brand concepts ltd share price Management discussions


Global economic review

Global economies are largely on the road to gradual recovery although downside risks such as sticky inflation, continued geopolitical tension in Europe and firm interest rates remain. Muted consumer demand, coupled with high commodity prices continues to weigh on future growth prospects.

According to the IMF (July 2023 Outlook), the global economy is likely to register a growth rate of 3% in both FY23 and FY24. Emerging markets and developing economies, including India, are witnessing encouraging growth despite several headwinds emanating from the advanced economies of the world.

The Central Banks in both advanced and emerging economies are adopting prudent monetary policies to curb inflation and improve the confidence of consumers and investors. Firm inflation trajectory may see a declining trend in the near term across major economies of the world.

Global growth (%)

Indian economic review

Indias economy has maintained its status as one of the worlds fastest-growing major economies, despite worries about a global recession. The economy is anticipated to have expanded by 7.2% during FY23 [Source: National Statistical Office] despite challenges such as high inflation, rising commodity prices, and disruptions in global trade due to the on-going geopolitical crises in Europe.1 To address these issues, the Indian government and the Reserve Bank of India (RBI) have implemented a number of initiatives, and recent declines in the price of commodities suggest that these efforts are starting to pay off in terms of managing inflation.

The Index of Industrial Production (IIP) and the Purchasing Managers Index (PMI) for the manufacturing sector are two additional economic indicators that indicate prospective growth and increased activity in the industrial and manufacturing sectors. Additionally, government programmes like the Production Linked Incentive (PLI) plan and the ‘Atmanirbhar Bharat (Self-Reliant India) initiative are anticipated to promote economic growth by increasing local output.

Looking ahead, Indias real GDP growth is expected at 6.5% in the financial year 24, aided by the governments thrust on infrastructure spending, traction in domestic demand, revival in corporate investments, and a healthy bank credit.

According to the NSOs final estimates, Indias GDP grew by 7.2% during FY23.

Industry overview

Global luggage industry

The global luggage market is expected to grow by USD 12,521.44 million from 2022 to 2027. The market is projected to increase at a CAGR of 7.5% from 2022 to 2027. During the estimated period, 39% of the markets growth is expected to originate from Asia-Pacific region (APAC).2 China, Japan and India constitute the top three market contributors in APAC. Due to Chinas increasing population and rising income levels, the Chinese market is projected to have tremendous development potential over the forecast period. The market is also driven by Japans high per capita spending on luggage products. The global travel and tourism business is expanding, which is a major driver of the market, but there are still obstacles, such as the protracted product replacement cycle, that may limit this growth. The manufacturing of luggage that is both convertible and foldable is a recent trend in the sector. With the advancement of time and technology, the usage of multifunctional baggage has become more widespread.

Indian luggage industry

Despite a high-base effect of 40% growth last fiscal year (FY23), Indias luggage industry revenue is likely to increase by 15% this fiscal (FY24) due to an increasing penetration of hard luggage made by the organised sector as well as continuing growth in tourism and business travels.3 Approximately INR 50,000 crore is estimated to be the size of Indias luggage market, with branded luggage accounting for 25% of the total.4 The nearly INR 100 billion Indian luggage and backpack market experienced a 14.2% CAGR from FY15 to FY19 (pre-pandemic), and it is expected to grow by 15% in the years to come.

With both leisure and business travel returning to normalcy significantly, schools and businesses opening up, and rise in weddings/events, the segments long-term outlook is positive. Domestic air passenger traffic increased by 44% from FY22 to hit 122.7 million in FY23.5 Growing disposable income, rising consumer sentiment, competitive airfares, and a wide range of vacation packages contributed to huge growth in tourism. Additionally, with the resumption of scheduled international flights following the relaxation of COVID-induced restrictions in FY23, the tourism industry is expected to grow even faster in the coming years.6

Growth drivers

Consumer preference for hard luggage

One of the key drivers of development is the rising consumer demand for hard baggage. In comparison to soft baggage, hard luggage is seen as being more fashionable and aesthetically pleasing. Additionally, it is lighter, which is also important for travelers.

Growing tourism and corporate travel

Demand for luggage is also being fuelled by the expansion of the tourism and business travel industries. By 2025, 100 million foreign visitors are anticipated to visit India, while the domestic tourism market is anticipated to experience tremendous growth.

Improved operating efficiency and capacity utilisation

Improved operational effectiveness and capacity utilisation benefit the organised sector, which is fuelling margin expansion. The organised players provide competitive costs and superior quality since they have better sourcing networks and economies of scale.

Rise of omni-channel retailing

The current growth in omni-channel commerce bodes well for the Indian baggage sector. As a result, customers can buy baggage through a number of platforms such as traditional stores, internet merchants and social media.

Company overview

Brand Concepts has emerged as a leading platform in licensed fashion and lifestyle products, with a focus on travel gear, bags, and accessories. The Companys portfolio is enriched by globally recognised brands such as Tommy Hilfiger, United Colors of Benetton, Aeropostale, and its own in-house labels, Sugarush and The Vertical. Over the years, the Company has expanded its offerings, displaying adaptability and a keen understanding of market trends.

A proficient internal team comprising merchandisers, account specialists and retail planners works in collaboration with an extensive sourcing network. This combination enables the Company to maintain stringent quality controls and to offer tailored market insights to its retail partners, thereby adding value to its overall services.

The Company employs a multi-channel distribution strategy that leverages both owned and franchised Exclusive Brand Outlets (EBOs) and Multi-Brand Outlets (MBOs). This is supplemented by a presence in large departmental stores and on e-commerce platforms. Through this approach, the Company achieves a wide domestic reach, bolstered by efficient inventory management and rapid speed-to-market capabilities.

Key categories

Financial performance

Particulars (INR Mn) FY20 FY21 FY22 FY23
Net Sales 712.8 427.9 861.7 1,632.2
EBITDA 42.4 -30.6 77.5 212.4
EBITDA Margin (%) 6.0% -7.2% 9.0% 13.0%
Profit Before Tax (PBT) -13.9 -87.0 10.4 134.6
Profit After Tax (PAT) -11.1 -63.2 7.6 100.4
PAT Margin (%) -1.6% -14.8% 0.9% 6.2%
Reported Earnings Per Share (in INR) -1.05 -5.97 0.66 9.6

Following a financial recalibration during the pandemic, the Company prioritised operational efficiency and fiscal prudence. This emphasis resulted in a 10% dividend payout. Also, the incorporation of United Colors of Benetton and Aeropostale into its focused brand categories, played an instrumental role in strengthening the Companys market standing and revenue, enabling it to exceed the INR 150 crore revenue milestone, closing at INR 163 crore for the year.

• Net Sales: Grew from INR 427.9 Mn in FY21 to INR 1,632.2 Mn in FY23.

• EBITDA: Improved from INR -30.6 Mn in FY21 to INR 212.4 Mn in FY23.

• EBITDA Margin: Changed from -7.2% in FY21 to 13.0% in FY23.

• PBT: Rose from INR -87.0 Mn in FY21 to INR 134.6 Mn in FY23 .

• PAT: Increased from INR -63.2 Mn in FY21 to INR 100.4 Mn in FY23.

• PAT Margin: Shifted from -14.8% in FY21 to 6.2% in FY23.

• Earnings Per Share: Advanced from INR -5.9 in FY21 to INR 9.6 in FY23.

Sr. No

Particular

Ratio for FY 2022-23 2021-22
1 Debtor Turnover Ratio 6.02 2.68
Formula: Debtor Turnover Ratio = Net Credit Sales/Average Account Times Times
Receivable
Definition: The Debtors Turnover Ratio also called as Receivable Turnover

Ratio shows how quickly the credit sales are converted into the cash. This ratio measures the efficiency of a firm in managing and collecting the credit issued to the customers.

2 Inventory Turnover Ratio 3.21 2.10
Formula: Inventory Turnover Ratio = Sales/Inventory Times Times

Definition: The Inventory Turnover Ratio measures how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.

3 Interest Coverage Ratio 3.67 1.74
Formula: Interest Coverage Ration = EBIT/ Interest Expense Times Times

Definition: The Interest Coverage Ratio measures how many times a company can cover its current interest payment with its available earnings. The ratio is calculated by dividing a companys earnings before interest and taxes (EBIT) by the companys interest expenses for the same period.

4 Current Ratio 1.39 1.33
Formula: Current Ratio = Current Assets/Current Liability Times Times

Definition: The Current Ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short- term obligations. It compares a firms current assets to its current liabilities, and it expressed as follows. The current ratio is an indication of a firms liquidity.

5 Debt Equity Ratio 0.90 1.76
Formula: Debt Equity Ratio = Debt/Total Equity Times Times

Definition: The Debt-to-equity Ratio is a financial ratio indicating the relative proportion of shareholder equity and debt used to finance the companys assets.

Closely related to leveraging, the ratio is also know as risk, gearing or leverage.
6 Operating Profit Margin Ratio 11.10% 6.80%
Formula: Operating Profit Margin Ratio = Operating Income/Total Revenue
*Operating Income Excluding exceptional item.

Definition: In business, Operating Margin - also known as operating income margin, operating profit margin, EBIT Margin and return on sales - is the ratio of

Operating Income to net sales, usually presented in percent. Net profit measure the profitability of ventures after accounting for all costs.

7 Net Profit Margin Ratio 6.15% 0.1%
Formula: Net Profit Margin Ratio = Net Profit/ Sales

Definition: The Net Profit percentage is the ratio of after tax profit to net sales. It reveals the remaining profit after all cost of production, administration and financing have been deducted from sales and income tax recognised.

Segment-wise performance

The total revenue of the company for the financial year 2022-23 has posted gross income of Rs. 163.21 crores as compared to Rs. 86.16 crores in the corresponding previous year, registering a rise of approx. 90 % as compared to previous corresponding year. As a result, your company has posted net profit of Rs. 10.03 crores as compared to Rs 0.76 crores net profit in the corresponding previous year.

Sales channels

The Company utilises a well-structured omni-channel sales network, which is organised into five primary sales channels:

• Company-owned outlets: The Company operates eighteen (18) Company Owned Company Operated (COCO) outlets, each offering a varied range of products from luggage to small leather goods.

• Franchisee stores: There are Fourteen (14) Franchisee Owned Company Operated (FOCO) stores that supplement the Companys retail operations. These stores are solely dedicated to the Companys products.

• MBOs / Retail: As a strategy to enhance capital efficiency, the Company is in the process of transitioning to a master distributor model. This involves partnerships with various Multi-Brand Outlets (MBOs) across different cities and zones.

• Third-Party online platforms: The Company maintains a digital footprint on E-commerce platforms such as Myntra and Amazon, broadening its customer base.

• Proprietary online platform: The Company has initiated its own online selling platform, baglineindia.com, which aims to offer a seamless online-to-offline customer experience. This platform is fully integrated with the Companys physical outlets, which also go by the name ‘BAGLINE.

Opportunities and threats

The Companys strategic focus on India as a high-growth market is informed by several factors including the healthy lead it maintains in terms of its licensed brand, Tommy Hilfiger. The market dynamics suggest an increasing consumer affinity towards e-commerce platforms. The Company has aptly responded by expanding its online operations, incorporating features such as omni-channel services and a marketplace model. This aligns with consumer behaviour and enables the Company to tap into a wider consumer base. While current operations are focused on Tier 1 and Tier 2 cities, there is potential for penetration into lower-tier cities. Moreover, there are unexplored opportunities in the Southern and Eastern regions of India which could offer significant returns.

On the other hand, there are challenges to navigate. The current geopolitical situation with China stands as a threat to the sourcing cost structure. The Company is in the process of diversifying its sourcing strategy by reducing its dependency on international markets. The aim is to leverage domestic markets for sourcing and, in the near future, to shift towards in-house manufacturing. Additionally, the Company has to contend with the issue of counterfeit products, which poses a considerable challenge to maintaining brand integrity and could impact overall sales. Additionally, the Company has had to adjust its pricing strategy to cope with the increasing costs of sourcing. While this has led to a moderate increase in product prices, the measure was deemed necessary for maintaining financial stability. The Companys unique end-to-end involvement in the brand experience—from conceptualisation to distribution—holds it in good stead for ensuring quality and consumer satisfaction. This robust approach has made it an attractive partner for other international brands exploring market entry into India.

Risk management

The Company has a structured risk management framework for the timely and effective identification, assessment, and mitigation of key business and operational risks. The Company prioritises the key risks based on severity and probability. It formulates robust mitigation strategies through appropriate checks and balances to monitor and mitigate identified risks to minimise their impact on the Companys operational and financial performance. Key risks include demand risk, operational risk, personnel risk, and technology risk, among others. The Company is also exposed to various external risks and uncertainties such as economic slowdown, declining demand in key markets, unavailability and high cost of raw materials, and increasing sourcing costs due to the disruption in global supply chains.

Human resources

The Company attributes its success to a strong organisational culture that emphasises four key values: Meritocracy, Youthfulness, Entrepreneurship, and Innovation. This culture is engineered to serve the interests of diverse stakeholders including shareholders, employees, the community and the government. This is driven by a ‘people-first approach that puts honesty and trust first. These values are mirrored in the benefits provided to workers, which promotes an open and dynamic work environment.

Human resources serve as a critical asset in the Companys growth trajectory. Managing a diverse team of over 400 individuals, in addition to a core team of 10, demands considerable organisational effort. In order to reduce the customary high turnover found in the retail business, the Companys people strategy aims to strike a balance between experienced employees for stability and younger talent for development. A focus on specific skill-sets aligned with business needs ensures that the team remains an asset rather than a liability. The overarching objective is to maintain a talent pipeline that is both robust and adaptable, ensuring a high-performance culture that prioritises accountability.

Outlook

Looking ahead, the Company aims for strong growth with a target CAGR of 30% for the next three to five years. This growth is planned to come from both its existing brands and new additions. The Companys financial objective is to reach a revenue of INR 500 crore in the next four years. The aim is to establish the Company as a key player in the fashion industry for our focus categories.

To achieve these targets, the Company will rely on its core values and the strength of its team. By balancing financial objectives with culture and values, the Company aims to create a sustainable path to significant growth.

Internal control system and their adequacy

The Company maintains a robust system of internal control to safeguard its assets against potential loss, unauthorised usage, or disposition. All financial transactions are duly authorised, meticulously recorded, and accurately reported to the managerial team. The Company adheres strictly to applicable Accounting Standards, ensuring that its financial records and statements are maintained with utmost precision. The internal control mechanisms are tailored to align with the Companys scale and operational scope. Clear delineations of roles and responsibilities are established, and standard operating procedures are enacted to offer a reasonable level of assurance. Periodic internal assessments validate the effective execution of these responsibilities. Suggestions and observations are rigorously evaluated by the Management, resulting in the continual fortification of controls across various business functions.

Disclaimer

Statements made in this report in describing the Companys objectives, projections, estimates, and expectations may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Many factors may affect the actual results, which could be different from what the directors envisage in terms of future performance and outlook. Important factors that could influence the Companys operations include global and domestic supply and demand conditions affecting selling prices of finished goods, availability of inputs and their prices, changes in the Government policies, regulations, tax laws, economic developments within the country and outside and other factors such as litigation and industrial relations. The Company assumes no responsibility to publically amend, modify or revise any forward-looking statements, on the basis of subsequent developments, information or events.