Rupa & Company Ltd Management Discussions.

Industry Structure and Development

The Economic Survey 2017-18, tabled in the Parliament on January 29, 2018, forecasts a growth rate of 7 to 7.5 percent for FY19, as compared to the expected growth rate of 6.75 percent in FY181. The International Monetary Fund (IMF) too, remains bullish on Indias growth potential and has retained its GDP forecast for the country at 6.7 percent in 2017 and 7.4 percent in 2018. World Economic Outlook Update too, has estimated that the Indian economy would grow by 7.8 percent in 2019, which makes India the worlds fastest-growing economy in 2018 and 20192.

Various reforms taken by the Government of India have led to increase in Indias ranking in the World Banks Ease of Doing Business Index from 130 in 2017 to 100 in 20183 making our Country amongst the top ten improvers in the Year 2018.

Focus on private investments and exports, two truly sustainable engines of economic growth, will be crucial in improving the climate for rapid economic growth.

Indias ranking in the taxation and insolvency parameters improved by 53 and 33 spots, respectively, on the back of administrative reforms undertaken by the Government of India in the areas of taxation and passage of Insolvency and Bankruptcy Code (IBC). Indias internal trade in goods and services (excluding non-GST goods and services) at 60 percent is even higher than that estimated in last years economic survey.

In the coming financial year, what canweexpect ? As global economic activity continues to strengthen, global growth is forecast to grow by 3.9% during 2018 as per the International Monetary Funds (IMF) January 2018 World Economic Outlook. The IMF expects India to grow at 7.8% during 2019 in contrast to 6.7% and 7.4% during 2017 and 2018, respectively.

Textile Industry

Indias textiles sector is one of the oldest industries in Indian economy dating back several centuries. Even today, the textiles sector is one of the largest contributors to Indias exports with approximately 13 percent of total exports. This industry employs about 45 million people directly and 20 million people indirectly.

The Indian textile industry, currently estimated at around US$ 120 billion, is expected to reach US$ 230 billion by 20204. It contributes to approximately 2 percent to Indias Gross Domestic Product (GDP), 10 percent of manufacturing production and 14 percent to overall Index of Industrial Production (IIP).

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.

Innerwear Category

Innerwear is one of the high growth categories in the apparel market and promises both growth and innovation. The increase in income levels, along with higher discretionary spending, 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 Indian innerwear market was worth INR 19,950 crore in 2014 and is estimated to grow at 13 percent to reach INR

68,270 crore by 20245. The innerwear market has traditionally been largely unorganised, although in the past few years, the organised innerwear segment has shown promising growth in both mens and womens categories. The womens innerwear market, which is driven by value-added innerwear products, contributes around 60% to the market. 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 acting as a boost for 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

The Mens Innerwear Market

The domestic mens innerwear market in India is going through an exciting phase. While leading domestic innerwear players are trying to eat into the large unorganized sector, major foreign brands are gearing up to eat a larger slice of the premium and ultra-premium pie. It assumes significance in the wake of the fact that the overall size of the innerwear market in India can be anywhere between INR 16000 crore and INR 30000 crore6.

There is a large unorganized sector, which is equally large, if not larger than the organized sector, according to industry estimates. Interestingly, the premium and ultra-premium innerwear market in India has been witnessing increasing influx of foreign brands. In some estimates, out of nearly INR 30,000 crore of overall hosiery industry, premium segment is valued at about INR 6,000 crore-7,000 crore.

The Womens Innerwear Market

The innerwear category has broadened from being a basic requirement to designer wear with emphasis on styling and comfort. The womens innerwear segment has grown in the recent years and was estimated to be worth INR 16,259 crores in 2016 and accounts for 5 percent of the total apparel market. The category will grow at a CAGR of 14 percent to reach INR 31,306 crores in 2021 and INR 60,277 crores in 20267.

The womens innerwear or the lingerie growth story in India is at its most promising phase right now with increasing demand for stylish, sensuous and premium innerwear. The Indian lingerie is no more a hush- hush segment but a more evolved one which has attracted a large number of women openly demanding for the most attractive and innovative piece with uber-confidence. This has given the brands an opportunity to play with designs, cuts, colors, styles, etc.

Looking to the Future

With Indias economy expected to grow at 7-9% CAGR, over the next decade, the per capita income will also increase. Increasing wallet sizes will result in consumers with more money to spend and greater enthusiasm for fashion. The per capita expenditure on apparel is expected to reach INR 8,000 by 2025, rising from INR 3,100 in 2015. Therefore, the total Indian apparel consumption expenditure is expected to grow to INR 11.7 Lakh Crores (USD 180 Billion) by 20258. The Indian consumer which comprises of the largest Gen Y population of 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 due to his/ her 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 areas9. Due to urbanization, the size of working population is increasing and the type of occupation they indulge in is changing. The working population has increased income with an attitudinal change to look better. These changes in

Indian economy are explicit and so is the impact of these changes on the apparel industry.

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.

This has opened unprecedented retail market opportunities. With a GDP growth rate of 7 percent, India has an edge over developed markets of the US, Europe and Japan which are expected to grow at a rate of 2-3 percent. Favorable trade policies and increased penetration of organized retail among other factors contribute in making Indian fashion industry attractive for investors.

Rupa: follows efficient business strategy

The Company continues to keep itself in the asset light modality, by outsourcing low end and labour intensive work in the manufacturing process. The Company procures yarn, does dying in-house, carries out knitting process partly in-house, design and cutting in-house and outsources stitching, which is labour intensive, through job work. It focusses on utilizing its resources on key areas, involving value addition, product differentiation, branding and distribution, continuing to follow the outsourcing model. It controls inventory through SAP, which helps it to manage working capital in an efficient manner.

Intensifying its product offerings in the women and kids segment, with the introduction of innovative products, designs and brands, has been topping the Companys businesss agendas. Presence of organized players in the women and kids segments being scarce, there lies a huge opportunity for the Company to venture therein. The Indian innerwear market is moving fast towards a fashion quotient market, rather being a price sensitive market. Further, Rupa is stressing hard to deepen its penetration in the premium segment, with direct and indirect strategic tie-ups with various foreign brands.

Impact of GST in Textile Industry

The Indian textile industry provides employment to a large number of skilled and unskilled workers in the country. GST would affect the cotton value chain of the textile industry. The textile industry as a whole would benefit from the introduction of GST due to following changes :

Break in input credit chain: Input tax credit is not allowed if the registered taxpayers procure the inputs from composition scheme taxpayers or the unorganized sector. GST would enable a smoother input credit system, which would shift the balance towards the organized sector.

Reduction in manufacturing costs: GST is also likely to subsume the various fringe taxes like Octroi, entry tax, luxury tax, etc. which would help reduce costs for manufacturers in the textile industry.

Input credit allowed on capital goods: The import cost of procuring the latest technology for manufacturing textile goods was expensive as the excise duty paid is not allowed as input tax credit. Whereas under GST, there will be input tax credit available for the tax paid on capital goods.

The innerwear industry is estimated to grow 13 percent annually thanks to rising urbanisation, a shift in market share from unorganised to organised players, increasing consumer preference for branded products, organised retailing and premiumisation. The GST could be a game changer for this highly unorganised sector. GST will give more room to the organised players to stay competitive for the long run. The focus is on branding, penetration in new geographies and larger focus on the super-premium segment. This should positively impact margins, which would in turn result in faster earnings growth over the next 2-3 years.


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, having a positive cash flow, 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.

Entry of Foreign Players With markets being global and digital, it is becoming easier for Foreign Brands to penetrate into Indian domestic markets, via direct and indirect strategic tie-ups, largely, in the premium and super-premium segments, thus, creating stiff competition for the existing players in the organised sector.

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

(Amount in Rs. )

Particulars 2017-18 2016-17 Change %
Revenue from Operations 11,26,11,35,816 10,84,29,58,389 41,81,77,427 3.86
Other Income 3,41,50,290 3,40,39,829 1,10,461 0.32
Profit before Finance Charges, Tax, 1,69,45,62,251 1,44,50,33,094 24,95,29,157 17.27
Depreciation/ Amortization (PBITDA)
Less: Finance Charges 7,59,18,277 10,54,69,502 (2,95,51,225) (28.02)
Profit before Tax, Depreciation/ 1,61,86,43,974 1,33,95,63,592 27,90,80,382 20.83
Amortization (PBTDA)
Less: Depreciation/ Amortization 14,41,17,783 15,04,87,036 (63,69,253) (4.23)
Profit before Taxation (PBT) 1,47,45,26,192 1,18,90,76,556 28,54,49,636 24.01
Less: Tax Expense 52,83,82,660 41,75,67,218 11,08,15,442 26.54
Profit after Taxation (PAT) 94,61,43,532 77,15,09,338 17,46,34,194 22.64

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, 2018, the number of permanent employees, on the rolls of Company, was 710. To its credit, Rupa has been awarded as the ‘KOLKATA BEST EMPLOYER BRAND, from among the top organizations in West Bengal, India, by the World HRD Congress. 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.