Overview of Indian Innerwear Industry

INDIAN INNERWEAR INDUSTRYAn Overview

Rishikesh Jhawar, CA, MBA (IIM Lucknow)

Indian Textile & Apparel Market (T&A) (USD in Billions)

Global Indian0

200

400

600

800

1000

1200

1400

773

99

1300

237

2013 2020

CAGR-7.7%

Source: Technopak

CAGR-13.3%

India, world's 2nd largest producer of textiles and garments, is also a global sourcing hub, due to abundant availability of raw materials (cotton, wool, silk and jute) and skilled workforce.Indian T&A market industry1:Contributes 14% to industrial production, 4% to the GDP and 27% to the country's Fx inflows. 2nd largest employer after agriculture (direct employment to over 45 million people) The Industry has direct bearing on the improvement of India's economy.1. Annual Report of Page Industries Limited Rishikesh Jhawar, CA, MBA (IIM Lucknow)

Innerwear segment is a BLUE EYED GUY in Indian Apparel Industry

• Technopak estimates Indian Apparel market to grow from USD 41.1 Billion in 2013 to USD 100.9 Billion in 2023. Innerwear market is grow from Rs 177.5 Bn in 2013 to Rs 595.4 Billion in 2023.

• Growth in Innerwear market (13%) will outpace Apparel market’s (9.4%) between 2013-2023.

•Women segment will fuel the overall growth and topple Men’s segment in Apparel or Innerwear market.

Indian Apparel Industry (USD in billions) Indian Innerwear Industry (INR in billions)

•Company Facts: Revenues from Women Innerwear products comprises ~55% of the Company’s total revenues throughout the projections, which compares well with the projected share of Women Innerwear at 68% of total market size of INR 44,000 crores in 2020E.


Innerwear segment is a BLUE EYED GUY in Indian Apparel Industry

Innerwear has transformed from being a traditionally utilitarian item to an essential fashion requirement due to increase in

per capita income levels; the working women population;share of western wear in the wardrobe;media exposure; demand for better fits and quality, a wider range of colors,

styles, and accessories;discretionary spending; brand, fashion, and style consciousness of consumers in

metro, Tier I, II, cities, and product innovations by the innerwear market


India’s Per Capita spending on Innerwear is Very Low: Good opportunity for serious players

•Gap between Indian and Asian consumer’s spending on innerwear products is over 90% .

•This suggests that there is significant room for growth driven by rising per capita spending on such products.

Source: CLSA Asia-Pacific Markets, Euro monitorRishikesh Jhawar, CA, MBA (IIM Lucknow)

Innerwear Market segmentation

Source: Images Business of Fashion

Company Facts: Throughout the projection period (FY17-26), Premium and Niche segments will contribute 70-80% of the total sales from Own Brands in the Men’s and Women’s category.

While Economy segment dominates Male Innerwear market, Mid-Premium products drive Women Innerwear market


Innerwear Market segmentation (…cntd)

Behavioural segmentation:• Young Aspirers: Those having high disposable incomes, ambitious, Brand

Conscious.

• Discerning Urbanites: Well paid employees. Give value to Benefit, quality, and convenience.

• Optimistic Pursuers: Dwellers in small cities. Aim for metro-like lifestyle. Engage with aspirational brands.

• Corporate Climbers: Dreamers and Aspirers. Keen for Branded goods. Limited disposable income.

While Young Aspirers will drive higher sales of premium and super premium innerwears, Discerning Urbanites and Optimistic Persuers will buy Mid to Premium

Innerwears which will proper the overall market growth.


44.0%45.0%46.0%47.0%48.0%49.0%50.0%51.0%52.0%53.0%

2013 2023

52.6%

50.3%

47.4%

49.7%

Men Women

•Share of Women category in Apparel market is almost equal to Men’s.

•In the Innerwear segment, Women category stands tall and high, a trend which is going to maintained in foreseeable future too.

•In Advantage Nature, Women segment will lead the pack with close to 55% share in total sales

Women Innerwear category will continue dominate

% share of Women and Men Innerwear in overall Innerwear market

Indian Apparel Industry Indian Innerwear Industry


Innerwear market % of Apparel market (Men, Women)

2009 2010 2011 2015 20200.0%

5.0%

10.0%

15.0%

20.0%

25.0%

7.2% 7.3% 7.3% 7.8% 8.4%

11.2% 11.5% 11.8%

13.0%

14.7%

Men Women

The share of innerwear in the total apparel market is likely to increase from 7% in 2010 to 10% in 2020E, majorly driven by Women’s segment (increase from 11.5% to 14.7%, refer chart above) followed by Men’s segment (from 7.3% to 8.4%)


Emerging trends that bode well for the Industry• Innerwear has graduated from being just a Functional category to Fashionable category

• The Industry shifting from a "Price Sensitive category" to "Brand Sensitive category”

• Growth in Women’s category also fueled by increase in Women’s financial freedom and

desire to express that freedom

• Women are open to indulge in BRANDED innerwear

• Women want to give best possible care to the most sensitive body parts for better intimate experience

• Women are increasingly aware of better fits,

• Very high demand for innerwear compatible with event based outdoor dressing i.e. different innerwear for outfits in office, casual meetings, parties, recreation, gym, sports,

salwars, and sarees

• Women are keen to buy expensive products such as shoes, accessories, bags etc;

• Strong growth in premium and super-premium segment will be underpinned by people’s willingness to spend more on quality products


Emerging Trends (….cntd)• Millennia will splurge on Green/Herbal/Ayurvedic/Recycled products

• Studies suggest a ready market for "Ayurvastra" but without any major player

• The comfort and medicinal properties of the garments will benefit older generation

who generally suffer from various ailments linked to old age;

• Organic Garment is a Winning combination of “differentiated offering” of GREEN

INNERWEAR GARMENTS having medicinal properties in a space crowded by few known

Indian and Foreign innerwear brands and numerous local labels

• Due to changing attitude towards innerwear, demand for GREEN PRODUCTS, and

aspirational quotient driving innerwear sales, ORGANIC INNERWEAR products will give

a new identity to the Innerwear products

• Thus, the supply chain fraternity has an opportunity to create a niche for themselves by

heeding to the latent potential of such garments that has Global Appeal.


Growth drivers• Rapid increase in the number of mid-high income households and resultant overall

higher discretionary spending; • Favorable demographic trends such as improvement in education, occupation, rising

urbanization, rise in nuclear families all leading to higher consumption; and • Rapid penetration and demand for organized retailing and consumers becoming more

aspirational

Growth drivers more prominent in Women's category: • Greater number of working women and the increased share of western wear in their

wardrobe; • Growing fashion consciousness for innerwear; • Preference for branded undergarments that offers better fit and comfort, especially

among women wearing western clothes that encompasses specialized innerwear; and • New designs, styles, and depth of product range have created huge demand for quality

innerwear products among the New Age Indian Women not only in cities but also in Tier 1 and Tier 2 cities.


Women Innerwear Industry – Growth DriversRise in

Working Women

population resulting rise in Women’s Wallet size

Greater awareness

about Brands

Rise in number of Brands

Aspirational buying trend,

quest for better fits, quality,

colours, styles, accessories

New Retail formats, greater

availability

Convenience of buying ONLINE vs buying from neighbourhood

retail store

Western wear taking increased Wallet Share of

Women’s spending on

Apparels

Change in fashion trends,

compatibility of Innerwear with Western wear


Indian Innerwear Industry SWOT AnalysisStrengths:•Strong industry fundamentals underpinned by favourable economic growth•High aspiration level driving sales;•India’s population creates huge market

Weaknesses:Fragmented market with 60% of total industry dominated by unorganised players, local labels

Opportunities:•Fragmented Women Innerwear market holds a lot of promise;• Better product depth to drive growth;•Regular introduction of products will bind customers to brands;•Variety of products for kids/teens to create brand loyalty from an early age;•Sleepwear, Active-wear, Maternity-wear are untapped, have fewer players who offer limited style, but can drive significant growth.

Threats:•Economic downturn can lower discretionary spending on premium and super-premium innerwear, which are expected to be key industry growth drivers;•Import of cheaper products from low cost manufacturing nations can hurt sales of domestic players.• Proliferation of counterfeit products


Distribution Structure

Evolution of Distribution Channel and change in consumer’s buying behavior

Pre-1970s to 1990s

•Fragmented market;•Dominance of Unorganised Multi Brand Outlets (MBO)

1990 - 2000

•Influx of Indian and Foreign brands;•Emergence of Organised retailing;•Emergence of Premium Innerwear

2000-2008

•Foray of premium international brands;•Setting up of Exclusive Brand Outlets (EBOs), Large Format Stores (LFS)

After 2008

• Greater focus on EBOs, Online Retailing;

•MBOs are most significant retail format,•Urbanites buy in EBOs, Departmental stores •Neighborhood stores frequented by smaller cities


Favorable Regulatory changesEase in FDI norms:• 51% FDI in Multi-Brand Outlets (MBOs), and 100% FDI in Exclusive Brand Outlets

(EBOs) have provided a lucrative business opportunity to Companies to forge or enter into business alliances to bring foreign brands in the Indian market.

Amended Technology Upgradation Fund Scheme (ATUFS):• Approved by Cabinet Committee on Economic Affairs (CCEA) on 31st December 2015;• Apparel, Garment and Technical textiles will get upto subsidy of lower of 15% of

capex or Rs 30 Cr over a period of five years;• Remaining sub-sectors will get lower of 10% or Rs 20 Cr.


Competitive Landscape

Lingerie

Page Industries Ltd

Rupa & Co Limited Loveable Lingerie

Ashapura Intimates Maxwell VIP

Operations since 1994 1968 1987 1999Headquarter Bangalore Kolkata Bangalore Mumbai MumbaiPromoter's holding 49.01% 74.93% 67.23% 67.74% 65.22%

Key Products Innerwear Bottoms, Tops for

Men, Women, Kids, Sports, Leisure Wear,

Thermals, Lingerie

Innerwear Bottoms, Tops for Men,

Women, Kids, Sports, Leisure Wear,

Thermals, Lingerie

Lingerie, Sportswear, Full Bottoms, Long Tops, Shorts,

Tops

Lingerie, Nightware, Maternity wear, Bridal

wear, Loungewear

Innerwear Bottoms, Tops for

Men, Women, Lingerie

Key Innerwear Brands:Men Jockey Frontline, Euro, Jon, - - VIP, Frenchie,

Leader, Eminence

Women Jockey Rupa Softline, Softline Leggins,

Macrowomen

Lovable, Daisy Dee

Valentine Secret Skin & Valentine Pink, N-

Line, Night & Day, Sportswear

Feelings, Eminence

Kids Jockey Imoogi - - -Other Brands - Footline, Bumchums,

Thermocot, Torrido- - -

Mfg Capacity 194 mm pcs/year 7 lac pcs/day 116 lac pcs mfg in FY15

# >3.2 lac pcs/day

No of Plants 12 4 3 1 4

Retail Outlets >44k > 1.18 lac - 14k > 1.1 lac

Credit Rating CRISIL AA/Stable; CRISIL A1+

CRISIL A+/Stable; CRISIL A1+

CARE A+ CARE BBB+ CRISIL BBB-

Op Performance:Revenues (Rs in Cr) 1,749.49 1,013.03 196.76 182.67 194.57 EBITDA (Rs in Cr) 377.11 131.33 30.63 25.68 -0.44

PAT (Rs in Cr) 232.66 77.96 23.18 12.00 -9.93

3 yr CAGR in:Revenue 27% 7% 9% 20% -8%EBITDA 29% 4% 10% 35% -130%

Net Profit 27% 8% 7% 18% 0%

Leverage (3 yr avg) :Interest Coverage 20.63 5.93 20.24 2.46 1.33 LT Debt to Equity 0.08 0.02 0.02 0.29 -

TOL/TNW 1.12 1.18 0.20 4.03 1.66

Dividend % PAT (3 yr avg) 49.6% 33.9% 52.3% 23.3% 25.7%

Export % Total Revenues 0.7% 2.4% 0.1% 6.5% 7.3%Import % total RMC 8.3% Nil 2.5% Nil Nil

Market Multiples

•Page Industries, the undisputed leader among the peers, due to significant premium people are willing to pay. •Ashapura Intimates high PE and Price to Book Value ratios are driving up the Average in the industry •Maxwell-VIP, due to EBITDA level loss in FY16, is a spoil sport here. Excluding VIP, Average PE Ratio and EV/EBITDA ratio works out to be 55.7x and 24.5x, respectively, which looks reasonable.

Companies Share price

52 week (H/L) M Cap (Rs in Cr)

M Cap/ Revenue

Earnings Yield

(EBIT/EV)

Price to Earnings

Price to BV

EV/EBITDA

Page Industries 13,524.0 15900/9770 15,085 8.46 359.54 64.5 29.7 40.2 Rupa & Co Ltd 294.1 428/225 2,338 2.31 132.23 30.0 6.4 18.9 Maxwell-VIP 53.3 82/29 353 1.81 3.12 -7.1 0.8 -1,015.8 Lovable Lingerie 270.0 324/205 453 2.30 33.76 19.6 2.2 14.9 Ashapura Inmates 253.4 327/214 495 2.79 23.71 108.6 10.0 21.6

Average 3744.8 3.53 110.47 43.1 9.8 -184.1 Median 495 2.31 33.76 30.0 6.4 18.9 Minimum 353 1.81 3.12 -7.1 0.8 -1,015.8 Maximum 15,085 8.46 359.54 108.6 29.7 40.2


Share price

Ashapura Intimates has outperformed not only Page Industries (Jockey India) the but also the broader market by a huge margin consistently in the last five years.


Entry of Foreign players in Indian Market

•Influx of Foreign brands, through collaboration with Indian Textile and Apparel Players, led to rapid proliferation of premium and super premium innerwear products in India.


Cost Structure % Total Revenues (last 3 year’s average)

•Wide range in cost and profit structure is visible which is a strong reflection of Brand Strength.•While Lovable’s Cost of sales margin is lowest among the peers, it is spending 23% of revenues on Selling and Administration to capture market share.•Page Industry, the undisputed leader, pays Royalty @ 5-6% of its gross sales to Jockey USA. Excluding Royalty, SD&A margin mainly consists of Advertisement expenditure.•Aura Herbal, manufacturer of herb dyed organic clothing, is the smallest player among peer group. Its Cost of sales margin is high because of significant trading operations.

Ashapura Jockey Lovable Rupa VIP Aura Herbals

-20%

0%

20%

40%

60%

80%

100%

120%

83%

65% 60%72% 77%

92%

5%

15% 23%15%

17%

5%2%

6% 4%4%

1%

0%

5%13% 12% 7%

0% -1%

Cost of Sales Selling, Distribution, Admin Finance Cost Tax PAT

Profitability Analysis (last 3 years’ average)

Gross Profit Margin EBITDA Margin PAT Margin ROE (excl C&CE) ROCE (excl C&CE)

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Ashapura Jockey Lovable Rupa Maxwell Aura

Clearly, Jockey supersedes all other companies in Profitability metrics, mainly due to brand premium and efficiency in operations.


Efficiency Analysis : Turnover Ratios (last 3 years’ average)

Ashapura Jockey Lovable Rupa Maxwell Aura -

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

17.4

7.4

4.2

6.6

3.5 2.8

1.2 1.8

0.8 1.5

1.0 1.4

Fixed Asset Gross WCap Total Tangible Asset

Ashapura Intimate’s abnormally high Fixed Asset Turnover Ratio suggests that the Company might be doing trading operations. Excluding Ashapura, broad industry average is 4.8 times.

The average Gross Working Capital turnover ratio is in 2x range.


Efficiency Analysis: (last 3 years’ average)

Ashapura Jockey Lovable Rupa Maxwell Aura -

2.0

4.0

6.0

8.0

10.0

12.0

5.3 5.5

6.7

5.4

7.0

2.8

3.5

0.7

2.1 2.0

3.0

1.6

8.9

6.2

8.8

7.5

10.0

4.4

Inventory Debtor Inventory + Debtor


Leverage Analysis:(last 3 years’ average)

Ashapura Jockey Lovable Rupa Maxwell Aura

-5.0

-

5.0

10.0

15.0

20.0

25.0

2.6

20.6 20.2

5.9 5.9

1.2 2.1

1.1 0.2

1.2 1.2

5.7

Interest Coverage LT Debt to Cash Accruals Total Debt to Equity TOL/TNW

The Industry is by and large unleveraged, as suggested by low average Total Debt to Equity of 1x and high Interest Coverage ratios.


Conclusion• The Industry has strong fundamentals linked to overall economic growth, rise in per

capital disposable income, rise in consumerism and rapid increase in people’s aspiration level to buy innovative and expensive innerwear. Also, lower per capita spend on innerwear bodes indicates significant potential to grow the business.

• Women segment is poised to drive overall growth due to financial freedom, increased share of western wear and consequent demand for compatible innerwear.

• Increasing share of organized players, influx of foreign brands, proliferation of buying lingerie on ecommerce platform will drive the market.

• Low leverage, decent profit margin (driven by brand recall) are key attraction of this industry.


References1) Last five year’s Annual reports of Page Industries Limited, Rupa & Company Limited, Lovable Lingerie Limited, Ashpura Intimates Fashion Limited, and Maxwell VIP Limited;

2) Initiating Coverage Report of ICICI direct.com dt 29.03.2012 on Indian Innerwear Industry.

3) Amended TUF Scheme: http://www.ibef.org/news/amended-tuf-scheme-for-textile-sector

http://www.ibef.org/news/amended-tuf-scheme-for-textile-sector

About

Contact Person Rishikesh Jhawar , Chartered Accountant, MBA from IIM Lucknow

Email [email protected]

Contact no +91 84472 13534

Documents

Overview of Indian Innerwear Industry