Ashish Chugh’s HIDDEN GEMS

……. in search of Market Beating Stocks

E-Mail ID - nexgenfin@yahoo.com

June 6, 2005

HIDDEN GEMS report sent to the paid subscribers on 30th May 2005

Maxwell Industries Ltd.

CMP – Rs.65 BSE Code –532613

With dismantling of quotas, India’s largest and one of the world’s

largest Innerwear Groups having brands like “VIP”, “Frenchie”,
“Rivolta”, “Live-In” and “Feelings”, and an enviable distribution
network, is all set to fly high.

Maxwell Industries Ltd., (Maxwell) makers of innerwear under the

brand name “VIP” was incorporated in January 1991. The company
came out with its IPO on the Over The Counter Exchange of India
(OTCEI) in the year 1994 and priced it at Rs. 55. (Rs.10 par value &
Rs. 45 premium).

V I P , t h e f l a g s h i p b r a n d o f M a x w e l l has been selected as " The Most

Admired No.1 Undergarment Brand " for two successive years 2000 &
2001 respectively, based on a national survey conducted by ORG
MARG a renowned market research agency and IMAGES - a well
known fashion magazine. ‘VIP’ has been positioned as a value for
money, premium quality brand having an aspiration value.

The other companies in the VIP Group include Microtex India Ltd. and
Lovable Lingerie Pvt. Ltd.. Microtex India Ltd. focuses on Men’s
garments and L o v a b l e L i n g e r i e on premium ladies innerwear. Besides
the group has many smaller entities involved in marketing &
distribution.

Brand Profile

The VIP group manufactures & markets the following well-known

brands: -

Category Brand
Men’s VIP
Innerwear VIP Frenchie
VIP Bonus
VIP Designer
VIP Advanta
VIP Leader
VIP Rosso
VIP Punch
VIP Nawab
Women’s VIP Feelings
Innerwear
Kid’s Innerwear VIP Brat – underwears for youngsters
VIP Bonus Junior
Footwear VIP Excel Socks
Category
Winterwear VIP Thermals

Premium RIVOLTA – A premium end brand which portrays an

Innerwear international image
category: Frenchie X
TRY
Lingerie LOVABLE- top quality premium end bras. (brand owned by
a US company & marketing rights with VIP Group)
DAISY DEE BRA - A comfort Bra.
A value for money brand catering to the quality & price
conscious consumer
Garment LIVE-IN JEANS
category: LIVE-IN (Khakis, chinos, cargoes.)
LIVE-IN Trousers
Various market surveys have established VIP as the highest recalled
and purchased brand amongst any apparel category in India.

Manufacturing Facilities

Maxwell has its manufacturing facilities located at Tamilnadu and

Navi Mumbai. The company’s spinning mill located at Tamilnadu has
a capacity of 26200 spindles and manufactures quality cotton yarn,
30% of which is consumed within the group. The process house
manufacturing innerwear is located at Navi Mumbai. The company
has invested in a spinning company at Coimbatore and has helped set
up at a new process house at Tirupur.

The group’s backward integration, right from the manufacture of

rubber elastic to the final finished garment, enables it to check every
minute detail and ensure a quality product to the customer.

The company has an ISO 9000 certification by RWTUV Munich for the
past five years, besides three laboratories carrying out pioneering
research and development along with stringent quality control on the
group’s wide range of intimate wear.

The company through its dedicated research team constantly keeps in

with current trends in the market place & the consumers. This
approach has let to various technological innovations resulting in new
product introduction/extensions.

Distribution Network

The Group has strong Distribution Network comprising of 400+

dealers, 200,000 retail outlets, six regional offices and a sales brigade
of 600-700 personnel. Distribution has been the company’s trump card
at all times.
Financials

For FY 2003-04, the company achieved a Sales Turnover of Rs.158.55

crores and recorded a Net Profit of Rs.0.54 crores. The company
provided Rs. 4.52 crores towards depreciation leading to a Cash Profit
of Rs.5.06 crores. This results in an EPS of Rs.0.87 and a Cash EPS of
Rs.8.21.

For the period Apr-Dec 04, the company has achieved a Sales
Turnover of Rs.130.78 crores and has achieved a Net Profit of Rs.1.47
crores.

Maxwell Industries has an Equity Capital of Rs.6.16 crores. Promoters

hold 74.74% of the Equity.

Future Growth

Till now, exports of Innerwear products constituted a minuscule

portion of the group’s turnover- the major markets being Europe &
Middle East. The group sells to Macniel’s 635 stores, Strauss
Innovations through 140 stores and to Robert Ley and Port with the
buyer’s label. In the Middle East, the company has a distribution
network of 400 outlets in Dubai. VIP is present in 16 countries in
Gulf and Europe under the label VIP Made in India.

The company is now preparing to give a push to export sales with the
dismantled quota regime.

The management is also contemplating the consolidation of the group’s

business into one or two companies . The group owns several brands in
men and women's under garments and apparel sector and operates
through three companies namely Maxwell Industries, Microtex India
and Lovable Lingerie besides a clutch of smaller entities involved
mainly in marketing and distribution.

Any major step towards consolidation of business would be a big

trigger for the stock of Maxw ell Industries and will lead to a re -rating
of the stock.
Moreover, the company is focussing on women’s Innnerwear and
Lingrie segments, which are the fastest growing segments in
Innerwear.

The stock of Maxwell Industries, which was earlier listed on the OTC
Exchange of India, got listed on the BSE in January 2005. The stock
has not yet caught the attention of the investing public mainly because
of the lack of awareness about the company’s business activities.

At the current market price of Rs.65, the company has a market cap of
Rs.40 crores. This looks too low given the fact that the company is a
leader in its market segment, has excellent brands with great brand
recall, manufacturing facilities and an enviable distribution network.
Moreover, the dismantling of quotas has opened up new avenues for
the company which the company is well positioned to take advantage
of.

The stock has all ingredients to attract the institutional player.

Investors can buy the stock of Maxwell at the current price and add on
every decline. This is a Buy & Hold stock having the potential to
deliver excellent returns over the long term.

Maxwell may well turn out to be the “Zodiac of Innerwear”.

Ashish Chugh is an equity analyst and investment consultant based at New

Delhi, INDIA. At the time of writing this article, he and his firm have a
position in the stock recommended above. He invites readers to send him
email and welcomes comments, feedback & queries at
nexgenfin@yahoo.com.

This report has been prepared solely for information purposes and
the information contained herein may not be deemed to be an
investment advice. Such information is impersonal and not tailored
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contained herein is not a complete analysis of every material fact
representing any company, industry or security The views
expressed may change. While the information contained herein has
been obtained from sources believed to be reliable, no
responsibility (or liability) is accepted for the accuracy of its
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