Retail Sector In India & Provogue

SUMMER INTERNSHIP PROGRAM 2007 A REPORT ON

SECTOR ANALYSIS OF

RETAIL IN INDIA &

VALUATION OF PROVOGUE INDIA LIMITED SUBMITTED BY ROHIT AGARWAL 06BS2811 ([email protected])

JOINDRE CAPITAL SERVICES LTD.

A REPORT ON

SECTOR ANALYSIS OF

RETAIL IN INDIA &

VALUATION OF PROVOGUE INDIA LIMITED BY:

ROHIT AGARWAL 06BS2811 BATCH OF 2008 A REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF MBA PROGRAM OF ICFAI BUSINESS SCHOOL

DISTRIBUTION LIST: PROF. D. SATISH – FACULTY GUIDE MS. POOJA GROVER – COMPANY GUIDE

ACKNOWLEDGMENT I would also like to thank Ms. Pooja Grover (Research Analyst – Joindre Capital Services Ltd.) for her guidance and continuous support during the complete duration of the project. Being my company guide she encouraged me to work in the team and perform to the best of my results. I also take this opportunity to thank Prof. D. Satish (Faculty Guide) for the invaluable inputs in development of the project, and in terms of managing the real time issues that we faced in the corporate world. My sincere appreciation for all the executives of Provogue (I) Ltd. across all the areas for their immense support, resources, time and inputs, which helped in the timely completion of the project. Their inputs have been of immense value addition to the project. Last but not the least I am in debt to each and every member of our research team for providing their uncensored support and valuable feedback. Had it not been for them this project would have never seen its end.

INTRODUCTION With the burgeoning economy and young high-earner aspirational consumers, Retail sector in India is on the growth juggernaut. A sector analysis of Retail sector in India has been done which provides a broad perspective of the sector and explains the major environment in which it is thriving. The second half of the report comprises of the valuation of Provogue India Limited, one of the pioneers in fashion ready-to-wear apparels in India. Below mentioned table provide an insight into the Schedule of work executed through out the program: S.No. 1

Weeks →

1

2

3

4

5

6

7

8

Collection of Data Executed

2

Interaction with industry experts and professionals

3

Comprehension and Analysis of the Data

4

Model building and application

5

Preparation of interim report

6

Submission of interim report

Executed Executed Executed Executed

7 8 9 10 11 12 13 14 15

Executed Interim report revision and incorporation of modifications discussed Executed Interactions with company management Executed Analysis of company specific data Executed Model building and application Executed Technical Analysis Executed Preparation of Final report Executed Submission of Final report Executed Preparation of Presentation Executed Preparation of Executive Summary Report Executed

Week 1 2 3 4 5 6 7 8 9 10 Start Date 19-Mar 26-Mar 2-Apr 9-Apr 16-Apr 23-Apr 30-Apr 7-May 14-May 21-May

9

10

Notes to Schedule of work: 9 Time schedule of interaction with company management depends upon the dates provided by them. 9 S.No. 4 (Model building and application) was not possible due to unavailability of complete data. 9 Technical Analysis couldn’t be complete because of unavailability of guidance due to resignation of the concerned person.

SUMMER INTERNSHIP PROGRAM 2007

SECTOR ANALYSIS OF

RETAIL IN

INDIA

“For most consumers, it usually is an advantage when retailers come in, in that it lowers prices. Another advantage is that it allows the economy to open up gradually to global vendors, so you not only have products coming in — the P&Gs and Unilevers of the world — but the creation of local jobs.”

-

Fadi Farra, Author of A.T. Kearney’s Annual Global Retail Development Index

EXECUTIVE SUMMARY… India’s GDP is continuously recording a good growth rate fuelled mainly by the services and the manufacturing sector, being very much in line with the pattern experienced in developed nations. By being on the top of the Global Retail Development Index 2006 and also the Global Consumer Confidence Survey 2006, India is set to become the battlefield for the local as well as the global retail majors. The above surveys prove the robustness of the economy and the positive vibes experienced by the consumers. Currently the penetration of organized retail in the industry is around 3% only out of the total market of USD 230 B. This provides a huge opportunity for all the players to grow and garner larger chunk of the hot cake. The organized sector is projected to grow at 25-30% p.a. and to attain a size of USD 23 B by 2010. A plethora of malls and outlets are under various stages of development, not only in metro and mini-metros but other top cities also, providing proper opportunity to the retailers to enter newer markets. Food & Grocery is the most enticing vertical with highest potential and lowest current penetration followed closely by Apparel and Fashion. Around 70% of the PFCE is spent at the retail outlets by an Indian. The major opportunity lies in the top 35 cities of the country. Young, higher income earning, working population is driving the growth of retail in the country. Increase in number of people under each strata of the pyramid provides room for all kinds of retailers. Shopping is increasingly becoming a fun experience rather than stress. Supply chain bottlenecks and improper infrastructure are the main challenges before the sector. Balance sheets can feel the dent with shrinking margins due to higher manpower cost, higher interest cost and additional service tax burden on rentals. Multi-billion dollar plans announced by many corporate houses amidst the intensifying debate on FDI in pure retailing. Further to this study, the Valuations of Provogue India Limited, a pioneer in fashion RTW apparels, has been done.

TABLE OF CONTENTS

1

Economic Outlook of India

2

Retail as a Sector in India

4

Major Retailers in India…

5

The Major Sub-categories of Retail…

6

Indian Consumers spent on…

8

Where is the Opportunity?

9

The Formats of Retailing in India…

12 The Drivers of Retailing in India… 17 The Enablers of Retailing in India… 20 The Challenges faced by Retailers in India… 23 Recent Trends… 24 Current Buzz… 25 Porter’s Five Forces Model 29 Major References… 30 Valuation of PROVOGUE (I) LTD.

ECONOMIC OUTLOOK OF INDIA Rapid and

Robust Growth

India is developing at a blistering pace with many of the last years showing a GDP growth rate of more than 7% and the current fiscal is expected to report a growth of above 8.5%. GDP Growth Rate Source: Econom ic Survey 2006

10

Percentage

8 6 4 2 0 2000-01

2001-02

2002-03

2003-04

2004-05(P) 2005-06(Q) 2006-07(A)

Although inflation is posing some sort of worries to the Indian policy makers, the recent news of slowing down a bit came as a great respite.

In line with the

GDP & Sector Contribution

First World

Source: Economic Survey 2006

R s. '000 C rore

3000 2500 2000 1500 1000 500 0 1999-00

2000-01

2001-02

2002-03

Agriculture +

Manufacturing +

Financing + Services

Public Admin + Defence

2003-04

2004-05(P)

2005-06(Q)

Trade+Comm + Services

The contribution of services in the GDP is constantly increasing and the contribution pattern of GDP is quickly approaching the patterns in developed economies. Barring agriculture with highly volatile growth rates due to excessive dependency on the rainfall and inadequate technological developments in the sector, most other business sectors have joined the party.

Sector Analysis: Retail

1

RETAIL AS A SECTOR IN INDIA… Many new areas and sectors of business have emerged and many new are on the verge of changing their facet. One such sector which is attracting most of the attention of big corporate houses and global players is Retail with multi-million dollars in pipeline.

Current Size &

Share

Retail in India is currently estimated to be a USD 230 B# industry, of which organized retail makes up a meager 3% or USD 7 B#. According to some estimates India has more than 12 million retail outlets but still the sector is said to be in its nascent stages here due to a tiny percentage of organized retail and also overall small size in absolute terms as compared globally. Globally, US has the highest penetration with around 85% of the retail sector being organized, followed by many developed countries having the penetration levels in the bracket of 40-60%.

Projections

Contributions

The scenario in India is also undergoing a quick change with the organized sector expected to grow at the rate of 25-30% p.a. and it estimated to attain a size of USD 23 B# by 2010, aggregating to around 10% of the total market. Retail industry currently is among the top employment providers, accounting for 7-8% of employment in the country. Retail sales in the country contribute over 35% of GDP and with the changing scenario these figures are only going to improve. The Associate Chamber of Commerce and Industry has projected that the nation’s retail market will create about 50,000 jobs a year through 2010. The organized retail in India is limited to the big cities only with smaller ones catching up. The cities having most of the development includes NCR, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and Pune. Out of around 361# mall projects that are underway in India, 227 are in these seven cities with rest being distributed in Tier II and Tier III cities. Besides new malls, around 35 hypermarkets, 325 large departmental stores and more than 10,000 outlets are also under various stages of development.#

Sector Analysis: Retail

2

These provide ample opportunity for the players to expand at a breathtaking speed and garner as much market share as they can with the best part being the room for everyone.

The Verdicts

Indian consumers made a hat-trick by being on the top of Global Consumer Confidence Survey September 2006 conducted by AC Nielson. This shows that for the three years in continuum now, they are very upbeat about India and loves to shop. According to this survey, more than 60% of Indians agrees that it is a good time to buy the things you want and need over the next year. The annual Global Retail Development Index 2006 released by A.T. Kearney once again puts India at the very top of the index. It shows the relative retail market attractiveness and the urgency of global players to enter across 30 emerging markets of the world. With such a positive outlook of both consumers and retailers, retail sector in India will rapidly transform to offer the maximum benefits to the society.

Sector Analysis: Retail

3

MAJOR RETAILERS IN INDIA…

Hypermarket

Departmental Stores

Supermarket

Speciality Store

Speciality Formats

Big Bazaar, Spencers, Vishal Retail, Magnet, Star India Bazaar, Shop Rite.

Shoppers’ Stop, Pantaloons, Pyramid Mega Store, Lifestyle, Globus, Westside and Central Mall.

Food Bazaar, Trumart, Nilgiris, Food World, Subhishka, Reliance Fresh, Tirtenthra, Spencers Daily and Spinach.

M.A.C, Titan, Bata, Tanishq, Furniture Bazaar, Concept, Living Room, Style Spa, Tangent, Viveks, Tata Croma, Vijay Sales, Sumaria and Sony Mony.

Archies, Depot, Landmark, Crossword, Planet M, Pizza Hut, Domino’s, McDonald’s, Café Coffee Day, Mocha, Dosa Plaza, Baskin Robbins, Natural Ice Cream, etc.

Note: The list is not exhaustive.

Sector Analysis: Retail

4

THE MAJOR SUB-CATEGORIES OF RETAIL…

The above chart shows another estimate of organized retail market in the country with the proportions of different subcategories and their relative projected standings for 2015. It projects an approximate eight folds increase in the organized sector in just a decade with the Food, Grocery & General Merchandise sub-category increasing almost 35 times over its 2004 figures. Clothes, Textile & Fashion Accessories is the sub-category with the highest contribution to the organized sector in absolute terms and the projections also looks enticing standing just behind Food & Grocery. Organised retailing has started in this category with the likes of Raymond who opened up exclusive stores across the country. With the greater influx of money in the real estate and housing sector in the last few years, Home décor and furnishings could very well be the next big opportunity for many retailers. Although the percentage figures looks small for other categories but the opportunity is huge in absolute terms. Indian consumers may experience a lot of experimentation in this sector with players trying to tap the market with different formats, different products and different marketing-mix offerings.

Sector Analysis: Retail

5

INDIAN CONSUMERS SPENT ON…

2000-01 Source: RBI Food & Beverage 48%

Clothing & Footw ear 6% Rent, Fuel & Pow er 12%

Misc. Goods & Services 8% Entrm nt. & Education 4%

Furnishings 3% Connectivity 14%

Health Care 5%

2005-06 Source: RBI

Food & Beverage 39%

Rent, Fuel & Pow er 12%

Misc. Goods & Services 10% Entrm nt. & Education 4%

Clothing Footw ear 5%

Furnishings 4% Connectivity 19%

Health Care 7%

The above charts clearly shows that none of the categories has lost its standing barring Food & Beverages in the consumer spending basket, the reduction being present in percentage terms only and not in absolute figures, which makes utmost economic sense that with an increase in real income any man will spend more on food & beverages to the extent of his eating limits. Roughly it can be said that an average Indian spends around 70% of his private final consumer expenditure (PFCE) at retail outlets.

Sector Analysis: Retail

6

This provides a huge opportunity for scaling up to the organized players. Some studies also suggests that in India Food & Grocery stores have the lowest organized penetration and Footwear category has the highest organized penetration among all other categories like apparels, watches, jewelry, etc. This is the reason why almost every big corporate house is in a hurry to make a foray into food & grocery retailing pumping in many hundred million USD.

Sector Analysis: Retail

7

WHERE IS THE OPPORTUNITY?

The above chart clarifies that by 2025 the major opportunity resides in the crème-de-la-crème eight cities and top 27 cities providing the market players to sweep up their shares in almost 40% of the Indian retail market. The population in these cities is projected to almost double by 2025 and with the globalisation sweeping everyone off their feet, there would be a scope for all types of formats and subcategories to exist. The initial expansion undertaken by players was limited to the metros but gradually they are making a foray into other large cities to gain from the first mover advantage and building customer loyalty.

Sector Analysis: Retail

8

THE FORMATS OF RETAILING IN INDIA… The following are formats that have prevailed traditionally in India:

1. Kirana Shops

2. Paan Shops

3. Cart Vendor 4. Mandis

5. Haat

These are basically the Indian version of the mom-n-pop stores of US. These are neighborhood stores from which households make purchases on a daily or regular basis. They stock a range of products major among them being FMCG products. These stores vary widely in area from less than 200 sq. ft. to over 1,500 sq. ft.

Unique to India these shops are generally operated by a single person and stocks tobacco, candies, chocolates and some FMCG products. These shops are generally very small in size.

These vendors sell fresh fruits and vegetables and housewives buy from them on a daily basis.

These are markets established at a fixed place where sellers of a particular commodity gather. Customers visit these mandis on a periodic basis and make their purchases at reasonable (generally wholesale) prices.

This format is normally found in rural areas. Here sellers from various adjacent villages gather at a particular place on a periodic basis (mostly weekly) to sell a range of products.

6. Mela

It is the oldest retail format in India. Besides selling a huge range of products, it provides a cheaper means of entertainment. It is normally organized in festive season and footfalls are expected from nearby villages.

7. Speciality

Stores

Sector Analysis: Retail

These stores include rest of the traditional stores which used to sell only one kind of commodity. Some examples of these stores are apparel stores, jewelry store, furniture store, cosmetic store, medical stores, footwear store.

9

The formats through which organized players are operating and providing the proper ambience for shopping to make that perfect experience are:

1. Supermarkets

2. Hypermarkets

3. Departmental Stores

4. Apparel

Stores

5. Speciality

Stores

Sector Analysis: Retail

Discounts, promotional offers and loyalty programs are general business for these self-service stores which mainly caters to the nearby residential areas and are spread across 3,000-10,000 sq. ft. of area. These stores operate mainly in the Food, Grocery and General Merchandise sub-category. The major players in this segment include Food Bazaar, Reliance Fresh, Spencer, Subhiksha, Trinethra.

Spanning across an area of more than 50,000 sq. ft., the general offering of hypermarkets includes significantly low prices, everyday discounts and a vast variety of product ranges including apparel and footwear, FMCG products, consumer durables, home décor, food and grocery and electronic items. These stores generally stock low-end goods. These are either located on stand alone basis or as anchor tenants in malls. The major players operating in this format are Big Bazaar, Hyper City, Star India Bazaar, Spencer’s Hyper, etc.

With comparatively low footfalls and higher ticket size these stores are a smash hit among the upper and upper-middle strata of consumers. Build up on a large area; besides providing quality goods from various brands these stores provide novelty, variety, ambience, entertainment and convenience under one roof. These stores have different sections for different products such as apparels, accessories, household items, toys, etc. Major players in this segment include Pantaloon, Shoppers’ Stop, Lifestyle, etc.

Build-up on an area of around 20,000 sq. ft. these stores stocks quality apparels and fashion accessories across an extensive range. These stores could be multi-brand stores like Westside, Globus or exclusive stores like Provogue, Raymonds, etc.

This format caters to a particular kind of customers providing a wide variety of brands and ranges for a particular product. Some

10

of the speciality stores are Health & Beauty, Crossword, aLL, etc.

6. Factory

Outlets

7. Online or Catalogue Buying

Sector Analysis: Retail

These are company owned or franchised stores selling mostly apparels at discounted prices. The products stocked are either purchased in bulk or are factory seconds or excess stock left over at the end of a season.

Extremely popular in developed nations this format hasn’t attained much pace in India mainly due to lower internet penetration and lack of touch & feel concept. But as the market will mature and products will get more-n-more standardized this format could be helpful in dictating the market.

11

THE DRIVERS OF RETAILING IN INDIA… India is Young

India had a very low median age of 24 years in 2000 and by 2025 it is expected to be around 31 years only.* This would position India distinctly in comparison to various developed economies where population is rapidly ageing. India will have a higher number of working population having more disposable income.

2005 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

Male (millions)

70

60

50

40

30

Source: United Nations

20

10

0

Female (millions)

0

10

20

30

2025

70

60

50

Sector Analysis: Retail

40

30

20

10

0

50

60

70

Source: United Nations

100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

Male (m illions)

40

Fem ale (m illions)

0

10

20

30

40

50

60

12

70

Age-group wise composition of Population 100% 90%

Source: United Nations 7.5%

8.0%

9.0%

10.2%

11.5%

40.2%

42.0%

43.6%

45.3%

46.7%

17.8%

17.0%

80% 70% 60% 50% 40%

19.3%

19.3%

18.7%

30% 20%

33.0%

30.7%

28.7%

26.7%

24.8%

2005

2010

2015

2020

2025

10% 0%

0-14

15-24

24-59

60+

The aforementioned charts clearly show the projections till 2025 regarding the population in every age-strata. While in the first chart the bars are shaped up as stairs, in the second chart it shows how the population from 10-34 years will lead the way by 2025. Considering the working age-group as 15-60 years, currently around 60% of the population is in working age-group and the same figure would be around 64% of the population. Also the population of 60+ age-group will rise by 4 percentage points with a significant fall of around 8 percentage points in 0-14 agegroup.

Increasing number of Working Women

Nuclear Families

Sector Analysis: Retail

According to the census report, the population of working women has increased from 22% in 1991 to 26% in 2001. This will result in higher retail spending as the propensity to consume for working women is higher by 1.3 times in comparison to housewives and also they like to shop under one roof due to paucity of time.

The average household size has decreased to 5.36 in 2001 from 5.57 in 1991. The proportion of nuclear families as a percentage

13

of household is on an increase and as the per capita consumption in case of nuclear families is higher, retail sector is set to benefit.

Getting Richer

Income-wise Population Composition 100% 80%

0.16

0.85

0.43

20.28

27.64

1.71

34.41

46.74

60% 40% 20% 0%

79.56

71.94

64.74

51.54

1995-96

2001-02

2005-06P

2009-10P

Rich Class (> Rs. 1,000K p.a.) Major Consuming Class (Rs. 90K-1,000K p.a.) Source: NCAER

Deprived (< Rs. 90K p.a.)

Disposable income in the country is on an increase and the percentage of major consuming class is expected to cross 48% in 2009-10 as compared to a meager 20% in 1995-96. This will result in higher spending and hence, better prospect for retailing.

Increasing Credit Availability

Experience the Shopping

Lately due to low interest rates and easy installment schemes the credit is available more freely than any other time. A lot more personal loans were taken resulting in higher consumer spending. Also the increase in the distribution and usages of plastic money (credit & debit cards) has resulted in higher spending.

Shopping is no longer considered to be a burden or something causing boredom, rather it has become an experience in itself. People love to shop, they want to try different products, they want to look good and more importantly feel good. Some people even take shopping as a stress buster. It is very hard for unorganized retailers to provide such kind of ambience and experience and thus this remains the USP of the organized retailers.

Sector Analysis: Retail

14

Increasing Urban Population

In Millions

Urban - Rural Population Divide Source: United Nations

1600 1400 1200 1000 800 600 400 200 0 2005

2010 Urban

2015

2020

2025

Rural

For the coming few years, market players will be concentrating mainly on the crème-de-la-crème and top cities which would understandingly be having a higher proportion of urban population as compared to rural once. Overall a significant increase in urban population is forecasted which will result in higher spending in lifestyle products and provides solidarity to the sector.

Pressure on

Time

Propensity to

Consume

Sector Analysis: Retail

Although the scientific inventions has made life a lot easier and saves a lot of time, humans are always in a hurry to finish things up. With increasing globalisation and aspirations, ‘having so much to do’ feeling always remain with the humans and they want to spend minimum time in shopping. Hence, they prefer stores where they could get almost everything under one roof and that too in vast variety to provide the option of choice.

Although the incomes are increasing, there has to be a propensity to consume today rather than save for tomorrow which would lead to real growth of retail sector. And this propensity is quite apparent in today’s youth which is ready to spend on his own well-ness, entertainment, wardrobe as well as on eating-out.

15

Greater

Awareness

Seek Value for

Money

Increasing

Globalisation

Increasing exposure to International

Lifestyle

Health & Hygiene Conscious

Greater levels of

Education

Sector Analysis: Retail

Today’s consumers are more aware about the products, prices, quality and also their pros & cons. They would assess the product relatively with its substitutes and then only will make a rational decision. Due to the increasing awareness it is very difficult to charge unimaginatively higher prices for any product. And as the consumers don’t want to bargain, they rather prefer organized stores with fixed prices.

Even though Indian consumer spends a lot, the discerning characteristic remains the value for money. They want the product to be worth whatever it is priced at. This is a major support for stores offering discounts because this is not possible for small retailers to offer the same products at a lower price due to unavailability of economies of scale.

Extrapolating the finding of the AC Nielson study – ‘Consumer Insights into Globalisation August 2006’ that 77% of the Indians agree that global companies allow them to gain access to the same quality of goods and services available to anyone else in the word, it can be said that there’s a good market for foreign retailers as well as foreign brands in India. These global brands will provide a further fillip to the sector. The consumers have started to believe in the superior quality of branded products and the ultimate value for money it provides.

With more-n-more people flying for foreign shores, the exposure to international lifestyle is increasing furiously. This affluent class wants to replicate that lifestyle in India and only the organized retailers can provide them with the requisites to do the same.

This driver particularly applies to the hotel and restaurant chains. Now a days people prefer to eat in a restaurant rather than a road side stall due to various hygiene related problems.

Higher levels of education help in increasing the consumer awareness. It also develops the habit of reading on divers subjects, which is required for the book stores like Crossword, Landmark, etc.

16

THE ENABLERS OF RETAILING IN INDIA…

Mall Mania

With the globalisation setting in India, the mall culture is quickly gaining its ground. Malls are spread over a large area with one or more modern retailing formats present in it. Rather than just being a shopping centre, these places also feature food courts, restaurants, multiplexes or gaming and entertainment zones. These malls have an (more in case of huge malls) anchor tenant which occupies a significant portion of the mall at a low rental than other tenants generally on a revenue sharing model. Malls provides ample space to the retailers to have their presence in crowded high street, where getting a piece of land is hard indeed and building a store is highly capital intensive. By taking space on lease in the malls the retailers save a lot of capital investment. Presently there are over 100 operational malls in the country. Major players in the business of building malls include the Raheja’s, DLF Group, Future Group, Piramal Group, etc. The following table will provide a snapshot of the current level of mall development and future prospects:

2006 Region

2008

No. of Malls

Stock of retail space (mn. Sq. ft.)

No. of New Malls

Stock of retail space (mn. Sq. ft.)

N.A.

10.63

78

36.02

44

8.64

45

25.93

Pune

N.A.

3.48

23

8.70

Hyderabad

N.A.

1.66

N.A.

9.69

Chennai

N.A.

1.80

12

6.20

Bangalore

N.A.

2.18

20

8.00

Kolkata Rest of India

N.A. N.A.

2.11 N.A.

N.A. 134

11.60 Over 41.4

NCR Mumbai

Source: Knight Frank: Indian Retail Market Review

Sector Analysis: Retail

17

Technological

Advancements

Application of computer aided technology is very much necessary for modern retail formats spanning across large area and stocking a variety of products. Many a kind of sophisticated systems have been developed to cater to the specifications of this sector and technology companies are too upbeat on this sector. Systems used in the retail industry includes retail enterprise solutions, customer relationship solutions, supply chain management solutions, inventory systems, electronic data converter machines, bar coding and decoding, etc. The recent buzz in retail and logistics technology is about the Radio Frequency Identification (RFID). This is a very effective tool for storing and remotely retrieving data using RFID tags (basically small chips that can be attached to or incorporated into a product, animal or person) for the purpose of identification using radio waves. World’s biggest retailer, Wal-Mart is in the process of implementing this technology across its stores and has already mandated its suppliers to incorporate RFID tags into all the shipments. Also for online retail to become popular in India, technological advancement is a must so as to penetrate deep into the markets both urban as well as rural.

Entry Routes

No specification is given by the government in relation to Indian players. Anyone who wants to pursue retail business can do so. But as 100% FDI is not allowed as yet, for foreign players to open retail facilities in India the following routes are available:

Cash & Carry

Franchising

Sector Analysis: Retail

With 100% FDI already allowed and now put under the automatic route by the FIPB, this is basically a wholesale trade format. This route basically facilitates the local retailers by building up large distribution network. Metro and Shoprite has entered using this route. One of the most common routes under which the foreign players grant some specific rights against a sum of money to its

18

franchisee, who would then be able to conduct the business using the franchisors know-how and brand name. Prominent players who used this route includes Pizza Hut, Marks & Spencer, Nike and Subway. Joint Venture

Manufacturing

Distribution Single Brand Stores

As the maximum FDI in multi-brand format allowed at present is 49% only, players like McDonalds and Reebok has entered into joint ventures with Indian players who contributes the remaining 51% equity stake and operates under the foreign company’s brand name. In this route the foreign players have to set up their production facilities in India and then only they would be allowed to sell those products through their own retail outlets. The players who have used this route are Bata and Benetton. Under this format the foreign player sets up a distribution centre in India and supplies its products to the local retailers. With a view of “attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of business enterprises through access to global designs, technologies and management practices” government allowed upto 51% FDI in ‘single brand’ products in January 2006. The product has to be branded during manufacturing only and should be of a ‘single brand’ only. Also the same brand name should have been in use internationally, for the product.

Sector Analysis: Retail

19

THE CHALLENGES FACED BY RETAILERS… Infrastructure

The major challenge faced by the retailers is of the infrastructure in India. The under-developed or developing transport facilities, improper retail space for building stores, crowded market places, heavy dearth of parking lots, higher charges of electricity, etc. pose a lot of problems for modern day retailers. These result in higher logistics and inventory costs. Along with these there are a lot of formalities under government regulation that are to be done away with before opening a new store, which adds up to unnecessary time consumption and project delays.

Supply Chain Bottlenecks

With India’s transport in a dismal state, alongwith many a formalities that are to be met for taking goods from one state to another, retailing in India is a difficult task. Fruits and Vegetables suffer the most due to improper warehousing and absence of cold storages and transport facilities with a major chunk (around 40% of perishable food) of the total produce going as a waste. This results in subsided revenue for the farmers as well as higher prices for the consumers. Previously direct purchase from farmers was not allowed and they have to sell their produce at mandis but now the government is easing out on these restrictions and allowing big corporate retailers to source the produce directly from the farmers eliminating the marketing middlemen and extra costs. The supply chain and logistics bottlenecks hinder the growth of retailers a lot and make the scaling up of stores a challenging task.

Restrictions on

FDI

Foreign direct investment is still not allowed in pure retailing prohibiting global players from making a foray into Indian markets. This is a protectionist and conservative approach adopted by the government in this global arena mainly due to the high pressures of the left parties. It breaks down the mounting enthusiasm about India’s retail market and abstains from exposure to better technology and better management practices.

Sector Analysis: Retail

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Lack of Industry

Status

High Cost of

Real Estate

Retail is clearly recognized as a different vertical in industry circles but it still lacks the industry status by the government. This result in lack of much needed sector specific policies and assistance and also restricts the availability of finance.

Real estate costs in the country has gone through the roof in the last couple of years, putting enormous cost pressures on the margins of retail players. Also the stamp duty prevailing in India is very high. Although many a facilities are opening up in malls, the rentals of these malls are also spiraling equally. The government has put an extra pressure by levying Service Tax on rentals which will effectively result in a 12.36% increase in rental costs. Strong pro-tenancy laws also exist in India, making it difficult to evict tenants and compounding to the already existing problem of clear title of ownership.

Complex Taxation System

India has one of the most complex taxation systems in the world with taxes like income tax, wealth tax, excise duty, service tax, sales tax, VAT, customs duty, octroi etc. These are levied and collected at different points by different government bodies ranging from Central Government to Municipal Corporations. CST is applicable for inter-state movement of goods, VAT regime is not adopted by all the states uniformly and existence of octroi charges in some places makes it very difficult for retailers to keep uniform prices for the products across India. It also asks for additional documentation and unnecessary paperwork. All these result in added cost and complexity in distribution.

Diversified India

Sector Analysis: Retail

India in itself is a world with people exercising a variety of religions, languages, customs and beliefs. In order to be successful it is very important for any retailer to understand its customers properly and provide him with choices in his preferred category. This requires higher SKUs resulting in higher inventory costs.

21

Manpower Cost

Increasing

Interest Rates

Sector Analysis: Retail

With the entry of new players and intensifying competition, the industry has to grapple with increased cost of human resources as every player would like to entice the experienced and able employees.

In order to cope up with recent inflation, the Government of India and the central bank have taken a lot of steps to curb the money supply in the market. This move has resulted in an increase in interest rates. Companies with significant debt component in their capital structure could feel the dent in the balance sheets for the coming quarters atleast.

22

RECENT TRENDS… Concept Malls

Products for sale through chains only

Increasing number of Private Labels

Retail space is India is experiencing the development of concept malls dedicated to one particular need. They provide the customers with all sort of solutions related to one occasion or need under one roof. Some such malls include Wedding Mall, Mall for Cars and Gold Mall.

With the changing face of retail, Indian FMCG companies are also churning out new strategies to reach out to their customers. In one such move HLL has introduced Fair & Lovely Perfect Radiance (targeted at upper and upper-middle segment) to be sold through organized stores only.

Along with making their presence felt all over India and rapidly garnering loyalty resulting in repetitive footfalls, many a retailers in India are increasing the number and dominance of private labels in their stores. This makes a lot of business sense as they are able to provide quality products at reduced rates having higher margins. Also the supply chain bottlenecks could be reduced to an extent, reducing the unnecessary costs.

Sector Analysis: Retail

23

CURRENT BUZZ… 9 Reliance retail which entails an investment of Rs. 25,000 crores in the sector, has achieved the milestone of setting 100 Reliance Fresh stores in just five months.

9 Bharti

to foray into retail with Wal-Mart. Plans a 3-tier format including convenience, super & hyper markets.

9 Raymonds are all set to expand their stores from 350 at present to 950 by 2010 with each store costing around Rs. 5 million.

9 Coco-Cola to launch ‘Red Lounge’, a complete chill out space in India which will offer the entire range of beverages from the company’s portfolio and would also feature LCD TV, Video Games and Computer with Internet access.

9 Titan to enter into eyewear retailing business with ‘Titan Eye +’ stores. Company is planning to open 150 such stores by 2012.

9 With 132 outlets already on a roll, Pizza retailer Domino’s is all set to add 50 more in this financial year with an outlay of around Rs. 50 crores.

9 RPG

group's Spencers Retail has chalked out a $500 Million expansion plan which involves setting up 1,000 stores across India by 2009.

9 United Colors of Benetton to almost double its number of stores from 110 to 200 by the end of 2007. Also to launch its premium brand ‘Sisley’ in Bangalore and Mumbai. At present it has its presence in New Delhi only.

9 Promoters

of Bombay Dyeing the Wadias are making a foray in retailing with an investment of USD 2-2.5 billion over the next several years.

9 Aditya Birla group has planned to invest around USD 3.3. billion in retail business.

Sector Analysis: Retail

24

PORTER’ FIVE FORCES MODEL

9 Industry

Competitors – Rivalry among existing

firms: o Competition hotting up with many big corporate houses making a bee-line for foraying into the industry with real big investments. o With the FDI restrictions on pure retailing expected to be removed, entry of global players will intensify the rivalry. o Small size stores – Kirana Stores, Speciality Stores, are experiencing a lot of competition from organized players. o Not many barriers exist for entering into unorganized retailing but to make a foray into organized retailing is becoming a tough nut to crack. o Organized retailing is both capital as well as labour intensive requiring big ticket investments to enter the sector.

Sector Analysis: Retail

25

o With intensifying rivalry in each vertical, brands have become the important product differentiator. Retailers have to tryout newer formats and constantly generate better ideas to maintain high footfalls. o In one of the most exciting and rapidly growing sector in India, rivalry is bound to be intense with competitors adopting aggressive growth strategies and primarily eyeing the top cities.

9 Potential Entrants – Threat of new entrants: o For small size retailers the entry of organized players poses a major threat to their existence. o The economies of scale with which the major corporate houses are intending to operate intensify the threat. o As the organized retailing is both capital and labour intensive entry is not that easy. o Switching costs for the customer is virtually Nil, hence the rivalry and threat of new entrants in the industry is high. Retailers have to look for creating brand loyalty to ensure sustained footfalls. o Supply chain management is a key area in modern retailing. With the Indian logistics sector getting better and more efficient by the day, every retailer will have access to good services and would be able to compete effectively. o Technology is continuously getting cheaper and accessible. The use of sophisticated techniques will create a vast difference in the bottomlines of the companies. o The current government regulation restricts the entry of global players, reducing the threat for Indian retailers and providing an opportunity to make a stronghold in the market.

Sector Analysis: Retail

26

9 Substitutes – Threat of substitutes: o Unorganized retailing is the substitute for the organized format. As it is virtually impossible (atleast at the current scenario) for the organized retailers to be present as the Kirana stores are. o Due to the economies of scale, organized retailers are able to provide better quality products at lower prices than their unorganized peers. o Due to the reasons like proximity, credit facility, home delivery and personal attention, buyers might still want to shop at the nearby Kirana store rather than going to a far-off supermarket. o Catalogue, direct or online shopping hasn’t acquired much pace in India and thus can’t be treated as a threat to retailing.

9 Suppliers – Bargaining power of suppliers: o In unorganized retailing, suppliers have an upper hand in the bargaining power, whereas in organized format, retailers dominate the terms primarily due to the economies of scale. o The focus is rapidly changing from the brand of products to the brand of retailers and the differentiating services that they provide. Many a supplier work on an outsourcing basis, just manufacturing the product and branding it for the retailer, thus not having a brand distinction of their own. o There are instances where suppliers have integrated forward by launching their own stores and the future possibilities of this nature can’t be ruled out. o As many a product are outsourced for manufacturing by the retailers rather than producing them in-house, the quality and service of the supplier plays an important role.

Sector Analysis: Retail

27

o The switching cost for suppliers is not very high. As all the verticals of retailing are growing rapidly, it is easy for suppliers to find new customers.

9 Customers – Bargaining power of customers: o Buyers do have some bargaining power in unorganized format but due to product standardization and fixed pricing, buyers virtually have no bargaining power in organized format retailing. o Also the volume and ticket size for each customer is low. o Buyers of the retailing industry don’t pose any sort of threat pertaining to the backward or forward integration into the industry. o Buyers virtually enjoy Nil switching cost and thus the role of quality and service is immense to retain the customer. Loyalty programs help in sustaining relationships.

Sector Analysis: Retail

28

MAJOR REFERENCES… 9 Knight Frank (indicated by #) 9 AC Nielson – Global Consumer Confidence Report, Sept. 2006 Consumer Insights into Globalisation, Aug. 2006 9 A.T. Kearney – GRDI 2006 and GRDI 2005 9 United Nations 9 Tata Strategic Management Group 9 Pantaloons Retail (I) Ltd. 9 Shopper’s Stop 9 Provogue 9 Economic Survey 2006 9 KSA Technopak (indicated by *) 9 Reliance Retail Indian Blogspot 9 IndiaRetailBiz 9 KPMG – Consumer Markets India 2005 9 Morgan Stanley – The Retail Revolution – Nov. 22, 2006 9 Third Eyesight – Slicing the market 9 IBEF

By: Rohit Agarwal 06BS2811 IBS – Hyderabad Cell: 09246277545

Sector Analysis: Retail

29

PROVOGUE (INDIA) LIMITED EQUITY ? INDIA ? RETAIL ? APPAREL Stock Data BSE Code BSE Group NSE Symbol ISIN Demat Reuters Bloomberg Par Value(Rs)

532647 B1 PROVOGUE INE968G01017 PROV.BO PROV IN 10

52 Week High 52 Week Low All Time High All Time Low MCap (Rs Crores) Shares O/s

521.00 159.70 521.00 123.25 879.65 190.1 lakh

SENSEX NIFTY Beta value

13796.16 4076.65

0.6737

Avg. Daily Vol. Mnty. Avg. Daily Vol. Qty.

2279 8120

Recent Stock Performance 1 week 0.13% 4 weeks -4.59% 12 weeks -1.99% 26 weeks 21.20% 52 weeks 10.74%

May 16, 2007

Current Market Price: Rs. 460.55 Target Market Price: Rs. 740.28 Recommendation: BUY Set-up as a men’s apparel producing company, Provogue India Ltd. is a pioneer in fashion RTW apparels. After the successful recognition of the brand Provogue in men’s segment, the company has ventured into the very lucrative and developing women clothing and also the promising accessories segment. At present it distributes its products in 58 cities through 106 Provogue stores and is trying with the new formats ‘Flip’, an accessory store and ‘Promart’, an all season offprice store. The company is planning to scale up its operations with around 29 more Provogue stores including Provogue Mega stores by the end of FY08. Also it is constantly raising its presence in different locations through the increasing networks of NCSs. The margins of companies export business is set to improve with its foray into American and European market. Subsidiary Prozone Enterprises is also all set to improve its operations and will provide larger share in revenues in days to come.

Shareholding Pattern FIIs 25% Promoter s 43%

Other Institution s 6% Corporat es 7% Public & Others 19%

The company is achieving significant growth in both top as well as bottom line and the FY08 bottom line is expected to grow at 115%. The company is trading at 19.1x its FY08 earnings and keeping the industry average in perspective we recommend a BUY on the stock with a target price of Rs. 740.28. FINANCIAL SUMMARY (Rs. Cr.) Net Sales

Valuation: Provogue India Limited

FY08 E

FY07 E

FY06

FY05

394.5

245

156.41

115.02

PBIDT

67.0175

37.237

20.89

14.1

PAT

46.0565

21.4166

11.94

7.22

PBIDTM %

16.99%

15.20%

13.36%

12.26%

PAT % EPS (Rs.)

11.67% 24.1134

8.74% 11.2129

7.63% 7.37

6.28% 5.94

30

INVESTMENT RATIONALE Indian retail story…

India is Young…

The Brand… The Scalability…

Promart, the cash

juggling machine…

Living the Mall mania…

9 Organized sector retailing growing at breathtaking speed of 2530%. The company is well positioned to take the advantage of these conditions by leveraging its existing network as well as expanding its operations. 9 As most of the Provogue outlets are situated in malls or high streets, the consumers shift from ‘markets to malls’ will result in increased footfalls and also help in increased revenues for Prozone, its mall development subsidiary. 9 At 2005 figures, India’s median age is 24 years. With the increasing disposable income and increased globalisation, Indian consumers are confronted with global fashion and want to accommodate it into their lifestyle. This fashion lover population creates a sustained demand for fashionable apparels and accessories. 9 The company owns the well established Provogue brand which is a fashion statement in itself. 9 Provogue have major expansion plans both for Provogue stores and Promart stores. Currently they are operating with 106 Provogue stores and are expecting to take this tally around 135. 9 The company has increased its presence in NCS from 59 in FY06 to 84 by FY07. This results in better reach of the brand and ultimately better revenues. 9 Only around 20% of the Provogue stores are on franchisee, which results in better margin gains through own stores. 9 Provogue share in the Indian apparel market is a meager 0.13% at 2005 figures. This provides it with an immense opportunity to scale up the operations and expand its market share. 9 At present there are around 370-400 million people who are 2040 years old. The company provides these fashion aspirers a variety of products and also a fashion statement. 9 The off-price store format Promart, will improve the companies topline substantially due to its mix of fashion-at-value appeal and stocking of a larger number of brands. The company is expecting an est. 30 crore sale in FY08 from the first Promart store opened in Ahmedabad. 9 Margins of export business are improving continuously and with the hold on American and European market, the company is expected to get better revenues. 9 Prozone Enterprises has acquired majority stake in two real estate developers to act as SPVs for developing commercial properties in Indore and Nagpur. The outlook for the subsidiary

Valuation: Provogue India Limited

31

looks strong and it is able to contribute substantially to the company’s topline.

KEY RISKS 9 Fashion risk arises due the company’s inability to set trends and understand changing fashion trends. 9 As the business model revolves around the brand Provogue, brand risk arises from any event that tarnishes the image of the brand. 9 Competition risk arises due to more players wanting to foray into the enticing Indian apparel market.

VALUATION AND RECOMMENDATION 9 Net Sales have a shown a strong growth 36% in FY06 and the

Provogue trades at 41.1x FY07E and 19.1x FY08E earnings…

outlook for FY07 and FY08 looks even better with 57% and 61% of estimated growth rates. 9 A even stronger outlook is shown with Net Profit which grown at 65% in FY06 is expected to grow at 79% and 115% for FY07 and FY08 respectively. 9 ROE has dipped in FY06 but is estimated to come back to previous levels of 16% in FY07 and move on from there to over 26% in FY08. 9 The company has paid oven 10% of dividends in the last two years and expected to maintain these levels for the coming fiscals, if not increase them. 9 It discounts the FY07E and FY08E earnings at 41.1x and 19.1x respectively. 9 Taking the industry average of 30.7x, we propose a target price of Rs. 740.28 which is 60% over the current market price and recommend a BUY on the scrip. 9 And on the higher side it market continue to discount the scrip at 41.1x, the price may go up till Rs. 990.

Net Sales (Rs. Crores)

PAT (Rs. Crores) 500

50

400

40

300

30

200

20

100

10

0 FY05

FY06

FY07 E

FY08 E Bas.

Valuation: Provogue India Limited

0 FY05

FY06

FY07 E

FY08 E Bas.

32

COMPANY BACKGROUND India’s leading manufacturer and distributor of fashion RTW garments…

One of India’s leading manufacturers and distributors of branded fashion ready-to-wear (RTW) garments, Provogue (I) Ltd. was incorporated in 1997 as Acme Clothing Private Limited. It commenced business as a fashion house for men under the brand name of Provogue. With the exemplary response to the brand, the company subsequently launched its range for women as well. Provogue’s product portfolio consists of a wide range of products mainly for the age group of 20 to 40 years old. It is not only recognized as the pioneer of the segment but also remain a clear market leader in fashion wear with winning many industry awards which includes ‘Best Menswear Brand’, ‘Brand Professional of the Year’, ‘Most Admired Fashion Forward Brand of the Year, and ‘Retailer of the Year in Fashion’. Provogue has also developed a promising export business of textile products supplying a range of fabrics, fabric designs, dyestuffs and connected machinery. Besides this, its two wholly owned subsidiaries operate in the mall development & management and hospitality segments.

Getting flirty with

formats…

Besides the Provogue Mega stores and Provogue Exclusive stores, the company has come up with the idea of Flip, the accessory story and lately with Promart, the all time discount store which will stock excess stock or factory seconds and mid-priced brands and provide them to the customer at a 20-60% discount.

A Young Company Blending enthusiasm, energy and experience…

Provogue is basically a young company with the average age of around 27 years. The management is also young (mostly in their late 30s) backed by hands on experience in their respective fields. This combination blends the enthusiasm and energy in the company with the experience of the management to make a great place to work.

Manufactures at

The company is integrated backwards with its manufacturing facility in Daman with a capacity to manufacture 900,000 pieces of shirts and trousers per annum. This facility focuses on fast-tomarket fashion collection. All the other products of the company are outsourced to best-in-class manufacturers.

Sells throughout

Currently the company is present in 58 cities through its 106 Provogue Studios and 84 locations through National Chain Stores (NCS), besides the brand featuring in many Multi Brand Outlets.

Daman…

India…

Valuation: Provogue India Limited

33

BUSINESS PROFILE Along with its wholly owned subsidiaries the company operates in the following segments: 9 Ready-to-wear (RTW) fashion garments & accessories 9 Export of textile products 9 Mall development and management 9 Hospitality

RTW Fashion Garments & Accessories After making mark in the men’s wear segment, the company launched its range of women’s wear in the year 2005 and also came up with a vast range of accessories for both men and women. The distribution of Provogue is done through the following:

106 stores in 58 cities and much more coming…

Provogue Studio & Provogue Mega Stores Provogue Studios are the flagship stores of the brands covering around 800 to 2000 sq. ft. of area and the Mega stores are just a bigger form of these spanning across an average space of 5000 to 7000 sq. ft. Both these stores stock exclusively brand Provogue. Currently the brand is present in 58 cities through 106 such stores and the company is planning to come up with around 28 more such stores by FY08. National Chain Stores (NCS) and Multi Brand Outlets (MBO) The brand is also present in 84 locations through NCS such as Shoppers’ Stop, Lifestyle, Westside, Pantaloon, Central, Globus, Pyramid and others. It provides the opportunity to the brand to grow with the growth of the NCS. In order to leverage on the strength of the brand by reaching out to small towns and cities, the products are distributed through MBOs which stock a variety of brands including Provogue. Flip Stores In order to cater to the growing demand of accessories by Indian women, the company has introduced a dedicated accessory brand, Flip which will be distributed through NCSs and Provogue stores besides its exclusive outlets at leading malls and high-streets.

New cash cow…

Promart Recently launched in Ahmedabad, this is an off-price store which will stock excess stocks or factory seconds and mid-priced brands at nice discounts throughout the year. It’ll also feature accessories and the company is planning to open 5 more such stores by 2010.

Valuation: Provogue India Limited

34

Export of Textile Products Margins will increase in

days to come…

A registered ‘Export House’, the company entered the textile sector through the acquisition of Acme Global in 2004. The company exports finished fabrics, dyestuffs, chemicals and textile machinery which are sourced from various suppliers. With the new quota free regime, the future of the segment seems healthy.

Mall Development and Management Space: For everyone,

By Provogue…

To leverage the booming demand for quality shopping destinations in India, the company has established a 100% subsidiary, Prozone Enterprises Pvt. Ltd. which will develop, design, manage and invest in malls in India. Prozone has entered into a JV with UKbased Liberty International and has also acquired stakes in two companies to act as SPVs to develop commercial properties in Indore and Nagpur.

Hospitality Another wholly owned subsidiary, Acme Hotels and Hospitality Pvt. Ltd. was incorporated by a promoter of Provogue (I) Ltd. and became a subsidiary of the company in 2005. It managed the ‘Provogue Lounge’, an entrepreneurial concept and apparel store and lounge which have now been boxed.

MAJOR PRODUCT OFFERING We have it all…

9 Men’s Wear o Shirts:

Polynosic, Fashion Formal, Linen, Partyline Black, Printed and Casual. o Trousers: Formal, Casual and Cargos. o Formal Suits and Jackets. o Sweaters and T Shirts. o Denims, Track Pants and Innerwear. 9 Women’s Wear o Tops: Formal and Party. o Formal: Trousers and Jackets o T Shirts: Casual and Fashion. o Denims and Cargos o Sweaters. 9 Accessories o Belts, Wallets & Shoes o Eyewear o Handkerchiefs, Socks, Ties & Caps

Valuation: Provogue India Limited

35

INDUSTRY SNAPSHOT Over 88K crore and growing over 13%…

The IMAGES-KSA Technopak study values the Indian Apparel Market at Rs. 88,340 crore in 2005 which is an overall growth of 13.6% over the 2004 figures. In volume the market has increased just by 4.70% but the corresponding value figure is 13.64%. The maximum increase is recorded in the Uniforms category which is a territory uncharted by branded apparel companies. Still the Menswear segment dominates the market in terms of value whereas highest number of pieces was sold in Womenswear. Nonetheless the share of Menswear has shrunk a bit, it provides a good business opportunity with increased absolute figures. In Menswear the categories like Suits, Jackets, Blazers, Casual Jackets and Innerwear has recorded the highest growth.

Volum e-w ise Share

Men dominance under

test…

UNIFORMS 9%

MENS WEAR 28%

KIDSWEAR 25%

UNISEX APPAREL 9%

WOMENS WEAR 29%

Value-wise Share UNIFORMS 9% KIDSWEAR 15% UNISEX APPAREL 7%

MENS WEAR 37%

WOMENS WEAR 32%

Womenswear is one of the most lucrative investment categories in the market with the highest untapped potential. Women’s trousers, skirts, westernwear suits & blazers and lingerie has recorded the highest growth. The highly untapped lingerie segment provides a good opportunity for the branded players.

Valuation: Provogue India Limited

36

Have the future in India…

With the young Indians getting richer and not even understanding fashion but wanting to make it a part of their lifestyle, the Indian apparel market is all ablaze and will continue to record growth at these levels for some more years to come.

INDIAN APPAREL MARKET SIZE 2003 2004 2005 Category Volume Value (Rs. Volume Value (Rs. Volume Value (Rs. ('000 units) Cr.) ('000 units) Cr.) ('000 units) Cr.) MENSWEAR WOMENSWEAR UNISEX APPAREL KIDSWEAR UNIFORMS TOTAL

1,297,220 1,300,610 434,340 1,180,290 397,210 4,609,670

26,090 21,730 5,240 10,810 5,460 69,330

1,342,140 1,368,310 452,020 1,222,280 423,020 4,807,770

29,135 24,680 5,835 11,745 6,345 77,740

1,393,639 1,443,113 470,978 1,268,933 456,862 5,033,524

32,590 28,375 6,615 13,085 7,675 88,340

INDIAN APPAREL MARKET (% CHANGE REL. TO PREVIOUS YEAR) 2003 2004 2005 Category Volume Value Volume Value Volume Value MENSWEAR WOMENSWEAR UNISEX APPAREL KIDSWEAR UNIFORMS TOTAL

3.42% 5.15% 3.96% 3.55% 6.50% 4.25%

Valuation: Provogue India Limited

11.81% 13.59% 24.32% 8.64% 17.17% 13.12%

3.46% 5.21% 4.07% 3.56% 6.50% 4.30%

11.67% 13.58% 11.35% 8.65% 16.21% 12.13%

3.84% 5.47% 4.19% 3.82% 8.00% 4.70%

11.86% 14.97% 13.37% 11.41% 20.96% 13.64%

37

MAJOR COMPETITORS

9 Arvind Mills: Having rights of some of the best selling brands in India like Arrow, Lee, Wrangler and Tommy Hilfiger and operating through more than 165 stores in over 40 cities, Arvind Mills is one of the shinning stars in Indian apparels.

9 Madura Garments: An Aditya Birla group company, Madura operates with brands like Peter England, Van Heusen, Allen Solly, Louis Phillipe, Trouser Town, etc. through more than 360 stores in over 50 cities.

9 Raymond:

One of the pioneers in Indian textile industry, Raymond operates with ‘The Raymond Shop’ having 300+ outlets in over 135 cities and ‘Be:’ with 18+ stores in more than 10 cities.

9S

Kumars: This uniform apparel major operates with 14+ exclusives stores for its premium brand Reid & Taylor.

9 Kewal

Kiran: With brand like Killer, this company operates through K-lounge and has announced major expansion plans.

9 Pantaloon Retail: Owned by the so-called Raja of retail Mr. Kishor Biyani, this company operates through in many formats and has major expansion plans.

9 Zodiac Clothing: The company distributes its premium formal wear brand Zodiac through its exclusive stores. PEERSET FINANCIALS Arvind Particulars Mills 200703 Net Sales Total Expenditure PBIDT Reported PAT Adj.Profit After Extra-ord. item

EPS (Unit Curr) Equity PBIDTM(%) PATM(%) PE Ratio PB Ratio

1,678.78 1,397.60 418.06 122.44 23.89 1.14 209.38 24.90 1.42 32.65 0.73

Bombay Rayon 200612 316.10 253.38 65.45 32.87 32.87 6.71 48.98 20.71 10.40 32.55 3.52

Valuation: Provogue India Limited

Kewal Kiran 200612 102.97 82.13 26.32 15.45 15.45 12.53 12.33 25.56 15.00 13.80 2.28

Pantaloon Retail 200703 2,792.26 2,596.13 273.34 117.16 69.20 24.59 28.14 9.79 2.48 80.71 7.10

Zodiac Clothing 200612 147.03 135.66 19.89 10.11 10.11 12.09 8.36 13.53 6.88 15.75 2.31

Raymond 200703

S Kumars Nation 200703

1,284.19 1,116.20 330.82 202.12 119.06 19.40 61.38 25.76 9.27 17.61 1.55

1,229.54 1,015.82 223.62 107.48 123.40 6.40 192.70 18.19 10.04 11.26 4.70

38

COMPANY FINANCIALS (Rs. Crores)

FY08 E Dil. FY08 E Bas.

Net Sales

FY07 E

FY06

FY05

394.50

394.50

245.00

156.41

Growth %

61.02%

61.02%

56.64%

35.99%

Total Expenditure

328.48

328.48

208.70

136.14

101.26 14.10

PBIDT

115.02 -

67.02

67.02

37.24

20.89

Growth %

79.98%

79.98%

78.25%

48.16%

PBIDTM %

16.99%

16.99%

15.20%

13.36%

12.26%

Interest

6.00

6.00

6.32

3.31

2.95

Depreciation

6.26

6.26

5.45

3.47

1.79

54.76

54.76

25.46

14.11

9.36

PBT

-

Tax

8.70

8.70

4.05

2.17

2.14

PAT

46.06

46.06

21.42

11.94

7.22

115.05% 11.67%

115.05% 11.67%

79.37% 8.74%

65.37% 7.63%

6.28%

20.9

19.1

19.1

16.2

12.15

Reserves

154.38

154.64

111.34

92.68

31.59

Dividend % CMP

12.5 460.55

12.5 460.55

12.5 460.55

12.5 460.55

10 460.55

EPS CEPS

22.04 25.03

24.11 27.39

11.21 14.07

7.37 10.00

5.94 9.42

P/E Ratio

77.53

Growth % PAT % Equity

20.90

19.10

41.07

62.49

PEG Ratio

0.18

0.17

0.79

2.60

-

P/S Ratio

2.44

2.23

3.59

4.77

4.86

P/B Ratio ROE %

5.49 26.28

5.06 26.51

6.74 16.42

6.85 10.97

12.80 16.51

Source: Capital Line Data as at May 11, 2007

Valuation: Provogue India Limited

39