@ TCSer - I have checked history under RHP filed . It does not state any direct  relation to Maxwell group in terms of present ownership,holding or funding . By that, i mean the promoters are not the same. Though i found following observations. Source - RHP filed on  http://www.sebi.gov.in/dp/lovabledraft.pdf - http://www.sebi.gov.in/dp/lovabledraft.pdf

Promoters of VIP group decide to part ways

Hi all,

Little late to join. But here are my few thoughts.

If we look at existing capacities + proposed expansions, these are less than 10 mn pieces, which could be easily absorbed, given the market size. Majority of the issue proceeds are for brand building/brand acquisition and retails outlets.

The sales realization upon successful brand building or exclusive retail outlets are unlikely to blow out. The only upside is, company might use contracted goods and put, its own label, since installed capacities are not so huge. Now this will have pitfalls as well as advantages. As contract manufacturing would be variable cost, in booming times this will lower the profitability/returns, whereas in downturns it would limit the costs. Given the nature of products and market size, I personally feel variable cost should be minimum.

Now, the other advantage would be higher ROCE due to contract manufacturing, but these would materialise only if brand building exercise and London Calling brand succeeds. I personally believe exclusive retail outlets may not contribute exceptionally to returns. How will all this translate into returns for equity shareholders will be tricky, post equity dilution. I mean it may not be in favour of equity shareholders, at least not in initial years.  Why I believe so…

Costs of capacity expansion and retail outlets needs to evaluated, I am in favor of increasing capacities, and I have no idea to quantify benefits of brand building vis-à-vis brand building cost, if brand building mainly comprises increasing distributor channel and geographic reach then its good, other wise its risky.

If we look at existing capital employed and existing capacities along with proposed capacity expansion and cost for the same, expansion appears costly in terms of expansion cost per piece. But this would be helpful in long term. A significant area with flexibility to expand further in future would be safer than putting money heavily into brand building and retail outlets and later on leveraging the brand.  May be, current expansion plan would factor flexibility to further expand but I have not read it any where.

One may believe that, higher expected variable cost of royalty payment for London Calling is converted to fixed cost, that’s good (because of size of market) but given the fact the existing JV holders are willing to sell out the major stake in London calling makes me to ask, why are they not willing to have royalties in this huge market for branded inner wares?  Or is it acquisition cost is too high?

Significant capacity expansion or buyout of some contractors, increasing penetration of existing brands and royalty payments for new brand/London calling in initial years of development and later on full acquisition of successful brands may have been a relatively safer. Overall I believe, the risk taken are not commensurate with the price of issue.  Besides, I read somewhere that the land for capacity expansion is also yet be identified, definitive arrangement of exclusive retail outlets are also yet to be firmed up.

May be I am conservative, and creating brands and outsourcing manufacturing may turn out to be successful model, as has been done by many cos.  One may evaluate the managements past record…. Lovable or VIP ?. But I still believe a significant control on value chain is always better and I am sure there are better money making opportunities.