Lovable Lingerie IPO Valuation & Concerns

The issue, which opens on March 8 and closes on March 11, would constitute 27.08 percent of the post issue paid-up capital of the company.

Last month, the company had raised 200 million rupees via a pre-IPO placement, by placing 1 million shares with SCI Growth Investments.

Valuation: Considering post-issue equity and annualised earnings, the company demands an earnings multiple of 10. On the similar basis, after annualising the first three quarters, its peers Page Industries and Maxwell are trading at a price to earning valuation of 28 and 19, respectively. But their premium valuations reflect the strong brand presence in the Indian innerwear market. Also, the ratio of net working capital to sales for Lovable is higher than Page but lower than Maxwell. Considering these factors, the offer at price-earnings ratio of 10 looks reasonable. Investors may consider subscribing to the issue.

Concern: The number of days Lovable takes to collect outstanding sales has shot up from 39 days in FY09 to 64 days in the first three quarters of FY11. This may put pressure on the company’s working capital requirement.

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