Rupa & Company Ltd Management Discussions.

Industry Structure and Development

The Indian economy is expected to slow down this fiscal (2020-21) with growth rate in the 1.52.8 percent range. However, the good news is that the next fiscal, 2021-22 - is expected to see a growth reversal. The World Banks report on South Asia noted that the Indian government imposed a lockdown on March 25 to contain the spread of Covid-19. The resulting domestic supply and demand disruptions (on the back of weak external demand) are expected to result in a sharp growth deceleration in FY21 to 2.8 percent in a baseline scenario (an estimate subject to wide confidence intervals). The lockdown brought almost 70 percent of economic activities to a standstill. An SBI research report estimated that the first 21 days of the lockdown could result in losses of over Rs 8-lakh crore.

The government is undertaking measures to contain the health and economic fallout, and the RBI has begun providing calibrated support in the form of policy rate cuts and regulatory forbearance.

Given the uncertainties, there is a wide confidence interval around the baseline estimate. If a large-scale domestic contagion scenario is avoided, early policy measures pay off, and restrictions on the mobility of goods and people are lifted swiftly, an upside scenario could materialise in FY21, with growth around 4 percent. However, if the domestic contagion is not contained, and the shutdown is extended, growth projections could be revised downwards to 1.5 percent, and fiscal slippages would be larger.1

The Asian Development Outlook (ADO) 2020stated that in late March, the Government of India took prompt action to strengthen the health system and support the poor and vulnerable. The Reserve Bank of India has cut its policy rate to the lowest ever and committed to using all instruments to fight the pandemic.

Government initiatives introduced in late FY2019 and in the FY2020 budget will aid recovery and sustain growth in the coming years. Both urban and rural consumption will be supported by reduced personal income taxes and increased assistance to agriculture sector and rural areas. Corporate tax cuts and increased public investment in infrastructure, including the National Infrastructure Pipeline, will revive investment. The recapitalization of state-owned banks and financial sector reform to revive credit will help alleviate much of the financial sector stress.

The report forecasts inflation of 3.0% in FY2020 due to decreased demand and lower oil prices; and then a rise to 3.8% in FY2021 as domestic demand improves. With inflation expected to ease into the target zone soon, the central bank will have more headroom to support the economy.

In FY2020, the current account deficit is projected to narrow to the equivalent of 0.3% of GDP as global growth and oil prices falter. In FY2021, imports of goods and services, supported by rising domestic demand and oil prices, are likely to outgrow exports, and the current account deficit is forecast to rise to equal 1.2% of GDP. The government had committed in its FY2020 budget to a moderate path of fiscal consolidation, lowering the fiscal deficit to the equivalent of 3.5% of GDP in FY2020, 3.3% in FY2021, and 3.1% in FY2022. The fiscal deficit is unlikely to shrink as budgeted. However, the Covid-19 pandemic requires fiscal stimulus to mitigate its effects and facilitate recovery.2

The Government of India introduced bold reforms across sectors to drive the Countrys economy and push towards selfreliant India. The Government has stressed to become vocal for local products and make them global, and announced Selfreliant India or "Atmanirbhar Bharat" in five phases, consisting of five pillars, namely, Economy, Infrastructure, System, Vibrant Demography and Demand.



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Textile Industry

The Indian textiles industry is extremely varied, with the hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital-intensive sophisticated mills sector at the other end of the spectrum. The decentralised power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles make the Indian textiles sector unique in comparison to the industries of other countries. The Indian textile industry has the capacity to produce a wide variety of products suitable to different market segments, both within India and across the world.

Market size: Indias textiles industry contributed seven percent of the industry output (in value terms) of India in FY19. It contributed two percent to the GDP of India and employs more than 45 million people in FY19. The sector contributed 15 percent to the export earnings of India in FY19. The textile industry has around 4.5 crore workers employed including 35 lakh handloom workers across the country.

Government initiatives: The Indian government has come up with a number of export promotion policies for the textiles sector. It has also allowed 100 percent FDI in the Indian textiles sector under the automatic route.

Road ahead: The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a 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 has led to rise in demand for products creating a huge domestic market.3

Innerwear Category

Among the core apparel categories, innerwear appears to be a potential growth category across all segments. With rising incomes, higher discretionary spending, greater number of working women and growing fashion consciousness, the innerwear segment is expected to continue to progress. Currently, the Indian innerwear market is worth Rs 19,950 crore (2014) and is estimated to grow at 13 percent to reach Rs 68,270 crore by 2024. 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.4

In the last few years, innerwear industry has seen big changes happening on all fronts. Today, the market has expanded, the market size has increased, there is availability of quality raw material, manufacturing and production capabilities and all of this is a result of the change in the customer choices and awareness. A rise in the disposable incomes and exposure to global trends have unfolded major shifts in the industry. Also the current CAGR growth show promising results for the industry.

Previously, lingerie buying was a taboo for a long time in India, but with the technology and new generations contribution, we are seeing see a lot of changes in the entire inner-wear sector. Now, women are very assertive and also are very independent in everything. They know what they are looking for and this change has made us become more trendy and quick with updating our product offerings. Today the market is customer centric and we are moving ahead with the same approach and evolving with our organization.

Digitization has also been a major driver that is responsible for this change and we have seen in the industry and we feel that it is an important aspect to be in sync with the trends and technology.5

The 4Ps of the Innerwear Industry

The marketing mix is often crucial when determining a product or brands offer, and is often associated with the four Ps: product, price, place and promotion. These four Ps determine the future of the brand in the market.6

Mens Innerwear Category

Consumer studies have confirmed that men are looking for more from their inner wear and essential wear than ever before. Gone are the days where underwear was a mere functional necessity. Indian men are demanding more variety and design in their underwear drawer and brands have to adapt and comply. Mens changing lifestyle has resulted into demand for new inner-wear and loungewear categories that once seemed too niche. The most important factors that men consider today are comfort, style, function and sustainability. Men want to look good, they want to feel physically comfortable during their myriad activities and with the attention so firmly on environmental concerns, they want to feel good about what they wear because they know that the clothes minimize negative impact on the environment.

The 5 key innovations in mens innerwear space for 2020: New-Age Fabric, Fashion In Focus, Performance Perfected, Crafted For Comfort, Size Evolution.7

Challenges & bottlenecks in India: The biggest challenge is the low level of awareness regarding what one should wear that will last for a good life span and the proper wash care instructions. Retailers dont try to educate their customers either as they are either not aware themselves or consider it delicate to talk to customers regarding a personal product such as underwear. Also the general public isnt aware of the value or existence of superior fabrics such micro Modal, Tencel, Supima fabric, etc.

The future of the segment: In the days to come it would no longer be the norm where one shops for innerwear as an after-thought. Innerwear, once considered only as a basic necessity for personal hygiene, will become a proper fashion statement. What was once the bastion of staid white will be breached by the emergence, and acceptance, of bright colours, funky prints, and kinky designs. Underwear too would become like apparel where new products would be launched every season and the current shelf life of a particular product style would come down considerably. Men will look for comfort, functionality, and style, while ensuring it matches their outfit and the occasion. The growing aspirations and increasing disposable incomes will only ensure higher consumption of premium brands and goods but will insure increasing the market share of the organised sector.8

Womens Innerwear Category

The Indian innerwear market is primarily dominated by womens innerwear which accounts for 64 percent of the total innerwear market and it accounts for 15 percent 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.

Womens innerwear segment is poised to grow at an impressive growth rate of 12 percent over the next decade to reach 56,364 crore by 2027 from current market size of Rs 18,454 crore. Branded innerwear contributes 38-42 percent 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. The 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 influx of international and domestic innerwear brands.9





The India Women Innerwear Market was valued at USD 2,900.97 Million in the year 2018. The market is expected to grow due to a number of factors including rise in disposable income, increase in grooming awareness, rising number of women participation in sports and physical activities, increased changing preferences, deep expertise in design of the innerwear.

The market is primarily driven by rise in adoption of western culture, growing urbanization, increasing disposable income, expansion of online marketplace and social media impact. The market condition of women innerwear market in India has been improving gradually with easy availability of innerwear products in vast number of hypermarkets, supermarkets, multi-brand outlets, exclusive business outlets, online platforms, etc. coupled with rising consumer base.10

Looking to the Future

The future of the textile industry in India has a positive outlook and is mirrored by increasingly strong consumption rates in the domestic market as well as the growing demand for exports. Moreover, the industry has earned a unique place in the economy due to its strong future outlook, numerous employment opportunities it has generated and the strong export numbers it has generated.

This is a critical time for the textile value chain in India. Customers are feeling the impact of shifting fiber trends, changing consumer preferences, higher operating costs and the requirement of meeting different environmental standards. Also, the companies in India are now turning towards innovative dyeing methods and processes that facilitate greater water saving, as the government aims to cut industrial water use by 50% in the next five years.11

In the context of fashion and trends, India is still way behind in comparison to other countries in spite of enormous manufacturing potential. Shortly, Indian brands will make their place in the colossal fashion market, a global presence with the help of technology.

The nationwide lockdown in India is likely to impact the textiles sector both in terms of demand and supply and the EBITDA might drop by least 15 percent in 2020-21 across the industry portfolio.

India Ratings and Research (Ind-Ra) in a report said the fall in consumer income and increase in household leverage will continue to have a negative sentiment through FY21. While Indias dependency on imports is limited, it is dependent on exports and hence, the return of demand from the key markets including the US, the UK, the UAE and China is critical.

The agency estimated that Indias exports will be substantially hit till the first half of FY21, which had already reduced by more than 40 percent till January 2020 due to the US-China trade war.

The fabric industry is dominated by few players which have strong liquidity to manage the downside caused by COVID-19, while small and medium-size players would face the brunt of economic lockdown.12

The fashion industry in the future will be more about the experience instead of appearance. It will be a task for brand owner and key market players as consumers will be more critical about the experience than mere looks. So, there will be a paradigm shift from appearance to fashion with lifestyle solutions.

At present, India is a centre of manufacturing and production, but shortly, the world will see brands from India. The west will adopt the tags as the future of technology in the textile industry is going to change in a significant way.13




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The burgeoning millennial population, growing middle income households and increasing women workforce provide a highly positive outlook for the retail businesses in India. As internet penetration increases, more international retailers set up shops in India and established Indian brands and retailers set themselves on a high growth trajectory, the share of organized retail market is expected to increase from 12 percent in FY 2019 to 25 percent in FY 2024. The e-commerce market itself is estimated to grow from US$ 24 billion in FY 2019 to US$ 98 billion in FY 2024. Going forward, given the strong retail and consumer outlook, India is expected to witness redefining trends which will shape the future of the retail market.

Consumer experience will be the key focus of the retailers, while technology will play an important part in increasing sales as well as facilitating the enhancement of consumer experience throughout their shopping journey. The next 10-12 years will be the defining years for Indian retail as the market will mature and organized retail will penetrate deeper into smaller cities and towns. Technology will replace many human roles in retail and new ways to emotionally connect with consumer will evolve. New markets will develop, and new channels will disrupt and reshape the markets.

The government now intends to focus on the manufacturing sector to create new jobs and has launched many initiatives like "Vocal for Local" and "Make in India" for this. This will further help in increasing the GDP per capita, thereby putting more money into the hands of people to improve their lifestyle, thereby supporting consumption and the retail market.

Due to the sharp rise and changing consumption pattern of Indian consumers, share of organised segment is growing rapidly. While traditional formats or unorganised retail formats continue to dominate the retail market, organized retail is growing at a faster pace and eating up into traditional retail. A major driver of this high growth trajectory has been online retail which is projected to grow at a CAGR of 33 percent between FY 2019-24. Growth in online retail is majorly attributed to factors including Increasing internet penetration, Growth in number of smartphone users and Growing number of online shoppers.14

The textile and apparel trade is predicted to grow at a CAGR of 3.7% during the period 2018-28. During this period, the increase in apparel trade is expected to be at a CAGR of 4.5% and textiles at a CAGR of 2.5%. The sector also has the capability to manufacture all categories of products and a conducive ecosystem to provide complete service offering to brands and retailers. The sector also has the capability to manufacture all categories of products and a conducive ecosystem to provide complete service offering to brands and retailers. The global apparel manufacturers are finding Bangladesh, Vietnam and India as competitive markets over China.15


• Vocal for Local: Initiatives taken by the Government to promote local products and make it

global will boost huge opportunities to local manufacturers. Additionally, consumers are more expected

to look for locally manufactured products.

• Space vacated by China in the global apparel market: The domestic industry should take advantage of the huge $20-billion space vacated in the global apparel market especially in the man-made fiber (MMF), by China, which is going through a tough time following the outbreak of the deadly coronavirus.

• Increasing Women Workforce as well as increased Women participation in Fitness and Sports and other physical activities: With changing societal mind set and increasing gender equality at office, women entering workforce has been on the rise in past few years. This coupled with aspirations to spend on self-development, is giving rise to the consumption of new categories like personal care, readymade products, etc.




• Growth of Markets including malls: With online players now delivering to the smallest of towns, consumers in these cities are aware of many international and indigenous brands available in the market. This spells a big opportunity for the modern retailers who are looking to enter into Tier III & IV markets. Many consumers living in Tier III & IV towns have now experienced the brands, through online purchases. Mall development is expected to come from Tier III cites, which would make the brands more visible and lead to opportunif es.

• 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 textle fibers has helped the development of downstream manufacturing value chain-yarns, fabrics and garments.

• Manpower availability, quality and cost: Indias current populafion is approximately 1.30 billion and around 65% of the total population falls under the working age bracket at present with many 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 one of the best and the largest state-of-the-art spinning capacities in the world.


• The biggest challenge is the low level of awareness regarding what one should wear that will last for a good life span. Retailers do not educate their customers either as they are either not aware themselves or consider it delicate to talk to customers regarding a personal product such as underwear.

• Changing consumer behavior.

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

• High cost of brand building.

• Infrastructural bottlenecks and efficiency.

• Imports from other countries.

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

• Investment in New Technology

Risks and Concerns

• Pandemic Covid-19 situation: Spread of Covid-19 disease worldwide and consequent lock-down as well as restrictive measures, have affected the demand, supply and liquidity, and have brought the economic activities to a standstill and impacted both consumption and investment. There is no certainty when the vaccine/medicine for cure of the disease shall be found. The situation is unforeseen and exceptional, which keeps changing very fast, therefore, it becomes difficult to gauge the impact on the economy, livelihood, business, employment and consumers spending with certainty.

• 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.

• 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 organized sector.

• Changing customers behavior 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 periodically 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 Lakhs)

Particulars 2019-20 2018-19 Change %
Revenue from Operations 94,140.11 1,10,824.10 -16,683.99 -15.05
Other Income 790.95 539.18 251.77 46.69
Profit before Finance Charges, Tax, Depreciation/ Amortization(PBITDA) 13,251.98 17,530.65 -4,278.67 -24.41
Less: Finance Charges 1,481.22 1,672.75 -191.53 -11.45
Profit before Tax, Depreciation/ Amortization (PBTDA) 11,770.76 15,857.90 -4,087.14 -25.77
Less: Depreciation/ Amortization 1,567.92 1,317.40 250.52 19.02
Profit before Taxation (PBT) 10,202.84 14,540.50 -4,337.66 -29.83
Less: Tax Expense 2,196.31 5,203.12 -3,006.81 -57.79
Profit after Taxation (PAT) 8,006.53 9,337.38 -1,330.85 -14.25

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 2019-20 vis-a-vis 2018-19 are reproduced herein below:

SI. Ratio Financial Year Financial Year
No. 2019-20 2018-19
i. Debtors Turnover (Based on Gross Sales Value) 3.13 3.17
ii. Inventory Turnover 2.37 3.34
iii. Interest Coverage Ratio 7.89 9.69
iv. Current Ratio 2.16 1.89
v. Debt Equity Ratio 0.23 0.30
vi. Operating Profit Margin (%) 36.78 36.86
vii. Net Profit Margin (%) 8.50 8.43
viii. Return on Net Worth (%) 12.77 16.22


1) The relatively lower Inventory Turnover ratio for the Financial Year ended March 31, 2020 was due to inventory lying in hand owing to Covid-19 pandemic and abrupt lockdown measures announced by Government(s).

2) Return on Net Worth is lower for the Financial Year ended March 31, 2020 was due to lower profits owing to lower revenue due to Covid-19 pandemic and abrupt lockdown measures announced by Government(s).

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, 2020, the number of permanent employees, on the rolls of Company, was 1167. 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.