I have chosen Lovable Lingerie Ltd. as my stock pick for Investomania. The Company had a market cap. of Rs. 4,119.4 million ($90.7 million) as on March 31, 2011. I think the Company has great potential for value creation as it caters to a market (premium women’s inner-wear) which can be expected to gain foothold in the coming years.

Company Description

Lovable Lingerie Ltd. (LLL) is one of India’s leading women’s inner-wear manufacturers. Its products are sold under the flagship ‘Lovable’ and ‘Daisy Dee’ brands of the company. The Company’s ‘Lovable’ brand is one of the key brands in the premium inner-wear segment and is currently sold in over 1,400 stores across the country. The company procures retail space in large format stores like Westside, Shopper’s Stop, Lifestyle etc. and markets its brands in 127 such counters in 21 cities all across India. The Company has 3 manufacturing facilities of which 2 are situated near Bengaluru and the third one in Roorkee, Uttarakhand. LLL’s operations start from the point of procurement of raw material to cutting, molding, stitching, and dispatch, thereby having a major chunk of operations in the value chain enables it to meet the time, quantity, and quality requirement of its customers.

Industry Profile

The overall inner-wear market (excluding kids) in India was worth Rs. 11,913.0 crores in CY 2009, which has seen a CAGR of 15.8% over the last 4 years. In volume terms, the market for men’s inner-wear segment has a share of around 48.0% while, the women’s inner-wear market has a 52.0% share. In value terms the women’s market has a a much higher 66.0% share as compared to the 34.0% share of the men’s market. Having a larger value share of the market in spite of the fact of lower volumes enables the manufacturers to have a higher average selling price than in the case of men’s inner-wear. The women’s inner-wear market has grown at a CAGR of 16.8% over the last 4 years. Currently the market is fragmented with almost two-third of the market controlled by unbranded, unorganized regional players, while the remaining is controlled by the few big organized and branded players. However the arrival of some international brands has brought about some changes in the market. The companies have been able to market their products through some bold advertisements, fashion shows etc. and have been able to position their products in order to understand and cater to the needs of the customer. The women’s inner-wear market is further classified in to super premium, premium, mid-market, economy, and low-market segment. The mid-market and economic segments account for almost 75.0% of the market. However in recent times the premium and super-premium segments have witnessed the highest growth in terms of volumes which indicates a growing trend in the market to move towards more niche brands. The super-premium and premium segment includes players like Marks & Spencers, Triumph, Loveable, La Senza, and Enamor. LLL also has presence in the economy and mid-segment through its Daisy Dee brand.

Company Profile

LLL’s core competency lies in its understanding of the needs of the women’s inner-wear market and accordingly manufacturing them in order to foray in to untapped segments of the market. LLL’s strong position in the market is on account of its facilities’ connectivity to major cities in India and an in-house product design and development division coupled with the fact that the Company has integrated every stage of its operations with the latest technology. For CY 2010 the company had an installed capacity of 6.8 million pieces and a utilization of 74.6%. Another key advantage for the Company has been its supply chain network. The Company offers multiple brands and due to its mass customization capability,  is able to procure its raw materials in bulk and thereby at cheaper rates. Moreover its distribution channel is spread across 103 distributors in India. The Company caters to more than 1,400 retail outlets for its ‘Lovable’ brand while its ‘Daisy-Dee’ brand is present in over 7,500 outlets across the country. The Company’s flagship brand ‘Lovable’ is an 85-year old brand well-known across the world. LLL acquired the brand in 2000 for exclusive use in India, Nepal, and Bhutan. The Company acquires the ‘Daisy Dee’ brand in 2004 and in 2009, acquired the ‘college style’ brand which caters to the young demographics in India.  The Company’s sales have increased to Rs. 87.0 crores in FY 2010 from Rs. 30.7 crores in FY 2006 which indicates a CAGR of 29.8% for the 4 years. The Company’s PAT was Rs. 10.6 crores in FY 2010 as compared to Rs. 2.9 crores in FY 2006.

Outlook

The Lingerie industry in India is expected to grow at a CAGR of 18.3% over the period 2009-2014. It is currently estimated at Rs. 7,898.0 crores and is expected to be worth Rs. 18,324.6 crores in 2014. The growth is primarily expected from the increase in demand in the super-premium and premium segments of the market.
With the increase in disposable income, a market with huge potential due to its population, and increase in the number of working women, prospects for branded products which cater to this segment are bright. LLL’s current IPO proceeds are being lined up for

• Setting up of a new facility in Bengaluru, which will increase the total capacity by 2.5 million pieces per year
• Brand building and brand development of its ‘college style’ brand
• Increasing distribution network through more exclusive brand outlets and setting up of more counters in retail stores
• Investment in JV with Lifestyle Galleries of London Ltd., a company based in UK, to cater to the super-premium segment in India.
• The company also plans to extend its brand into sleep and home wear, since it already has presence in leisure wear. Such diversification allows it to tap new market segments to drive revenue growth.

However, the increase in expenses due to brand development and entry of more established world-renowned competitors in the Indian market will cut margins to some extent. The Company has mentioned that it would spend around Rs. 4.2 crores on brand building for FY 2011 and around Rs. 14.3 crores in FY 2012.  Moreover the increase in capacity is expected to be fully operational by FY-2013. But the improving economic scenario, a large population and a healthy portfolio of brands can make this company ‘lovable’ to the investors.

Peers

The only listed comparable for  LLL in India is Page Industries which caters mostly to the men’s inner-wear market. As of March 31, 2011 the company was trading at a P/E of 45.6x while that of LLL was around 28.2x on the basis of FY 2010 earnings.

Popularity: 71% [?]

I recently read an article on the WSJ – “India Graduates Millions, But Too Few are Fit to Graduate”(Link). With a population of more than 1 billion people, India is seen as a country churning out hundreds of thousands of students every year and is considered to be a potential threat to the middle-class workers in most developed and developing nations. Yet the reality seems to be something different.

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Popularity: 31% [?]

This is my submission for the Investomania contest that is running currently in the office, I’ll be happy to address any comments or questions people may have.

Company – Info Edge

Country – India

Market Cap. – USD 865.0 million

India’s leading online recruitment and classifieds portal (Naukri.com) launched in 1997 is operated by Info Edge, which forms the backbone of Info Edge’s business (recruitment services accounts for about 84.0% of company revenues). It also generates revenue through a matrimony website (Jeevansathi.com) and a property website (99acres.com), which are still in the development phase. The company has also invested in an education portal, Shiksha.com.

Naukri.com

With about 60.0% traffic share, naukri.com is the market leader in online job portal market. The company has retained the leadership position since its inception in 1997 despite emergence of several competitors like Monster.com. This points to the strong and capable management team, deep corporate relationships and strong sales initiatives of the company. The large number of resumes and corporate relationships places the company in a unique position to benefit from broad based economic growth, improving hiring environment and increasing internet penetration.

Other Potential

99acres has leadership position in real estate portal market with about 50.0% traffic share. The portal gained meaningful market share during the downturn as the traffic remained relatively stable for the company, while competitors witnessed meaningful traffic decline. Jeevansathi is at number 3 in terms of market share, but management points out that the focus in this segment is on specific communities and regions, where the portal is doing relatively better. Jeevansathi generated about INR 200.0 million in revenues in FY10. Info Edge has also started a professional networking site – Brijj and a real estate properly site, which allows buyers/sellers to check transactions, allcheckdeals. These websites are still at a very nascent stage and have a potential to grow, which has still not been factored in the stock price.

Internet penetration

Internet penetration has increased in India at a CAGR of 33.0% from 2000 to 2009, as it has started penetrating the smaller towns and villages in the country. However, still penetration is less than 7.0% of total population, which is minimal compared to 38.0% in Brazil and 50% in Chile. In smaller towns, where the largest chunk of population lives, the penetration levels are dismal, as number of internet users in top 8 metro cities is almost equal to the number of users in all the towns with less than 0.5 million population. However, the penetration levels have started to pick up in these areas over the last few years, and these should be the primary driver of internet user growth in the coming years.

Internet advertising

Internet advertising spending is at about 4.8% of total advertising spending in India. The total Indian advertising market is about USD 5.0 billion, out of which less than USD 250.0 million is through internet. The worldwide average for proportion of internet advertising is 10.5%. Industry research firm IDC expects internet advertising spending to quadruple to USD 1.0 billion over the next five years, making up 16.1% of the total advertising spending. Hence, the total pie is expected to increase at a strong 35.0% CAGR over the next 5 years for the companies operating in internet advertising business.

Conclusion

Info Edge is still at a very nascent stage and has a huge potential to grow. The company is expected to grow with the growth in internet users, growth in internet advertising, growth in market share, and the launch of new businesses. The company also makes revenues on a commission basis from recruiters which would increase considerably in boom times which again is an additional bonus. With EBITDA growth expected to be around 25.0 – 30.0% CAGR in the next three years, according to J.P. Morgan, I can bank on Info Edge to double my money in three years’ time.

Popularity: 47% [?]

I read this article some time ago (link) and found it to be extremely insightful. It talks about human learning and how you can maximize retention by using the “Spacing Effect” effectively.

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Popularity: 16% [?]