Vedant Fashions Ltd Management Discussions

Indian economic review

The National Statistical Offices (NSOs) end-February data release indicates that the Indian economy is intrinsically better positioned than many parts of the markets wager, India has emerged from the pandemic years stronger than initially thought, with a steady gathering of momentum since the second quarter of the current financial year.1

International Monetary Fund estimates India to be one of the top two fast-growing significant economies in 2022. Despite strong global headwinds and tighter domestic monetary policy, India is still expected to grow between 6.5 and 7.0 per cent, and that too without the advantage of a base effect, it is a reflection of Indias underlying economic resilience; of its ability to recoup, renew and re-energise the growth drivers of the economy.2

Overview of apparel retail market in India

The Indian Apparel industry is one of the most distinctive in the world because of its ancient techniques and cultural traditions. In the vastness of India, it is but natural that its different parts, in addition to having their own unique cultures and languages, also have a variety in clothing. With the rise of urbanization and the country adopting traditional values at an increasing pace, the fashion and apparel industries are on the wheel of adaptation.

The domestic market is expected to continue to grow strongly until Financial Year 2025, clocking up to INR 8.1 trillion to INR 8.2 trillion, registering a CAGR of about 18% to 20% between Financial Years 2022 and 2025

Mens wear segment projected to be the fastest growing over Financial Years 2022 and 2025 (Source: CRISIL Research)

The share of mens wear is projected to attribute approximately 44% of the retail apparel market in Financial Year 2025, clocking the highest growth rate of nearly 20% to 22% between Financial Years 2022 and 2025, because of the availability of a wide range of brands, designs, colours, sizes, fittings, and fabrics, acceptance of smart casual attire among corporates, global fashion awareness among the youth, and a favourable young demographic in India.

Womens wear and kids wear are projected to grow at a CAGR of 18% to 20% between Financial Years 2022 and 2025, respectively. Over the longer term, the factors contributing to the rise within the womens wear segment would be the growing number of working women, deeper penetration of global and Indian branded players in the segment, higher discretionary spending, and increasing awareness of fashion trends. The healthy growth of kids wear in the long term is because of the rising proportion of the young population (30% of Indias population is younger than 15 years old).

Indian wedding and celebration wear market in India

An overview of the ethnic-wear market in India (Source: CRISIL Research)

Ethnic wear in India accounted for about 32% of the overall apparel retail market in India as of Financial Year 2020. Womens ethnic wear is the largest segment of the overall market as it has found acceptance in both daily wear and office-wear categories, apart from the Indian wedding and celebration wear category. It includes lehengas, kurtis, sarees and salwar kameez. Mens ethnic wear is the second-largest category and has a share of approximately 10% of the overall ethnic market. It is dominated by the Indian wedding and celebration wear market which accounted for approximately 80% of mens ethnic wear sales and includes sherwanis, kurta jacket sets, kurta pajama, Indo- western apparel, etc. Acceptance of ethnic wear during festivals and wedding functions is leading to overall growth of the mens ethnic wear market. Kids ethnic wear accounts for the remaining 9% of the ethnic apparel market.

An overview of the Indian wedding and celebration wear market in India (Source: CRISIL Research)

The term "Indian wedding and celebration wear" can be defined as apparel worn on special occasions such as weddings; close-knit family functions such as puja, housewarming, etc.; festivals such as Diwali, Eid, Holi, and Raksha Bandhan; and other events such as Independence Day and Republic Day.

The Indian wedding and celebration wear apparel market is led by multiple factors including the increasing trend of multi-day wedding functions in India, higher spending per consumer etc. Not only is the Indian wedding and celebration wear market driven by the immediate family of the bride and the groom but also their close friends. The Indian wedding and celebration category is also driven by frequent festivities in India.

Growth drivers

• Huge domestic market of 9.5 million to 10 million weddings per year

• Multi-day and multi-event wedding celebrations

• Rising income levels leading to higher discretionary spending

• Increasing tendency of wearing appropriate celebration wear for respective festive events

• Increasing association with brands in celebration ethnic apparel

• Shift from tailored to ready-to-wear celebration ethnic apparel.

• Addition of new categories such as Indo-western wear

• Increased penetration of branded players in tier-II and tier- III markets

Company overview and segment performance

Incorporated in 2002, Vedant Fashions is the largest Company in India in the mens Indian wedding and celebration wear segment in terms of revenue, OPBDIT and profit after tax for the Financial Year 2020 (Source: CRISIL Report). According to CRISIL, our ‘Manyavar brand is a category leader in the branded Indian wedding and celebration wear market with a pan-India presence, as of Financial Year 2020.

We have established a multi-channel network and introduced brands by identifying gaps in the under-served and high-growth Indian wedding and celebration wear category.

We focus on spreading Indias vibrant culture, traditions, and heritage through our aspirational yet value for money brands at a diverse range of price points. We offer a one-stop destination with a wide-spectrum of product offerings for every celebratory occasion and aim to deliver an aristocratic yet seamless purchase experience to our customers through our aesthetic franchisee-owned exclusive brand stores.

We are focused on strengthening our leadership position in the organised Indian wedding and celebration wear market and establishing dominance in the premium and value segments of the mens Indian wedding and celebration wear market, respectively, through our brands ‘Twamev and ‘Manthan, and in the womens Indian wedding and celebration wear market, through our brand ‘Mohey, which was launched in 2015.

‘Mebaz is a one-stop heritage brand of ethnic celebration wear catering to the entire family, with an established presence in the states of Andhra Pradesh and Telangana.

The Companys portfolio of products includes a diverse range of attires and accessories, each conceptualised by their designers who have experience in serving the distinct regional preferences of the Indian customer.

The organisation leverages effective brand advertising with distinct targeted marketing campaign using digital and social media, billboards, multiplex theatres, television advertisements and live events, to build a stronger connection with its customers.

Based on the Companys operating structure and available information, the Company has only one reportable segment i.e., branded fashion apparel and accessories.

In Financial Years 2023, around 92.2 % of the Sales of our Customers, respectively, was generated by franchise-owned exclusive brand outlets (our "EBOs"), with the remaining by multi-brand outlets ("MBOs"), large format stores ("LFSs") and online platforms, including our website (www.manyavar.com).

The table below sets forth our brands as per their respective year of launch or acquisition (as applicable), the relevant positioning in the market, the price spectrum of the product mix of each brand and the distribution channel through which each brands products are available in the market.

Year	Brand Positioning	Price Spectrum	Distribution Channel
1999*	Mens and boys flagship brand	Mid-premium	EBOs, MBOs, LFS, e-commerce
2015	Womens flagship brand	Mid-premium	EBOs and e-commerce
2017**	Mens, womens, and kids brand for the South Indian market	Mid-premium to Premium	EBOs
2018#	Mens value brand	Value	MBOs, LFS, e-commerce
2019	Mens premium brand	Premium	EBOs

* The brand ‘Manyavar commenced operations through a predecessor entity in 1999.

**The brand ‘Mebaz commenced operations in 2002 and was acquired by the Company in financial year 2018. #Large scale operations commenced following a refreshed launch in 2018.

Competitive Strengths/ Opportunities & Challenges

The Companys key competitive strengths act as a barrier for

entry of other players in the organised Indian wedding and

celebration wear market. The strengths include:

• Market-leader in the Indian celebration wear segment with a diverse portfolio of brands catering to the aspirations of the entire family.

• Large and growing Indian wedding and celebration wear market driven by increased customer spending on such wear.

• Omni-channel network with the seamless integration of our offline and online channels

• Differentiated business model combining the strengths of retailing with branded consumer play.

• Technology-based strong supply chain and inventory replenishment systems driven by system-wide data analytics, strong processes, and long-standing vendor relationships.

• Experienced and professional founder-led leadership team.

The industry in which the Company operates may face challenges due to high concentration on Indian wedding and celebration wear and vulnerable to variations in demand, as well as changes in consumer preferences. Our business and operations could be adversely affected by health epidemics like COVID-19 pandemic. Also, other competitors may increase competition for any Company falling under the said industry. The risk management strategy of the Company is geared to identify risks/threats to the business promptly and respond to emergencies in a timely manner.

Business Outlook

We are asset-light in respect of our plant, property and equipment which enables us to achieve a high return on capital employed, primarily due to the nature of our sourcing and manufacturing operations, with a substantial majority of our sales being generated through our franchisee-owned EBOs. As a result, we do not need to invest in developing manufacturing

facilities or a distribution system and by using economies of scale, we are able to optimize several costs such as our production and procurement costs, distribution costs and employee costs, thereby leading to improved profitability. Our omni-channel presence, through EBOs and online platforms, is designed in a manner such that products across our brands are available under one universal platform. As a result, we are able to make our products available to our customers through their preferred mode of shopping and purchasing. Through our network of over 300 franchisees, we have a track record of commanding a high initial capital commitment from our franchisees and in return, provide all necessary support in connection with identifying and approving potential locations for new stores, managing multi-channel advertising on a national and regional basis, store development and inventory management, management of the supply chain and provide detailed training programmes for store staff and franchisees. We also incur lease costs in connection with EBOs operated by our franchisees on premises leased by us.

As of, Mar 31, 2023, we had a retail footprint of 1.47 million square feet covering 649 EBOs (including 112 shop-in-shops) spanning across 245 cities and towns in India, and 12 overseas across the United States, Canada, UK and the UAE, which are countries with a large Indian diaspora. In addition to our offline retail presence, our consumers also have the option of placing orders through our website (www.manyavar.com), and through leading lateral e-commerce platforms. As our offline and online channels are integrated, our customers can place orders for our products either offline or online and have the flexibility of buying products at one store and returning at another or browsing our product catalogues and placing orders online with doorstep delivery. We also operate a QR-code enabled digital catalogue at many of our stores so that our customers can select a product of their choice from our entire range of offerings.

Technology is at the forefront of our operations and is essential to us being able to attain operational efficiencies in our sourcing, manufacturing, distribution, and sales processes and delivering an enhanced retail experience to our customers. Most of our business operations are system-driven with limited manual intervention. We utilise data analytics for capturing and analysing evolving consumer preferences and purchase trends across the country and have developed a strong expertise and understanding of consumer preferences across India. We also rely upon our technology platforms to monitor and manage store inventory levels on a real-time basis and integrate our stock and supply chain with our production cycle. Our back-end production processes, including our supply chain and inventory management are data-based and algorithmically managed with every stage system-driven, including the procurement of raw materials, manufacturing (on an SKU-identifiable basis), warehouse inventory management and store replenishment. As a result, we have a record of every product sold at our franchisee owned EBOs and are able to maintain synchronisation between store inventory, sales, and billing cycles from each store. We have also upgraded website to support the customer product selection and sales processes.

As an organization, we recognize the importance of digital interventions at various touchpoints in a customers pre-sales & post-sales journey, so we had planned to revamp the digital experience. This year we have completed the first phase of this transformation, which includes shifting to new tech stacks in the domains of CRM, Ecommerce & MarTech. These will act as a strong foundation on which next phase - Omnichannel customer journey. The underlying idea for the transformation is improving customer delight, retention & operational efficiency across channels. We have successfully launched our new e-commerce website which is now live at www.ma.nyavar.cnm.

To achieve a deeper, connect with our consumers, we utilise targeted marketing campaigns through digital and social media, billboards, multiplex cinemas, television advertisement and live events. We believe we have developed a strong brand identity through effective brand advertising and distinct marketing campaigns for our brands. We attempt to connect with our customers at an emotional level through subtle messages that our customers can relate to. These include values-based messaging themes embedded around traditional cultural values, such as "Taiyaar Hokar Aaiye", "Diwali Wali Feeling", "Dulhan wali feeling", "Shaadi Grand Hogi", "Pehno Apni Pehchan" "Apno Wali Shaadi" and "Shaadi ka Kharcha Adha Adha". Some of our campaigns are also based on specific categories of persons such as groomsmen or specific celebrations and occasions.

Headquartered in Kolkata, we are led by our founder, Chairman and Managing Director, Mr. Ravi Modi, a first-generation entrepreneur who has proven his flair for the art of brand building and retailing with the success of our brands. Mr. Modi is supported by an experienced management team whose achievements have been recognised by a number of industry awards including awards received during FY 2022- 2023 such as the "EY Entrepreneur of the year - Consumer Products and Retail", "India Retail Champions Awards 2023", "Business Leader of the Year by Sanmarg", "Entrepreneur Of the Year, Best Financial Performance - ET Bengal", "IMAGES Most Admired Fashion Brand of the Year: MENS ETHNIC/FUSION WEAR", "The Fastest Value Creator" by Burgundy Private & Hurun India, along with other awards such as Global Award for Retail Excellence, 2020, Indias Retail Champion (Speciality Retail), 2020, and Best Mens Ethnic Wear Brand (East), 2019.

Risk and Concerns

Your Company has adopted a risk management policy for promoting a pro-active approach in reporting, evaluating, and resolving risks associated with the Companys business. The Companys Risk Management Committee (RMC) comprises of three Directors out of which two are Independent Directors, which overviews the process of identification, monitoring, and review of all the elements of risk(s) associated with the Company. The Company has assessed the risks and there is an adequate risk management infrastructure in place capable to identify and mitigate the risks. The Companys Risk Management Policy is established to identify and analyse internal and external risks faced by the Company, to set appropriate risk limits, to lay down measures for risk assessment and mitigation including systems

and processes for internal control of identified risks and to monitor risks and adherence to limits. Risk management processes and systems are reviewed regularly to reflect changes in market conditions and the Companys line of activities. The Company has also designated an employee as Risk Manager for the purpose of effective coordination of the risk management mechanism.

Our current growth strategies include:

(i) expanding our footprint within and outside India.

(ii) scaling up our emerging brands through increased upselling and cross-selling initiatives;

(iii) enhancement of brand appeal through targeted marketing initiatives;

(iv) the significant potential and space for growth of our existing and emerging brands; and

(v) adopting a disciplined approach towards future acquisitions.

Discussion on financial performance with respect to operational performance:

The Company has taken various operational measures like strengthening its supply-chain and vendor management by introducing tech-based fully-integrated supply chain with automated replenishment system; strengthening inventory management by introducing Algorithm-based inventory management system for real time monitoring store inventory at EBOs; collecting secondary sales data to analyse consumer buying behaviour; Product development on the basis of prevailing trends & consumer preferences gathered via data analysis, market surveys for the improvement in performance and achieving better results.

Financial statement

In accordance with SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2018, the Company is required to provide details of significant changes (a change of 25% or more as compared to the previous financial year) in key financial ratios, along with detailed explanations thereof. The key financial ratios are given below:

Key financial ratios	2022-23	2021-22	Difference (%)
Debtors turnover	3.06	2.65	15.47%
Inventory turnover	8.43	8.37	0.72%
Interest coverage ratio	Not Applicable, since the Company has no Borrowings involving interest coverage.
Current ratio (in times)	3.33	3.06	8.82%
Debt equity ratio (in times)	0.21	0.24	(12.50%)
Net profit margin (in %)	31.89%	30.57%	4.32%
Return on net worth (in %)	47.38%	46.80%	1.24%
Reasons for variance of more than 25% in above ratios: N.A.

Human resources

The continued growth of the Companys business depends on the ability to attract, hire, train and retain skilled personnel. In the year under review, the Company had a strength of 744 employees.

For the financial years ended March 31 of 2022 and 2023, the employee benefits expense amounted to ^ 561.28 million and ^ 551.80 million, respectively, representing 8.72% and 6.93%, respectively, of the total expenses.

Internal control system and the adequacy

A separate paragraph on internal control systems and their adequacy has been provided separately in the Boards Report.

Cautionary statement

Certain statements in the MDA section concerning future prospects may be forward-looking statements which involve

a number of underlying identified / non identified risks and uncertainties that could cause actual results to differ materially. In addition to the foregoing changes in the macro-environment, a global pandemic like Covid-19 may pose an unforeseen, unprecedented, unascertainable, and constantly evolving risk(s), inter-alia, to the Company and the environment in which it operates. The results of these assumptions made, relying on available internal and external information, are the basis for determining certain facts and figures stated in the report. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based are also subject to change accordingly. These forward-looking statements represent only the Companys current intentions, beliefs or expectations, and any forward-looking statement speaks only as of the date on which it was made. The Company assumes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise.