Maxwell Industries :: Karvy research

Business Disintegration – A Revised Strategy
to Focus on Innerwears
Maxwell is in the process of disintegarting spinning and weaving with a
view to concentrating solely on innerwear business, as earlier the Company
was actively involved in the entire process right from procuring cotton to
shipping innerwear etc. Henceforth, Maxwell would procure fabric directly
and concentrate on manufacturing of innerwears, which will help in
maintaining low inventory levels, higher margins and strict quality control.
The first step of this process led to discarding spinning unit for a
consideration of Rs. 390 mn and debt repayment.

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Affluent Brand Mix to Augment Market Share: Maxwell has well‐known
brands like ‘VIP’, ‘VIP Frenchie’, ‘Frenchie X’, ‘VIP Feelings’, ‘Leader’ and the
recent tie‐up with the French major for bringing ‘Eminence’ under its
umbrella last year. Eminence has already launched into the men’s innerwear
segment and likely to step into all other segments by Dec’12.
Direct Retail presence for Enhanced Brand Visibility & Traction: As the
Company is having a vast portfolio of innerwear brands, it has not been able
to give them distinct brand identity. However, in order to address this, the
Company is foraying into retail marketing through “Green Room” exclusive
stores with all the brands on shelf and separate EBOs for the premium brand
‘Eminence’, and the Company is expected to open 100 such stores by FY15E.
We believe that entering into the retail stores format is likely to enable the
Company to give the required attention for its brands and customer connect
parallelly.
Margin expansion on disintigration & stable cotton: Disintegration of
spinning business coupled with lower stable cotton prices will have positive
impact on operating margins. We expect EBITDA margins to expand by 300
bps & 130 bps in FY13E & FY14E respectively on the back of higher retail
presence and premium brand revenue mix.
Outlook & Valuations
We expect the Company to be in positive net earnings by FY13E and
revenues to grow at a CAGR of 14% over FY12‐FY14E. At CMP of Rs. 20 per
share, the stock trades at 10.1x FY14E earnings and 6.1x FY14E EV/EBITDA.
We initiate coverage on the Company with “BUY” recommendation and
target price of Rs. 26 per share, which represents an upside potential of 30%.