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Our Take:

Rupa & Company is one leading player in branded innerwear segment in India. Despite the pandemic led slowdown, the company has registered best ever operating performance in FY21. This has been mainly driven by its robust distribution network and consistent investment behind brand promotional activities which has been in the tune of ~Rs. 700Cr over FY12-21.

The company has been constantly focusing on expanding its product portfolio and venturing into newer markets both in India as well as overseas market. Going forward, we continue to be positive on Rupa & Co. on the back of 1) Accelerated growth in margin accretive premium and super premium innerwear category of products which comprises of brands like FCUK & Fruit of the Loom 2) Higher growth in women’s and casual wear range of products 3) Strong guidance of achieving Rs. 200Cr revenues in thermal wear in next 2 years and doubling exports in FY22.

On Dec-28, 2020, we had initiated coverage on Rupa & Company with Buy recommendation at the price of Rs. 214 for base case target of Rs 265 and bull case target of Rs 295. https://www.hdfcsec.com/hsl.research.pdf/Initiating%20Coverage%20- %20Rupa%20&%20Co%20281220.pdf. The stock hit a high of Rs 295 and our bull case target got achieved on Dec-29, 2020. Also on May21, 2021, we had come out with a Stock update on Rupa and Co. https://www.hdfcsec.com/hsl.research.pdf/Stock%20updateRupa%20&%20Co.pdf.

View & Valuation:

Rupa & co reported subdued results in Q1FY22 due to Covid-2 led lockdowns. We are positive on the future growth outlook of Rupa & Company. Going forward, we expect continued re-rating of the company which would be driven by its sustained better operating performance with strong free cash flow generation which is expected to keep the company net debt free. The management has guided for a sustainable EBITDA margin of 18-19%.

We have revised upwards our estimates for FY22 and FY23 following a great set of numbers in Q4FY21 and hence FY21. We expect its revenue/EBITDA and PAT to grow at CAGR 10/8 and 10% over FY21-23E. The stock is currently trading at valuation of 16x FY23E earnings. We feel the base case fair value of the stock is Rs 428 (16x FY23E) and bull case fair value is Rs 468 (17.5x FY23E). Investors can buy the stock on dips at Rs. 387(14.5xFY23E EPS) and further add on dips at Rs 360 (13.5xFY23E EPS).

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