Priti International Limited – “Green” Light !

Enterprise Resilience is the ability and capacity to withstand systematic discontinuities and adapt to new risk environments.

A resilient organisation survives and finds ways out of adverse macro situations. We tried to find companies which did well during past 2 years of COVID situation. Mostly  we found technology , speciality chemicals , digital , energy themes played out during this time. Most of these companies are exorbitantly priced and next several years of earnings already built in the price. Hence , we decided to look beyond these themes and tried to find themes which are still in the nascent stage and have a long way to go. 

If we categorise major bull phases in India , we can always see a bull market in technology is mostly followed by good performance of the consumption sector(consumer durables , appliances,furnitures,staples etc.)

Sector Rotation Chart (India) –

Present technology bull market started at the peak of COVID wave in 2020 and has already passed the peak. The next obvious theme in line is probably consumption sector as there have been very good salary hikes in the IT sector and due to changed buying preferences during COVID time.

One such SME company which did well during COVID time is Priti International Limited. Since it is a SME company , we will try to understand and discuss the business model, present and future prospects of this company in detail

About the company –

The company was originally incorporated as “Priti International Limited” at Jodhpur , Rajasthan . The company acquired the Sole Proprietorship Concern of Promoter Priti Lohiya “Priti International” through a business succession agreement. Priti International was operational since 2005 and acquired by Priti International Limited.  

Priti International was funded through loans from the promoters. But after the acquisition , the loans were converted into equity. They issued about 3,00,000 shares at Rs. 75 per share to convert their loans of 2.24cr(the company is now debt free).

The company is engaged in the manufacturing and exporting of handicraft products. The company also deals in the upcycling and recycling of waste material. It manufactures furniture using waste metal and wooden articles .Priti has has two manufacturing facilities in Jodhpur. The company used the fund raised from the IPO for the establishment of a new unit. The new unit will produce handicraft products to cater the needs of the domestic market.

The company incorporates uniqueness and creativity in its products. Its products are also based on India’s diverse culture and traditions. PIL’s product portfolio includes coffee tables, shelves, dining tables, beds etc.

Competitive Strengths –

The company has an experienced management team with many years of experience – almost over a decade. The individual promoters Ritesh Lohiya and Priti Lohiya have vast experience in different fields as prior to starting PIL, they tried their luck at stone-cutting , chemicals,healthcare  etc. After tying different business in different sectors , they finally came up with a unique idea .The promoters epitomise Enterprise Resilience and that has propelled the company.It will help the company to adapt to new risk environments and withstand discontinuities.

Apart from that , the company also has a scalable business model. Priti’s business model is mainly customer centric and order driven. For this reason , their products are tailored to the customer’s needs. The business model , as the company explores and meets the requirements of its customers by supplying high quality furniture ,  is scalable. The scale generation is due to the development of new markets and constant innovation of new products.

From time to time , Priti also trains its employees to improve product quality and build strong customer relationships.

The company caters to customers located in countries such as Spain , Belgium , Holland, Turkey , England , China , Greece , Germany etc. Catering to export markets will help the company expand overseas. The company markets its products by participating in fairs and product exhibitions in various geographies(thus reaching new customers).

Revenue Distribution from Various Countries –

Country	% of Total Revenue
USA	14%
Holland	45%
China	7%
Spain	15%
Others	19%

The Company is located in Rajasthan , which is one of the major exporters of handicraft products in India. The company can increase its customer base and attract more business.

Business Strategy –

Priti caters to international markets. However, the company is witnessing a huge potential in the domestic market. The company has also employed the franchise model to increase its presence in the domestic market. Several outlets have already been set up in Delhi.

In order to successfully produce high quality goods, Priti uses feedback from its customers to improve and develop products. It can make changes to the existing products if required. This creates brand loyalty as customer satisfaction is achieved. Providing excellent services to the satisfaction of consumers will also build up the brand image.

The company also aims to improve functional efficiency to achieve cost reductions and gain a competitive edge.

Product Portfolio –

Product Images –

The average rating for the company’s products on Amazon is 4.1 /5.0 which is decent  

Customer feedback

Most of the customer reviews are positive. However , there some negative reviews as well. For example, problems such as damaging products during delivery or delivering the wrong product were highlighted by customers. Many consumers find Priti’s products affordable and “value for money.” It can also be observed that most of the company’s products are out of stock , meaning that considerable revenue is being generated and less resources are being wasted.  This can also be negative as their products have been out of stock for a long time. The company is takes time to produce the products (as they are tailored to the customer’s needs). Many customers also  highlight the products’ stylish and modern looks , thereby signifying that the company is able to meet its objectives effectively.

Business Process –

First , the company identifies global trends and fashions for different types of furniture , handicraft products , textile products through sources such as social media, fashion and lifestyle magazines etc.

The management procures the raw material according to the design of the product. The raw material changes from product to product. Some of the raw materials required are waste iron , copper, cotton , wood , juts and hardware products such as nuts and bolts.

For textile related handicraft , semi-skilled and skilled workers work on the designing of the new products through stitching and weaving. The products are then sent for dyeing to third party contractors.

For wooden and metal based handicraft products, third party contractors process the raw material according to the required design and send it back to the company. Priti paints the products in house.

Inspection is carried out for checking product quality and the finished products are stored at separate storage locations of the company . Products are dispatched according to the needs of customers and exported to international markets.

Industry –

The handicraft sector employs many people and there is constant supply of labour. It is also important to note that the handicraft sector also makes up a significant share of India’s Exports. There are approximately 67,000 state and regional exporters in India.

The industry is spread all over the country and is decentralised. Most of the manufacturing units are located in rural and small towns. It is the main source of income for rural communities in India.

India’s handicraft exports have increased to 4 billion and is expected to continue to grow  in the coming years.

In recent years , with the emergence of online retail , the accessibility of handicrafts has become more convenient to customers. The company can directly sell its handicraft products to the customers through its website.

An increase in demand from offices and hotels for custom built furniture is also a key driver of the industry. The growing travel and tourism industry have also provided vast opportunities to handicraft , furniture related companies.  The manufacturing of handicraft products requires low capital investments due to lower energy requirements. This has also lead to the industry flourishing.

The confluence of cultures and the trend of showcasing unique products from travel destinations have also lead to the resurgence in demand. China and Vietnam dominate the global furniture market and India is expected to join them in the future. Increased disposable income , population , urbanization , spending on boutique hotels have increased demand for contemporary furniture and handicraft/textile related products.

The Government of India provides  incentives through the Merchandise Export of India Scheme(MEIS) . It has increased the incentive rate from 5 percent to 7 percent. This will lead to reduced production costs and competitive pricing.

There has also been an increase in demand for eco-friendly products from offices , hospitals and hotels . India’s diverse culture fuels the development of new products. The traditional, cultural and artistic values of a place or nation are factors responsible for the escalation in demand for handicraft products.

Competitive Landscape –

Countries such as China are positioning themselves in the manufacturing and exporting of handicraft through better and increased technological support along with Research and Development facilities. Priti also faces competition from private players which have flexible policies and lean structure.

Germany is the major customer of handicraft products and furniture. It is supplied by many European countries. There is fierce price competition due to the increasing quantity of Chinese products. Customers are very price conscious and want value for money. The imports of Chinese products has increased significantly in several countries including Germany.

The international standards for products such as furniture(wooden and metal) are much stricter. Not meeting to these standards can decrease India’s overall share in the market. Countries such as South Africa are producing better quality products at much affordable prices. The quality of competing products is very consistent.

Competing countries are using technology to avoid untimely delivery schedules, improve communication facilities and achieve economies of scale. Better terms of trade by competing countries are also an important factor of the competitive landscape. Large, established players in the industry can easily conduct marketing on a large scale and dominate the market. Small companies , including Priti, don’t have the financial strength to carry out extensive market research and implement the marketing strategy .

Competitors have more variety in terms of products and attract more customers. Priti’s upcycled and creative furniture products are less likely to face  stiff competition in the domestic market i.e India. However, it is likely to face some competition from local players in major handicraft manufacturing states such as Rajasthan.

In fact , Priti International also made its way into OMG Yeh Mera India’s episode(link – https://www.facebook.com/historytv18ind/videos/jugaad-worth-crores/1889839147717056/ ).

Constant monitoring of economic indicators is also required to gain a competitive edge. For instance, stable indicators are likely to provide a boost to the business growth and investments in the long run.

All players in the industry are advised to have a  comprehensive literature and data sheets translated into the national language of the country they are supplying to. A well prepared translation gives an important marketing edge.

Priti International’s Financials –

Profit and Loss Statement

Balance Sheet

Cash Flow Statement 

Key Ratios and Financials

PE Ratio Chart

Risks Associated  with Priti International Limited –

• Delay in installation of Plant and Machinery may subject the Company to risks related to time and cost overrun which may have a material adverse effect on our business, results of operations and financial condition

The company has limited control over the timing and quality of services/equipment offered by third party contractors. The company may be required to incur additional unanticipated costs to remedy any defect or default in their services or products to ensure that the planned timelines are adhered to.

• The company does not own the land where its registered office and manufacturing facilities are situated

The company operates from its registered office at Jodhpur, Rajasthan. The land is taken on lease and the lease agreements are duly entered. If the company fails to renew the leases or fails to renew them under favourable conditions , its operations might get affected adversely. Also , there can be no assurance that the company will be able to find a suitable premises for its unit elsewhere. If the company does not comply with certain terms and conditions related to the leasing , it will be forced to vacate the land and terminate the contract.

• It may suffer loss of business due to duplication of its products/designs by competitors

The company’s success highly depends on the adaptability of designs as per the latest trends and the acceptance of the product in the market. Competitors may try to copy the design and increase their market share , thus hampering Priti’s share. Since the company’s designs are not registered ,it may not be able to claim is rights over it and could suffer loss of income thereby affecting the financial position.

• Priti is subject to foreign currency exchange rate fluctuations which could have a material and adverse effect on its results of operations and financial conditions

Since Priti exports majority of its products , fluctuations in currency exchange rates can have a major impact on the business. None of the foreign currency transactions are hedged by the company. Moreover, since its operating results are expressed in rupees, changes in the value of currencies with respect to the Rupee can have a significant impact on the results.

• Top 10 customers and top 5 customers contribute around 92.97% and 74.64% of  total revenues from operations respectively for the period ended December 31, 2017. Any loss of business from one or more of them may adversely affect  revenues and profitability –

If the product quality is not consistent or does not meet the needs of the customer, the revenue may be adversely affected. However , the composition of revenue from these customers might change as the company adds new customers across different geographies. But there can be no assurance that the company will maintain a long-term relationship with its customers and find new customers in time.

• The company is dependent upon few suppliers for timely supply of raw materials for its manufacturing facilities

Purchases from the top 10 suppliers of the Company contribute more than 64.27 % of its total purchases. The company may not be able to recover from any delay, inadequacy or default in deliveries. It may not be able to source its raw materials in time from alternate suppliers. Non-adherence of suppliers to quality standards and requirements could adversely affect the company’s financial conditions and operations.

• The Company exports its products to countries including Spain, Belgium, Holland, Netherlands, Turkey, England, China, Greece, Germany etc. Any adverse events affecting these countries could have a significant adverse impact on the results from operations

The company derives a considerable amount of revenue from exporting its products to countries such as Spain, Belgium, Holland, Netherlands, Turkey, England, China, Greece, Germany etc. Any adverse changes in the economic conditions(such as a slowdown) of these economies , natural disasters , Indian rupee appreciation (in respect to these currencies) and acts of terrorism will directly affect the revenues and operations of the company. Changes in laws and policies in regard to quality standards may require the company to change its mode of operations or products , thereby affecting its financial condition. There can be no assurance that the company will be able to effectively operate in international markets in the future.

• Certain intermittent processes in the manufacturing of products are outsourced to third party contractors

Certain activities of the production process such as dyeing , cutting, finishing , washing are outsourced to third party contractors. The company does not have any long –term service or manufacturing contracts with these suppliers. There can be no assurance that the suppliers will avoid selling products to competitors. In  addition , the company is also fraught by risk of suppliers withdrawing their service or offering services at better rates to competitors. This can adversely affect the cash flows and financial condition of the company.

• The company does not have any offshore office or business place to look after export operations

The company caters its products to the international markets through Exports. However , it does not have any offshore office or business place to look after export operations. The company may not be able to expand effectively to international markets as it does not own any business places to capitalise business opportunities overseas. This may affect the results of operations and overall profitability of the business.

• Changes in government regulations or their implementation could disrupt  operations and adversely affect our business and results of operations

The handicraft/furniture industry is regulated by laws, rules and regulations framed by the central and state government. If the company fails to comply or implement any amendment/change to the laws(rules and regulations) , the business may be adversely affected. Also, any unfavourable  changes any the incentive rates provided by the government can affect the profitability of the business. The business may not be able to effectively export its products at competitive prices due to high costs of production arising out of lower incentive rates.

Valuation

Conclusion –

Priti International limited is a business which mainly relies on changes in consumer tastes and fashion. This means that Priti should be adept in gauging and identifying future trends and supplying high quality products. Since the company generates a considerable amount of revenue by exporting its products, it is susceptible to foreign currency exchange , changes in government policy and economic conditions . However , the company has several advantages including its strategic location , strong customer relationships , timely delivery of products and experienced management. The company is highly resilient and even made profits during the COVID situation. If the company maintains its optimistic attitude and continues to satisfy its customers , sky is the limit. But the uncertainties and risks that accompany the business also need to be taken into consideration before investing. Overall , the company is worth monitoring closely and keeping track of.

*The information provided by Finance Voyager is for information purposes only and is not intended for advice. Finance Voyager also does not make any recommendation or endorsement as to any investment, advisor or other service or product. The information is only for educational purposes and not buy or sell recommendations.