Brand Concepts Ltd Management Discussions

Global Economy

Overview

In CY 2024, the global economy endured various macroeconomic challenges, including persistent geopolitical conflicts, volatility in energy and food prices and rising inflation. Despite grappling with challenges, global GDP expanded by an estimated 3.2%¹. Central banks of major economies implemented calibrated interest rate hikes to rein in inflation, however, its impact weighed on economic growth. Nevertheless, these measures prevented global recession and resulted in decrease in inflation towards the end of the year.

With the inflation declining faster than expected in most regions, economic activities increased steadily, defying predictions of stagflation. Notwithstanding the gloomy predictions, the growth in employment and income remained steady. This supported demand developments, especially greater-than-expected government spending and household consumption. Further, the unexpected economic resilience reflects the ability of households in major economies to draw on substantial savings accumulated during the pandemic. Fuelled by robust consumer and government spending, the US economy, maintaining a growth rate of 2.5%, surpassed its pre-pandemic growth and regained its position in the international trade². On the other hand, the European Union navigated various challenges, resulting in uneven growth across member states. Overall, the EU observed a modest growth and the Euro area successfully avoided an economic downturn. Among the Emerging Market and Developing Economies (EMDEs), China grappled with real-estate issues and subdued consumer confidence, resulting in the EMDEs registering a muted growth of 5.2%³. In contrast, emerging markets such as India, Vietnam and Mexico benefited from diverse economic strategies and foreign investments, leading to positive growth trajectories.

Outlook

The global economy is poised to maintain its growth rate for both CY 2024 and CY 2025. While the growth rate may be lower than historical levels, inflation is projected to continue its downward trend. Further, predictions indicate that the global economy is approaching a soft-landing, avoiding recession or major instability. Despite persistent challenges in global trade and subdued investments, major central banks are preparing to ease monetary policies, reflecting a cautious optimistic outlook for CY 2024. Additionally, global headline inflation is expected to decline from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies reaching their target levels faster compared to EMDEs.

Indian Economy

Overview

Despite a sluggish global economy, the Indian economy showcased impressive GDP growth fuelled by sustained momentum in manufacturing and construction sectors⁴. Key indicators such as e-way bills, GST collections and toil collection surged by double digits, reflecting sustained expansion in domestic economic activity. While the current account deficit (CAD) moderated to 1.2% of GDP during FY 24 from 2.6% of the previous year, the Foreign Direct Investment (FDI) remained robust at $59.9billion during FY 24, reflecting strong investor confidence. Simultaneously, external commercial borrowings also rebounded with net inflows of $3.7 billion during FY24. Further, as the external debt-to-GDP ratio decreased to 18.7% by end-December 2023, on the other hand, the net International Investment position improved to 10.8%.

Simultaneously, the Indian luggage industry became a significant driver of economic expansion in FY24. With both domestic and international travel gaining momentum, organised luggage manufacturers are poised to experience a substantial increase in revenue. This surge in demand not only fuels heightened manufacturing activity but also triggers a ripple effect across the economy. Factories are expanding their capabilities to meet the growing need for suitcases and bags, providing a dual benefit of not only increasing employment opportunities but also bolstering industrial output. With increasing demand and rising profits, luggage makers are investing to strengthening capacities and surging their retail outlets.

Outlook

The Indian economy is expected to maintain its positive growth trajectory in the forthcoming years⁵. Significant investments in infrastructure, supported by strong fiscal strategies and continuous policy improvements are expected to bolster the Indian economy. Additionally, a growing young workforce and targeted development initiatives are augmenting growth among key Indian sectors, promoting sustainable long-term economic growth.

India is expected to record a surge in private investments as global economic conditions improve and central banks in developed countries ease monetary policies. Further, this is expected to become a lucrative opportunity for exports, prompting greater consumption and accelerating a reduction in the fiscal deficit. With the improvement in private sector investment, it is expected to mitigate inflation risks, stabilising prices and sustaining economic momentum.

Industry Overview

Global Luggage Industry

The current valuation of the luggage market stands at USD 165,445.7 million, with a projected Compound Annual Growth Rate (CAGR) of 7.19% over the next five years⁶. The Asia-Pacific region holds the largest market for the luggage industry, driven by increased domestic and international travel. This surge in travel trend has been propelled by rising disposable incomes, favourable exchange rates, simplified visa processes and robust aviation infrastructure. Moreover, the markets substantial growth can also be attributed to the adoption of innovation and advanced technology by the manufacturers. The companies are introducing travel bags that are equipped with advanced materials and innovative features that elevate user experience. Furthermore, companies are capitalising on growing consumer preference for sustainability. The industry players are embracing eco-friendly production practices and introducing products that can attract the likes of environment-conscious consumers. Additionally, the companies are crafting products from recycled materials, reducing carbon emissions. With an increasing emphasis on brand consciousness, Asian companies are targeting the premium segment to attract affluent customers. This strategic shift towards offering high-quality, environmentally friendly and technologically advanced luggage products underscores the dynamic nature of the industry. It is essential for the companies to align with evolving consumer preferences and market trends to stay ahead of the curve.

Indian Luggage Industry⁷

The Indian luggage industry experienced a remarkable 15% increase in revenue in FY24, owing to increasing demand of heavy-duty baggage and sustained growth in tourism and corporate travels.

The surge in consumer preference for hard luggage has not only improved operational efficiencies but has also led to expanding capacity utilisation. With increasing preference for hard luggage that harness both durability and enhanced aesthetics, companies are innovating to make the luggage lighter to bolster more sales.

Consequently, operating margins are anticipated to witness a notable enhancement of 150-200 basis points (16%) compared to the previous fiscal year.

While the prices of key raw materials such as polypropylene, polycarbonate and polyamide declined by almost 20%, margin improvement was impacted due to escalated marketing and promotional expenditure by organised players. These key raw materials, largely influenced by crude prices, constitute a significant portion (40-45%) of the production costs for luggage manufacturers.

Nevertheless, the enhanced profitability and stronger financial positions of organised luggage makers are expected to bolster their credit risk profiles, notwithstanding planned capacity expansions. According to a CRISIL Ratings analysis encompassing 90% of the organised sectors revenue, organised luggage makers hold approximately 40% market share within the industrys annual sales of approximately INR 15,000 crore. This dominance can be attributed to their robust sourcing channels, competitive pricing, superior quality and extended warranties.

Consequently, organised luggage makers have strategically realigned their revenue mix towards hard luggage across both retail and online channels to capitalise on the evolving market trends

Company overview

Brand Concepts (the Company) is a leading platform specialising in licensed fashion and lifestyle products, particularly focusing on travel gear, bags and accessories. The Company has a diverse portfolio enriched by marquee brands such as Tommy Hilfiger, United Colors of Benetton, Aeropostale. The Company also has its own labels, Sugarush and The Vertical, that caters to a diversified clientele. The Company has demonstrated adaptability and a keen understanding of market trends, establishing an extensive sourcing network, ensuring stringent quality control and offering tailored market insights to retail partners, bolstering overall service value. The Company employs a multi-channel distribution strategy utilising both owned and franchised Exclusive Brand Outlets (EBOs) and Multi-Brand Outlets (MBOs), alongside a distinguished presence in departmental stores and e-commerce platforms. The Company has achieved a wide domestic reach supported by efficient inventory management and rapid speed-to-market capabilities.

Financial Performance

Particulars (INR Mn)	FY24	FY23	FY22	FY21
Net Sales	2,506.22	1,632.2	861.7	427.9
EBITDA	290.7	212.4	77.5	-30.6
EBITDA Margin (%)	11.60	13.00	9.00	-7.20
Profit Before Tax (PBT)	165.9	134.6	10.4	-87
Profit After Tax (PAT)	109.6	100.4	7.6	-63.2
PAT Margin (%)	4.38	6.20	0.90	-14.80
Reported Earnings per share (in INR)	10.07	9.6	0.66	-5.97

• Net Sales: Grew from INR 1,632.2 Mn in FY23 to INR 2,506.22 Mn in FY24.

• EBITDA: Improved from INR 212.4 Mn in FY23 to INR 290.7 Mn in FY24.

• EBITDA Margin: Changed from 13.0% in FY23 to 11.60% in FY24.

• PBT: Rose from INR 134.6 Mn in FY23 to INR 165.9 Mn in FY24.

• PAT: Increased from INR 100.4 Mn in FY23 to INR 109.6 Mn in FY24.

• PAT Margin: Shifted from 6.2% in FY23 to 4.38% in FY24.

• Earnings Per Share: Advanced from INR 9.6 in FY23 to INR 10.07 in FY24.

Key Financial Ratios

Sl. No Particulars	FY24	FY23
1 Debtors turnover ratio	5.13 times	6.02 times
2 Inventory turnover ratio	3.08 times	3.21 times
3 Interest coverage ratio	7.24 times	3.67 times
4 Current ratio	1.40 times	1.39 times
5 Debt to equity ratio	0.75 times	0.90 times
6 Operating profit margin ratio	6.59%	11.10%
7 Net profit margin ratio	4.37%	6.15%

Segment Wise Performance

The total revenue of the Company for the financial year 2023-24 has posted gross income of INR 250.62 crores as compared to INR 163.22 crores in the corresponding previous year, registering a rise of approx. 53.55 % as compared to previous corresponding year. As a result, your company has posted net profit of INR 10.96 crores as compared to INR 10.03 crores net profit in the corresponding previous year.

Sales Channels

• Company-owned Outlets: The Company manages twenty-two Company-Owned Company-Operated (COCO) outlets, each featuring a diverse selection of products ranging from luggage to small leather goods.

• Franchisee Stores: The Company benefits from seventeen Franchisee-owned Company-operated (FOCO) stores, which complement its retail operations. These dedicated outlets exclusively showcase the Companys products.

• MBOs and Retail: As part of its strategy to improve capital efficiency, the Company is currently transitioning to a master distributor model. This initiative entails collaborating with multiple Multi-Brand Outlets (MBOs) across various cities and zones.

• Third-party Online Platforms: The Company extends its online presence through various e-commerce platforms to expand its reach to a wider customer demographic.

• Proprietary Online Platform: The Company has launched its proprietary online selling platform, baglineindia.com, with the goal of providing customers with a seamless online-to-offline shopping experience. This platform is seamlessly integrated with the Companys physical outlets, operating under the name BAGLINE.

Channel-wise Performance

LFS- Large Format Stores DND- Dealer and Distributor

COCO- Company Owned Company Operated Outlets FOFO- Franchise Owned Franchise Operated Outlets

Bagline and baglineindia.com

The Company has introduced www.baglineindia.com, its e-commerce venture, complementing its status as a fashion accessory retail company. It seamlessly integrates the physical stores under it, known as "BAGLINE". This integration encompasses all the Companys brands, offering a premium-to-luxury product selection, including some marquee clients, such as Tommy Hilfiger, Calvin Klein, Victorinox, Delsey and Samsonite. The website ensures a captivating fashion experience, facilitating ease of selection with A+ cataloging featuring video content. Further, ancillary services such as AI chatbot assistance and video tutorials are also provided for travel tips to enhance the overall customer journey. The Company has embraced an omni-channel approach, ensuring convenience and accessibility. Customers can order online or visit their nearest store. Brand Concepts also provides door-to-door service in major cities and implements a robust loyalty and referral program, rewarding customers for their purchases and referrals. Further, the website offers personalised gifting services as well.

Additionally, a dedicated B2B portal caters to corporate clients, offering GST benefits and personalised assistance for bulk inquiries. These initiatives demonstrate the Companys commitment to providing comprehensive solutions across retail and corporate segments.

Opportunities and Threats

Opportunities

With the significant growth of the Indian e-commerce market, the Company is strategically positioned to capitalise the trend. The Company aims to leverage its established online presence to bolster further expansion. The company has partnered with various e-commerce platforms to tap into a broader audience base, with diversified shopping preferences. Moreover, the Company is focusing on enhancing their brand image. It is leveraging social media platforms and promoting targeted marketing campaigns to establish an emotional connect with the customers. This will not only enable the Company to attract new customers but also foster brand loyalty. Additionally, with the growing requirement of adopting sustainable practices in business operations to progress towards a healthier tomorrow, Brand Concepts have introduced eco-friendly product lines and have initiated collaborations with sustainable brands to appeal to environmental-conscious consumers. The Companys existing multi-channel distribution strategy is being augmented by focusing on seamless omnichannel experiences, such as click-and-collect options. This has improved customer convenience as well as bolstered repeat business. The Company gathers data insights from both online and offline sales to understand customer behavior and preferences while enabling the Company to refine its offerings and tailor its marketing strategies accordingly.

Threats

With the increase in global fashion brands establishing their retail presence directly in India, it is expected to lead to market share loss and impact brand recognition. Further, with domestic players diversifying their product lines, it is intensifying competition in the market. Despite e-commerce platforms proving to be beneficial for brands worldwide, it is also contributing to the growing competition. With the growing presence of private label products on e-commerce platforms, it is threatening the Companys brand identity. Additionally, fluctuations in raw material costs, such as leather and fabric, also pose a risk by hindering the Companys profitability. Shifting consumer preferences and the possibility of an economic downturn further add to the uncertainties. The Company is vulnerable to the threats of counterfeiting of licensed products, disruptions in the supply chain and dynamics in the retail landscape. Negative publicity on social media and data security breaches can also tarnish the brand image. While the Company can capitalise upon various opportunities, it is essential for the Company to foremost develop effective strategies to navigate the threats. The Company needs to develop proactive strategies and adapt to the evolving landscape.

Risk Management

The Company has established a structured risk management framework to promptly and efficiently identify, assess and mitigate key business and operational risks. The risks are prioritised based on severity and probability. These key risks encompass demand, operational, personnel, and technology risks, among others. Additionally, due to the operating conditions of the Company, it is also vulnerable to various other external risks and uncertainties, such as economic slowdowns, declining demand in key markets and raw material unavailability and high costs. Accordingly, the Company develops robust mitigation strategies to monitor and mitigate the risks, minimising its impact on operational and financial performance

Human Resources

The Company recognises the value of its human resources in driving the growth and success of the Company. Upholding the core values of Meritocracy, Youthfulness, Entrepreneurship and Innovation, the Company has fostered a strong organisational culture. The Company ensures the values are reflected in the benefits provided to the consumers. Engineered to serve diverse stakeholders, the culture prioritises a people-first approach characterised by honesty and trust. The Company has fostered an open and dynamic work environment, managing a diverse team of over 500 individuals, alongside 10 core teams.

The Company strikes a balance between experienced employees and younger talent to obtain the best amalgamation of stability and dynamics. The Company ensure the workforce have the specific skill set to drive the Company to new heights of success. Brand Concepts focuses on maintaining an adaptable talent pipeline, fostering a high-performance culture centered on accountability. The Companys culture has emerged as a standout advantage for the Company, demonstrating resilience in the face of adversities.

Internal Control System and Their Adequacy

The company upholds a robust internal control system to safeguard its assets from potential loss, unauthorised usage, or disposal. All financial transactions undergo thorough authorisation, meticulous recording, and accurate reporting to the managerial team. Adhering strictly to applicable Accounting Standards, the Company ensures precision in maintaining financial records and statements. Internal control mechanisms are customised to align with the Companys scale and operational scope, with clear roles and responsibilities delineated and standard operating procedures enacted to provide a reasonable level of assurance. Regular internal assessments validate the effective execution of these responsibilities. Management rigorously evaluates suggestions and observations, leading to continuous strengthening of controls across various business functions.

Disclaimer

Statements made in this report in describing the Companys objectives, projections, estimates, and expectations may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Many factors may affect the actual results, which could be different from what the directors envisage in terms of future performance and outlook. Important factors that could influence the Companys operations include global and domestic supply and demand conditions affecting selling prices of finished goods, availability of inputs and their prices, changes in the Government policies, regulations, tax laws, economic developments within the country and outside and other factors such as litigation and industrial relations. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of subsequent developments, information or events.