In a cavernous hall, hundreds of workers sit in neat lines at Prateek Apparel’s Hosur Road facility in Bengaluru, cutting and sewing what will likely become several hundred pairs of Levi’s jeans. “We now make almost every pair of Levi’s denims sold in India,” says Sanjay Dalmia, the company’s president. Prateek also counts competitor brands such as Wrangler, Pepe and Lee as clients. It also makes garments for private label brands — Rig, Bare Denims, Mix & Match, Code, Forca — of retail chains such as Lifestyle and Future Group.
Promoted by Mumbai-based trading group Phulchand Exports, which went into apparel manufacturing in 1995, Prateek makes over half of its income (₹377 crore in FY12) from manufacturing-related businesses. The private labels business brought in about ₹51 crore in FY12. It also runs a chain of large format discounted clothing stores called Coupon (launched in 2007) and small format retail stores called F-square (launched in 2009), where it retails own brands like Mark Taylor, Locomotive and Highlander.
The focus on domestic business came in the late 1990s, when brands such as Levi’s and Benetton were beginning to grow their presence in India. It was also the time when India’s organised retail sector was taking root with the entry of homegrown fashion retailers such as Westside and Shoppers Stop. “They were looking to source locally and could not find Indian suppliers. So we decided to focus on this segment,” says Dalmia.
The right fit
In 2001, the business grew enough for the company to open a second manufacturing unit, and two more facilities soon after, investing around ₹45 crore. In 2007, Prateek acquired the garment making units of Hubli Apparels, adding capacity of 125,000 shirts/trousers a month. The same year, Sidbi Venture Capital invested ₹30 crore in Prateek. Now, it has over 6,000 employees across six manufacturing facilities, making over 7.2 million pieces of garment a year.
Dalmia says Prateek’s distinctiveness is in the design-to-delivery solution it brings to the market. “We have a 50-member (textile, graphic and fashion designers) design management company called Munch that researches market trends in fabrics, trends and accessories, designs and develops them.” Started in 2004, Munch is headed by a separate CEO and is run as an independent business, servicing outside clients such as the Taj Group, Royal Enfield and DIAL, among others, in areas like uniform and packaging design, communication and brand design.
This kind of end-to-end product development and delivery support is what private labels typically seek from their suppliers. Prateek caters to retailers such as Pantaloon and Lifestyle for their store brands at present and Dalmia is confident this business will grow as more retail chains find value in creating and selling their own brands. “Every retailer is facing problems like high rentals and manpower costs, and even [manufacturer] brands are not making money. So, simply from the point of making more margins and profits, retailers have to sell private labels,” he says. Retail experts concur that on average Indian garment retailers stand to make 20-25% more selling private labels than other brands.
Dalmia reckons it will be a good three-four years before private labels really take off in India, pointing out that India still has very few big apparel retailers. But he insists that fashion is among the segments best suited for modern retailers to launch their own brands. “Fashion is more elastic than food,” he says. “Sometimes, customers do not even check the brand. If it looks attractive and is being sold at a store they trust, people buy the clothes.”
For manufacturers, though, progressively thinning margins — currently in the 5-10% range —and lack of scale among retailers make this business difficult to be in, right now. “Clients ask for impossible margins. We have had to break relationships with some in the past, because of this,” says Dalmia.
The pressure on margins is showing up in the bottomline — a net profit of ₹20 lakh for the six months ended September 30, 2012, on an operating income of ₹153.7 crore, compared with ₹2.5 crore on an operating income of ₹377.5 crore for all of FY12 (source: Icra). That could be cause for worry but Dalmia says some course correction is on the way.
Until the next round of retail expansion happens and volumes go up, exports will remain the focus, especially the high-margin premium garments segment where Prateek’s design-led integrated model scores well. For the private label business too, Dalmia plans to take a similar approach. “Exporters from countries such as Bangladesh already sell to mass market brands like Tesco and Walmart. We want to focus on more premium [global] brands like, say, Debenhams and Target,” he says. Raghu Viswanath, founder of Vertebrand Management Consulting, a brand valuation and consultancy firm, agrees that Indian garment manufacturers are better placed to cater to the premium segment that requires more design inputs and value-adds. “Players like Prateek will benefit if they can tap the mid to top end of the market,” he says.
A new yarn
Online sales are another platform that Dalmia hopes will contribute significantly in the future. Right now, the company’s own brands such as Locomotive, Hylander and Black Coffee already sell on e-commerce sites such as Jabong and Myntra but the numbers are small. In March 2013, Icra upgraded Prateek’s credit rating from B to BB-, making a positive note of the company’s e-retail presence and new customer additions in the export market (it had downgraded the company a year earlier for its stretched liquidity position). Viswanath says that while there are many companies in India in the contract manufacture space such as Indus Clothing and Indian Design, Prateek’s global supplier status should give it an extra edge in the business.
The company had plans of doubling capacity with a seventh unit at Tumkur (70 km from Bengaluru) on 28 acres of land with about ₹80 crore investment, and had acquired land for this in 2008. But the economic slowdown had put things on hold. Bilteek, its joint venture with Turkey’s Bilsar in 2011, added fresh capacity of 260,000 pieces a month. Dalmia says more capacity can be added now, if the need arises. With more brands entering the market and the Indian consumer tuning into global trends, he says design and finish will become more critical in the future and retailers will have to go the extra mile to catch the customer’s eye. “When they do, Prateek will be among those best suited to cater to their needs with our unique design and manufacturing strengths,” he smiles.