INDSEC Dollar Industries Ltd Initiating Coverage

Dollar Industries- The Right Fitting!!!!

CMP 423 Rating BUY Dollar Industries Limited was promoted by Dindayal Gupta under the name
Bhawani Textiles and now has created substantial presence in India under
Target 539 UPSIDE 28% the Dollar umbrella. The company is present across segments in innerwear
space with its brands Big Boss, Force NXT, Missy, Champion, Ultra, Force Go
Wear, Footprints etc. Its brands are also exported in over 10 countries
STOCK DETAILS which includes UAE, Oman, Jordan, Qatar, Kuwait, Bahrain, Yemen, Iraq,
Nepal, and Sudan.
BSE Code NA
NSE Code DOLLAR Investment Rationale
Change in consumer dynamics—to drive revenue growth: The new age
Market Cap (Rs bn) 23.6 customers of intimate wear are indulgent and include everyone from
‘pocket-money to pension’. These consumers belong to the aspirational
Sector Textiles– Readymade Apparels class, a segment constantly striving for a better lifestyle and upper class,
those who have high disposable incomes and can afford better products &
Year End March lifestyle. Dollar industries over the years have been one of the highest
spenders on advertisement compared to peers. The company spends ~8%-
52 w.High/Low 494/263 10% of its revenue on brand promotion activities vis-à-vis its peers who
spend close to 4% to 6%. We believe all these efforts have borne fruits
Avg. Monthly Turnover (Rs mn) 375.5 with the company establishing itself as a prominent brand. Further in
Listed on NSE order to capitalize on such heavy spending the company would provide
higher incentives to its distributors. Going forward, we believe that such
Shares in Issue (mn) 54.2 expenditure is expected to grow slower than revenue growth which is
also likely to improve margins.
BSE Sensex 33,043
NSE Nifty 10,295 Product– Mix & Exports—to enable sustainable growth: Dollar Industries
has been one of the fastest growing knitwear and innerwear companies. It
has evolved from being another regional player to an all-out pan India play-
180 er with strong brand recall. Over the years Dollar has also evolved from
being just a manufacturer of men’s wear to Family wear, and has also in-
160 creased its focus on premium and super-premium segments, and it has and
plans to launch new products each season. In lieu of their strategy to di-
versify their products, Dollar has also forayed into the women intimate
140 innerwear segment -which is currently ~60% of the overall market and
presents a ~Rs. 145bn opportunity– though its brand “Missy”. From the
120 International angle, the company has seen their exports grow at a CAGR
of ~12% over FY15-17. Further, in August 2017, the company entered into
a 50:50 Joint Venture with Pepe Jeans Europe BV for selling and distribu-
100 tion underwear and loungewear, including gym wear, track suits and
sleepwear.
80
Strong industry dynamic: The Indian innerwear market is currently estimat-
ed at Rs. 24,000 crore. The segment has grown at 15% during the period
60 from 2010 to 2015. During this period, the share of intimate wear in the
total apparel market increased from 6.4% to 7.1%. The innerwear market is
40 estimated to continue at the same growth rate over the next five years and
expected to become a Rs. 47,000 crore market which is nearly 8% of the
total estimated apparel market, by the year 2020.
20
No Significant CAPEX —to boost profitability and Return Ratios: The com-
pany does not have any capex plan as it has already done capex by going
backward. It has 400 tonnes per month spinning capacity, 300 tonnes per
month knitting capacity, 400 tonnes per month Dyeing and bleaching ca-
pacity, 1 mn meters per month elastic capacity and 3 lakh pieces per day
cutting capacity. With No major capex planned for the coming two years
Dollar Ind Nifty besides normal maintenance capex is likely to help booster return ratios.
Focus on premium products to open new avenue for the company and
likely to boost margin profile: The company is now focusing on super pre-
SHAREHOLDING PATTERN mium category with its brand Force NXT (Realization Rs 114/piece)
% Sep-17 June-17 launched in August 2015 and contributed 2% of FY17 sales. It aims to grow
this brand focused on aspirational segment to over Rs 1 bn in next 3 years
Promoter 54.9 54.9 and would go for aggressive advertisement to position it. We believe com-
FII/DII 9.9 9.7 pany’s focus on premium products like Force NXT which command higher
realization vis-à-vis its present range is likely to help company boost its
Others 35.2 35.4 margin profile in the coming years. Further, this also helps the company
to file the product gap in its portfolio. We expect the company’s margin
FINANCIALS profile to improve almost 330bps over FY17-19 lead by increase in premi-
um products.
Rs in bn FY16 FY17 FY18E FY19E Valuation & view: We expect the Topline to grow at CAGR of ~17% over
FY17-FY19E, while EBITDA is expected to grow at CAGR of ~33% with mar-
Total Revenue 8.2 9.0 10.2 12.3 gins expanding by ~330bps over the same period to ~13.3%. At CMP of Rs
423 the stock is trading at 35.0x and 23.7x on expected earnings of Rs
EBIDTA 0.7 0.9 1.2 1.6 12.10 and Rs 17.87 for FY18E and FY19E. Given the change in preference
of consumers towards branded products, we believe Dollar is well posi-
EBIDTA(%) 8.0% 10.3% 11.9% 13.3% tion to capture incremental growth. Further, with no major capex and
likely capping on add expenses the company’s margin and return profile
are likely to see improvement. If we compare the company to its peers (ex
PAT 0.26 0.43 0.66 0.97 - Page) the company is expected to post a topline CAGR growth of 17.2%
over FY17-19E as against 10% for Rupa and 11% for Lux (consensus esti-
EPS (Rs.) 6.8 8.0 12.1 17.9 mates) for the same period. Given this we believe the company is likely
to trade at similar levels to its peers (table below). We assign a target a
multiple of 36x on December 18 earnings of Rs14.98, post which we arrive
P/E (x) 62.2x 52.8x 35.0x 23.7x at a target of Rs 539 an upside of 28% from current levels.

Source: Company, Indsec Research

RAHUL DANI INDSEC SECURITIES AND FINANCE LTD.

[email protected]
+91 22 61146116 1 OCTOBER 25, 2017
 INDSEC

Table of Contents

1. Investment Summary ………...………………………………………………………………………………………………………………...1

2. Company Background ………….………………………………………………………………………………………………………………...3

3. Story in Charts ………………………………………….……………………………………………………………………………....6

4. Industry Overview ………………………………………….……………………………………………………………………………....7

5. Key Investment Rationales …………...………………………………………………………………………………………………………………8

6. Valuation & Risk to Call …………….……………………………………………………………………………………………………………13

7. Financial Performance Analysis …………….……………………………………………………………………………………………………………14

8. Financials ….………………………………………………………………………………………………………………………15

9. Disclaimer .…………………………………………………………………………………………………………………………17

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About the Company:

• Dollar has built a strong portfolio of brands in the economy • The Company has a fully integrated facility at Tirupur with
and mid-premium segment. After having established presence in spinning, knitting, processing, cutting, stitch-
brands like Dollar Regular, Big Boss under the ‘Dollar’ um- ing and packaging and caters to high end products. Ap-
brella, It is shifting focus towards premium segment by prox. 30% of its requirement is met inhouse and balance
introducing new brands and entering into newer product is through job work which helps it to be asset light.
categories for diversifying from being a predominantly • Dollar is focusing on widening its reach. The number of
Men’s Innerwear company to a lifestyle brand catering to distributors has risen from 550 in FY10 to 850 plus in FY17
Men, Women and Kids segments. (of which 80-90% are exclusive distributors). The company
has increased the number of multi-brand outlets from
• Dollar manufactures more than 350 products across all
40,000 in FY10 to 80,000 plus in FY17, and intends to in-
innerwear segments. The company's manufacturing facili-
crease this further over the next 2 years.
ties are located at Kolkata, Tirupur, Delhi and Ludhiana.

Journey

Location and manufacturing Advantage-

Dollar Industries manufacturing facilities are in Kolkata, Tirupur, Delhi and Ludhiana. These facilities comprise spinning, knitting,
processing, bleaching, cutting, stitching packaging and dispatching, assuring complete integration. The Tirupur facility’s effluent
treatment unit has eliminated liquid discharge. A 5-megawatt wind energy facility in Tamil Nadu provides the energy needed for
the Company’s spinning mills. The Company is also engaged in responsible outsourcing from units in Kolkata, Tirupur, Delhi and
Ludhiana.

Tirupur Edge

Tirupur is a prominent cluster of small and medium manufacturing enterprises engaged in the production of knitted apparel.
There are more than 5,000 garment manufacturing and job work units in the Tirupur area, resulting in the easy availability of
raw materials, proximity to a major cotton spinning area (Coimbatore), harbor (Tuticorin) and skilled and unskilled labour. Its
hosiery hub became the first textile cluster in India to comply with zero-liquid discharge guidelines. The Government of India
granted the city the status of ‘Town of Export Excellence’.

Source: Company, Industry & Indsec Research

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Backward Integration
The Company invested in progressive backward integration – from the consumption of raw cotton to final product delivery. The
total manufacturing expenses in FY16 was 22% whereas the Company benefited through backward integration achieving other
manufacturing expense of 18%. The Company is convinced that the economies-of-scale and centralized supervision would en-
hance its competitiveness and reduce an overt reliance on job-working. This backward integration – one of few such instances in
India’s innerwear hosiery sector – will help strengthen margins and profits above the sectoral average/

• Spinning- Dollar Industries produces 100%-cotton combed quality yarn in different count ranges. High quality raw material is
sourced from India and abroad, with a focus on fine quality long stable fiber (29 millimeters+) with the lowest possible con-
tamination.

• Knitting - In addition to in-house spinning, Dollar Industries offers customers better quality within shorter lead times. The
knitted fabric range includes a wide variety of fabrics (single jersey, pique and fleece). As a global brand, Dollar honed its
expertise in knitting and supplying body-shaping fabrics for innerwear and active wear.

• Dyeing and bleaching- Dollar Industries’ knits processing division is equipped with the latest automation and lab equipment
as well as eco-friendly dyes and chemicals.

• Production capacity- Elastic production capacity of 10 Lakh metres per month. Cutting capacity of 3 Lakh pieces per day.

Brand Profile
Dollar’s innerwear caters to the economy, middle and premium segments. The company has innovated and widened its category
spread (from just men’s innerwear to women’s and children’s). It intends to cover a large proportion of an aspirational family’s
innerwear requirement, strengthening its recall as a one-stop lifestyle brand. A focused operator in innerwear, its major products
are vests, briefs, thermals, panties, socks, casuals and kids’ wear.

While the economy range contributes 34% to revenue, premium and super premium contribute the balance. The company is
targeting the upper class via new brand FORCE NXT (super premium), which is also targeted by other players. The company has
launched an array of sub-brands such as Dollar Big Boss Premium Innerwear, Missy, Champion, Force Go Wear and Ultra Ther-
mals. Fitness, quality and contemporariness are Dollar’s unique selling points. Moreover, it offers better incentives to distributors
to drive sales

Source: Company, Industry & Indsec Research

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Brand Segmentation

Brand Name Launch Date Target Tag Line Segment Revenue %

Dollar Regular NM Mass NA Economy 33.7%
Bigg Boss 2008 Mass Fit Hai Boss Premium 44.3%
Force Go wear 2009 Youth NA Premium 6.6%
Champion kids 2010 Kids NA Premium 1.4%
Ultra thermals 2010 Family NA Premium 5.9%
Missy 2014 Female Carry on Missy Premium 5.5%
Force NXT 2015 Youth Go For NXT Super Premium 1.5%

Revenue Contribution Revenue Contribution

Socks, 1.2% Force Go

Thermals, wear, 6.6% 120%
5.9% 100%
80% 35% 33% 34%
Bigg Boss, 60%
44.3%
Regular, 40%
64% 65% 65%
33.7%
20%
Force NXT,
1.5% 0%
Champions, FY15 FY16 FY17
Missy, 5.5% 1.4% Premium & Super Premium Economy

Brand wise Revenue Share

Big Boss (% of Rev) Force NXT (% of Rev)

44.3%
43.7% 1.5%

40.1% 0.5%

0.1%

FY15 FY16 FY17

FY15 FY16 FY17
Missy (% of Rev) Champion (% of Rev)

2.4%
5.5%
4.5%
1.7%
1.4%
2.9%

FY15 FY16 FY17 FY15 FY16 FY17

Source: Company, Industry & Indsec Research

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Brand wise Revenue Share

Thermals (% of Rev) Force Go Wear (% of Rev)

7.7% 11.0%
7.3%
5.9% 8.1%
6.6%

FY15 FY16 FY17 FY15 FY16 FY17

Dollar Regular (% of Rev)

34.8%

33.7%

33.2%

FY15 FY16 FY17

Story in Charts

Geographical Revenue break up Revenue (Rs mn)

South, 10,000.00
8.1% 8,973.00
9,000.00 8,216.74
North, 8,000.00 7,241.06
Wes t, 6,864.99
42.7% 7,000.00
23.2% 5,794.72
6,000.00
5,000.00
4,000.00
3,000.00
Ea s t, 2,000.00
26.0% 1,000.00
-
FY13 FY14 FY15 FY16 FY17
EBITDA (Rs mn) & OPM Net Profit (Rs mn)

1,000.0
10.3% 925.7
12.0% 500.0
434.7
900.0
800.0 8.0% 10.0%
400.0
700.0 7.7% 657.4
559.3 8.0%
600.0 7.3% 263.5
300.0
500.0 422.2 417.1 6.1% 6.0%
400.0 194.5
4.0% 200.0
300.0 137.2
111.7
200.0 2.0% 100.0
100.0
- 0.0%
FY13 FY14 FY15 FY16 FY17 -
FY13 FY14 FY15 FY16 FY17
EBITDA OPM

Source: Company, Indsec Research INDSEC SECURITIES AND FINANCE LTD.

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Story in Charts

Return ratios Debt/Equity (x)

30.0% 1.80
1.71
1.60
25.0% 24.0%
1.40 1.50 1.41
22.4%1.20 1.40
20.0% 17.2%
17.0% 1.13
14.7% 14.9% 1.00
15.0% 18.1%
16.2%
13.6% 0.80
12.6%
10.0% 0.60

5.0% 0.40
0.20
0.0%
-
FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17
ROE ROCE

SWOT ANALYSIS

Source: Company, Indsec Research INDSEC SECURITIES AND FINANCE LTD.

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Industry watch– Innerwear Sector

The Indian textiles sector, currently estimated at around US$ 137 billion, is one of the largest contributors to India’s exports with
approximately 11% of total exports and expected to reach US$ 226 billion by 2023, by growing at a CAGR of 8.7%. The Indian tex-
tile industry, although labour intensive, is the second largest employer after agriculture, providing employment to over 45 million
people directly and 60 million people indirectly. The Indian textile industry contributes approximately 5% to India’s Gross Domes-
tic Product (GDP), 14% to overall Index of Industrial Production (IIP) and constitutes 15% of the country’s export earnings. The
textile industry has two broad segments. The first is the unorganised sector which comprises small-scale handicraft units and us-
ing traditional tools and methods. The second is the organised sector consisting of spinning, apparel and garments segment which
apply modern machinery and techniques to avail the advantage economies-of-scale.

The Indian innerwear market is currently estimated at Rs. 24,000 crore. The segment has grown at 15% during the period from
2010 to 2015. During this period, the share of intimate wear in the total apparel market increased from 6.4% to 7.1%. The in-
nerwear market is estimated to continue at the same growth rate over the next five years and expected to become a Rs. 47,000
crore market which is nearly 8% of the total estimated apparel market, by the year 2020.

Indian Innerwear - Market Size Values (`/Crore)

700,000 9.0%
8.1%
580,000 8.0%
600,000 7.3%
7.2%
7.0% 7.0%
500,000 6.7% 6.8%
6.5%
6.0%
400,000 5.0%
330,000
300,000
300,000 264,000 4.0%
234,000
209,000 3.0%
185,000
200,000
2.0%
100,000 47,000
14,000 16,000 18,500 21,500 24,000 1.0%
12,000
- 0.0%
2010 2011 2012 2013 2014 2015 2020

Apparel Market Intimate Wear Market Share of Intimatewear

Indian intimate wear market is dominated by women’s segment which currently forms over 60% of the overall market and is val-
ued at Rs. 14,500 crores. This segment has outperformed the overall market as well as men’s segment, which currently holds ~
35% of the total market. Kid’s intimate wear market merely has a 4% share in total market.
Category wise Market Size (Values - `/Crore)

30,000 28,000

25,000

20,000
16,500
14,500
15,000

10,000 8,500
7,000
4,300
5,000 2,300
400 900
-
Woman Men Kids
2010 2015 2020e

Source: Indsec Research, Industry INDSEC SECURITIES AND FINANCE LTD.

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Investment Rationale

1. Change in consumer dynamics—to drive revenue growth

With rising consumerism, the Indian consumers are in the middle of a transitional phase. The new age Indian customer is radically
different from what one could have imagined only a few years ago. The changes are reflected in both the core value system, the
general lifestyle as well as the purchase choices. And this change has also trickled down to intimate wear, a category earlier per-
ceived as ‘hidden’.

The new age customers of intimate wear are indulgent and include everyone from ‘pocket-money to pension’. These consumers
belong to the aspirational class, a segment constantly striving for a better lifestyle and upper class, those who have high disposa-
ble incomes and can afford better products & lifestyle.

Shape and fit are the most important criteria being looked upon by consumers while buying innerwear. Though very limited
brands are recognized in the market, brand is still the second most important factor and it is almost in par with the shape and fit.

Advertising, public relations, sales promotion, and personal selling all are essential parts of the promotional mix of a marketing
plan. Getting iconic celebs speak about innerwear brands seems like a piece of cake nowadays. All these initiatives by brands cre-
ate a positive impact on consumers as the purchase behavior of a major chunk of Indian population is affected by the television
ads they watch.

Dollar industries over the years have been one of the highest spenders on advertisement compared to peers. The company
spends ~8-10% of its revenue on brand promotion activities vis-à-vis its peers who spend close to 4% to 6%. We believe all
these efforts have borne fruits with the company establishing itself as a prominent brand. Further in order to capitalize on
such heavy spending the company would provide higher incentives to its distributors. Going forward, we believe that such
expenditure is expected to grow slower than revenue growth which is also likely to improve margins.

Influencing Parameters

SIZE OF PACK 7%

D ISCOUNTS 9%
Adverti sement
PRICE 33%
don’t i mpact, Advertisements
DESIGN 35% 38% i mpacts, 62%

FABRIC 61%

BRAND 71%

SHAPE & FIT 75%

0% 20% 40% 60% 80%

10%

1,000.00 12% 8%
800.00 10%
6%
8%
600.00
6% 4%
400.00
4% 2%
200.00 2%
- 0%
0%
FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16

Ad spends % of revenue Dollar Industries Page Indsutries Rupa

Lux Lovable

Source: Industry & Indsec Research INDSEC SECURITIES AND FINANCE LTD.
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2. Product– Mix & Exports—to enable sustainable growth

Dollar Industries has been one of the fastest growing knitwear and innerwear companies. It has evolved from being another
regional player to an all-out pan India player with strong brand recall. Over the years Dollar has also evolved from being just a
manufacturer of men’s wear to Family wear, and has also increased its focus on premium and super-premium segments, and it
has and plans to launch new products each season. In lieu of their strategy to diversify their products, Dollar has also forayed
into the women intimate innerwear segment -which is currently ~60% of the overall market and presents a ~Rs. 145bn op-
portunity– though its brand “Missy”.

To justify their evolution from being just another regional player to a full-blown international player, the company has in-
creased their distribution touchpoints from 750+ to 850+. Moreover, Dollar has increased their multi-brand outlets from
70,000+ to 80,000+, and going ahead the management plans to extend their focus from just conventional retail stores to large
format stores, modern retail and e-commerce. As of now, the company exports its products in 10 countries.

From the International angle, the company has seen their exports grow at a CAGR of ~12% over FY15-17. Further, in August
2017, the company entered into a 50:50 Joint Venture with Pepe Jeans Europe BV for selling and distribution underwear and
loungewear, including gym wear, track suits and sleepwear. The JV will undertake the business in the territories of India, Sri
Lanka, Bhutan, Nepal and Bangladesh. Dollar has signed a 10 years exclusive perpetual agreement with a renewal clause
with PJ Hungary KFT. The products will be marketed under the brand name “Pepe Jeans London”, and the total capital outlay
is estimated to be at ~Rs. 2bn, of which Dollar and Pepe Jeans will invest ~Rs. 360mn each and the balance is to be funded
via debt. The synergistic benefit in this partnership is the brand presence of each partner. Dollar can feed off Pepe to create
their own brand image across the globe and Pepe could do the same vice versa and strengthen their presence in India. Pepe
connects through 1,110 Multi-brand outlets, 364 Large Format stores and 216 Brand Outlets.

Strengths

Dollar-Exports (Rs. in mn)

760
700
610

FY15 FY16 FY17

Dollar-Distributors Dollar-Retail Outlets

850 + 80,000 +

75,000 +
800 +

70,000 +
750 +

FY15 FY16 FY17

FY15 FY16 FY17

Source: Company, Industry & Indsec Research

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3. Strong industry dynamic

The Indian innerwear market is currently estimated at Rs. 24,000 crore. The segment has grown at 15% during the period from
2010 to 2015. During this period, the share of intimate wear in the total apparel market increased from 6.4% to 7.1%. The in-
nerwear market is estimated to continue at the same growth rate over the next five years and expected to become a Rs. 47,000
crore market which is nearly 8% of the total estimated apparel market, by the year 2020.

The industry estimates the organised operations at ~45-50% of the overall innerwear market; this indicates the immense
growth opportunities for brand-named companies.

Reasons that are likely to drive Indian Innerwear Industry and specially for Organized players

• At the cusp of rapid growth; per capita inner wear expenditure expected to double to Rs 300

• Organised innerwear market of Rs 15,870cr (2015- 2016) projected to grow to Rs 47,000cr by 2020.

• Widening customer needs; increasing product extensions

• Growing scope of e-commerce

• Growing traction from Africa, Arab countries and Middle East

• Enhanced manufacturing automation (ultrasonic cutting systems) increasing efficiency and global competitive-
ness

Likely Segment Drivers

• GST: The segment is expected to witness rapid expansion soon. The innerwear segment is facing a lot of challenges from
the unorganized market, which should shrink after the introduction of GST implication. It will reduce the competitive ad-
vantage enjoyed by the unorganized sector, providing more room for organized players.

• Brand consciousness: A shift in paradigm as innerwear has graduated from being just a functional category to a category
that offers an additional fashion quotient. It is shifting from a price sensitive category to a brand sensitive category. In fact,
this changing preference is no longer restricted to just the metros, but has spread to mini metros, the tier l -II and -III
cities. This openness to indulge in branded intimate wear has led to a growth in the number of international and domestic
innerwear brands present in India. For evolving consumers, looking good has become an important aspect of life and
therefore.

• Rising exports: Many innerwear brands of Indian origin have made their presence felt in countries like Africa and Middle
East. If India is able to enter into FTAs with key markets of intimate wear – USA and EU; then the competitiveness of India
exports will increase automatically without the need for any direct rebates.

• Increase in Per Capita Income: The standard of living of the people is directly related to their per capita income. Consumer
expenditures in emerging cities of India are rising by nearly 14% and in the larger cities by about 12% a year because of
rising affluence and the changing lifestyles of people. Greater consumer spending increases the demand for better quality
products in the innerwear category adding to the ‘feel good’ factor

4. No Significant CAPEX to boost profitability and Return Ratios

The company does not have any capex plan as it has already done capex by going backward. It has 400 tonnes per month spin-
ning capacity, 300 tonnes per month knitting capacity, 400 tonnes per month Dyeing and bleaching capacity, 1 mn meters per
month elastic capacity and 3 lakh pieces per day cutting capacity. With No major capex planned for the coming two years be-
sides normal maintenance capex is likely to help booster return ratios.

Source: Company, Industry & Indsec Research

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5. Focus on premium products to open new avenue for the company and likely to boost margin profile

Intending to capture the higher end of the market, the company has been focusing on improving the proportion of its premium
category in its sales mix. The efforts have yielded results, with the sales mix changing in favor of the premium category, from 42%
in FY12 to 65% in FY17. The shifting has also helped the company improve its margin profile and return ratios. The economy seg-
ment (~34% of sales) fetches realizations of ~Rs35 per piece, while the medium category ‘Big Boss’ (~44% of sales) fetches~Rs-65.

The company is now focusing on super premium category with its brand Force NXT (Realization Rs 114/piece) launched in August
2015 and contributed 2% of FY17 sales. It aims to grow this brand focused on aspirational segment to over Rs 1 bn in next 3 years
and would go for aggressive advertisement to position it.
As per the company, there is opportunity to grow by focusing on segments between mid-range product and Super premium prod-
ucts offered by Jockey. Most of the organized players are focusing on filling this gap by launching their products in this segment.
Lux is focusing on this through ONN brand, Rupa through 'Macroman M-series' & 'Macrowoman W-Series'. Dollar is doing the
same through Force NXT which will help it to tap the opportunity between Jockey and Big Boss. The company intends to achieve
the same by focusing on quality, comfort, design, packaging, etc. It would distribute the same through Modern retail, through
Shop in Shop, EBOs, MBOs, etc.

We believe company’s focus on premium products like Force NXT which command higher realization vis-à-vis its present range
is likely to help company boost its margin profile in the coming years. Further, this also helps the company to file the product
gap in its portfolio. We expect the company’s margin profile to improve almost 330bps over FY17-19 lead by increase in premi-
um products.

OPM Trend

13.3%
11.9%
10.3%

7.3% 7.7% 8.0%

6.1%

FY13 FY14 FY15 FY16 FY17 FY18E FY19E

Increase in Focus towards premium and Super premium products

120%

100%

35% 33% 34% 32% 30%

80%

60%

40%
64% 65% 65% 67% 70%

20%

0%
FY15 FY16 FY17 FY18e FY19e
Premium & Super Premium Economy

Source: Company, Industry & Indsec Research

INDSEC SECURITIES AND FINANCE LTD.

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Valuation and Recommendation :

Dollar Industries has been one of the fastest growing knitwear and innerwear companies. It has evolved from being another re-
gional player to an all-out pan India player with strong brand recall. Over the years Dollar has also evolved from being just a man-
ufacturer of men’s wear to Family wear, and has also increased its focus on premium and super-premium segments

The company has largely been present in economy and mid-premium segment through its Dollar Regular (Realization Rs 35/piece)
and Big Boss (Realization Rs 62 per piece) brands with 34% and 44% revenue contribution, respectively. The company is now fo-
cusing on super premium category with its brand Force NXT (Realization Rs 114/piece) launched in August 2015 and contributed
2% of FY17 sales. The company believe there lies a huge opportunity for the company to capture market share in the super pre-
mium category. We believe this is also likely help its overall margins expanding.

Further the company has invested heavily on its backward integration plant, It has 400 tonnes per month spinning capacity, 300
tonnes per month knitting capacity, 400 tonnes per month Dyeing and bleaching capacity, 1 mn meters per month elastic capacity
and 3 lakh pieces per day cutting capacity. The company carries stitching through job work. The backward integration would help
it in offering quality product for brands. Going forward the company does not envisage any major capex.

We expect the Topline to grow at CAGR of ~17% over FY17-FY19E, while EBITDA is expected to grow at CAGR of ~33% with
margins expanding by ~330bps over the same period to ~13.3%. At CMP of Rs 423 the stock is trading at 35.0x and 23.7x on
expected earnings of Rs 12.10 and Rs 17.87 for FY18E and FY19E. Given the change in preference of consumers towards brand-
ed products, we believe Dollar is well position to capture incremental growth. Further, with no major capex and likely capping
on add expenses the company’s margin and return profile are likely to see improvement. If we compare the company to its
peers (ex- Page) the company is expected to post a topline CAGR growth of 17.2% over FY17-19E as against 10% for Rupa and
11% for Lux (consensus estimates) for the same period. Given this we believe the company is likely to trade at similar levels to
its peers (table below). We assign a target a multiple of 36x on December 18 earnings of Rs14.98, post which we arrive at a
target of Rs 539 an upside of 28% from current levels.

Particulars Dollar Lux Rupa Page

Sales Growth
FY17 9% 3% 8% 19%
EBITDA Growth
FY17 41% 27% 5% 10%
OPM (Consensus Estimates)
FY17 10% 12% 13% 19%
FY18E 12% 13% 14% 19%
FY19E 13% 13% 14% 20%
PAT Growth
FY17 51% 22% 10% 15%
EPS (Consensus Estimates)
FY17 8.02 24.89 9.09 238.74
FY18E 12.10 27.35 11.50 295.35
FY19E 17.87 30.16 12.69 370.79
CMP as on 24.10.17 (in Rs.) 437 1,155 429 20,106
P/E
FY17 54.4 46.4 47.2 84.2
FY18E 36.1 42.2 37.3 68.1
FY19E 24.4 38.3 33.8 54.2
ROE (%) (Consensus Estimates)
FY17 24% 30% 18% 45%
FY18E 27% 23% 19% 47%
FY19E 29% 20% 20% 44%

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 INDSEC

Risk to Call:

Volatile raw material prices. Any delay or inability of the company to pass on fluctuation in raw material prices could impact mar-
gins.

Change in consumer behavior— the segment is subject to fast change in consumer preference and technology . The company's
inability to respond to such changes could dent future revenue.

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 INDSEC Financial Performance Analysis

Revenue (Rs mn)

14,000.00
12,317.74
12,000.00
10,228.37
Topline is expected to grow by 17% CAGR between 10,000.00 8,973.00
FY17-19E to Rs.12.3bn on the back growth in premium
8,000.00
and super premium segment
6,000.00

4,000.00

2,000.00

-
FY17 FY18E FY19E

EBTIDA (Rs mn) (OPM)

Source: Industry, Indsec

1,800.0 1,643.9 16.0%

1,600.0 13.3%14.0%
EBITDA is expected to grow by 33% CAGR between 1,400.0
1,214.2 11.9% 12.0%
FY17-19E to Rs. 1.6bn while OPM is expected to be in 1,200.0 10.3% 10.0%
the region of 13.3%. 1,000.0 925.7
8.0%
800.0
6.0%
600.0
400.0 4.0%

200.0 2.0%
- 0.0%
FY17 FY18E FY19E
EBITDA OPM

PAT (Rs mn) &PAT Margins

PAT is expected to grow by 49% CAGR between FY17-

1,200.0
19E to Rs. 9.69bn.
968.8
1,000.0

800.0
655.9
600.0
434.7
400.0

200.0

-
FY17 FY18E FY19E

Source: Company & Indsec Research

INDSEC SECURITIES AND FINANCE LTD.

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 INDSEC

SUMMARY INCOME STATEMENT

(in mn) FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Total Income 5,795 6,865 7,241 8,217 8,973 10,228 12,318
Cost Of Revenues (incl Stock Adj) 2,743 3,656 3,773 3,574 3,916 4,398 5,235
Gross Profit 3,052 3,209 3,468 4,643 5,057 5,830 7,083
Employee Cost 37 49 73 100 215 358 493
Other Operating Expenses 2,593 2,742 2,836 3,886 3,916 4,258 4,946
EBITDA 422 417 559 657 926 1,214 1,644
Other Income 31 34 65 83 86 102 123
Net Interest Exp. 187 156 202 194 197 166 138
Depreciation 100 88 114 137 148 156 161
Exceptional Items 0 0 0 0 0 0 0
PBT 166 206 308 409 667 994 1,468
Tax 54 69 113 145 233 338 499
Profit After Tax 112 137 194 264 435 656 969
Net Profit 112 137 194 264 435 656 969
EPS 2.9 3.5 5.0 6.8 8.0 12.1 17.9
SUMMARY BALANCE SHEET
Fiscal Year Ending
(in mn) FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Assets
Net Block 532.0 503.9 853.6 837.1 748.4 642.0 530.6
Capital WIP 26.0 252.5 3.7 6.4 0.2 0.0 0.0
Intangible Assets under develop-
ment 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Non current Assets 31.3 2.0 3.0 6.4 6.9 6.9 6.9
Long term loans and advances 38.6 41.5 36.4 53.3 17.9 28.0 33.7
Current Assets
Current Investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Inventories 1,238.8 1,067.2 1,211.4 2,083.7 2,048.7 2,241.8 2,632.3
Trade receivables 1,103.3 1,414.0 1,852.0 1,931.6 2,265.3 2,522.1 2,969.8
Cash and cash equivalents 202.0 100.4 90.6 103.5 96.8 389.2 733.7
Short-term loans and advances 169.3 86.0 163.4 145.9 132.4 112.1 101.2
Other Current Assets 36.0 2.8 2.3 2.8 1.4 2.8 3.4
Total Current Assets 2,749.4 2,670.4 3,319.6 4,267.5 4,544.7 5,268.0 6,440.4
Current Liabilities & Provisions
Short-term borrowings 1,126.3 1,026.0 1,266.0 1,500.9 1,389.1 1,089.1 789.1
Trade payables 497.6 623.9 784.8 1,017.8 934.4 1,177.0 1,484.9
Other current liabilities 227.5 292.0 336.8 481.6 255.2 336.3 472.5
Short-term provisions 124.8 20.0 1.8 63.9 153.8 153.8 153.8
Total Current Liabilities 849.9 935.9 1,123.3 1,563.2 1,343.4 1,667.0 2,111.1
Net Current Assets 1,899.5 1,734.5 2,196.3 2,704.3 3,201.3 3,601.0 4,329.3
Total Assets 2,527.3 2,534.5 3,093.0 3,607.5 3,974.7 4,277.9 4,900.5
Liabilities
Share Capital 77.5 77.5 77.5 77.5 108.4 108.4 108.4
Reserves and Surplus 808.3 934.1 1,126.4 1,377.4 1,700.8 2,293.3 3,198.7
Total Shareholders Fund 885.8 1,011.6 1,203.9 1,454.9 1,809.2 2,401.7 3,307.1
Total Debt 1,512.0 1,416.2 1,804.3 2,053.5 2,049.8 1,749.8 1,449.8
Long Term Provisions 0.0 0.0 0.0 0.0 18.9 18.9 18.9
Other Long Term Liabilities 81.5 77.8 39.6 58.5 73.3 84.1 101.2
Net Deferred Tax Liability 48.1 29.0 45.3 40.7 23.5 23.5 23.5
Total Liabilities 2,527.3 2,534.5 3,093.0 3,607.5 3,974.7 4,277.9 4,900.5
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 INDSEC

SUMMARY CASH FLOW STATEMENT

(in mn) FY13 FY14 FY15 FY16 FY17E FY18E FY19E
PBT 166 206 308 409 667 994 1,468
Depreciation & Amort., Total 100 88 114 137 148 156 161
After other adjustments 210 186 199 190 202 166 138
(Inc) / Dec in Working Capital (137) 63 (489) (561) (540) (107) (372)
Taxes (70) (101) (102) (99) (213) (338) (499)
Others - - - - - - -
Cash from Ops. 269 442 30 76 265 872 896
Capital Expenditure & investments (88) (283) (211) (120) (56) (50) (50)
Cash from Investing (88) (283) (211) (120) (56) (50) (50)
Issue of Share capital - - - - - - -
Net Borrowings 145 (94) 387 251 (4) (300) (300)
Others (187) (156) (202) (194) (197) (166) (138)
Issuance of Dividend (10) (11) (14) - (14) (63) (63)
Cash from Financing (53) (261) 171 57 (215) (530) (501)
Extraordinary receipts/payment - - - - - - -
Net Change in Cash 128 (102) (10) 13 (7) 292 344
BF Cash 74 202 100 91 104 97 389
Cash from Merger - - - - - - -
END Cash 202 100 91 104 97 389 734

SUMMARY RATIOS

FY13 FY14 FY15 FY16 FY17 FY18E FY19E

Profitability
Return on Assets 3.3% 4.0% 4.6% 5.1% 8.2% 11.0% 13.8%
Return on Capital 14.7% 14.9% 17.0% 17.2% 22.4% 27.9% 33.8%
Return on Equity 12.6% 13.6% 16.2% 18.1% 24.0% 27.3% 29.3%
Margin Analysis
Gross Margin 52.7% 46.7% 47.9% 56.5% 56.4% 57.0% 57.5%
EBITDA Margin 7.3% 6.1% 7.7% 8.0% 10.3% 11.9% 13.3%
Net Income Margin 1.9% 2.0% 2.7% 3.2% 4.8% 6.4% 7.9%
Short-Term Liquidity
Current Ratio 1.4x 1.4x 1.4x 1.4x 1.7x 1.9x 2.2x
Quick Ratio 0.8x 0.8x 0.9x 0.7x 0.9x 1.1x 1.3x
Avg. Days Sales Outstanding 69 75 93 86 92 90 88
Avg. Days Inventory Out-
standing 78 57 61 93 83 80 78
Avg. Days Payables 31 33 40 45 38 42 44
Long-Term Solvency
Total Debt / Equity 1.7x 1.4x 1.5x 1.4x 1.1x 0.7x 0.4x
EBITDA / Interest Expense 1.9x 2.3x 2.5x 3.1x 4.4x 7.0x 11.7x
Valuation Ratios
EV/EBITDA 41.9x 42.4x 32.4x 27.9x 26.9x 20.0x 14.4x
PER 146.6x 119.4x 84.2x 62.2x 52.8x 35.0x 23.7x
P/B 18.5x 16.2x 13.6x 11.3x 12.7x 9.5x 6.9x

INDSEC SECURITIES AND FINANCE LTD.

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 INDSEC
INDSEC Rating Distribution
BUY : Expected total return of over 25% within the next 12 months.

ACCUMULATE : Expected total return between 10 to 25% within the next 12 months.

REDUCE : Expected total return below 10% within the next 12 months.

SELL : Expected total return is below the market return within the next 12 months.

NEUTRAL: No investment opinion on the stock under review.

DISCLOSURE

BUSINESS ACTIVITIES:

Indsec Securities and Finance Limited (ISFL) is a corporate member of BSE in Equity, WDM segment and of NSEIL in Equity, WDM, Futures & Options and Currency Deriva-
tive segments. ISFL is also a Depository Participant of the National Securities Depository Limited (NSDL) and a SEBI registered Portfolio Manager. ISFL has also secured
membership of the MCX Stock Exchange in Currency Derivative Segment. With this setup ISFL is in a position to offer all types of services in the securities industry.

Since inception company’s focus has been on research. In view of its research capabilities ISFL focused mainly on institutional business and is today empaneled with most
of the local financial institutions, insurance companies, banks and mutual funds. ISFL has grown from being a medium size broking outfit to become one of the largest
capitalized Indian broking company offering the complete range of broking services.

ISFL was incorporated on 28th July 1993 and doesn’t have any associates/ subsidiaries. ISFL is a registered Portfolio Manager under SEBI (Portfolio Managers) Regula-
tions, 1993 vide registration No. INP000001892.

DISCIPLINARY HISTORY:

• No material penalties / directions have been issued by the SEBI under the securities laws, SEBI Act or Rules or Regulations made there under

• No penalties have been imposed for any economic offence by any authority.

• No material deficiencies in the systems and operations of the Company have been observed by any regulatory agency.

• There are no pending material litigations or legal proceedings, findings of inspections or investigations for which action has been taken or initiated by any regulatory
authority against the Company or its Directors, principal officers or employees or any person directly or indirectly connected with the Company.

DECLARATION:

• ISFL does not have any financial interest in the subject company (ies);

• ISFL does not have actual or beneficial ownership of 1 % or more in the subject company (ies);

• ISFL does not have any material conflict of interest in the subject company(ies) at the time of publication of this document;

• ISFL has not received any compensation from the subject company (ies) in the past twelve months;

• ISFL has not managed or co-managed public offering of securities for the subject company (ies) in the past twelve months;

• ISFL has not received any compensation for investment banking or merchant banking or brokerage services or any other service from the subject company (ies) in
the past twelve months;

• ISFL has not received any compensation or other benefits from the subject company (ies) or third party in connection with this document;

• None of the research analysts have served as an officer, director or employee of the subject company (ies);

• ISFL has not been engaged in the market making activity for the subject company (ies);

GENERAL TERMS AND CONDITION/ DISCLAIMERS:

This document has been issued by ISFL and is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of security.

This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources believed to be reliable. However,
we do not guarantee its accuracy and the information may be incomplete and condensed. Note however that, we have taken meticulous care to ensure that the facts
stated are accurate and opinions given are fair and reasonable, neither the analyst nor any other employee of our company is in any way responsible for its contents. The
Company’s research department has received assistance from the subject company (ies) referred to in this document including, but not limited to, discussions with
management of the subject company (ies). All opinions, projections and estimates constitute the judgment of the author as of the date of this document and these,
including any other information contained in this document, are subject to change without notice. Prices and availability of financial instruments also are subject to
change without notice. While we would endeavor to update the information herein on reasonable basis, we are under no obligation to update or keep the information
current. Also, there may be regulatory, compliance, or other reasons that may prevent us from doing so.

Securities recommended in this document are subject to investment risks, including the possible loss of the principal amount invested. Any decision to purchase/sale
securities mentioned in this document must take into account existing public information on such security or any registered prospectus. The appropriateness of a particu-
lar investment, decision or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies discussed in this docu-
ment may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. Each recipient of this document
should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this docu-
ment (including the merits and risks involved).

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or
other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject the company to any registration or
licensing requirement within such jurisdiction. Further, this document is not directed or intended for distribution to the US taxpayers covered under US Foreign Account
Tax Compliance Act (FATCA) provisions. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons
in whose possession this document may come are required to inform themselves of and to observe such restriction

This is just a suggestion and the company will not be responsible for any profit or loss arising out of the decision taken by the reader of this document. Any comments or
statements made herein are those of the analyst and do not necessarily reflect those of the company. No matter contained in this document may be reproduced or
copied without the consent of the company. Any unauthorized use, duplication, redistribution or disclosure is prohibited by law and will result in prosecution. The
information contained in this document is intended solely for the recipient and may not be further distributed by the recipient. The Company accepts no liability
whatsoever for the actions of third parties.

The research analyst(s) of this document certifies that all of the views expressed in this document accurately reflect their personal views about those issuer(s) or
securities. Analyst’s holding in the stocks mentioned in the Report:-NIL

18 INDSEC SECURITIES AND FINANCE LTD.

 INDSEC

CONTACT DETAILS

Management Designation Email ID Direct No. (+91-22)

Nandkishore Gupta Managing Director [email protected] 6114 6101/02
Research Team Designation [Sectors Covered] Email ID Direct No. (+91-22)
Milan Wadkar Head - Institutional Equities [email protected] 6114 6105

Rahul Dani Research Analyst (Auto, Media, Textiles & Midcap) [email protected] 6114 6116

Jimeet Shah Research Analyst (Cap Good, Infra & Midcap) [email protected] 6114 6109
Ayush Jain Research Associate (Banking, Pharma & Midcap) [email protected] 6114 6140
Kimberly Paes Research Associate (FMCG, Cement & Midcap) [email protected] 6114 6111
Deepesh Panchawala Technical Analyst [email protected] 6114 6138
Institutional Sales Team Designation Email ID Direct No. (+91-22)
Parag Shah Sales Trader [email protected] 6114 6133
Aashish Parekh Asst. Sales Trader [email protected] 6114 6134

For additional information please contact: [email protected], or visit us at www.indsec.co.in

Indsec Securities & Finance Ltd, 301/302, "215 Atrium", "A" Wing, Andheri-Kurla Road, Chakala, Andheri (East), Mumbai - 400 093

Telephone: +91 22 6114 6114 / 6114 6100, Fax: +91 22 6114 6180 / 86

19 INDSEC SECURITIES AND FINANCE LTD.