Strong brand recall buoyed by experienced management and established presence in the hosiery innerwear industry
Dollar Industries enjoys strong market position in the branded innerwear industry in India. Started as Bhawani Textiles in 1973, Dollar began its export journey to the middle-east and other countries in 1995; further got listed in NSE in 2017 and in BSE in 2018. DIL’s board includes Mr. Vinod Kumar Gupta (Managing Director) , Mr. Binay Kumar Gupta (Managing Director), Mr. Krishan Kumar Gupta (Whole-time director), Mr. Bajrang Kumar Gupta (Whole-time director) and Mr. Gopal Krishnan Sarankapani (Whole-time director), who have rich experience spanning around two decades in the innerwear industry. The third generation of promoters have also been inducted into the business. DIL has a strong distribution network of over 1,100 dealers and over 1.2 lakh retailers which it has developed over the years. The company over the years has also been able to create a strong brand recall for its products across various segments. Over the years, the company has been able to introduce various range of products to increase its reach to a wider section of the population.
Acuité believes the company’s established track record of operations, continuous efforts to further penetrate in the D2C segment, management’s rich experience and expertise will further bolster the business, going forward.
Wide distribution of network and strong brand promotion measures
DIL has a wide distribution network of over 1,100 dealers and over 120,000 retailers along with around 16,000 SKUs currently. Further, the company is also exporting its products to 15 countries. In order to deepen its reach further, DIL has started serving retailers through newly appointed distributors under Project Lakshya. As on 31st March, 2023, 229 distributors have been enrolled under this project. Also, to expand its reach further, DIL has launched 14 Exclusive Brand Outlets (EBO) till 31st March 2023. In addition, the company is expanding its spinning capacity and integrated warehousing space which is operational from Apr’23. The company has aggressively pursued various other marketing and promotional activities to improve its geographical reach and compete with existing players in the industry. In FY2023, the company spent Rs.101 Cr towards a new TV commercial for its regular segment, Dollar Always, Lehar, by roping in Mr. Saif Ali Khan as brand ambassador.
Acuité believes that Dollar’s established brand equity coupled with deeper penetration and consumer preference for affordable branded quality products are strong macro tailwinds for the company.
Tie-up with reputed international brand through JV- PEPE Jeans Innerfashion Private Limited
Dollar entered in a joint venture partnership with Pepe Jeans Europe on August, 2017. The Kolkata based JV is engaged in the sale and distribution of the licensed innerwear products under the brand Pepe Jeans London, targeting its reach to super premium segment across India, Sri Lanka, Bhutan, Nepal and Bangladesh. In Dec, 2021, the entire stake of Pepe Jeans Europe BV (Pepe) has been sold and vested in The G.O.A.T Brand Labs Pte. Ltd, in terms of the share purchase agreement as executed between G.O.A.T. and Pepe. Goat Brand acquires third-party lifestyle brands (D2C brands) to help them grow.
Acuité believes DIL’s ability to penetrate the super premium segment through the JV will remain a key monitorable.
Strong financial risk profile
DIL’s financial risk profile is strong marked by high net worth, low gearing and robust debt protection metrics. The net worth of the company stood at Rs.717 Cr as on March 31, 2023 as against Rs.673 Cr as on March 31, 2022. The company follows a conservative leverage policy reflected in its peak gearing of 0.23 times in FY2023 as against 0.31 times in FY2022. The total debt of Rs. 161.62 Cr as on March 31, 2023 which majorly comprises of working capital borrowing of Rs.161.47 Cr and the remaining portion of Rs.0.14 Cr are the term loan borrowings. The total outside liability to total net worth (TOL/TNW) stood at 0.50 times as on March 31, 2023 as against 0.65 times as on March 31, 2022. The decline in profitability margins had negative impact on the robust coverage ratios of the company, however the coverage ratios continued to remain healthy and the interest coverage ratio(ICR) stood at 7.26 times as on March 31, 2023 as against 21.51 times as on March 31, 2022. The debt service coverage ratio (DSCR) stood at 5.54 times as on March 31, 2023 as against 13.77 times as on March 31, 2022.
Acuité believes that the financial risk profile of the company will remain at similar levels over the medium term backed by steady net cash accruals.
|
Sharp decline in profitability margins in FY2023
The operating margin of the company significantly deteriorated to 7.07 per cent in FY2023 from 16.11 per cent in FY2022. The PAT margin also declined to 4.18 per cent in FY2023 from 10.80 per cent in FY2022. The decline in margins is primarily on account of price-cut at dealer & distributor level and an increase in raw material prices which could not be passed on to the end-consumer, reflecting intense competitive pressures.
The deterioration in profitability of the company further impacted the RoCE and RoE levels. The RoCE level declined to 9.77% in FY2023 as against 27.01% in FY2022 and the RoE level declined to 8.12% in FY2023 as against 21.68% in FY2022.
Acuité believes that any further deterioration in the profitability of the company will remain a key rating sensitivity over the near to medium term.
Working capital intensive nature of operations
The operations of the company are of working capital intensive nature marked by Gross Current Assets(GCA) of 222 days as on March 31, 2023 as against 255 days as on March 31, 2022. High GCA days are on account of inventory days of 99 as on March 31, 2023 as against 153 as on March 31, 2022. The company markets a wide range of products and accordingly has to maintain large quantity of inventory of each of its product type apart from the inventory of raw material. The receivable days of the company stood at 112 days as on March 31, 2023 as against 109 days as on March 31, 2022.
Acuité believes the working capital cycle will remain at similar levels over the medium term due to the inherent nature of such businesses.
|