The Hindu Business Line : Crew B.O.S: Buy

An increasing demand from international retailers for fashion accessories from low-cost countries such as China and India augurs well for revenue growth.

Crew B.O.S is widening its product bouquet, which would help it consolidate its presence in the accessories market. The company has reputed retailers such as Next, Gap and Chico's as its top customers.

Rapid revenue growth

Crew B.O.S supplies fashion accessories that are predominantly leather-based. While leather exports have grown at a modest 4-5 per cent over the past few years, Crew B.O.S' revenues have grown at a compound annual growth of 30 per cent in five years. Profits, too, have been growing steadily.

In FY-05, revenues grew 45 per cent to Rs 80 crore, with bags, wallets and home products accounting for bulk of the revenues.

The share of footwear to the overall revenues also rose to close to 10 per cent. In the just-concluded quarter, Crew B.O.S' revenues more than doubled on a year-on-year basis.

The company's revenue growth is set to continue. As India gains prominence as a low-cost source for textiles, apparels and footwear, the demand for fashion accessories is also likely to pick up.

Crew B.O.S recently set up a subsidiary in Hong Kong, which would help it gain access to lucrative markets in China and other countries in the Far East.

The subsidiary would market its existing range of products and finished leather, of which the company has recently commenced production.

Healthy margins

The multi-fold growth in profits over the past few years has not been only revenue-driven. Margins have also improved on the back of efficient sourcing of raw material and tight control on other expenses.

Margins for FY-05 were at about 15 per cent, which is healthy for a company focussed on the export market.

In the April-June quarter, margins improved by 480 basis points to 12.5 per cent on the back of a significant reduction of raw material cost.

The company is not strained by raw material availability, although leather — its main raw material — is available only seasonally. As most of its manufacturing facilities are export-oriented units, the company can import raw material free of duty.

Crew B.O.S. is investing in backward integration. It recently acquired a leather-processing unit in Punjab. This would provide it a better control over quality and cost and also shorten its lead time.

Margins are however, unlikely to improve substantially from these levels, as competition would keep up the pricing pressure.

Widening product range

Crew B.O.S is widening its product range and is likely to leverage its existing relationship with its customers in selling new products such as men's footwear, automotive apparel and premium blended apparel.

Acquisitions of accessory brands are also on the cards. The company has recently raised $5 million by way of global depository receipts, to be listed shortly on the Luxembourg Stock Exchange.

Crew B.O.S also has plans for the domestic market. It is to set up a retail outlet at Gurgaon, which would sell accessories under its own brand name. A growing presence in the domestic market would help it de-risk its exposure to the export market.

The company would have to invest substantial sums in advertising and distribution to build its presence in the domestic market.

The export market is likely to remain the major contributor of revenues in the medium term.

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