Praxis Home Retail Ltd Management Discussions.

Industry Overview 1

The last two decades, Indian Retail Industry has undergone considerable change with respect to size, scope and complexity. From USD 672 billion in 2017, the Indian Retail market is expected to grow to USD 1200 billion in 2021 with the help of rise in income levels, growing aspirations, favourable demographics and ease of credit. Globally, India is the fifth-largest destination in retail space and is growing at a rate of 12% per annum. While on one hand the boom in the residential real estate industry over the last few decades has given an impetus to the home dcor market, it has on the other hand increased brand consciousness and upgradation in style of living among home owners and has boosted the demand for stylish interiors and colourful classy dcor.

Retail Industry 2

The Indian Retail industry is one of the fastest growing industries globally. It is the largest among all industries accounting to 10% of the countrys GDP and employing around 8% of the workforce. The industry is currently going through a huge transformation in terms of employing new technologies, exploring new store formats, revamping business strategies and creating personal experiences. Retailers are getting ready for the future by looking beyond conventional retail and evolving along with their modern consumers.

Home Dcor

The home dcor market is growing nationally at a steady upward trend and 2018-19 was a year of dynamic changes and various companies have witnessed the transformation in innovative thinking and creativity. Companies in the furniture and home decor segment are experiencing the market shift significantly from unorganised retail to organised retail sector with alongside change in consumption patterns paving way to digital spending.

Demand drivers

The homeware, home decor and furnishing market in

India is on the rise and is undergoing a phenomenal growth. Nevertheless , the sector is in nascent stages in India as compared to developed countries. Some of the key factors that that are expected to drive the future growth can be summarized as below:

Spurt in urbanisation: Historically cities and towns have been the driving force of overall economic and social development. The rapid growth in urbanisation has facilitated organised retailing in India, and has caused the speedy migration of population into major tier I and tier II cities, which have a significant share in the retail sales of the country.

Rise in rural demand: Rural consumption has increased, led by a combination of increasing incomes and higher aspiration levels; there is an increased demand for branded products in rural India.

Rise in Income: Multiple drivers are leading to strong growth in Indian retail through a consumption boom.

Significant growth in purchasing power and changing lifestyle are among the major growth drivers of Indian retail. Also, easy availability of credit and use of ‘plastic money have contributed to a strong and growing consumer culture in India.

Online portals: Online portals are expected to play a key role for companies trying to reach out to maximum customers with varied needs and spending capacity. In order to cater to this, the internet has contributed in a big way, facilitating a cheaper and more convenient means to increase a companys reach, beyond brick and mortar presence in a vast country like India.

Higher brand consciousness: With increasing income, brand awareness and demand for better product quality branded products with an improvement in standard of living, change in consumer tastes and preferences, the demand for organised retail market in India will remain robust.

Residential segment growth: Further, the boom in the residential real estate industry over the last few decades has given an impetus to the home dcor market.

Information Technology Initiatives

Leveraging the foundation created by market presence, operational excellence and a robust infrastructure set- up, hometown has put together a slew of IT initiatives to leap-frog into its next level of growth. Few of the critical initiatives and their concomitant yield is as follows –

1. Revamp of hometown.in & its mobile site: This has led to a significant growth in its mono- brand revenues with mobile site playing a key role.

2. Omni-channel presence: By leveraging

Customer Relationship Management (CRM), your organization has put together a comprehensive platform for data analysis & information availability for consumers. While FY 18-19 saw the launch of its store-based initiative, the next few years is slated to reap the platform further for an end-to-end transparency of transactions thereby aiding customer experience.

3. Endless Aisle: hometowns Endless Aisle contribution beats industry-sales benchmark using the concerned technology by quite a margin.

This reflects the growing ease of consumers and sellers to have a hybrid model of sales with a combination of physical stores & online market boosting profitability of several stores.

4. Project Management tools for Modular Kitchen and Design & Build.

5. Data Analysis & Segmentation: FY 18-saw a huge fillip towards analysing transaction data using Data lakes created on its Enterprise Datawarehouse platform named Manthan. It also leveraged the data thus present for further micro- analysis of customer segments.

Business Overview

Your Company operates stores of home furniture and home fashion under the brand name of hometown and also operates the web portal (www.hometown.in) to drive online sales of Furniture, Furnishing products with wide range of assortment catering to large section of customers. We are also present on leading market places likes Flipkart, Amazon and Pepperfry. The web portal in addition to offering rich information on design & modular solutions i.e Design & Build, Modular

Kitchens & Wardrobes also helps in capturing details of potential customers to enable service closure by the physical stores.

Hometown as a one-stop shop continues to thrive its focus on customer satisfaction while providing a wide range of furniture, home furnishing goods, design and build, other home related products and high quality services including complete home design, modular kitchen designing, electronics, along with great in-store experience. Currently, hometown has a pan India presence with 48 stores across 28 cities.

Your Company continues its strategy of adopting a measured approach towards growth that captures consumer spend from a growing set of Indian consumers and at the same time ensuring that this growth is sustainable and value accretive in the long run. A key focus for the Company is to increase its velocity of sales for its existing business and increase its overall retail space and presence. The objective has been to enhance assortment relevance, improve quality standards, shopping experience and reinvent ourselves for higher customer conversion ratio, better ticket sizes, better same store sales growth and focus on higher margin products.

Your Company is determined to design its format stores to be smarter and experiential through use of technology, innovation in services, layouts, sections and digital interface. It aims at attracting more evolved also and experience seeking customers in key catchments and metros. These stores redefine the shopping experience and set new benchmarks for retailing in India. Hometown store is where many of the Companys innovations and ideas to give consumers a world class shopping experience have come together.

As part of other efforts to enhance customers shopping experience and have a bigger share of their shopping wallet certain other initiatives have also been taken. This includes introduction of payback loyalty points, EMI facility through financing companies for spends above certain limit across stores of the Company, and many more initiatives. These innovative fast-growing digital tools are yielding deep consumer big-data which in-turn shall immensely help us in penetrating deeper into our customer-base while at the same time, bringing in new age customers in large numbers.

E-commerce

Hometown started its online journey in 2016 and has made great strides in the E-commerce field in last

2 years. We strengthened our presence on major marketplace channels and increased our reach to a large set of consumers, building on different business models and product offerings in Home categories.

Overall online business grew strongly in FY 18-19.

With our vision to provide best in class Omnichannel experience leveraging the physical presence, we revamped the website & App for www.hometown.in.

This not only helped us grow E-commerce business on www.hometown.in significantly but also opened online to offline customer acquisition opportunities for us with a web experience benchmarked to the best in the industry.

All Home categories have shown tremendous potential across online channels and we being a top player in the industry are well positioned to gain in quarters to come.

Operational Overview

Your Company continues to expand its footprint across the physical and online space. The focus of your Company continues to be a one stop destination for all home interior requirements – products and services. Digital initiatives continue to be built on at a rapid pace. We continue to strengthen our E-commerce operations both in the marketplace and through hometown.in. Your Company continues to work on optimizing productivity on per store basis. Improving throughput per square feet continues to be a focus area through a combination of – improving footfalls, increasing conversions, introduction of newer and contemporary range of assortment across categories. Through a combination of technology and skilled staff your Company strives to provide the best in class experience to the consumer. Improving productivity and efficiencyyielding to more cost effective back end operations continues to be a major focus.

Your Company is a part of the Future Group, which is a pioneer in organised Retail Industry. As of

March 31, 2019, the Company operates 48 stores covering a wide range of furniture, home furnishing goods, design and build, other home related products and high quality services including complete home design, modular kitchen designing, along with great in-store experience. Praxis has presence across both metros and tier II cities and future expansion plans are in line with the need to serve the target customer. Your Company continues to focus on increased sales from its existing stores, opening new stores and optimising its value chain, reduction in operating costs, improving margins and increasing sales thereby adding to the bottom-line.

Human Resource Initiatives

Human Resource is one of the key interfaces the Company has with its customers and hence it plays a vital role in writing the success story of any Company. The Human Resource functions strategy is focused on creating a future-ready workplace, strengthening the Companys culture, building capability for business and nurturing careers. We continue to develop our Front end Lines across all levels. Our values enshrine Employee satisfaction and we continue to benchmark our practices against the best in the industry.

Your Company currently employs approximately 2,000 employees spread across 48 stores and 28 cities. With an aim to hire and retain good talent we have revamped our hiring strategy and initiated various recruitment methodology comprising of detailed stage wise interviewing process covering the areas of relevant competency and role-based interviews.

Industry Outlook 3

Government of Indias "Housing for all by 2022" scheme is likely to see construction of over 30 million new homes which will certainly provide a major boost to demand for home textiles, furnishing, home dcor and houseware products, which even currently is growing at a healthy 25% annually. With rapidly increasing disposable incomes in hand, high aspiration of young Indians to improve their lifestyle, much greater international exposure through travel and media and a huge population of 1.28 billion people, India is ready to see a huge demand in home textiles, furnishings and home dcor categories.

Young Indian consumers now seek home products that are trendy, unique and are appropriate to the occasion and season. There is a growing demand for high quality, stylish and well- coordinated home products and the working young couples of urban India – from metropolitan cities down to the Tier-III towns take pride in imparting a bit of their own personality to the look of their homes.

They dont mind visiting several shops and shopping centres to pick up the right mix of home textile, home dcor and houseware products which synergize with each other in terms of colours, designs, materials and overall look and feel. These enthusiastic consumers enjoy regular shopping at department stores, hyper markets, speciality stores, designer boutiques and they are also the major drivers of e-retailing in India.

Risk and Concerns

The Company recognises that risk is an inherent part of every business. Effectively managing the risk is key to achieving our objectives and ensuring sustainable growth of the business. Key risk areas are periodically reviewed by the Senior Management of the Company.

Some of the significant risks are detailed below:

Regulatory changes pertaining to the industry in India currently in which we operate and our ability to respond to them is an important risk that we have our energies focusssed towards.

We proactively track all changes on the regulatory front and make sure our systems and processes are in compliance of the same. The general economic and political conditions in India, Indian monetary and fiscal policies, state of the economy also have impact on our business. An important element of our business is our procurement strategy which is largely import oriented. We take active measures to hedge ourselves from the foreign exchange fluctuation risk. Quality human capital is an important risk that we seek to mitigate in our retail business. We constantly strive to ensure that our employee policies are at par with the best in class industries.

We expect significant demand for our products and hence require to continuously evolve and improve our operational, financial and internal controls across our Organization. Our continued expansion increases the challenges involving integration of new stores, preserving a uniform culture, values and work environment, developing and improving infrastructural, operational, and other internal systems, recruiting, training and retaining sufficient skilled management, project management, human resources and marketing personnel and adhering to health, safety and environmental standards.

Our business is subject to seasonal and cyclical volatility and our inability to forecast the trends and consumer preferences or demands in the forthcoming seasons may contribute to fluctuations in our results of operations and financial condition. We are closely working at de-risking our business from the vagaries of the housing cycle.

Your Company always strives to mitigate each of the above discussed risks both internal and external risks.

The set controls and defined responsibilities at each level of Management require evaluation of the various existing risks and new expected risks at an early stage and immediate action plan to mitigate such risks. Further, the authority vested at each Management level ensures implementation and execution of such action plan with minimised risk.

Internal Controls and their Adequacy

The Company has implemented adequate internal controls and risk management processes that are commensurate with the nature of business, and size and complexity of its operations.

Appropriate internal control policies and procedures have been set up to provide reasonable assurance on:

Effectiveness and efficiency of its operations

Reliability of financial reporting

Compliance with applicable laws and regulations

The compliance with these policies and procedures is ingrained into the management review process.

Deviations from laid-down processes and policies are addressed through systemic process. The organisation continuously assesses effectiveness of its internal controls across multiple functions and locations through internal audit. The internal audit programme, significant audit findings, adequacy of internal controls and the financial and risk management processes are regularly reviewed by the Audit Committee. Proactive steps are taken to ensure compliance with various upcoming regulations by the Compliance team. The Company also encourages the employees to adopt fair, compliant and ethical practices. It continues to stay committed to the areas of control and compliance, to ensure the highest standards of governance.

Review of Financial Performance of the Company for the year under review

The financial results for the twelve months ended March 31, 2019 are not comparable with corresponding period of previous year, due to the Scheme of Arrangement between Future Retail Limited (‘FRL) and Bluerock eservices Private Limited (‘BSPL) and

Praxis Home Retail Limited (‘the Company) and their respective Shareholders under Section 230 to 232 read with Section 66 of the Companies Act, 2013 and other applicable provisions of the Companies Act, 2013 ("the Scheme").

Equity Share Capital

The paid-up Equity Share Capital of the Company to the extent of 2,46,33,208 Equity Shares at at March 31,

2019 remains the same, which were issued and allotted to the shareholders of FRL pursuant to the Scheme.

Preference Share Capital:

The Preference Share Capital of the Company remains the same as at March 31, 2019 to the extent of 6,30,000 - 9% Non-Cumulative Redeemable Preference Shares of face value of र 100/- each on a proportionate basis, redeemable at the end of 60 months from the date of allotment, i.e. Decmber 8, 2017, which were allotted to the shareholders of BSPL pursuant to the Scheme.

The Company has an option to redeem the Preference Shares at any time after the end of 24 months from the date of allotment. The Company, upon exercising such option or on redemption, will pay the amount of face value of the Preference Shares along with dividend accrued up to that date, if any. The Companys liability to the Preference Shareholders shall stand extinguished from the date of dispatch of the cheques / pay order for the redemption amount along with dividend, if any.

Key Financial Ratios
Financial Year 2018-19 Financial Year 2017-18 % Change
Debtors Turnover 45.35 times 40.72 times 11%
Inventory Turnover* 2.10 times 1.41 times 50%
Interest Coverage# (7.14) times (0.22) times 3108%
Current Ratio 0.83 times 0.81 times 3%
Debt Equity Ratio$ 0.52 times 0.08 times 567%
Operating Profit Margin 41.25% 39.12% 5%
Net Profit Margin# (3.93%) (0.52%) 656%
Return on Net Worth# (71.15%) (17.38%) 309%

* Increase is overall revenue compared to previous financial year with a marginal incresae in inventory levels. # Increase is due to higher losses in the current financial year. $ Increase is due to Forex loans (Letter of Credit) in Debt portfolio in Current financial year.

For and on behalf of the Board of Directors
Praxis Home Retail Limited
Viraj Didwania
Place: Mumbai Chairman & Managing Director
Date :May 23, 2019 DIN : 02412474