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Q1-FY23 Result Update

* Rupa & Company Limited is one of the leading and largest knitwear brand in India. The Company is present across the entire value chain in the knitted garment space offering a gamut of products from innerwear to fashion wear. It is engaged in the manufacturing, marketing, selling and distribution of men's and women's innerwear, thermal wear and fashion wear across economy, mid-premium, premium and super-premium categories.

* The Company operates through its state-of-the-art manufacturing facilities in West Bengal, Tamil Nadu, Karnataka and Uttar Pradesh. The company has a PAN-India as well as international presence with a large distribution network consisting of 4 central warehouses, 7 exclusive brand outlets, more than 1200 dealers and 1,25,000 retailers. Further, the company is present through online platforms like Rupaonlinestore, Amazon, Flipkart, Myntra, etc.

* The company reported under performance during the quarter under review as revenue from operations declined by 1.5% YoY to ?2,147 million & volume de-growth by more than 15%. Primary reason for this under performance according to the management is due to price hike and tightening of credit policy of the company in key few key rural areas of Bihar, Rajasthan, UP. However, the management believes the right credit culture is in the long term interest of the company.

* On profitability front, the EBITDA from operations for the quarter declined by 56.1% year-on-year to ?185 million with an operating margin of 8.6%. The company reported PAT of ?125 million, declined by 57.3% year-on-year with a net margin of 5.8% translating into EPS of ?1.57 per share for the quarter.

* The decline in EBITDA margin was majorly attributed to the volatile raw material prices and which impacted gross margin as well as significant increase in marketing expenses. Further increased administrative and manpower expenses have not been absorbed completely due to the flat revenue in the quarter. The working capital cycle stood at 212 days which is stressed and due to the stocking of finished goods and semi-finished goods. However, company expects to moderate its working capital cycle in quarter to come.

* Given the company’s extensive range of branded products across all segments, strong balance sheet and attractive valuations. We maintain our BUY rating on RUPA, with a revised target price of ?500 per share.

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