Our EBITDA margin will stay above 18%, says Rupa & Co. Ltd Chief Executive Officer Dinesh Kumar Lodha
Dinesh Kumar Lodha, Chief Executive Officer, Rupa & Co. Ltd, talks about March quarter numbers, demand areas, plans related to entry into new markets, debt levels, CapEx, inorganic growth opportunities to margin guidance among others during a candid chat with Swati Khandelwal, Zee Business.
Dinesh Kumar Lodha, Chief Executive Officer, Rupa & Co. Ltd, talks about March quarter numbers, demand areas, plans related to entry into new markets, debt levels, CapEx, inorganic growth opportunities to margin guidance among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:
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Q: The company has posted a positive set of numbers for the March quarter and you managed to post the highest ever revenues and profits in FY21. What are the highlights of the quarter and is it sustainable in the future?
A: The future guidance is also for a growth of 15-20% but one of the reasons why the growth is good is that post-COVID there has been a huge emergence in term of demand. We see good demand for outerwear as well as innerwear and we are seeing a good demand on both fronts. As far as the future is concerned, the first two months was subdued due to the lockdown, but as the lockdown is getting open, we are seeing the demand coming back and we expect good results this year as well.
Q: From where the demand is coming. Is it geography specific or segment-specific?
A: The demand is across. In the value segment, we have seen a good demand in the value segment from both rural and urban. Our brand Jon has grown well. We have also seen good growth in the thermal which on a continuous basis has been displaying a year-on-year growth of around 20-25% and it will continue in the future as well as we have introduced a number of products in the segment. So, as your question is from where the demand is coming from then I think that demand is across but outerwear particularly in our brand Bumchums, we have seen a growth of more than 70% and expect that it will be in good demand in the future as well. So, outerwear will definitely outclass others but overall demand has been across.
Q: You have a focus to penetrate newer markets. What will be the new markets in terms of domestic as well as international play? What can be the strategy to expand the business and what is going to be digital play as well as brick and mortar play?
A: As you know that we are a very strong player in the east followed by north and then west. Clearly, within the North and West, there is a lot of space, where we are still weak in states like MP, and Chhattisgarh. In Uttar Pradesh, we have certain weakness like in the Western UP. In Maharashtra, if Mumbai and Pune are left, then we have a big opportunity there and we are targeting it. In the South market, there is a big opportunity. So, these are the markets where we have not penetrated and have built a new team and developed a distributor network. In the coming time, the result will be very good from there. Last year, we did what we should have done and its results will look better this year. Globally Russia, Middle East is among the three-four countries from where we are seeing very good demand. In fact, there was a growth of around 17-18% in the fourth quarter and we are taking a 60-70% growth target in exports.
Q: You have reduced your debt by Rs 177 crore in FY20. . What is the current debt structure, how do you plan to reduce it and how are you managing your cash flows?
A: Our net cash is positive at present on a standalone basis. This time, we have reduced our working capital from 217 days to 165 days, this year. But, still, there are opportunities in it and we are targeting 145-150 days. So, we will have further improvement of 10-12% in the working capital, which will help in generating extra cash. As far as CapEx is concerned, in general, a huge CapEx is not required in this industry and will maintain the regular CapEx of Rs 20-40 crore. It will be used in cutting machine and warehousing. With the cash that we have, we will look forward to an inorganic growth opportunity in our four to five growth segments, like women wear – which has a contribution of around 10% in our revenues. We are targeting a growth of more than 30% and are also looking at inorganic growth. Similarly, we are seeing a huge opportunity in our outerwear brand ‘Bumchum’. We are seeing a big demand in the segment and we are also looking forward to an inorganic growth opportunity in the segment. Exports and modern trade – it has 2-3% contribution in our revenue at present and we have a target to take it to 10% in the next three years, i.e. we have a minimum growth target of around 40-50% in the modern trade so that it turns up to be minimum 7-10% of our revenue. So, we have a strategy in which we will use our cash and also look forward to inorganic growth opportunities.
Q: You have talked about the inorganic growth opportunities. Please tell us about the ticket size and are you looking at these brands within India or it can be outside India?
A: There is no final discussion on the table yet but we are evaluating a number of opportunities, which are in the market. As far as a global brand is concerned, we have two big brands, namely, FCUK and FOTL and they are licensed for India and have huge growth opportunities. We have a lot of inorganic growth opportunities and we are targeting them but I don’t have their name and targets but definitely, we will go to see if the opportunity is good and gives us a sense from strategic fit, we will invest in it.
Q: But can you give a rough estimate of the ticket size of this opportunity?
A: There is no such deal on the table right now that I can tell. But anything between Rs 50 to Rs 200 crore is a good size for us to get into. This is a size that fits us well and women wear is an area where it feels that there is a great opportunity and we are still at a very early stage and it has a contribution of just 10% in our revenues and we are targeting to increase it to 20% in the next three years. So, if we choose the inorganic method then we can grow at a higher pace. We are working a lot on the front.
Q: What are the promoters view and their stake in the company? Are you looking forward to any buyback opportunity in the future to increase the promoters’ stake in the company?
A: The promoters’ stake is 73.2% and there is no intention yet to either increase it or decrease. It will continue as it is right now. But the business is on the right platform and our strategy has started giving results. Going forward, the results will get better because the 6-7 strategies on which we are working are huge and it can provide a huge number to us.
Q: What are your plans to maintain the margins? What is your guidance on margins?
A: At EBITDA level, we expect that from 19.6% it will be 18% plus because the advertising cost that went up to 4.2%, normally it stays between 6-7%, will return back to 6-7% but the revenue will go up and some operating leverage will be there. So, overall, we are expecting 1% plus EBITDA level and a similar way PAT level will be there. It will reduce by 1%. Thus, the margins will continue to be good even in the coming days and will continue to provide solid results.
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