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Brand Concepts

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Brief Introduction

Brand Concepts Ltd specializes in the manufacturing of bags, backpacks & fashion accessories for the Indian & International markets. The Co. manufactures trendy backpacks like laptop bags, duffle & gym bags, rucksacks, and school backpacks. Handbags, Clutches, Men’s belts & wallets, Luggage Bags, etc. The company works with brands like Tommy Hilfiger and Aeropostale and sells its in-house brands Sugarush and The Vertical.

Detailed Results:

  1. Sales grew by 70% YoY while PAT increased by 98% YoY.
  2. EBITDA margins rose to 14.1% by 20 bps.
  3. Channel contribution 9M stood as:- 
  1. Online – 50.3%
  2. Large format stores – 15.2%
  3. Licensor flagship/Tommy Hilfiger stores – 8.3%
  4. Co. owned Co. operated outlet – 4.2%
  5. Franchisee Owned & operated outlet – 4%
  6. Dealer & distributor – 17.9%

Investor Conference Call Highlights 

  1. The company recently signed with the brand Aeropostale for the Indian market in 3 categories: Travel Gear, small leather goods, and women’s handbags coupled with an experimental category of socks.
  2. The company believes Aeropostale to be a lightweight brand where the retail sales are expected to be between 50-100 Crs in FY25 while it will get only a 6 months window to sell in FY24 owing to the product approvals stage.
  3. The management expects some pressures on margins owing to the signing of the new brand.
  4. The management explains that GPM & EBITDA margins are 5% & 2% higher in online channels.
  5. The company’s marketing expense remains within the limit of 3-4% since it is in the biz of licensing & not brand building.
  6. The management states that 20-25% of the online sales are contributed through its marketplace.
  7. Leather goods & travel gear contribute 50% & 42% of the overall sales & management is more bullish on the growth of the travel gear segment.
  8. The company is looking to strengthen its offline presence in the South by recently launching one store in Bangalore & Hyderabad coupled with its presence rising owing to Multi brand outlets.
  9. The company is in the process of signing a new deal with now Reliance-owned central mall.
  10. The company targets revenue growth of 30% in FY24 & 12-15 store openings.
  11. The management explains that its rent: sales ratio is at par with its peers & hence it is profitable.
  12. The capex for a lightweight brand is 4-5 Crs vs 10-15 Crs for a heavyweight.
  13. Out of the 30 stores, 20 stores are of bagline & management is more concentrated in opening stores for this division.
  14. The management explains that signing a deal for Aeropostale will allow the company to get into the ecosystem of ABG group which has $25 billion in sales & many brands, hence this is a big milestone for the company.
  15. The company believes that since the enormous market size, it doesn’t need to experiment a lot.
  16. The management states that its channel mix is different from its peers since they have been in the biz for more than 3 decades Vs the company started its biz in FY12 only. 
  17. One major differentiating factor of the company is that it is a fashion accessories player Vs other brands being a core category players.
  18. The average price of Tommy Hilfiger merchandise is more than twice of Aeropostale whose products range between Rs.800-1200.
  19. The company is confident of the renewal of Tommy Hilfiger licensing, & at the same time, it doesn’t have any restrictions in signing new players since it’s a licensing company.
  20. The overall nos. for the retail segment has slowed down post-Diwali due to travel as a category slowing down.
  21. The company doesn’t see its own brand contribution increasing in a short span as it is focused on building the biz profitably Vs doing blitzkrieg marketing activity.
  22. IFF overseas (a group co.) is being outsourced their backpacks division & contributes 5-8% of total outsourcing while the company contributes 20% of their total revenues. The company is planning of merging this with the listed entity owing to its competence in manufacturing. This will also allow the company to produce backpacks 100% domestically.
  23. The company believes itself to be the “Titan of this industry” owing to its similar biz model.

Analyst’s View

The company reported a strong quarter, backed by the travel sector revival & increased presence in the Online marketplace. With the travel sector expected to do well in the coming period coupled with small penetration by the company, the management has set lofty targets of 30% CAGR for the next 3 years. It remains to be seen how the company will deal with competition from bigger players like VIP & Safari coupled with its huge exposure to a single client i.e. Tommy Hilfiger coupled with a renewal of their licensing policy & how the onboarding of new clients like Aeropostale will materialize. However, given its strong growth potential, this is an interesting stock to keep on one’s watchlist.