Discussion Document

Affordable Luxury - Industry Highlights

Luxury Industry in India growing by leaps and bounds High Growth Industry

Indian Luxury Goods Market Size (USD bn) • Branded Affordable luxury had a market size of US$ 3.4 bn in 2016 (18% of the total
180 luxury market) and is expected to grow at a higher than the luxury goods market
• Segments like personal accessories, cosmetics, jewelry and luxury travel are the
fastest growing segments of this market
Segments of high growth 10 year CAGR from FY16-25
50
19 Personal Accessories 35%
Beauty Products 30%
2016 2020 2025 Luxury Cars 20%

Households with high disposable income1 to drive growth2 Macro Growth Drivers
No. of Households with high disposable income (mn)
• Growth in luxury market primarily due to a growth in disposable income of the
%age of total
Indian Households 14% 24% 36% Indian households
110 • Burgeoning of the middle class and a shift in consumer spending behavior to drive
growth in the Luxury goods market
64
• Steady and progressive shift in consumers’ aspirations and spending as shopping
27
becomes more social—involving all family members—and much more frequent,
thanks to the rise of online shopping
2005 2016 2025
No. of Households with high disposable income

1. High Disposable Income is for households with Annual Gross Income > USD 8,000 2
2. Source - https://www.bcg.com/en-in/publications/2017/marketing-sales-globalization-new-indian-changing-consumer.aspx
Business Performance
Stellar Operational and Financial Performance Capable Management with superior execution
• Asset light business with outsourced manufacturing to lower input costs • Highly experienced senior management
• Product portfolio / Revenue line expansion possible • Delivering stellar topline growth of 35% year-on-year since inception
• Present in underserved market of “Branded Affordable Luxury Products” • Extremely prudent and efficient capital utilization to scale the business to
• High margin business with 60% Gross Margins annual sales of 100+ Cr
• In-house Design Team for product development • Delivering a constant decrease in working capital days, signifying maturing
• Multiple distribution channels of the business
• Online –E-commerce websites like Amazon, Flipkart, Myntra etc.
• Offline Distribution – Strong relationship with retail stores
presence in around 580 points of sale like Shoppers’ Stop, Central,
Just in Vogue and Lifestyle etc.

Distributor Brands Financial Performance (INR mn)

1,100

840

633 10%
444
5%
50% revenue from owned Brands 6% 5%

FY 15 FY 16 FY 17 FY 18E
Revenues EBITDA Margin (%)

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Key Risks Associated with the Business

Key Risks Key Risks Mitigants

• High dependency on the expiry date of licensed brands • Onboard more brands currently not present in India
Dependency • Potential increase in licensing costs could erode • Try to become a strategic partner for existing brands by
on License bottom line margins running advertising campaigns for them
Tenure • One more point

Unproven • No experience of replicating similar model in different • Lateral hire of executive talent to head other segments
Capabilities In segments • Acquire smaller companies to enter the market with an
Other • Low visibility on adoption of brands in other segments established infrastructure
• Existing competition in other segments like apparels • Enter into JV with brands of desired segments
Segments

Vacuum in • Exit of one co-founder • Hire a professional CEO with extensive experience in
Management consumer retail space
Team

Saturation Of • Brandzstorm is in 580 of the 600 retail outlets in its top • Explore multiple formats of outlets to drive growth in
Existing locations of Central, Lifestyle & Shoppers stop locations currently not present in
Distribution • Focus on driving sales in Tier 2 and Tier 3 cities for
Network leverage “Small Pockets of Big Opportunity”

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Investor Friendly Business

Hybrid Model Distributor Model Hybrid Model

(Distributor + Own Brands) (Distributor + own brands)
Investor Friendly Business

High Margin product

Gross Margins 53% 24% 60%
Selection

Higher ROCE than traditional

ROCE (%) 9% 5% 8% distributor business

Working Capital Days 118 46 123

Within 7 years of operations and just 8 Cr investment, Brandzstorm has demonstrated itself as an investor friendly business

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Transaction View
● Brandzstorm started in 2010 with the vision of being the topmost brand providing branded affordable luxury to the upper middle class
Background ● With an initial seed investment from Springboard, the company achieved tremendous growth, earning 110 Cr in revenues annually
● One more point

● The objective of this transaction is to explore strategic or financial investors for the company to provide a partial/ complete exit to Springboard
Objective ● The funds in a primary transaction would be utilized to grow the business and expand revenue lines
● The funds raised in a secondary transaction would be utilized to provide partial / full exit to Springboard

Approach

Strategic Indian Investors Financial Investors Strategic International Investors

Low Probability Medium Probability High Probability

• Augment product segment offering • Looking at the strong investor appetite • This transaction would give
• Consolidate market share in the space, many consumer focused international investors an opportunity
• Low valuation play could be a PE funds could be approached to establish their presence in Indian
bottleneck in successful execution of • Funds with investment theme centered market
the transaction around consumer discretionary spend • Many brands in their existing portfolio
and an appetite for businesses with could also be introduced since there is
hybrid model (own + distributor already an existing distribution network
brands) could be approached for the same
• One downside

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Financial Investors

Pros
• Stellar financial track record with company displaying growth of 35%
CAGR since inception
• Profitable and mature company with 6% PAT margin
• Strong investor interest in the consumer sector
• Substantially scaled up opportunity to provide an exit via IPO
Cons
• Any sizeable secondary transaction would be tough to execute,
providing a constraint on the objective of giving Springboard an exit
• Low future growth visibility as the team capabilities are untested for
expanding in other segments
• Non-stickiness of existing brand licenses and limited tenure

Representative List of Potential Investors

Fund name AUM (USD mn) Key Deals in the space Our Contact Comments

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Strategic Investors – International firms

Pros Cons
• Strong and established retail distribution network • India may not be a priority market
• Entry into the Indian retail market • Build vs buy decision for entry into the Indian market
• Expand current portfolio to include more affordable luxury brands
• Strong design capabilities, in sync with the pulse of the Indian consumer

Representative List of Potential Buyers

Country of
Company Name Global Presence Business Model Brands Represented Comments
Domicile
• 9,000 retail points of sale, 10 company boutiques, 152 shop-in-
DKSH Luxury & South East Asia and Bovet, Davidoff, Puma, Rolex, Salvatore shops, and 453 brand corners
Own and License Brands
Lifestyle Australia subcontinent Ferragamo, Timex etc. • Operations in 11 countries
• Specialists in premium chocolates and luxury watches
• 250 points of sale in 29 cities
China, Taiwan, Macau, Paul Smith, Marc Jacobs, Donna Karan,
ImagineX Licensing Brands • Represents 18 brands across South East Asia
Singapore DKNY etc.
• Part of The Lane Crawford Joyce Group
• Retails own and licensed brands through multiple touch points,
Dickson China, Taiwan, Macau, Polo, Ralph Lauren, Dickson Watch & owns 115+ retailing platforms across South East Asia
Own and License Brands
Concepts Malaysia, Singapore Jewelry company, Tommy Hilfiger etc. • Net cash of USD 200 mn for exploring strategic opportunities,
citing weak retail environment in Hong Kong and China
• Plans to expand into Mumbai and Delhi
BinHendi Brioni, Hugo Boss, Paul & Shark, Artioli,
GCC Countries Licensing Brands • Operates 29 fashion, jewelry, accessory and food retail
Enterprises Porsche Design etc.
outlets in the UAE and GCC

Armani, Bvlgari, Gucci, Gap, Giorgio Armani, • Insignia division retails 26 luxury fashion and accessories
Al Tayer Insignia GCC Countries Licensing Brands
Gucci, Yves Saint Laurent etc. brands in 85 locations

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Strategic Investors – Indian firms

Pros Cons
• Strong and established retail distribution network
• Expand current offering portfolio to include affordable luxury brands
• Strong in-house design capabilities
• Expand product segment and brand portfolio offering

Representative List of Potential Buyers

Company Name Business Model Key Brands Represented Comments

• One of the biggest brand retailers and apparel manufacturer in the country
Arvind Fashion Ltd. Own and License Brands Gant, GAP, Ed Hardy, Nautica, Elle, Hanes
• Operates 900+ retail outlets

Steve Madden, Superdry, Diesel, Marks & Spencer, Kenneth • Reliance Retail operates over 3,300 stores pan India
Reliance Brands Own and License Brands
Cole, Quicksilver • Recently acquired 40% stake in Genesis Luxury from L Catterton

Aditya Birla Fashion and Ted Baker, Simon Carter, Forever 21, Van Heusen, Hackett • Primarily engaged in the apparels business
Own and License Brands
Retail Limited London • Retails 200+ licensed and international brands, including 24 exclusive brands

Mango, Aldo, Charles & Keith, Inglot, La Senza, Bebe, Nine • Operating 200+ exclusive brand stores
Major Brands License Brands
West, Guess, Promod, Call it Spring • Focus on branded affordable luxury products

• Operates chains of retails stores

DLF Brands License Brands Mother Care, Kiko, Sunglass Hut
• Primarily focused in mass – brand businesses in apparels and accessories

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Dolat Capital’s thoughts on Valuation

Valuation considerations
• Dolat believes that Brandzstorm is a unique investment story and needs to be analyzed, positioned and priced to reflect the same
• Dolat will be delighted to work with Brandzstorm management to arrive at the correct positioning to maximize shareholder value
• Our view on proposed valuation methodology is based on
• Trading comparables – International (Developed Economies)
• Global publicly traded luxury brands in developed economies – USA, Japan and Australia
• Trading comparables – India (Healthcare Delivery)
• Since there are no diagnostic services players listed in India, available proxy to Indian healthcare industry growth is healthcare delivery
players (positively adjusted to the fact that healthcare delivery is asset heavy business with lower return ratios)
• Transaction comparable in Diagnostic services – India
• Analysis of PE transactions in Indian diagnostic services industry (adjusted to the fact that public market investors value a company differently
vis-à-vis Private Equity investors)

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Trading Comparables – Indian firms

FY16 EV/Sales EV/EBITDA P/E

Market cap
Company Business Model Product Segments Revenues
(INR mn) FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY19E
(INR mn)

Titan Co Ltd Own Brands Watches, Jewelry and Eyewear 669,213 111,877 5.2x 4.2x 4.1x 58.0x 40.6x 40.5x 94.1x 61x 61x

Arvind Ltd Licensing and Own Brands Apparels 117,638 77,768 1.7x 1.4x 1.4x 16.3x 14.1x 14.3x 37.5x 31.2x 31.2x

KDDL Ltd Licensing Brands Watches 2,549 4,435 0.9x 0.7x NA 14.8x 10.8x NA 390.8x 33.5x 33.5x

VIP Industries Ltd Own Brands Luggage 42,473 12,165 3.3x 3.0x 3.0x 32.3x 26.5x 26.8x 50.7x 41.8x 41.8x

Bata India Ltd Own Brands Footwear 100,502 24,227 3.9x 3.5x 3.4x 34.8x 28.4x 28.2x 63.2x 48.3x 48.3x

Relaxo Footwears Ltd Own Brands Footwear 67,952 17,130 4.0x 3.5x 3.1x 28.7x 25.3x 21.1x 55.3x 50.4x 40.4x

Median 3.6x 3.2x 3.2x 30.5x 25.9x 27.5x 59.2x 41.8x 41.8x

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Trading Comparable –Global firms

FY16 EV/Sales EV/EBITDA P/E

Country of Market cap
Company Product Segments Revenues
Domicile (USD mn) FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY19E
(USD mn)
LVMH Moet Hennessy Louis
Multiple Segments 152,723 43,507 3.7x 3.1x 3.3x 16.3x 15.2x 15.2x 33.05 26.80 26.80
Vuitton SE
Jewelry, Leather and personal
Cie Financiere Richemont SA 52,843 12,816 3.9x 3.6x 3.6x 12.9x 15.4x 17.3x 37.63 26.39 26.39
accessories
Estee Lauder Cos Inc Cosmetics 44,560 11,262 3.7x 3.4x 3.4x 22.0x 22.1x 20.7x 35.68 28.68 28.68

Luxottica Group SpA Eyewear 27,654 10,513 2.7x 2.7x 2.7x 13.4x 13.4x 13.4x 28.02 26.39 26.39

Kering Luxury, sports and eyewear 59,496 14,331 4.6x 3.4x 3.7x 34.1x 31.4x 31.4x 63.02 26.07 26.07

Swatch Group AG/The Watches & Jewelry 20,897 7,555 2.6x 2.4x 2.5x 10.6x 15.6x 15.6x 36.35 29.52 29.52
Luxury goods, cosmetics and consumer
L'Oreal SA 124,914 29,896 3.9x 3.6x 3.8x 19.2x 18.2x 18.2x 34.65 28.71 28.71
products
Ralph Lauren Corp Multiple Segments 7,211 7,405 0.9x 1.1x 1.1x 4.7x 7.4x 31.0x NM 15.60 15.60
Chow Tai Fook Jewellery
Jewelry 10,791 7,252 1.8x 1.7x 1.7x 12.0x 17.8x 16.3x 27.56 21.85 21.85
Group Ltd
PVH Corp Apparels 9,889 8,020 1.6x 1.5x 1.5x 17.1x 12.7x 11.7x 18.01 16.51 16.51

Fossil Group Inc Multiple Segments 341 3,042 0.2x 0.3x 0.3x 1.8x 3.9x 3.9x 4.33 61.09 61.09

Hermes International Multiple Segments 54,511 6,019 8.8x 7.7x 8.2x 26.6x 24.0x 24.0x 42.69 39.49 39.49

Michael Kors Holdings Ltd Multiple Segments 8,260 4,712 1.6x 1.6x 1.6x 5.2x 5.4x 8.0x 14.95 14.32 14.32

Median 2.7x 2.7x 2.7x 13.4x 15.4x 16.3x 33.9x 26.4x 26.4x

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Transaction Comparables
Valuation Trailing Forward
Target Investor Date Stake Amount Equity
EV/S EV/EBITDA EV/S EV/EBITDA
Acquired (INR mn) Valuation

Safari Industries India Ltd. Malabar India Fund LP Sep-17 7% 514 7,116 2.1x 31.5x NA NA
KDDL Ltd. SAIF Partners India V Ltd. Dec-16 7% 200 2,703 2.5x 13.0x 2.4x 12.5x

SSIPL Retail Ltd. Oman India Joint Investment Fund Oct-14 18% 900 5,112 0.7x 9.4x 0.6x 7.1x

Wildcraft India Pvt. Ltd. Sequoia Capital India Growth Fund II LP Sep-13 20% 700 2,900 4.7x 46.1x 2.8x 16.9x

Genesis Luxury Fashion Pvt. Ltd. L Capital Asia I Oct-12 19% 597 2,630 2.8x 58.2x NA NA

Median 2.5x 31.5x 2.6x 12.5x

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Valuation Summary

Brandztorm financials in INR mn (Year Ending March) FY17 FY18E

Revenue 823 1,100
EBITDA 50 114

Recommended Statistic Enterprise Valuation INR 1,000mn – 1,580 mn

Metric Statistic
Range Used

Global Luxury Brands FY18E 1,155 1,925

15x – 25x 350
Comparables

- 1 Yr Forward EV/EBITDA EBITDA

Trading

Indian Retail Brands FY18E

18x – 28x 350 1,386 2,156
- 1 Yr Forward EV/EBITDA EBITDA
Comparable
Transaction

Domestic luxury Brands /

FY18E
Distributors 13x – 23x 350 1,001 1,771
EBITDA
- 1 Yr Forward EV/EBITDA

800 1,300 1,800 2,300

Enterprise valuation for Brandzstorm is estimated to be INR 1,000 – 1,580 mn implying on FY18E financials 11.4x to 13.6x EV/EBITDA

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Contact Us

Mohit Agarwal Akshit Sandooja

Head – Investment Banking Senior Analyst
(M) +91 9740439944 (M) +91 8571843385
mohitagarwal@dolatcapital.com akshits@dolatcapital.com

DOLAT CAPITAL

Dolat Finserv Pvt. Ltd.

20, Rajabahadur Mansion, 1st Floor,
Ambalal Doshi Marg, Fort,
Mumbai – 400001. India
Tel : 91-22-4332 0600
Fax: 91-22-4332 0601