Last year when I wrote to you I was optimistic that our economy will grow at 7%+ inFY18 though I had not ruled out some headwinds. As it turned out the economy couldn'tgather steam as expected due to residual effects of demonetisation and some problems inGST implementation.
The Gross Domestic Product (GDP) growth rate was lower at 6.7% and that impacted yourCompany's business. At micro industry level the competition was intense with marketshare at any cost' strategies employed by global entrants in the market. The combativemarket participants advanced the end of season sale dates and the duration of such salesalso increased. This meant larger proportion of volumes were sold at discounted prices.Despite competitive intensity the Company volumes grew by 11% in domestic market and by15% in exports. This represents domestic market growth rate at 1.65 times the GDP growthrate (6.7%) and 1.2 times the rate forecast (9%) for the apparel industry by experts. Andthis signals steadily increasing market penetration for the Company brand which is goodnews indeed.
Higher discounts affected the revenue growth with a marginal reduction of 0.05% inrevenue over last year. Company revenues for the year stood at C259.44 crores. The Companymanagement had to contend with supply chain problems; inadequate working capital took itstoll delaying the new season supplies to the stores. Needless to say the Company missedselling opportunities during some crucial days of the season. The pressure on netrealisations due to higher discounts was exacerbated by some significant increase inemployee costs. The Company has suffered significant drop in EBITDA margins this yearunder review. Your board and the management is working to rectify structural issues withinthe organisation as well as with working capital finances.
THE MARKET AND THE CONSUMER
By all accounts the long-term trends in the Indian apparel market continue to bepositive. The market is expected to grow between 9-10% on CAGR basis to year 2020.Increase in personal incomes higher aspirational levels in Tier II III and IV towns andall round growth in consumerism will continue to drive the growth in apparel market.However the segments within display differential growth rates. The product segments whereyour Company always had significant offerings namely denim wear and T-shirts for mencontinue to be high growth market segments expected to continue to grow at 14%. Activewear market has emerged as a high potential category due to the boom in fitness andhealthcare related consumption. Your Company is well placed in this segment due to itsassociation with Mr. Salman Khan who is universally followed for his fitness and sculptedphysique. While these are broad trends the market is given to rapidly changing styles andpreferences.
Your management has evolved a market sensing system that will keep the Company productportfolio in sync with changes and capitalise on them.
LAUNCH OF CORE LINE'
Your Company during the year has formulated the Core Line' design concept.Core Line' has a simple design elements that can be assembled into basic productsthat can be offered year round at multiple price points. This will enable moderation indiscounting and result in better inventory turnarounds. Your management expects theCore Line' to account for 1/4th of Company volumes in near future. Core Line'will be launched within next 45 days.
By all accounts e-commerce is going to be very influential channel for retail.According to Boston Consulting Group (BCG) a consultancy fashion is the first categorythat most Indians (28%) buy online; mobile phones follow at 20%. This message is not loston your management. BCG study shows that 50% of those who buy fashion online are from TierII and smaller cities a geography that is of strategic importance to Company products.Nearly 2/3rd of online buyers are below the age of 35 according to BCG and that isprecisely the Company's current target segment. Your Company therefore has been expandingits online retail by tying up with online retailers like Cloud Tail and Jabong. Company isreadying a new line of apparels that will be exclusively sold online. At opportune time infuture the Company may launch its own platform for online sales. I assure you that thereare many such exciting ideas on the drawing board.
The licence arrangement with Being Human Foundation is the core asset of the Company.The Company management in active collaboration with the Foundation Trustees has nurturedthis brand assiduously. I on behalf of the board acknowledge inspired contribution madeby Mrs. Alvira Agnihotri the head of the Foundation towards building the brand and themarket for Being Human' clothing line. Licence fees that the Company pays has beenone of the sources for the Foundation to carry out its singularly philanthropic work inthe area of education and health. The licence agreement will be renewed well before itscurrent term that lasts up to March 2020.
Dynamic young team is one of the core strengths of your Company. The team is focusedand has a great eye for aesthetics and detail. Some of you who have visited Companyoutlets must have noticed the distinct look and feel of its dcor. The earthy andintimate look and feel is the design work of young Karan Berry and his in-house team. Theteam is working on new scheme that is economical adjusts to smaller spaces without losingcustomer intimacy and appeal.
I must also mention here that Mr. Hemant Gupta has recently joined as the ChiefFinancial Officer and Chief Operating Officer. Young Hemant brings with him a decade andmore of experience with branded retail with companies such as Blackberry and Carrefour. Hewill bring intensity of youth and sharpness of experience to husband the operations thatare getting larger and complex by the day. I welcome him and look forward to a robust andrewarding association.
There is good news on the national economy. The latest quarterly numbers show GDPgrowth at 7.7% so far the highest in last 4 years. This will lead to higher personalincomes and private consumption. The Government has promised remunerative minimum supportprices to farmers. These flows will course through the economy creating solid demand forapparels. Your management has lined up new products and new product lines I mentionedearlier. The management team is working vigorously to make up the gaps in working capitalthat affected deliveries last year. This together with selective and well calibratedexpansion of geographic footprint in Tier II and smaller cities the Company hopes toachieve robust growth in volumes and retrieve the lost ground in revenue and margins. Themanagement is also regrouping initiatives in export markets. The increasing currentaccount deficit is a boon in a way since resulting depreciation of Indian rupee will helpboost exports. All in all we look forward to a good year.
I take this opportunity to thank all stakeholders including the Being Human Foundationand marquee investors who have continued to repose confidence in your Company.