INDIAN ECONOMIC OVERVIEW
India has emerged as the fastest-growing major economy and is expected
to be one of the top three economic powers of the world over the next 10-15 years, led by
its stable democracy and bourgeoning population. Indias real Gross Domestic Product
(GDP) at constant (2011-12) prices in the year 2018-19 is estimated at Rs. 1,40,780
Billion, showing a growth rate of 6.81%. The nominal GDP for 2018-19 is estimated at Rs.
1,90,100 Billion, with a growth rate of 11.20% against Rs. 1,70,950 Billion for 2017-18.
With an accelerating growth rate, India has retained its position as the third-largest
start-up base in the world with over 4,750 technology start-ups. Its labour force is
anticipated to touch 160-170 Million by 2020, helped by an increase in the rate of
population growth; a more substantial labour force participation; and higher education
enrolment; amongst other factors, according to a study by The Associated Chambers of
Commerce of India (ASSOCHAM). The interim Union Budget for 2019-20, announced on 1st
February 2019, focuses on supporting farmers, economically less privileged population,
workers in the unorganised sector, and salaried employees, while continuing the Government
of Indias focus on better physical and social infrastructure.
INDUSTRY OVERVIEW
Textile and Fashion Industry Overview
The fundamental strength of the textile industry in India is its strong
production base of a wide range of fibre or yarns, from natural fibres like cotton, jute,
silk and wool to synthetic or human-made fibres like polyester, viscose, nylon and
acrylic.
The Textile & Garments industry in India is highly diversified with
a wide range of segments ranging from products of traditional handloom, handicrafts, wool
and silk products to the organised textile industry. The established textile industry is
characterised by the use of capital-intensive technology for mass production of textile
products and includes spinning, weaving, processing, apparel, and garment.
Indias textiles industry contributed 7% of the industry output
(in value terms) of India in 2017-18 and also added 2% to the GDP of India while employing
more than 45 Million people in 2017-18. Moreover, the sector contributed 15% to the export
earnings of India in 2017-18.
Market Size
In 2018, the domestic Textile & Garments industry stood at US$ 140
Billion, out of which textiles worth US$100 Billion was consumed domestically. The
remaining portion worth US$ 40 was exported to the world market. Furthermore, domestic
consumption was divided into household consumption at US$ 81 Billion and the technical
textiles at US$ 19 Billion. While exports comprised of textile exports at US$ 22 Billion
and apparel exports at US$ 18 Billion.
INDIAS TEXTILE MARKET SIZE (US$ BILLION)
The increased penetration of organised retail, favourable demographics,
and rising income levels are likely to drive demand for textiles. Going forward, the
domestic textile industry in India is estimated to reach US$ 223 Billion by 2021F from US$
150 Billion in November 2017, growing at a CAGR of 10.14% between 2009-21. Moreover, the
new textile policy aims to achieve US$ 300 Billion worth of textile exports by 2024-25 and
create an additional 35 Million jobs.
Investments
The textiles sector has witnessed a spurt in investment during the last
five years. The industry (including dyed and printed) attracted Foreign Direct Investment
(FDI) worth US$ 3.12 Billion from April 2000 to March 2018. Some of the significant
investments in the Indian textiles industry are as follows:
• In May 2018, the textiles sector recorded investments worth Rs.
27,000 Crore (US$ 4.19 Billion) since June 2017.
• The Government of India announced a Special Package to boost
exports by US$ 31 Billion, create one crore job opportunities and attract investments
worth Rs. 800.00 Billion (US$ 11.93 Billion) during 2018-2020. As of August 2018, it
generated additional investments worth Rs. 253.45 Billion (US$ 3.78 Billion) and exports
worth Rs. 57.28 Billion (US$ 854.42 Million).
Note: TCIDS - Textile Centre Infrastructure Development Scheme, APES -
Apparel Park for Exports Scheme Source: Ministry of Textiles, Aranca Research
The Indian government has come up with several export promotion
policies for the textiles sector. It has also allowed 100% FDI in the Indian textiles
sector under the automatic route.
Initiatives taken by the Government of India are:
• The Directorate General of Foreign Trade (DGFT) has revised the
rates for incentives under the Merchandise Exports from India Scheme (MEIS) from 2% to 4%
for two subsectors of the Textiles Industry - Readymade garments and Made-ups.
• As of August 2018, the Government of India has increased the
basic customs duty to 20% from 10% on 501 textile products, to boost Make in India and
indigenous production.
• The Government of India announced a Special Package to boost
exports by US$ 31 Billion, create one crore job opportunity and attract investments worth
Rs. 80,000 Crore (US$ 11.93 Billion) during 2018-2020. As of August 2018, it generated
additional investments worth Rs. 25,345 Crore (US$ 3.78 Billion) and exports worth Rs.
57.28 Billion (US$ 854.42 Million).
• The Government of India has taken several measures including
Amended Technology Up- gradation Fund Scheme (A-TUFS). The scheme is estimated to create
employment for 35 Lac people and enable investments worth Rs. 95,000 Crore (US$ 14.17
Billion) by 2022.
• Integrated Wool Development Programme (IWDP) approved by
Government of India to provide support to the wool sector starting from wool rearer to end
consumer, which aims to enhance the quality and increase the production during 2017-18 and
2019-20.
• The Cabinet Committee on Economic Affairs (CCEA), Government of
India has approved a new skill development scheme named ‘Scheme for Capacity Building
in Textile Sector (SCBTS) with an outlay of Rs. 1,300 Crore (US$ 202.9 Million) from
2017-18 to 2019-20.
The future for the Indian textile industry looks promising, buoyed by
both healthy domestic consumption as well as export demand. With consumerism and
disposable income on the rise, the retail sector has experienced rapid growth in the past
decade with the entry of several international players like Marks & Spencer, Guess and
Next into the Indian market.
High economic growth has resulted in higher disposable income. This
growth has led to a rise in demand for products creating a vast domestic market.
RETAIL INDUSTRY OVERVIEW
The Indian retail industry is one of the fastest growing in the world
and is the fifth largest preferred retail destination globally. It accounts for over 10%
of the countrys Gross Domestic Product (GDP) and around 8% of the employment.
Market Size
The total market size of the Indian retail industry reached US$ 672
Billion in 2017. It is forecasted to increase to US$ 1,200 Billion by 2021 and 1,750
Billion by 2026. India will become a favourable market for fashion retailers on the back
of a large young adult consumer base, increasing disposable incomes and relaxed FDI norms.
Source: indiaretailing.com, BMI Research, Consumer Leads report by
FICCI and Deloitte - October 2018
The luxury market of India is expected to grow to US$ 30 Billion by the
end of 2018 from US$ 23.8 Billion 2017 supported by the increasing exposure of
international brands amongst Indian youth and higher purchasing power of the upper class
in tier 2 and 3 cities, according to Assocham.
Indias population is taking to online retail in a big way. Online
retail sale is forecasted to grow at a rate of 31% to reach US$ 32.70 Billion in 2018,
according to eMarketer. Revenue generated from online retail is projected to grow to US$
60 Billion by 2020. Organised retail penetration is expected to increase to 18% in 2021
from an estimated 9% in 2017. India is expected to become the worlds third-largest
consumer economy, reaching US$ 400 Billion in consumption by 2025. According to the Boston
Consulting Group, increasing participation from foreign and private players has given a
boost to the Indian retail industry. Indias price competitiveness attracts large
retail players to use it as a sourcing base. Global retailers such as Walmart, GAP, Tesco
and JC Penney are increasing their sourcing from India and are moving from third-party
buying offices to establishing their own wholly owned/ wholly managed sourcing and buying
offices.
Investment
The Indian retail trading has received Foreign Direct Investment (FDI)
equity inflows totalling US$ 1.66 Billion during April 2000–March 2019, according to
the Department of Industrial Policies and Promotion (DIPP). With the rising need for
consumer goods in different sectors, including consumer electronics and home appliances,
many companies have invested in the Indian retail space in the past few months.
Indias retail sector investments doubled to reach Rs. 1,300 Crore (US$ 180.18
Million) in 2018.
Government Initiatives
The Government of India has taken various initiatives to improve the
retail industry in India. Some of them are listed below:
• The Government of India may change the Foreign Direct Investment
(FDI) rules in food processing, in a bid to permit e-commerce companies and foreign
retailers to sell Made in India consumer products.
• Government of India has allowed 100% Foreign Direct Investment
(FDI) in the online retail of goods and services through the automatic route, thereby
providing clarity on the existing businesses of e-commerce companies operating in India.
E-commerce is expanding steadily in the country. Customers have the
ever-increasing choice of products at the lowest rates. E-commerce is probably creating
the biggest revolution in the retail industry, and this trend would continue in the years
to come. Indias e-commerce industry is forecasted to reach US$ 53 Billion by 2018.
Retailers should leverage the digital retail channels (e-commerce), which would enable
them to spend less money on real estate while reaching out to more customers in Tier-II
and Tier-III cities.
It is projected that by 2021, traditional retail will hold a
significant share of 75%, the organised retail share will reach 18%, and e-commerce
retails share will reach 7% of the total retail market.
Nevertheless, the long-term out look for the industry is positive,
supported by rising incomes, favourable demographics, entry of foreign players, and
increasing urbanisation.
BUSINESS OVERVIEW Business Policy
Provogue maintains generally accepted standards of corporate conduct
towards its employees, consumers and society at large. We believe that the policies must
balance individual interest with organisational goals, and operate within the accepted
norms of propriety, equity and sense of justice. The Company believes that it is rewarding
to be better managed and governed and to align and intensify its activities with the
national interest. The Company makes all round efforts in its pursuit to enhance market
share and enhance shareholders value in the industry.
Provogue Operations
Provogue commenced operations as a manufacturer and retailer of apparel
under the brand Provogue in 1997. Over time, the brand has gained strong recognition and
has grown to become a leading retailer of fashion apparel and accessories for men and
women. Projecting itself as a customer-first company, Provogue continually strives to
provide the Indian consumer complete satisfaction when it comes to their fashion retail
needs. Provogue retails its products through exclusive Provogue Stores as well as through
its e-commerce portal, Provogue.com and e-commerce partners.
FINANCIAL PERFORMANCE Standalone:
The Companys gross (total) income for the fiscal year ended 31st
March, 2019 stood at Rs. 7,282.22 Lacs against Rs. 9,758.87 Lacs during the previous year,
and the Company was able to decrease the loss before tax implication to Rs. 5,459.05 Lacs
from Rs. 22,556.89 Lacs as recorded during the last year. The loss after tax implication
stood at Rs. 6,313.54 Lacs as against a loss of Rs. 22,617.77 Lacs in the previous year.
Consolidated
The Consolidated gross (total) income of the Company has reduced to Rs.
9,095.76 Lacs from Rs. 12,918.52 Lacs during the previous year. The loss before tax
implication decreased to Rs. 8,108.63 Lacs from Rs. 24,500.77 Lacs as recorded during the
last year. The loss after tax implication minority interest stood at Rs. 9,244.76 Lacs as
against a loss of Rs. 24,324.78 Lacs in the previous year.
Key Financial Ratios:
In the financial year 2017-18 the company had reported substantial
financial losses, therefore net worth of the company was got eroded. Further, Corporate
Insolvency Resolution Process (CIRP) was initiated against the Company vide order dated
25th July, 2018 passed by Honble National Company Law Tribunal, Mumbai Bench and
subsequently in the financial year 2018-19 the company has reported Net Losses and the net
worth was already been eroded, hence there are no comparable figures to be given hereunder
excluding the following;
|
FY 19 |
FY 18 |
Change% |
| Debtors Turnover (Days) |
193.94 |
168.28 |
15% |
| Inventory Turnover (Days) |
105.54 |
237.10 |
-55% |
| Current Ratio (Times) |
0.21 |
0.27 |
-23% |
OUTLOOK
Diversification into new retail formats and channels along with having
a strong brand image positions the Company as an integrated player in the growing domestic
consumption story. With the Indian economy on a firm foundation and the organised retail
industry surging, the Company is confident that it is well placed to take advantage of the
growth opportunities in the coming years.
OPPORTUNITIES AND THREATS Opportunities
The retail sector in India is today one of the fastest growing business
segments in the country, comprising over 14 Million outlets and employing over 20 Million
people. A rise in disposable income, changing lifestyles and favourable demographics are
the key factors driving this growth.
With organised retail and e-commerce expected to grow at a rate of over
20% per annum, Indias new consumption story continues to provide the Company with
immense opportunities. Our secure brand positioning further helps us to leverage this
position.
Significant investments in new retail concepts are changing the rapidly
evolving organised retail landscape in India. This change is not just restricted to the
metros but has also spread to Tier-II and Tier-III cities. Provogue is expected to benefit
significantly from a combination of the growth in retail as the rise of the consuming
class in Tier-II and Tier-III cities continues.
Threats
Apart from ever moving fashion trends and the emergence of new
e-commerce players, the demand for talent may result in increasing attrition of employees.
The Company has adopted policies that will attract and retain the best talent.
RISK MANAGEMENT Economic Risk
A slowdown in economic growth in India could cause the business to
suffer as the Companys performance is highly dependent on the growth of the economy,
which in turn leads to a rise in disposable incomes and resultant consumption.
Favourable population growth, a large pool of highly skilled workers,
greater integration with the world economy and increasing domestic and foreign investment
suggest that the Indian economy will continue its growth momentum for several years to
come.
Business Risk
The Company operates in top market lifestyle products associated with
high advertisement costs and risk related to brand management. The inventory cost related
to lifestyle garments is traditionally a matter of risk. However, through effective
inventory management, the Company has reduced the risk to a minimal level. The Company has
a low debt-equity ratio and is well placed to take care of its borrowings. The foreign
exchange transactions of the Company are suitably covered, and there are no materially
significant exchange rate risks associated with international trade.
Fashion Risk
This risk would arise through the Companys inability to set
trends and understand changing fashion styles, which can lead to lower sales and
profitability.
However, it is the Companys constant endeavour to be closer to
and understand the customer through its diversified retail outlets. It also has a talented
design team in place that is in step with the latest national and international fashion
trends. Though the Company has its mitigation plans in place, fashion risk cannot be
eliminated.
Brand Risk
Any event that tarnishes the image of the brand can lower the value of
the brand and adversely affect the Companys business.
The Companys business model revolves around its brands and,
therefore, the Company ensures that none of the characteristics and attributes of the
brand is compromised within the Companys communication to its customers. The Company
also gives a comprehensive focus on customer preferences and conducts extensive in-house
research to maintain top-of-the-mind recall with the customer base with respect to the
brand. The Company believes that it has an appropriate mitigation plan in place to handle
brand risk.
INTERNAL CONTROL SYSTEM AND ADEQUACIES
The Company has adequate internal control procedures commensurate with
the size and nature of its businesses. The internal control system is supplemented by
extensive internal audits, regular reviews by the management and well-documented policies
and guidelines to ensure the reliability of all records to prepare financial statements
and other data. Moreover, the Company continuously upgrades these systems in line with the
best accounting practices. The Company has independent audit systems to monitor the entire
operations and the Audit Committee of the Board regularly review the findings and
recommendations of internal audits.
HUMAN RESOURCES
The domain knowledge and experience of the Companys Promoters and
management team provides it with a significant competitive advantage as it seeks to grow
in the existing markets and enter new geographies. As the Company regards its human
resources as amongst its most valuable assets, it proactively reviews policies and
processes by creating a work environment that encourages initiative, provides challenges
and opportunities while recognising the performance and potentials of its employees. The
overall employee engagement has allowed the Company to retain the top talent within it.
Some of the key highlights of the ongoing HR activities include focused
and organised investment in training and development, the continuance of productivity
improvement efforts and employee satisfaction surveys. The total number of employees of
the Company as on 31st March, 2019 stood at 86.
CAUTIONARY STATEMENT
This document contains statements about expected future events,
financial and operating results of PROVOGUE (INDIA) LIMITED, which are forward-looking. By
their nature, forward-looking statements require the Company to make assumptions and are
subject to inherent risks and uncertainties. There is a significant risk that the
assumptions, predictions and other forward-looking statements will not prove to be
accurate. Readers are cautioned not to place undue reliance on forward-looking statements
as several factors could cause assumptions, actual future results and events to differ
materially from those expressed in the forward-looking statements. Accordingly, this
document is subject to the disclaimer and qualified in its entirety by the assumptions,
qualifications and risk factors referred to in the managements discussion and
analysis of PROVOGUE (INDIA) LIMITEDs Annual Report, 2017-18.
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