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SUMMER INTERNSHIP PROGRAM

2007

A REPORT
ON

SECTOR ANALYSIS
OF
RETAIL IN INDIA
&
VALUATION OF
PROVOGUE INDIA LIMITED
SUBMITTED BY
ROHIT AGARWAL
06BS2811
(rohit_agar1@yahoo.co.in)

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. Weeks → 1 2 3 4 5 6 7 8 9 10
1 Collection of Data
Executed
2 Interaction with industry experts and professionals
Executed
3 Comprehension and Analysis of the Data
Executed
4 Model building and application
Executed
5 Preparation of interim report
Executed
6 Submission of interim report
Executed
7 Interim report revision and incorporation of modifications discussed
Executed
8 Interactions with company management
Executed
9 Analysis of company specific data
Executed
10 Model building and application
Executed
11 Technical Analysis
Executed
12 Preparation of Final report
Executed
13 Submission of Final report
Executed
14 Preparation of Presentation
Executed
15 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
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 India is developing at a blistering pace with many of the last
Robust Growth 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
3000

2500
R s. '000 C rore

2000

1500

1000

500

0
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05(P) 2005-06(Q)

Agriculture + Manufacturing + Trade+Comm + Services
Financing + Services Public Admin + Defence

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 &
Retail in India is currently estimated to be a USD 230 B#
Share 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
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.
Contributions 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 Big Bazaar, Spencers, Vishal Retail, Magnet, Star India Bazaar,
Shop Rite.

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

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

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

Speciality Archies, Depot, Landmark, Crossword, Planet M, Pizza Hut,
Formats 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 sub-
categories 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
Clothing &
Footw ear
Food &
6%
Beverage
48%
Rent, Fuel &
Pow er
12%

Misc. Goods &
Furnishings
Services
3%
8%
Connectivity
Entrm nt. & Health Care
14%
Education 5%
4%

2005-06

Source: RBI

Clothing
Food & Footw ear
Beverage 5%
39%
Rent, Fuel &
Pow er
Misc. Goods & 12%
Services
10% Furnishings
4%
Entrm nt. & Connectivity
Education 19% Health Care
4% 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 sub-
categories 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
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.

2. Paan Shops 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.

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

4. Mandis 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.

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

Sector Analysis: Retail 9
The formats through which organized players are operating and
providing the proper ambience for shopping to make that perfect
experience are:

1. Supermarkets
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.

2. Hypermarkets 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.

3. Departmental With comparatively low footfalls and higher ticket size these
Stores 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.

4. Apparel
Build-up on an area of around 20,000 sq. ft. these stores stocks
Stores 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.

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

Sector Analysis: Retail 10
of the speciality stores are Health & Beauty, Crossword, aLL,
etc.

6. Factory These are company owned or franchised stores selling mostly
Outlets 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.

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

Sector Analysis: Retail 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 Source: United Nations

100+
95-99
90-94
Male (millions) 85-89 Female (millions)
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

70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70

2025
Source: United Nations
100+
Male (m illions) 95-99 Fem ale (m illions)
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

70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70

Sector Analysis: Retail 12
Age-group wise composition of Population
Source: United Nations
100% 7.5% 8.0% 9.0% 10.2% 11.5%
90%
80%
40.2%
70% 42.0% 43.6% 45.3% 46.7%
60%
50%
19.3%
40% 19.3%
18.7%
17.8% 17.0%
30%
20% 33.0% 30.7% 28.7% 26.7% 24.8%
10%
0%
2005 2010 2015 2020 2025

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 age-
group.

Increasing
According to the census report, the population of working
number of women has increased from 22% in 1991 to 26% in 2001. This
will result in higher retail spending as the propensity to consume
Working Women 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.

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

Sector Analysis: Retail 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% 0.16 0.43 0.85 1.71
20.28
80% 27.64
34.41
46.74
60%
40%
79.56 71.94 64.74 51.54
20%

0%
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 Lately due to low interest rates and easy installment schemes the
credit is available more freely than any other time. A lot more
Availability 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.

Experience the Shopping is no longer considered to be a burden or something
Shopping 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 Urban - Rural Population Divide
Source: United Nations
1600
1400
1200
In Millions
1000
800
600
400
200
0
2005 2010 2015 2020 2025

Urban 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
Although the scientific inventions has made life a lot easier and
Time 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.

Propensity to Although the incomes are increasing, there has to be a propensity
Consume 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.

Sector Analysis: Retail 15
Greater Today’s consumers are more aware about the products, prices,
quality and also their pros & cons. They would assess the
Awareness 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.

Seek Value for Even though Indian consumer spends a lot, the discerning
characteristic remains the value for money. They want the
Money 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.

Increasing Extrapolating the finding of the AC Nielson study – ‘Consumer
Globalisation 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.

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

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

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

Sector Analysis: Retail 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 2008
Region Stock of retail Stock of retail
No. of Malls space (mn. Sq. ft.) No. of New Malls space (mn. Sq. ft.)
NCR N.A. 10.63 78 36.02
Mumbai 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 N.A. 2.11 N.A. 11.60
Rest of India N.A. N.A. 134 Over 41.4
Source: Knight Frank: Indian Retail Market Review

Sector Analysis: Retail 17
Technological Application of computer aided technology is very much
Advancements 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 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.

Franchising One of the most common routes under which the foreign players
grant some specific rights against a sum of money to its

Sector Analysis: Retail 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 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.

Manufacturing 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.
Distribution Under this format the foreign player sets up a distribution centre
in India and supplies its products to the local retailers.
Single Brand With a view of “attracting investments in production and
Stores 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
With India’s transport in a dismal state, alongwith many a
Bottlenecks 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
Foreign direct investment is still not allowed in pure retailing
FDI 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 20
Lack of Industry Retail is clearly recognized as a different vertical in industry
Status 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.

High Cost of Real estate costs in the country has gone through the roof in the
Real Estate 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
India has one of the most complex taxation systems in the world
Taxation with taxes like income tax, wealth tax, excise duty, service tax,
sales tax, VAT, customs duty, octroi etc. These are levied and
System 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
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.

Sector Analysis: Retail 21
Manpower Cost 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.

Increasing In order to cope up with recent inflation, the Government of
Interest Rates 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.

Sector Analysis: Retail 22
RECENT TRENDS…

Concept Malls 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.

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

Increasing Along with making their presence felt all over India and rapidly
number of Private garnering loyalty resulting in repetitive footfalls, many a retailers
in India are increasing the number and dominance of private
Labels 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
May 16, 2007
Stock Data Current Market Price: Rs. 460.55
BSE Code 532647 Target Market Price: Rs. 740.28
BSE Group B1
Recommendation: BUY
NSE Symbol PROVOGUE
ISIN Demat INE968G01017
Set-up as a men’s apparel producing company,
Reuters PROV.BO
Provogue India Ltd. is a pioneer in fashion RTW
Bloomberg PROV IN
Par Value(Rs) 10 apparels. After the successful recognition of the
brand Provogue in men’s segment, the company
52 Week High 521.00 has ventured into the very lucrative and
52 Week Low 159.70
developing women clothing and also the promising
All Time High 521.00
All Time Low 123.25
accessories segment. At present it distributes its
MCap (Rs Crores) 879.65 products in 58 cities through 106 Provogue stores
Shares O/s 190.1 lakh and is trying with the new formats ‘Flip’, an
accessory store and ‘Promart’, an all season off-
SENSEX 13796.16
price store. The company is planning to scale up its
NIFTY 4076.65
Beta value 0.6737 operations with around 29 more Provogue stores
including Provogue Mega stores by the end of
Avg. Daily Vol. Mnty. 2279
FY08. Also it is constantly raising its presence in
Avg. Daily Vol. Qty. 8120
different locations through the increasing
Recent Stock Performance networks of NCSs. The margins of companies
1 week 0.13% export business is set to improve with its foray into
4 weeks -4.59% American and European market. Subsidiary
12 weeks -1.99%
Prozone Enterprises is also all set to improve its
26 weeks 21.20%
52 weeks 10.74%
operations and will provide larger share in
revenues in days to come.
Shareholding Pattern
FIIs The company is achieving significant growth in
25% Other
Promoter Institution
both top as well as bottom line and the FY08
s s bottom line is expected to grow at 115%.
43% 6%

Corporat The company is trading at 19.1x its FY08 earnings
es and keeping the industry average in perspective
7%
we recommend a BUY on the stock with a target
Public & price of Rs. 740.28.
Others
19%
FINANCIAL SUMMARY
(Rs. Cr.) FY08 E FY07 E FY06 FY05
Net Sales 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 % 11.67% 8.74% 7.63% 6.28%
EPS (Rs.) 24.1134 11.2129 7.37 5.94

Valuation: Provogue India Limited 30
INVESTMENT RATIONALE

Indian retail story… 9 Organized sector retailing growing at breathtaking speed of 25-
30%. 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
India is Young… 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.
The Brand… 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
The Scalability… 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 20-
40 years old. The company provides these fashion aspirers a
variety of products and also a fashion statement.
Promart, the cash 9 The off-price store format Promart, will improve the companies
topline substantially due to its mix of fashion-at-value appeal
juggling machine… 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.
Living the Mall mania… 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
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
Provogue trades at years and expected to maintain these levels for the coming
41.1x FY07E and fiscals, if not increase them.
19.1x FY08E 9 It discounts the FY07E and FY08E earnings at 41.1x and 19.1x
respectively.
earnings…
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 0
FY05 FY06 FY07 E FY08 E Bas. FY05 FY06 FY07 E FY08 E Bas.

Valuation: Provogue India Limited 32
COMPANY BACKGROUND
India’s leading One of India’s leading manufacturers and distributors of branded
manufacturer and fashion ready-to-wear (RTW) garments, Provogue (I) Ltd. was
incorporated in 1997 as Acme Clothing Private Limited. It
distributor of fashion commenced business as a fashion house for men under the brand
RTW garments… 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 Besides the Provogue Mega stores and Provogue Exclusive stores,
the company has come up with the idea of Flip, the accessory story
formats… 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, Provogue is basically a young company with the average age of
energy and around 27 years. The management is also young (mostly in their
late 30s) backed by hands on experience in their respective fields.
experience… 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
Daman… facility in Daman with a capacity to manufacture 900,000 pieces
of shirts and trousers per annum. This facility focuses on fast-to-
market 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
India… Provogue Studios and 84 locations through National Chain Stores
(NCS), besides the brand featuring in many Multi Brand Outlets.

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:

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
106 stores in 58 cities bigger form of these spanning across an average space of 5000 to
7000 sq. ft. Both these stores stock exclusively brand Provogue.
and much more
Currently the brand is present in 58 cities through 106 such stores
coming… 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.

Promart
New cash cow… 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
A registered ‘Export House’, the company entered the textile
Margins will increase in
sector through the acquisition of Acme Global in 2004. The
days to come… 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
To leverage the booming demand for quality shopping destinations
Space: For everyone,
in India, the company has established a 100% subsidiary, Prozone
By Provogue… Enterprises Pvt. Ltd. which will develop, design, manage and
invest in malls in India. Prozone has entered into a JV with UK-
based 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
The IMAGES-KSA Technopak study values the Indian Apparel
Over 88K crore and Market at Rs. 88,340 crore in 2005 which is an overall growth of
growing over 13%… 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 WOMENS
APPAREL WEAR
9% 29%

Value-wise Share

UNIFORMS
9%
MENS WEAR
KIDSWEAR 37%
15%

UNISEX
APPAREL
WOMENS
7%
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 With the young Indians getting richer and not even understanding
fashion but wanting to make it a part of their lifestyle, the Indian
India… 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 1,297,220 26,090 1,342,140 29,135 1,393,639 32,590
WOMENSWEAR 1,300,610 21,730 1,368,310 24,680 1,443,113 28,375
UNISEX APPAREL 434,340 5,240 452,020 5,835 470,978 6,615
KIDSWEAR 1,180,290 10,810 1,222,280 11,745 1,268,933 13,085
UNIFORMS 397,210 5,460 423,020 6,345 456,862 7,675
TOTAL 4,609,670 69,330 4,807,770 77,740 5,033,524 88,340

INDIAN APPAREL MARKET (% CHANGE REL. TO PREVIOUS YEAR)
2003 2004 2005
Category
Volume Value Volume Value Volume Value
MENSWEAR 3.42% 11.81% 3.46% 11.67% 3.84% 11.86%
WOMENSWEAR 5.15% 13.59% 5.21% 13.58% 5.47% 14.97%
UNISEX APPAREL 3.96% 24.32% 4.07% 11.35% 4.19% 13.37%
KIDSWEAR 3.55% 8.64% 3.56% 8.65% 3.82% 11.41%
UNIFORMS 6.50% 17.17% 6.50% 16.21% 8.00% 20.96%
TOTAL 4.25% 13.12% 4.30% 12.13% 4.70% 13.64%

Valuation: Provogue India Limited 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 Bombay Kewal Pantaloon Zodiac S Kumars
Raymond
Particulars Mills Rayon Kiran Retail Clothing Nation
200703 200612 200612 200703 200612 200703 200703
Net Sales 1,678.78 316.10 102.97 2,792.26 147.03 1,284.19 1,229.54
Total Expenditure 1,397.60 253.38 82.13 2,596.13 135.66 1,116.20 1,015.82
PBIDT 418.06 65.45 26.32 273.34 19.89 330.82 223.62
Reported PAT 122.44 32.87 15.45 117.16 10.11 202.12 107.48
Adj.Profit After Extra-ord. item 23.89 32.87 15.45 69.20 10.11 119.06 123.40
EPS (Unit Curr) 1.14 6.71 12.53 24.59 12.09 19.40 6.40
Equity 209.38 48.98 12.33 28.14 8.36 61.38 192.70
PBIDTM(%) 24.90 20.71 25.56 9.79 13.53 25.76 18.19
PATM(%) 1.42 10.40 15.00 2.48 6.88 9.27 10.04
PE Ratio 32.65 32.55 13.80 80.71 15.75 17.61 11.26
PB Ratio 0.73 3.52 2.28 7.10 2.31 1.55 4.70

Valuation: Provogue India Limited 38
COMPANY FINANCIALS
(Rs. Crores) FY08 E Dil. FY08 E Bas. FY07 E FY06 FY05
Net Sales 394.50 394.50 245.00 156.41 115.02
Growth % 61.02% 61.02% 56.64% 35.99% -
Total Expenditure 328.48 328.48 208.70 136.14 101.26
PBIDT 67.02 67.02 37.24 20.89 14.10
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
PBT 54.76 54.76 25.46 14.11 9.36
Tax 8.70 8.70 4.05 2.17 2.14
PAT 46.06 46.06 21.42 11.94 7.22
Growth % 115.05% 115.05% 79.37% 65.37% -
PAT % 11.67% 11.67% 8.74% 7.63% 6.28%

Equity 20.9 19.1 19.1 16.2 12.15
Reserves 154.38 154.64 111.34 92.68 31.59
Dividend % 12.5 12.5 12.5 12.5 10
CMP 460.55 460.55 460.55 460.55 460.55

EPS 22.04 24.11 11.21 7.37 5.94
CEPS 25.03 27.39 14.07 10.00 9.42

P/E Ratio 20.90 19.10 41.07 62.49 77.53
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 5.49 5.06 6.74 6.85 12.80
ROE % 26.28 26.51 16.42 10.97 16.51

Source: Capital Line
Data as at May 11, 2007

Valuation: Provogue India Limited 39