INDIAN TERRAIN FASHIONS LTD.(ITFL)

INDIAN TERRAIN FASHIONS LTD.(ITFL) Date :23 rd October, 2012 Stock Performance Details Background Current Price : Rs. 58.0** Face Value : Rs. 10 per share 52 wk High / Low : Rs. 127.00 / Rs. 47.65 Total Traded Volumes : 286 shares** Market Cap : Rs. 32 crore** Sector : Other Apparel & Accessories - Ready Garments & Apparel EPS (FY2012) : Rs. 3.17 per share P/E (TTM) : 28.73 (x)^ P/BV (TTM) : 1.72 (x)^ Financial Year End : 1 st April 31 st March BSE Scrip Name : ITFL BSE Scrip Code : 533329 **as on 23 rd October,2012 ^ as on June 2012 Shareholding Details September 2012 Indian Terrain Fashion Ltd. (ITFL) was demerged in 2010 from its parent company Celebrity Fashion, based in Chennai. It is engaged in the manufacture, distribution, trade, and retail of ready-made garments and accessories. It caters to the demands of its customers by setting up Exclusive Brand Outlets (EBOs), Multi Brand Outlets (MBOs) and through National Store Chains (NSC) It markets and sells its products under the Indian Terrain brand name in India and internationally across garments and fabrics like knitted wear, apparel, suiting & shirting, home textiles, jackets, and trousers. Particulars Shareholding Nos. (%) Promoter & Promoter Group Holding 26,37,510 47.26 Total Institutional Holdings (FIIs & DIIs) 0.00 0.00 Public Holdings 29,43,821 52.74 Total 55,81,331 100.00 Strategy Focus As the company has been formed recently in September, 2010 on account of its de-merger from Celebrity Fashions Ltd. (CFL) it intends to expand its presence by setting up exclusive brand outlets, multi brand outlets and national store chains in Tier II and Tier III cities. The management would continue to focus on developing the company s brand positioning, its product positioning and development of the supply chain and distribution advantage to ensure that it is able to capitalize on the emerging opportunities in the Indian Retail Sector. An Initiative of the BSE Investors Protection Fund 1

Financial Snapshot Particulars From the Research Desk of LKW s Gurukshetra.com Standalone Financials (Rs. In Million) Income Statement FY12 FY11 Net Sales / Income from Operations 1,409.7 1,211.1 Expenses Cost of material consumed 588.6 554.3 Change in Inventories -2.7-138.2 Employee Benefit Expenses 76.3 57.9 Administrative & Other Expenses 621.9 612.6 EBIDTA.6.1 Depreciation & Amortization 8.1 10.9 Finance Costs / Interest Expense 99.0 54.8 Other Income 5.9 6.5 Profit After Tax (PAT) 17.7 63.1 Key Ratios Income Statement EBIDTA Margins (%) 8.8 10.2 PAT Margins (%) 1.3 5.2 Balance Sheet Networth 208.7 199.0 Non Current Liabilities / Loan Funds 571.5 508.4 Non Current Assets / Fixed Assets 91.2 89.2 Inventories 324.1 333.1 Debtors 624.6 448.3 Key Ratios Balance Sheet Debt : Equity (x) 2.7 2.6 Book Value (BV) (in. Rs.) 37.4 35.7 Return on Capital Employed (ROCE) (%) 15.4 33.2 Return on Equity (ROE) (%) 6.7 63.3 Debtors Turnover (x) 2.9 5.5 Inventory Turnover (x) 4.7 7.4 Valuation Ratios P/E (x) 20.32 6.08 P/BV (x) 1.72 1.93 EV / EBITDA (x) 6.68 6.59 Source : Capitaline.com; as on year ended 31 st March, 2012; Company Annual Report; The company reported an increase of 16% in its net turnover from Rs. 1,211.1 million in FY2011 to Rs. 1,409.7 million in FY2012, probably due to an increase in number of EBOs and MBOs being set up by the company as part of its expansion plan. An Initiative of the BSE Investors Protection Fund 2

Due to an increase in overall cost of production, the EBIDTA Margins came under pressure for FY2012. The same stood at 8.8% as against 10.2% during the previous fiscal. The cost of production increased primarily on account of 32% rise in employee costs that dented the operational performance. While, on an absolute basis, the EBIDTA increased marginally and stood at Rs..6 million in FY2012 as compared to Rs..1 million in FY2011. Consequent to de-merger, the Company has a portion of Accumulated losses and unabsorbed depreciation transferred from Celebrity Fashions Limited and hence the Company is not liable to Income Tax under the normal provisions of the Income Tax Act. However, the Company is subject to Minimum Alternate Tax (MAT) amounting to Rs.4.7 million as compared to previous year s Rs.12.9 million. In line with a subdued operational performance and a high finance costs the Profit after Tax (PAT) declined by over 71% to Rs. 17.7 million in FY2012 as compared to Rs. 63.1 million in FY2011. Consequently, PAT Margins also came under pressure and stood at 1.3% against 5.2% in the previous fiscal. Additionally, with deceleration in demand due to reduced consumer spending led to increase in debtors and hence the requirement for working capital. The working capital efficiency ratios too slipped as the Debtors Turnover ratio was 2.9(x) against 5.5(x) in FY2011. While, the inventory turnover ratio was 4.7(x) in FY2012 against 7.4(x) in the previous fiscal. On comparing the debt to equity ratio of the company against some of its closest peers in the listed space, it is apparent that for ITFL the same is on the higher side. In FY2012, it was 2.65(x) compared to 2.55(x) in FY2011. Amongst the promoter group, New Vernon Private Equity, Bennet Coleman & Company and Reliance Capital are some of the major shareholders in ITFL as per September, 2012 shareholding pattern. While the company has an established brand in the branded apparel segment of readymade garment industry, it faces stiff competition from peers such as Zodiac Clothing, Kewal Kiran in the listed space and from many other international players. Also, with its plans to set up Exclusive Brand Outlets (EBOs) and Multi Brand Outlets (MBOs) especially in mega malls and shopping complexes, the high lease rentals especially in Metros and Tier I cities are likely to impact the operational performance, as the company adopts a policy of setting up its outlets on leased premises to cut down on fixed costs and huge capital investments. During Q1 FY13, the net sales as reported stood at Rs.263.5 million, a marginal decline of 1.3% as compared to corresponding period in the previous year. While, the EBIDTA and PAT for the period under review stood at Rs. 30.2 million and Rs. 2.3 million. The decline in PAT is attributed to a rise in interest costs given the high debt on the books of the company. Performance on the Bourses % 120 100 80 60 40 20 0 Stock Performance Indian Terrain Fashions BSE Small Cap as on 23 rd October, 2012 An Initiative of the BSE Investors Protection Fund 3

Peer Comparison The below mentioned table provides a snapshot of the financial performance of ITFL with its comparables peers in the Apparel Industry within the overall Retail Sector in India which too have established brands and retail presence across India. Particulars Standalone Financials (Rs. in Million) Indian Terrain Fashions Zodiac Clothing Kewal Kiran Clothing Net Sales 1,409.7 3,080.8 3,019.0 EBIDTA.6 140.3 733.6 PAT 17.7 109.8 521.4 EBIDTA Margins (%) 8.8 4.6 24.3 PAT Margins (%) 1.3 3.6 17.3 P/E (x)^ 28.7 40.6 15.3 P/BV (x)^ 1.7 2.2 3.2 Debt : Equity (x) 2.7 0.3 0.1 EV / EBITDA (x)^ 6.7 20.4 8.2 Source : Capitaline Database, ^TTM as on June 2012; About the Industry The Indian retail market currently stands at USD 396 billion and is likely to grow further at 12% to increase to USD 574 billion by 2015. This sector is the second largest employer after agriculture, employing more than 35 million people with wholesale trade generating an additional employment to 5.50 million more. The Government is nevertheless, considering allowing foreign direct investment (FDI) in multi-brand retailing as a measure to make India more attractive to overseas investors. Further, it also is likely to help contain inflationary pressure due to rising competition amongst retailers thereby leading to reduction in interest rates by RBI. With the overall slowdown experienced during FY2012, the consumer discretionary spending had come under pressure which appears to have directly impacted the performance of Indian Retailers in terms of deceleration in sales. The segments within the Indian retail industry which were affected were apparels and footwear industries, which on the whole grew by only 9% as compared to the 12% of the preceding year. Overall demand outlook for the textile industry for FY2013 is expected to remain subdued; with volatile commodity prices, exchange rate, competition amongst players both domestic as well as international and ability to pass on rising costs, high working capital requirements being some of the key challenges faced by the industry. Recent swings in input prices owing to the volatility in crude oil prices and the stabilization of cotton prices may limit the envisaged growth prospects of the Man Made Fibre (MMF) industry. (source : Company Annual Report) Further, with increasing urbanization, growing households and increasing disposable income, the domestic demand for fabric, denim, ready-made garments, shirts etc is also expected to remain healthy going forward given the increasing consumer spending habits. Additionally, a large youth population, rising disposable incomes, increased purchasing power, brand awareness and consciousness the prospects for the retail industry and particularly branded apparel industry is satisfactory over the longer term. The Apparel Industry is expected to grow at a CAGR of 8-10% over the next few years and the branded menswear segment is likely to touch revenues of Rs. 11,000 crore over the next five years. This in turn is likely to drive growth for other branded apparel manufacturers. Outlook The company has a well established brand in the apparel segment which provides it an edge over peers with relatively smaller scale of business operations. However, if the Indian retail sector is opened up to FDI there could be entry of large well established garment / apparel brands in the industry that may pose serious competition to ITFL. Moreover, with limited operating track record, aggressive expansions plan of setting up of EBOs/ MBOs, efficiency in managing working capital requirements and ability to maintain margins in the wake of rising input costs the managements execution capabilities will merit watching in the near to medium term. But over the longer term, the prospects appear to be satisfactory on account of the sheer size of the Indian economy. An Initiative of the BSE Investors Protection Fund 4

Financial Graphs Net Income from Operations 1500 Rs. in Million 1400 1300 1409.7 1200 1100 1211.1 FY2011 FY2012 EBITDA & EBITDA Margins Rs. in Million 125 125 125 10.2.1.6 8.8 11 10 9 8 % FY 2011 FY 2012 EBIDTA EBIDTA Margins PAT & PAT Margins Rs. in Million 70 60 50 40 30 20 10 0 63.1 5.2 17.7 1.3 6 5 4 3 2 1 0 % FY2011 FY2012 PAT PAT Margins An Initiative of the BSE Investors Protection Fund 5

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