About Avax Apparels And Ornaments Limited

BUSINESS OVERVIEW

Avax Apparels and Ornaments operates in two distinct business segments:

1. Wholesale Trading
   Engages in the wholesale trading of knitted cloth, directly sourcing from manufacturers and supplying to companies and garment manufacturers in Punjab. The focus is on knitted cloth used for ladies' and gents' jackets, leveraging a geographical advantage by being located in a cloth manufacturing hub. Recent purchase of machinery marks a move toward backward integration for in-house manufacturing, expected to improve profit margins and reduce high working capital requirements.

2. Online Retail of Silver Ornaments
   Offers a wide range of affordable silver ornaments, including silver rings, pajeb, kada, plate sets, glasses, bangles, bowls, chains, and other jewelry. The company specializes in replicating gold jewelry designs in silver and exclusive Punjabi ethnic designs, catering to the growing demand across Indian markets.

The company is led by Managing Director Harinderpal Singh Sodhi, with a background as a Business Manager at Guru Nanak Kissan Sewa Kender, and Executive Director Harish Kumar, previously a business proprietor at Kunika Traders. Their leadership and experience significantly drive business success in both segments. As on September 30, 2024, the Company had 7 employees. The Bankers to the Company are HDFC Bank Limited

INDUSTRY ANALYSIS

Textile Industry in India
India’s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capitalintensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.

The decentralised power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. India’s textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.

In order to attract private equity and employee more people, the government introduced various schemes such as the Scheme for Integrated Textile Parks (SITP), Technology Upgradation Fund Scheme (TUFS) and Mega Integrated Textile Region and Apparel (MITRA) Park scheme.

The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26. India has a 4% share of the global trade in textiles and apparel.

India is the world’s largest producer of cotton. Estimated production stood at 362.18 lakh bales during cotton season 2021-22. Domestic consumption for the 2021-22 cotton season is estimated to be at 338 lakh bales. Cotton production in India is projected to reach 7.2 million tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing demand from consumers.

Production of fibre in India reached 2.40 MT in FY21 (till January 2021), while for yarn, the production stood at 4,762 million kgs during the same period.

India’s textile and apparel exports (including handicrafts) stood at US$ 44.4 billion in FY22, a 41% increase YoY. India’s textile and apparel exports to the US, its single largest market, stood at 27% of the total export value in FY22. Exports of readymade garments including cotton accessories stood at US$ 6.19 billion in FY22.

India’s textiles industry has around 4.5 crore employed workers including 35.22 lakh handloom workers across the country.

The future of the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. India is working on various major initiatives to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on the rise. The government is supporting the sector through funding and machinery sponsoring.

Top players in the sector are achieving sustainability in their products by manufacturing textiles that use natural recyclable materials.

With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. The growth in textiles will be driven by growing household income, increasing population and increasing demand by sectors like housing, hospitality, healthcare, etc.

The technical textiles market for automotive textiles is projected to increase to US$ 3.7 billion by 2027, from US$ 2.4 billion in 2020. Similarly, the industrial textiles market is likely to increase at an 8% CAGR from US$ 2 billion in 2020 to US$ 3.3 billion in 2027. The overall Indian textiles market is expected to be worth more than US$ 209 billion by 2029.

Gems and Jewellery Industry in India
As of February 2021, India’s gold and diamond trade contributed ~7.5% to India’s Gross Domestic Product (GDP) and 14% to India’s total merchandise exports. The gems and jewellery sector is likely to employ ~8.23 million persons by 2022, from ~5 million in 2020. Based on its potential for growth and value addition, the Government declared the gems and jewellery sector as a focus area for export promotion.

The Government has undertaken various measures recently to promote investment and upgrade technology and skills to promote ‘Brand India’ in the international market. The Government has permitted 100% FDI in the sector under the automatic route, wherein the foreign investor or the Indian company do not require any prior approval from the Reserve Bank or the Government of India. The Indian Government also signed a Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE) in March 2022, this will allow the Indian Gems and Jewellery industry to further boost exports. CEPA will provide the industry duty-free access to the UAE market. India’s Gems Jewellery Export Promotion Council (GJEPC) aims to triple its exports to the UAE post the CEPA.

India’s gems and jewellery market size was at US$ 78.50 billion in FY21. Growth in exports is mainly due to revived import demand in the export market of the US and fulfilment of orders received by numerous Indian exhibitors during the Virtual Buyer-Seller Meets (VBSMs) conducted by GJEPC.

India’s gems and jewellery exports reached US$ 39.14 billion in 2021-22, a 54.13% rise from the previous year. In October 2022, India’s gems and jewellery exports was at US$ 1.48 billion. The Government of India is aiming at US$ 70 billion in jewellery export in the next five years (until 2025), up from US$ 35 billion in 2020.

E-commerce Industry in India
In recent years India has experienced a boom in internet and smartphone penetration. The number of internet connections in 2021 increased significantly to 830 million, driven by the ‘Digital India’ programme. Out of the total internet connections, ~55% of connections were in urban areas, of which 97% of connections were wireless. The smartphone base has also increased significantly and is expected to reach 1 billion by 2026. This has helped India’s digital sector and it is expected to reach US$ 1 trillion by 2030. This rapid rise in internet users and smartphone penetration coupled with rising incomes has assisted the growth of India’s e-commerce sector. India’s e-commerce sector has transformed the way business is done in India and has opened up various segments of commerce ranging from business-to-business (B2B), direct-to-consumer (D2C), consumer-to-consumer (C2C) and consumer-to-business (C2B). Major segments such as D2C and B2B have experienced immense growth in recent years. India’s D2C market is expected to reach US$ 60 billion by FY27. The overall e-commerce market is also expected to reach US$ 350 billion by 2030, and will experience 21.5% growth in 2022 and reach US$ 74.8 billion.

The Indian online grocery market is estimated to reach US$ 26.93 billion in 2027 from US$ 3.95 billion in FY21, expanding at a CAGR of 33%. India's consumer digital economy is expected to become a US$ 1 trillion market by 2030, growing from US$ 537.5 billion in 2020, driven by the strong adoption of online services such as e-commerce and edtech in the country.

According to Grant Thornton, e-commerce in India is expected to be worth US$ 188 billion by 2025.

With a turnover of $50 billion in 2020, India became the eighth-largest market for e-commerce, trailing France and a position ahead of Canada.

Propelled by rising smartphone penetration, the launch of 4G network and increasing consumer wealth, the Indian Ecommerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion in 2017.

After China and the US, India had the third-largest online shopper base of 150 million in FY21 and is expected to be 350 million by FY26.

Indian consumers are increasingly adopting 5G smartphones even before the rollout of the next-gen mobile broadband technology in the country. Smartphone shipments reached 169 million in 2021 with 5G shipments registered a growth of 555% year on year 2021. Indian consumers are increasingly adopting 5G smartphones even before the rollout of the next-gen mobile broadband technology in the country. Smartphone shipments reached 150 million units and 5G smartphone shipments crossed 4 million in 2020, driven by high consumer demand post-lockdown. According to a report published by IAMAI and Kantar Research, India’s internet users are expected to reach 900 million by 2025 from ~622 million internet users in 2020, increasing at a CAGR of 45% until 2025.

For the 2021 festive season, Indian e-commerce platforms generated sales with a Gross Merchandise Value (GMV) of US$ 9.2 billion, a 23% increase from last year’s US$ 7.4 billion.

The E-commerce industry has been directly impacting micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well. The Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second-largest E-commerce market in the world by 2034. Technology-enabled innovations like digital payments, hyper-local logistics, analytics-driven customer engagement and digital advertisements will likely support the growth in the sector. India is also planning to introduce Open Network for Digital Commerce (ONDC). ONDC will enable ecommerce platforms to synchronize search results on all the e-commerce platforms and display products and services from every platform. This will further boost business for MSMEs and help fuel India’s e-commerce growth. The growth in the sector will further encourage employment, increase revenues from export, increase tax collection by exchequers, and provide better products and services to customers in the long term.

The Indian e-commerce sector is likely to expand in different markets. India’s e-retail market is expected to continue its strong growth - it registered a CAGR of over 35% to reach ₹1.8 trillion (US$ 25.75 billion) in FY20. Over the next five years, the Indian e-retail industry is projected to exceed ~300-350 million shoppers, propelling the online Gross Merchandise Value (GMV) to US$ 100-120 billion by 2025.

According to Bain & Company report, India’s social commerce gross merchandise value (GMV) stood at ~US$ 2 billion in 2020. By 2025, it is expected to reach US$ 20 billion, with a potentially monumental jump to US$ 70 billion by 2030, owing to high mobile usage.

BUSINESS STRATEGIES

1. Expanding Business Relationships : Focus on building long-term, sustainable relationships with customers to drive revenue growth. Efforts include expanding product offerings, leveraging market expertise, enhancing customer engagement, and delivering greater satisfaction.

2. Improving Operational Efficiencies : Aim to achieve cost reductions and competitiveness through economies of scale, increased regional penetration, and infrastructure optimization. These measures are designed to boost market share and profitability.

3. Optimal Resource Utilization : Continuously optimize resource usage through customized systems and regular policy analysis. Efforts include identifying and addressing bottlenecks, improving efficiency, and fostering an inclusive work culture to ensure employee engagement.

4. Enhancing Production and Product Quality : Prioritize delivering quality products of global standards to ensure customer retention and repeat orders. Emphasis is placed on close customer interactions and employee training to design and deliver client-focused solutions.

5. Building a Professional Organization : Commit to transparency, coordination, and professional management. Maintain a balance of experienced staff and external expertise to strengthen operational and technical capabilities for future growth.

BUSINESS RISK FACTORS

1. Dependence on Key Customers : A significant portion of revenue comes from a limited number of customers. Any adverse developments, disputes, or loss of major customers may reduce cash flows and impact financial stability.

2. Pending Transfer of Statutory Approvals : The company is in the process of transferring key licenses and approvals following its name change. Delays in obtaining these updates may affect business operations.

3. Risk of Unsuccessful New Product Launches : Introducing new brands or products involves substantial costs and risks, including low consumer acceptance, marketing inefficiencies, and disruptions in supply chains. These issues could hinder growth and profitability.

4. Name Change Reflection Issues with Depositories : The company's name change is yet to be fully updated in CDSL and NSDL depository records. This could cause discrepancies in official records, though steps have been taken to rectify the matter.

5. Custodian Reliance for Silver Inventory : The silver ornaments inventory is managed by an external custodian. Failure to renew agreements or find suitable alternatives may disrupt operations and incur additional costs.

6. Geographic Concentration : Operations are concentrated in Punjab, making the business vulnerable to regional economic downturns, local conditions, or natural disasters.

7. Impact of Discretionary Spending : Silver ornaments are luxury purchases dependent on consumer discretionary spending. Economic downturns or reduced disposable income may negatively affect sales and profitability.