Lovable Lingerie Ltd (LOVLIN) - ICICI Direct

We were disappointed on the operating front. Despitesofter input prices, the company posted a 381 bps YoYdecline in operating margins to 15.7% (I-direct estimate:19.0%). Higher employee costs (due to expandedcapacities) and higher promotional spends dented theoperating marginExhibit 4: Cost analysis (as a percentage of sales)Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13Raw Material Cost 46.1 40.6 42.0 42.6 34.1 38.6Employee Cost 13.4 8.8 10.9 10.7 18.6 9.0Other Expenses 22.9 31.1 28.6 31.5 36.4 36.6Source: Company, ICICIdirect.com ResearchDespite a weak operational performance, the PAT stoodat | 7.5 crore on the back of high other incomeExhibit 5: Net profit trend3027.52522.020| crore151051.57.04.63.56.57.5-Q4FY11Q1FY12Q2FY12Q3FY12Q4FY12Q1FY13FY13EFY14ESource: Company, ICICIdirect.com ResearchExhibit 6: Revised estimatesFY13EFY14EParticulars (| crore) Earlier Revised % Change Earlier Revised % ChangeSales 165.7 165.7 - 198.4 198.4 -Operating Profit 30.1 28.3 -5.8 37.9 34.5 -8.9Margin (%) 18.2 17.1 106 bps 19.1 17.4 170 bpsNet Profit 23.4 22.0 -5.7 30.1 27.5 -8.5EPS (|) 13.9 13.1 -5.7 17.9 16.4 -8.5Source: Company, ICICIdirect.com ResearchWe have revised our operating margin estimates downwards on the backof increasing promotional and other overheads. Our revised EBITDAestimates for FY13E and FY14E stand at 17.1% and 17.4%, respectively.ValuationThis is the second quarter in a row where the company has reported a dipin operating margins YoY. Considering the pressure on the operationalperformance we do not expect much upside in the stock currently. Wethereby downgrade Lovable Lingerie to HOLD with a revised target priceof | 320.ICICI Securities Ltd | Retail Equity Research Page 3