Grappling With Slowdown, Indians Are Buying Less Innerwear

As consumption slows, Indians are buying less of cars to shampoos. And fewer underwear.

The aggregate revenue of Lux Industries Ltd., Rupa & Company Ltd., Dollar Industries Ltd. and Page Industries Ltd. rose 4.5 percent in three months ended March, the slowest pace of growth in six quarters. Page Industries, India's largest maker of innerwear by revenue, was the biggest drag.

While a high revenue base in the comparable quarter last year contributed to slower growth, there was also a general slowdown in consumption, according to Rusmik Oza, head of research at Kotak Securities. Distress in the rural segment has adversely impacted demand for the mass-category innerwear, he said.

Indians cut spending on boxers to bloomers as the economy sees a decline in demand. And liquidity crunch stemming from last year's IL&FS crisis has aggravated the slump. Car sales tumbled to their lowest in eight years in April, and were down in May as well. Volume growth of consumer goods makers has eased. All that showed up in the pace of GDP expansion, which fell to a 20-quarter low.

Page Industries reported a mere 1 percent rise in volumes in the fourth quarter and its profit plunged nearly 20 percent. The maker of Jockey underwear and Speedo swimwear, in an earnings call, attributed that to lack of cash at the distributor and retail level. The company said it had built up large inventory in the past few months anticipating demand, but sales were below expectations.

Rupa & Company's revenue declined. Anand Rathi, in a report, said poor liquidity in distribution channels and operational challenges hurt profitability of Dollar Industries.

Lux Industries, however, bucked the trend, posting a double-digit revenue growth. Does that suggest a shift to cheaper brands or even unbranded products?

Oza doesn't think so. The penetration of premium category innerwear products has improved in tier 2 and 3 cities, providing maximum growth potential to the sector, he said.

Credit Suisse agreed. Van Heusen, a unit of Aditya Birla Fashion and Lifestyle Ltd. and maker of namesake premium underwear, can change competitive dynamics because of its better production and distribution ability, the brokerage said.

But consumers will turn more cautious on spending if the slowdown, particularly in the rural economy, persists.

Dollar Industries said that it didn't witness its premium users switch to mid-segment brands. The unorganised sector, with whom innerwear makers deal with for raw material and supplies, still faces a “dearth of capital” due to the government's economic reforms in the last two years, Vinod Kumar Gupta, the company's managing director, told BloombergQuint.

BloombergQuint awaits responses from the three other innerwear makers on emailed queries regarding falling demand and growth outlook.

Shares of all the four makers of innerwear have tumbled so far this year, with Page Industries leading the rout. In part, that can be attributed to volatility ahead of polls.

Some of that is still prevailing, said Oza. He would wait to seen if revenues improve in the ongoing quarter.

“If there's no improvement in the first half (of the financial year 2019-20) then there's a serious issue,” he said. “Because that's tantamount to saying there's a real slowdown and that could lead to suppression of valuations going forward.”

Watch the interview with Vinod Kumar Gupta, MD of Dollar Industries: