Sector Update: INNERWEAR SECTOR REPORT - Kotak

Indian Innerwear industry is estimated to grow at 13% CAGR led by increasing urbanization, unorganized to organized shift, preference towards branded products, organized retailing, premiumization, etc. We believe that the introduction of GST could be a game changer for highly unorganized innerwear industry (50% unorganized). This should be positive for players mostly present in economy and mid segment like Rupa, Dollar and Lux Industries. GST will give more room for organized players to be competitive in a longer run. Companies like Rupa, Dollar and Lux are focusing on increasing their scale of operation through competitive advantage post GST, focus on branding, penetration in new geographies, larger focus in super premium segment, etc This should also positively impact their margins which would result in faster growth in earnings over next 2-3 years. Rupa, Dollar and Lux are trading at FY17 EV/Sales of less than 4x which is more than 50% discount to Page, trading at 9.1x. We believe that there would be scope for reduction in valuation gap as these companies intend to scale up their operation with focus on branding and premiumization Also, as RoEs of these companies in inch of closer to ~30%, they would tend to trade at higher multiples.

Source : Equity Bulls

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