Maximum growth

Post my comment on Maxwell on 14 Jan ’14, Maxwell has continued its relentless march forward and has gone up by nearly 30% in the last 1 week from around 41 to 53 today. The stock has nearly tripled in less than a year and as things improve, can only go up from here.

I had written about this first in Feb ’12 here and later re-affirmed my faith during Diwali ’12 (here) when it expectedly hadn’t gone anywhere since Feb. However, all the things which I had mentioned in both of my posts still hold good and are slowly starting to fall in place for Maxwell.

Maxwell can be called what is known as an Inner-wear company (a much polished way than otherwise) much in the same category as Page or Loveable Lingerie, though not in the same class as yet. Maxwell owns the inner-wear brand VIP which most Indian would be familiar with.

Back in the old days it had the ad – “What's he got that I don't?” for the VIP franchisee brand. However, that has changed since then with the advent of Page (with its Jockey brand) which transformed the inner-wear market.  An interesting insight I read is that a few years back, there was the trend of low denims which made it a must to have a good inner-wear brand to be visible. And this is exactly what Jockey capitalized on and gave VIP a run for its money, so much so that what VIP was to the public earlier, Jockey became to the market.

To be fair, Maxwell hasn't seen any growth in the last 10 years, with a stagnant topline of 200-225 crore over this period, largely its own doing. And one of these was that it tried to move into the spinning segment which took quite a toll on its resources. Maxwell also had another set of problems over the last few years namely, power problems and labor unrest. But these are now a thing of the past

Now over the last few years, they have charted out a new path with the following strategy:

-       hiving off the resource sapping spinning business

-       focus on branded garments business

-       tie up with international brands

-       moving into new segments such as signature collections

-     also look at product extensions into women’s wear (Eminence), sportswear (Frenchie and Frenchie X) and thermals

As a part of the implementation of this strategy, in June ’11, they sold one of their spinning plants for 39 cr., then in '14 they sold the Navi Mumbai unit for 9 cr., and they have plans to plan to sell their Tamil Nadu unit for 12-15 cr. Also in the sale pipeline is their Gujarat unit. This will reduce their working capital from 80 cr. to 60 cr., a gain of 20 cr. which in turn will reduce the interest outgo.

Analysts expect it to post an EPS of 5.5 for FY 16, giving it a forward PE of about 7.5 while Page and Lovable trade at upwards of 20; of course they are much bigger players and have different strengths but they have been able to make a mark for themselves in this nascent industry.

So the success of Maxwell largely depends upon the execution of their strategy. They have a strong brand VIP but that has got completely overtaken by Jockey in the last few years. So they couldn’t keep a strong brand going in a large market. They are also targeting a market share of 30% for the women’s wear segment from the current 15%, in the next 3 years.

With the above steps executed, they should see a significant margin expansion; margins have already improved to about 10% in the first half of the current year. In the last 1 year itself, from Feb '14, the stock is up more than 200%.With the right steps taken this could well be a multi-bagger in the years to come.