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Lovable Lingerie Limited is tapping the capital markets with its IPO for 45.5 lakh shares in a price band of Rs 195-205. The issue would raise Rs 79.38 crs at the upper end of the price band. The issue has closed for QIB’s yesterday and would close for all other investors today. The company had allocated 6,82,500 shares to Anchor Investors. The QIB portion which was reduced by the anchor book was subscribed a staggering 21.87 times indicating the interest in the company and more important the sector. The HNI portion was subscribed 3.02 times and the retail 2.67 times making the total 10.64 times with the last day for bidding being today for non QIB investors.
| Price Band | Rs 195 – Rs 205 |
| Offer size in shares | 45,50,000 Equity Shares |
| Issue Size | Rs 76.95 crs – 79.38 crs |
| QIB’s | 22,75,000 Equity Shares |
| Non Institutional Investors | 6,82,500 Equity Shares |
| Retail Investors | 15,92,500 Equity Shares |
| Marketcap Post Listing | Rs 327.60 crs at lower band to Rs 344.40 crs at higher band |
| Book Running Lead Manager | Anand Rathi Advisors Limited |
| Isssue Opening Date | Tuesday 8th March |
| Isssue Closing for QIB’s | Thursday 10th March |
| Isssue Closing for othen than QIB’s | Friday 11th March |
| IPO Grade | CARE grade 3/5 indicating average fundamentals |
| Paid -up Capital Post IPO | 1,68,00,000 Equity Shares |
| Bid Lot | 30 shares |
| Bidding Amount for Retail | 960 shares at Rs 205 or Rs 1,96,800 per application |
| Anchor Investors | Alloted 6,82,500 equity shares at Rs 205 |
Business
Lovable Lingerie as the name suggests is in the business of manufacturing women innerwear. The products include brassieres, panties, slips, camisoles, homewear, shapewear, foundation garments and sleepwear garments. However the bulk of the sale comes from the first two garments namely bras and panties. The company has two brands namely “Lovable” and “Daisy Dee”. Lovable is the brand used in the mid-segment of the market while Daisy Dee is the brand catering to the mass market. The company has also acquired the brand”College Style” from a Hong Kong based company Levitus Trading Limited.
Lovable as a brand is licensed to the company for manufacture and sale in India and Nepal. The company has manufacturing units in Bengaluru and Uttrakhand.
Objects of the Issue
The objects of the issue are as follows: –
| Rs in lacs | |
| Setting up of manufacturing facility to create additional capacity at Bengaluru | 2284.93 |
| Expenses to be incurred for brand building | 1800.00 |
| Brand development expenses for our “College Style” brand | 600.00 |
| Investment in joint venture | 2500.00 |
| Setting up of Exclusive Brand Outlets (EBO’s) | 1412.18 |
| Setting up of retail store modules for “shop-in-shop” | 361.00 |
| Up gradation of design studios | 759.52 |
| General corporate purposes | XX |
| Public Issue Expenses | XX |
Financials
The company’s sales have grown from Rs 6881.80 lakhs in year ended March 09 to Rs 8657.21 lakhs in the nine months ended December 2010 while the net profit has grown from Rs 601.94 lakhs to Rs 1260.67 lakhs.
| Rs in lacs | ||||
| 31st Mar 09 | 31st Mar 10 | 31st Dec 10 | Annualised | |
| 31st March 11 | ||||
| Net Sales | 6881.80 | 8678.60 | 8657.21 | 11514.09 |
| Profit before int & tax | 686.50 | 1401.11 | 1605.06 | |
| Financial charges | 136.5 | 93.29 | 44.42 | |
| Net Profit | 601.94 | 978.96 | 1260.67 | 1676.69 |
| Net Margin % | 8.75 | 11.28 | 14.56 | 14.56 |
The net margins have improved substantially and one is not sure whether the same is sustainable or not. Secondly of the money being raised from the issue only a small portion namely the first object of the issue or Rs 22.83 crs would be used for manufacturing facilities, which would be ready only towards the end of the next financial year, meaning new capacity would be available only for 2012-13.
Competition
The comparables in the listed space are Page Industries the manufacturers/licensees for Jockey and the former company of the promoters of Lovable Maxwell Industries. Jockey is the leading brand in the men’s segment and in India entered the ladies segment over the last three or four years. On a turnover of Rs 380 crs for the nine month period ending December 2010, roughly 16 to 17% of the sales are from the women’s segment which is roughly equal to the sale of Lovable. It must be borne in mind that Lovable has been there for close to 17 years in this business.
Lovable competes with brands like Jockey, Libertina and to some extent with Triumph and Enamour. The other brand Daisy Dee competes with brands like Juliet, Newlook and Paris Beauty.
In terms of price earnings multiple the shares of Lovable are being offered at close to 21 times on a fully diluted basis of the annualised earnings based on December 2010 numbers. Page Industries is trading at close to 29.5 times its annualised earnings based on December 2010 numbers.
Risks
The market is growing at a healthy 15% plus and customers are aware of their needs and demands from the under garments. There is also a fashion component besides the basic need and necessity of the product. The commodity segment and the mid segment are also seeing the rise of the premium segment which is being mostly met by foreign brands and imports. The market is huge and Lovable needs to have its capacity available to meet the growing demands.
Secondly competition from players like Jockey would be severe as they have been able to capitalise on the brand image and had extension of product range using the global brand image. This gives the company substantial retail space and clout.
Conclusion
There is a lot of hype created about the issue and it is borne by the fact that the share issue has been subscribed a staggering 21 times over by QIB’s. The company is being compared to Page Industries and the fact that it is being offered at a discount to the valuations at which that company is trading. This may not be enough going forward as the growth achieved by Page may not be matched by Lovable. There is a certain listing gain available in the issue but the medium term performance of the company may be difficult to sustain. Apply for listing gains but remember that the allotment may be very poor in light of the heavy subscription expected.
SEBI Disclaimer: – I do not intend to subscribe to the issue as I do not apply for listing gains.
