>INDIAN INNERWEAR SECTOR: Page Industries, Lovable lingerie and Rupa & Company

Along the consumption bandwagon!


The Indian apparel sector is expected to grow from | 1,709 billion in 2010 to | 4,700 billion by 2020E, representing a CAGR of 10.8%. Of this, the innerwear market currently valued at ~ | 14,300 crore (in 2011) is expected to grow to | 43,700 crore by 2020E, growing at a CAGR of
13.2%, outpacing the growth of the overall apparel market. Also, the women’s segment that has historically been smaller in size compared to the men’s segment is expected to grow at a faster pace (CAGR of 15% over 2010-2020E as compared to 10% CAGR in the men’s segment). The women’s innerwear segment is likely to touch | 30,000 crore from the current | 8,500 crore. On the other hand, the men’s innerwear segment is likely to grow from | 5,800 crore in 2010 to | 13,700 crore in 2020E. Improving Indian demographics and increased preference for proper fits, sizes, etc. lend credence to the growth of organised players in the Indian innerwear market. Organised players (including Page Industries, Lovable Lingerie and Rupa & Company, among listed players) are well poised to capture this growth. We are initiating coverage on the Indian innerwear space with a BUY rating on Page Industries. Based on the current valuations, we believe that the upside potential in Lovable Lingerie is limited and, hence, have a HOLD rating on the same.


                          Shift from unorganised to organised segment to aid overall growth
The Indian apparel market has been witnessing a shift towards the organised segment. The share of the organised segment in the overall pie has increased from 13% in 2005 to 16% in 2010 and the same is expected to go up to 40% in 2020E. The organised apparel market is expected to grow at a CAGR of 21.3% during 2010-2020E (faster than the overall apparel industry, which is slated to grow at 10.8%). This augurs well for organised players.


Higher share of premium products to aid margin expansion
The premium and super-premium category in both the men’s and women’s segment has witnessed a higher growth than other segments. With increasing disposable incomes and customers’ willingness to shell out more for better quality products, domestic innerwear manufacturers are working towards increasing the share of premium products in their product portfolio. On the back of this, we expect a margin expansion in the range of 50–250 bps (across our innerwear coverage universe) by FY14E.


Sector multiple lower than that of consumption stocks
 We believe the stocks in the innerwear segment like Page Industries, Lovable Lingerie and Rupa & Company are similar to consumption sector stocks like Marico, Dabur, Titan Industries, Asian Paints and Jubilant Foods. The performance of these (consumption) companies is also driven by brand preferences, rising disposable incomes, etc. The innerwear segment stocks are trading at a multiple of 22-25x one year forward earnings. We believe this sector deserves to trade at such multiples considering the superior return ratios, healthy free cash flow generation, consistent growth and healthy dividend payout. Our comparison with stocks in the consumption space reveals that the stocks in the Indian innerwear space are still trading substantially lower than the average P/E of 29.6x (FY13E EPS) for all consumption stocks taken together.


RISH TRADER