Industry Overview

 

India’s textiles sector is one of the oldest industries in Indian economy dating back several centuries. Even today, textiles sector is one of the largest contributors to India’s exports with approximately 13 per cent of total exports. The textiles industry is also labour intensive and is one of the largest employers.

 

The textile industry employs about 105 million people directly and indirectly. India's overall textile exports during FY 2017-18 stood at US$ 37.74 billion.

The Indian textiles industry, currently estimated at around US$ 150 billion, is expected to reach US$ 230 billion by 2020. The Indian Textile Industry contributes approximately 2 per cent to India’s Gross Domestic Product (GDP), 10 per cent of manufacturing production and 14 per cent to overall Index of Industrial Production (IIP).

 

The production of cotton in India is estimated to increase by 9.3 per cent year-on-year to reach 37.7 million bales in FY 2017-18. The total area under cultivation of cotton in India is expected to increase by 7 per cent to 11.3 million hectares in 2017-18, on account of expectations of better returns from rising prices and improved crop yields during the year 2016-17.

 

Indian exports of locally made retail and lifestyle products grew at a compound annual growth rate (CAGR) of 10 per cent from 2013 to 2016, mainly led by bedding bath and home decor products and textiles.

The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market.

 

High economic growth has resulted in higher disposable income. This has led to rise in demand for products creating a huge domestic market. The domestic market for apparel and lifestyle products, currently estimated at US$ 85 billion, is expected to reach US$ 160 billion by 2025.

The Indian cotton textile industry is expected to showcase a stable growth in FY2017-18, supported by stable input prices, healthy capacity utilisation and steady domestic demand.

 

Company Overview

Bella Casa Fashion and Retail Limited (formerly known as ‘Gupta Fabtex Private Limited’ till 14.07.2015, name was changed to ‘Bella Casa Fashion and Retail Private Limited’ on 15.07.2015 and converted to Public Limited company on 31.07.2015) was incorporated on 05.02.1996 under the provisions of Companies Act, 1956 in Registrar of Companies, Jaipur, Rajasthan. The Company is engaged in the business of manufacturing and selling of bed sheets, made-ups, printed/bleached fabric and garment.

Their facility is one of the largest manufacturers of Home Linen and Indian Fashion apparel. With an ongoing production capacity of 10,000 home linen pieces per day and 8000 fashion garments per day, Bella Casa reaches out to almost 6 Million customers every year.

 

They distribute their products through some of the biggest retailers of India, like, Reliance Retail, Lifestyle, Pantaloons, Max, Hyper City, D-Mart, Metro stc. Bella Casa is also supported by a strong association with the most popular e-commerce companies of India like Flipkart, Amazon, Home Shop-18 & Naaptol.com . Their reach extends further to nearly 4000 retail shops in India, through a network of 200 authorized wholesalers. The company plans to grow its manufacturing & distribution by three folds its current capacity within the next 5 years.

They are amongst the largest manufacturers of bedding items & Indian women’s wear apparel in India.

Bella Casa offers a range of products that include Bed Sheets, Quilts, Dohars, Co-ordinated sets, Corporate gift sets, Indian women’s wear Kurtas, Tunics, Fashion bottoms and more.

 

Analysis of Annual Reports

 

1. The company’s pre-IPO annual reports do not have any information regarding the company’s future plans and are not very detailed, they only contain the financial statements of that particular year.
2. The annual reports of FY16, FY17 and FY18 have talked about the following to objectives of the company for growth:
   1. Widening Customer Base:
      1. They have stated they will implement strategies to continue to grow their business by adding new customers in existing and new geographies, new market segments.
      2. One new identified market they have started expansion in is the Middle East.
   2. Reduction of operational costs and achieving efficiency:
      1. They have stated they are looking at variousareas to reduce costs and achieve efficiencies in order to remain a cost competitive company. However, no actual strategies are mentioned.
   3. Focus on cordial relationship with our Suppliers, Customer and employees
   4. Optimal Utilization of Resources:
      1. The company has attempted to improve their production process, skill up-gradation of workers, modernization of machineries to optimize the utilization of resources.
      2. The report states that theyanalysetheir existing raw material procurement policy and manufacturing processes to identify the areas of bottlenecks and take corrective measure wherever possible.

Analysis of Financial Statements

1. The promoters have 74.01% shareholding in this company.
2. The company’s sales have grown at a CAGR of 17% from FY12 to FY18, while the PAT growth has been a whopping 44%, which indicates that the company has been able to implement some of the measures of making their processes more cost efficient.
3. However, when looking at the Net profit percentage, the Net profit has not been able to grow beyond 5%(in FY18), and the growth of NP% is 23%.
4. The operating cash flow, has not been positive throughout the past 7 years:

(₹ in Crores)

	FY18	FY17	FY16	FY15	FY14	FY13	FY12
PAT	6.01	3.27	1.39	0.38	0.88	0.85	0.68
Cash From Operations	-12.78	0.25	1.45	-2.11	2.33	3.41	-0.16

5. The cash from operations has been negative:
   1. In FY12 mainly because of increase in current assets, mainly inventories.
   2. In FY15, because of increase in inventories and trade receivables.
   3. And in FY18, again due to an increase in inventories and trade receivables.
6. The increase in inventories and trade receivables is concerning, especially considering they have grown at a CAGR of 26% and 27% respectively as against the 17% CAGR of sales.
7. The remuneration on managements was 47% of NP in FY16, but is now only 15% of NP at 91.26 lakhs.

 

Opportunities

1. The company has entered into a licensing deal with Disney, Marvel, and Hallmark Design Collection for their home textiles segment, which is likely to drastically increase demand for their product.
2. The company has brought on Jacqueline Fernandez as their brand ambassador in March 2018, and the impact of having bollywood celebrity as a brand ambassador has always been seen to be profitable.
3. Urbanization is expected to support higher growth due to change in fashion & trends.
4. The promoters have vast experience in the textile sector.

Threats

1. 100 per cent FDI (automatic route) is allowed in the Indian textile sector, which opens the company up to intense competition.
2. Any change in government policies can have major impact on this sector as it is mostly unorganised.
3. The company’s cash flow management does not the best track record.
4. The fact that the growth rate of Inventory and trade receivables is almost double the growth rate of sales, is concerning.

Conclusion

The company has had good sales and profit growth over past 7 years, and the recent brand licensing deals and brand ambassador will only help the company grow faster and better. The company only has to focus on managing its cash flows better.

CA. Binoy J.Kattadiyil