Rupa & Company Ltd Management Discussions

ECONOMIC REVIEW

The global economy remains remarkably resilient, with growth holding steady as inflation returns to target. The latest World Economic Situation and Prospects report for 2024 paints a sobering picture of the global economic landscape. The world economy continues to face multiple crises, jeopardizing progress towards the Sustainable Development Goals (SDGs). But the growth of the global economy is nothing short of a tale of resilience as elevated inflation unprecedented in decades and several other headwinds dampened global growth, pushing the world economy closer to its pre-pandemic growth level. Headwinds from elevated price levels which caused significant drag in consumer demand, sustained interest rate hikes that dis-incentivised investments, weaker trade, and spates of geopolitical tensions which eroded investors confidence by fueling market uncertainties in addition to triggering supply chain disruptions all tested the resilience of the global economy. While these headwinds were fierce enough to reverse some of the post-covid growth recovery of the global economy and drag some major economies to the brink of economic recession, they were not enough to plunge the resilient global economy into a recession as the economy emerged stronger than most outlooks at the start of the year.

The global GDP growth is estimated to grow by 2.7% in 2024. The United States, the worlds largest economy, is expected to see a drop in GDP growth from 2.5% in 2023 to 2.3% in 2024. Consumer spending, a key driver of its economy, is likely to weaken due to various factors, including high interest rates and a softening labour market. Meanwhile China, amid domestic and international headwinds, is projected to experience a moderate slowdown, with growth estimated at 4.8% in 2024, down from 5.2% in 2023. Europe and Japan also face significant economic headwinds, with growth rates forecasted at 1.0% and 1.2% respectively in 2024 (Source: The United Nations - World Economic Situation and Prospects Report 2024). Indias economic performance has remained robust despite global challenges and geopolitical concerns. This can be attributed to strong domestic demand, rural demand pickup, robust investment, and sustained manufacturing momentum. In 2023-24, as per current estimates, the country to have grown 7.3% on top of the 9.1% (FY22) and 7.2% (FY23) in the previous two years. Indias retail inflation for the fiscal year 2023-24 has seen a significant downturn, marking its lowest point since the onset of the Covid-19 pandemic. As per the RBI, the Consumer Price Index (CPI) inflation for the fiscal year 2024-25 is projected to be at 4.5% (Source: DEA and Economic Times). Notably, the year witnessed several indicators of robust economic performance, including record-breaking achievements in the stock market, remarkable Goods and Services Tax (GST) collections, and substantial growth in both the manufacturing and services sectors. The capital inflows in the country also saw a significant turnaround in FY2023-24. The countrys foreign exchange reserves reached an all-time high, sufficient to cover 11 months of projected imports and more than 100% of total external debt.

INDUSTRY STRUCTURE AND DEVELOPMENT

Textile and apparel industry

The global textile and apparel market is fragmented in nature, with the presence of various primary and smaller players. The market in the developing regions is unorganized, offering multiple products. The vast distribution network of global brands influences the international markets but faces steep competition from local manufacturers regarding regional fashion preferences and prices. The global textile and apparel market is segmented by end-users (Men, Women, and Children) and Type (Formal Wear, Casual Wear, Sportswear, Night Wear, and Other Types).

Global textile market: The global textile market size reached US$ 1,027.0 Billion in 2023. Looking forward, the market is expected to reach US$ 1,445.4 Billion by 2032, exhibiting a growth rate (CAGR) of 3.8% during 2024-2032 (Source: IMARC Group). The changing consumer preferences, rapid population growth, rising preferences for eco-friendly, organic, and functional textiles, technological advancements, and government regulations and initiatives are some of the major factors propelling the market. Global apparel market: The global apparel market was at around US$ 1.7 trillion in 2022 and it is expected to grow at a CAGR of around 8% to reach US$ 2.37 trillion by 2030. Global Textile & Apparel trade was around $ 910 billion in 2021 and is expected to grow at a CAGR of 4% to reach US$

1.2 trillion by 2030 (Source: The Financial Express).

Indian textile and apparel market: India is the worlds second-largest producer of textiles and garments. It is also the sixth-largest exporter of textiles spanning apparel, home and technical products. India has a ~4.6% share of the global trade in textiles and apparel. The domestic apparel and textile industry in India contributes ~2.3% to the countrys GDP, ~13% to industrial production and ~12% to exports. The textiles and apparel industry in India is the 2nd largest employer in the country providing direct employment to 45 million people and 100 million people in allied industries. The textiles and apparel industry targets to achieve US$ 250 billion in textiles production and US$ 100 billion in exports by 2030. The Indian textiles market is expected to be worth US$ 350 billion by 2030 (Source: ‘Indian Textiles and Apparel Industry Analysis by Indian Brand Equity Foundation).

The Indian Textile industry witnessed major challenges in 2023 due to fluctuating cotton prices, diminishing demand, capacity under-utilization, the volatile exchange rate of the local currency against the US dollar and the governments restriction on imports. Indias textile exports shrank 4.2% year-on-year (YOY) in the first 11 months of the FY 2023-24, hurt by adverse economic conditions in major destinations such as the European Union (EU), the US, and West Asian nations. It is believed that global adverse economic conditions impacted the export of textile products to foreign destinations. Indias textile industry is expected to grow rapidly driven by factors such as consistent improvement in domestic demand, gradual recovery in exports, and availability of products, acute brand consciousness, increasing urbanisation and increasing digitisation. The Indian government has also been actively supporting the textile industry through various policies and initiatives. Some of the initiatives are as follows: 100% FDI (automatic route) is allowed in the Indian textile sector.

Under Union Budget 2023-24, the total allocation for the textile sector was 4,389.24 crore (US$ 536.4 million).

Under PLI scheme government approved10,683 crore (US$ 1.44 billion) for man-made fibre and technical textiles.

In July 2023, 43 new implementing partners were empanelled under the SAMARTH scheme and an additional target of training around 75,000 beneficiaries has been allocated. 1,83,844 beneficiaries trained across 1,880 centres under Samarth.

The government allocated funds worth 17,822 crore (US$ 2.38 billion) between FY16 and FY22 for the ‘Amended Technology Upgradation Fund Scheme (A-TUFS) to boost the Indian textile industry and enable ease of doing business.

The Ministry of Textiles, Government of India, along with Energy Efficiency Services Ltd. (EESL), has launched a technology upgradation scheme called SAATHI (Sustainable and Accelerated Adoption of Efficient Textile Technologies to Help Small Industries) for reviving the power loom sector of India.

The establishment of 7 (seven) PM Mega Integrated Textile Region and Apparel (PM MITRA) Parks with a total investment of US$ 541.82 million (Rs.4,445 crore) for the years up to 2027–28 was approved by the government.

National Technical Textiles Mission (NTTM) has been approved with an outlay of US$ 178.74 million (1,480 crore); from Financial Year 2020-21 and valid upto 31.03.2026. So far, as of February 2024, 137 research projects have been approved under NTTM. The total cost approved of the said projects by the Government is US$ 57.33 million [ 474.7 crore (approx.)].

Innerwear industry

For Innerwear as a category, it wont be wrong to say that urban India aspires to wear global brands and trends, whereas rural India wants to wear what urban India wears. Innerwear is today evolving into ‘casuals at home or ‘at-home smart clothing. The industry continues to emerge as one of fastest growing categories over the last few decades. A category which was earlier depicted as a mere essential has in the last few years transformed itself and is becoming one of the trendsetters in the industry, as it provides style, comfort, fashion statement and nuance of glamor for one and all.

In the colorful tapestry of Indias textile and apparel sector, the innerwear industry stands as a silent yet indispensable thread, weaving comfort and style into the daily lives of millions. Emerging from a valuation of 61,091 crores in 2023, the market is on a trajectory to touch 75,466 crores by 2025 (~11% CAGR). The innerwear market is currently segmented with mens wear, womens wear and kids wear. The innerwear market is dominated by a large number of small unorganized players which, as a total, make up 60% of the total market. While these players lack distribution and competitive pricing power, their existence puts barriers on the growth of larger players that target lower-income demographics. The Indian Innerwear can be further broken down by price segments as different brands offer apparel at different price points, attracting different demographics

(Source: ‘Indian Innerwear Industry: Distribution is key by Team-MoneyWorks4m).

Mens innerwear industry: The mens inner & comfort wear segment is making significant strides, with a substantial 30% market share. The market is projected to realize a_CAGR of 11.5%, translating to a market value of 26,952 Crores by 2025 (Source: ‘The Indian Inner & Comfort Wear Market: A Deep Perspective by India Fashion Forum). Over the time mens innerwear segment is on a growth trajectory due to factors like improving fashion trends, increasing disposable income, availability of a wide range of products, increasing awareness about health, personal hygiene and growing millennial population. Millennials are driving the demand in the mens innerwear market as they are more receptive to new and different products than other generations. The high demand for new and innovative products in terms of colour, fabric, print, and style among millennials is creating opportunities.

Womens innerwear industry: The Indian womens inner and comfort wear today holds the majority share of 60% in the total market. This burgeoning segment is not only transforming the industry dynamics, with Mid and Premium segments but is also expected to grow more rapidly than others, but is also anticipated to maintain a compound annual growth rate (CAGR) of ~13%, reaching an estimated 55,535 Crores by 2025 (Source: ‘ The Indian Inner & Comfort Wear Market: A Deep Perspective by India Fashion Forum). Womens innerwear market is gaining momentum and likely to grow at a faster pace due to a host of variables like growing number of working women, changing fashion trends, increased awareness about better fits, quality, brands, colours, styling, increasing per capita disposable income, rising level of information. Celebrity promotion and social media exposure have also given the industry a new dimension. In tandem to this, the sales of luxury lingerie too are increasing with growing purchasing power of women. Kids wear industry: The rising disposable income of Indian families, coupled with evolving lifestyles, is fueling the demand for kids wear. As parents have more financial flexibility, they are more willing to invest in high-quality and stylish clothing for their children, contributing to the markets growth The kids inner & comfort wear segment accounted for 10% of the market in 2023, it is set to grow with a projected CAGR of 8.5%, reaching 8,819 Crores by 2025 (Source: ‘The Indian Inner & Comfort Wear Market: A Deep Perspective by India Fashion Forum).

Athleisure industry: The fashion landscape all over the world has experienced a significant transformation since the pandemic, embracing the trend of dressing for comfort. This shift has popularized the use of athleisure - sportswear and functional, comfortable, and fashionable attire all rolled into one. The trend has been catching up in India ever since, spawning a thriving industry. Three key factors fueling this remarkable growth are Indias rising fitness consciousness, the fusion of fashion and function, and the seamless blend of traditional and contemporary lifestyles. Today Indian celebrities and influencers are not only endorsing athleisure but are even launching their own lines that has given it a significant boost.

OPPORTUNITIES AND THREATS

Opportunities

The Dynamic Consumer Landscape: The Indian consumer is rapidly evolving, driven by factors such as exposure to social media, increased fashion awareness, and a growing emphasis on health and hygiene. This evolution is fuelling unprecedented growth in the innerwear market, with a surge in demand for a variety of innerwear options.

Noteworthy contributors include the rise in disposable incomes, an increasing number of women engaging in spending, a growing demand for branded luxury innerwear, and the expansion of the retail sector.

Tech powered innovation and design: In India, the innerwear industry is experiencing a significant transformation with the use of cutting-edge technology and innovative design. This evolution is revolutionizing the way innerwear is perceived and worn, leading to a surge in the segments growth. Women now have a wide array of options to choose from, each tailored to suit different occasions and preferences. Similarly, mens innerwear has undergone a remarkable evolution, transitioning from basic essentials to a category that embraces innovation. Technological advancements have also paved the way for the development of new fabrics that enhance the overall wearing experience for consumers. Play of e-commerce: The rise of dedicated e-commerce portals focusing solely on innerwear has had a significant impact on both consumers and the industry. These portals have revolutionized the way people shop for intimate apparel by offering enhanced privacy, seamless browsing experience, personalized messaging, and swift delivery of products. The convenience of easy returns at the customers doorstep in case of dissatisfaction has also contributed to the success of this segment. Sustainable fabric: Responding to growing consumer concerns about sustainability, the innerwear industry is experimenting with innovative fabrics that prioritize eco-friendliness without compromising comfort and quality. For instance, brands are turning to novel and sustainable alternatives compared to traditional materials like cotton. As brands adopt such eco-conscious fabrics, they not only cater to evolving consumer preferences but also drive industry-wide change toward more sustainable practices.

Threats

Cultural Factors and Taboos: Indias conservative societal norms have a substantial influence on the purchase of innerwear. Traditional values and modesty often dissuade open discussions and explorations of innerwear as a part of fashion. This can be seen as a significant reason for the stalling sales.

Lack of Awareness: A surprising number of individuals are unaware of the importance of selecting the right innerwear. Comfort, style, and fabric are critical factors that many overlook, which could lead to the dissatisfaction and avoidance of innerwear purchases.

Dominance of Unorganized Sector: The unorganized sector in Indias innerwear market presents stiff competition.

Local manufacturers often produce cheaper alternatives, appealing to price-conscious consumers.

Seasonal Variation: Innerwear sales tend to be influenced by seasonal shifts, with specific patterns during summers and winters. This cyclic variation can make it challenging for brands to maintain a consistent sales trajectory.

Competition from International Brands: The Indian innerwear market faces competition from international brands that have entered the market or are looking to enter. These brands may have established reputations, advanced technology, and larger marketing budgets, posing a threat to domestic players.

Price Wars: Intense competition among innerwear brands could lead to price wars, driving down profit margins and commoditizing products. This scenario may force some brands to compromise on quality or engage in aggressive marketing tactics to maintain market share, impacting the overall industrys profitability.

Changing Consumer Preferences: Rapid shifts in consumer preferences, such as a preference for athleisure wear over traditional innerwear, can pose a threat to established brands that fail to adapt quickly. Brands need to stay attuned to evolving consumer trends and preferences to remain competitive.

Supply Chain Disruptions: Disruptions in the supply chain, such as raw material shortages, transportation delays, or geopolitical tensions, can impact the production and distribution of innerwear products. These disruptions may lead to increased costs, product shortages, and delays in delivery, affecting both manufacturers and retailers.

Online Marketplaces and Counterfeit Goods: The rise of online marketplaces has made it easier for counterfeiters to sell fake innerwear products, undermining the sales of legitimate brands. Consumers may unknowingly purchase counterfeit products, leading to dissatisfaction and distrust in the brand.

OUTLOOK

The evolution of the innerwear market in India, from a basic need to a fashion statement, reflects the changing consumer landscape. Driven by trends, innovations, and shifting preferences, the innerwear market is primed for substantial growth. As Indian consumers adapt to evolving fashion trends and personal expression, the innerwear market showcases the countrys progressive attitude and dynamic consumer culture.

COMPANY OVERVIEW

Incorporated in 1985, Rupa & Company Limited is a name synonym in the hosiery industry. The Company is primarily engaged in the manufacturing, marketing, sales and distribution of innerwear, thermal wear and casual wear for men, women and kids segment and serves all sections of the society with its economy, mid-premium, premium and super-premium ranges. The Company is present across the entire value chain in the knitted garment space offering a gamut of products. The Company has various sub-brands and 9,000 SKUs (Stock Keeping Unit) which includes brands like Frontline, Jon, Macroman, Euro, Bumchums, Torrido, Colors, Thermocot, Kidline, Footline and Softline. The Company also has premium brand like Macroman M-Series, Macrowoman W-Series, which includes products like innerwear, lingerie, active wear and leisurewear. The Company has a large distribution network consisting of 4 central warehouses, 29 EBOs (Exclusive Brand Outlets), more than 1,500 dealers and access to 1,50,000+ retailers. The Company is enhancing its availability through presence in e-commerce, MBOs (Multi-Brand Outlets) and LFRs (Large Format Retail Stores). The Companys expansion strategy continues in the quest to strengthen its retail footprint nationwide. To match the requirements of evolving consumer preferences and market demands, the Company periodically launches new varieties within each sub-brands. These products are incorporated with the latest fabric innovations, cutting-edge production techniques, and advanced design features to give the end-user the finest exquisite experience of style and comfort. In the anticipation of growing demands and exports, the Company has set-up an exclusive export unit and a cutting unit in West Bengal which has started commissioning from last year. The Company will continue to focus on widening the product range through new launches in core portfolio and enhance omni-channel capabilities through collaboration with large online marketplaces. The Company has integrated digitalization to increase efficiencies and focuses to invest more in modern trade and e-commerce in the upcoming years. It strives to focus on enhancing operational efficiency, expanding its market reach, and capitalizing on emerging opportunities to drive sustainable growth and create long-term value for its stakeholders.

BUSINESS AND FINANCIAL OVERVIEW

The Companys financial statements were prepared as per the Indian Accounting Standards ("Ind AS") as prescribed by Ministry of Corporate Affairs pursuant to Section 133 of the Companies Act, 2013, read with the Companies (Indian Accounting Standards) Rules, 2015, other relevant provisions of the Act and other accounting principles generally accepted in India.

Standalone Financial Performance and Analysis (Amount in Lakhs)

Particulars
	March 31, 2024	March 31, 2023
Revenue from Operations	1,19,416.90	1,11,744.01
Profit before Finance Charges, Tax, Depreciation/Amortization (PBITDA)	13,298.53	10,423.10
Less: Finance Charges	2,065.12	2,263.18
Profit before Tax, Depreciation/Amortization (PBTDA)	11,233.41	8,159.92
Less: Depreciation/Amortization	1,467.95	1,320.29
Profit before Taxation and Exceptional items	9,765.45	6,839.63
Exceptional Items	381.81	–
Profit before Taxation (PBT)	9,383.64	6,839.63
Less: Tax Expense	2,471.56	1,531.02
Profit after Taxation (PAT)	6,912.08	5,308.61

Key Financial Ratios (Standalone)

Ratios	2023-24	2022-23	Reason where variance is more than 25%
Debtors Turnover	2.62	2.31	Not Applicable.
Inventory Turnover	2.64	2.10	Primarily due to increase in sales during the year ended 31st
			March, 2024.
Interest Coverage Ratio	5.73	4.02	Primarily due to increase in EBIT.
Current Ratio	2.59	2.51	Not applicable.
Debt Equity Ratio	0.02	0.16	Primarily due to decrease in net debt during the year ended 31st
			March, 2024
Operating Profit Margin (%)	9.74%	7.89 %	Not Applicable.
Net Profit Margin (%)	5.79%	4.75 %	The variation in net profit ratio is primarily due to increase in sales
			and profitability during the year ended 31st March, 2024.
Return in Net Worth (%)	7.45%	5.96 %	The variation in return on equity ratio is primarily due to increase
			in profitability during the year ended 31st March, 2024.

SEGMENT WISE AND PRODUCT WISE PERFORMANCE

The Company is engaged in the business of manufacturing of hosiery and related products and there is no separate reportable segment.

RISK & CONCERNS

The Company believes that risk management is a continuous process of analysing and managing the opportunities and threats faced by the Company. The Company has developed and implemented a comprehensive risk management system to identify and manage the risks associated with its business activities. The Companys risk management policy relates to identification, assessment, monitoring and mitigation of various risks to our business. It seeks to minimize adverse impact on our business objectives and enhance stakeholder value. The main objective of this policy is to ensure sustainable business growth with stability and to promote a pro-active approach in reporting, evaluating and resolving risks associated with the business. In accordance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Risk Management Committee has been constituted by the Company to oversee and implement the risk management framework. The major categories of risks identified by the Company includes competition risk, financial risk, operational risk, procurement and price fluctuation risk, cyber security risk, regulatory compliance risk, sustainability risk etc. Appropriate mitigation plans are in the place and the Risk Management Committee oversees the same on a regular basis.

INTERNAL CONTROL SYSTEM

The Company maintains appropriate and effective internal control systems in proportion to the business size and complexity. In our opinion, these systems provide reasonable assurance that policies, processes, tasks, behaviours and other aspects of an organization, taken together, facilitate its effective and efficient operation, help to ensure the quality of internal and external reporting, as well as the accurate recording of financial and operational data, and help to ensure compliance with applicable laws and regulations. It offers a fair guarantee that transactions are carried out with management authorisation. The permissible compilation of financial accounts in accordance with generally accepted accounting standards is also ensured, as is the sufficient protection of the Companys assets from major misappropriation or loss. In addition to this the Company also has a robust internal audit programme and the same is regularly reviewed by Management and the Audit Committee. The Audit Committee periodically meets the statutory and internal auditors of the Company to ascertain the issues dealt with in the reports reviewed during the year, together with additional information, necessary to ensure that the board has taken account of all significant aspects of internal control.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS

Employees are the most valuable and indispensable asset for our Company. A Companys success depends on sensing employee needs and responding with a value proposition that delivers meaning, purpose and value for them. It builds synergy between how we look to differentiate ourselves as a Company and deliver on the expectations of our employees. Rupa & Company Limited has a well-designed HR policy that promotes a conducive work environment, inclusive growth, equal opportunities, and competitiveness and aligns employees goals with the organisations growth vision. It is our constant endeavor to make the Company a place where people can be their best selves. The Companys overarching goal is to attract and retain competent employees while also providing a fulfilling workplace that is safe, welcoming, and supportive of career progress. The Company encourages open and honest communication among teams and through leadership. During the year under review, the Company conducted various programs for professional and personal development of employees and workers. These provide employees with a plethora of opportunities to develop and grow in their careers. Employee Wellness has always been one of the priority areas in enriching life and strengthening the employee value proposition. Further several other initiatives were taken to improve current HR systems and procedures, as well as to create new tools to improve the employee experience. The Companys ‘Human Capital headcount, stands at 777 as on March 31, 2024. Our industrial relations remained positive throughout the year across all manufacturing units, contributing significantly to the Companys growth.

CAUTIONARY STATEMENT

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward looking statements are based on our opinions, estimates and assumptions considering our experience and perception of historical trends, current conditions and expected future developments. The Company cannot guarantee that these assumptions and expectations will prove correct or will be realized by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. Except as required by law, the Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.