DOCUMENTATION ON PROVOGUE BRAND

Assignment-01

NIFT gandhinagar

SUBMITTED TO ndashMRBHARAT JAIN SUMBITTED BY-ANUJ KUMAR

MFTECH

3rd sem

Provogue

About

Provogue (India) Limited is a retailer of fashion apparel and accessories for men and women The Company is engaged in manufacturing and trading of textile and related products The Company operates in three segments manufacture and trading of textile and related products infrastructure activities and other activities The Company through its subsidiary Prozone Enterprises Pvt Ltd is developing properties for commercial purposes including the development of shopping malls It retails its products through exclusive Provogue Stores and by opening shop-in shop outlets in national chain stores (NCS) and multi-brand outlets (MBO) As of March 31 2009 Provogue fashions and accessories were available across 126 Provogue stores and 110 shop-in shops During the fiscal year ended March 31 2009 the Company acquired Equity of Flowers Plants amp Fruits Private Limited and Provogue Infrastructure Private Limited

Provogues product portfolio is designed to express a lifestyle statement and consists of a wide range of products for customers in the age group of 20 to 40 years old The mens apparel range consists of casuals and formal wear includingShirts Trousers T Shirts Sweaters Shorts Suits amp Jackets The womensapparel range consists of western wear Tops Trousers Skirts Jackets andBlousesComplementing the apparel line Provogue also merchandises fashionable accessories such as Ties Socks Handkerchiefs Belts Wallets EyewearBags and Caps for men and chic Belts Handbags Eyewear and Scarvesfor womenScaling up its brand image Provogue has further extended its productportfolio to include footwear for men innerwear for men and will shortlylaunch a range of personal care products focusing on perfumery anddeodorants for men and womenbullbullbull

Manufacturing

Provogue is integrated backwards with its manufacturing facility at Daman just north of Mumbai The Daman plant has a capacity to manufacture900000 pieces per annum in shirts and trousers and is focused on the fast to-market fashion collection

Reach Provogues fashionable and innovative merchandise is available through its 64 exclusive Provogue Studios spread across 31 cities in the country The products are also available at National Chain Stores like Shoppers Stop Globus Lifestyle Westside Piraymd Pantaloon andCentral as well as Multi-Brand Outlets across the country

Exports

Provogue has developed an export business of textile products through the acquisition of Acme Global This business provides an all-round solution to its customers by supplying a range of fabrics fabric designs dyestuffs and connected machinery

Performance

During 2005-06 Provogue recorded sales of Rs 1597328 lacs compared to sales of Rs 1152483 lacs during the previous year a growth of 39 The company recorded an EBITDAmargin of 1380 The profit after tax of the company increased from Rs 72341 lacs in 2004-05 to Rs 128718 lacs in 2005-06 an increase of 78 The companys shares are listed on the Bombay Stock Exchange and the National Stock Exchange The stock price of the company on 31st March 2006 was Rs35350 and the market capitalization as on 31st March 2006 wasRs5725852 lacs

The integrated Provogue business model

The Provogue business model revolves around its strong fashion brand Leveraging the Provogue brand generatesshareholder value We do this by integrating forward and then create further value by integrating backward creating abusiness model that is highly scalable and value accretive The investments and strategy behind the Provogue brandhave built high share-of-mind with its customers In order to create deeper market penetration the product range has beenextended from menswear to womenswear footwear and accessories As the product range increases the retail space requirements increase thereby increasing revenues To support the front end in the fast-changing fashion businessdesign and manufacturing need to be under tight control Provogue has invested in its own design studio and isintegrated backwards into manufacturing to ensure lower time-to-market and higher margins for the companyOutsourcing is the solution for the garments and accessories not manufactured in-house Great care is taken in theselection of outsourced vendor-partners to meet our quality

and cost criteria and maintain our brand reputation going forward Brands dont survive without constant reinvention and investment and the brand continues to lead our strategic directions Building a brand means we have to be ahead-of-the-curve inunderstanding the fashion needs of the Indian consumer and particularly the youth segment that represents 60 of thepopulation Our biggest opportunity lies in the youth of India25 of the worlds population under 25 are Indians today Strong brands that win loyalty in this age group can grow withthem as they grow As we see it we are building a customer loyalty group for a lifetime The Provogue brand representsthe confidence the change in attitude and the aspirations of new India During the year we have invested intelligently to align thebrand with some of the best events associated with Indian youth including the sponsorship of several of the years mostsuccessful Bollywood movie releases Provogue also continues a strong print advertising campaign in the broadsheet press fashion business and lifestyle publications and magazines A fresh approach to advertising was initiated recently by advertising in the in-flight magazines of Jet Airways amp Indian Airlines Cricket is almost a religion in India And what better way torelate to our customers than to connect with this game Provogue sponsored outdoor advertising for the India-Sri Lanka Test Series which was held across the country which not only ensured

total coverage of the stadium audience but also garnered maximum television coverage at no extra cost A strong brand delivers economies Provogue knows that aA new personal products range of perfumes and deodorants for men and women will be launched in the coming seasons

Forward integration

Products

The product portfolio of Provogue consists of a wide range of products for men and women The products have beendesigned to express a lifestyle statement that the consumer can choose

Fashion

Mens

Menrsquos range consists of Shirts Trousers TShirts Sweaters Shorts Innerwear Suits and Jackets The

womens

wear range consists of western wear Tops TrousersSkirts and Jackets Our products cater to the fashion wearsegment for the target consumer in the age group of 20 to 40years Provogue has a professional in-house design team tomanage the entire design process

Footwear Footwear is a natural progression for a brandhaving presence in apparel With 70 of the footwear marketin India still unorganized Provogue has recently entered thefootwear segment under its own brand nameFootwear has a large branded penetration with the Rs 80billion Indian footwear market growing at over 10 per annumProvogue entered into a licensee agreement with MampBFootwear to source footwear while its design team worksclosely with MampB for product introduction

Accessories Provogue enhances its fashion collection with itsown branded accessories range which includes Ties SocksHandkerchiefs Belts Wallets Caps Eyewear and Handbagsrolled out in major cities across India once the first stores havebeen properly established

Backward integration

Manufacturing

The fashion business intrinsically means short time-to-market effective planning and the ability to change designs as themarket tastes change Own manufacturing is an advantage in ensuring competitive advantage Our own manufacturing also helps us to control the chain as well as the outsourcing partner relationships from a position of knowledge and strength In addition it helps reduce cost and increase value addition thereby creating shareholder value Provogue set up a manufacturing facility at Daman which now has a capacity of approximately 900000 pieces per annum All manufacturing operations at Daman are subject to strict quality control standards for the entire process The receipt of raw material to the dispatch of finished goods is managed by a team of qualified and experienced professionals We operate a 100 quality check at the fabric stage the ldquoDNArdquoof a garment which involves checking fabric for shrinkage dimensional stability staining spotting and weaving defectsAt the garment stage there is another 100 quality check conducted The plant is currently operating at 90 capacity The Daman unit has Income Tax exemption up to March 2008 and Sales Tax exemption to December 2017Outsourcing The company outsources the balance of its clothing requirements with selected Indian garment manufacturersIn the accessories segment and other categories such as footwear eye wear and inner wear Provogue focuses ondesign and distribution and outsources production to best-inclass vendor-partners Exports Leveraging its knowledge and skills in textile fabrics Provogue entered the textile sector through the acquisition of Acme Global in 2004 The company is registered as an official Export House by the Government of India The bulk of the turnover in this business at present comes from the export of griege (unfinished) and finished fabrics with dyes chemicals and textile machinery constituting 10-15 of the total export turnover The export business division has differentiated itself from its competitors due to its superior printed designs all of which are developed in-house and its ability to provide turnkey solutions on fabric processing to its overseas customersThese factors combined have helped Provogue to build competitive advantage over other exporters both in India andother countries Sales growth of our Export Division is exceptionally high Although net margins are lower than the branded apparelbusiness this revenue generation is of value to our cash flow and we believe that we can grow our existing business for the next several years and build larger markets in Europe and the Americas starting in 2006-07

Retail Formats

Provogue Studios

Provogue has emerged as a leading fashion retailer by reaching out to customers directly through its ProvogueStudio store concept of 800 to 2000 square feet This is a strategic initiative to capture the retail margins ourselvesthereby delivering greater shareholder value over the long term Being in direct retail helps us gather consumer insights andcreate stronger communication with the customers In addition the scalability of the company increases significantlyas the organized retail sector in India is expected to grow at over 30 per annum going forward And with a shift from highstreet into mall retail space the brand Provogue is exposed to millions of Indians who throng to malls and who might nototherwise have been exposed to the brand At the close of the 2005-06 fiscal year we had 64 ProvogueStudios operating in 31 cities throughout India In 2006-07 year we will be opening new Studios at an average rate ofthree per month

New Provogue Mega-Stores

As the company leverages its brand to increase product categories the requirement for larger stores has emergedProvogue is now setting up a new mega-store format with a footprint of 5000 to 7000 square feet The first store will beopened in the second half of 2006-07 and this model will be rolled out in major cities across India once the first stores havebeen properly established

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Provogue

About

Provogue (India) Limited is a retailer of fashion apparel and accessories for men and women The Company is engaged in manufacturing and trading of textile and related products The Company operates in three segments manufacture and trading of textile and related products infrastructure activities and other activities The Company through its subsidiary Prozone Enterprises Pvt Ltd is developing properties for commercial purposes including the development of shopping malls It retails its products through exclusive Provogue Stores and by opening shop-in shop outlets in national chain stores (NCS) and multi-brand outlets (MBO) As of March 31 2009 Provogue fashions and accessories were available across 126 Provogue stores and 110 shop-in shops During the fiscal year ended March 31 2009 the Company acquired Equity of Flowers Plants amp Fruits Private Limited and Provogue Infrastructure Private Limited

Provogues product portfolio is designed to express a lifestyle statement and consists of a wide range of products for customers in the age group of 20 to 40 years old The mens apparel range consists of casuals and formal wear includingShirts Trousers T Shirts Sweaters Shorts Suits amp Jackets The womensapparel range consists of western wear Tops Trousers Skirts Jackets andBlousesComplementing the apparel line Provogue also merchandises fashionable accessories such as Ties Socks Handkerchiefs Belts Wallets EyewearBags and Caps for men and chic Belts Handbags Eyewear and Scarvesfor womenScaling up its brand image Provogue has further extended its productportfolio to include footwear for men innerwear for men and will shortlylaunch a range of personal care products focusing on perfumery anddeodorants for men and womenbullbullbull

Manufacturing

Provogue is integrated backwards with its manufacturing facility at Daman just north of Mumbai The Daman plant has a capacity to manufacture900000 pieces per annum in shirts and trousers and is focused on the fast to-market fashion collection

Reach Provogues fashionable and innovative merchandise is available through its 64 exclusive Provogue Studios spread across 31 cities in the country The products are also available at National Chain Stores like Shoppers Stop Globus Lifestyle Westside Piraymd Pantaloon andCentral as well as Multi-Brand Outlets across the country

Exports

Provogue has developed an export business of textile products through the acquisition of Acme Global This business provides an all-round solution to its customers by supplying a range of fabrics fabric designs dyestuffs and connected machinery

Performance

During 2005-06 Provogue recorded sales of Rs 1597328 lacs compared to sales of Rs 1152483 lacs during the previous year a growth of 39 The company recorded an EBITDAmargin of 1380 The profit after tax of the company increased from Rs 72341 lacs in 2004-05 to Rs 128718 lacs in 2005-06 an increase of 78 The companys shares are listed on the Bombay Stock Exchange and the National Stock Exchange The stock price of the company on 31st March 2006 was Rs35350 and the market capitalization as on 31st March 2006 wasRs5725852 lacs

The integrated Provogue business model

The Provogue business model revolves around its strong fashion brand Leveraging the Provogue brand generatesshareholder value We do this by integrating forward and then create further value by integrating backward creating abusiness model that is highly scalable and value accretive The investments and strategy behind the Provogue brandhave built high share-of-mind with its customers In order to create deeper market penetration the product range has beenextended from menswear to womenswear footwear and accessories As the product range increases the retail space requirements increase thereby increasing revenues To support the front end in the fast-changing fashion businessdesign and manufacturing need to be under tight control Provogue has invested in its own design studio and isintegrated backwards into manufacturing to ensure lower time-to-market and higher margins for the companyOutsourcing is the solution for the garments and accessories not manufactured in-house Great care is taken in theselection of outsourced vendor-partners to meet our quality

and cost criteria and maintain our brand reputation going forward Brands dont survive without constant reinvention and investment and the brand continues to lead our strategic directions Building a brand means we have to be ahead-of-the-curve inunderstanding the fashion needs of the Indian consumer and particularly the youth segment that represents 60 of thepopulation Our biggest opportunity lies in the youth of India25 of the worlds population under 25 are Indians today Strong brands that win loyalty in this age group can grow withthem as they grow As we see it we are building a customer loyalty group for a lifetime The Provogue brand representsthe confidence the change in attitude and the aspirations of new India During the year we have invested intelligently to align thebrand with some of the best events associated with Indian youth including the sponsorship of several of the years mostsuccessful Bollywood movie releases Provogue also continues a strong print advertising campaign in the broadsheet press fashion business and lifestyle publications and magazines A fresh approach to advertising was initiated recently by advertising in the in-flight magazines of Jet Airways amp Indian Airlines Cricket is almost a religion in India And what better way torelate to our customers than to connect with this game Provogue sponsored outdoor advertising for the India-Sri Lanka Test Series which was held across the country which not only ensured

total coverage of the stadium audience but also garnered maximum television coverage at no extra cost A strong brand delivers economies Provogue knows that aA new personal products range of perfumes and deodorants for men and women will be launched in the coming seasons

Forward integration

Products

The product portfolio of Provogue consists of a wide range of products for men and women The products have beendesigned to express a lifestyle statement that the consumer can choose

Fashion

Mens

Menrsquos range consists of Shirts Trousers TShirts Sweaters Shorts Innerwear Suits and Jackets The

womens

wear range consists of western wear Tops TrousersSkirts and Jackets Our products cater to the fashion wearsegment for the target consumer in the age group of 20 to 40years Provogue has a professional in-house design team tomanage the entire design process

Footwear Footwear is a natural progression for a brandhaving presence in apparel With 70 of the footwear marketin India still unorganized Provogue has recently entered thefootwear segment under its own brand nameFootwear has a large branded penetration with the Rs 80billion Indian footwear market growing at over 10 per annumProvogue entered into a licensee agreement with MampBFootwear to source footwear while its design team worksclosely with MampB for product introduction

Accessories Provogue enhances its fashion collection with itsown branded accessories range which includes Ties SocksHandkerchiefs Belts Wallets Caps Eyewear and Handbagsrolled out in major cities across India once the first stores havebeen properly established

Backward integration

Manufacturing

The fashion business intrinsically means short time-to-market effective planning and the ability to change designs as themarket tastes change Own manufacturing is an advantage in ensuring competitive advantage Our own manufacturing also helps us to control the chain as well as the outsourcing partner relationships from a position of knowledge and strength In addition it helps reduce cost and increase value addition thereby creating shareholder value Provogue set up a manufacturing facility at Daman which now has a capacity of approximately 900000 pieces per annum All manufacturing operations at Daman are subject to strict quality control standards for the entire process The receipt of raw material to the dispatch of finished goods is managed by a team of qualified and experienced professionals We operate a 100 quality check at the fabric stage the ldquoDNArdquoof a garment which involves checking fabric for shrinkage dimensional stability staining spotting and weaving defectsAt the garment stage there is another 100 quality check conducted The plant is currently operating at 90 capacity The Daman unit has Income Tax exemption up to March 2008 and Sales Tax exemption to December 2017Outsourcing The company outsources the balance of its clothing requirements with selected Indian garment manufacturersIn the accessories segment and other categories such as footwear eye wear and inner wear Provogue focuses ondesign and distribution and outsources production to best-inclass vendor-partners Exports Leveraging its knowledge and skills in textile fabrics Provogue entered the textile sector through the acquisition of Acme Global in 2004 The company is registered as an official Export House by the Government of India The bulk of the turnover in this business at present comes from the export of griege (unfinished) and finished fabrics with dyes chemicals and textile machinery constituting 10-15 of the total export turnover The export business division has differentiated itself from its competitors due to its superior printed designs all of which are developed in-house and its ability to provide turnkey solutions on fabric processing to its overseas customersThese factors combined have helped Provogue to build competitive advantage over other exporters both in India andother countries Sales growth of our Export Division is exceptionally high Although net margins are lower than the branded apparelbusiness this revenue generation is of value to our cash flow and we believe that we can grow our existing business for the next several years and build larger markets in Europe and the Americas starting in 2006-07

Retail Formats

Provogue Studios

Provogue has emerged as a leading fashion retailer by reaching out to customers directly through its ProvogueStudio store concept of 800 to 2000 square feet This is a strategic initiative to capture the retail margins ourselvesthereby delivering greater shareholder value over the long term Being in direct retail helps us gather consumer insights andcreate stronger communication with the customers In addition the scalability of the company increases significantlyas the organized retail sector in India is expected to grow at over 30 per annum going forward And with a shift from highstreet into mall retail space the brand Provogue is exposed to millions of Indians who throng to malls and who might nototherwise have been exposed to the brand At the close of the 2005-06 fiscal year we had 64 ProvogueStudios operating in 31 cities throughout India In 2006-07 year we will be opening new Studios at an average rate ofthree per month

New Provogue Mega-Stores

As the company leverages its brand to increase product categories the requirement for larger stores has emergedProvogue is now setting up a new mega-store format with a footprint of 5000 to 7000 square feet The first store will beopened in the second half of 2006-07 and this model will be rolled out in major cities across India once the first stores havebeen properly established

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Manufacturing

Provogue is integrated backwards with its manufacturing facility at Daman just north of Mumbai The Daman plant has a capacity to manufacture900000 pieces per annum in shirts and trousers and is focused on the fast to-market fashion collection

Reach Provogues fashionable and innovative merchandise is available through its 64 exclusive Provogue Studios spread across 31 cities in the country The products are also available at National Chain Stores like Shoppers Stop Globus Lifestyle Westside Piraymd Pantaloon andCentral as well as Multi-Brand Outlets across the country

Exports

Provogue has developed an export business of textile products through the acquisition of Acme Global This business provides an all-round solution to its customers by supplying a range of fabrics fabric designs dyestuffs and connected machinery

Performance

During 2005-06 Provogue recorded sales of Rs 1597328 lacs compared to sales of Rs 1152483 lacs during the previous year a growth of 39 The company recorded an EBITDAmargin of 1380 The profit after tax of the company increased from Rs 72341 lacs in 2004-05 to Rs 128718 lacs in 2005-06 an increase of 78 The companys shares are listed on the Bombay Stock Exchange and the National Stock Exchange The stock price of the company on 31st March 2006 was Rs35350 and the market capitalization as on 31st March 2006 wasRs5725852 lacs

The integrated Provogue business model

The Provogue business model revolves around its strong fashion brand Leveraging the Provogue brand generatesshareholder value We do this by integrating forward and then create further value by integrating backward creating abusiness model that is highly scalable and value accretive The investments and strategy behind the Provogue brandhave built high share-of-mind with its customers In order to create deeper market penetration the product range has beenextended from menswear to womenswear footwear and accessories As the product range increases the retail space requirements increase thereby increasing revenues To support the front end in the fast-changing fashion businessdesign and manufacturing need to be under tight control Provogue has invested in its own design studio and isintegrated backwards into manufacturing to ensure lower time-to-market and higher margins for the companyOutsourcing is the solution for the garments and accessories not manufactured in-house Great care is taken in theselection of outsourced vendor-partners to meet our quality

and cost criteria and maintain our brand reputation going forward Brands dont survive without constant reinvention and investment and the brand continues to lead our strategic directions Building a brand means we have to be ahead-of-the-curve inunderstanding the fashion needs of the Indian consumer and particularly the youth segment that represents 60 of thepopulation Our biggest opportunity lies in the youth of India25 of the worlds population under 25 are Indians today Strong brands that win loyalty in this age group can grow withthem as they grow As we see it we are building a customer loyalty group for a lifetime The Provogue brand representsthe confidence the change in attitude and the aspirations of new India During the year we have invested intelligently to align thebrand with some of the best events associated with Indian youth including the sponsorship of several of the years mostsuccessful Bollywood movie releases Provogue also continues a strong print advertising campaign in the broadsheet press fashion business and lifestyle publications and magazines A fresh approach to advertising was initiated recently by advertising in the in-flight magazines of Jet Airways amp Indian Airlines Cricket is almost a religion in India And what better way torelate to our customers than to connect with this game Provogue sponsored outdoor advertising for the India-Sri Lanka Test Series which was held across the country which not only ensured

total coverage of the stadium audience but also garnered maximum television coverage at no extra cost A strong brand delivers economies Provogue knows that aA new personal products range of perfumes and deodorants for men and women will be launched in the coming seasons

Forward integration

Products

The product portfolio of Provogue consists of a wide range of products for men and women The products have beendesigned to express a lifestyle statement that the consumer can choose

Fashion

Mens

Menrsquos range consists of Shirts Trousers TShirts Sweaters Shorts Innerwear Suits and Jackets The

womens

wear range consists of western wear Tops TrousersSkirts and Jackets Our products cater to the fashion wearsegment for the target consumer in the age group of 20 to 40years Provogue has a professional in-house design team tomanage the entire design process

Footwear Footwear is a natural progression for a brandhaving presence in apparel With 70 of the footwear marketin India still unorganized Provogue has recently entered thefootwear segment under its own brand nameFootwear has a large branded penetration with the Rs 80billion Indian footwear market growing at over 10 per annumProvogue entered into a licensee agreement with MampBFootwear to source footwear while its design team worksclosely with MampB for product introduction

Accessories Provogue enhances its fashion collection with itsown branded accessories range which includes Ties SocksHandkerchiefs Belts Wallets Caps Eyewear and Handbagsrolled out in major cities across India once the first stores havebeen properly established

Backward integration

Manufacturing

The fashion business intrinsically means short time-to-market effective planning and the ability to change designs as themarket tastes change Own manufacturing is an advantage in ensuring competitive advantage Our own manufacturing also helps us to control the chain as well as the outsourcing partner relationships from a position of knowledge and strength In addition it helps reduce cost and increase value addition thereby creating shareholder value Provogue set up a manufacturing facility at Daman which now has a capacity of approximately 900000 pieces per annum All manufacturing operations at Daman are subject to strict quality control standards for the entire process The receipt of raw material to the dispatch of finished goods is managed by a team of qualified and experienced professionals We operate a 100 quality check at the fabric stage the ldquoDNArdquoof a garment which involves checking fabric for shrinkage dimensional stability staining spotting and weaving defectsAt the garment stage there is another 100 quality check conducted The plant is currently operating at 90 capacity The Daman unit has Income Tax exemption up to March 2008 and Sales Tax exemption to December 2017Outsourcing The company outsources the balance of its clothing requirements with selected Indian garment manufacturersIn the accessories segment and other categories such as footwear eye wear and inner wear Provogue focuses ondesign and distribution and outsources production to best-inclass vendor-partners Exports Leveraging its knowledge and skills in textile fabrics Provogue entered the textile sector through the acquisition of Acme Global in 2004 The company is registered as an official Export House by the Government of India The bulk of the turnover in this business at present comes from the export of griege (unfinished) and finished fabrics with dyes chemicals and textile machinery constituting 10-15 of the total export turnover The export business division has differentiated itself from its competitors due to its superior printed designs all of which are developed in-house and its ability to provide turnkey solutions on fabric processing to its overseas customersThese factors combined have helped Provogue to build competitive advantage over other exporters both in India andother countries Sales growth of our Export Division is exceptionally high Although net margins are lower than the branded apparelbusiness this revenue generation is of value to our cash flow and we believe that we can grow our existing business for the next several years and build larger markets in Europe and the Americas starting in 2006-07

Retail Formats

Provogue Studios

Provogue has emerged as a leading fashion retailer by reaching out to customers directly through its ProvogueStudio store concept of 800 to 2000 square feet This is a strategic initiative to capture the retail margins ourselvesthereby delivering greater shareholder value over the long term Being in direct retail helps us gather consumer insights andcreate stronger communication with the customers In addition the scalability of the company increases significantlyas the organized retail sector in India is expected to grow at over 30 per annum going forward And with a shift from highstreet into mall retail space the brand Provogue is exposed to millions of Indians who throng to malls and who might nototherwise have been exposed to the brand At the close of the 2005-06 fiscal year we had 64 ProvogueStudios operating in 31 cities throughout India In 2006-07 year we will be opening new Studios at an average rate ofthree per month

New Provogue Mega-Stores

As the company leverages its brand to increase product categories the requirement for larger stores has emergedProvogue is now setting up a new mega-store format with a footprint of 5000 to 7000 square feet The first store will beopened in the second half of 2006-07 and this model will be rolled out in major cities across India once the first stores havebeen properly established

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

The integrated Provogue business model

The Provogue business model revolves around its strong fashion brand Leveraging the Provogue brand generatesshareholder value We do this by integrating forward and then create further value by integrating backward creating abusiness model that is highly scalable and value accretive The investments and strategy behind the Provogue brandhave built high share-of-mind with its customers In order to create deeper market penetration the product range has beenextended from menswear to womenswear footwear and accessories As the product range increases the retail space requirements increase thereby increasing revenues To support the front end in the fast-changing fashion businessdesign and manufacturing need to be under tight control Provogue has invested in its own design studio and isintegrated backwards into manufacturing to ensure lower time-to-market and higher margins for the companyOutsourcing is the solution for the garments and accessories not manufactured in-house Great care is taken in theselection of outsourced vendor-partners to meet our quality

and cost criteria and maintain our brand reputation going forward Brands dont survive without constant reinvention and investment and the brand continues to lead our strategic directions Building a brand means we have to be ahead-of-the-curve inunderstanding the fashion needs of the Indian consumer and particularly the youth segment that represents 60 of thepopulation Our biggest opportunity lies in the youth of India25 of the worlds population under 25 are Indians today Strong brands that win loyalty in this age group can grow withthem as they grow As we see it we are building a customer loyalty group for a lifetime The Provogue brand representsthe confidence the change in attitude and the aspirations of new India During the year we have invested intelligently to align thebrand with some of the best events associated with Indian youth including the sponsorship of several of the years mostsuccessful Bollywood movie releases Provogue also continues a strong print advertising campaign in the broadsheet press fashion business and lifestyle publications and magazines A fresh approach to advertising was initiated recently by advertising in the in-flight magazines of Jet Airways amp Indian Airlines Cricket is almost a religion in India And what better way torelate to our customers than to connect with this game Provogue sponsored outdoor advertising for the India-Sri Lanka Test Series which was held across the country which not only ensured

total coverage of the stadium audience but also garnered maximum television coverage at no extra cost A strong brand delivers economies Provogue knows that aA new personal products range of perfumes and deodorants for men and women will be launched in the coming seasons

Forward integration

Products

The product portfolio of Provogue consists of a wide range of products for men and women The products have beendesigned to express a lifestyle statement that the consumer can choose

Fashion

Mens

Menrsquos range consists of Shirts Trousers TShirts Sweaters Shorts Innerwear Suits and Jackets The

womens

wear range consists of western wear Tops TrousersSkirts and Jackets Our products cater to the fashion wearsegment for the target consumer in the age group of 20 to 40years Provogue has a professional in-house design team tomanage the entire design process

Footwear Footwear is a natural progression for a brandhaving presence in apparel With 70 of the footwear marketin India still unorganized Provogue has recently entered thefootwear segment under its own brand nameFootwear has a large branded penetration with the Rs 80billion Indian footwear market growing at over 10 per annumProvogue entered into a licensee agreement with MampBFootwear to source footwear while its design team worksclosely with MampB for product introduction

Accessories Provogue enhances its fashion collection with itsown branded accessories range which includes Ties SocksHandkerchiefs Belts Wallets Caps Eyewear and Handbagsrolled out in major cities across India once the first stores havebeen properly established

Backward integration

Manufacturing

The fashion business intrinsically means short time-to-market effective planning and the ability to change designs as themarket tastes change Own manufacturing is an advantage in ensuring competitive advantage Our own manufacturing also helps us to control the chain as well as the outsourcing partner relationships from a position of knowledge and strength In addition it helps reduce cost and increase value addition thereby creating shareholder value Provogue set up a manufacturing facility at Daman which now has a capacity of approximately 900000 pieces per annum All manufacturing operations at Daman are subject to strict quality control standards for the entire process The receipt of raw material to the dispatch of finished goods is managed by a team of qualified and experienced professionals We operate a 100 quality check at the fabric stage the ldquoDNArdquoof a garment which involves checking fabric for shrinkage dimensional stability staining spotting and weaving defectsAt the garment stage there is another 100 quality check conducted The plant is currently operating at 90 capacity The Daman unit has Income Tax exemption up to March 2008 and Sales Tax exemption to December 2017Outsourcing The company outsources the balance of its clothing requirements with selected Indian garment manufacturersIn the accessories segment and other categories such as footwear eye wear and inner wear Provogue focuses ondesign and distribution and outsources production to best-inclass vendor-partners Exports Leveraging its knowledge and skills in textile fabrics Provogue entered the textile sector through the acquisition of Acme Global in 2004 The company is registered as an official Export House by the Government of India The bulk of the turnover in this business at present comes from the export of griege (unfinished) and finished fabrics with dyes chemicals and textile machinery constituting 10-15 of the total export turnover The export business division has differentiated itself from its competitors due to its superior printed designs all of which are developed in-house and its ability to provide turnkey solutions on fabric processing to its overseas customersThese factors combined have helped Provogue to build competitive advantage over other exporters both in India andother countries Sales growth of our Export Division is exceptionally high Although net margins are lower than the branded apparelbusiness this revenue generation is of value to our cash flow and we believe that we can grow our existing business for the next several years and build larger markets in Europe and the Americas starting in 2006-07

Retail Formats

Provogue Studios

Provogue has emerged as a leading fashion retailer by reaching out to customers directly through its ProvogueStudio store concept of 800 to 2000 square feet This is a strategic initiative to capture the retail margins ourselvesthereby delivering greater shareholder value over the long term Being in direct retail helps us gather consumer insights andcreate stronger communication with the customers In addition the scalability of the company increases significantlyas the organized retail sector in India is expected to grow at over 30 per annum going forward And with a shift from highstreet into mall retail space the brand Provogue is exposed to millions of Indians who throng to malls and who might nototherwise have been exposed to the brand At the close of the 2005-06 fiscal year we had 64 ProvogueStudios operating in 31 cities throughout India In 2006-07 year we will be opening new Studios at an average rate ofthree per month

New Provogue Mega-Stores

As the company leverages its brand to increase product categories the requirement for larger stores has emergedProvogue is now setting up a new mega-store format with a footprint of 5000 to 7000 square feet The first store will beopened in the second half of 2006-07 and this model will be rolled out in major cities across India once the first stores havebeen properly established

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

total coverage of the stadium audience but also garnered maximum television coverage at no extra cost A strong brand delivers economies Provogue knows that aA new personal products range of perfumes and deodorants for men and women will be launched in the coming seasons

Forward integration

Products

The product portfolio of Provogue consists of a wide range of products for men and women The products have beendesigned to express a lifestyle statement that the consumer can choose

Fashion

Mens

Menrsquos range consists of Shirts Trousers TShirts Sweaters Shorts Innerwear Suits and Jackets The

womens

wear range consists of western wear Tops TrousersSkirts and Jackets Our products cater to the fashion wearsegment for the target consumer in the age group of 20 to 40years Provogue has a professional in-house design team tomanage the entire design process

Footwear Footwear is a natural progression for a brandhaving presence in apparel With 70 of the footwear marketin India still unorganized Provogue has recently entered thefootwear segment under its own brand nameFootwear has a large branded penetration with the Rs 80billion Indian footwear market growing at over 10 per annumProvogue entered into a licensee agreement with MampBFootwear to source footwear while its design team worksclosely with MampB for product introduction

Accessories Provogue enhances its fashion collection with itsown branded accessories range which includes Ties SocksHandkerchiefs Belts Wallets Caps Eyewear and Handbagsrolled out in major cities across India once the first stores havebeen properly established

Backward integration

Manufacturing

The fashion business intrinsically means short time-to-market effective planning and the ability to change designs as themarket tastes change Own manufacturing is an advantage in ensuring competitive advantage Our own manufacturing also helps us to control the chain as well as the outsourcing partner relationships from a position of knowledge and strength In addition it helps reduce cost and increase value addition thereby creating shareholder value Provogue set up a manufacturing facility at Daman which now has a capacity of approximately 900000 pieces per annum All manufacturing operations at Daman are subject to strict quality control standards for the entire process The receipt of raw material to the dispatch of finished goods is managed by a team of qualified and experienced professionals We operate a 100 quality check at the fabric stage the ldquoDNArdquoof a garment which involves checking fabric for shrinkage dimensional stability staining spotting and weaving defectsAt the garment stage there is another 100 quality check conducted The plant is currently operating at 90 capacity The Daman unit has Income Tax exemption up to March 2008 and Sales Tax exemption to December 2017Outsourcing The company outsources the balance of its clothing requirements with selected Indian garment manufacturersIn the accessories segment and other categories such as footwear eye wear and inner wear Provogue focuses ondesign and distribution and outsources production to best-inclass vendor-partners Exports Leveraging its knowledge and skills in textile fabrics Provogue entered the textile sector through the acquisition of Acme Global in 2004 The company is registered as an official Export House by the Government of India The bulk of the turnover in this business at present comes from the export of griege (unfinished) and finished fabrics with dyes chemicals and textile machinery constituting 10-15 of the total export turnover The export business division has differentiated itself from its competitors due to its superior printed designs all of which are developed in-house and its ability to provide turnkey solutions on fabric processing to its overseas customersThese factors combined have helped Provogue to build competitive advantage over other exporters both in India andother countries Sales growth of our Export Division is exceptionally high Although net margins are lower than the branded apparelbusiness this revenue generation is of value to our cash flow and we believe that we can grow our existing business for the next several years and build larger markets in Europe and the Americas starting in 2006-07

Retail Formats

Provogue Studios

Provogue has emerged as a leading fashion retailer by reaching out to customers directly through its ProvogueStudio store concept of 800 to 2000 square feet This is a strategic initiative to capture the retail margins ourselvesthereby delivering greater shareholder value over the long term Being in direct retail helps us gather consumer insights andcreate stronger communication with the customers In addition the scalability of the company increases significantlyas the organized retail sector in India is expected to grow at over 30 per annum going forward And with a shift from highstreet into mall retail space the brand Provogue is exposed to millions of Indians who throng to malls and who might nototherwise have been exposed to the brand At the close of the 2005-06 fiscal year we had 64 ProvogueStudios operating in 31 cities throughout India In 2006-07 year we will be opening new Studios at an average rate ofthree per month

New Provogue Mega-Stores

As the company leverages its brand to increase product categories the requirement for larger stores has emergedProvogue is now setting up a new mega-store format with a footprint of 5000 to 7000 square feet The first store will beopened in the second half of 2006-07 and this model will be rolled out in major cities across India once the first stores havebeen properly established

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Backward integration

Manufacturing

The fashion business intrinsically means short time-to-market effective planning and the ability to change designs as themarket tastes change Own manufacturing is an advantage in ensuring competitive advantage Our own manufacturing also helps us to control the chain as well as the outsourcing partner relationships from a position of knowledge and strength In addition it helps reduce cost and increase value addition thereby creating shareholder value Provogue set up a manufacturing facility at Daman which now has a capacity of approximately 900000 pieces per annum All manufacturing operations at Daman are subject to strict quality control standards for the entire process The receipt of raw material to the dispatch of finished goods is managed by a team of qualified and experienced professionals We operate a 100 quality check at the fabric stage the ldquoDNArdquoof a garment which involves checking fabric for shrinkage dimensional stability staining spotting and weaving defectsAt the garment stage there is another 100 quality check conducted The plant is currently operating at 90 capacity The Daman unit has Income Tax exemption up to March 2008 and Sales Tax exemption to December 2017Outsourcing The company outsources the balance of its clothing requirements with selected Indian garment manufacturersIn the accessories segment and other categories such as footwear eye wear and inner wear Provogue focuses ondesign and distribution and outsources production to best-inclass vendor-partners Exports Leveraging its knowledge and skills in textile fabrics Provogue entered the textile sector through the acquisition of Acme Global in 2004 The company is registered as an official Export House by the Government of India The bulk of the turnover in this business at present comes from the export of griege (unfinished) and finished fabrics with dyes chemicals and textile machinery constituting 10-15 of the total export turnover The export business division has differentiated itself from its competitors due to its superior printed designs all of which are developed in-house and its ability to provide turnkey solutions on fabric processing to its overseas customersThese factors combined have helped Provogue to build competitive advantage over other exporters both in India andother countries Sales growth of our Export Division is exceptionally high Although net margins are lower than the branded apparelbusiness this revenue generation is of value to our cash flow and we believe that we can grow our existing business for the next several years and build larger markets in Europe and the Americas starting in 2006-07

Retail Formats

Provogue Studios

Provogue has emerged as a leading fashion retailer by reaching out to customers directly through its ProvogueStudio store concept of 800 to 2000 square feet This is a strategic initiative to capture the retail margins ourselvesthereby delivering greater shareholder value over the long term Being in direct retail helps us gather consumer insights andcreate stronger communication with the customers In addition the scalability of the company increases significantlyas the organized retail sector in India is expected to grow at over 30 per annum going forward And with a shift from highstreet into mall retail space the brand Provogue is exposed to millions of Indians who throng to malls and who might nototherwise have been exposed to the brand At the close of the 2005-06 fiscal year we had 64 ProvogueStudios operating in 31 cities throughout India In 2006-07 year we will be opening new Studios at an average rate ofthree per month

New Provogue Mega-Stores

As the company leverages its brand to increase product categories the requirement for larger stores has emergedProvogue is now setting up a new mega-store format with a footprint of 5000 to 7000 square feet The first store will beopened in the second half of 2006-07 and this model will be rolled out in major cities across India once the first stores havebeen properly established

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Retail Formats

Provogue Studios

Provogue has emerged as a leading fashion retailer by reaching out to customers directly through its ProvogueStudio store concept of 800 to 2000 square feet This is a strategic initiative to capture the retail margins ourselvesthereby delivering greater shareholder value over the long term Being in direct retail helps us gather consumer insights andcreate stronger communication with the customers In addition the scalability of the company increases significantlyas the organized retail sector in India is expected to grow at over 30 per annum going forward And with a shift from highstreet into mall retail space the brand Provogue is exposed to millions of Indians who throng to malls and who might nototherwise have been exposed to the brand At the close of the 2005-06 fiscal year we had 64 ProvogueStudios operating in 31 cities throughout India In 2006-07 year we will be opening new Studios at an average rate ofthree per month

New Provogue Mega-Stores

As the company leverages its brand to increase product categories the requirement for larger stores has emergedProvogue is now setting up a new mega-store format with a footprint of 5000 to 7000 square feet The first store will beopened in the second half of 2006-07 and this model will be rolled out in major cities across India once the first stores havebeen properly established

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

National Chain Stores

NCS models such as Shoppers Stop Lifestyle Westside Globus Pyramid Pantaloon Central and others who have anational presence all carry the Provogue brand and our sales distribution will grow along with their own expansion plansProvogue currently has presence in over 59 NCS locations and this is expected to increase to 82 locations in 2006-07The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success ofthe NCS models themselves Provogue was the best brand performer for Shoppers Stop in 2005-06 and was awardedtheir prestigious menswear brand of the year

Multi-Brand OutletsMBOs are medium size outlets that sell all brands including Provogue To reach out on a pan-India basis especially to thesmaller cities in India can be cost prohibitive Provogue uses the MBO strategy to spread its reach to smaller towns andleverage the strength of the Provogue brand

Products

Menrsquos Wear bull Polynosic shirts bull Fashion formal shirts bull Linen shirts bull Partyline black shirts bull Printedshirts bull Jackets bull Sweaters bull T Shirts bull Casual shirts bull Formal suits bull Denim bull Track pants bull Formaltrousers bull Casual trousers bull Cargos bull Innerwear

Womenrsquos wear bull Formal tops bull Party tops bull Formal jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim Formal trousers

jackets bull Casual T Shirts bull Fashion T Shirts bull Sweaters bull Denim bull Cargos bullFormal trousersAccessories bull Belts bull Wallets bull Handkerchiefs bull Socks bull

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Eyewear bull Ties bull Caps bull Shoes

The Brand ProvogueImagine this 12 billion people in India 60 below 30 years of age And a clutter of brands in the ready-to-wear apparelsector Not one in fashion Enter Provogue with a mission To create a fashion brand in India for India That truly represents all the characteristic of global fashion Not just any other brand A brand that young India swears by Ask any youth inIndia what does Provogue mean Answer Fashion Thats the strength of the Provogue brand The entire business of the company revolves around the brand and the company has invested judiciously over the past 8 years to build a strong franchise with the consumer17

17Demographics in favourThe Indian demographics are ideal for our present positioning Half of India was born after 1982 India has thelargest and the youngest population in the world With rising aspirations a change in the attitude and confidence of youngIndia rising disposable income and the mood to spend is clearly in our favour India wants to look good be fashionableand is willing to spend to express its attitude This extends throughout the country as 65 million homes are beamedimages of the way the world dresses We couldnt have asked for better demographics We are at the right time inthe right place with the right product17

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Modern Retail at a ldquotipping pointrdquo

Modern retail after a decade of development still represents only 3 of the total retail market Around 150malls are operational and all are doing well There are 500 more coming up in the next five years The mostconservative estimate puts the growth of modern retail at 30 per annum With this shift from traditional to modernretail the front end is getting created for a brand like Provogue

Profit MarginsBeing a branded player Provogue operates at significantly higher margins compared to traditional retailers As thebusiness scales up the margins will improve further We have higher gross margins and EBIDTA margins from ourown stores as compared to sales through NCS and MBOs As the company expands its retail space by opening morenew stores average margins are expected to grow and that will have a positive impact on the bottom line

Exploring Overseas Markets

The company is now planning to diversify by opening retail outlets in international markets as well Once Provoguesuccessfully rolls out its expansion plans in India the overseas market will be the next frontier and the companysmanagement has set its sights high

The Provogue public issueThe shares of Provogue (India) Limited are listed on the Bombay Stock Exchange and the National Stock Exchange the major stock exchanges of India The company issued 4049 lakh equity shares in June 2005 and the issue was oversubscribed 6695 times reflecting investor confidence The equity shares of Rs 10 each were issued at a price of Rs 150 Consequent to this issue the equity shares of the company were listed on NSE and BSE on July 7 2005 As on March 31 2006 reputed institutionalinvestors including mutual funds foreign institutional investors and domestic banks held 1688 of the companys shareholding The closing price of the Provogue share at NSE on July 7 2006 was Rs 20555 implying a market capitalisation of Rs 33292 crores and a shareholder value creation of 3732

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Target market

60 of the Indian population is below 30 years of age and half of them are women Flip is targeted at funlovingfashion-conscious trendsetters from the age group of 12 years and above who also seek value This consumer segment is now even more conscious of her appearance and is demanding while exercising her choices The Fashion accessory market is one of those business sectors where supply can create demand With a target consumer base of over 300 millionwomen there is immense opportunity for growth in the accessories market

Product RangeA dedicated in-house design team has been engaged to track both international and national trends theproduct range is targeted to pamper the Indian consumer who until now has been restricted inchoice Flip carries a comprehensive range of womens hair accessories jewellery - encompassingearrings necklaces bracelets finger and toe rings and many other products - bags belts flip flopsscarves personal care products and miscellaneous items

FormatProvogue decided to create a fresh shopping environment for accessories and opened its firstdedicated fashion accessories Flip store at CenterOne mall in Vashi Mumbai in May 2006

Provoguersquos competitive advantage

BrandProvogues strength and in turn its success is centered around its brand By understanding the tastes preferences andspending habits of this consumer segment Provogue has been successful in establishing a fashion label and a strongbrand A brand that the customers relate to and aspire to buy Our attributes under the brand campaign Provogue -Redefining Fashion are1048698 Bold and Iconic1048698 Style and Contemporary Fashion1048698 Innovative and Change1048698 First mover and NewsworthyExemplifying this Provogue has to its credit won many awards for its fashion and brand image

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Business ModelProvogue is synonymous to fashion and fashion by definition is never constant Always changing In order to ensure fastertime-to-market delivery Provogue has an in-house design team and a beneficial mix of a manufacturing set-up and vendorpartnerships We feel this business model not only ensures better understanding of the value chain but also ensuresmaximum shareholder value Retail Reach As the market gets integrated understanding and being close to the customer becomes even more important Provogue has the advantage of directly reaching its customer by retailing its products through its exclusive Provogue Studios located in high-street areas and new shopping malls Provogue also distributes through National Chain Stores (NCS) and Multi- Brand Outlets (MBO) The importance of NCS is that the brand Provogue gets instant scalability and presence and rides on the success of these NCS MBO are helpful in reaching out on a pan-India basis with reach to smaller towns as wellhence leveraging the strength of Provogue brand Provogue having expanded its product range to include womenswearchildrenwear footwear innerwear and accessories is now opening up larger size Mega Stores of 5000 - 7000 sft to takethis growth further B Scalability The domestic apparel market in India is growing at rate of 13 per annum Besides branded ready-to-wear apparel in India is witnessing a higher growth as compared to unbranded segment Coupled with this growth in the retail sector likelyto grow at 40 annually With Provogue positioned as a fashion label with a comprehensive distribution channel it ensuresimmense increase in scalability for the companyDemonstrating this after the success of mens wear Provogue launched its womenswear which has also received tremendousresponse Scaling up its product portfolio further Provogue has recently entered the footwear segment innerwear formen retailing of fashion accessory through exclusive outlets (called Flip) and personal care products like perfumery anddeodorants (to be launched shortly)C ProzoneThe number of malls in India is expected to rise from 158 in 2005 to 600 by 2010 with 300 malls ready within the next threeyears Leveraging its experience in retail and taking this opportunity further Provogue has decided to enter the retail realestate business through its wholly owned subsidiary Prozone Prozone Enterprises will provide location expertise mallplanning and designing tenant mix planning and mall management expertise to the developer The developments aretargeted at Indias 50 largest cities and will provide consumers with a world-class shopping experience as well as meet theneeds of the Indian consumer53

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

In 2005-06 Prozone advised on 850000 square feet and currently has nine projects in hand the first of which is expectedto be completed by 2008II ExportLeveraging the textile exports opportunity in the post quota regime Provogue entered the international markets through theacquisition of Acme Global a partnership firm during 2004 The Exports division provides an all-round solution to its customersby supplying a range of fabrics fabric designs dyestuffs and associated specialized machinery and machinery parts

opportunities and threats

Provogue addresses the youth of India a segment which represents 60 of the countrys population Provogue believes that withIndia having the largest and the youngest population in the world coupled with favourable demographic trends such as increase indisposable income it provides a significant opportunity for the companys growthProvogue intends to keep pace with the growing opportunity by increasing its product portfolio entering new businesses and inturn create greater shareholder valueThe threats for the company include fashion trends and emerging competition in the category that we operate in

human resource and industrial relations

With the objective to prepare the Company to expand its scale of operations develop new markets compete with global players in global markets company has taken various initiatives to identify the required skill and competency sets Systematic and substantial investment in training and development continuance of productivity improvement efforts and an employeesatisfaction survey are some of the highlights of human resources development activities during the yearThe Company continues to enjoy healthy and productive relationship with employees

Risk management

Fashion RiskFashion risk arises due to the companys inability to set trends and understand changing fashion trendsProvogue is fashion The company is at the forefront of creating fashion trends and not just following them This exposes thecompany to fashion risk The impact of fashion risk in our business means1048698 Low full price sales1048698 Increased inventory and therefore higher markdown1048698 Brand image getting tarnished

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

1048698 Lower sales and marginProvogue mitigates this risk by being closer to the customer through its diversified retail outlets and understanding the changingfashion needs of Indias youth The company also has a talented design team that is constantly mapping fashion trends both in Indiaand abroad Provogue design team also attends various international fashion shows and events to understand the evolving trendsThe company feels it understands this business and its nuances and had a mitigation plan that is appropriate However fashion riskcan never be completely mitigated

Brand RiskBrand risk arises from any event that tarnishes the image of the brand The business model revolves around the brand Provogue The company is therefore exposed to the risk of the brand attributes characteristics and image undergoing a change that does not communicate with the customer This could result in lower sales and margins (tangible) and lower value for the brand (intangible) This risk is mitigated by a corporate wide focus on customer preferences extensive in-house research to maintain the top of the mind recall with the customer base with respect to the brand The company ensures that none of the characteristic and attribute of the brand are compromised with in the communication

Diversification RiskDiversification risk arises due to the company diversifying into other businesses and exposes its core competency to risk

Provogue (India) LimitedProvogue does not believe that entering the retail real estate through its 100 subsidiary Prozone Enterprises Private Limited is adiversification It believes this is an extension of the companys business The company is leveraging its retail understanding andtenant relationships to build a profitable business around retail real estate which it believes will be value accretive for the shareholdersThe company has in the last year advised on 850000 square feet and has now has several of its own projects at various stages ofdiscussion and development The management is confident of creating substantial future value through this initiativeCompetition RiskCompetition risk arises due to more players wanting a share of the limited pieProvogue is exposed to competition risk due to the existence of other branded apparel playersProvogue feels confident of the maintaining its leadership position The Provogue brand is in a differentiated customer segment InIndia it is building brands takes both time and resources and customer loyalties do not switch easily Besides with Provogueopening its Provogue Studios and Mega Stores this risk is further reduced

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55

Credit RiskCredit Risk arises due to the companys debtors not meeting their obligationsTwo of Provogues businesses are exposed to this risk In the domestic branded business sales to national chain stores and multibranch outlets are on a credit basis which is increasing day by day amounting to increase in debtors Our export fabric business istotally credit driven and as overall turnover increases debtors are bound to increaseWhilst both the above factors impact debtor ratios these are offset by increasing sales from own stores driven by the rapid ownstore expansion plansegmentwise performanceThe Company has one reportable business segmentof manufacture trade and sales of textile products and those have beenreported in the notes to accountsoutlookThe Outlook for the company remains encouraging for the following principle reasonsThe Provogue branded business has withstood the test of time and the rate of sales growth as we enter new markets proves thescalability of the business model It is truly accepted fashion leader and will grow as new stores and larger formats are opened andthe Nation Chain Store network expands across IndiaThe Export division continues to outperform its competitors in terms of growth rates and margins and the WTO initiative of 2005supports general high growth of India textile exports to occidental marketsThe Prozone mall development business is off to a strong start and with its first fully developed malls opening in 2008 the prospectsfor value creation are sound and far reachingProvogues strengths in brand development and retail will allow the company to grow other branded businesses in the future from itsexisting resource base providing economies of scale and scope for the companyFinally the strong economics underpinning Indias growth story will benefit the company particularly in the rapid expansion oforganized retail which is forecast to grow at a rate of over 30 CAGR going forwardfinancial performanceThe thrust has been on ensuring significant improvement in operations During the year the Companys aggregate revenues stoodat Rs15973 Crore as compared to the previous years figure of Rs 11525 Crore There was increase in the volume of the sales inthe domestic segment and the export sales also contributed significantly towards the same The profit after tax for the year stoodat Rs1287 Crore which is 805 of the income from operations as against Rs723 Crore which was 627 of the income fromoperations in the previous yearThe Board has recommended a total dividend of 1250 percent an increase of 25 over the previous years rate of 1000 percentOverall your Company believes that the Company is now on a stronger footing and its efforts to improve efficiency productivityand profitability will improve overall returnscautionary statementStatements in the Management Discussion and Analysis describing the Companys objectives expectations or predictions may beforward looking within the meaning of applicable securities laws and regulations Actual results may differ materially from thoseexpressed in the statement Important factors that could influence the Companys operations include supply and demand conditionsaffecting selling prices of finished goods input availability and prices changes in government regulations tax laws economicdevelopments within the country and other factors such litigation and industrial relations55