Rupa Company reported a good set of numbers in September Quarter 2023. Revenue from operations grew to Rs 302 crore, a rise of 6% YoY in Q2FY24 supported by double-digit volume growth. Volumes jumped 15% YoY in Q2FY24 and 10% in H1FY24. Volume growth in premium innerwear was the highest at 22% YoY, mid-premium grew 20% YoY and economy segment volumes jumped 9% YoY in Q2FY24. But the premium segment contributes just 10% of revenues and the mid-premium and mass segment contributed 58% and 32% YoY respectively in Q2FY24.
High inflation and stretched family budgets have impacted the economy innerwear segment more than the premium segment. The economy innerwear segment contributed 45% of total volumes of Rupa & Company. Speaking on higher economy segment volumes mix, Sumit Khowala, Chief Financial Officer at Rupa & Company said, “So going forward, it would be rationalized and the contribution from premium and mid-premium segment, will increase and gross margins will improve thereon.” The company reported operating margins of 10.74% in Q2FY24 compared to 10.24% in September Quarter 2023. Net profit stood at Rs 20.5 crore in Q2FY24 compared to Rs 17 crore in the same period previous year.
Lower cotton prices impact innerwear industry
While higher economy segment contribution in overall volumes impact revenues, Rupa & Company has always been an economy player with limited premium play. Rupa & Company, Dollar Industries and Lux Industries are all economy segment players and Page Industries, a major premium player. The innerwear industry is currently reeling under lower cotton prices. As cotton is a major raw material, lower cotton prices lead to lower priced finished goods for the innerwear industry. Cotton prices touched its 12-month low in November 2023. Speaking on low cotton prices, Vikash Agarwal, Wholetime Director at Rupa & Company said, “For higher sales growth, a lot will depend upon the raw material prices. If raw material prices firms up, then value-wise also, we should do better.” While cotton production increased with higher yields in Argentina and Brazil, demand has not caught up leading to lower cotton prices globally. In addition to lower cotton prices which impact top-line, excess inventory in the innerwear industry is also taking its toll. Most of the brands are resorting to deep discounts to clear excess inventory. In this scenario, it is difficult to increase prices. Rupa & Company undertook a price hike which was withdrawn later. “Price hikes, we have taken initially in October month, but as for competition, we have withdrawn that towards the end of the month. In the coming quarters, we have to take one. A lot will depend on the yarn price. So let’s see what happens next month.”
Rupa & Company’s optimistic medium-term plan
While the operating environment remains tough, Rupa is moving optimistically pursuing growth by laying down its medium-term agenda which includes augmenting modern trade, exports, EBO count and government business. By focussing on e-commerce via partnerships with Amazon, Flipkart, Rupa aims to increase its modern trade business 4x in the next three years. The expansion plan includes doubling the store count in regional large format stores majorly focusing on states of Tamil Nadu and Kerala. And also to increase brand presence across more than 1000 points of sales in the next one year. For this EBO expansion is a major prerogative. The company plans to increase its pan India presence by adding 150 EBO’s in the next 2-3 years. Rupa has recently hired an EBO manager to focus exclusively on managing and expanding the EBO network. Next in line is international business which according to the management is witnessing substantial traction and Rupa & Company plans to focus on the Middle East, Bangladesh, Africa & Russia. The company has recently inaugurated a dedicated export unit in Q2FY24. Speaking on the export unit, Agarwal said,” Around 40,000 to 50,000 pieces per day will be manufactured, which would help us to increase the revenue of around Rs 100 crore plus with the 80% to 90% capacity.” The company aims to increase its export business 5x in the next three years. And also in the same league, canteen stores department (CSD) government business to grow 5x in the next three years. While all of this looks strongly optimistic and ambitious, hopefully cotton prices should not play spoilsport.
