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African expansion fuels Hela growth

06 Jan 2022

  • IPO scheduled to open on 12 January
Hela Apparel Holdings Ltd., in its Investor Forum held yesterday (5), stated that Hela has leveraged its first-move advantage in Africa, which is the final frontier for manufacturing, as well as competitive advantage in terms of duty-free access to retail markets around the globe and shorter lead times to drive top-line growth. Hela Group Chief Executive Officer (CEO) Dilanka Jinadasa stated that Hela is expected to finish the current financial year ending 31 March 2022 with a top-line exceeding $ 270 million, close to the $ 300 million mark. Commenting on their expansion to Africa, Jinadasa stated: “We started our global expansion in 2015 and at that time, we had to make a very important decision. We could have expanded Bangladesh like a majority of the players in Sri Lanka and abroad, but we realised that in 2015, if we follow that strategy, we would have been the last to enter Bangladesh. In 2015, we could have also explored opportunities like Vietnam chasing the Trans-Pacific Partnership, but then again, we would have been one before the last to enter that region. We wanted to see where we could have a first-move advantage. With Africa being the final frontier when it comes to manufacturing, we decided that is the best place to hedge ourselves in.” Hela ventured into East Africa in 2015, starting with Kenya before expanding to Ethiopia in 2017, and now they are moving into North Africa with Egypt, the process of which is expected to kick-off over the next few weeks. Hela has emerged as one of the leaders in Africa’s apparel revolution and currently accounts for 19% of Kenya’s apparel exports. Therefore, essentially one out of five garments shipped out of Kenya is from a Hela facility. According to Jinadasa, one of the main advantages to Hela in its presence in Africa is that it provides Hela duty-free access to Europe and the African Growth and Opportunity Act which gives duty-free access to the US. Ethiopia especially has some of the world’s best duty-free agreements, where nearly 85% of the world’s retail markets can be accessed duty-free. Therefore, for global brands, Ethiopia represents an ideal one-stop shop. Expanding to Egypt gives Hela access to some of the best quality cotton in the world with very long staple lengths which helps produce high-quality fabric. Furthermore, the fact that it is based in North Africa allows them to access Europe with short lead times of around three to seven days and also, because of its close proximity to the Suez Canal, allows Hela to reach the eastern coast of the US in 12 days. Therefore, Egypt boasts a lot faster lead times when compared to traditional apparel manufacturing destinations in the Indian subcontinent and the Far East, granting Hela a competitive advantage compared to its competitors. Commenting on their customer base, Jinadasa stated: “We have a whole spectrum of customers, be it global lifestyle brands like Calvin Klein and Tommy Hilfiger, leading luxury brands like Karl Lagerfeld, and essential channels like Tesco and Walmart. The rationale for this was carefully calculated; we wanted Hela to be a natural hedge no matter what economic scenario plays out. So, during a potential recession, we can leverage distribution channels like supermarkets, or in times of economic boom we can capture that upside through servicing brands like Karl Lagerfeld and Calvin Klein.” Commenting on the financial performance of the company, Group Chief Financial Officer (CFO) Moiz Rehemanjee pointed out that Hela’s top-line growth is originating largely from Africa. According to him, the momentum that was built up in the second half of FY2021 has continued into the current financial year, ramping up revenue to an estimated $ 270 million for FY2022E and this top line-growth is expected to continue with revenue estimated to reach $ 283 million in FY2023E. He further claimed that based on their forecasts, earnings per share (EPS) is expected to surge by 154% from Rs. 0.89 in FY2021 to Rs. 2.81 in FY2023E. The Hela IPO, which is scheduled to open on 12 January 2022, will offer 267,108,998 new ordinary voting shares to the public, which represents a 20.5% stake in the company at a price of Rs. 15 per share. Through this issue, managed by CT CLSA and CAL, Hela seeks to raise Rs. 4 billion. From the Rs. 4 billion capital raised from the issues, Rs. 999 million will be used for a fabric mill investment with a daily production capacity of between 15 and 30 tonnes to ensure supply chain security. Rs. 596 million will be used for the implementation of the new SAP S/4 HANA Fashion Enterprise Resource Planning (ERP) system. The implementation of this system began in July 2021 and is expected to be completed in two years. The remaining Rs. 2.4 billion will be invested into the subsidiaries of the company of which Rs. 2 billion will be used for settling short-term local debt and Rs. 400 million will be used for productivity enhancement.


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