Lovable Lingerie Ltd (LOVLIN) - ICICI Direct

Result UpdateRating matrixRating : BuyTarget : | 350Target Period : 12 monthsPotential Upside : 11%Key Financials(| crore) FY11 FY12E FY13E FY14ENet Sales 104 133 166 198EBITDA 19 23 30 38Net Profit 14 22 23 30Valuation summaryFY11 FY11 FY13E FY14EP/E (x) 37.5 37.5 22.6 17.6Target P/E (x) 41.7 41.7 25.2 19.6EV to EBITDA (x) 20.7 20.7 17.0 13.1Price to book (x) 3.7 3.7 3.0 2.6RONW (%) 10.0 10.0 13.2 15.0ROCE (%) 12.8 12.8 16.1 18.0Stock dataMarket Capitalisation| 529 croreDebt (Mar-12)| 3 croreCash (Mar-12)| 3 croreEV| 529 crore52 week H/L (|) 637 / 278Equity Capital| 16.8 croreFace Value | 10MF Holding (%) 2.3FII Holding (%) 11.8Price movement6,0005,6005,2004,8004,400May-11Analyst’s nameAug-11Price (R.H.S)Nov-11Bharat Chhodabharat.chhoda@icicisecurities.comDhvani Modidhvani.bavishi@icicisecurities.comFeb-12Nifty (L.H.S)May-12700600500400300200WHAT’S CHANGED…May 15, 2012Lovable Lingerie Ltd (LOVLIN)| 315PRICE TARGET....................................................................................................UnchangedEPS (FY13E)........................................................................................................UnchangedEPS (FY14E)........................................................................................................UnchangedRATING....................................................................................... Changed from Hold to BuyOperationally weak quarter…Lovable Lingerie’s (Lovable) Q4FY12 revenues were in line with ourestimates. Despite a weak operational performance, the reported PATwas way ahead of our estimates due to higher other income. Lovablereported sales, EBITDA and PAT of | 19.1 crore (up 19.5% YoY), | 2.08crore (down 25.9% YoY) and | 6.5 crore (vs. | 1.5 crore in Q4FY11),respectively. A steep increase in employee expenses and increased otherexpenditure led to a depressed operational performance. The last quarterof the fiscal tends to be weak and we expect the company to post stronggrowth, going forward. We expect Lovable to report a revenue and PATCAGR of 22.1% and 17.9%, respectively, during FY12-14E. The stockprice has corrected ~10% from our initiating price and we feel that thisprice and any further dips from current levels can be used as a buyingopportunity.Weak operational performance but other income comes to the rescueWhile sales growth was in line with expectations, higher employeeexpenses dented the operational performance of the company. Thecompany reported an operating margin of 10.9%, down 668 bps YoY asagainst our expectation of 15.5%. However, a higher other income of| 5.5 crore aided the company to post an over four fold increase in PAT.Expect good times aheadThe company is present in the fast growing women’s innerwear segment.We believe the company is well poised to grow on the back of its strongbrand portfolio (catering to customers across various segments). Withexpanded capacities (from 6,75,000 pieces per annum to 9,25,000 piecesby FY13E) becoming fully operational, the company will be able to enjoythe full benefits in the years to come. Though the EBITDA margin hasdipped in FY12, we expect the operating margin to grow to 19.1% byFY13E (from 17.4% in FY12).ValuationWe have valued the stock at a 15% discount to Page Industries’ valuationmultiple of 23.0x FY14E EPS considering the lower return ratios andmarginally lower operating margin. In our opinion, the recent pricecorrection acts an entry point. We have a BUY recommendation onLovable Lingerie with a price target of | 350.Exhibit 1: Financial Performance(| crore) Q4FY12 Q4FY12E Q4FY11 Q3FY12 QoQ(Ch %) YoY(Ch %)Net Sales 19.1 20.0 16.0 35.4 -46.1 19.5EBITDA Margin (%) 10.9 15.5 17.6 15.1 -422 bps -668 bpsDepreciation 0.4 0.5 0.4 0.4 0.1 8.6Interest 0.2 0.1 0.1 0.1 130.2 140.7Other Income 5.5 0.7 0.1 0.3 - -Reported PAT 6.5 2.5 1.5 3.5 84.8 330.4EPS (|) 3.9 1.5 0.9 2.1 84.8 330.4Source: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research

A steep increase in the employee costs and otherexpenses dented the operational performance of thecompanyExhibit 4: Cost analysis (as a percentage of sales)Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12Raw Material Cost 46.1 41.8 42.0 42.6 34.1Employee Cost 13.4 8.2 10.9 10.7 18.6Other Expenses 22.9 31.2 28.6 31.5 36.4Source: Company, ICICIdirect.com ResearchDespite a weak operational performance, the PAT stood at| 6.5 crore on the back of high other incomeExhibit 5: Net profit trend30252023.4| crore151051.57.04.63.56.5-Q4FY11Q1FY12Q2FY12Q3FY12Q4FY12FY13EFY14ESource: Company, ICICIdirect.com ResearchValuationWe have valued the stock at a 15% discount to Page Industries’ valuationmultiple of 23.0x FY14E EPS considering the lower return ratios andmarginally lower operating margin. In our opinion, the recent pricecorrection acts an entry point. We have a BUY recommendation onLovable Lingerie with a price target of | 350.ICICI Securities Ltd | Retail Equity Research Page 3

Financial summaryProfit and loss statement(| Crore)(Year-end March) FY11 FY12E FY13E FY14ETotal operating Income 104.0 133.0 165.7 198.4Growth (%) 19.6 27.8 24.6 19.7Raw Material Expenses 49.2 52.8 80.1 94.0Employee Expenses 11.6 15.5 16.8 19.5Manufacturing Expenses 3.3 4.3 5.4 7.5Selling Expenses 20.4 27.7 33.3 39.5Total Operating Expenditure 84.6 100.2 135.6 160.5EBITDA 19.5 32.8 30.1 37.9Growth (%) 20.6 18.5 30.4 25.8Depreciation 1.4 1.5 1.7 1.8EBIT 18.1 31.3 28.4 36.1Growth (%) 22.0 19.2 31.8 26.8Interest 0.5 0.6 0.5 0.5Other Income 0.9 6.7 2.8 3.9PBT 18.5 37.4 30.7 39.5Total Tax 4.4 6.1 7.3 9.4PAT 14.1 31.3 23.4 30.1Growth (%) 40.3 53.7 7.9 28.7EPS (|) 8.4 12.9 13.9 17.9Source: Company, ICICIdirect.com ResearchCash flow statement(| Crore)(Year-end March) FY11 FY12E FY13E FY14EProfit before Tax 18.5 27.7 30.7 39.5Add: Depreciation 1.4 1.5 1.7 1.8(Inc)/dec in Current Assets (7.5) (22.2) (4.5) (14.4)Inc/(dec) in CL and Provisions (7.1) 7.2 0.2 4.3Taxes Paid (5.6) (6.1) (7.3) (9.4)Others (0.4) 0.6 0.5 0.5CF from operating activities (0.7) 8.7 21.2 22.3(Inc)/dec in Investments (91.1) (3.1) (0.1) (1.3)(Inc)/dec in Fixed Assets (1.5) (15.7) 2.0 2.6Others 0.9 - - -CF from investing activities (91.7) (18.7) 1.9 1.3Issue/(Buy back) of Equity 105.7 - - -Inc/(dec) in loan funds (0.3) - - -Dividend paid & dividend tax (0.9) (0.5) (8.9) (7.0)Others (0.5) (0.6) (0.5) (0.5)CF from financing activities 104.0 (1.1) (9.4) (7.5)Net Cash flow 11.6 (11.1) 13.7 16.1Opening Cash 2.7 14.3 3.3 17.0Closing Cash 14.3 3.3 17.0 33.1Source: Company, ICICIdirect.com ResearchBalance sheet(| Crore)(Year-end March) FY11 FY12E FY13E FY14ELiabilitiesEquity Capital 16.8 16.8 16.8 16.8Reserve and Surplus 124.4 142.2 160.1 183.1Total Shareholders funds 141.2 159.0 176.9 199.9Total Debt - 3.4 - -Deferred Tax Liability 1.3 1.0 1.2 1.5Minority Interest / Others - - - -Total Liabilities 142.6 163.5 178.1 201.4AssetsGross Block 19.1 20.1 21.2 22.4Less: Acc Depreciation 6.1 7.7 9.4 11.2Net Block 12.9 12.4 11.9 11.3Capital WIP - 14.9 11.9 8.3Total Fixed Assets 12.9 27.2 23.7 19.6Investments 93.1 96.1 96.2 97.5Inventory 22.4 33.6 31.8 37.5Debtors 10.6 15.5 20.9 24.5Loans and Advances 3.7 9.8 10.8 15.9Other Current Assets - - - -Cash 14.3 3.3 17.0 33.1Total Current Assets 51.0 62.2 80.4 110.9Current Liabilities 11.9 15.6 16.8 19.6Provisions 2.9 6.5 5.5 7.0Total Current Liabilities 14.8 22.0 22.3 26.6Net Current Assets 36.2 40.1 58.1 84.3Others Assets 0.4 - - -Application of Funds 142.6 163.5 178.1 201.4Source: Company, ICICIdirect.com ResearchKey ratios(Year-end March) FY11 FY12E FY13E FY14EPer share data (|)EPS 8.4 12.9 13.9 17.9Cash EPS 9.2 13.8 14.9 19.0BV 84.1 94.6 105.3 119.0DPS 1.5 2.0 2.8 3.6Cash Per Share 8.5 1.9 10.1 19.7Operating RatiosEBITDA Margin (%) 18.7 17.4 18.2 19.1PBT Margin (%) 17.8 20.8 18.5 19.9PAT Margin (%) 13.5 16.3 14.1 15.2Inventory days 62.1 76.8 70.0 69.0Debtor days 42.5 35.7 46.0 45.0Creditor days 36.0 35.1 37.0 36.0Return Ratios (%)RoE 10.0 13.6 13.2 15.0RoCE 12.8 13.3 16.1 18.0RoIC 41.6 34.4 36.7 43.4Valuation Ratios (x)P/E 37.5 24.4 22.6 17.6EV / EBITDA 20.7 22.9 17.0 13.1EV / Net Sales 3.9 4.0 3.1 2.5Market Cap / Sales 4.0 4.0 3.2 2.7Price to Book Value 3.7 3.3 3.0 2.6Solvency RatiosDebt/EBITDA - 0.1 - -Debt / Equity - 0.0 - -Current Ratio 3.4 2.8 3.6 4.2Quick Ratio 1.9 1.3 2.2 2.8Source: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 4

ICICIdirect.com coverage universe (Textiles)Alok IndustriesSales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW(%) RoCE (%)Idirect Code ALOTEX CMP (|) 18 FY11 6,375.7 5.1 3.6 5.9 13.1 9.7Target (|) 25 FY12E 8,760.2 3.4 5.4 5.3 8.0 10.9MCap 1471 Upside (%) 38 FY13E 11,012.8 7.2 2.5 4.6 14.6 12.3Bombay Rayon FashionsIdirect Code BOMRAY CMP (|) 243 FY11 2,254.8 16.0 15.3 11.3 8.5 7.0Target (|) 244 FY12E 2,666.4 15.9 15.3 10.3 7.5 7.3MCap 3275 Upside (%) 0 FY13E 3,386.3 25.7 9.5 8.7 10.3 8.7JBF IndustriesIdirect Code JBFIND CMP (|) 111 FY11 6,465.6 76.2 1.5 2.5 47.5 30.7Target (|) 120 FY12E 7,040.1 37.6 2.9 4.8 17.4 16.8MCap 798 Upside (%) 8 FY13E 8,183.1 44.4 2.5 5.4 17.7 13.2Kewal Kiran ClothingIdirect Code KEWKIR CMP (|) 592 FY12E 301.9 42.3 14.0 8.9 22.5 27.3Target (|) 611 FY13E 364.9 51.9 11.4 6.9 23.6 29.2MCap 730 Upside (%) 3 FY14E 436.6 61.1 9.7 5.7 23.4 29.3Lovable LingerieIdirect Code LOVLIN CMP (|) 315 FY12E 145.7 10.5 30.0 23.5 11.4 14.4Target (|) 350 FY13E 175.4 13.9 22.6 18.3 13.5 16.5MCap 315 Upside (%) 11 FY14E 209.9 17.9 17.6 14.2 15.4 18.4Page IndustriesIdirect Code PAGIND CMP (|) 3050 FY12E 686.0 78.2 39.0 23.8 52.8 39.0Target (|) 3106 FY13E 892.0 106.2 28.7 17.9 55.3 43.5MCap 3401 Upside (%) 2 FY14E 1,099.6 135.1 22.6 14.2 56.2 47.0Rupa & CompanyIdirect Code RUPACO CMP (|) 140 FY12E 728.1 5.0 27.7 15.4 20.5 20.2Target (|) Unrated FY13E 835.0 6.2 22.6 13.2 21.3 21.5MCap 1113 Upside (%) - FY14E 948.6 7.8 18.0 10.9 22.6 23.8Vardhman TextilesIdirect Code MAHSPI CMP (|) 218 FY12E 4,640.7 22.6 9.7 6.4 7.2 7.7Target (|) 229 FY13E 5,318.6 29.3 7.5 4.4 8.8 8.9MCap 1388 Upside (%) 5 FY14E 6,242.2 38.2 5.7 4.1 10.7 9.8Exhibit 6: Recommendation History625550475400325250Aug-11Oct-11Nov-11Jan-12Feb-12Mar-12May-12PriceTarget PriceSource: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 5

Exhibit 7: Recent ReleasesDate Event CMP Target Price Rating29-Mar-12 Initiating Coverage 351 350 HOLD4-Apr-12 Q4FY12 Preview 372 350 HOLDSource: Company, ICICIdirect.com ResearchExhibit 8: The road ahead2002415016613.919817.918| crore1001048.413810.512|506-1914 18 23 3024FY11 FY12E FY13E FY14ENet Sales EBITDA Net Profit EPS (RHS)30380Source: Company, ICICIdirect.com ResearchExhibit 9: Shareholding patternJun-11 Sep-11 Dec-11 Mar-12Promoters 67.0 67.0 67.0 67.0FIIs 10.8 11.3 10.3 11.8DIIs 5.5 3.0 3.9 2.3Public 16.7 18.8 18.8 19.0Source: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 6

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