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BSE-SME COMPANY RESEARCH REPORT

ANSHU’S

CLOTHING LTD.

December 19, 2012

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F

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Anshu’s Clothing Ltd.

Other Apparels & Accessories December 19, 2012

ISSUE DETAILS

Issue price Rs. per share 27.00

Face value Rs. per share 10.00

No. of shares offered No. in lakhs 18.72

Total no. of shares (post issue) No. in lakhs 62.35

Issue size Rs. crores 5.05

Pre-issue net-worth Rs. crores 12.68

Post-issue net-worth Rs. crores 17.73

Source: Draft Red Herring Prospectus (DRHP)

BACKGROUND AND BUSINESS OVERVIEW

Anshu’s Clothing Ltd (ACL) was originally incorporated as Black

Star Products Private Limited on March 24, 1995, as a private

limited company. The company was subsequently converted into a

public limited company, and consequently, the name was changed to

Anshu’s Clothing Limited vide fresh certificate of incorporation dated

June 01, 2012. The company is operating in women’s exclusive ethnic

wear, women’s casual wear and kids wear segment. The company

mainly deals in the business of designing, trading, job contract

manufacturing, branding and selling of ready-made apparels under its

own and promoter’s brands. The company operates mainly through

Exclusive Brand Outlets (EBOs) for trading of readymade garments.

IPO OBJECTIVE

Rs. Crore

Advances of long-term nature for long-

term supplies of inputs 4.7

Issue-related expenses 0.4

Source: DRHP

INDUSTRY OUTLOOK

The retail sector in India has been at the helm of India’s growth story.

Retail business contributes around 11 percent of India‘s GDP.

Retailing as a sector is witnessing revolution in India. Retailing in India

is gradually becoming the next boom industry. The growth of India's

retail sector is not only limited to urban areas but also growing in rural

areas. Enhancing middle and upper-middle class consumer base has

set vast opportunities in India's tier-II & tier-III cities. The greater

availability of personal credit, improved mobility, better tourism etc.,

are all small but significant contributors to the growth of Indian retail

industry. The Indian apparel retail industry had total revenue of

US$28,102.6 million in FY10, representing a compound annual growth

rate (CAGR) of 9.9% for the period spanning 2005-2009. India’s

Apparel industry (domestic + exports) is expected to grow from the

current US$70 billion to US$220 billion by 2020. The Indian domestic

Apparel market size in FY10 was US$47 billion and is expected to

grow at 11% CAGR to reach US$140 billion by 2020. India’s exports

have also recovered in FY10 following increased global demand and is

currently worth US$23.5 billion.

SHAREHOLDING PATTERN

97.25%

68.05%

31.95%

Promoter Others

# Inner ring represent pre-issue shareholding pattern, outer ring

represents post-issue shareholding pattern.

Source: DRHP

FINANCIAL SNAPSHOT

(Rs. crore) FY08 FY09 FY10 FY11 FY12

Net operating income

2.1

1.6

10.0

11.7

27.7

EBITDA

0.3

0.4

0.4

1.1

1.9

Adjusted PAT

0.0

0.0

0.1

0.4

0.5

Adjusted EPS* (Rs.)

0.1

0.1

0.4

2.7

1.3

Dividend, incl. tax

-

- -

-

-

P/E (times)

368.6

368.6

73.7

10.1

21.0

EV/EBIDTA (times)

21.2

16.2

13.6

6.7

9.6

Source: DRHP and CARE Research; Valuation ratios calculated @ IPO

price of Rs. 27 per share. EPS has been adjusted for bonus shares


BACKGROUND

ACL was originally incorporated as Black Star Products Private Limited on March 24, 1995 under the Companies Act,

1956 with the Registrar of Companies, Gujarat (‘ROC’). Subsequently, the company changed its name to Maruti

Dyechem Private Limited to diversify into dyes and intermediates and accordingly fresh Certificate of Incorporation

was obtained from ROC on February 12, 1998. Furthermore, the name of the company was changed to Anshu’s

Clothing Private Limited to give effect to the alteration in the Main Object Clause for entering into garment business.

The company was converted into a public limited company, and consequently, the name was changed to Anshu’s

Clothing Limited vide fresh certificate of incorporation dated June 01, 2012.

The company currently operates in women’s exclusive ethnic wear, women’s casual wear and kids wear segment. It

mainly deals in the business of designing, trading, job contract manufacturing, branding and selling of ready-made

apparels under its own and promoter’s brands.

Key milestones of the company

Year Milestone

1995 Incorporation as “Black Star Products Pvt. Ltd.”

2005 Launched the brand “ANSHU’S DESIGNER STUDIO” designer wears for ladies.

2011 Launched the brand “LOLIPOP” exclusively for kids.

2012 Conversion of the Company into a Public Limited Company.

2012 Launched the brand “KALAMKARI".

Source: DRHP

BUSINESS OVERVIEW

Currently, ACL operates in women’s exclusive ethnic wear, women’s casual wear and kids wear segment. It mainly deals

in the business of designing, trading, job contract manufacturing and branding & selling of ready-made apparels under

its own and promoter’s brands.

The company operates mainly through Exclusive Brand Outlets (EBOs) for trading of readymade garments. The

company operates under three business models (a) Company Owned Company Operated, (b) Company Owned

Franchisee Operated and (c) Franchisee Owned and Franchisee Operated.

As on the 30th June, 2012 “Lolipop” brand was sold through 41 EBOs and the “Anshu’s Designer Studio” brand is

sold through 16 EBOs and “Kalamkari” which is a new launch is being sold through 2 EBOs.

ACL is also a partner in a partnership firm M/s A.M. Energy Systems which is engaged in business to generate

conventional and non-conventional energy, power, etc. The company had entered into the partnership firm vide dated

December 19, 2011.

ACL operates mainly out of its owned offices located in Ahmedabad.


MANAGEMENT STRUCTURE

Organization structure

Source: DRHP

CORPORATE GOVERNANCE

ACL has a five-member Board, and more than half of the Board comprises Independent Directors. ACL also has three

sub-committees under the Board, i.e. Audit Committee, Shareholders’ Grievances Committee and Remuneration

Committee. All the three committees are headed by the Independent Directors, as per the listing guidelines of the

exchange.

Board of Directors

Person Age Qualification Role

Mr. Ravi J. Bhandari 42 Diploma in Engineering Chairman & Managing Director

Mrs. Rekha R Bhandari 37 B.Sc Whole-time Director

Mrs. Nimisha Modi 27 B.Com, ACA Non Executive Independent Director

Mr. MohjeetKumar Chopra 29 B.Com Non Executive Independent Director

Mr. Abhishek L. Shah 26 B.Com, ACA, CS, CWA Non Executive Independent Director

Source: DRHP and CARE Research

There are no litigations against the company, its promoters/promoter group or directors.


IPO DETAILS

Size

The issue comprises an offer for sale of 18.72 lakh equity shares of face value of Rs.10 each at a fixed price of Rs.27 per

share. This would constitute 30.03% of the post-issue paid-up capital.

Terms

The offer comprises 18.72 lakh equity shares of face value of Rs.10 each to be issued at a price of Rs. 27 per share, of

which 3.12 lakh equity shares are reserved for market makers i.e. Oswal Shares And Securities Limited and remaining

15.60 lakh equity shares, i.e. the net issue would be available for subscription by public. The net issue would constitute

25.02% of the post issue equity share capital.

The issue is being made through fixed-price process, and at least 50% of the net issue to public would be available for

allocation on proportionate basis to retail individual applicants.

The trading lot for the issue has been fixed at 4,000 equity shares.

Objective

The main objects of the issue are as follows:

Particulars Rs. crore

Make advances of long-term nature for long-term supplies of inputs 4.7

Issue-related expenses 0.4

Source: DRHP

Means of Finance

Particulars Rs. crore

IPO 5.1

Source: DRHP

No independent agency has appraised the fund requirements.


GROWTH DRIVERS

Increase in geographic presence with an increase in the number of brand outlets.

Integrated player with low-cost outsourcing capabilities.

Increasing women workforce in service sector augurs well for women’s Indian wear.

Personalized styles and cuts.

Indian wear preferred the most during traditional occasions.

RISK AND CONCERNS

No entry barriers in this industry, which put the company to the threat of competition from new entrants.

Volatility in raw materials with regards to availability, price and quality could delay or increase cost, thereby

hampering business.

The company does not have all the trade marks registered, an inability or failure to protect the trademark may

adversely affect business goodwill on account of possible misuse by any third party.

While, the brand “Anshu’s Designer Studio’ is owned and promoted by the company, ‘Lolipop’ and

‘Kalamkari’ brands are owned and promoted by the promoters.

The company operates in a highly competitive and fragmented industry.

The company operates in a working capital intensive industry.

FUTURE STRATEGY AND EXPANSION PLANS

As per the DRHP, ACL plans to:

Increase geographic penetration by spreading the network of exclusive brand outlets.

Enhance trading and outsourcing capacities.

Strengthen current brands and introduction of more brands.

Improve cost structure.

Pursue potential strategic acquisitions to complement existing brand portfolio.

Exports of apparels under its brands

Management speak: “ACL is operating in fastest-growing and untapped market segment with immense growth opportunities. The

company operates in women’s exclusive ethnic wear, women’s casual wear and kids wear segment. We mainly deal in the business of

designing, trading, job contract manufacturing, branding and selling of ready-made apparels through Exclusive Brand Outlets. Doing this,

the company concentrates more on the quality and other measures to be taken and can be relieved and be independent of external marketing

pressures attributable to the national chain stores, multi-brand outlets and other intermediaries.”


INDUSTRY OUTLOOK

Indian Retail Industry

The retail sector in India has been at the helm of India’s growth story. Retail business contributes around 11 percent of

India’s GDP. Retailing as a sector is witnessing revolution in India. Retailing in India is gradually becoming the next

boom industry. The growth of India's retail sector is not only limited to urban areas but is also growing in rural areas.

Enhancing middle and upper-middle class consumer base has set vast opportunities in India's tier-II & tier-III cities.

The greater availability of personal credit, improved mobility, better tourism etc, are all small, but significant

contributors to the growth of Indian retail industry.

Indian Apparel Market

The Indian apparel retail industry had total revenue of US$28,102.6 million in FY10, representing a compound annual

growth rate (CAGR) of 9.9% for the period spanning 2005-2009. India’s Apparel industry (domestic + exports) is

expected to grow from the current US$70 billion to US$220 billion by 2020. The Indian domestic Apparel market size

in FY10 was US$47 billion and is expected to grow at 11% CAGR to reach US$140 billion by 2020. India’s exports

have also recovered in FY10 following increased global demand and is currently worth US$23.5 billion.

Segments for apparel industry:

Men’s Wear

Women’s Wear

Kids Wear

Menswear consist of trousers, shirts, jeans, t-shirts, coats etc. The India menswear market had total revenue of US$ 11.8

billion in 2009, representing a compounded annual growth rate (CAGR) of 8.6% for the period spanning 2005-2009. In

women’s wear, the current market of sarees and ethnic wear stands at around Rs.31,000 crore and is projected to grow

at 10 per cent to reach Rs.45,000 crore in 2014. Major growth is projected in the saree segment with the revival of

sarees in new and more innovative formats and with new styling, fabric and fits for salwar-kameez and dupatta.

Opportunities in Women’s Ethnic Wear

Untapped market in organized retail

Flexibility in terms of styles and cuts that appeal to youngsters and working women

Opportunities in Kids Wear

Growing brand consciousness

Kids have become influencers in decision-making

Cartoon and character licensing use in merchandise to increase sales.

Overall growth drivers for all the three industries are:

Increasing workforce impacting women’s Indian wear.

Indian wear can be personalized in terms of styles and cuts.

Traditional wear being most preferred during Indian occasions.


FINANCIAL ANALYSIS

In FY12, ACL reported revenue from operations of Rs.27.7 crore.

Raw Material cost forms the largest portion of cost for ACL. In FY12, raw material cost as a percentage of

revenue from operations was at 85%.

The company reported EBITDA margin and PAT margin of 6.7% and 1.7%, respectively, in FY12.

The company has a debt of Rs.7.5 crore on its books as on March 31, 2012.

The company has reported negative cash flows at operating levels since the last four years.

The company has not paid dividend since inception.


FINANCIAL STATISTICS

Income statement

(Rs. crore) 2008 2009 2010 2011 2012

Net operating income 2.1 1.6 10.0 11.7 27.7

EBITDA 0.3 0.4 0.4 1.1 1.9

Depreciation and amortization 0.1 0.0 0.0 0.0 0.1

EBIT 0.2 0.3 0.4 1.1 1.8

Interest 0.2 0.3 0.3 0.6 1.1

PBT 0.0 0.0 0.1 0.6 0.7

Ordinary PAT 0.0 0.0 0.1 0.4 0.5

Adjusted PAT 0.0 0.0 0.1 0.4 0.5

Adjusted EPS* (Rs.) 0.1 0.1 0.4 2.7 1.3

Dividend, including tax - - - - -

* Calculated based on Ordinary PAT on Current Face Value of Rs. 10/- per share, EPS has been adjusted for bonus shares

Balance sheet

(Rs. crore) 2008 2009 2010 2011 2012

Tangible net worth 0.7 0.7 1.4 1.8 12.7

Debt 2.4 2.5 3.0 6.2 13.9

Deferred tax liabilities 0.0 0.0 0.0 0.1 0.1

Total capital employed 3.1 3.2 4.3 8.0 26.7

Net fixed assets (incl. refundable security deposits) 1.4 1.3 2.2 2.4 4.8

Investments 0.0 0.0 0.1 0.1 9.6

Inventory 1.3 1.6 1.9 3.8 6.1

Receivables 0.5 0.4 0.8 3.2 8.4

Cash and cash equivalents 0.1 0.2 0.1 0.2 0.3

Current assets, loans and advances 1.9 2.3 2.8 7.3 15.0

Less: Current liabilities and provisions 0.2 0.4 0.7 1.7 2.7

Total assets 3.1 3.2 4.3 8.0 26.7


Cash flow statement

(Rs. crore) 2009 2010 2011 2012

EBT 0.0 0.1 0.6 0.7

Depreciation 0.0 0.0 0.0 0.1

Interest paid 0.3 0.3 0.6 1.1

Tax paid (0.0) (0.0) (0.2) (0.2)

Change in deferred tax liability - - 0.1 0.1

Net working capital (0.1) (0.3) (3.4) (6.6)

Operating cash flow (0.0) (0.7) (1.3) (3.1)

Capital expenditure (0.0) 0.0 (0.1) (1.2)

Investments - (0.1) (0.0) (9.5)

Investing cash flows (0.0) (0.1) (0.1) (10.7)

Change in borrowings 0.2 (0.0) 1.5 3.5

Issuance of equity (0.0) 0.6 (0.0) 10.4

Dividend paid - - - -

Financing cash flow 0.2 0.6 1.5 14.0

Net change in cash 0.1 (0.1) 0.1 0.2

Closing cash balance 0.2 0.1 0.2 0.3

Ratios analysis

2009 2010 2011 2012

Growth in net operating income -23.2% 517.9% 16.7% 137.3%

Growth in EBITDA 32.1% 21.6% 153.3% 62.3%

Growth in PAT 0.0% 400.0% 660.0% 31.6%

Growth in EPS 0.0% 400.0% 631.7% -52.1%

EBITDA margin 22.8% 4.5% 9.8% 6.7%

PAT margin 0.5% 0.5% 2.8% 1.7%

Return on capital employed (RoCE) 10.1% 10.3% 14.1% 8.9%

Return on equity (RoE) 1.4% 4.8% 24.4% 6.9%

Net debt-equity (times) 3.2 1.8 2.2 0.6

Interest coverage (times) 1.0 1.2 2.0 1.6

Current ratio (times) 6.0 4.0 4.2 5.6

Inventory (days) 517.7 70.3 103.2 75.2

Receivable (days) 100.3 21.9 61.4 75.8

Price/EPS (P/E) (times) 368.6 73.7 10.1 21.0

Price/Book value(P/BV) (times) 5.1 2.7 2.2 0.8

Enterprise value (EV)/EBITDA (times) 16.2 13.6 6.7 9.6

Source: DRHP and CARE Research; Valuation ratios are calculated @ IPO price of Rs. 27 per share.

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