Cantabil Retail India Ltd Share Analysis

Cantabil Retail India Ltd: A Promising Retail Play on India’s Consumption Revival

Cantabil Retail India Ltd. is involved in designing, manufacturing, branding, and retailing branded apparel and accessories for men, women, and kids in the economy to mid-premium price segments, with 500+ EBOs and a debt-free balance sheet. Cantabil Retail India has set its sights on achieving revenue of 1,000 Cr by FY27 through calibrated EBO expansion across the country.

We believe that Cantabil Retail India Ltd, a mid-premium retail chain, offers a promising opportunity amidst India’s anticipated consumption recovery. With a cash-rich balance sheet, we anticipate a resumption of SSSG and earnings growth in FY25. Cantabil Retail management’s clear approach to scaling up the business reinforces our confidence in their ability to achieve their stated objectives of 1000 Cr sales & 700 stores by mid-FY27

Cantabil Retail India Ltd Company Overview

Cantabil Retail India Ltd, established as Kapish Sales Private Ltd in 1989 by Mr Vijay Bansal and his family, initially operated as a garment and accessories wholesaler. In 2000, the company transitioned into garment manufacturing and retailing, opening its first store in Delhi’s Rajouri Garden. Subsequent stores were launched in Karol Bagh, Connaught Place, and South Extension, among other locations. Due to the success of these initial stores, the company decided to establish Cantabil Retail India Ltd. as a chain brand, which resulted in further growth and expansion. 

Post its IPO in 2010, Cantabil Retail India Ltd had a challenging market due to a slowdown in the global economy, worsening macroeconomic conditions, and high inflation, which caused the closure of its peer brands. Due to these obstacles, Cantabil Retail India Ltd started focusing on restructuring its business. Cantabil Retail India Ltd. decreased discounts, discontinued its deep discounting brand, closed unprofitable stores, improved the quality of its products, and introduced a new luxury brand aimed at the premium segment & has started repositioning its brand in the mid-premium market segment.

Fast forward to 2024, Cantabil Retail India Ltd is involved in designing, manufacturing, branding, and retailing branded apparel and accessories for men, women, and kids in the economy to mid-premium price segments. Cantabil Retail India Ltd operates a pan-India exclusive brand outlet (EBO) network under its flagship brand, Cantabil. Cantabil Retail India Ltd has 533 brand outlets (402 COCO & 130 FOCO), spread over 674,000 square feet, in 268 towns across 20 states as of March 31st, 2024. Cantabil Retail India Ltd operates a fully integrated manufacturing facility in Bahadurgarh (Haryana) with a production capacity of 15 lakh garments annually, which accounts for 1/3 of the Cantabil Retail India Ltd total production.

Cantabil Retail India Ltd History

A Journey from Wholesaler to Mid-Premium Retail Leader

Cantabil Retail India has a very interesting history over the past 20 years. The management has made mistakes in the past, which they have since corrected and fine tuned their business model along the journey.

The Story Behind the Name

‘Cantabile’ is an Italian word that means something worth looking at. The last letter, ‘e,’ was removed from the word so that people in India could pronounce it correctly without distorting the name and meaning.

Phase 1: From Humble Beginnings to IPO

Cantabil Retail India Ltd, established initially as Kapish Sales Private Limited in 1989 by Mr Vijay Bansal and his family, initially started as a trader; Cantabil Retail India Ltd transitioned into garment manufacturing and retailing & began its journey in menswear. In 2000, Vijay Bansal opened the first Cantabil outlet. Cantabil Retail India Ltd initially sold its products through Multi-Brand Outlets (MBO) and Exclusive Brand Outlets (EBO). In 2002, Cantabil Retail India Ltd. shifted to a business model centred around Exclusive Brand Outlets (EBO). Over the next five years, the brand experienced steady growth, reaching ₹10.4 Cr in revenue, ₹8 lakh in profit after tax, and expanding to 25 stores by FY05.

Cantabil Retail India Ltd strategically repositioned itself as a comprehensive family-wear brand to appeal to a broader customer base, adding a women’s wear segment in 2007 and a Kids’ wear segment in 2008 and to compete with rivals like Koutons Retail India Limited, Cantabil Retail India Ltd launched La Fanso in 2008, a deep-discount brand offering discounts as high as 70-80%. Koutons, with a similar journey to Cantabil, had transitioned from garment manufacturing to retail by opening its first stores in 2002. By 2010, it had scaled to 1400 stores, primarily operating through exclusive franchise models. Koutons offered two brands: “Koutons,” catering to a complete men’s wardrobe (formal, casual, and party wear) for the 22-45 age group, and “Charlie Outlaw,” a casual brand targeting fashion-conscious youngsters aged 14-25. Koutons later expanded its brand portfolio with Les Femme (women’s wear) and Koutons Junior (kids’ wear). La Fanso mirrored Koutons rapid expansion, reaching 150 stores by 2010.

Cantabil Retail India Ltd launched its IPO on September 22, 2010, with an issue size of ₹105 Cr. The entire issue was a fresh issue, priced at ₹135 per share (adjusted to ₹27 per share following a recent stock split), for the following purposes: Establishment of a new manufacturing facility (32 Cr), Expansion of Retail Network by 180 new stores (25 Cr), Working Capital (30 Cr), Repayment of Debt (20 Cr), and General Corporate Purposes. Cantabil was listed on the NSE and BSE on October 12, 2010. At the time of the IPO, Cantabil Retail India Ltd had 411 stores, comprising 270 Cantabil stores and 141 Lafanso stores.

Phase 2: Strategic Restructuring Amid Economic Slowdown

Post FY10, India experienced a sharp slowdown in GDP growth due to falling investments in the industrial sector, tight monetary policy, and recessions in developed countries. The retail apparel industry also faced increased input costs, compounded by problems with large inventories and consistent discounting by various players. Additionally, soft terms like consignment sales and stock corrections further exacerbated the distress in the sector. In response to the slowdown, Cantabil Retail India Ltd. decided to safeguard profit margins and slash discounts on clothing. However, this tactic backfired, resulting in lower sales and losses during this phase.

After this, Cantabil Retail India Ltd.’s management decided to restructure the business by closing unprofitable stores, discontinuing the ‘Lafanso’ brand, and launching a new premium man brand called KANESTON. Cantabil reduced its total store count from 411 in FY10 to 145 in FY14 and decreased its employee count from 1,100 in FY10 to 885 in FY14. During this phase, domestic retail apparel brands faced significant problems due to overexpansion, poor management decisions, inventory mismanagement, flawed pricing strategies, marketing failures, and high debt levels. These issues collectively led to financial instability and, in some cases, the closure of several retail apparel businesses. Koutons faced mounting debt, increasing from ₹209 Cr in 2007 to ₹660 Cr in 2010, with inventory piling up to ₹680 Cr. This hyper-aggressive expansion led to corporate debt restructuring and significant downsizing. Vishal Retail struggled with financial instability due to rapid expansion and high operational costs, leading to a partial sale to TPG Capital and Shriram Group in 2011. Indus League, which is known for brands like Indigo Nation and Scullers, faced profitability issues. Subhiksha, primarily a grocery retailer that also sold apparel, closed in 2009 due to aggressive expansion, & Cotton County had to scale back operations and close outlets due to market saturation and intense competition.

Phase 3 – Turnaround

In response to the economic slowdown, Cantabil Retail India Ltd management focused on turning the business around and became very selective in its store expansion strategy. They began opening stores on high streets instead of malls to benefit from lower rentals, especially in tier 2 and beyond cities.

From FY15 to FY18, despite challenges such as fluctuating consumption, declining private investments, and reduced exports against a backdrop of soft global demand, as well as the slowdown in the Indian economy, GST implementation, and demonetization, Cantabil navigated this phase effectively as management focused on improving the economics of existing stores and growing selectively.

During this phase, average revenue per store increased to ₹1.12 Cr from ₹0.75 Cr in FY14, and weighted average gross revenue per sq. ft. rose to ₹1,042. The EBO count increased from 145 to 184 stores, and the retail area expanded from 132,000 sq. ft. to 1,85,802 sq. ft. Revenue grew from ₹100 Cr in FY14 to ₹196 Cr in FY18 and turned profitable from a loss of ₹-9 Cr in FY14 to a profit of ₹20 Cr in FY19. Cantabile sales volume also increased to 21.95 lakh units in FY18 vs 18.96 lakh units in FY16.

Phase 4 – Cantabil Retail India Ltd Disciplined Approach with Sustainable Growth

Post-2018, Cantabil Retail India Ltd. started focusing on a business strategy that focused on profitability along with expansion. Using past experience, this time expansion was planned with a disciplined & balanced approach, resulting in sustainable growth.  Impressively, Cantabil Retail India Ltd. decided to fund expansion entirely through internal accruals without any debt.

This growth plan was quite successful! It turned Cantabil Retail India Ltd. into a net debt-free company and improved its efficiency. In FY23, Cantabil Retail India Ltd. also entered the e-com segment. During this phase, Cantabil Retail India Ltd.’s sales grew by 16%, and PAT grew by 39% CAGR, resulting in a more stable financial position. The EBO grew from 184 stores in FY18 to 533 stores in FY24, with average revenue per store also increasing from ₹1.32 Cr to ₹1.40 Cr.

PHASE 5: Ambitious Growth Plans

Cantabil Retail India Ltd. Management aims to achieve sales of Rs 1000 Cr with an EBITDA% of 28–30%. Cantabil Retail India Ltd. intends to significantly increase the number of EBOs to 700 by the mid of FY27 and expects e-com to account for 8–10% of sales, i.e., 100cr.

Cantabil Retail India Ltd Management Details

Founder and promoter Mr. Vijay Bansal, a first-generation entrepreneur, started with humble beginnings. After his graduation from Kurukshetra University, Vijay Bansal joined his father’s FMCG distribution business in 1979, where he handled marketing and accounting, did door-to-door sales with FMCG representatives, and spent a decade in this FMCG distribution family business. In 1989, a family friend of Vijay Bansal opened a factory in Sahibabad to manufacture buttons and zippers, and Vijay Bansal took on the task of overseeing its wholesale distribution throughout India. After achieving notable success in wholesale distribution, Vijay founded Cantabil Retail India Ltd. Deepak Bansal, son of founder Vijay Bansal, has been associated with Cantabil Retail India Ltd.’s success since its inception. Appointed as an Additional Director on October 1, 2006, he was later appointed to a Whole-Time Director role on September 15, 2009. Deepak plays an important role in Cantabil Retail India Ltd.’s expansion plans and its marketing strategy.

Cantabil Retail India Industry Landscape

The apparel industry in India is one of the largest market segments in the country that has become well segmented over the years. Post the economic liberalisation, customer aspirations have evolved to match the best markets across the world. The continuous entry of aspirational MNC brands and their ability to build a market for themselves (Jockey, Nike) across consumer categories bodes well for the semi premium and premium segments of the Indian market

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Source: Credo Brands Marketing Limited IInvestor Presentation & Technopak Report.  Note: (1) Organized includes Organized B&M and Organized Ecommerce

Source: Technopak Report, TRAI, Technopak Analysis, Secondary Research. Note: (1) Excludes innerwear. (2) Suits include suits, coats and safari suits. (3) as % of the working-age population.

Cantabil Retail India Product Details

Cantabil Retail India Ltd offers a wide range of apparel and accessories for the entire family:

• Men’s Wear: Established 24 years ago, Cantabil is a well-known brand in the mid-premium segment. It offers a comprehensive selection of men’s clothing, including formals, casuals, ultra-casuals, winter wear, and knitwear. Men’s Wear accounts for a majority of Cantabil Retail India Ltd sales

• Women’s Wear: Launched in 2007, Cantabil’s Women’s Wear caters to diverse fashion needs, offering shirts, tops, leggings, kurtas, pants, jeans, & etc.

• Accessories: Launched in 2017, Cantabil’s accessories division has become a recognized brand for men’s accessories. It offers innerwear, belts, socks, handkerchiefs, deodorants, ties & etc.

• Kid’s Wear: Launched in 2008, Cantabil’s Kid’s Wear caters to children aged 3-14. Kid’s Wear offers comfortable clothing with high-quality fabrics and a soft feel. The range includes shirts, T-shirts, denim, tops, jeggings, and shorts.

• New category: Recently Forayed into the Footwear (2.5cr sales in FY24) & athleisure segment in November 2023. Going forward, cantabil also plans to focus on undergarments, new range of accessories & sports shoes.

Because of the need to regularly update designs and the greater amount of discounting needed to clear inventory, management of Cantabil Retail India Ltd has decided not to venture into the ethnic Wear and high fashion apparel markets. making these segments less attractive for Cantabil Retail India Ltd.

Because Cantabil Retail India Ltd has an established presence in the men’s market, this segment continues to be the backbone of Cantabil Retail India Ltd. However, Other product categories, such as accessories, children’s clothing, and women’s clothing, are gradually gaining acceptance and increasing their share of the sales mix.

Discount Types & Period Cantabil Retail India Ltd. strategically leverages discounts to manage inventory and boost sales throughout the year. Also, Cantabil Retail India Ltd. maintains a high repeat purchase rate by providing early updates to loyal customers about new arrivals, collections, offers, and discounts.

“Fresh Season Period”: To attract customers interested in new arrivals, Cantabil Retail India Ltd. offers a 20% discount, or a “buy 2 get 1” offer for four months (in Q1). The Fresh Season Period Sale generates around 35% of Cantabil Retail India Ltd.’s revenue.

“End-of-Season Sale” is a longer 8-month campaign featuring a 50% discount for the initial 2 months (Q2), followed by a “buy 2 get 5” deal for the remaining 6 months. (mostly Q3 &Q4) End-of-season sales generate around 65% of Cantabil Retail India Ltd.’s revenue. 

Great discounts and deals attract customers to buy more, which increases sales. Cantabil Retail India Ltd.’s average selling price is ₹1040, and the average bill value is ₹4099. Cantabil Retail India Ltd. has strong customer retention, i.e., 50% of their customers return for repeat purchases. We think this is an industry-leading metric that shows high customer loyalty and happiness.

Seasonality

Cantabil Retail India Ltd sales follow a predictable seasonal pattern throughout the year. Q1 is typically the leanest as the focus shifts towards introducing new fresh-season materials. Less discounting often results in higher gross margins during Q1, and sales then begin to climb in Q2 as customers prepare their wardrobes for the changing seasons. Winter and festive seasons in Q3 and Q4 see peak sales, with larger average purchases driven by winter wear. Around 40% of Cantabil Retail India Ltd sales occur in H1 & 60% in the second half

Cantabil Retail India Ltd Manufacturing

Cantabil Retail India Ltd optimises its production through a mixed-model approach, combining in-house manufacturing with asset-light sourcing.

Manufacturing Process

• In-House Manufacturing: Cantabil Retail India Ltd. operates a state-of-the-art facility in Bahadurgarh, Haryana, with a current capacity of 15 lakh garments annually (planned to increase to 18–20 lakh in Q1 FY25 and have further scope for expanding the capacity in the same space). This facility produces around 1/3 of the Cantabil Retail production requirements and also offers a slightly higher profit margin by eliminating the fabricator markup.

• Dedicated Fabricators: Cantabil Retail India Ltd. partners with dedicated fabricators who receive raw materials from Cantabil Retail India Ltd & produce finished garments. These fabricators contribute 1/3 of Cantabil Retail India Ltd production requirements

• External Sourcing: Cantabil Retail India Ltd. sources primarily knitted materials from Ludhiana on a FOB basis. External sourcing accounts for the remaining 1/3 of their production requirements and provides cost efficiency.

Going Forward, Cantabil Retail India Ltd wants to keep this 1/3:1/3:1/3 ratio (in-house, fabricators, external sourcing) intact. Cantabil Retail India Ltd consistently maintains a gross margin of approximately 54-55% throughout all production methods. Its Quality control team guarantees constant product quality regardless of the manufacturing technique used.

Cantabil Retail India Ltd uses a combination of in-house and external production methods for its winter wear and men’s wear. Knitwear, such as sweaters and jackets, which constitute a significant portion of winter wear sales, are sourced externally on a FOB basis. Cantabil Retail India Ltd relies on FOB sourcing and fabricators for womenswear. While there are no immediate plans for significant in-house manufacturing expansion beyond the planned capacity increase, Cantabil Retail India Ltd will achieve production growth for its 700-store target by leveraging its existing network of fabricators and FOB sourcing strategies.

Capex for Warehousing cum office facility (Cantabil House) 

Cantabil Retail India Ltd is constructing a warehousing cum office facility with a total capex of ₹ 85 Cr, which will be funded through internal accruals. Cantabil Retail India Ltd has acquired land in Delhi NCR with an Approximate cost of ₹ 40 Cr (including clearance costs), While an additional ₹ 45 Cr is budgeted for the construction in FY24 & FY25. This will result in improved inventory and supply chain management, cost savings, and increased efficiency for Cantabil Retail India Ltd.

Cantabil Retail India Ltd Stores Network

Cantabil Retail India Ltd has 533 brand outlets (402 COCO & 130 FOCO), spread over 674,000 square feet, in 268 towns across 20 states as of March 31st, 2024.

Cantabil Retail India Ltd prioritises customer experience by exclusively selling through their store’s exclusive brand outlets (EBOs). This approach allows them to maintain control over brand presentation and customer service. However, it limits their reach as they are absent in multi-brand outlets (MBOs) or large format stores (LFS). To bridge this gap, Cantabil recently entered the e-commerce space in FY23, selling through its website and online aggregators.

All Cantabil Retail India Ltd stores are on the lease, with new leases for 12 years vs 9-year earlier

While every parameter is on the rise, the Weighted Average Gross Revenue per Sq.ft. Foot has decreased due to the opening of larger stores like the 1700 sq. ft. Store. However, this is offset by a decrease in per Sq.ft. foot cost due to expanding into tier 2 & beyond towns with lower rental costs and negotiating better rent for larger stores with multiple floors; Expansion into tier 2 & beyond towns helps lower manpower costs.

COCO (Company Owned Company Operated) – 75% Stores

Cantabil Retail India Ltd focuses on opening most of its stores on high streets, where rents are lower compared to malls. We think this makes sense because people visiting high streets are typically there to shop, leading to a higher conversion rate of 40-50% vs. malls 20-25%, which attract more window shoppers. Cantabil Retail India Ltd strategically positions its stores on the high street near other well-known brands that already draw in a crowd & choose malls based on their performance, and focuses on B-category malls, staying away from both poorly performing and highly competitive malls.

Cantabil Retail India Ltd incurs a Capex of 25-30 lakh per store, considering the average store size of 1,200 sq ft with a cost of ₹2,000-2,100 per Sq Ft, including landlord deposits, the total investment is approximately 50 lakh per store.  The breakeven period for Cantabil Retail India Ltd stores is six months & payback period is 2 to 2.5 years; also, Cantabil Retail India Ltd strategically targets locations with projected annual sales of at least ₹1 crore. Due to their smaller size, opening women’s or kids’ stores requires a lower investment of approximately ₹50 lakh compared to men’s and family stores, which cost around ₹65 lakh..

FOCO (Franchise Owned Company Operated) – 25% Stores

A fully refundable security deposit & CAPEX investment for furniture and fixtures are the two costs associated with a franchise investment in Cantabil Retail India Ltd. Depending on the size of stores, the total investment needed for a franchise usually varies from ₹ 35 to 50 lakhs. Franchisees get a set margin that they use to pay for overhead, which mostly consists of rent, employee salaries, and other miscellaneous costs.  As per management, the majority of franchisees are happy with Cantabil Retail India Ltd. and are performing well.

FY24 Expansion Focused on Direct Control: Just 2 of the 86 new stores opened in FY24 were franchised owned. This shows Cantabil Retail India Ltd’s desire to move towards a COCO model that offers greater control. Previously, Cantabil operated with 70% COCO and 30% FOCO. Currently, the ratio has shifted to 75% COCO and 25% FOCO due to some franchisees being observed compromising on customer experience by cutting corners on expenses, leading to lower sales and Unlike Rajasthan (which has approached saturation), which has 75% FOCO stores, Regions such as Gujarat and Maharashtra, where a large number of new stores have opened, mostly include COCO stores (99%).

Going forward, a shift towards COCO stores is expected to continue, with Cantabil Retail India Ltd. owning the majority of the 80–90% of new stores

Inventory

All inventory, including the inventory of franchise stores owned by Cantabil Retail India Ltd & records all sales to end-users. All transactions are associated with the Cantabil Retail India Ltd, GST number. Cantabil Retail India Ltd keeps an average of 2–3 pieces per Sq ft in the backend supply chain and 5–6 pieces per Sq ft in stores and for an overall inventory average of 8–9 pieces per Sq ft. Each store holds about Rs. 35–40 lakh worth of inventory at an average cost of Rs. 425 /piece (including both frontend and backend inventory).

Store Count Category Wise

In order to capitalise on the growing number of aspirational consumers seeking brand connection in these smaller markets of Tier 2 & beyond cities, Cantabil Retail India Ltd. has strategically concentrated on penetrating Tier 2 and beyond markets and has rapidly expanded in Tier 2 & beyond towns over the last 4-5 years vs many international brands that usually give priority to Tier 1 cities. Cantabil Retail India Ltd. is wisely opening larger stores in new markets, with an average size of 1700 sq ft. vs. its average of 1200 sq ft. This expansion of the store size has resulted in improving sales and brand awareness, proving that larger stores are drawing in more customers and bringing in more sales. Cantabil Retail India Ltd. also plans to increase the launch of exclusive women and kids wear EBO in these tier 2 & beyond cities.

Revenue of stores Zone wise

Cantabil Retail India Ltd.’s current store distribution is primarily in the North (57%), followed by the West (31%), with the Centre and East accounting for 12%. Due to climatic factors, there is a negligible presence in South India, as the southern region of India experiences milder winters and Cantabil Retail India Ltd. sales are more inclined towards winter wear. Although there is still opportunity for growth in the North and West, Cantabil Retail India Ltd.’s future expansion will be towards the Central and East regions. Cantabil Retail India Ltd. plans to enter the South Indian market after 2 years when other regions approach saturation

E-commerce (ECOM)

The journey of e-commerce for Cantabil Retail India Ltd has started recently, in FY23. Products are sold by Cantabil Retail India Ltd. through its website (cantabilshop.com) and through other well-known e-commerce platforms such as Myntra (where most e-com sales are made), AJIO, Tata CLiQ, Flipkart, Amazon, and Nykaa. Cantabil Retail India Ltd. achieved ₹13.5 Cr in FY23 sales through Ecom (2.5% of sales) and increased to ₹35 Cr in FY24 (5.7% of sales). Cantabil Retail India Ltd.’s target is to achieve ₹50 Cr Ecom sales in FY25, and its long-term goal is to reach 8–10% in the next 2-3 years.

Cantabil Retail India Ltd. mainly uses its online sales channel to clear leftover inventory. This is a common business practice across the industry that makes it easier to manage excess inventory effectively. To create an “omnichannel” network, Cantabil Retail India Ltd. has integrated 200 outlets as mini-warehouses, which helps them reduce delivery times by fulfilling online orders through the closest store. The gross profit margin for the e-commerce channel is 48–49%. Even with lower margins, the Cantabil Retail India Ltd E-com channel is slightly profitable after deducting all the expenses associated with the e-com channel. While the e-com channel is not profitable compared to the EBO channel, Cantabil Retail India Ltd. aspires to achieve a 10% PAT from e-commerce in the future..

Cantabil Retail India Ltd Corporate Governance

Board Composition: As of FY24, the Board of Directors comprises 6 directors, with 3 of them being independent. All independent directors are well qualified but not so well known. Interestingly, they don’t hold positions on any other company board and are only present on the Cantabil Retail India Ltd. board. There could be a possibility they might be invited by the Cantabil Retail Ltd. promoters and may be unlikely to speak about any whistleblower issue.

Promoter Remuneration: Promoter Mr. Vijay Bansal drew ₹2.40 Cr and Mr. Deepak Bansal drew ₹2.40Cr in FY23 (increased by 53% over FY22 to FY23 & 145% over FY21 to FY22). The increase from FY19 to FY23 is 193%, which is quite high. Promoter remuneration as % net profit is 7.5%.

Contingent Liabilities: Cantabil Retail India Ltd has contingent liabilities of approx. 13.5 cr out of 11.52 Cr is towards the enhancement of the cost of the industrial plot at Bahadurgarh by HSIIDC (Haryana State Industrial & Infrastructure Development Corporation), which is 18% of FY24 net profit and 3.52% of net worth.

Related Party Transactions: Although the promoter has no significant related party transactions, one of the full-time directors, Basant Goyal, is a partner in a company that supplies fabric to Cantabil Retail India Ltd. The related party % of sales in FY23 is 5.4%, compared to 5.2% in FY22.

Recent Fund Raised by Preferential Issue: Despite maintaining a net debt-free balance sheet and generating healthy cash. And even all the capex related to store expansion, warehouse and office building are funded by internal accruals.Cantabil Retail India Ltd. has recently raised 50 Cr from Think India Opportunities Master Fund LP. This indicates that the promoters of Cantabil Retail India Ltd. are clearly after market capitalization.

Cantabil Retail India Ltd Financial Performance

Cantabil Retail India Ltd revenue grew by a steady 16% CAGR & Gross Profit Margin has jumped to 56% mainly due to increase in product markup. EBITDA% have also seen a significant spike to 25% in FY20 vs 10.30% in FY19, although part of this is due to a change in accounting standards (IndAS 116). Adjusting this change, Cantabil Retail India Ltd normalised EBITDA% has still shown impressive growth, increasing from 10.30% in FY19 to 15.20% in FY24. Profitability remains strong, with both PBT & PAT delivering a CAGR of 34% & 40% respectively. 

Cantabil Retail India Ltd Revenue Growth

Cantabil Retail India Ltd  has always maintained very high revenue growth since FY18 post consolidation phase, While FY21 got impacted by Covid related issues and Despite of negative SSSG in FY24 & slowdown in consumer discretionary segment. Cantabil Retail India Ltd has grown its revenue growth backed by the steady store expansion plans. 

Cantabil Retail India Ltd Profitability Ratios

Profitability decreased from FY23 to FY24 as categories across the board struggled throughout FY24. Management has postponed the target of reaching ₹1000 Cr sales to mid-FY27, compared to the earlier target of FY26. At a 10% profit after tax margin, Cantabil Retail India Ltd scores much better than most other peers on profitability and capital efficiency.

Profitability ratio After Adjusting for the IndAS16 –

Cantabil Retail India Ltd Return Ratios & Working Capital Analysis

ROCE and ROE were impacted in FY24 due to negative SSSG and the overall slowdown in the consumer discretionary sector, and Cantabil Retail India Ltd raised ₹ 50.40 crores by way of a Preferential allotment at ₹252 per share in Q4 FY24, Impacting the Equity base 

Cantabil Retail India Ltd maintains healthy working capital days & inventory days compared to its listed peers. Inventory ageing for FY 24 – 73-74% Inventory is less than 1 year old. 15-18% Inventory is 2-3 months old & 7% Inventory is more than 2 years old. Cantabil Retail India Ltd is also working on reducing wastage, controlling costs and enhancing efficiencies.

We anticipate demand recovering from its cyclical low, leading to a resumption of SSSG and earnings growth in FY25 for Cantabil Retail India Ltd. Additionally, election spending typically injects more money into the market. Any budget announcements aimed at boosting consumption will benefit Cantabil Retail India Ltd.

Cantabil Retail India Ltd Comparative Analysis 

To understand Cantabil Retail India Ltd investment potential, we have conducted a comprehensive analysis. This analysis includes comparing Cantabil Retail India Ltd to its competitors (peer comparison), comparing a benchmark index, and comparing sector performance.

Cantabil Retail India Ltd Peer Comparison

Cantabil Retail India Ltd. competes with different kinds of brands.

Large Format Stores (LFS): These stores offer products in the value-for-money category and compete mostly on price.

Premium brands: These companies typically charge a premium price and compete with Cantabil Retail India Ltd. when prices drop at the end of the season.

Vanilla brands: Throughout the year, these brands compete directly with Cantabil Retail India Ltd. by offering products at similar prices.

According to management, Cantabil Retail India Ltd.’s primary direct competitor is Peter England, which operates in the same mid-premium market segment and is the only national competitor. Brands like V-Mart and V2 cater to the economy/value segment; Louis Philippe and Van Heusen occupy the premium segment; and Gant and Lacoste are positioned in the luxury segment. Recently, there has been a slight increase in competition from local players, with sales of 100 Cr+. However, management does not view these players as significant threats because they operate through franchise stores, which typically generate lower average store revenue (50 lakhs). Unless these local players make substantial changes to their business models, Cantabil Retail India Ltd. believes they will not pose a significant challenge in the future.

Zudio Impact

While Zudio is rapidly expanding and poses initial competition when a new store opens in a town, Cantabil Retail India Ltd experiences only a temporary impact on sales for a few months. Cantabil Retail India Ltd sales eventually stabilised or returned to their original levels. According to Management, Zudio’s quality is lower compared to Cantabil Retail India Ltd. Once customers recognize Cantabil Retail India Ltd’s superior quality, despite Zudio’s lower prices, they tend to return to Cantabil Retail India Ltd.

We believe Credo Brands Marketing Ltd (Mufti) is the closest listed peer in the listed space for Cantabil Retail India Ltd. In the men’s mid-premium market, while Credo Brands is also present in LFS & MBO, Cantabil Retail India Ltd only offers its products through EBO. Furthermore, we have also compared Cantabil Retail India Ltd with a women’s bottom wear company, Go Fashion (Go Colours); the peer comparison below highlights Cantabil Retail India Ltd’s positioning and performance in relation to its listed peers.

Cantabil Retail India Ltd Index Comparison

Cantabil Retail India Ltd share performance vs S&P BSE Small cap Index as the index benchmark comparison is a fundamental tool for understanding the investment potential and making informed decisions in the context of the broader market

Cantabil Retail India Ltd Sector Comparison

Cantabil Retail India Ltd shares performance vs BSE CG as We believe sector comparison helps to differentiate between industry-wide trends and company-specific factors & also helps in executing sector rotation and stock rotation strategies.

Cantabil Retail India Ltd Valuation Ratios

Why You Should Consider Investing in Cantabil Retail India Ltd?

We believe that Cantabil Retail India offers some compelling reasons to track the business closely and to consider investing if one is looking to build exposure to the consumer discretionary sector

Experienced and focused management: Cantabil Retail India Ltd. has experienced and extremely focused promoters with a proven track record of disciplined scale-up. Also, Cantabil Retail India Ltd. operates through EBO only, which shows how management wants to maintain control over brand presentation and customer service.

Ambitious Goals: Cantabil Retail India Ltd. has set an aggressive yet achievable growth plan. Targeting to reach 1000 Cr with 28–30% EBITDA by mid-FY27, backed by expansion plans to 700 stores, funded entirely through internal accruals

Cash-rich balance sheet: Cantabil Retail India Ltd. maintains a healthy cash-rich balance sheet. The recent infusion of ₹50 crore has further strengthened its financial position, so growth and expansion will not be a problem. Cantabil Retail India Ltd. also maintains efficient WC/sales at 33%. The management has learnt from the missteps of the previous expansion and is prioritising unit economics all the time. Possibility of capital allocation mistakes or balance sheet problems are much lower compared to other peers in this segment.

E-commerce Potential: Cantabil Retail India Ltd.’s recent entry into e-commerce opens a new avenue for growth. Going forward, management plans to increase its contribution to 10% over the next couple of years and has plans to increase its profitability. We believe this foray into ecommerce could increase Cantabil Retail India Ltd’s addressable market and enhance the scale of operations.

Expanding heavily into Tier 2 and 3 cities: Cantabil is focusing its expansion on Tier 2 & beyond cities & cultivating a loyal customer base, with 75% of its sales coming from these Tier 2 & beyond cities. These cities have lower competition risk from peer brands; national & international brands usually give priority to Tier 1 cities.

What are the Risks of Investing in Cantabil Retail India Ltd?

Investors need to keep the following risks in mind if they choose to invest into this business. Risks needs to be weighed in combination with the advantages listed above to arrive at a decision that is optimal for your portfolio construct

Competition Risk: Competition risk remains one of the biggest risks for Cantabil Retail India Ltd. As the apparel market in India is crowded with many branded and unbranded players, aggressive expansion by them poses a significant Competition risk. Even in Tier 2 and beyond cities, the emergence of e-commerce has also resulted in D2C players expanding their sales in these cities. Private label offerings from the stable of e-commerce players can cut into Cantabil’s market segment at lower prices.

Delays in demand recovery: Consumer discretionary has struggled through FY24, impacted by inflation and weak consumer demand, while management has provided a positive outlook for FY25. A recovery slowdown could have an impact on SSSG growth.

Terminal Value Risk: Cantabil Retail India Ltd. TAM may continue to remain a niche as Cantabil Retail India Ltd. exclusively operates through EBO, catering to the price-sensitive mid-premium market, primarily in Tier 2 and beyond. This approach may offer good growth visibility over the medium term and strong control over brand presentation, but it also introduces a few questions on how large the category can become over the long term. We have seen this in other businesses like TCNS Clothing which has struggled to grow at a fast pace once the existing market was well penetrated in the metros and Tier I India.

Raw material: Cotton is a key material for Cantabil Retail India Ltd & cotton has remained volatile in the past. As Cantabil Retail India Ltd. caters to a relatively price-sensitive mid-premium market, any increase in the price of cotton could squeeze profitability of Cantabil Retail India Ltd

Geographical Concentration Risk: Cantabil Retail India Ltd. warehouses, manufacturing plant and sourcing partners are based in a single geographical region, any disruptions in the region can impact its supply chain. Additionally, 88% of Cantabil Retail India Ltd sales is from North & West India. An economic slowdown in these regions could significantly impact Cantabil Retail India Ltd.

Cantabil Retail India Ltd Future Outlook

The management of Cantabil Retail India Ltd. aims to achieve an ambitious growth target of 1000 cr by mid-FY27, implying a 20% CAGR with an EBITDA% of 28–30% (postponed from FY26 due to a slowdown in consumer discretionary). Cantabil Retail India Ltd. also plans to expand its store network to 700, with a focus on exclusive women & kid wear stores in Tier 2 and Tier 3 cities.

Management has plans to widen its customer base by adding new customers to existing markets and increasing the wallet share of existing customers by adding more product lines and Target to increase revenue contribution from the E-com from the current 5.7% to around 10% in the next 2 years. The investment in a new multi-level warehouse facility along with a corporate office will result in lower costs, higher efficiencies, and better inventory and supply chain management.

Cantabil Retail India Ltd Technical Analysis

We consider technical analysis to be a useful input in taking medium-term investment decisions in Microcap Stocks. Many a time price action tends to lead to fundamental developments; this is too important an aspect to be ignored by retail investors who do not have access to management outside of common forums like investor calls & AGM.

At Congruence Advisers we like to consider both the long-term weekly chart and the daily chart to arrive at a view on price action. Combined with our understanding of fundamentals, we usually end up being better placed to be able to judge both the business cycle and the stock cycle. Playing the stock cycle right is extremely important for investors looking to extract significant alpha over the medium term.

Cantabil Retail India Ltd Price Charts

On the monthly chart, Cantabil Retail India Ltd is showing a sustained long-term trend where the risk reward is more in the investors favour today after the price consolidation since mid of 2022. Investor return has been good whenever the entry point has been closer to the long-term trend line.

On the weekly chart too, the stock price is showing indications of coming out of the price consolidation pattern since its peak in September 2022. FY25 and FY26 earnings would be the key determinant of returns from here, given that the stock price isn’t cheaply valued.

Cantabil Retail India Ltd Latest Latest Result, News and Updates

Cantabil Retail India Ltd Latest Quarterly Results

Cantabil Retail India Ltd has been growing steadily even in a difficult year like FY24 for the consumer discretionary segment. Revenue for FY24 grew 12% YoY with Q4 FY24 showing a steady performance

Key Performance Indicators

• Sales grew by 12% (Y-o-Y), Gross profit% stood at 49.7% & EBITDA% at 22.6% impacted by Seasonality i.e higher discount during Q4 & Onetime Inventory provision of 2.64 Cr in Q4 FY24.
• Volume growth for Q4FY24 stood at 6.2 % (Y-o-Y)
• SSSG continue to decline for 4th consecutive Quarter, SSSG for Q4FY24 stood at -4%
• As demand improvement seen in March & April, Management has indicated positive SSSG for Q1 & Expect healthy SSSG at 6-7% in FY25
• Cantabil Retail India Ltd. added net 22 Stores (opened 26 & relocated/closed 4) in Q4 FY24 & Plant expansion is expected to be operational in Q1FY25

To improve the SSSG, management has implemented new incentive programs for both store-level and individual staff, as well as category-specific incentives & expanded its product offerings with new styles and categories like cargos, flexible shirts, and bold prints, while also tailoring products for specific geographical regions. 

Pref Allotment to FII & Promoter Buying from open market

Recently on 22 Feb 2024, Cantabil Retail India Ltd raised 50 Cr by allotting 20 lakh shares at Rs.250 per share to FII (Think India Opportunities Master Fund LP) on a preferential basis.

Cantabil Retail India Ltd decision to allow FII investment is driven by the FII desire to participate in Cantabil Retail India Ltd’s growth and contribute to its success. The infusion of cash will strengthen Cantabil Retail India Ltd financial position, which will enable Cantabil Retail India Ltd to have better negotiation power and improve its gross profit margin. Cantabil Retail India Ltd plans to utilise the investment mainly towards working capital.

On May 24 and June 24, Promoter Vijay Bansal and his son Deepak Bansal purchased 6.79 lakh shares through open market at an average price of ₹218/share, which is 0.70% of Cantabil Retail India Ltd market cap as of 4 July24. This shows confidence in Cantabil Retail India Ltd from both external investors and company leadership.

Final thoughts on Cantabil Retail India Ltd

Cantabil Retail India Ltd offers the interesting prospect of a business that has made mistakes in the previous run, fine tuned its business model and is today among the better run businesses in the branded garments sector. The management team has displayed tremendous attention to detail in scaling up the business without diluting capital efficiency and unit economics over the years. With India’s consumption cycle set to get better over the next few years, Cantabil Retail India Ltd offers a very interesting opportunity if the management can execute on the growth targets.

While well run consumer stories have never traded at cheap valuation in India, investors today need to be wary of paying high valuation for businesses as the bull market currently underway matures. The current TTM PE multiple of 40+ is higher than the 10 year average and discounts healthy growth over FY25 and FY26. The biggest decision point will be if Cantabil Retail India Ltd can continue its growth trajectory over the long term once it has managed to successfully penetrate its core markets. The most highly valued consumer businesses in India have all proven their long term growth potential, which is why investors estimate the terminal value to be high and are willing to look past high entry valuation in an absolute sense.

Category expansion in adjacencies and the ability to broad base distribution channels over the long term will remain the key aspects of the business in our opinion. A niche business becoming a successful pan India player across many categories also calls for a lot of depth in the management team, investors should track and evaluate all of these qualitative aspects before deciding to invest into a business of this nature.

Disclaimer – This note is part of a business research & analysis series on small companies, there is no BUY/SELL recommendation or target price issued as part of this. There is no assurance that this stock makes for a good investment, there is no guarantee that this stock will be included in the coverage universe of Congruence Advisers. The note contains some forward-looking statements and insights drawn from the historical results, annual reports and investor presentations; they are to be viewed only within this context and not as a prediction of future performance of the business or the stock covered.

While due care has been taken to ensure that the information here is as accurate as possible, Congruence Advisers disclaims any liability in case of any unintentional inaccuracies. 

The content does not constitute investment advice.

Disclosure (Updated as of Sep 30, 2024) – No position in the stock