Rupa & Company Ltd Management Discussions.

Industry Structure and Development

The Asian Development Outlook (ADO) for 2019 compiled by the Asian Development Bank projects GDP growth in India to rise to 7.2% in FY 2019 and reach 7.3% in FY 2020. This will effectively reverse two years of declining growth as reforms to improve the business and investment climate take effect1. The World Economic Outlook (WEO) also predicts that India is expected to grow at 7.3% in FY 2019-20.

Growth Projections for India (in %)

Agencies 2019-20 2020-21
IMF 7.3 7.5
World Bank 7.5 7.5
ADB 7.2 7.3
Fitch 6.8 7.1
RBI 7.2 -

As a result of continued efforts by the Government, India has significantly improved its rank in the World Banks Ease of Doing Business Index - by 53 positions in the last two years, and by 65 positions in the last four years. India jumped 23 positions over its rank of 100 in 2017, currently at the 77th rank.3

Government initiatives such as relaxed norms for company incorporation and removing the requirement of a bank account for GST registration may help India further improve its ranking. Other steps taken by the Government include clubbing of several forms into one; elimination of fee for incorporation of companies where authorized capital is up to Rs. 15 lakh, removal of company seal or rubber stamp, combined registration for EPFO (Employees Provident Fund Organization) and Employees State Insurance Corporation (ESIC).4

Growth in emerging and developing Asia will dip from 6.5 percent in 2018 to 6.3 percent in 2019 and 6.4 percent in 2020. Despite fiscal stimulus that offsets some of the impact of higher US tariffs, Chinas economy will slow due to the combined influence of needed financial regulatory tightening and trade tensions with the United States. Indias economy is poised to pick up in 2019, benefiting from lower oil prices and a slower pace of monetary tightening than previously expected, as inflation pressures ease.5

Textile Industry

The Indian Textile industry is contributed to 7% of the countrys industry output (in value terms) in 2017-18, 2% to the GDP and 15% to the export earnings in 2017-18. The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. The domestic market for apparel and lifestyle products, currently estimated at US$ 85 billion, is expected to reach US$ 160 billion by 2025.7

The Indian cotton textile industry is expected to showcase a stable growth in FY19, supported by stable input prices, healthy capacity utilization and steady domestic demand. It is the second largest employer after agriculture, employing over 45 million people directly and over 65 million people indirectly.8

Innerwear Category

The innerwear category, currently valued at Rs. 28,781 crore, accounted for 10% of the total apparel market in 2017. The Indian innerwear market is primarily segmented into mens innerwear and womens innerwear. Currently, the womens segment dominates the innerwear category by constituting 64% of the total innerwear market. Mens segment is 33% and kids 3% of the total innerwear market.

In the recent years, the womens innerwear segment has grown consistently and was estimated to be worth Rs. 18,454 crore in 2017. It is expected to grow at an impressive CAGR of 12% over the next decade to reach Rs. 56,364 crore by 2027. The mens innerwear market, which was estimated to be worth Rs. 9,477 crore in the year 2017, is estimated to grow at a CAGR of 7% to reach Rs. 17,894 crore by 2027. Kids innerwear market was worth Rs. 850 crore in 2017 and is expected to grow at a CAGR of 12% to reach Rs. 2,640 crore by 2027.9

Innerwear is one of the high-growth categories in the apparel market and promises both growth and innovation. Increase in income levels, along with higher discretionary spending, the growing fashion orientation of consumers and product innovations by the innerwear market have turned innerwear from a traditionally utilitarian item to an essential fashion requirement.

The growth of the innerwear category is primarily centered in urban India. The trend towards western outfits, combined with the demand for occasion and outfit-based innerwear, is boosting the market. Preference towards innerwear with maximum comfort and higher functionality is rising fast. The market for innerwear product variations like seamless intimates, plus size inner wear, body shape enhancers, etc. in the metros and mini metros, is on the flourish.

Mens Innerwear Market

The domestic innerwear market in India is witnessing a boom and industry experts say the innerwear market is growing at an impressive CAGR of 10-12%. According to latest media reports, out of the entire Rs. 30,000 crore industry, the premium segment is estimated at about Rs. 6,000 - 7,000 crore.

Lately, the premium innerwear market in India has been experiencing increasing entry of global brands, mostly through partnerships and tie-ups with homegrown brands. This idea of bringing foreign brands to India or associating with them started after market surveys established that consumers using premium and super-premium products have high level of awareness and mostly opt for global brands.

The very fact that almost all leading players in the space are trying to rope in international brands is a testimony of their overhauled new-age and progressive stratagem, to cater to the millennial, who are not just a different generation, but a different breed altogether.11

Womens Innerwear Market

The innerwear category has broadened from a basic requirement to now being designer wear with emphasis on styling and comfort. The womens innerwear segment has grown in the recent years and was estimated to be worth Rs. 18,454 crores in 2017 and accounts for 64% of the total innerwear market. The category will grow at a CAGR of 12% to reach Rs. 56,364 crores in 2027.12

The Indian women innerwear market accounts for 15% of the total womens apparel market. Various product categories in womens innerwear are - brassieres, camisoles, panties, tees, nighties, shorts, etc. Brassieres and panties contribute 85 percent of the total womens innerwear segment. Branded innerwear comprises 38-42% of the total womens innerwear market and this share is expected to grow to 45-48 percent of the total womens market by 2022. Women are conscious about the brands and styles for their intimate wear. This trend is not restricted to just metros but can be witnessed spreading in tier I, II and III cities. This adoption of branded lingerie has led to an influx of international and domestic innerwear brands.

Looking to the Future

Indias GDP is expected to grow at 7.3% in FY 2018-19, and 7.5% in the following two years, the World Bank has forecast, attributing it to an upswing in consumption and investment, the per capita income will also increase. Increasing purchasing power will result in consumers with more money to spend and greater enthusiasm for fashion. In 2015, per capita apparel consumption in India was Rs. 2,894. By 2025, Indias per capita spend is expected to jump to Rs. 7,911.13

The per capita expenditure on apparel is expected to reach Rs. 8,000 by 2025, rising from Rs. 3,100 in 2015. Therefore, the total Indian apparel consumption expenditure is expected to grow to Rs. 11.7 Lakh Crores (USD 180 Billion) by 2025.14

The Indian consumer which comprises of the largest Gen Y population in the world with a median age of 27 years is also evolving in its shopping habits and buying behavior. The new Indian consumer prefers branded apparel over unbranded owing to inclination towards better lifestyle and willingness to try out new on-trend fashion.

In India, people are shifting from rural to urban areas in search of jobs and better education at a continually increasing rate. In 2015, 33% of Indias population was living in urban areas, rising from 31% in 2010. By 2025, 37.5% of Indias population is expected to be living in urban areas. Along with urbanization, cities are also expanding by immersing the villages near them, as 32% of urban population growth between 2001 and 2011 was because of re-classification of towns and expansion of urban areas. Due to urbanization, the size of working population is increasing and the type of occupations they indulge in is changing. The working population has increased income with an aWtudinal change to look better. These changes in Indian economy are explicit and so is the impact of these changes on the apparel industry.15

Market Size and Growth Projections

The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. Total consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It accounts for over 10 per cent of the countrys Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the worlds fifth-largest global destination in the retail space. Indias retail market is expected to increase by 60 per cent to reach US$ 1.1 trillion by 2020, on the back of factors like rising incomes and lifestyle changes by middle class and increased digital connectivity. Luxury market of India is expected to grow to US$ 30 billion by the end of 2018 from US$ 23.8 billion in 2017 supported by growing exposure of international brands amongst Indian youth and higher purchasing power of the upper class in tier 2 and 3 cities, according to Assocham.16

Indian apparel industry which is the second largest contributor in the retail industry after food and grocery is seeing some major shifts. Entry of international brands, changes in preferences from non-branded to branded, the fast-growing economy, large young consuming population in the country has made India a highly lucrative market. India has the worlds largest youth population, which is becoming fashion conscious owing to mass media and social media penetration.


• Abundant availability of raw material: India is the largest producer of cotton and second largest producer of polyester in the world after China. Large scale availability of important textile fibers has helped the development of downstream manufacturing value chain-yarns, fabrics and garments.

• Manpower availability, quality and cost: Indias current population is 1.27 billion and around 66% of the total population falls under the working age bracket at present with around 12 million youth joining the workforce every year. Under the Make in India campaign, the Government has also put a lot of focus on increasing the skill level of the workforce to not only ensure the quantity but also the quality of the workforce.

• Large existing manufacturing set-up: India also has well established production facilities in the textile value chain from fiber to finished products (apparel, home textiles and technical textiles). India has the best and the largest state-of- the-art spinning capacities in the world. There are around 40 Integrated Textile Parks dedicated to the manufacturing of textile items and Special Economic Zones (SEZs).

• The Indian innerwear market continues to be underpenetrated and thereby holds immense business opportunities.

• Womens Innerwear & casual wear category continues to grow holding potential for further growth.

• Infants and children casual wear also holds immense potential to bring in an organized business model at low costs as the apparel industry over all is continuing to grow.

• Tie ups with online portals to ensure reach and penetration.


• Emerging multi-national brands and their entry to the Indian market.

• Infrastructural bottlenecks and efficiency.

• Imports from other countries.

• Changing consumer behavior.

• Rise of e-commerce and increasing online purchase making it easier Risks and Concerns

• Volatility in the raw material prices: Cotton yarn and fabric accounts for approximately, 70% of the total raw material cost. Currently, the Company is able to pass on any rise in the prices of raw material to the consumer. Any inability to pass on the impact of rise in raw material prices may negatively impact the estimated margin of the Company, resulting in lower earnings.

• Acquisitions and/or business diversifications: The Company, may decide to utilize the cash flows for business diversifications and/or acquisitions, with known and unknown risks, which may not turn successful and cause financial distress.

• Changing customers behaviour and spending capacity: Rapid change in the customers preferences, from one brand to another, makes it very difficult for a Company to establish a permanent connect and in gaining brand loyalty, consequently, leading to loss of business to its competitors. Furthermore, where, the improving Indian demographics have given credence to the Indian consumption story, any downward deviation in economic growth, will impact the consumers discretionary spends, thereby, negatively impacting the earning potential of the Company.

Internal Control System and their Adequacy

The Company has adequate system of Internal Controls System commensurate with its nature of business and size of operations to safeguard and protect from loss, unauthorized use or disposition of Companys resources. There are proper procedures for authorization, recording and reporting of transactions to the management. Systems and procedures exist to ensure that all transactions are recorded as necessary to permit preparation of Financial Statements in conformity with applicable accounting standards and principles or any other criteria applicable to such statements, and to maintain accountability for aspects. The Companys internal audit process covers all significant operational areas and reviews the in-system checks regularly. The Internal Audit Report, submitted by the Internal Auditors, is placed before the Audit Committee of the Companys Board of Directors, on quarterly basis, for reviewing. Suggestions for improvements are considered and the Audit Committee asserts stringent corrective actions and follows up on the implementations thereof.

The Audit Committee regularly meets the Statutory and Internal Auditors of the Company, to ascertain their views on the adequacy of Internal Control System and keeps the Board of Directors informed of its observations, from time to time.

Financial Performance (Rs in Lacs)
Particulars 2018-19 2017-18 Change %
Revenue from Operations 1,10,824.10 1,08,975.57 1,848.53 1.70
Other Income 539.18 341.50 197.68 57.88
Profit before Finance Charges, Tax, Depreciation/ Amortization (PBITDA) 17,530.65 16,945.62 585.02 3.45
Less: Finance Charges 1,672.75 759.18 913.57 120.34
Profit before Tax, Depreciation/ Amortization (PBTDA) 15,857.90 16,186.44 -328.54 -2.03
Less: Depreciation/ Amortization 1,317.40 1,441.18 -123.78 -8.59
Profit before Taxation (PBT) 14,540.50 14,745.26 -204.76 -1.39
Less: Tax Expense 5,203.12 5,283.83 -80.71 -1.53
Profit after Taxation (PAT) 9,337.38 9,461.43 -124.05 -1.31

Key Financial Ratios

As required pursuant to Schedule V(B) to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Key Financial Ratios for the financial year 2018-19 vis-a-vis 2017-18 are reproduced hereinbelow:

SI. No. Ratio Financial Year 2018-19 Financial Year 2017-18
Debtors Turnover (Based on Gross Sales Value)1 3.17 4.07
ii. Inventory Turnover 3.34 3.63
iii. Interest Coverage Ratio 9.69 20.42
iv. Current Ratio 1.89 1.92
v. Debt Equity Ratio 0.30 0.21
vi. Operating Profit Margin (%) 36.86 35.75
vii. Net Profit Margin (%) 8.43 8.68
viii. Return on Net Worth (%)2 16.22 18.52


Consequent to the introduction of the Goods and Services Tax (GST) w.e.f. July 1, 2017, Operating Profit margin and Net Profit margin for the year ended March 31, 2019 are not comparable with the previous year.

1. The relatively lower Debtor Turnover Ratio for the year ended March 31, 2019 is due to tighter liquidity concerns. However, the Company do not foresee any increase in credit risk.

2. Return on Net Worth is lower for the Financial year 2018-19 due to lower rate of growth in profit after tax.

In the preparation of Financial Statements, the treatment as prescribed in the applicable IND Accounting Standards are followed.

Human Resources and Industrial Relations

The Human Resources (HR) function of an organization is vital to creation and development of good quality and dedicated human capital, essential to the Companys business and operations. Rupa always focusses in grooming and training its workforce via imparting specialized and technical training, at regular intervals, which helps improve their knowledge, skill and competency, to execute their assignments, effectively and efficiently. Employee incentivisation, professional growth, participation and recognition are always part of the Companys HR management, with focus on upgrading their quality of life and job satisfaction. This HR policy empowers the Company to attract, integrate and retain the best talent, requisite to its line of business and necessary for powering its growth. As on March 31, 2019, the number of permanent employees, on the rolls of Company, was 962. Further, the industrial relations have remained cordial, during the period under review.

Cautionary Statement

Statements in this Management Discussion and Analysis Report, describing the objectives, projections, estimates and expectations are forward-looking statements, within the meaning of applicable laws and regulations and are subject to volatile market conditions. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations, includes economic conditions affecting demand/ supply and price conditions in the markets in which the Company operates, changes in Government regulations, tax laws, statutes and other incidental factors.