IGI Logo

Strong profitability, strengthened b/s augur well…

Rupa and Company reported a strong FY21 performance in a tough business environment. The company showed agility in rejigging both its product portfolio and distribution strategies to benefit from the changing consumption pattern and stress faced by smaller unorganised players. Rupa reported strong consolidated revenue, profitability for Q4FY21 aided by a weak base, to some extent. Revenue for Q4FY21 grew 153% YoY to | 454 crore (Q4FY20: | 179 crore; YoY down ~ 55%).

Gross margin expanded 247 bps YoY to 35.7%. Also, positive operating leverage owing to lower employee & other expense (as percentage of sales) enabled EBITDA margin expansion by 1556 bps YoY to 20%, EBITDA of | 90.6 crore (Q4FY20: | 7.9 crore). Hence, PAT was at | 65.9 crore vs. loss of | 4.3 crore in Q4FY20.

Focus on newer products, markets to aid revenue growth

FY21 has been a good year for Rupa with highest ever revenue and net profit with revenue growth of 35% to | 1313 crore and net profit of | 175 crore. To cater to latest customer demands, the company has added newer varieties under its existing brands. Also, it is focussing on enhancing its distribution reach both in existing and newer markets by appointing new distributors to garner a higher share of consumer demand for its product categories. Rupa is planning to enhance its share of revenue of premium/super premium products. Also, it is planning to increase focus on casual wear, women and thermal wear categories to further broad base its product portfolio. To enhance its brand presence, the spend on advertisement is expected to be back to the normal range of ~6-7% in FY22 (FY21: 4.2%).

Better working capital management aids b/s improvement….

In FY20, the company’s cash conversion cycle was significantly higher than peers at ~217 days. Rupa is shifting towards direct distribution channels for some of its products. The focus of the management on better inventory management with mapping of both primary/secondary sales has yielded positive results with inventory days reducing from 175 days in FY20 to 109 days in FY21. Improved working capital management has enabled the company to reduce net debt to | 22 crore in FY21 from | 174 crore in FY20.

Valuation & Outlook

The Indian innerwear industry is expected to grow at 11% CAGR from ~| 39000 crore in FY20 to | 89700 crore in FY28 with current share of organised players at ~ 40%. With increasing aspiration of customers and extended reach of branded players, share of organised players is expected to grow at a faster pace.

Companies like Rupa that have a presence across price points can benefit from consumers shifting from unorganised to organised and register sustained double digit revenue growth. The company has seen a significant improvement in profitability profile and augmentation of RoCE to ~25%+ warranting a re-rating in valuation multiple. We expect revenue, earnings CAGR of 14%, 9%, respectively, in FY21-23E. Owing to its strong performance and improved industry outlook, we revise our rating from REDUCE to BUY with a target price of | 575 (22.0x FY23E earnings).

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer