LOVABLE LINGERIE: BUY

Branded innerwear is slowly worming its way into the fragmented and unorganised women’s innerwear market. Lovable Lingerie’s ‘Lovable’ (a global brand licensed from Lovable World Trading Co.) holds the largest market share in India in premium innerwear, a high-margin, fast-growing category.

Lovable Lingerie is one of two listed players with a firm footing in this branded market. At Rs 275, the stock trades at 21 times trailing twelve-month earnings, at a big discount to Page Industries’ 40 times. Some discount is justified on account of Page’s bigger product basket and size of operations, but the current valuation gap is wider than the average in the past two years.

This, and the 23 per cent year-to-date dip, make the Lovable stock attractive. Investors with a medium-term perspective and high-risk appetite can buy Lovable, it being a small-cap stock.

Across price points

In the nascent branded innerwear market, the company has a strong national brand in Lovable, which holds around 28 per cent market share. Competition is restricted to Jockey, which has a larger distribution network. Other brands include Enamor, Triumph, La Senza, and Marks & Spencers but these have a much smaller retail footprint. The Lovable brand is in the premium category, which offers higher margins and faster growth.

That said, the mid-priced segment is a large market where the bulk of consumption lies. Further, with consumer purchases taking a hit with the prolonged high living costs, having a mid-priced range will help Lovable drive volumes and sales.

The company’s offering here is Daisy Dee, which holds good brand recall, especially in the southern markets.

Efforts have been made through increased advertising to cut through the clutter in the mid-priced segment and scale the brand up to a national level.

Besides this, the company has piggy-backed on the Lovable brand, introducing products in this range at lower prices.

Such a strategy could also help capture consumers aspiring to move up into the premium category.

Growing reach

Products are retailed through multi-brand outlets such as Lifestyle and Shoppers Stop, especially for the Lovable brand.

But given the geographical restrictions such a strategy imposes, the company has slowly stepped up retailing through smaller hosiery stores. Lovable is now retailed through about 3,500 outlets, up from half that number two years ago. Daisy Dee’s retail footprint has expanded by over 2,500 in the past two years alone, taking total retail footprint to around 10,000.

While focusing on women’s innerwear alone may appear restrictive, this segment makes up over half the total market, is growing much faster than the men’s segment and also offers higher margins.

Also, the company is diversifying out of an innerwear concentration and has extended the Lovable range into products such as homewear and sportswear.

Margins to improve

Smaller brands in the company’s stable include College Style targeted at the youth, and London Calling, which marks a move into menswear as well. But these brands are still new and lack the recall held by the flagship brands.

Lovable’s sales have grown at a compounded annual rate of 24 per cent over the past three years to Rs 141 crore in FY-12 while net profit has expanded 57 per cent to Rs 18 crore in the same period. The nine months to December 2012 saw sales growing 15 per cent.

Higher costs of materials such as synthetic fibres and cotton yarn, though, limited profit growth, with net profit increasing 5 per cent in the April-December 2012 period compared to the year ago.

Rapid addition to distributor network also raised costs. Further, the company refrained from hiking prices, given the gloomy consumer sentiment. Operating margin for the nine months stood at 16.6 per cent, down from the 18.5 per cent in the year-ago period.

Sales volumes have held up at around 18 per cent, a good level at a time when consumer buying has been scaled back. Also helping Lovable is the essential nature of its product line, the low frequency of purchase per consumer and the relatively lower share of wallet than other apparel.

The company has recently increased product prices by 6-7 per cent, which could help improve profitability in the coming quarters.

With much of investments in promoting Daisy Dee over with, advertising and promotional spending (at about 20 per cent as a proportion to sales) could come down. Input costs too have cooled off.

Lower inflation and interest rates would also leave consumers with more money to spend.

With its low debt, the sceptre of high interest costs does not affect the company.

Net profit margin for the nine months to December 2012 stood at 12.4 per cent, lower than the 13.2 per cent in the year-ago period, in line with lower operating margin.

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