Edel Branded Apparel - Theme Only

Edelweiss Invest Research
Edel Invest
B r a n d s Research
November 2015
Branded Apparel
"Branding a Growth Story"
Raj Gala
Research Analyst
+91 (22) 4088 6137
raj.gala@edelweiss.in
Kshitij Kaji
Research Analyst
+91 (22) 4019 4736
kshitij.kaji@edelweissfin.com
Branded Apparel
Raj Gala
Research Analyst
+91-22- 4088 6137
raj.gala@edelweiss.in
Kshitij Kaji
Research Analyst
+91-22-4019 4736
Kshitij.kaji@edelweissfin.com
Executive Summary
Branded apparel: Potent catalysts in place to spur exponential surge
Indias apparel industrys growth story is set to gain further heft by entry of marquee global brands,
sharpening focus of big domestic business houses and the online revolution kick started by e-commerce
players. The ensuing substantially higher scale of investments and competition are anticipated to fuel faster
growth. Benign inflation and GDP spurt are bound to induce consumers to loosen their purse strings,
boosting discretionary consumption over the medium term. Moreover, favourable demographics (younger
population influenced by western culture), improved affordability & willingness to spend on ones looks &
image, higher GDP per capita spending on apparel, shrinking unorganised sector pie and a burgeoning
middle class palpably brighten the domestic branded apparel industrys long-term outlook. Ergo, we
estimate branded apparel to clock 10-12% CAGR over 2014-19 driven by jump in volumes as well as
realisations. We envisage the share of branded garments in readymade garment segment to catapult to 4648% in 2019 from ~35% in 2014.
Mega trends to boost scale and profitability of players
Changing consumer preferences & incomes, altering business dynamics from traditional season-based
fashion to fast & trendy fashion, among others, are heralding a paradigm shift in the domestic apparel
industry. The Indian middle class, traditionally less fashion and brands conscious, has become fashion savvy
and developed strong brand loyalty. Cash registers of relatively minuscule and obscure foreign as well as
domestic brands have started ringing as they have gained visibility in the modern retail environment.
Moreover, healthy competitive rivalries have ushered industry consolidation, differentiation, design
innovations, manufacturing process improvements, distribution platforms, etc. The online revolution kick
started by e-commerce players has been a definite gamechanger that has single handedly improved
fortunes of small branded apparel players by enhancing their distribution reach. We perceive these enabling
factors as harbingers of exponential surge in scale and profitability of Indian branded apparel players.
Outlook: Right product positioning, low debt, high margin, efficient WC players have winners edge
Indias branded apparel industry is highly fragmented, right from production to retail, which has been a
major roadblock curtailing scale and profitability of businesses. In our view, strong brand, vibrant
distribution network, robust supply base and right product positioning are mandatory ingredients to
enhance profitability of branded apparel players. Hence, from the basket of domestic players, we prefer
businesses with low financial leverage, efficient working capital management and high margins & RoCE. We
initiate coverage on Siyaram Silk Mills with BUY. We remain positive on KKCL, Indian Terrain, Arvind and
Madura Fashion.
Edel Invest Research
Branded Apparel
Mega Trends
Mega trend #1: Changing consumer trends and preferences
In apparels, many new trends are apparent like rising demand for readymade garments is replacing stitched
clothes. Also, price sensitivity has been replaced by quality, brand recall and aesthetics. A younger fashion
conscious population, higher comfort level in western wear, entry of foreign brands and higher penetration of
organised retail are driving preference for casual western wear. The Indian middle class, traditionally less fashion
and brands conscious, has become fashion savvy and developed strong brand loyalty. Womens wear in India is
highly fragmented with organised retail accounting for mere 5% share and is currently dominated by stitched
ethnic wear (salwar kameez and saree). However, rising share of women in work force will spur demand for readyto-wear branded western and ethnic wear. Brands such as Allen Solly and Van Heusen, earlier dedicated exclusively
to mens wear, have now launched a range of womens western wear. Womens ethnic wear is also seeing gradual
shift from unbranded to private labels.
Mega trend #2: Fast fashion creating innovative disruption
Fast fashion implies quickly capturing the latest fashion and catwalk trends and replicating them in a retail format.
This requires an efficient supply chain and quick & inexpensive designing and manufacturing. This philosophy of
quick and outsourced manufacturing, replicating latest designs at affordable prices with a short shelf life, is used
by some of the biggest and most successful international apparel brands such as H&M and Zara. As new products
are launched every week, existing products have a short shelf life, inducing shoppers to visit stores often,
generating higher volumes. As the inventory is fast moving, the need to discount products to clear out stock is low,
keeping margins stable. Zaras strategy of clustered suppliers and designers close to its headquarters helps it move
from design to display in less than 2 weeks and, therefore, it is hailed as the leader of the fast fashion retail
revolution. In India, fast fashion is more women-centric and it has been a huge success, evident from the laudable
performance of fast fashion players such as Max Retail, Westside and Zara. Pantaloon too is betting heavily on it.
Mega trend #3: Modern retail key to success
Earlier, the Indian textile industry was fragmented with only a fraction of the market penetrated by organised
retail. The balance was operated by small, independent retailers with 500 sq ft trading space fragmented across
sub-segments, offering only locational convenience to customers. However, proliferation of malls, high streets,
large format stores and multi-brand outlets in metros has spurred preference for branded apparel. Relatively
minuscule and unknown domestic brands started growing rapidly as they gained visibility in the modern retail
milieu. Their success prompted many international brands to enter India. Recent years have seen increasing
traction in organised retail in tier 1, 2 and 3 cities. Modern retail has focused on wide scale expansion. Branded
apparel players opt for the franchisee format to grow, as franchisees operating on reasonable scale with control
over their working capital are capable of generating free cash flows for a longer period.
Mega trend #4: E-commerce revolution a blessing in disguise
Due to saturation of available retail space and infrastructure and operational challenges, most retailers had to look
for other avenues to reach out to consumers. E-commerce provides this platform anchored by rising internet
penetration and jump in the number of Indians owning an internet-enabled smart phone. E-commerce offers
consumers attractive discounts on good quality trendy products, a larger bouquet of products & brands to chose
from, convenience of cash on delivery and ease in returning products. The online retailing market is expected to
grow to USD44bn by 2018 (USD13bn in 2014) with apparel being one of the biggest beneficiaries (31% online retail
presence already). E-commerce also helps e-tailers in real-time consumer data analytics. These analytics involve
identifying consumer trends which are then combined with other indicators such as income levels to devise
customised offerings, helping e-tailers capture latest trends, accurately target customers and continuously
innovate to stay ahead of competition.
Branded Apparel
Apparel Brands in India
Luxury
Premium
Value/Mass
Branded Apparel
Indian branded apparel - Story in a nutshell
Indias GDP and GDP per capita to increase
Indias per capita spending on apparel (USD) amongst the lowest
740
804
1050
138
India GDP Per Capita (USD) (LHS)

2012
Real GDP Growth (%) (RHS)
Indias average population age amongst the least
Australia
36
377
454
781
1221
Canada
2020E
2015
2019E
5.0%
2018E
0
2017E
5.5%
2016E
500
2014
6.0%
2013
1,000
2012
6.5%
2011
1,500
1080
Japan
1,522
1643
EU-27
7.0%
USA
2,000
Russia
7.5%
Brazil
2,500
China
2,672 8.0%
India
3,000
2025
India to soon have one of the largest working populations
50%
44%
34%
75%
32%
30%
21%
18%
31%
23%
15%
55%
9%
8%
65%
Japan
USA
China
Europe
India
Indonesia
45%
35%
1950 1960 1970 1980 1990 2010 2020 2030 2040 2050
Non - Working Population (India)
Aged 24 and under
Aged 60+
Non - Working Population (China)
Indias discretionary spending has been rising

16%
14%
12%
10%
12%
12%
Rise in middle income and affluent class

1%
13%
7%
18%
12%
10%
6%
42%
59%
86%
4%
20%
75%
46%
20%
2000-05
2005-10
Total consumer spend

Discretionary Consumer Spend
2010-15
Essential Consumer Spend
1995
2005
Low Income
2015
Middle Income
2025
Affluent Class
Source: Company, Edel Invest Research
Branded Apparel
Indias personal disposable income growing steadily
3500
Domestic RMG market expected to grow at 10-12%
3,045
3000
43
2500
1,939
2000
27
1500
17
787
1000
424
500
0
2005
2010
2015
2020E
2009
2014
India Disposable Personal Income (USD bn)
Domestic RMG Market (USD bn)
Indian e-commerce industry to clock 40% CAGR
Apparel accounts for 31% of e-commerce spending
43.9
2%
11%
2%
Electronics
31.4
5.9
4.4
7.9
Apparel
7%
22.4
47%
16
13.6
2019E
Books
Baby products
8.9
Personal Care
31%
Others
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Online retailing market India (USD bn)
Modern retail gaining traction
Fast fashionBiggest segment in apparels

61
47
37
33
Formal wear
14%
Casual wear
23%
Denim
14%
16
Kids
7
6%
25%
FY 11
Modern Retail (USD bn)
Ethnic
FY 16
Accessories
Fast fashion
FY 21
13%
Unorganised Retail (USD bn)
5%
Mass fashion
1%
Branded Apparel
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Branded Apparel
Contents
Executive Summary ........................................................................................................................................... 1
Apparel Brands in India ..................................................................................................................................... 3
Focus Charts Story in a nutshell ...................................................................................................................... 4
Indian Textile Industry: The Numbers Game ................................................................................................... 11
Textile Value Chain .................................................................................................................................. 12
Readymade Garments Long term Outlook & Overview .................................................................... 13
Branded Apparel Players: Financial Snapshot ............................................................................................. .18
Branded Apparel Segment: At an Inflection Point ................21
Industry Growth Drivers..24
Mega Trends Driving Scale and Profitability of Branded Apparel Players .................................................... 29
Mega Trend # 1: Changing Consumer Trends and Preferences....................................................................... 29
Discretionary Spending Increasing .......................................................................................................... 30
Growing Preference of Casual wear ........................................................................................................ 30
Higher Affinity for Western Brands ......................................................................................................... 31
Womens wear: Branded fashion gaining traction, but still highly fragmented ...................................... 33
Mega Trend # 2: Fast Fashion Creating Innovative Disruption ........................................................................ 34
Inditex (Zara): The pioneer of fast fashion & largest global clothing retailer .......................................... 35
Zara in India ....................................................................................................................................... 37
H&M: The second largest global fast fashion clothing retailer ................................................................ 38
Zara versus H&M ..................................................................................................................................... 39
Fast fashion: Largest segment in India apparel market as well ............................................................... 39
Mega Trend # 3: Modern Retail Key to Success .............................................................................................. 40
Indian Modern Retail Players .................................................................................................................. 41
Maduras Distribution Strategy ............................................................................................................... 41
Mega Trend # 4: E-commerce Revolution a Blessing in Disguise .................................................................... 42
India online retailing market to grow at 40% CAGR with apparel being at the forefront ....................... 42
Indian Apparel Market: At Nascent Stage vs China ......................................................................................... 44
China Apparel Brands .............................................................................................................................. 45
SWOT Analysis: Branded Apparel Segment ..................................................................................................... 46
Branded Apparel
Appendix 1: Why Branded Business? .............................................................................................................. 47
Appendix 2: What is a Brand & Key Traits of a Brand ...................................................................................... 48
Trait # 1: Quality ..................................................................................................................................... 49
Trait # 2: Style/Look & Feel .................................................................................................................... 49
Trait # 3: Price ........................................................................................................................................ 50
Trait # 4: Origin-of- Country ................................................................................................................... 50
Trait # 5: Value Proposition ................................................................................................................... 51
Trait # 6: Brand Positioning .................................................................................................................... 52
Appendix 3: Why Apparel Brands Fail ............................................................................................................. 53
Appendix 4: Most Trusted Apparel Brands 2015 (Brand Equity Economic Times)54
Discounted Cashflow Wisdom Investing ...................................................................................................... 56
Valuation Matrix .............................................................................................................................................. 57
Branded Apparel
Company Section
1.
Siyaram Silk Mills Ltd ............................................................................................................................... 59
2.
Indian Terrain Fashions Ltd ..................................................................................................................... 83
3.
Kewal Kiran Clothing Ltd ........................................................................................................................ 105
4.
Aditya Birla Fashion & Retail Ltd ........................................................................................................... 115
5.
Arvind Ltd .............................................................................................................................................. 125
6.
Raymond Ltd.......................................................................................................................................... 137
7.
Zodiac Clothing Company Ltd ................................................................................................................ 149
8.
Page Industries Ltd ................................................................................................................................ 159
9.
Rupa & Company Ltd ............................................................................................................................. 169
10. Lovable Lingerie Ltd ............................................................................................................................... 179

11. Maxwell Industries Ltd .......................................................................................................................... 187
Branded Apparel
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10
Branded Apparel
Indian Textile Industry: The Numbers Game
The Indian textile industry is one of the most important industries for the Indian economy as it accounts for
14% of total industrial production, 13% of export earnings and 4% of GDP. It provides employment to over
4.5 crore directly and 6 crore indirectly, rendering it the second largest job creator after agriculture in the
country. India is the second largest textile producer in the world, the largest producer of jute, second largest
producer of raw cotton, cotton yarn, cellulosic fibre/yarn & silk and fourth largest producer of synthetic
fibre. Also, its handloom capacity is the highest in the world (63% of global pie). It is present across the
entire textile value chain (spinning, weaving, readymade garments and home textiles). The total market size
of the Indian textile industry currently stands at USD108bn.
Indian textile industry break up
Indian Textile Industry

USD 108 bn
Domestic
USD 81 bn
Yarn/MMF
USD 20 bn
Fabric
USD 34 bn
Exports
USD 27 bn
RMG/ Apparel
USD 27 bn
Yarn/ MMF
USD 6 bn
Fabric
USD 3 bn
RMG/ Apparel
USD 18 bn
Source: CRISIL, Edel Invest Research
In spite of the size and global positioning, enterprises making up the Indian textile industry are minuscule
and fragmented. While the larger, decentralised and unorganised sector consists of handloom, handicrafts,
sericulture, power looms, the organised sector consists of capital-intensive spinning, apparel and
garmenting. Inspite of the sectors fragmented nature, the outlook is promising. Domestic consumption is
expected to be driven by Indian ready-made garments (RMG) and branded garments as they are gaining
prominence in tier 2 and 3 cities as people develop aspirations for good quality and trendy fashions. The
European GDP improvement, Latin American economic progress and easing of geo political tensions in the
Middle East are set to boost Indias exports.
Domestic textile consumption

and textile exports are
expected to clock ~10% CAGR
each. Indias share in the
global textile market is set to
catapult from 5% in 2015 to
8.0% in 2020.
11
Domestic textile consumption and textile exports are expected to clock ~10% CAGR each. Indias share in the
global textile market is set to catapult from 5% in 2015 to 8.0% in 2020. China is expected to vacate
~USD100bn of textile space over the next 5-6 years due to rising labour costs, appreciating currency, high
energy costs and sharpening focus on domestic market. Countries like India, Vietnam, Bangladesh and Sri
Lanka are likely to be key beneficiaries. While total Indian textile exports are estimated to touch USD60bn
over the next 5 years, the textile market will grow to USD221bn by 2021 from USD108bn. The growth will be
driven by readymade garments, within which branded apparel is expected to grow at 10-12% annually and
be worth ~USD65bn by FY18E.
Branded Apparel
Textile Value Chain
The textile value chain consists of 3 main stages, i.e. a) manufacture of yarn (spinning), b) converting yarn
into fabric (weaving/knitting) and c) converting fabric into RMG/home textiles (garmenting). The process
begins with spinning, where the cotton/fibre is converted into yarn and this is done using spindles. The yarn
is then converted into fabric through weaving or knitting using looms, after which the fabric undergoes
further processing like scouring, bleaching, dyeing, washing, finishing, etc., which yields processed fabric
suitable for manufacturing RMG. The final stage of the value chain involves laying, measuring, cutting,
stitching, etc., before the processed fabric is converted into RMG. Garments are finally marketed through a
range of retail and wholesale distribution channels in the domestic market or exported. Of the above
mentioned stages, home textile is more export focused while yarn, fabric and RMG are domestic focused.
Indian players in the textile space are broadly into the above mentioned stages. While some of the players
are only into one of the stages, others are into multiple stages and many are also involved in the entire
textile value chain. The financial performance of any textile company is heavily influenced by its focus area
in the value chain.
Textile Value Chain
RAW MATERIAL
SPINNING
Natural Fibres (Cotton, Wool, Silk) or

Synthetic Fibres (Viscose, Polyester,
Acrylic)
Convert raw material to yarn using

spindles and rotors
WEAVING/ KNITTING
PROCESSING
Convert spun yarn to grey fabric

using looms
Process grey fabric by desizing,

scouring, bleaching, dyeingprinting
RMG
Laying, measuring, cutting, stitching
processed fabric into a readymade
garment (RMG)
DISTRIBUTION
Readymade garments through
wholesale/ retail/ exports
Source: CRISIL, Edel Invest Research.
12
Branded Apparel
Readymade Garments (RMG)
The total size of RMG currently is USD45bn, of which domestic market is estimated at USD27bn, while
exports stand at USD18bn. CY14 clocked robust growth on account of orders shifting to India from
Bangladesh due to labour safety concerns in the latter. Also, demand from major importing countries posted
an uptick, catapulting exports 19% in CY14.
RMG segment break-up
RMG
USD 45 bn
Domestic
USD 27 bn
Men
USD 13 bn
Women
USD 11 bn
Exports
USD 18 bn
Kids
USD 2 bn
US
USD 4 bn
EU
USD 6 bn
Others
USD 8 bn
In CY15, domestic volumes are expected to rise 6.5% versus 6.0% growth in CY14, but realisations are
expected to remain flat as apparel manufactures will pass on the decline in raw material costs to consumers.
This will lead to slower growth of 5.5% versus 7.0% in CY14. Exports are also expected to slacken in CY15
with 6-8% volume spurt versus 14% in CY14 due to sluggish demand from Europe and US, strong rupee and
shifting back of orders to Bangladesh and Vietnam.
13
Branded Apparel
Readymade Garments: Long-term Outlook
The long-term trend for RMG looks promising. Domestic RMG is expected to clock 10-12% CAGR, primarily
driven by volume spurt and a mildly positive realisation growth. Favourable demographics, rising incomes
and greater penetration in tier 2 and 3 cities will drive volumes. Lower raw material prices (cotton and manmade fibres) and improved demand will boost margins. Exports are expected to remain subdued at 6% CAGR
due to the same reasons as CY15. However, exports can improve with a weaker rupee, increase in import
demand from the US, shifting of orders from Bangladesh and growth in non-traditional markets such as
Australia, Japan and UAE (Others) that are set to account for more than half of total exports, up from 21% in
CY09.
Domestic RMG market to grow at a CAGR of 10 12%
43
27
17
2009
2014
2019E
Domestic RMG Market (USD bn)

Expect shifting of export orders from USA and EU to other countries

12
6
2
2009
RMG Exports to USA (USD bn)
2014
RMG Exports to Europe (USD bn)
2019E
RMG Exports to Others (USD bn)
14
Branded Apparel
Domestic Readymade Garments: An Overview
Mens wear
The mens apparel segment clocked 10% CAGR over CY10-15 and is estimated to post 8% CAGR from
USD13bn currently to USD19bn in CY20 with urban and rural segments expected to post CAGRs of around
7.5% and 6.5%, respectively. The mens wear segment is dominated by shirts and trousers, which account
for 32% and 25% of RMG mens segment, respectively. Although sale of shirts will continue to register 6.5%
CAGR, its share is expected to fall to 30% by CY19 as casual wear gains more traction with new variants such
as smart casuals and party wear. Higher preference for readymade shirts will buoy growth. The share of
trousers though is expected to increase to 27% by CY19 at a CAGR of 7% due to shift from stitched to
readymade trousers due to a wider choice of brands, designs, colours, fittings and fabrics in the readymade
category.
Womens wear
The womens apparel segment has clocked 9.5% CAGR over CY10-15 and is expected to post 8.5% CAGR
from USD11.5bn currently to USD17bn in CY20 with urban and rural segments registering about 7% and 6%
CAGR, respectively. Womens wear is dominated by traditional wear (saree and salwar kameez) which
account for 39% and 21%, respectively, but there is an emerging preference for casual western wear.
Although the share of saree in the womens apparel pie is expected to reduce to 35% in CY19, the share of
organised retailers is expected to rise with the introduction of designer retail shops (Ritu Kumar and Satya
Paul). The readymade modern salwar kameez segment is expected to post CAGR of 7% due to reducing
preference for stitched clothes, rural demand and rising number of working women in urban areas. Private
labels are making space for themselves in salwar kameez with brands such as Biba, W, Seven East and
private labels of Shoppers Stop, Pantaloons and Westside.
Childrens wear
Childrens wear segment is expected to grow from USD2.0bn in CY14 to USD2.7bn in CY20 at a CAGR of 6%.
The dominant segments are frocks and baba suits with 54% and 36% market shares, respectively.
Men's wear breakup (CY2014)
26%
32%
Shirts
T-shirts
11%
25%
Saree
21%
39%
Trousers
Jeans
6%
Women's wear breakup (CY2014)
3%
Salwar-kameez
Innerwear
16%
T-shirts
Others
Others
21%
15
Branded Apparel
Indian innerwear segment
Innerwear is one of the high growth categories in the apparel market as it has turned from a traditionally
utilitarian item to an essential fashion staple. The Indian innerwear market stood at USD2.7bn in FY13 and is
expected to clock 13% CAGR to USD5.0bn by FY18 and USD9.1bn by FY23. The womens innerwear market,
driven by value-added products, contributes around 60% to the overall innerwear market and is expected to
post CAGR of 15%, while the mens innerwear segment contributes the balance and is expected to post
CAGR of 9%. A vast majority of the innerwear segment is unorganised, especially womens innerwear. The
Indian innerwear market is sub-divided into super premium, premium, medium and economy segments
based on product pricing.
Indian innerwear industry (USD bn)
Market Segmentation
9.16
Men,
40%
4.96
2.73
Women,
60%
2013
2018
2023
Source: Edel Invest Research.
In mens innerwear, younger consumers in metros primarily fall in the premium segment, while people from
Tier I choose between premium and mass segments. The premium and mid-price segments are expected to
post higher growth as the Indian consumer is getting more fashion conscious and seeking higher comfort,
besides a strong brand name. Demand for variations like seamless intimates, plus size inner wear, body
shape enhancers, etc., is increasing in urban areas.
Womens innerwear is considered more dynamic, with possibility of design variations and new products. The
segment has a higher unorganised share as brand promotion and advertising activities are low. 80% of
womens innerwear market consists of mid-price and economy segment products. However, like mens
innerwear, the mid-price and premium segments are expected to grow rapidly as more players tap this
segment and reduce the dominance of unorganised players by introducing brands.
Men's Innerwear
Women's Innerwear
2%
Super Premium
5%
Super Premium
12%
15%
Premium
Premium
56%
30%
44%
Mid
Mid
36%
Economy
Economy
Source: Edel Invest Research.

16
Branded Apparel
RMG is the most lucrative

business model for any textile
company
due
to
low
bargaining power of other
stakeholders in the value
chain, high entry barriers and
minimal threat of substitutes
due to brand recall.
Branded Apparel/RMG: Most profitable in textile value chain

Although the RMG markets growth is expected to moderate compared to the high growth in 2014, surge in
the branded market is expected to remain robust. Sales of branded apparel have increased at 15% CAGR
over 2009-14. Going ahead, inspite of a slower growth anticipated in RMG, branded apparel is expected to
clock 10-12% CAGR over 2014-19. This spurt is expected to be driven by both volumes and increase in
realisation. Therefore, the share of branded garments is expected to catapult to 46-48% in 2019 compared
to around 35% in 2014.
RMG is the most lucrative model for any textile company due to low bargaining power of other stakeholders
in the value chain, high entry barriers and minimal threat of substitutes due to brand recall. The threat of
new entrants is a potential roadblock as many international brands are entering India due to cash in on the
vast untapped potential. RMG business with strong brands, high growth and asset light models clock the
best margins and have the highest RoCEs in the textile value chain. Hence, branded textile is the most
profitable segment.
Branded Apparel/RMG Most profitable
Yarn
Fabric
RMG
Home Textiles
Bargaining power of buyers
High
Medium
Low
High
Rivalry amongst existing players
High
High
Low
High
Threat of new entrants
High
Medium
Medium
High
Bargaining power of sellers
Low
Medium
Low
Medium
Threat of substitutes
High
Medium
Low
High
Entry barriers
Low
Medium
High
Low
Financial Ratios
Yarn
Fabric
RMG
Home Textiles
Asset Turnover
0.8 - 1.8 x
1.0 - 2.4 x
1.2 - 2.8 x
1.2 - 2.2 x
EBIT Margins
9 - 20%
8 - 23%
8 - 25%
8 - 20%
ROCEs
7 - 22%
11 - 32%
11 - 60%
10 - 45%
Source: Company, Edel Invest Research.
Growth in the coming 5 years is more likely to be driven by urban consumption of branded apparel spurred
by economic resurgence, urbanisation, higher discretionary spending, digital push and rise in penetration of
organised retail. Organised retail is estimated to post 18% CAGR as brands expand reach to tier-2 and 3
cities through exclusive and multi-brand retail outlets. Branded players in urban areas earn higher unit
realisations as they have the power to charge double than rural areas in return for higher quality, latest
trends and a well known brand name. Therefore, branded players in the organised retail segment have the
highest margins and highest profitability.
17
Branded Apparel
Branded Apparel Players: Financials
The Indian branded apparel industry, currently USD10bn in size and growing at 10-12% p.a., entails immense
growth opportunities for the organised segment,. As attractive as this sound, generating good returns in the
industry is quite difficult. The level of fragmentation, right from production to retail, is high and can limit the
scale of business. In order to generate superior profitability, branded apparel companies not only need to
have a strong brand and distribution network (like FMCG peers), but also need to build a strong supply base
and the right product positioning.
Apparel Peer Comparison

Company (FY15)
Siyaram
Raymond
Arvind
Madura
Zodiac
KKCL
Indian
Terrain
Zara (Trent)
Revenues (INR Cr)
1,496
5,341
7,851
3,735
394
416
290
729
Branded Apparel Rev (%)
17%
17%
22%
<75%
52%
100%
100%
100%
Sales Growth (5 year CAGR)
18%
16%
19%
25%
5%
18%
24%*
50%*
Operating Margin
12%
8%
13%
12%
6%
24%
12%
19%
Net Profit Margin
5%
2%
5%
NA
2%
16%
6%
12%
ROCE
18%
8%
13%
72%
4%
31%
24%
37%
Debt/ Equity
0.7
4.4
1.2
NA
0.2
0.1
0.3
NA
Ad Spend (% revenues)
3%
5%
1-2%
4-5%
2-3%
4%
4%
0%
EBOs
200
1017
796
1850
129
316
105
16
% EBO Franchisees
90%
<80%
81%
<75%
0%
100%
70%
100%
*4 year CAGR as operations commenced in 2011

Innerwear Peer Comparison

Company (FY15)
Page
Maxwell
Rupa
Lovable
Revenues (INR Cr)
1,543
261
973
172
Branded Revenues (%)
<75%
<75%
<75%
<75%
35%
4%
13%
15%
Operating Margin
21%
11%
14%
14%
Net Profit Margin
13%
2.6%
7%
9%
ROCE
60%
12%
23%
11%
Debt/ Equity
0.4
1.0
0.6
0.3
Ad Spend (% revenues)
4-5%
2%
6-7%
5-7%
EBOs
201
19
0
Page and KKCL have the highest operating and net profit margins and the highest RoCEs due to lower brand
penetration in innerwear and jeans, respectively, outsourced manufacturing and a franchisee model which
gives higher asset turnover and an efficient working capital management system. Also, these brands have
spent on marketing and creating high quality products which have a strong brand recall and customer
loyalty. The womens ethnic wear segment continues to be dominated by the unorganised retail sector.
Mens formal wear is a crowded market with many brands, while casual wear is witnessing intense
competition.
18
Branded Apparel
Branded Apparel Financials
Revenues - 5 year CAGR
Operating Margin (%) FY15
Siyaram
50%
Siyaram
25%
40%
Zara (Trent)
Raymond
Zara (Trent)
30%
20%
20%
10%
10%
Indian Terrain
Raymond
15%
5%
Arvind
0%
KKCL
Indian
Terrain
Arvind
0%
Madura
KKCL
Madura
Zodiac
Zodiac
*Zara and Indian Terrain - 4 year CAGR as operations commenced in 2011
Branded Apparel Revenue Pool (%) FY15
10%
4%
3%
Siyaram
12%
Branded Apparel EBITDAPool (%) FY15
14%
7%
3%
Siyaram
Raymond
6%
19%
Arvind
3%
Zodiac
Madura
2%
Zodiac
KKCL
KKCL
Indian Terrain
40%
Zara (Trent)
Raymond
Arvind
9%
Madura
23%
1%
Indian Terrain
45%
Zara (Trent)
19
Branded Apparel
Innerwear Financials
Operating Margin(%) FY15
Page
Page
35%
30%
25%
20%
15%
10%
5%
0%
Lovable
25%
20%
15%
10%
5%
Maxwell
Lovable
Maxwell
0%
Rupa
Rupa
Revenues Pool (%) FY15
EBITDA Pool(%) FY15

Lovable
5%
Lovable
6%
Rupa
27%
Rupa
33%
Page
52%
Page
63%
Maxwell
5%
Maxwell
9%
20
Branded Apparel
Branded Apparel Segment : At an Inflection Point
Our analysis of Indias biggest brands that are currently ruling the roost such as Arrow, Louis Philippe, Peter
England and Van Heusen, launched in early 1990s, reveals that initially they struggled to grow due to a
higher share of unorganised retail and lower per capita spending on branded apparel. Brands were not
visible and looks & appearance were immaterial. However, with the introduction of malls and retail
penetration in the mid 2000, brands started gaining prominence in terms of consumer visibility. As the share
of organised retail expanded and footfalls in malls increased, premium brands clocked faster growth. This
pre-empted them to increase their presence in malls over a wider geographical area. Sales of individual
brands touched INR500crore in 2010.
The next high growth phase was driven by heavy discounting on products to capture higher market share
and availability of quality products of world famous brands at lower prices, coupled with a large young
population exposed to western trends and fashions. Brands revenues doubled within 5 years on a higher
base and touched INR1,000crore by 2015.
However, we now anticipate commencement of supernormal growth phase with revenues catapulting 2.5x
on an even higher base. This next phase will be heralded by the digital push and e-commerce along with
spurt in Indias per capita income and a higher per capita spending on apparel.
Big RMG brands set to enter supernormal growth phase

21
Branded Apparel
Huge Scope for Indian Apparel Brands
In terms of international apparel brands, Nike is currently the largest with 2015 revenue of USD30.3bn. It is
followed by H&M, Zara, Adidas and Polo Ralph Lauren. As can be seen, the size of these brands is huge due
to their vast geographical presence. While Nike and Adidas are more sportswear focused, H&M, Zara and
Ralph Lauren cater to mens and womens formal and casual wear.
Top 5 International Apparel Brands
2015
Rank
Logo
Country
2015 Brand Value(USD Bn)
2015 Revenues
(USD Bn)
28.3
30.3
15.3
21.2
9.4
14.8
6.8
14.9
6.6
7.1
USA
Sweden
Spain
Germany
USA
Source: Forbes, Company
However when one analyzes the biggest Indian apparel brands, their size is nowhere close to the global
counterparts. Intense competition, tepid growth and lower discretionary spending have kept the Indian
branded apparel market subdued. Also, these brands are focusing on only metro cities, leading to
saturation. With brands penetrating into Tier 1 & 2 cities and all the industry growth drivers in place, the size
of these brands can grow exponentially based on their success.
Top 5 Indian Apparel Brands (Only Branded Segment)
2015
Rank
1
Logo
2015 Revenues
(USD Bn)
Name
Madura Garments
Louis Philippe, Van Heusen, Allen Solly, Peter
England
Arvind
Arrow, Tommy Hilfiger, USPA, Gant, Flying
Machine, etc.
Pantaloon
Ragmanch, Ajile, SF, F Factor, Bare Denim, JM
Sport, etc.
0.5
0.3
0.3
Raymond
ColorPlus, Parx, Park Avenue, Raymond
0.1
Zara-Trent JV
Zara
0.1
22
Branded Apparel
Triggers for next leg of growth
Fastest growing
emerging country in
the world
Middle class to
increase from 18% in
2005 to 59% in 2025E
12.7x rise in gross

annual income and
12% rise in
urbanisation from
2000 to 2030E
One of the highest

young aged, working
age population
Fastest growth in
personal disposable
income
Highest consumer
confidence index
globally
23
Branded Apparel
Branded Apparel - Growth Drivers
Sustained GDP surge
In the past decade, Indias gross GDP has grown at an average ~7%. India is currently undergoing a structural
transformation with many positives such as falling interest rate cycle due to dipping inflation, improving
capex cycle, stable political scenario, reducing government deficit and highest consumer confidence index.
This transformation along with new initiatives such as GST and Make in India will help the country clock the
highest GDP growth amongst emerging market economies. According to Planning Commission estimates,
the economy is projected to grow at ~8% during the 12th Five Year Plan (2012-17), which is faster than
China. IMF expects Indias GDP to touch USD3tn in 2019 from USD2tn in 2014, making it the seventh largest
economy in the world.
The government is laying emphasis on the textile industry as it is the largest foreign exchange earner and
the second largest employment provider after agriculture and plays a pivotal role in the countrys economic
development.
Indias GDP growth to see continuous increase over the next few years
2,000
7.0%
1,522
9.0%
7.0%
5.0%
6.5%
India GDP Per Capita (USD) (LHS)
3.0%
Canada
UK
China
2.0%
Saudi Arabia
USA
2020E
2019E
2018E
2017E
2016E
5.0%
2015
0
2014
5.5%
2013
500
2012
6.0%
2011
1,000
3.0%
India
1,500
12.0%
4.0%
5.0%
Mexico
7.5%
South Africa
2,672 8.0%
2,500
Australia
3,000
GDP Growth over FY05-FY15 (%)
Real GDP Growth (%) (RHS)
Higher personal disposable income (PDI)

Although real household disposable income has more than doubled since 1985, stagnant economic growth
and rising inflation have led to stagnating disposable income. However, economic revival will reduce
unemployment and boost wages as GDP picks up. Inflation has also started to cool with fall in crude prices.
Wholesale price index has been negative for the past 6 months and the consumer price index too has fallen
considerably. Hence, disposable incomes will increase, which will lead to emergence of a new middle class,
which is expected to grow at a fast clip.
Indias personal disposable income to grow at a CAGR of 15%
3500
3,045
3000
15.0%
14.0%
11.0%
2500
9.0%
1,939
7.0%
4.0%
4.0%
4.0%
Canada
6.0%
UK
2000
1500
2010
2015
India Disposable Personal Income (USD bn)
2020E
Mexico
China
South Africa
2005
Australia
Saudi Arabia
India
500
424
USA
787
1000
Growth in PDI over FY05-FY15 (%)

24
Branded Apparel
Domestic private consumption
Domestic private consumption is a significant component of Indias GDP, unlike other developing economies
such as China, Singapore and most other emerging markets. It currently accounts for more than 60% of GDP.
Domestic private consumption has been increasing over the past 20 years, catapulting from INR3tn in 1990
to INR30tn in 2010. As Indias GDP is expected to grow at closer to 8% in the forthcoming decade,
consumption will play an important role and hence domestic private consumption is expected to touch
INR113tn by 2020. The share of wallet will shift from essential items of consumption towards discretionary
items, brightening the outlook for branded apparel.
Indias domestic private consumption to grow at a CAGR of 12.5%
80
52
60
40
36
53
51
60
56
55
54
64
61
69
2000
1,712
1500
38
1,016
1000
20
500
USA
UK
Italy
Switzerland
Germany
France
India
Korea
Thailand
Malaysia
Singapore
China
500
190
0
2000
Domestic Private Consumption (% GDP)
2010
2015
2020E
Domestic Private Consumption (USD bn)

Favourable demographic mix

India currently has the second highest population in the world at 120 crore and is expected to have the
highest population in the world in a few years. As clothing is a primary necessity, a higher population will
lead to higher demand for branded apparel. India also has one of the highest populations of under the age
of 25 (50%) and one of the lowest older population aged 60 and above (8%) with a median age of 27. This
young population is growing up with an increasing access to television, internet, and hence has been
influenced by western culture and style of living. This has induced them to make money at a young age as
they are extremely conscious of their looks and image and want to spend on new trends and branded items.
The young population is pushing demand for branded apparel and they currently contribute 70% of retailers
overall revenues compared to 50% 2 years ago. Also, Indias proportion of non-working to working
population (age dependency) is continuously reducing and expected to bottom out only around 2040. This
young working population is expected to have the ability and willingness to spend. India will become the
youngest country in the world by 2020 with ~60% of population in working age group (20-60 years).
India has one of the highest

populations under the age of
25 (50%) and one of the
lowest older population aged
60 and above (8%) with a
median age of 27.
Young, working population to drive demand
50%
75%
44%
34%
9%
30%
15%
31%
21% 23%
65%
55%
Aged 24 and under
Japan
USA
China
Europe
45%
Indonesia
India
8%
32%
18%
35%
1950 1960 1970 1980 1990 2010 2020 2030 2040 2050
Non - Working Population (India) (LHS)
Aged 60+
Non - Working Population (China) (RHS)

25
Branded Apparel
Rapid Urbanisation
Although 70% of Indias population lives in rural areas, better opportunities, saturation of agriculture/rural
opportunities and rising labour mobility have led to migration to bigger cities. Various studies have
forecasted that in the next decade middle class (income of INR2lac10lac) will be the dominant section of
the Indian population. The share of middle class has increased from around 18% in 2005 to 42% in 2015 and
will account for 59% of the countrys total consumption, making it the fifth largest consumer market by
2025. Over the past 10 years, the number of overall households has risen 18%, while those of mid- and highincome families have catapulted 82% and 180%, respectively; low-income households have fallen 16%. This
will lead to development of lower tier cities, which are already growing at a faster clip. Income distribution
mix is projected to change with substantial increase in the number of elite and consuming (middle) class and
erosion of the low income deprived segment.
Rising middle and affluent class
The share of middle class has

increased from around 18% in
2005 to 42% in 2015 and will
account for 59% of the
countrys total consumption,
making it the fifth largest
consumer market by 2025.
1%
13%
7%
12%
20%
18%
42%
86%
59%
75%
46%
20%
1995
2005
Low Income
2015
Middle Income
2025
Affluent Class
It is forecasted that by 2030, around two-thirds of the Indian middle class will be outside metro cities.
Between 2014 and 2050, urban areas are expected to grow by 404mn and China and India will contribute
more than one third to the global urban population increase. Four of Indias cities with 5-10mn inhabitants
currently (Ahmadabad, Bengaluru, Chennai and Hyderabad) are projected to become megacities in the
coming years, from a total of seven megacities by 2030. Indias urban population stood at 32% in 2014 and is
expected to touch 50% by 2050, As urban consumers have higher disposable incomes and easier accessibility
to a wider range of products, discretionary expenses are set to jump, leading to higher spending on branded
products.
Rising urban population
41.2%
35.0%
32.0%
27.5%
2000
2010
2020E
2030E
Share of Urban Population

26
Branded Apparel
Falling inflation leading to lower interest rates = Higher corporate profitability and rise in urban consumption
Poor demand led to low capacity utilization and high fixed costs led to lower margins
Debt/Equity(x) (BSE 500) (LHS)

Asset Turnover(x) (BSE 500) (RHS)
1.2
1.4
1.2
1.3
1.04
0.8
EBITDA Margin (%) (BSE 500)
25.0%
0.94
19.5%
20.0%
16.9%
15.7%
15.0%
0.8
0.6
0.6
0.4
0.4
0.2
0.72
0.57
2000
2005
0.2
0
2015
10.0%
5.0%
0.0%
2000
2005
2015
Prolonged slowdown with high financial leverage resulted in low PAT margins and RoEs
RoE (%) (BSE 500)
PAT Margin (%) (BSE 500)

2000
2000
6.2%
2005
10.1%
2015
2.0%
4.0%
2005
21.0%
2015
5.0%
0.0%
11.1%
6.0%
8.0%
10.0%
12.0%
10.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Going forward, falling interest rates due to lower inflation will spur corporate profitability and urban consumption
Falling interest rates
9.00%
14.0
8.50%
8.50%
8.00%
7.75%
8.00%
6.75%
7.25%
6.50%
12.0
10.0
7.75%
7.00%
6.50%
6.25%
8.0
7.4
5.5
6.0
6.25%
4.0
5.00%
4.50%
4.3
2.0
4.75%
Jul/15
Oct/15
Jan/15
Apr/15
Oct/14
Jul/14
Apr/14
Jan/14
Jul/13
Urban
Oct/13
Jan/13
Apr/13
Jul/12
Oct/12
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Interest Rates
Apr/12
0.0
4.00%
Jan/12
5.50%
8.00%
8.5
7.50%
6.00%
Slowing urban and rural inflation
Rural

27
Branded Apparel
Rising consumer confidence
Consumer confidence is an economic indicator measuring consumer optimism in their personal financial
situation and the overall state of the economy. Their perception is correlated with the spending activity and,
therefore, consumer confidence serves as a key indicator for the overall shape of the economy. Lower
consumer confidence leads to higher saving and less spending. Consumer confidence typically increases
when the economy expands and decreases when the economy contracts. Indian consumer confidence is
continuously rising and is currently the highest in the world, which should result in higher spending on nondiscretionary items such as apparels.
Indian consumer confidence Highest in the world
96
95
87
86
Australia
South Africa
Mexico
Q1FY15
97
Canada
FY14
106
Q2FY15
Q3FY15
India Consumer Confidence Level
Q4FY15
China
FY13
107
Saudi Arabia
121
India
120
107
126
USA
128
132
UK
132
129
Consumer Confidence
Make in India impetus

The governments Make in India campaign is focusing on infrastructure development and skill improvement
which will benefit textiles. To enhance the textile sectors production and productivity, the government has
th
initiated policies in the 12 Plan with a TUFS (technology upgradation fund scheme) target of USD2.9bn,
100% FDI through automatic route and planned spending of USD9.1bn on textiles versus USD4.0bn in the
11th Plan. The government has also set up a USD15.8mn venture capital fund to provide equity support to
startups. Various state governments have also announced investment-inducing policies. The Rajasthan
government announced a new policy to attract investments worth INR10,000crore and create 50,000 jobs in
the next 7 years. The package includes capital investment subsidy, interest subsidy over and above TUFs,
reimbursement of VAT on yarn, partial exemption of electricity duty, mandi fee, stamp duty, land conversion
charges and entry tax.
28
Changing Consumer Trends and Preferences

Mega Trends Driving Scale, Profitability of Branded Apparel Players
Mega trends are influenced by changing consumer preferences & incomes, altering business landscape
from traditional season-based fashion to fast & trendy fashion. The Indian middle class, traditionally less
fashion and brands conscious, has become fashion savvy and developed strong brand loyalty. Foreign and
domestic brands that were small in size and relatively unkown, started growing rapidly as they gained
visibility in the modern retail milieu. Healthy competitive rivalries spur industry consolidation,
differentiation, design innovations, changes in the manufacturing process, distribution platforms, etc.
Moroever, e-commerce is gaining prominence and has been a blessing for small branded apparel players
to enhance their distribution reach. The implications of these factors are vast and are driving scale and
profitability for Indian branded apparel players.
In apparels, many new trends

are apparent like rising
demand for RMG is replacing
stitched clothes. Also, price
sensitivity has been replaced
by quality, brand recall and
aesthetics.
Mega trend #1: Changing consumer trends and preferences

In India, majority of consumption expenditure is on essentials like food, light, fuel and basic clothes. The
middle class is not a homogenous group. There are regional variances in branded and non-branded products
and willingness to pay for them.
Improvement in GDP growth rates will boost consumerism and lead to higher employment, boost
consumption and spur spending on discretionary products due to higher disposable incomes. This shift will
lead to higher demand for branded and luxury items from non-metros, further accentuated by rising
aspirations, changing demographics, availability of and willingness to take on credit and the popularity and
influence of media and communications. The Indian middle class has generally been less conscious of
branded purchases, with low brand loyalty (as concept of brands is relatively new) and high price sensitivity.
However, a flood of brand advertisements and higher preference for quality is pushing branded
consumption growth. To cash in on this humungous opportunity, of the total 200 odd brands present in
India across apparel, footwear and jewellery, 150 were launched between 2005 and 2012 and have been
steadily gaining scale.
Discretionary spending to increase
16%
450
14%
12%
10%
12%
12%
10%
6%
4%
160
80
2000-05
2005-10
Total consumer spend

Discretionary Consumer Spend
2010-15
Essential Consumer Spend
5
2000
25
2009
2015
2020E
2030E
Consumer Spending (INR Tn)

29

In apparels, many new trends are apparent like rising demand for RMG is replacing stitched clothes. Also,
price sensitivity has been replaced by quality, brand recall and aesthetics. A younger fashion conscious
population, higher comfort level of western wear, entry of foreign brands and higher penetration of
organized retail are boosting preference for casual western wear. The Indian middle class, traditionally less
conscious of fashion and brands, has become fashion conscious and showing strong brand loyalty. Womens
wear in India is highly fragmented with only 5% share of organised retail dominated by stitched ethnic wear.
However, rising share of women in the work force will create demand for ready to wear branded western
and ethnic wear.
Growing preference of casual wear
A younger fashion conscious

population, higher comfort
level of western wear, entry of
foreign brands and higher
penetration of organized retail
are boosting preference for
casual western wear.
Western outfits are expected to outpace growth in traditional outfits due to a younger fashion conscious
population, higher comfort level, entry of foreign brands and higher penetration of organised retail. The
share of t-shirts is expected to rise from 6% currently to 8% in 2019 with about 60% being men's wear. As in
the case of jeans, mens share was 92%, but the women's category is expected to clock robust growth. The
market size for jeans is expected to post around 8.5% CAGR over the next 5 years. Steady growth of jeans
and t-shirts will be supported by companies accepting the 2 as office wear and introduction of casual
dressing on Fridays. While semi formal clothing is expected to gain share over formal clothing in the mens
category, suitability of sarees and salwar kameez for occasions such as marriages and social gatherings will
lead to them to continue to hold prominent positions in the Indian women's wear market. Branded textile
segments such as innerwear, womens ethnic wear and casual wear have very low brand penetration due to
high share of unorganized sector and thus hold highest growth potential.
Low brand penetration segments have huge potential
Particulars
T-shirt and Jeans
Innerwear
Shirts
Trousers
Saree
Salwar Kameez
Size (USD bn)
Brand Penetration
2.9
3.5
4.7
3.5
4.0
2.4
Medium
Low
High
High
Low
Low
Source: CRISIL, Edel Invest Research
30

Higher affinity for western brands
Higher spending on discretionary products, rising aspirations, a young population, popularity and influence
of media and communications has made the Indian middle class more brands conscious and less price
sensitive. Sensing this opportunity, there has been a huge influx of foreign brands. Indian consumers have
taken to western brands in a big way as can be seen by the growth of Page Industries in the innerwear
segment (brands Jockey and Speedo) and by Zara in the apparel segment. The reason for this affinity for
western brands could be due to a combination of a few of the above mentioned factors such as higher
comfort and quality, increasing aspirations and preference for the latest brands and trends.
Below we have compared an Indian brand with a western brand in the apparel and innerwear space. The
western brand has outperformed Indian brands on a sustainable basis in growth and operating profitability.
Western brands outperforming domestic brands in terms of revenue growth, EBITDA growth and margins
42%
42%
36%
77%
58%
40%
17%
28%
14%
6%
FY13
FY14
FY15
FY11
FY12
FY13
FY14
Page Revenue Growth
Zodiac Revenue Growth
139%
Rupa Revenue Growth
63%
100%
50%
5%
-26%
FY12
41%
36%
10%
30%
-48%
-18%
FY13
FY14
41%
35%
25%
21%
FY15
6%
-50%
-100%
FY11
Zara EBITDA Growth
35%
Zodiac EBITDA Growth
FY12
Page EBITDA Growth
20%
25%
22%
20%
19%
13%
15%
5%
6%
0%
FY14
FY15
21%
22%
21%
15%
15%
13%
11%
10%
9%
8%
5%
Rupa EBITDA Growth
22%
19%
10%
10%
FY13
25%
33%
30%
FY15
56%
89%
0%
8%
-4%
Zara Revenue Growth
150%
10%
9%
-5%
FY12
29%
26%
23%
14%
14%
5%
0%
FY12
FY13
Zara EBITDA Margin
FY14
FY15
Zodiac EBITDA Margin
FY11
FY12
FY13
Page EBITDA Margin
FY14
FY15
Rupa EBITDA Margin
31

Western brands outperforming domestic brands despite small distribution network and ad spends
Inspite of Page and Zara having the smallest distribution network along with the lowest advertisement
spends as a proportion of revenue, their sales growth has been the fastest in their respective segments.
Distribution network (FY15)
140,000
110,000
120,000
100,000
1,000
80,000
60,000
40,000
1200
140
1000
120
800
100
118,000
80
600
450
60
400
30,000
40
550
200
20,000
0
Maxwell
Points of sale (LHS)
16
20
0
0
Page
130
Zara
Rupa
Number of Dealers (RHS)
Zodiac
Number of EBOs
Advertisement expenses as a % of revenues

FY10
FY11
FY12
FY13
FY14
FY15
Page
5.1%
2.5%
3.0%
3.3%
4.4%
4.6%
Lovable
1.7%
4.6%
5.1%
5.9%
2.0%
2.6%
Maxwell
2.7%
4.4%
1.7%
5.3%
1.1%
0.6%
Rupa
7.8%
7.7%
7.0%
7.4%
7.7%
6.9%
Zara
NA
0.5%
0.3%
0.3%
0.2%
0.1%
3.9%
3.2%
2.5%
2.6%
3.4%
3.1%
Zodiac
32

Womens wear: Branded fashion gaining traction, but still highly fragmented
Globally, womens wear is a bigger market than mens wear. But in India, womens wear constitutes only
41% of the market versus 48% share of mens wear. Also, the womens wear segment is highly fragmented
with only 5% share of organised retail with ethnic wear (salwar kameez and saree) being the largest
component. However, an increasing share of women in the work force is likely to boost demand for ready to
wear ethnic and western wear. The number of Indian branded players in women-centric brands is limited to
Westside, Fab India and BIBA.
Women's brands revenues (FY14) - INR Cr

1200
1076
1000
800
600
600
400
277
200
0
Westside
FabIndia
Biba
Most-profitable global fashion retailers (Inditex and H&M) derive 67% revenue from womens wear.
Realising this, many international and Indian brands such as Allen Solly and Van Heusen, predominantly
catering to men, are creating a separate womens section in their exclusive branded outlets. Pantaloon too
is planning to replicate the success of fast fashion in womens apparel through its existing brands. Womens
ethnic wear is also seeing a gradual shift from unbranded to private labels. Women-centric fast fashion
should be a huge success model as evident in Zaras performance in India.
33
Fast Fashion Redefining Global Branded Apparel Landscape

Mega trend #2: Fast fashion redefining global branded apparel landscape
Fast fashion is the process of quickly capturing the latest fashion and catwalk trends and replicating them in
retail format. Generally, fast fashion clothing collections are based on the most recent fashion trends
presented at Fashion Weeks in spring and autumn every year. Their replication in the retail format requires
an efficient supply chain for trends to be designed and manufactured quickly and inexpensively. This
philosophy of quick and outsourced manufacturing, latest designs at affordable prices with a short shelf life,
is used by some of the biggest and most successful international apparel brands such as H&M and Zara. As
new products are launched every week, existing products have a short shelf life which induces shoppers to
visit stores often generating high volumes. As the inventory is fast moving, the need to discount products to
clear out stock is low, which keeps margins stable. Zaras strategy of clustered suppliers and designers close
to its headquarters helps it move from design to display in days and, therefore, it is hailed as the leader of
the fast fashion retail revolution. These players have presence not only in their home countries, but also in
markets across the world.
Fast fashion European brands growing faster than traditional established US brands
US brands manufactured in USA

rather than outsourcing to China and
other low wage countries in close
proximity
Conservative innovation of new

trends and slow moving supply
chain of US brands
Once US brands outsourced

manufacturing, they lost their speed
and creativity in designing
Fast fashion European brands

like Zara and H&M have grown
much faster than traditional
established US brands
Famous fast fashion brands from across the world
34

Inditex (Zara): The Pioneer of Fast Fashion
Inditex was started by Amancio Ortega and his business partner Rosalia Mera in 1975 in Northern Spain and
is currently the biggest retailer in the world and has made Ortega the third richest man. The company
houses 7 brands including Zara (biggest and most popular brand), Bershka, Pull & Bear and Massimo Dutti.
Zara had gross margins in excess of 50%, EBIT margin of 18% and RoCE of 27% in 2014.
Inditex sales and profits

21
19
18
1.95
15
14
2010
2011
2012
2013
2014
2010
Inditex Sales (USD bn)
2.65
2.68
2012
2013
2.81
2.18
2011
2014
Inditex Net Profit (USD bn)

Zaras unique approach to

advertising and marketing is
an additional factor to its
success.
Zara uses only 0.3% of
revenue for its marketing
expenditure, instead of 3%-4%
used by its competitors.
Zara is one of the pioneers of fast fashion with its strategy of imitating the latest fashion and immediately
placing cheaper versions in stores. Brands like Gucci and Prada are constantly trying to move away from
Zara, but the latter keeps getting closer to them in terms of churning fashionable clothes. Also, as new
fashions enter the market often, Zara is quick to replenish its stores with the latest fashions and hence if one
does not buy the product soon, they may never find it again. The now or never syndrome for a consumer
creates an impulse buy as they are getting high-end fashionable clothes cheap. This model also minimizes
the need of discounting products (only 15% of total sales vs Industry at 30-35%) giving Zara an edge over
others in terms of margins. As fashions are imitated, there is no need to take any fashion bets and this limits
the threat of an inventory loss during a downturn. Zara does not spend on advertising. It believes in
marketing by opening showpiece stores in key cherry picked locations. The company believes in investing
heavily in the beauty, aesthetics and location of the store by positioning it as a high-end store selling cheap
apparel. After domestic success, Inditex adopted a wide penetration approach to tap non European and
emerging markets. It currently has 6,683 stores in over 88 countries.
Inditex sales by geography
6,683 Inditex stores across 88 countries
Europe (ex Spain)
21%
44%
4,607
5,044
5,527
6,009
6,340
2012
2013
6,683
Spain
14%
America
19%
Emerging Markets
2009
2010
2011
2014
Number of Stores
35

Inditex has a vertically integrated business model where design, manufacturing (partially), logistics and retail
are done in-house. ~50% clothing is sourced from close proximity markets like Spain, Portugal, Turkey and
Morocco, instead of Asia, which helps save time to source fabric and aids new designs reach their
destination faster. Sourcing differs based on product batch requirements with cheaper lower quality apparel
using material sourced from Asia. Inditex places emphasis on cut of clothes and hence cutting is done by
precise laser guided machines which also results in minimum fabric wastage and better fit. Zara keeps a
significant amount of its production in-house and makes sure that its own factories reserve 85% of capacity
for in-season adjustments. It also commits 6 months in advance to only 15-25% of a seasons line. And, it
only locks in 50-60% of its line by the start of the season. If certain designs gain popularity, Zara reacts
quickly, designs new styles and gets them into stores while the trend is still peaking. It also keeps extra
capacity on hand.
Inditex (Zara) has a vertically

integrated business model
where design, manufacturing
(partially), logistics and retail
are done in-house. ~50%
clothing is sourced from close
proximity markets like Spain,
Portugal,
Turkey
and
Morocco, instead of Asia,
which helps save time to
source fabric and aids new
designs
reach
their
destination faster.
Zaras quick turnaround cycle of 2 weeks
Design creation at HQ
In-house Maufacturing
Distribution
2 days
4 - 8 days
2 days
Inditexs success is due to its connection between stores, in-house designers and its factories. Twice a week,
a local store manager will send an order to HQ based on sales data (data analytics) and communication with
shoppers. The commercial team will then compile the order, adding new products and balancing out
demand with other stores, before sending it to Inditexs manufacturing hub. The commercial team will work
with designers to develop new products to meet new trends. New fashions are produced in relatively small
batches, so flops can be removed after first appearance and hits can be repeated, helping inventory
management. Every single item of clothing that Zara sells comes through Spain. This system helps the
product range evolve rapidly at minimum cost.
Zaras wide penetration and centralized distribution from Spain
36

Zara in India
Inditex entered India via a JV with Trent for the launch of Zara stores. This JV commenced operations in
2009 with Inditex holding a majority 51% stake and operations started in 2011. Trent has also entered into
another JV to operate Massimo Dutti stores which are yet to be launched. Trent entered into the JV with
Zara as it believed that Westside, which like Zara is women-oriented, will benefit from learning sourcing
capabilities, supply chain and inventory management from Zara. Trents role is to locate properties with
reasonable rentals at good locations and share their experience of consumer behaviour. Inditex controls the
operations and merchandise and due to a royalty of 6-7%, Inditexs economic interest in the JV is more than
51%, making it mutually beneficial. The JV has been highly successful with a reported turnover CAGR of 48%
over FY11-15 with an EBITDA CAGR of 37%.
Inditex Trent JV financials
Inditex - Trent (INR Cr)
2011
2012
2013
2014
2015
Sales
147
260
409
571
729
Growth
77.0%
57.5%
39.5%
27.6%
COGS
66
131
209
317
395
Gross Profit
80
128
200
253
333
EBITDA
EBITDA margin %
36
86
90
74
140
25.0%
33.2%
22.0%
13.1%
19.2%
Inspite of its late entry in to India, Zara has the highest profits and margins amongst competitors with the
least amount of stores and no advertisement spend. It has followed the same strategy in India of opening
big elegant stores in key locations and imitating high-end luxury fashion at cheaper prices by constantly
replenishing its collection with the latest trends. Its efficient inventory management, lower advertisement
spending, fewer number of stores and full price sales have helped it post highest margins and profits.
Performance of western brands in India
(INR Cr)
Sales
Profit
Sales
Profit
Sales
Profit
Store
Count
(2013)
Benetton India
380
430
523
666
Inditex - Trent
149
22
259
38
405
45
Marks & Spencer - Reliance
198
-9
282
-3
375
-17
29
Tommy Hilfiger - Arvind
81
140
189
59
2011
2012
2013
Due to its phenomenal success in such a short time, many retailers and mall developers have shown interest
in inviting Zara to their malls as it is a crowd puller. Inditex also follows a process of aggressive store roll outs
once existing stores gain acceptance. The company expanded rapidly in China from 44 stores in January
2010 to 165 stores by 2012. Zara currently has 16 stores in India and is planning to expand to non-metros as
well as tier 2 cities.
37

H&M: The second largest global fast fashion clothing retailer
Hennes & Mauritz (H&M) is a Swedish multinational retail-clothing company which opened its first store in
1947 in Sweden. It is ranked the second largest global clothing retailer, just behind Inditex (Zara), and ahead
of US based Gap Inc. H&M is currently present in 57 countries with over 3,500 stores and as of 2015
employs around 132,000. It houses brands such as COS, Monki, Weekday and Other Stories. H&M has gross
margins of 60% and EBITDA margins of 20% in FY14.
H&M sales and profits
13.0
13.2
2010
2011
14.5
15.4
2012
2013
17.4
2014
2.20
2010
H&M Sales (USD bn)
1.90
2.02
2.05
2011
2012
2013
2.30
2014
H&M Net Profit (USD bn)

The company follows the conventional business model wherein it designs products, but does not
manufacture them. Designing involves taking fashion bets by creating new fashions, fabric and
manufacturing is sourced from lower cost centers like China and India, and products are priced cheap to
generate higher volumes. H&M emphasizes on reducing costs in products which it compensates for by
advertising aggressively and with high discount sales. It believes in deep market penetration and hence has a
narrow geographical exposure with Europe being the primary focus. However, it is gradually expanding to
other countries and opened its first store in India on October 2, 2015, in New Delhi.
H&M sales by geography
16%
3,511 stores across the world
Europe
1,988
2,206
2,472
2,776
3,132
3,511
America
13%
72%
Emerging Markets
2009
2010
2011
2012
2013
2014
Number of Stores
H&M in India
H&M opened its first store in India at the Select Citywalk mall in New Delhi on October 02, 2015, and
clocked a staggering INR1.75crore in sales on opening day, almost double of what Zara sold on its inaugural
day 5 years ago at the same location, according to reports. This translates into an average billing of about
INR27,000 every minute during the 11 hours the store was open or the equivalent of 5,000 pairs of jeans
and 10,000 tops sold. H&M made in one single day what a smaller store like Puma or Adidas would make in
a year. 2,500 eager fans had queued up outside overnight to be among the first to get their hands on H&M's
merchandise.
38

Zara versus H&M
Zara
H&M
Sourcing of fabric
Emphasis on proximity sourcing (Europe)
Source from Asia
Manufacturing
Design
Pricing
Batch sizes
Discounting
Advertising spend
In-house manufacturing
Imitate latest fashions
Higher price points
Small batch sizes unless high demand
Strive for maximum full price sales
No advertising spend
Outsourced to local hubs

Take fashion bets
Lower price points
Large batch sizes
Higher discounting to drive volumes
Advertising spend at 3-4% of revenues
Store Locations
Store aesthetics
Area of focus
Key cherry picked locations

Positioned as a high end store
Speed and control
Lesser importance on location

Positioned as a normal apparel store
Cost and volumes
Market penetration
Wide penetration across the world
Deep penetration within Europe
Source of high margins
Higher price, full price sales and no ad spend
Sourcing and cheaper manufacturing from low cost centers

Fast fashion: Largest segment in India apparel market as well

In India, fast fashion is more women-centric and it has met with huge success. This is evident from the India
performance of fast fashion players such as Max Retail, Westside and Zara. Even Pantaloon is betting big on
fast fashion.
Share of apparel segments in India
14%
23%
14%
6%
25%
13%
5%
Formal wear
Casual wear
Denim
Ethnic
Kids
Accessories
Fast fashion
Mass fashion
1%
39
Modern Retail Growing 2x Unorganised Segment

Mega trend #3: Modern retail growing 2x unorganised segment
Earlier, the Indian textile industry was fragmented and competition was intense. Only a fraction of the total
market was penetrated by organised retail. Balance market was operated by small, independent retailers
with a 500 sq ft trading space fragmented across sub-segments, offering only locational convenience to
customers. While global penetration of organised retail in developed nations is close to 80%, Indian
organised retail share is not even 25%, portending massive scope for Indian branded players.
Modern Retail growing at an 18% CAGR versus a 9% CAGR for the unorganized segment
37.7%
61
25.3%
47
37
33
17.5%
16
7
FY 11
FY 16
FY 11
FY 21
FY 16
Modern Retail (USD bn)
Share of Modern/Organized Retail in Apparel
FY 21
Unorganised Retail (USD bn)

The industry seized the opportunity and there was a change of preference towards branded apparel with
the introduction of malls, high streets, large format stores and multi-brand outlets in metros. Recent years
have seen an increasing traction in organized retail in tier 1, 2 and 3 cities.
Retailers revenue by cities
Geography
Lifestyle
Pantaloons
Shopper Stop
Trent
Central
Tier-1
71%
39%
49%
40%
37%
Tier-2 & 3
33%
61%
51%
60%
63%
Modern retail has focused on wide scale expansion, leading to subdued margins. One vital metric of this
format remains the throughput of each store. Therefore, initially, one would pilot it out to test different
markets, sizes and towns. Once past the pilot stage, a definitive business plan is drawn up around the
opportunity. Generally, retail players opt for franchisee formats as franchisees operating on reasonable
scale with control over working capital are capable of generating free cash flows for a longer period. The
table below enlists details of Indias biggest retail players who have created a market place of their own
brands and other brands to allow consumers to shop from under one roof.
40
Modern Retail Growing 2x Unorganised Segment

Indian Modern Retail players
Sales (FY 15) INR Cr
EBITDA (FY 15) INR Cr
PAT (FY 15) INR Cr
ROCE (%)
Number of stores
Retail space mn sq. Ft.
Sales per mln sq. Ft. INR Cr
Number of cities
Loyalty card members (mn)
Average LTL growth (5 years)
Future Retail
12,293
1,068
3
8%
272
11
1,117
122
26
7%
Shoppers Stop
2,859
186
37
13%
72
3.8
752
32
3.8
5%
Trent (Standalone)
1,323
118
74
5%
83
1.6
827
53
1.9
9%
Pantaloons
1,661
51
-188
NA
134
2.3
722
49
2
NA
However modern retail has evolved now with brands opening outlets to create a higher brand recall and
customer loyalty. Special emphasis has been laid on having a multi-channel distribution strategy.
Multi-channel Distribution Strategy: Key to Success
As retail has evolved, branded players have adopted a multi-channel distribution strategy. The different
channels used are trade, department stores, retail and others, with retail and department stores being the
most successful. Various retail formats like multi-brand outlets (MBOs), SIS (shop in shop) and exclusive
brand outlets (EBOs) are gaining prominence. These distribution channels and explosion in the number of
retail outlets provide branded apparel players plenty of options to reach out to consumers in a cost effective
way. Madura has been one of the most successful branded apparel companies due to its focus on retail and
department stores with a clear reach and penetration strategy. Also, with a franchisee approach, only 15%
of the expansion has been funded by the business.
Maduras Distribution Strategy
1627
3896
2904
915
1945
594
503
330
322
440
95
Trade
1735
599
Department
Stores
FY 10 revenues (INR Cr)
Retail
Others
FY 15 revenues (INR Cr)
MBOs
FY 10 (number of stores)
SIS
698
EBOs
FY 15 (number of stores)
41
E-commerce Revolution a Blessing in Disguise

Mega trend # 4: E-commerce revolution a blessing in disguise
The online retailing market is

expected to grow at 40%
CAGR to USD44bn by 2018
(USD13bn in 2014).
With the introduction of malls, organised retail started penetrating Tier 1 cities. With a young population
infused by rising aspirations and adopting the latest trends, brands started doing well in these cities.
However, after a few years, smaller unsuccessful malls started closing and the successful ones grew in size,
inviting more brands, creating high competition between brands, leading to saturation of the consumer
base. A few retailers tried to venture into Tier 2 cities where the market was largely under penetrated, but
they faced infrastructure and operational challenges.
Retailers were hunting for other avenues to reach out to consumers and the e-commerce boom provided
that platform. Growing internet penetration in India prompted some retailers to go online and reach
consumers directly. India currently has 350mn internet subscribers (second largest internet user base in the
world) and this is expected to touch 500mn by 2019. Also, more locally produced smart phones will have
lower prices, allowing more Indians to shift to internet enabled smart phones. This provided retailers a
platform to move away from the current brick-and-mortar approach to a digital one.
India internet and smartphone users
500
435
382
400
300
470
426
326
272
200
116
100
0
2014
2015
2016E
2017E
2018E
2014
India Internet users (mn)
2019E
Internet enabled smartphones (mn)

Soon, e-commerce started gaining traction amongst consumers due to attractive discounts on good quality
trendy products, a larger bouquet of products and brands to chose from, convenience of cash on delivery
and ease in returning products. Even e-tailers benefitted as they could reach out to a wider consumer base
and provide them higher value and save on real estate costs, resulting in efficiencies across the supply chain
and inventory management. Hence, the online retailing market is expected to grow to USD44bn by 2018
(USD13bn in 2014) with apparel being one of the biggest beneficiaries (31% online retail presence already).
The government has also commenced its Digital India programme to enable more households to have
internet connections.
India online retailing market to grow at 40% CAGR with apparel being at the forefront
50
40
31.4
30
2%
2%
11%
Electronics
22.4
20
10
Online retail break-up
43.9
4.4
5.9
7.9
2010
2011
2012
8.9
13.6
16
7%
Apparel
47%
Books
Baby products
0
2013
2014
2015 2016E 2017E 2018E
31%
Personal Care
Others
Online retailing market India (USD bn)

42
E-commerce Revolution a Blessing in Disguise

Faster internet services in the form of 3G and 4G data services and higher credit card transactions and
spending should result in more consumers shopping online.
Break-up of data service revenues in India
6%
Credit card transactions in India
35%
399
400
55%
170
59%
38%
2G
3G
21%
2016-17E
228
260
234
265
25.0
20.0
320
15.0
10.0
200
65%
2014
512
600
20%
5.0
6.3
23.3
0.0
2007 2008 2009 2010 2011 2012 2013 2014
2018-19E
India Credit Card transactions - USD bn (LHS)
4G
No. of transactions - mn (RHS)

Number of e-shoppers growing yearly

2012
2013
2014
2015
2016E
2017E
2018E
Internet Penetration
13%
17%
21%
25%
29%
32%
35%
Internet Users - mn
156
207
272
326
382
426
470
E-shoppers - mn
14
20
30
39
50
57
66
9.0%
9.7%
11.0%
12.0%
13.1%
13.4%
14.0%
E-shoppers %
Data analytics
E-commerce also helps e-tailers in the form of real-time consumer data analytics. Analytics involves
identifying consumer trends and combining them with other indicators such as income levels to devise
customised offerings. This helps e-tailers capture the latest trends, accurately target customers and
continuously innovate to stay ahead of competition, leading to increasing loyalty and higher ticket sizes, in
turn boosting efficiency and propelling growth.
Data analytics includes:
Understanding customer preferences and insights.
Doing business-impact analysis.
Predicting customer preferences and business impacts based on historical performance of the
customer and other customers in the segment.
As fashion is fast moving and e-commerce and omni-channel distribution has made it even faster, it will be
more challenging to manage a fast fashion high SKU (Stock Keeping Unit) portfolio as one has to keep up
with what consumers want and quickly react to this need and fulfill it before the competition does. One
needs to categorize products across retailers and experiment which is where analytics helps.
43
Branded Apparel
Indian Apparel Market: At Nascent Stage vs China
The Indian RMG/apparel market currently stands at USD45bn and has been expanding at 13% CAGR with an
expanding share of organized retail. However, in comparison with China and the world, India lags in most
indicators. Indias per capita GDP is significantly lower than that of China and its per capita consumption on
apparel is USD37 against Chinas ~USD200 and well below that of developed economies such as Germany
(USD900), US (USD825) and Japan (USD550). The size of mens apparel market in China is currently 7.0x the
size of Indias apparel market despite both having similar population size.
GDP Per Capita based on PPP
Chinas mens apparel market far ahead

13216
14000
12000
98
10000
8000
5837
6000
5707
47
3172
4000
13
2000
0
2009
2006
China Per Capita GDP (USD)
2014
2014
China Men's Apparel Market (USD bn)
India Per Capita GDP (USD)
India Men's Apparel Market (USD bn)
India
China
World
Apparel Market Size (USD bn)
45
267
1389
Per Capita Apparel Consumption(USD)
37
197
200
In terms of overall consumption, while clothing and footwear account for 8% of consumer spending in China,
it is currently only 4% in India. Hence, there is huge potential for spending on apparel consumption to
double; portending humungous opportunity for the branded Indian textile players and the onus is on them
to exploit the opportunity.
Consumption Basket - India
Consumption Basket - China
Food, Beverages, Tobacco

3%
Clothing and Footwear
14%
Gross Rent, Fuel & Power
2%
40%
3%
Food, Beverages, Tobacco
2% 3%
Clothing and Footwear

Residence
11%
33%
Furniture & Appliances

11%
17%
Medical and Healthcare
Medical and Healthcare

6%
10%
4%
Transport & Communications

Recreations
4%
Transport & Communications
8%
8%
16%
5%
Household Facilities & Articles
Recreations
Financial Service
Education
Insurance Service
Miscellaneous Goods and Services
Others
44
Branded Apparel
Chinas biggest brand is

positioned as a fast fashion
brand with premium quality
and mid-range pricing.
China apparel brands

Chinas apparel market remains one of the fastest growing in the world and according to Euromonitor, the
country will be the worlds largest apparel market by 2017 driven by fast fashion and e-commerce. Unlike
India, womens wear is the major contributor to total apparel sales with a 60% share. Department stores,
MBOs and e-commerce remain the major distribution channels for apparel in China. As Chinese consumers
are calculated in their spending on luxury apparel, affordable luxury apparel at cheaper prices (fast fashion)
has been successful. Fast fashion players have continued their growth momentum in China by adopting an
aggressive expansion strategy with multiple brands to target maximum segments and price points.
The womens wear market remains highly segmented and includes casual wear, fast fashion, business
casuals and high-end fashion. Korean and Japanese fashions are increasingly popular among Chinese female
shoppers as their designs are more appropriate for Chinese people given similar skin tone and stature.
Mens suits and formal wear has slowed down as casual wear replaces formal wear. Domestic brands
continue to dominate the mass market, especially in lower-tier cities due to a more extensive footprint than
the international brands. Apparel companies in Shanghai and Jiangsu are very strong in branding with 6 out
of the top 10 most valuable apparel brands being based in these two provinces.
Top Chinese Apparel brands
Rank in 2014
Rank in 2013
Brand
Brand Value (USD bn)
Product Category
Heilan
1.2
Mens wear
Anta
1.0
Sports wear
Semir
0.8
Casual wear
Metersbonwe
0.4
Casual wear
12
Linin
0.3
Sportswear
Chinese brands have faced a domestic slowdown, intense competition from international brands and fast
fashion. Chinese brands have had to resort to diversifying their product range outside of apparel in order to
grow further. In terms of store numbers, China is now the most important international market for many
major fast fashion brands. It is the largest international market for ZARA and Uniqlo, and the largest
international market in Asia for H&M.
Top 2 Chinese Apparel brands Financials
Brand
Sales (USD bn)
Operating
margin
PAT margin
ROE
Heilan
1.94
25%
19%
30%
Anta
1.41
22%
19%
23%
Heilan (HLA), Chinas biggest brand, is positioned as a fast fashion brand with premium quality and midrange pricing with stores located in downtown commercial districts and comprehensive shopping malls in
cities. Started in 2002, by the end of 2014, a total of 3,348 HLA stores have been opened successfully. HLA
owns 3 product seriesbusiness, leisure and fashioncovering 17 product categories and up to 5,000 SKUs
(stock keeping unit). HLA owns over 300 designers providing design guidance to suppliers. Due to the
success of fast fashion Heilan jumped 8 stops to have the highest brand value in China. The entire Chinese
apparel market has witnessed a big churn as can be seen by the rankings.
Anta Sports Products is in the business of designing, developing, manufacturing and marketing sportswear,
including sports footwear, apparel and accessory under its own brand name, ANTA since 1994. Anta Sports
is the official supplier and sponsor of numerous teams, players and associations.
45
Branded Apparel
SWOT Analysis: Branded Apparel Segment
Strength
Growing organized retail. Better
consumer retail experience and
distribution strength.
Increasing fashion consciousness and

consumers becoming more
aspirational and brand savvy.
Weakness
Poor brand positioning and
marketing.
Inefficient Inventory/ Supply
Chain management
Wrong Distribution Strategy
The factors that determine

consumption, education, occupation,
urbanization, and rise in nuclear
families are moving in a positive
direction.
Threat
Many major international
apparel brands have commenced
operations in India realizing that
Indian markets are likely to
emerge as one of the largest
market in the world in the next
few decades.
E-Commerce making brands
commodity.
46
Opportunity
Increasing urban women
population and women
corporate workforce
Increasing brand consciousness
and spending on kids
Increasing online retail
Branded Apparel
Appendix 1: Why Branded Business?
Branding is one of the most important aspects of any business. An effective brand strategy distinguishes
itself from the competition and gives it an edge. A brand can stand for innovation, experience, reliability,
quality, low cost, etc. and is a promise to the customer on what to expect. A brand is created by a
combination of the product/ service, logo, website, packaging, promotional material, communication and
after sales service. Once brand loyalty is successfully established, the brand has the freedom to charge a
premium over competitors, enabling it to make far superior margins. We have enlisted a few brands below
which despite charging a lot more than competitors are still extremely successful and popular due to their
brand loyalty and sustained ability of satisfying consumer needs.
Brand Name
Segment
Louis Vuitton
Handbags
Giorgio Armani
Apparel
Rolls Royce
Cars
Mont Blanc
Pens
Taj
Hotels
Nike
Sportswear
Product
Price
INR 1.2 8 Lacs
INR 20,000 30,000
INR 2.5 -4 Cr
INR 25,000 40,000
INR 10,000 20,000
INR 5,000 15,000
47
Branded Apparel
Appendix 2: What is a Brand?
A brand is a name, term, design, product, service, symbol or other features that distinguish one seller's
product from others. Moreover, a brand is a promise. Brands are used in business, marketing,
and advertising.
A brand publicly distinguishes from other products, services, or concepts so that it can be easily
communicated and usually marketed. Branding is the process of creating and disseminating the brand name.
Branding can be applied to the entire corporate identity as well as to individual product and service names.
The aim of branding is to convey brand message vividly, create customer loyalty, persuade the customer to
buy the product and establish an emotional connect with customers. Branding shapes customer perceptions
about a product. Strong brands reduce customers perceived monetary, social and safety risks in buying
goods/services.
Traits of a brand: Key traits that define a brand are:

Quality
Price
Style/look & feel
Origin-of-country
Value proposition
Brand positioning
Style / Look & Feel
Brand Positioning
48
Origin of Country
Branded Apparel
Quality
Quality of goods or services is the utmost prime factor defining whether a brand is good or bad. For
example, when people see clothes "Made in China," the first perception is of low quality product and short
product life. We believe, quality is the key driving factor for a brand to sustain in the long term.
Good Quality Vs Bad Quality Brands
Style/Look & feel

Successful brands, to gain a strong foothold, focus on communicating an idea that caters to current
ideologies and also which is culturally relevant to each market. Coca-Cola and Pepsi are 2 leading soft-drink
brands in India occupying 95% of the soft-drinks market. With low, almost negligible, functional benefits of
soft drinks and no differentiation in taste, colour or price between the 2 brands, marketers have to cash in
on the self-expressive value (style/look & feel) of their product. In absence of a functional point of
difference, the brands emotional or self-expressionist values become the focal point of difference.
Stylish Vs Non - Stylish Brands
vs.
49
Branded Apparel
Price
Price also plays a very important role in defining a brand. Goods and services must be priced in a way that
achieves profitability for the company and satisfies customers, in addition to adapting to various constraints
such as competition. When a consumer perceives that a company charges high price for a product, he/she
also perceives that high prices are an indication of better quality and prestige.
vs.
Origin-of-Country
Consumers use a number of cues to infer quality and one of them is origin of country. For example, goods
and products Made in China are perceived to be low quality due to poor product quality experience
historically, whereas brands Made in USA are perceived to be of high quality.
Made in US
50
Made in China
Branded Apparel
Value Proposition
Value proposition or differentiation is the No. 1 quality that determines whether people will bother reading
more about your product or hit the back button. A value proposition is a promise of value to be delivered.
Its the primary reason a prospect should buy from you. In a nutshell, value proposition is a clear statement
that explains how your product solves customers problems or improves their situation (relevancy), delivers
specific benefits (quantified value) and tells the ideal customer why they should buy from you and not from
the competition (unique differentiation).
If competition enters with a better proposition or if the brand fails to maintain differentiation (on its own,
over time) consumers lose their basis for selection, manufacturers will lose consumer loyalty/commitment
and Value equation will become dominated by Pricing component rather than by Benefit Delivery.
iPhone
Other Smartphone
Differentiation vs Relevance (Product, Price, Look & Feel)

D>R
R>D
Differentiation
Differentiation
Other
Factors
Other
Factors
Room to grow. . . brand

has power to build Relevance
Unique reason for choice has faded,

price becomes dominant reason to buy
51
Branded Apparel
Brand positioning: Positioning is a marketing strategy that aims to make a brand occupy a distinct
position, relative to competing brands, in the customers mind. Brand positioning is defined as the
conceptual place you want to own in the target consumers mind, the benefits you want them to think of
when they think of your brand. An effective brand positioning strategy will maximize customer relevancy
and competitive distinctiveness, in maximizing brand value.
High Fashion
Contemporary
Classic
Value
Mass
Premium
Luxury
Importance of a brand
Branding accounts for 38% of total company value
Brand value is the fastest increasing component over time
Brand
Value
Business
Value*
Tangible
Assets, 26%
Brand, 38%
Knowledge,
36%
Brand
Value
Other
intangibles
Other
intangibles
Fixed
assets
Fixed
assets
Time
*Illustrative
52
Branded Apparel
Appendix 3: Why Apparel Brands Fail
The entire journey of creating a brand to scaling it up and maintaining a leadership position is fraught with
complications and challenges. While most brands find it difficult to scale up and establish themselves, quite
a few reputed brands have failed spectacularly with their strategy and forced to close down. The Indian
apparel industry is heavily competitive due to influx of international brands and changing fashion tastes and
references. This has limited the potential of brands to scale up and the reduced operating leverage
opportunity has dented profitability. E-commerce has further muddied the waters. Good brands like Allen
Solly and Van Heusen have grown consistently by innovating their products and product mix, maintaining a
disciplined balance sheet and a well established distribution network by leveraging their brand name. Below
enumerated are some of the causes of brand failure.
Financial Indiscipline
Excessive leverage
Sacrifice back ended investment for investing in stores
Apparel Brands that failed
Unsustainable fast expansion to beat competition at the expense of

margins
Complex due to expansion and increase in SKUs

Inventory/ Supply Chain
management
Poor Product or Product Mix
Due to different tastes in different geographies, inventory becomes

heterogeneous
Complexities of managing supply from multiple vendors, warehouses
and taxes on inter-state movement of goods.
Big gaps in own label, scale and mix (Own labels have 2x margins due
to savings on advertisement and distribution)
Products with low applicability or acceptance in a particular
geography -launch of jackets, clothes without pockets, high priced
denims, etc. in India
Poor pilot study during pre-launch phase

Poor Positioning and Marketing
Differentiation of product not clear and poor brand awareness

creation
Unclear brand personality, poor marketing content
Paying high rentals at premium locations without sales visibility

Wrong Store Location/
Distribution
Large proximity from strong retail catchments

High market penetration /Overestimating the potential of a micromarket or a location leading to cannibalization
53
Branded Apparel
Brand Shifts Around the Power-grid
Branding is about an assurance of consistent quality of service or product. No sustainable brand has been built by throwing money on ads or
celebrity endorsements. In fact, if companies are not sure of offering consistent quality of products or services for the larger audience that they will
get as a result of increased marketing spends; the money spent will fail to protect the brand
4.
100
3.
2.
Diff Rel Qty Know
Diff Rel Qty Know
2. Unrealised Potential
5.
3. New Leaders
Diff Rel Qty Know

Brand Strength Rank
Differentiation x Relevance
1. Emerging Brands
4. Established Leaders
5. Declining Leaders
6. Mass Commodity
50
Diff Rel Qty Know
1.
7. Disappearing
6.
Diff Rel Qty Know
7.
Diff Rel Qty Know
50
Brand Stature Rank
Quality x Knowledge
Diff Rel Qty Know
100
54
Branded Apparel
Appendix 4: Economic Times Brand Equity Most Trusted Brands 2015
Most Trusted Brands identifies brands that have that most special ingredient: the consumer's trust.
Conducted by Nielsen, Most Trusted Brands remains among the largest researches of its kind in India, with a
design sample of 7,200 - distributed across socio-economic classifications, age, income and geography.
The study was carried out in the following 12 cities across India
Attributes represented by the statements
Zone
Pop starta classification
City
Top 4 Metro
10L-40L
5L-10L
Delhi
Lucknow
Chandigarh
ATTR1
Always maintains a high level of quality
North
East
Top 4 Metro
10L-40L
5L-10L
Kolkata
Patna
Bhubaneswar
ATTR2
Value for money
West
Top 4 Metro
40L+
10L-40L
Mumbai
Ahmedabad
Indore
ATTR3
Would recommend this brand to my family &

friends
South
Top 4 Metro
40L+
10L-40L
Chennai
Bangalore
Vijayawada
ATTR4
This brand meets my needs
Top Ten Apparel Brands ET Brand Equity Survey 2015

No.
Brand Name
1
2
3
4
5
6
7
8
9
10
Source: ET, Edel Invest Research.
55
Branded Apparel
Discounted Cashflow Wisdom Investing
As per our DCF, a company

growing at 15% Sales CAGR
over a 5 year period & ROCE
of 25% should trade at an
EV/EBITDA of 8.9x (TTM).
Sales Growth
100
15%
15%
15%
15%
15%
EBITDA margins
18%
18%
18%
18%
18%
18%
Depreciation/Sales
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
NWC cycle
30
30
30
30
30
30
Incremental asset turns (capex)
2.0
2.0
2.0
2.0
2.0
2.0
Core ROCE
25%
25%
25%
25%
25%
25%
Ke
14%
Kd
8%
Tax rate
34%
Debt Ratio
50%
Terminal Growth
3%
Kc
11.0%
Sales
100
115
132
152
175
201
EBITDA
18
21
24
27
31
36
Depreciation
EBIT
15
17
19
22
25
29
NOPAT=PAT + depreciation
13
15
17
20
23
26
Capex
-7
-9
-10
-11
-13
NWC
-1
-1
-2
-2
-2
FCFF
10
11
0.90
0.81
0.73
0.66
0.59
PV factor
PV (High Growth phase)
31
PV (Terminal Value)
130
EV
161
EV/EBITDA
8.9
7.8
Sensitivity Table EV/EBITDA
As per our DCF, a company

growing at 25% Sales CAGR
over a 5 year period, with 3%
terminal growth & ROCE of
20%-30% should trade at an
EV/EBITDA
of
9.5x-13.0x
(TTM).
Sales Growth for 5 years
ROCE
10%
20%
30%
40%
50%
60%
80%
100%
5%
4.4
6.6
7.3
7.6
7.8
8.0
8.1
8.2
10%
3.6
7.2
8.4
8.9
9.2
9.5
9.7
9.9
15%
2.6
7.9
9.6
10.4
10.9
11.2
11.6
11.9
20%
1.4
8.8
11.1
12.2
12.9
13.3
13.9
14.2
25%
0.0
9.7
12.8
14.3
15.2
15.7
16.5
17.0
30%
-1.6
10.9
14.8
16.7
17.8
18.6
19.5
20.1
35%
-3.5
12.2
17.1
19.5
20.9
21.8
23.1
23.8
40%
-5.7
13.6
19.7
22.7
24.4
25.6
27.1
28.1
A company with high earnings

visibility (terminal growth of
6%-7%), a 15% sales CAGR
over 5 years & ROCE of 60%
should trade at an EV/EBITDA
of 15x-18x (TTM).
56
Terminal Growth
ROCE
10%
20%
30%
40%
50%
60%
80%
100%
3%
10.7
7.7
9.3
10.1
10.6
10.9
11.3
11.5
4%
11.8
8.5
10.3
11.1
11.6
12.4
12.7
5%
13.2
9.7
11.6
12.5
13.1
12.0
13.4
13.9
14.2
6%
15.2
11.3
13.4
14.4
15.0
15.4
15.9
16.2
7%
18.1
13.6
16.0
17.2
17.8
18.3
18.9
19.2
8%
22.7
17.3
20.1
21.6
22.4
22.9
23.6
9%
31.2
24.1
27.9
29.7
30.8
24.1
31.5
32.4
33.0
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Edel Invest Research

Indias per capita spending on apparel (USD) amongst the lowest

India GDP Per Capita (USD) (LHS)

Real GDP Growth (%) (RHS)

Indias average population age amongst the least

India to soon have one of the largest working populations

Non - Working Population (China)

Indias discretionary spending has been rising

Rise in middle income and affluent class

Total consumer spend

Source: Company, Edel Invest Research

Edel Invest Research

Domestic RMG market expected to grow at 10-12%

India Disposable Personal Income (USD bn)

Domestic RMG Market (USD bn)

Indian e-commerce industry to clock 40% CAGR

Apparel accounts for 31% of e-commerce spending

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Modern retail gaining traction

Fast fashionBiggest segment in apparels

Unorganised Retail (USD bn)

Source: Company, Edel Invest Research

Edel Invest Research

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Edel Invest Research

Edel Invest Research

Edel Invest Research

Siyaram Silk Mills Ltd ............................................................................................................................... 59

Indian Terrain Fashions Ltd ..................................................................................................................... 83

Kewal Kiran Clothing Ltd ........................................................................................................................ 105

Aditya Birla Fashion & Retail Ltd ........................................................................................................... 115

Arvind Ltd .............................................................................................................................................. 125

Raymond Ltd.......................................................................................................................................... 137

Zodiac Clothing Company Ltd ................................................................................................................ 149

Page Industries Ltd ................................................................................................................................ 159

Rupa & Company Ltd ............................................................................................................................. 169

10. Lovable Lingerie Ltd ............................................................................................................................... 179

Edel Invest Research

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Edel Invest Research

Indian textile industry break up

Indian Textile Industry

Source: CRISIL, Edel Invest Research

Domestic textile consumption

Edel Invest Research

Natural Fibres (Cotton, Wool, Silk) or

Convert raw material to yarn using

Convert spun yarn to grey fabric

Process grey fabric by desizing,

Source: CRISIL, Edel Invest Research.

Edel Invest Research

Source: CRISIL, Edel Invest Research.

Edel Invest Research

Domestic RMG Market (USD bn)

Expect shifting of export orders from USA and EU to other countries

Edel Invest Research

Men's wear breakup (CY2014)

Women's wear breakup (CY2014)

Source: CRISIL, Edel Invest Research.

Edel Invest Research

Source: Edel Invest Research.