True, I noticed that. I will look for guidance in the AR 2015-16 as to whether there is still accumulated losses.
As per my understanding they will be paying full tax-rate going forward. The benefit in investing in this company is that you can track this company regularly by talking to dealers. The other benefit is that we can generate insights about what is the vision of the management towards the brand, how do they treat their stakeholders and what is the economics of the brand. I think we can use VP platform and do a collaborative research by doing some on-ground research by talking to the franchisees in our respective cities. And then collate our feedback and maybe we can get more insights on this company going forward. Let me know if anyone is serious to do the work. We can jointly start working on the questionnaire.
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yup, thatâs great idea. am seriously interested, will make up proper questionnaire and let u know in couple of days.
Sure, I am in Mumbai and can cover up some of the stores here. What about you? This can generate some real insights.
We should try to talk to two sets of people in my view - one is the store manager to get a general feel and get some ground level insights, but equally important is to talk to the franchisee who has put in money. As he would give us more insights on economics, brand power, management. Sometimes these franchisees also operate/have operated peer-brands. So we can get some real insights on how is Indian Terrain vis-a-vis other brands.
To avoid any sample bias, we need to talk to as many franchisees as possible. I had done this exercise at the time of the investment, and I think we should re-do it.
I will also post my questions here in sometime.
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am based at rajkot, no ebos in rajkot. Indian terrain is being sold through mbos and large format outlets here like globas, jade blue, options etc. But would plan and meet up franchisee at ahmedabad on my next visit to Ahmedabad. and meanwhile will also ask these mbo and large format guys about the response of indian terrain garments vis a vis other brands and their terms of operation with indian terrain. Will keep posted my findings.
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Also we can talk to 2-3 competitor franchisees - Maybe a Madure Franchisee , a KKCL franchisee and maybe someone else as well. If we do this I think we can really get to appreciate the real issues in the sector. This sector has high mortality rate and we can perhaps get closer to the point as to why is this is case and can any brand really avoid this? What are the success patterns of a great brand. What are the failure patterns. Talking to a ex- Madura Guys, Ex- Indian terrain will also be superbly helpful. Letâs dig in our network and see what we can do.
Time to get this cracking.
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Yaa thatâs a good idea as well. In one of my interactions with Shoppers Stop- they mentioned that Indian Terrain is their #1 brand in the smart-casuals category. The fight is between IT & LP
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On another note, what kind of an impact can we see on results going forward because of tax? At the full rate of 33%, the impact can be as much as 25-30% of the bottom line. It seems the company may find it difficult to grow the bottom line this fiscal unless it can again clock 50% profit growth, which I think is unlikely.
Hi Tushaar,
Ya it maybe difficult, I would be happy if they grow even modestly at the EPS level. I would be more happy if there is reduction in the working capital as that gives me more comfort on the brand power. Taxation is an interim issue.
I think the bigger question is to look at can the brand grow and can they do it profitably by improving their balance sheet.
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I recently checked with the Lifestyle store in Lower Parel. A couple of store staff told me very that Indian Terrain is easily the fastest selling casual brand.
IMO, theyâve easily got one of the smartest collection of casual wear at any given time (Personally, the last 5 casual wear I have bought have been from Indian Terrain, an investment bias I guess 
). However, I think the stock is grossly over valued here if you adjust for 5 cr abnormal profit last year and assume no tax benefit going forward. Also what worried me is the fact that the management has been slow in deploying cash raised from the QIP.
Disc: Recently exited, will re-enter if valuations drop
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I agree that taxation is a temporary issue. It can get some multiple expansion despite flat bottomline (bottomline maybe close to flat on 20-22% topline growth).
It may get re-rated on the basis of a faster topline growth than anticipated by market + reduction in working capital cycle. Both these points are a watch for me.
I am not in India or else would have been more than happy to contribute to the scuttlebut.
I was wondering if we can get some kind of an idea about their presence in various markets (for example number of EBOs, MBOs, Distributors, etc + Presence in Tier 1 and 2 cities etc), so that the sample size or target for the scuttlebut can be decided accordingly. This would help in a focussed scuttlebut and ensure that right sample is being chosen.
Kind Regards
EBOs are around 115-120 as of FY16.
MBOs are around 800-900
LFOs are around 30+
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I did attempt some âscuttlebuttâ a few months ago at the Indian Terrain outlet in Connaught Place, New Delhi. Unfortunately, I think my probing skills are poor and I just come off as tentative. All I got from the store manager was âSales are as usual and vary from season to seasonâ. He couldnât give me any insight on the companyâs plans either. So, I must count this as a big fail.
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That 5 crore is interest income which indian terrain will keep on earning till the time that 60 crores from qip are not spent. Once that 60 crores is spent say for franchisee expansion or branding or marketing activity atleast 10% return should come from them. So I donât think that 5 crore is abnormal profit or one time profit. Say if they pay off short term debt from that 60 crores, it will save them 6 crore of interest cost and thus one must consider that income as regular income which mostly will continue.
Assuming pbt to grow at 15%, forward pbt would be 37*1.15 = 42 crore and assuming 30% taxation from next year pat wud be 30 crores. current market cap is 630 crore which turns out to P/E ratio of 21, which thou is not cheap but neither very high. #My view.
Suggestions from other experts are sought.
Disclosure - Invested.
Hey Tushaar,
It would be better to talk to the franchisee owners also to get more clarity. Also, you need to keep doing it to get better at it. Its an iterative process, keep at it 
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Crisil upgraded ratings http://www.crisil.com/Ratings/RatingList/RatingDocs/Indian_Terrain_Fashions_Limited_May_26_2016_RR.html
Rohit - I may be asking a very stupid question, but how do you contact the franchise owner? Get his contact from the store itself? I did attempt something like that, but the sales manager instantly seemed to think that I was going to report some rude behaviour or other deficiency and became very anxious. So I left it at that, didnât want to cause him unnecessary anxietyâŚ
Hi Rohith,
I have also looked at this company earlier and interested in scuttlebut. Am based in Mumbai and can accompany in case required.
List of questions of which I can think of for franchisee are-
Power of brand
- Is the brand actually in demand? sales growth in volume, category wise and at value wise?
- Does price increase affect the sales vis-a-vis competitors
- Does the brand show resilience in periods of low business activity
- Are different customers easily able to recall/relate to the brand
- what other brand/competitor is he/she worried of which can take away his business
Product
- Are customers delighted to purchase the product-and hence any numbers on customer retention and repeated purchases
- What are the key complaints related to the product by customers, if any?
- Is the variety and design sufficient to full fill the needs of customer for the respective segment they are catering to?
Process
- Is company efficient in fulfilling the customer requirements via designs and inventory supply
- Is company providing terms which are not financially viable to do good business for long term-mainly working capital requirements, store location/investments and margins for franchise
- Any generic complains with respect to policies of company which could inhibit growth
The list would be sufficiently incomplete and hence please advise/add if required.
Regards
Ankush
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These are good to begin with. However some are generic and will depend on the opinion of the guy asking. Sometimes when we are doing on-ground research, it sometimes makes the conversation lose track. Thus, I have felt its good to start with some specific questions and then delve into them deeper to get the opinions behind it. For example - What is the inventory turns of the store? Then go deeper into this to understand is it good/bad- and what makes it good/bad/ I am adding a few more questions to the list, which people can ask.
Questions
-
How often is the inventory replaced in the stores?
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What are the stock turns that the store has? Has it improved over the last few years/months? Why/Why not
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What happens in case the inventory is not sold? How is it adjusted- what mechanism does the company have with the franchisees to get this inventory cleared?
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Typical sales per square foot for the franchisee? How does it compare with other brands?
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Has there been any change in the way the company has been operating? Any good/Any bad?
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What are the 3 specific things that sets apart Indian Terrain?
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What is the single most risk that there is in Indian Terrain?
Results are out. Flat results at operating level and big dip due to tax expenses.
Sales at 63.44 crore vs 56.30 crore
Operating profit at 5.92 crore vs 5.50 crore
Net profit at 3.46 crore vs 5.33 crore
Seems results may have been leaked beforehand seeing the price action throughout the day. On a medium term view, one can expect a 15-20% decline in bottom line this year as finance costs have increased and tax expenses will keep coming every quarter. Only way to offset will be vastly improved top line. For the short term, do not see ITFL appreciating any further or even holding current levels. Maybe be a good idea to add on a 25-30% dip.