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.
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.
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.
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.
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.
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.
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