Indian Terrain Fashions Ltd

Indian Terrain Fashions Ltd

CMP – 51

Market Cap – 200cr

Industry – Retail Industry

Updated on twitter on Nov 11, 2021

Company Overview

Indian Terrain Fashion Ltd (ITFL) was started in 2009, ITFL involve in retailing readymade garments for men and boys. The apparel retail operations were commenced in 2000 under Celebrity Fashions Ltd (CFL), which was demerged into a separate company with effect from 1st April 2010. ITFL primarily caters to the mid-premium and premium segments and marketing a wide range of products including Shirts, Trousers, T-shirts, Jackets, Denim and Sweaters under the flagship, Indian Terrain brand. ITFL was publically listed in 2011.

The company was started by Mr Venkatesh Rajagopal, who has over 3 decades of experience in manufacturing and retailing apparel.

Distribution Network

Indian Terrain is well diversified into tier 1, tier 2, tier 3 and tier 4, the majority of revenue comes from tier 2, tier 3 and tier 4. ITFL has 3 distribution networks that are Exclusive Brand Outlets (EBO), Large Format Outlets (LFO) and Multi-Brand Outlets (MBO) and spread across 140+ cities.

  1. Exclusive Brand Outlets: –

Under this particular store format, ITFL employs a franchise-based model with a single brand housed and showcased. The franchised model provides ITFL with upfront cash flows making store expansion scalable. All ITFL EBO’s are either owned or operated by franchisees and includes 4 types of model i.e., Company Owned & Company Operated (14, COCO), Company Owned & Franchisee Operated (73, COFO), Franchisee Owned & Franchisee Operated (108, FOFO) and Exclusive factory outlets (27, EFO).

Company increase 21 new outlets in the last years and as of FY21 Company have a total of 222 EBOs and company wants to achieve 400 EBOs by FY 2024 (company will add 178 new FOFO by FY24). In the FOFO model, the risk is on the franchise owner which is favorable for the company. 

  • Large Format Outlets: –

Being one of the key drivers for its revenues and brand visibility ITFL retails via LFO’s. Some of these LFO’s are large well-known names in the market and having maximum footfalls in these store formats will give the ITFL brand a good amount of visibility despite the competing brands in the market.

FY20 to FY21 Company decrease its LFOs by 8%, from 485 outlets to 450 outlets.

  • Multi-Brand Outlets: –

Multi-brand retail trading is selling products of different brands under one roof. For example, Big Bazar, Reliance, Shopper Stop, Walmart etc. These establishments sell products of different brands at one establishment.

FY20 to FY21 Company increase 4% of MBOs, from 1400 outlets to 1450 outlets.

E-commerce: – ITFL has partnered with many known major E-com partners like Amazon, Flipkart, and Myntra etc. thus making ITFL apparel offerings available anytime and anywhere to the end consumer just by the few click of the phone or computer. As of FY21 company increased E-com outlets by 13% from 8 to 9 online platforms.

Company Income and Expenses

Industry Overview

The Indian textile industry is one of the largest in the world with a large unmatched raw material base and manufacturing strength across the value chain. It is the 2nd largest manufacturer and exporter in the world after China. The textile industry contributes to 7% of industry output in value terms, 2% of India’s GDP and 12% of the country’s export earnings.

The textile industry is one of the largest sources of employment generation in the country with over 45 million people employed directly, and another 60 million people in allied sectors, including a large number of women and rural population.

Indian Apparel Industry shrunk by 29%, coming down from US $ 78 billion in 2020 to US $ 55 billion in 2021. The industry will grow 2.5X in the next 5 years to reach US $ 135 billion by 2026 (20% of CAGR).

The year 2020-21 has massively impacted the Indian Apparel industry due to COVID19. Consumer purchase of apparel was badly hit due to two lockdowns, loss of jobs and economic recession. Lockdown restrictions across the country resulted in a slump in retail sales.

The apparel industry witnessed lower demand and weakened customer sentiments during the first half of the fiscal due to lockdowns and related restrictions resulting in a slower recovery of the business. However, with more relaxed COVID-19 restrictions, during the second half of the year, there was a sequential improvement in consumer demand (secondary sales) and footfalls in retail channels of LFS and EBO. Segment sales were also impacted due to controlled primary sales to channel partners in MBO and TRS (total retail solution) networks, to realign inventory in the supply chain.

FY2015, The Government of India allows 100% FDI in the textile sector through the direct route to boost the textile sector.

Demand may surpass pre-covid sales from Q3FY22E with easing of lockdown and restrictions, healthy pace of vaccination, increased mobility with opening up of offices, malls and multiplexes, festive and wedding season, pent-up demand etc. Most companies have lined up aggressive expansion plans; besides online as a channel would continue to see accelerated growth. Companies’ commentary indicates faster-than-expected recovery in recent times with even return of impulse buying compared to just need-based purchases over the past 18 months.

Investment Rationale

After 1HFY22, apparel retailers saw sharp demand recovery in 3QFY22 driven by good festive and wedding demand will boost company revenues.

Full recovery for Indian apparel players is expected to be prolonged and pushed back to FY23, ICRA Ratings has said in its latest report. Their business performance in FY22, however, is expected to be better than FY21, as companies are better prepared to follow protocols.

ICRA projects the Indian apparel companies to report double-digit growth in FY22 albeit on a low base, achieving ~85-95 per cent of the pre-COVID turnover levels, broadly maintaining the level of recovery achieved in H2 FY21. Besides pent-up and festive demand, which temporarily supported demand during Q3 FY21, increased mobility amidst the easing of the lockdowns increased consumer confidence in H2 FY21. This encouraged higher footfalls in marketplaces and drove discretionary consumer spending.

Company expansion

Despite COVID19 impact, company has increased store count by 10% in EBOs, 4% in MBOs and 13% in E-commerce and decrease 7% in LFOs. The company wants to achieve 400 EBOs by FY 2024 (company will add 178 new FOFO by FY24). In the FOFO model, the risk is on the franchise owner which is favorable for the company. 

All ITFL EBOs are either owned or operated by franchisees and includes 4 types of model that is:

  1. Company Owned & Company Operated (14, COCO),
  2. Company Owned & Franchisee Operated (73, COFO),
  3. Franchisee Owned & Franchisee Operated (108, FOFO),
  4. Exclusive Factory outlets (27, EFO).

Company pay 33% margins to its distributors. For example, if the distributor sells a shirt for ₹ 100, then the distributor charge ₹ 33 from the company and the rest of the ₹ 67 companies get.

In COVID-19 pandemic company control over costs and many cases forever eliminating them, control the costs of the business model, rapid digitization, of many areas of the business and a flexible working environment which foster talent acquisition, retention and productivity and building for a sustainable future are amongst the new ways business will have to reorient themselves to deal with a post-pandemic environment

FY2021, the middle-class population in India is 5 crores families and growing at 6% of CAGR. In the next 12 years, this population can reach around 10 crores family. Growing middle-class families is a good indicator for Indian Terrain because, company main focus is to attract middle-class families in tire 2, tier 3 and tire 4.

Q4FY21 witnessed a sharp recovery in sales despite the lockdowns in March in multiple parts of India due to the 2nd wave. Sales recovery at almost pre-COVID level Q4FY21 vs Q4FY20 sales figures is ₹ 92cr vs ₹ 78cr, up 18% growth YOY. Gross margin increase by 46% from Q4FY20 to Q4FY21.

Robust profitability in the wake of a virulent pandemic, the profit of the company in Q4FY20 is ₹ 18.7cr loss, despite COVID this loss converted into profit in Q4FY2021 is ₹ 26.8cr.

Q4FY21, EBO and LFO revenues in the quarter were increased by ₹ 8.3cr in Q4FY21 at ₹ 55.3cr. Last year Q4FY20 EBO and LFO revenue were ₹ 47cr, (up 17.66% growth YoY).


Rapidly changing fashion, deeply influenced by social and electronic media is a challenge to apparel business models.

Subsequent waves of COVID may further disrupt the Indian apparel industries operations and may impact in the short term

ITFL business is therefore dependent to a large extent on expected performance and operation of company outsourced manufacturing facilities.

The loss of shutdown of operations at many outsourced manufacturing facilities may have a material adverse effect on our business, financial condition and results of operations.


FY19-20 – IND AS 116 introduces a new lease accounting model, wherein lessees are required to recognize a right-of-use (ROU) asset and a lease liability arising from a lease on the balance sheet. The lease liabilities are initially measured by discounting future lease payments during the lease term as per the contract/ arrangement. Adoption of the standard involves significant judgements and estimates including, determination of the discount rates and the lease term

The rent will be very minimal in other expenses as the rent expense is replaced by higher depreciation and interest cost. For example: – FY 2021 actual rent, depreciation and interest cost without INDAS-116 was ₹ 29.3cr, ₹ 6.57cr, and ₹ 15.7cr and after applying INDAS-116 company paid ₹ 4.6cr, ₹ 23.32, and ₹ 23.65cr. 

Good festive and wedding demand will boost company revenues and expected to may touch at ₹ 100cr sales in Q3 FY22. The company has maintained its Debt to Equity ratio and avoided a disaster or shut down of majority operations in the last 2 years.

In spite of the worst pandemic faced in the human history of last 100 years Indian Terrain store count haven’t dropped which says something about the company & its survival instincts.

Working Capital Cycle (WCC)  

Working capital as a percentage of revenue increase from FY20 to FY21 is 60.20% to 92.17% because of COVID Lockdown Company generated low revenue in FY21. That is why the working capital as a percentage of revenue is high in FY21.

The working capital cycle is expected to improve over the long term, supported by better collection and increased footfalls post COVID19.

Relative Valuation (as of 23rd October 2021)

Valuation & Outlook

Signs of Normalcy– Peak Revenues Pre Covid peak were at 400-420 cr, latest quarter revenues ie Q2FY22 revenues at 95-100 cr, seems like Indian Terrain is back at levels of normalcy.

Huge Anticipation of Growth- Management has guidedfor 200 stores in FOFO Model (FRANCHISE OWNED FRANCHISE OPERATED). Our back of the envelope calculations suggest in good times per store average yearly revenues can be in the range of 1-1.2 cr. 200 new stores can generate 180-200 cr at its peak in FY25-26

Over and above the existing infrastructure which can achieve revenues in the range of 400-450 cr, the new stores in the next 3-4 years can add 50% to the peak revenues. We see peak revenues of 600-650 cr in FY25-26, we expect INDIAN TERRAIN to generate 40 cr PAT at 5% margin.

Valuations- We see peak revenues of 600-650 cr in FY25-26, we expect INDIAN TERRAIN to generate 40 cr PAT at 5% margin. Retail peers like ABFRL & Shopper Stop at cmp are traded at 2-4x Market Cap to Sales whereas the efficient ones like Trent & VMART command a significant premium.

At 200 cr market cap, we project FY23 revenues at 400-450 cr. Indian Terrain is available at a THROW AWAY VALUATION of 0.5x Market Cap to Sales (not including the new stores revenue potential at 200 cr).


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