Loss) After Tax for Continued Operations (493) (340)
Discontinued Operations (103) (59)
Profit/(Loss) Before Minority Interest (Continued and Discontinued operations) (596) (399)
Minority Interest (16) 2
Net Profit/(Loss) for Equity Shareholders of Parent (580) (401)
Other Comprehensive Income/(Loss)( Net of Tax) (0) 4
Net Profit/ (Loss) after other comprehensive income/ (loss) (580) (397)

"Comparable refers to pre IND AS 116 numbers

Consolidated Financial Performance and Analysis

Particulars As on March 31,2021 As on March 31,2020
Net Fixed Assets 381 502
Networking Capital 594 823
Deferred Tax asset 392 434
Other Current assets/ Non -current assets and Liabilities 338 321
Discontinued operations (Asset less Liabilities) 81 -
INDAS 116 Impact
ROU Assets 665 734
Lease Liability (812) (918)
Capital Employed 1,638 1,895
Net Worth 591 685
Compulsorily Convertible Preference Share Capital (Disclosed under other non-current Financial Liability) 143 0
Debt 904 1210
Capital Employed 1,638 1,895

Revenue from Operations:

Company registered revenues from continuing operations of Rs. 2201 Crore compared to last year Rs. 3614 Crore in FY20. The drop in revenue was due to unforeseen Covid-19 pandemic that had a significant impact in first half of reporting period. The impact of pandemic was lower in the second half of the financial year, led by gradual opening of retail stores across the country, increased footfalls across malls and significant growth in digital channel. Towards the end of March 21 the operations were again impacted by onset of second wave of Covid-19. During Q4 FY21 the same store revenue showed a small growth against Q4 FY20.

Other Income:

Other income includes Rs. 99 Crore of Covid-19 related Rent concessions disclosed under the guidance note to Ind-AS 116 leases, Issued by Ministry of Corporate Affairs vide notification dated July 24, 2020. Pursuant to the above guideline the group has applied the practical expedient by accounting the unconditional rent concessions from 1 st April 2020.


EBITDA is Profit before Interest depreciation & amortization and Taxes. Company registered an EBITDA of Rs.121 Crore during FY21 compared to Rs.318 Crore during FY20. Covid-19 pandemic that impacted the revenue also had a significant impact on the profitability. The company undertook various cost rationalization measures across lease rentals, supply chain, manpower optimization, travel, marketing and advertisement and various other expenses to reduce the impact. Your company is confident that as business recovers post the pandemic, the strategic actions and cost rationalization measures that are already in place will help deliver a strong operating performance in subsequent years.

Finance Cost:

Finance cost includes interest on borrowings of Rs. 153 Crore and on lease liabilities of Rs, 72 Crore. There is a reduction of Rs. 49 Crore compared to previous year aided by reduction in debt of ~300 Crore during the current fiscal.


This includes depreciation on Assets invested by the company Rs. 123 Crore and Right Of Use (ROU) Assets for leases of Rs. 180 Crore. The depreciation for the year is lower by Rs. 118 Crore compared to previous year mainly due to closing down of loss making stores.

Exceptional Items:

Exceptional item includes profit of Rs. 112 Crore on sale of Compulsorily Convertible Preference Shares in Arvind Youth Brands Private Limited (AYBPL) by Arvind Lifestyle Brands Limited (ALBL) to Flipkart India Private Limited. Both AYBPL and ALBL are subsidiaries for the Company. Further the company has created additional provisions of Rs. 157 Crore towards expected future customer returns, dormancy provision on old inventory and provision towards doubtful debts arising out of Covid-19 Pandemic (compared to Rs. 61 Crore in FY20),

Discontinued Operations:

The company has decided to discontinue the operations of brands such as GAP. The Childrens Place, Hanes and a few Unlimited private brands. Accordingly the loss before tax relating to these brands business have been disclosed separately as discontinued operations in accordance with Ind AS 105. The loss on discontinued operations during the year was Rs. 103 Crore. (compared to Rs. 59 Crore in FY20)

Minority Interest:

This represents share of profits / loss pertaining to JV partners of one of our subsidiary company PVH Arvind Fashions Private Limited.

Net Working Capital:

Net Working Capital of continuing business stood at Rs. 594 Crore as on March 31, 2021 compared to Rs. 823 Crore last year. The breakup of the reported figures are mentioned below.

Particulars As on March 31,2021 As on March 31,2020
Inventory (Including Returnable Assets) 900 1.367
Trade Receivables 626 781
Less: Trade Payables 932 1,325
Networking Capital 594 823

Equity Share Capital:

The Company raised Rs. 400 Crore via issuance of 4 Crore fully paid up equity shares on rights basis in July20 and Rs. 104 Crore via issuance of ~1.5 Crore partly paid up equity shares on rights basis in March21.


Total debt for the company stood at Rs 904 Crore as on March 31, 2021, as compared to Rs.1210 Crore as on March 31,2020.

Compulsorily Convertible Preference Share Capital:

The Parent Company and Arvind Lifestyle Brands Limited (ALBL), a wholly owned subsidiary Company have transferred by way of sale, the wholesale trading business and retail trading business of "Flying Machine" ("FM") brand respectively as a going concern to Arvind Youth Brands Private Limited (AYBPL), a subsidiary company on a slump sale basis. The consideration for the sale was settled by AYBPL by issuing Equity shares to both the companies and Compulsorily Convertible Preference Shares (CCPS) to ALBL Subsequently ALBL sold the CCPS to Flipkart India Private Limited. As CCPS is convertible to a variable number of equity shares based on future financial performance of AYBPL the same has been classified as financial liability and disclosed under other nonCurrent financial liability on a fair value of Rs.142.95 Crore.

Financial Ratios (on Consolidated Financial Statements)

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has identified the following ratios as key financial ratios at consolidated level:

Particulars As on March 31,2021 As on March 31,2020
Debtors Turnover Ratio 3.13 4.35
Inventory Turnover Ratio 1.94 2.80
Interest Coverage Ratio (0.81) (0.38)
Current Ratio 1.64 1.62
Debt Equity Ratio 1.53 1.77
EBITDA Margin 5.51% 8.79%
Operating Profit Margin (8.24%) (2.85%)
Net Profit Margin (22.41%) (9.41%)
Return on Net Worth (30.67%) (15.05%)
Return on Average Capital Employed (10.27%) (5.28%)

.* All Ratios other than Debt Equity Ratio have been worked out considering only continuing operations The formula used for the computation of the above ratios are as follows:

Particulars Formula
Debtors Turnover Ratio Revenue from Operations / Average of opening and closing Trade Receivables
Inventory Turnover Ratio Revenue from Operations / Average of opening and closing inventories
Interest Coverage Ratio EBITDA less Depreciation / Finance Costs
Current Ratio Current Assets / Current Liabilities
Debt Equity Ratio Debt / Net Worth
EBITDA Margin EBITDA / Revenue from Operations
Operating Profit Margin EBITDA less Depreciation / Revenue from Operations
Net Profit Margin Profit After Tax / Revenue from Operations
Return on Net Worth EBITDA less Depreciation / Net Worth
Return on Average Capital Employed EBITDA less Depreciation / Average Capita! Employed

Commentary on significant changes in key financial ratios (i.e., changes of 25% or more compared to the immediately preceding financial year)

Turnover Ratio: Due to Covid-19 Pandemic, the revenue from operations got significantly impacted, that resulted into adverse impact on both Debtors and Inventory turnover ratio. While there is a significant reduction in the levels of Inventory and debtors during Fy21, the ratios remain adversely affected due to the factor mentioned above.

Within FY21, the first half of the year was impacted more significantly in terms of revenue. Against the total revenue for Rs. 2201 Crore for the year, the revenue for H1 FY21 was Rs.531 Crore and revenue for H2 FY21 was Rs. 1670 Crore. Both Debtors and Inventory turnover ratios have improved over FY20 when computed on the basis of H2 FY21 annualized revenue.

Interest Coverage Ratio: Even though the interest cost has come down by Rs.49 Crore (18% lower on Y-o-Y basis), Interest coverage ratio had adverse movement due to lower EBIT in FY21 caused by Covid-19 impact.

EBITDA Margin, Operating Profit Margins, Net Profit Margins, Return on Net Worth and Return on Capital Employed: Profit margins got adversely impacted due to losses caused by Covid-19 pandemic as explained above. This also to Return on Net Worth and Return on Capital Employed turning negative.

The 2nd wave in Q1 FY22 is likely to impact the economy adversely, specifically for discretionary categories, Starting with regional lockdowns in mid- April 2021, most part of the country was under some form of lockdown during May 2020 and the unlock started around mid-June 2021. While there is indeed a reasonable recovery in June, the sales recovery is expected to strengthen further in the second quarter of FY22, possibly leading to normalization of operations by Diwali of this year, bar unforeseen circumstances or a third wave of Covid-19. Your company is adequately prepared to tackle the uncertainties and risks in the short term and well positioned to be a dominant lifestyle player in the medium and long term.

In the changing consumer channel preferences, where a large share of revenue is moving to digital, your company has significant share in online channel and a large share of this revenues coming from direct to consumer (D2C) proposition namely brand websites and well integrated marketplaces. With a leaner working capital and agile supply chain your company is ready to respond to the changing consumer demands amidst possibility of 3rd wave of Covid-19. Also the exit of weaker brands is helping your company focus resources on strengthening the six focus brands to drive growth with improved profitability and ROCE. The strategic tie up with Flipkart has helped Flying machine double its online revenue in Q4 of FY21 and will further unlock significant growth opportunities in FY22. As a leading casualwear player with an unmatched portfolio of brands and product offerings across price points and categories, your company will further strengthen its position across premium casual, innerwear & prestige beauty while continuing to extend brand portfolio into adjacencies likely footwear, accessories & kidswear. It will also capitalize on its early investment in technology and further scale up omni and e-commerce business and leverage technology to improve productivity and operational efficiency Structural cost reduction exercise undertaken in FY21 is likely to result in cost savings of around 100+ Crore on an on-going basis. With new ways of buying & inventory control being implemented, your company aims to release cash through better inventory turns. Funds infusion of Rs.763 Crores over last 1 year through Rights issue and strategic investment by Flipkart have helped your company reduce the debt by 300+ Cr so that the company is ready to fuel profitable growth in 6 high conviction brands.

Risk Management

The success of current as well as future performance of Arvind Fashions is subject to a variety of factors, including but not limited to forecasting and managing of risks and uncertainties which are described as below:

1. Strategic Risks-These risks arise out of companys strategies and objectives towards business which could have potential risk on the long term continuity and sustainability.

2. Operational Risks- The risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events, leading to potential disruptions in the smooth functioning of the business.

3. Regulatory Risks- Lack of structured framework for compliance adherence towards statutory/legal laws and regulations pose such risks which could affect credibility of the organization causing financial implications.

The company has a robust enterprise risk management framework which identify such potential risks, define strategies for mitigating the impact of these identified risks and lay down process for their continuous monitoring. The Company has identified the key risks, including Strategic, Operational and Regulatory risk. Some of the identified risks and their mitigation plans are described below:

1. Strategic Risks

a. Covid-19 pandemic is an unprecedented event which has structurally changed the way of life for the world. Due to restrictions on movement of people and uncertainty in incomes, there is a significant near term demand destruction witnessed across various discretionary spends. There has also been a significant movement in the buying pattern from the traditional brick and mortar to online which is more vulnerable to competition with highly capitalized start-ups. New work trends like WFH (Work from Home) have also resulted in changing customer preferences. The Company has formulated a comprehensive online strategy, which includes, enhancing the Omni capabilities and strengthening relations with key online players supported by robust supply chain capabilities. In addition, product portfolio has been rejigged to meet the changing pattern in customer preferences.

b. Social media has massively transformed the business landscape impacting the brand image both positively as well as negatively. The Company is building strong capabilities around digital marketing and enhancing social networking and interactions with the customers. Simultaneously your company is laying down internal guidelines for social media interactions and behavior for its employees

c. Inability to renew brand license due to noncompliance to contractual conditions or failure to meet agreed performance parameters can seriously impact profitability. The Company regularly reviews critical performance parameters which are key for brand license renewal. It has established a structured framework for periodic vendor, product and store compliance audits to ensure there are no violations to licensee/sub licensee obligations.

2. Operational Risks

a. a)Covid-19 also resulted in longer working capital cycles and fixed retail costs, while revenue came down significantly. The company realized at the very start of the pandemic that its cost structure would need to be rationalized drastically during the closure period and structurally in the post closure period to bring it in line with reduced levels of revenue in the short to medium term, Also, accumulation of inventories could choke the channel pipeline and result in liquidity issues. The Company has taken significant steps to rationalize store size, re-negotiate rentals and significantly reduce corporate, supply chain and retail operations costs, it is also monitoring the financial health of its wholesale customers and those with long credit periods are reviewed. On the purchase side, the Company has rationalized its buy plans.

b. Unorganized change management process for IT as well as process transformation especially on account of automation due to shift of customers to online buying may result in adoption failure. The Company is completely focused in the transformation journey and is keenly monitoring the progress of the same with complete transparency of the objectives with all the concerned stakeholders. The roadmap for projects on IT development, process streamlining and strengthening the present IT infrastructure to enable better monitoring and customer experience has been put in place and the progress is closely monitored.

c. There is a massive and unexpected surge in remote working of employees. Weak IT security controls and poor IT infrastructure can negatively impact business operations. Most of the employees are working from home. Many will continue to work from home for a long period of time. In this situation, IT network security and end-point connections are vulnerable to increased cyber security breaches and malware attacks. The Company has invested significantly in maintaining security of its network infrastructure and protecting its critical data. A third party review to assess the IT security controls has also been conducted to obtain an independent feedback on the Companys security infrastructure. Company has also rolled out detailed Work from Home Guidelines for its employees to enable to them to identify any potential threat and repot it for appropriate action.

d. Counterfeit products of key brands like US Polo, Tommy Hitfiger, Calvin Klein, FM and Arrow pose serious threat to the brand image leading to dilution of brand value. Lack of adequate legal framework and robust mechanism to control unauthorized use of brand logos/product information like labels cause such kind of risk.

Continuous audits at vendors to ensure compliance, coordinated intelligence gathering on counterfeit in coordination with the brand owners and relentless effort in seeking strictest action against counterfeit producers and distributors enables the Company to check counterfeits. The Company actively engages with industry peers on brand protection strategy and building common platform for countering counterfeit.

3. Regulatory Risks

Increasing Compliance Requirements under governing laws and regulations in a time bound manner is a continuing challenge. The company has established a structured framework of accountability across senior management team supported by a third party tool for online monitoring the status of compliances across key processes.

Human Resources

At Arvind Fashions, we believe that our people are our biggest asset. Our Organizational Values - Care, Confidence, Performance and Promotion along with a strong Collaborative culture which has helped instill a sense of passion, commitment and performance among our employees.

We have a diverse workforce of over 5900+ employees, with ~16% gender diversity and an average age of 30 years. Given the repute we hold in the market, we have been able to consistently attract the best talent and skillsets from the industry over the years.

At Arvind Fashions. We provide an environment that encourages collaboration and teamwork along with recognition. Demonstrating the values and leadership behaviors along with recognizing good performance has been the key to Arvinds success. Our Various platforms, events and engagement initiatives like SMILES - Our comprehensive employee engagement program for our retail staff provides instant support on Salaries, Learning and development, Career progression and performance with the click of button, Employee town halls where leaders talk about the achievements of the quarter gone by and the way forward plans, Through such events, our employees get an opportunity to understand the bigger picture they are contributing towards.

At Arvind Fashions we focus on the holistic growth and wellness of our people. The Arvind YoHGA framework is developed to focus on the overall wellness of our employees and deliver a differentiated employee experience. Our progressive policies and practices such as flexi-time policy. Equal Employment Opportunity policy. Travel and accommodation benefits. Maternity & Adoption policy, Creche services and Paternity policy along with our Professional Development initiatives and Internal Career Mobility Platform ensures that an environment of empowerment and engagement is created for ail employees,

Our focus has been on development of our talent across job roles and our branded development initiatives like Arvind University - our learning and development centre of excellence where we fashion possibilities in learning.

Our purpose is to foster a learning environment where our employees develop skills they need to achieve high business performance for progressive growth. At Arvind University, we provide business specific learning interventions for retail, behavioral, functional and leadership development, which help acquire skills & competencies that have direct business impact and individual growth. It is our vision to maximize these offerings to learn, contributes grow. Arvind Express - our career progression initiative that provides employees a transparent and structured process to help take on larger roles within the company. Our assessment process has a holistic approach which blends both Machine Learning and Human Intervention to strategically evaluate employee performance and strengths to provide critical developmental feedback,

Arvind Applause - our reward and recognition platform is designed to recognize our employees via Retail, Value and Spotlight awards. These awards help in reinforcing behaviors and values that are important for our growth.

Arvind Care - our safety and wellness platform focusses on the wellbeing of our employees through multiple initiatives and advisories to provide a better working environment. Across two waves of the Covid-19 outbreak, we launched various initiatives to help our employees and dependents tide through the pandemic. Some of the key initiatives include a 24*7 Covid-19 helpdesk, multiple vaccination drives across India, teleconsultation and counselling services and oxygen support for employees and their families. We also provided financial assistance for Covid-19 affected employees and to families of the deceased, over and above the Covid-19 medical cover and other insurance covers.

The Safety council along with its volunteer network across India vigilantly monitored the impact of Covid-19 on the employees and their families and arranged free RT PCR tests at their door steps and home care treatment as and when required. We are also continuously ensuring safety infrastructure is maintained across operations and are constantly training our employees on the Covid-19 appropriate behavior.

The key attributes of our Employer Value Proposition fall into 5 categories - Opportunity, Work, People, Organization and Rewards along with our Collaborative culture and cutting-edge HR practices. Efforts aligned to these attributes have helped us attract and retain the best talent This has also made our company a preferred employer for professionals in the industry.