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Mandhana Retail Ventures Ltd.

BSE: 540210 Sector: Industrials
NSE: TMRVL ISIN Code: INE759V01019
BSE 00:00 | 24 Apr Mandhana Retail Ventures Ltd
NSE 05:30 | 01 Jan Mandhana Retail Ventures Ltd
OPEN 10.39
PREVIOUS CLOSE 9.90
VOLUME 305
52-Week high 32.70
52-Week low 5.10
P/E
Mkt Cap.(Rs cr) 23
Buy Price 10.39
Buy Qty 4417.00
Sell Price 5.56
Sell Qty 5000.00
OPEN 10.39
CLOSE 9.90
VOLUME 305
52-Week high 32.70
52-Week low 5.10
P/E
Mkt Cap.(Rs cr) 23
Buy Price 10.39
Buy Qty 4417.00
Sell Price 5.56
Sell Qty 5000.00

Mandhana Retail Ventures Ltd. (TMRVL) - Chairman Speech

Company chairman speech

LEADING THE NEXT PHASE OF TMRVL'S TRANSFORMATION

DEAR FRIENDS

LET ME CONFESS THAT THE YEAR UNDER REVIEW WAS A VERY DIFFICULT ONE FOR THE COMPANY. THECOMPETITION WAS TURBO CHARGED AND LIQUIDITY WAS IN SHORT SUPPLY. THERE WERE OTHER INTERNALISSUES SOME OF WHICH I SHALL DILATE ON LATER WHICH HURT THE OPERATIONS.

The results thus were rather disappointing. Total income dropped by about 15% on theback of volume drop of 8.6% and competitive pressures took toll on unit realisations thatslipped by about 5%. As a result the Company suffered a loss of 58 Lakh as against aprofit of 913 Lakh a year earlier.

The Company's online sales too suffered a drop of about 8.62% though its share in totalrevenue was marginally higher at 8.82%. In foreign markets sales of the Company'sproducts to the GCC market dropped precipitously by 26% on the back of slowing Middle Easteconomies reportedly due to oil market uncertainties. A redeeming feature was the 42%growth in the European market albeit from a low base of the earlier year.

Apparel market was hyper competitive but not bad

According to a report by Care Ratings Ltd. domestic demand for apparel both brandedand unbranded grew at a healthy rate of 14%; about 1.4x the nominal GDP growth. Otherleading companies in the sector showed healthy revenue growth of 14-22% as per theirpublished results. These companies also delivered fairly good growth on net margins.Globally elsewhere though there was a sharp increase in competition which showed insome markdown of profits. This however didn't have a significant effect on domesticbranded apparel retail in general as much as it seems to have affected your Company.

The reasons are largely internal

The Company's business engine seriously sputtered due to internal factors. Last yearwe had flagged the issue of constraints in working capital. Your management faced seriousdifficulties in raising bank limits as the lenders waited for certainty on the issue ofbrand license renewal. The fact that the renewal was under serious negotiation and thatthe current agreement was valid till March 2020 did not weigh in with them. This shortageseriously affected the Company's ability to get sufficient supplies on to shelves in time.Vendors' payments were delayed further affecting both supplies and the management'sability to manage input costs. The margins suffered. Though aggressive foreign brandsoffered steep discounts over an extended period your management succeeded in containingthe decline in price realisations to about 5% on an overall basis.

The second reason for the shortfall in revenue was the sudden discontinuation of salesthrough Multi Brand Outlets (MBOs). MBOs provide market coverage at a comparativelymoderate cost and are a source of sizable revenues and margins. This channel had to bediscontinued at the insistence of licensors and they were well within their rights tomandate so. The management was not quick to take their concerns on board since workingcapital shortage was pervasive and that limited remedial steps required. This was purelyan internal inadequacy that needs serious redressal.

Thirdly the Company lost some very talented employees to competition in particular andconsumer companies in general. Due to stressed cash flow the management had seriousdifficulty in meeting financial aspirations of these employees. The Company also had tolet go some senior employees for reasons beyond its control. This created seriousdiscontinuity at crucial times in the market.

But opportunity is large and growing

The Indian opportunity in branded apparel is as promising as ever. Indians in the agebracket of 18-35 years constitute over 40 Crore of the population and they are potentiallythe prime consuming class for branded goods; the demand therefore is assured.

Here is some more reassuring research. Gavekal a reputed international researchagency in a recent report (India's Acceleration Phenomenon) analysed India's demographicmove through income classes and its impact on the consumption of various consumerproducts. Its hypothesis was that as population lifts itself from one income class to thenext the consumption of certain products suddenly lifts in discrete leaps. The reportfound that given India's GDP growth of nearly 8% significant shifts of Households (HH)are underway from the ‘emerging class' (HH income between 2-5 Lakh) to the‘aspiring class' (HH income of 5-12 Lakh) and the latter into the ‘affluentclass' (HH income of 12 Lakh and above).

The ‘aspiring class' is expected to grow three-fold from 33 Million HH to 101Million over the next 10 years. Gavekal a reputed international agency forecasts thatevery year about 1 Crore households will move into the ‘aspiring class' from the‘emerging class' leading to an acceleration of demand for cars branded appareltoiletries etc. The movement of a large number of people into the ‘emerging class'post 2008 led to the acceleration of demand for two-wheelers from 70 Lakh a year to 2.2Crore! Therefore your Company is well placed with its play in branded apparel; it has toprepare itself to take advantage of the unfolding opportunity.

Your management is responding to the situation

Augmenting working capital is the first priority. Since license renewal continues to bea condition precedent to banks agreeing to increase limits the management is workingtirelessly to impress upon licensors (The Salman Khan Foundation) the need for a mutuallysatisfactory renewal. I assure you it is an urgent work in progress. Over the last threeyears the Company's revenue has remained range bound with a declining bias. This meansthe Company needs to rethink its ‘brand positioning' in order to breakout. And thisrequires a knowledge-based and research-driven approach to market and brand positioning;intuition can take you only so far. With the augmentation of funds the management will beable to dedicate some serious money towards this.

With the renewal of license hopefully soon the management is continuing to work toiron out issues with the Foundation. While there is unanimity on ‘strategic intent'between the Foundation and the Company there is sometimes an asymmetric view ofoperational matters. The management is working on priority to address the operationalflaws so that dislocations such as the discontinuation of MBOs that took place in the yearunder review are avoided.

For long-term health of the business technology is another priority to chase. Westerncompetition shall be bringing in (if not already done) their technology toolkit to theentire product flow from trend detection to pricing and personalisation complete withthe use of Artificial Intelligence (AI) Data Analytics and so on. The Company has to keepin step. We cannot afford to be surprised.

Foundation

I would like to sincerely acknowledge the encouragement given by Mrs. Alvira Agnihotriand the support given by her team. Sincere thanks to her and the team at the Foundation. Iam sure with Mrs. Agnihotri's help as the Chief Trustee the renewal issue will be soonsorted out to mutual benefit.

Board matters

I am very sorry to inform you of the recent loss of a dear colleague Mr. Sachin JajuNon-executive Director on June 2 2019. Mr. Jaju was an expert in the textile industryand its supply chains. He was active in Board discussions and he chose his point ofparticipation very judiciously. I always looked to him for an independent non-partisanand informed view. A sprightly marathon runner Mr. Jaju was just 42. We will miss him. Imust thank my colleagues Mr. Ramnath Pradeep and Mr. Kiran Vaidya for their wise counseland guidance on many tricky situations that the Board was presented with. Both steppedbeyond their usual remit as Independent Directors to help the Board and the managementteam. I can't thank them enough. I must record my appreciation for the grit shown by Mr.Manish Mandhana CEO in handling this ship in very turbulent waters. All those employeeswho stood loyally by the Company deserve heartfelt special thanks. We are very fortunateto have them.

Lastly I thank you shareholders who have shown tremendous patience during verydifficult times.

Warm regards PRADIP DUBHASHI