| Established track record of operations and experienced management
DG was promoted by late Mr. Vishwanath Agarwal. At present it is managed by his son Mr. Rajendra Agarwal and Mr. Ajay Agarwal who have extensive experience of more than three decades in textile industry. The promoters acquired OCM and GBTL in FY 17-2018 for expanding its product portfolio ranging from luxury to mid-range segment. Donear Group (DG) has established brand presence since 1987, whereas, OCM has been in textile business since 1922. DIL products are sold under the brand name of 'Donear Suitings & Shirtings', 'Donear Royal Classico', 'Donear Soft and Smooth', among others. OCM products are sold under its own brands such as FERRARA, Siena, among others and GBTL products under 'Grasim' and 'Graviera'. OCM and GBTL’s premium quality fabric is sold under newly launched brand 'GRADO by OCM' and 'GRADO by Grasim’. DG has wide spread distribution network of ~350 dealers under Donear and ~250 under GBTL. OCM limited sells through retail network of ~1200 retailers.
Acuité believes that the post-acquisition business synergies among the group, established brand presence and the widespread distribution network will help the group to maintain its scale of operation and strengthening its business risk profile over the medium term.
Diversified product portfolio and revenue stream
The group has diversified product portfolio whereby each group company is engaged in different product line and customer segment. OCM is engaged in manufacturing of premium quality wool and tweed fabric and jacketing segment, GBTL is a premium poly viscose fabric manufacturer, whereas, DIL is engaged in cotton as well as poly viscose fabric for the mid income segment. Collectively, the group is catering to premium as well as mid income segment over a vast portfolio of products in domestic as well as foreign market. The revenue of the Donear Group (DG) stood at Rs. 1,485.24 Cr. in FY2023(prov.) as against Rs. 1,094.55 Cr. in FY2022. The increase in the revenue is on account of increase in exports of the group. The operating margin of the group improved to 10.09% in FY2023(prov.) as against 9.36% in FY2022. The profit after tax margin (PAT) improved to 5.07% in FY2023(prov.) as against 4.54% in FY2022.
The group has also started a new segment in the current year FY2024, wherein it is entering into institutional sales and government orders. Acuite believes supported by diversified product portfolio and revenue steam, DG scale of operations and profitability would improve over the medium term.
Moderate Financial Risk Profile
The financial risk profile of the group is moderate marked by healthy net worth, moderate gearing level and debt protection metrics. The tangible net worth of the group improved to Rs. 483.52 Cr. as on March 31, 2023 (prov.) as against Rs.405.79 Cr. as on March 31, 2022 on account of accretion of profits to reserves. The group follows moderate leverage policy and the gearing level of the group improved to 1.13 times as on March 31, 2023(prov.) as against 1.27 times as on March 31, 2022. The debt protection metrics of the group are moderate with interest coverage ratio (ICR) of 3.25 times as on March 31, 2023(prov.) as against 3.20 times as on March 31, 2022. The debt service coverage ratio (DSCR) improved to 1.96 times as on March 31, 2023 (prov.) as against 1.71 times as on March 31, 2022.
Acuité expects the Group to maintain a moderate financial risk profile over the medium term in absence of any major debt funded capex plan.
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| Working capital intensive nature of operations
The operations of the group are of working capital-intensive nature marked by high GCA days. The GCA days of the group are high, however, improved to 258 days in FY2023(prov.) as against 316 days in FY2022. The high GCA days are on account of the high inventory days of 165 days in FY2023(prov.) as against 190 days in FY2022. The debtors days are moderate and stood at 73 days in FY2023(prov.) as against 83 days in FY2022. The creditor days stood at 58 days in FY2023(prov.) as against 110 days in FY2022. The average working capital utilisation of the group stood in the range of 90 to 95% for the twelve months ended as on June 2023.
High competition from other reputed brands
The group operates in a highly competitive industry marked by presence of several established brands like Raymonds, Siyaram, Digjam, among others. Branded fabrics and garments business requires regular innovation in design to maintain its competitive position. Group’s wide presence of more than three decades and acquisition of OCM and GBTL will support its business risk profile and bring down competition pressure to some extent. The group needs to continuously invest in brand promotion, product innovation to maintain its market position.
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