Informist, Thursday, Oct 14, 2021
--Rupa & Co ED, CFO: Targeting 1% margin expansion every year
--Will open 100 brand outlets by FY23
--Target to grow e-commerce business
By Avishek Rakshit
KOLKATA - Rupa & Co Ltd has long been among the leaders in India’s innerwear market, but in the budget segment. The Kolkata-headquartered company is now focusing on premiumisation of its portfolio for margin accretion, but without losing sight of its core strength – budget brands.
"I can say that premium will grow faster than the overall company growth, but if John (budget brand) grows even by 10%, the contribution from budget brands will still be higher than premium brands in absolute terms," Executive Director and Chief Financial Officer Ramesh Agarwal tells Informist in an interview.
The premium segment contributes around 30% to the company’s topline.
The company plans to expand its presence in south India by an aggressive focus on opening several outlets.
Rupa & Co aims to outpace the market growth by clocking a 15-20% rise in sales for the next five years, says Agarwal. It also looks to improve gross margins by 1% every year to further strengthen its cash position.
Following are edited excerpts of the interview with Agarwal:
Q. Could you give an overview of the innerwear market in the country and your market standing?
A. The market size is merely an assumption and is very hypothetical as there has not been any serious study on the data. Thus, it is not easy to guess market share per se. However, the market has been growing 10-12% per annum.
Q. What kind of growth are you looking at in the next few years?
A. We are targeting to grow by 15-20% for the next five years.
Q. How will you achieve this growth target?
A. The premium segment is contributing around 30% to the company’s topline. But our budget brand 'John' is also showing good growth. The same is with the mid-premium segment comprising the 'Frontline' brand.
I can say that premium will grow faster than the overall company growth, but if John grows even by 10%, then the contribution from budget brands will still be higher than premium brands in absolute terms. I don't see the revenue mix changing much.
Q. What about your gross margins?
A. I see margins improving because of cost rationalisation and other factors. Our target is to expand our margins by at least 1% every year.
Q. Won't higher raw material costs play spoilsport for your growth and margin projections?
A. Whatever the increase is in raw material prices, we intend to pass it on to the consumer as any company would do that. Let me stress upon the fact that we have been able to cover the entire price rise.
Yarn prices had gone up by around 50%, and on the finished product, we increased prices by 25-30%. Cost of producing yarn is still high, but prices have become stable now. Going forward, there will be further price hikes if the trend continues.
Q. When is the next price hike expected and by how much?
A. Post Diwali, I see price hikes again, but the extent will depend on yarn and cotton prices.
Q. When is the final demerger of your subsidiary Oban Fashions expected, and what will be the impact on Rupa?
A. It is likely to be completed soon and currently in its last leg. We will not dissolve Oban, and it will continue its trading and allied businesses. The 'FCUK' and 'Fruit of the Loom' brands will directly come under Rupa after the process is completed.
Q. You are not so strong in south India. How do you plan to address that?
A. We have a strong presence in states such as Telangana and Karnataka, but not in Tamil Nadu, Kerala and Andhra Pradesh. We have appointed agents for these states, who in turn will appoint dealers. Our sales style is we appoint agents who engage with and look after the dealers. From the next quarter (Jan-Mar), we should hopefully see some good traction there.
By end of the (current financial) year, we will have some presence and the next (financial) year onwards, we will see good sales from these states.
Q. What is your target for the expansion of distribution and retail base?
A. It is said that we have more than 100,000 retailers, but let me tell you that it is an assumption. We have more than 1,200 wholesalers in our network. There is no target to increase it to a predefined number, but the greater the number, the merrier.
As we enter new states, the number of wholesalers and dealers will increase as well, but it will be a qualitative increase, not quantitative.
Q. What are the plans for exclusive brand outlets?
A. We opened four exclusive brand outlets in October, which has taken the number to 23. We intend to have at least 50 exclusive brand outlets by March, and 100 in the next one year. We will open these across India--in Rajasthan, Bihar, Madhya Pradesh, West Bengal, and other states.
These are based on a franchisee model, so there is no need for investments from our side.
Q. Do these exclusive brand outlets have only premium brands?
A. Exclusive brand outlets have outerwear brands, so yes. And we are planning to launch retail-centric brands as well, which will be available only in the exclusive brand outlets, modern trade and e-commerce portals. Down the line, we will have exclusive brands online and for exclusive brand outlets.
Q. What are your plans for e-commerce?
A. E-commerce currently accounts for 6-7% of the overall revenue, but we envisage it to contribute at least 15% of the company’s turnover in the next two years.
The pandemic definitely played a role as people resorted to online shopping, but I see that consumers also want comfort of home. Once people get used to comfort and luxury, they don’t want to give it up. So, e-commerce will get a boost.
Q. Will you solely rely on third-party platforms or also have your own direct online sales?
A. We are revamping our website and also tying up with e-commerce players to build exclusive brands for them in a sort of co-branding strategy. End
Edited by Patricia Hou
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