Innerwear has been one segment of the garments industry that has remained slowdown-proof. Lovable Lingerie has carved a comfortable niche for itself in premium women's innerwear, while branching out into the affordable segment too.

Capacity expansion will contribute to sales in the current fiscal, and the company is stepping up adspends, especially to drive its mid-priced brands.

While stubborn inflation and interest rates are likely to constrain disposable incomes for consumers, the company benefits from the fact that its products are ‘essential' purchases for consumers. Its lower priced brands may also find better offtake, should consumers decide to economise.

At Rs 320, the stock is at 25 times trailing 12-month earnings and 22 times estimated earnings for 2012-13. Investors with a high-risk appetite and a two-to-three year horizon can buy the stock. However, given its small-cap status, investors are advised to limit portfolio exposure to the stock.

Touching price points

With its Lovable line, the company addresses the high-margin premium innerwear segment, Daisy Dee, that targets the affordable section, and College Style aimed at the sizeable youth category. This wide product line shields the company from the risk of the premium segment slowing down as higher costs bite consumers. In the current inflationary scenario, a lower-priced line helps capture consumers shifting away from pricier products.

Lovable has a strong brand recall, with a reputation for superior quality and style, and a leading market share in the premium category. Competition here is limited to Jockey, Triumph and Enamor. While the affordable segment is more cluttered, Daisy Dee does have good brand recall, especially in southern markets.

The company has widened its product portfolio by piggy-backing on Lovable and adding sleepwear, homewear, camisoles, and so on.

Products are retailed through exclusive outlets and department stores such as Shoppers Stop, besides smaller lingerie shops. Such a combination helps wide geographic market reach. Lovable is retailed through 3,000 outlets and Daisy Dee through 9,000.

Though women's wear is the only segment the company focuses on, it makes for more than half the innerwear market, and offers margins higher than menswear.

The company has owned manufacturing facilities, which helps fetch better margins. The company had raised funds through an initial public offer (IPO) to upgrade and expand capacities which will come on board in the current fiscal.

With consumers willing to fork out more for quality and comfort in innerwear, the company is shielded to an extent from the ongoing slowdown in consumer spending. With this and a degree of brand strength, it is able to pass through price hikes. Volume growth has held up despite this.

Healthy growth

Revenues and net profits have grown at a compounded annual rate of 24 and 67 per cent over the past three years to Rs 133 crore and Rs 22 crore. Higher profit growth has come from a gradual reduction in interest outgo and input costs.

Operating margins have grown steadily to 21 per cent for 2011-12 from 13 per cent three years ago, while net profit margins have improved to 15 per cent. Margins are a shade above that of closest comparable Page Industries.

The margin picture is unlikely to see significant improvement. While cotton and synthetic prices have cooled off, advertising and promotion costs are set to rise as the company pushes its brands. Adspend is currently at 6 per cent of sales. A good part of its IPO proceeds was earmarked for this purpose.

The company has negligible debt, a significant advantage in the current high-interest climate. It also makes funding further expansion easier. However, with capacity additions, depreciation costs are likely to go up.

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