Saurabh Mukherjea of Marcellus Investment Managers said that he switched from buying Jockey's Rs 200 underwear to Trent's Zudio's Rs 100 ones, and also buys trousers of the same brand costing Rs 999.
Mukherjea’s revelation was to drive home the underlying trend that is causing mid-sized companies and challenger brands to grow faster than their established counterparts by taking away market share from local unorganized players.
Speaking at a press briefing, Mukherjea shared insights from the data-crunching exercise done on 30,000 listed and unlisted companies by his investment firm, Marcellus Investment Managers, which showed that small companies or ‘challengers’ have been the fastest-growing segment over the past 10 years, from FY12 to FY22 (the latest year for which data was available), racing ahead of even their larger counterparts by taking away market share from small unorganised players, which were struggling to grow post-pandemic.
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Mukherjea pointed out that both brands (Jockey and Zudio) use cotton, raising the question of how Zudio manages to offer such a competitive price. His answer is that Zudio is making lower margins but achieving higher Return on Capital (ROC) by turning over inventory almost six times faster than other retail players. This, however, is only part two of the story. Part one of the story, which is the question of what is facilitating this, involves macro-level changes that include increasing road connectivity, digitisation, and cheaper data costs.
Mukherjea said that Zudio's ability to quickly track and move inventory across warehouses and stores is key to their efficiency. This process has become faster because of a strong road network, which has tripled in the last 20 years, and cheaper data costs in India. Marcellus ' Consistent Compunders Portfolio has a 9.2 percent stake in Trent, which houses the Zudio chain of stores.
Mukherjea further said that Zudio opens approximately 200 stores annually. "Logically, one might expect overall sales per square foot to decline as new stores take time to mature. However, a new Zudio store tends to take over around x percentage of sales from local players when it starts,” he said. He also said that his firm’s channel checks revealed that in markets where Zudio opened stores, local companies ended up losing significant market share.
According to the Marcellus study, challengers, which constitute 5,000 companies with net profits ranging from $6-60 million, compounded PAT at 16 percent per annum compared to the ‘rulers.’ Rulers constitute the Top 800 companies with PAT more than $60 million. These companies showed 15 percent annualised growth per annum. The faster growth of challengers came at the cost of small companies in the unorganized segment, constituting 95 percent of India’s companies by count that contribute only to 15 percent of total profits – a segment Marcellus calls ‘plebeians.’ These companies saw profit grow at 5 percent CAGR over the 10-year period from FY12-FY22.
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