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Lux Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Lux Industries Limited Q1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Udit Todi, Executive Director of Lux Industries. Thank you, and over to you, sir.
Good afternoon, and thank you, everyone, for joining the earnings conference call for the quarter ended 30 June 2022. Along with me, I have our CFO, Mr. Saurabh Kumar Bhudolia; and SGA, our Investor Relations adviser. Mr. Saket could not join the call as he is traveling and the flight got delayed.
I hope you have received our results and investor presentation by now. For those who have not, you can view them on our website.
For the quarter ended June 30, 22, the company has reported a robust revenue growth of 36% over the same period last year. This growth in revenue was largely fueled by improving traction of our power brands, particularly ONN and Lyra, coupled with its legacy brands, Cozi and Venus.
For the quarter gone by, ONN has reported a net sale of INR 30 crores, which grew over 94% for the same period last year. Whereas when we talk about the womenswear brand Lyra, which stood at about INR 97 crores in this quarter, which was a growth of about 136% over the same period last year.
Brand Lyra contributes almost 17% of the top line, whereas ONN contributes about 5% of the top line.
The company's latest offerings of lingerie product range under the brand, Lyra has been gaining good response from the market, helping it to evolve from a lagging-centric brand to a multiproduct, multi-category womenswear brand.
The company's increased penetration in the womenswear category is assisting us in creating brands across genders along with increased sales and profitability.
Additionally, we have seen gradual shift towards the online purchases, largely driven by millennials. This has enabled us to create new channels for engaging with the end users and offer a range of more than 100 products, 115-plus different brands ensuring relevance across ages, genders, geographies and seasons, leading to enhanced value of the brand.
Being one of the biggest players in the branded innerwear industry, Lux has been proactive about changing the consumer preferences and is responding by creating innovative and trendy product lines and maintaining a healthy balance between offline and online channels.
In this regard, company is expanding its e-commerce presence and has partnered with top e-commerce companies such as Amazon, Flipkart, Myntra and Ajio and is currently shipping more than 4,000 orders daily.
Going forward, the company aims to generate about INR 100 crores of top line coming in from the online channel.
Now coming to marketing and advertising spend, which is one of the most important factors in developing the brand -- company's brand equity. The company has invested a sizable amount of approximately INR 836 crores in brand building over the last 6 years while brand investment in the first quarter of FY '23 stood at about INR 42 crores.
This brand investment accounts for about 7.5% of its net sales, which is similar to what the company has been spending historically barring the COVID period.
In terms of supply chain, we have one of the largest distribution network, thanks to the company's strong brand equity and goodwill. It has been able to preserve long-term partnerships with the distributors, dealers and retailers.
The company dominates the domestic innerwear market in terms of volume and is well established in the Northern, Eastern and Western parts of the country. More than 1,170 dealers were associated with the company as of 30th June with an attrition rate of even less than 1%. The company has established 11 depots and 19 warehouses located across 12 states to facilitate quicker and timely delivery across the country.
The company targets to penetrate and tap an undertapped areas in South India, which is -- there is sales contribution is less than 4%. The company plans to further improve it and streamline its distribution work.
Now coming to company's CapEx plan. The company intends to invest another INR 50 crore in Ludhiana along with other capital expenditures that are on track and progressing according to plan. A major chunk of it would go towards enhancing production and storage capacity. With improved mechanical equipment and a scientific approach in operations, the company aims for more flexibility in terms of capacity according to market demand.
Before I hand over the call to Mr. Bhudolia, I would like to emphasize that the company is committed to maintain flexibility in the medium to long term to manage the volatility in raw material prices and deliver consistently competitive and cash accretive growth in the coming quarters.
With this, I would now request Mr. Bhudolia to take you through the financial performance.
Thank you, Udit. The company has posted robust performance for the year ended 30th June 2020. Despite the industry experiencing multiple challenges, the company has reported a revenue of INR 572 crores, a significant growth of around 36% on a Y-o-Y basis. The company has reported solid top line growth driven primarily by increased demand for branded products from Tier 1, 2 and 3 cities.
The company's reason why revenue contribution is as follows: North India, we are getting a contribution of around 35%, whereas in East India and West India, it's 21% and 25%, respectively. Central India, well supported with 16% of the contribution, and South India is around less than 4%. While segmental split stood as follows: mid-premium is giving a contribution of around, 52%; economy is 35% and premium is around 13%.
Sales of our economy segment, which include brands like Lux Venus, Lux Karishma increased with a rate of around 20%. The sales of our mid-premium segment, which includes brands like Lux Cozi, Lyra and GenX witnessed a whopping 52% increase in the top line. Our sales in the premium category, which includes brands like One8, ONN and Lux Premium have seen a growth of 25%.
Exports share for the quarter stands at around 6% of the total revenue. Growth in volumes for our economic brands stood at 8%. Mid-premium segment saw a double-digit volume growth of around 25% -- 27%, whereas premium segment reported a largely stable volume growth with around 1%. The company's overall ASP has grown by around 20% as compared to the same period last year. The company's EBITDA for the year declined approximately 14%, which stood at INR 78 crores as compared to INR 91 crores over the same period last year.
EBITDA margin stands at 13.6% versus 21.6% over the same period last year. The decline in EBITDA margin was majorly attributable to high-cost inventory stocking in the previous quarter and volatile prices of the raw materials, which impacted the gross margin. However, this was partially neutralized by the growth in overall volumes and the company's ability to pass on the raw material prices.
PAT for the quarter stood at INR 50 crores as compared to INR 64 crores over the same period last year, while PAT margin for the quarter stand at around 9%.
As of June 2022, the company's working capital cycle stood at 209 days, which is elevated due to stocking of raw material, and semifinished inventory. However, the company expects to optimize its working capital cycle in the coming quarters and grow revenues without further working capital deterioration resulting into superior return on capital employed. Inventory days stood at 143 days as compared to 131 days same period last year.
Cash and cash equivalents as on 30th of June 2022, stood at INR 110 crores.
With this, we will now open the floor for question and answers.
[Operator Instructions]
The first question comes from the line of [ Mayank Makkar ] from [indiscernible].
I wanted to understand what is the volume growth or degrowth in all the 3 segments, premium, mid-premium and economy segment from quarter-to-quarter? Because this is given year-on-year basis in the presentation, so for quarter-to-quarter can we have that?
So we have already given the numbers basis Y-o-Y basis versus June '21 and June '22.
Actually, point is that quarter-to-quarter since 2 quarters, we are seeing decline in sales. So just wanted to understand what is the volume effect in quarter-to-quarter basis?
Mayank, we don't have the figures handy with us. We'll circle back to -- this is something which we can provide with the IR team. I'll let you get in touch with them, we'll provide them with the data. We don't have it ready with us right now.
Sure, sir, sure. And also now another question is that can you keep the inventory breakup into finished goods, raw material and WIP.
So almost 70% of the inventory is lying in the semis -- is lying in the finished goods stage. 20% of the Inventory is in the semi-finished stage and 10% is lying in the raw material. Generally, as a practice now, now we start our process from the yarn. So we got -- we don't keep the inventory in the stage of the raw material as soon as we are getting the yarn, we try to get it converted either in the semi-finished or we move it to the finished product. So that as soon as the demand is getting cropped up, immediately, we should be ready with the finished goods to get the supply done.
Okay. And what is the raw material prices now vis-a-vis 30th June? Like the results has reported as on 30th June. But what are the raw material prices and the cotton prices now?
The raw material prices, Mayank, now have already started to decline. So we can expect -- the raw material prices have already cited to decline, so we can expect better gross margins going ahead.
Next question comes from the line of Akash Mehta from Caps Investment.
I had a couple of questions. One is, any plans to list Lyra as a separate brand as it is doing so well in the portfolio?
So, see, this is something which is quite difficult to comment. But we don't have any such plans. We haven't even given thought as of now.
Okay. So not even in the near term as such?
But we can take that as a suggestion. But as of now, we haven't given it a thought.
Okay. And secondly, on the working capital side, can you just throw some at on the working capital going forward and when it's expected to come down?
See, the way we are seeing that from quarter 2 onwards, the sales will pick up. And last year, as the winter was not so good. This year, we are expecting the winter will be much better as compared to the last year same period. And my working capital cycle should get stabilized towards the end of third quarter.
In the third quarter. Okay. Okay, I think that answers the question.
[Operator Instructions] Next question comes from the line of Nikunj Somani from Fugen Capitals.
Yes, sir. So my first question is about debt. How do you cater the women's segment because it is -- it is a big opportunity and you should have more brands in this segment? And what's your plan for the 3 segments?
Can you please come once again?
I kind of understood, so see with the menswear brand. So Lyra, we are already making womenswear products and it is positioned as a mid-premium brand. So most of the womenswear requirements are taken care of by the brand. We have quite begin to leggings. We have also launched lingerie. So that encompasses the womenswear innerwear portfolio. And then we also have women athleisure in it. So more or less all the categories which come under the womenswear have been directly, indirectly tied by the brand.
Yes. So my second question is related to -- about the volumes in the premium segment because it is not increasing in the -- not increases so -- in the premium volumes, in the premium segment, can you give any guidance?
Volumes in the premium segment, volumes in the -- so in the premium segment it's more of a value growth rather than a volume growth.
So the volume was quite flattish for the quarter. But definitely, like if you see in this quarter, my export contribution was 6%, whereas, generally, we are keeping a momentum of around upwards to 9% to 10% in the export. So I believe from the quarter 2 onwards, definitely, there will be a high chances that we can see the volume growth in the premium segment.
[Operator Instructions] Next question comes from the line of Priyanka Gandhi from [ Ace Capital ].
I just have a couple of questions. Firstly being, can you throw some light on such a steep decline on EBITDA margins. Is this purely because of the high cost inventory? Or is there something else to highlight here?
So see, if you look at our EBITDA margins, if you look at it quarter-over-quarter, they have seen a decline of about 5.5 percentage. And out of that, about 4.5 percentage is on account of dip in gross margins. So majorly, whatever dip you're seeing in the EBITDA margin was on account of dip in gross margin, which was further in account because primarily because the increase in the raw material prices were not being able to passed on to the customer. So we can only pass on the increase in raw material prices to a certain extent, but not completely. So that is why the certain hit on gross margins were taken. But as we have already mentioned that the cotton, raw material, yarn prices have already started to come down. So we expect the gross margins to be better in the near future. So by quarter 2 and quarter -- end of quarter 3, you'll see better margins coming in.
All right. That answers my question. My second question is where do you see our share of premium wear there in the coming years?
See, premium wear as a category has been growing faster for the company overall, which is a very healthy sign for us as well. But the product mix is also changing towards the premium made segment. So we believe that the premium wear should outgrow the overall company growth rate.
[Operator Instructions] Next question comes from the line of [ Abhishek Singhal ] from [ Naredi Investments ].
In quarter 4 call, you said the company kept capital raw material stock and continue increasing in cotton prices. So profit we'll see in quarter 1 of FY '23. But in quarter 1 FY '23 EBITDA margin, PAT margin and gross margin is overall down from quarter 4. What is behind -- what is the reason behind this?
See, again, as we explained in the -- as we just now explained, there was an increase in the raw material cost. And to a certain extent, we have passed on the cost to the customer. Beyond that, the company is absorbing that cost because suddenly the -- now raw material prices have started coming down. So at this point of time, it would not be the right from the company perspective that still we are charging a higher cost to the customer. So if you'll see the raw material prices to the extent of around INR 350 of the yarn cost, we have managed to pass on to the customers, but the raw material prices have gone up to INR 450. So the difference between INR 350 to in INR 450. This is what the cost company is absorbing in its own P&L.
Once the gross margin is getting dipped, definitely all other bottom line ratios, you will see that there is a decline.
Okay. And the second question. [ My ] earning INR 62.94 crores from insider trading, do you know your market capitalization declined from INR 11,000 crores to INR 5,500 crores. So what blunder you did -- company bought -- [ panelized ] any 1 director who are involved in such activity. And [indiscernible] left the brand again to [indiscernible] at least a 5-year period. So do you know consequence of insider trading and will you give detail reply to all investors?
I believe this is what we are not here to judge that. Actually, this is an insider trading case or not. Either I believe the case is already being ruled by the SEBI. They are already under the -- they are already doing the necessary investigation, and we should protect our comments till the time we are getting the final order from the SEBI. Last time also, we have explained and we have already uploaded the replies and the confirmations what we have received from the stock exchange in the NSE and BSE side. Again, I'm just reiterating my statement that SEBI has already lifted restrictions on 14 entities in Lux Industries insider trading case.
SEBI confirmatory order dated made in May 27, '22 has modified its earlier ex-party order and allowed all the entities, including Mr. Udit Todi, who is the Director of Lux Industries Limited, to deal in all securities, except industry popular. Pending conclusion of investigation, the order has now been modified after considering the facts and circumstances of the case.
Yes. But due to the consequence, our brand value is down from INR 11,000 crores to INR 5,500 crores.
Yes. So I believe from the start till end until now, there was no allegations on the company perspective, there were certain allegations on one of the directors of the company. But for that also the personal hearing has been gone on and this is that only SEBI has given this kind of exemptions and they have lifted the restrictions. So I believe wait for some more time. Let's get the final order out from the SEBI side and then we shall discuss on -- decide the way forward.
Next question comes from the line of Darshit Shah from Helios.
Just 1 question from my side. Could you just throw some light on your distribution network? What are the dealers currently? And what was it 3 and 5 years ago? And what is the current retail distribution network, we as a company have versus 3 and 5 years ago? And where are we steering towards?
So as of quarter 1 ended FY '23, we had about 1,170 odd distributors on board. And typically, the company on an average adds about 20 to 25 distributors every year. So if you go back 3 years or so, we would have had about 100-odd distributors lesser than what we have right now. And as far as the direction ahead is concerned, as we have already mentioned, we feel that the under-penetrated market of South India is one of the areas where we believe that we want to expand our distribution network in.
Okay. And on the retail touch points?
So the retail touch point goes hand-in-hand with the distributor expansion. So it is directly proportional to the number of dealers/distributors that we have.
So per distributor, how many retail touch points we would be having?
So per distributor, we would be having about 250 to 300 distributors -- 250 to 300 retailers.
[Operator Instructions] Next question comes from the line of Prerna Jhunjhunwala from Elara Capital.
I have missed initial comments, so sorry if the questions are repeated. I wanted to understand this inventory increase in the business, now that prices of raw materials are higher. Will you have to take up price decline or an inventory correction in your books going forward to align your product prices with the raw material price collection that we expect. And what can be that shift, if at all it will be there?
So Prerna, as I explained in my -- in the last question, that company has already passed on the cost to the extent of INR 350 of my raw material cost to the customers. And in any case, there was a dip in the margin in the current quarter. So almost the increase in the raw material cost has already been absorbed by -- in quarter 1. And company always follows the policy to carry the inventory at cost or [ margin ] whichever is lower. So definitely, my sales price is much higher as compared to my cost price trial. So there is no question that we should carry any -- we could take any kind of hit or provision as far as inventory is concerned.
Okay. So maybe my question is wrong. Just wanted to understand if you're selling INR 100 today, absorbing that INR 350 to INR 450 raw material price increase, then if raw material prices decline into maybe INR 300 or INR 280, will you have to take a price correction in your inventory?
So definitely, that kind of fluctuation would be there, the company will definitely is going to that kind of hitting P&L. But I think you will see [indiscernible] is around 4.5 plus, so I'm not getting inventory more than 3 months, 3.5 to 4 months, right. So the inventory which I'm carrying now, definitely, this inventory will get channeled by the end of next quarter.
That's great news. Sir, second, I wanted to understand the industry scenario currently. How is the demand panning out because earlier organized versus unorganized in the time of pandemic times. The organized players were quite benefited, but how is the competition coming in from unorganized segment today? Do they still remain out as seen in time, limit time? And how is the experience currently?
So see, overall, the share which happened from the unorganized to the organized sector is a theme which has been playing continuously, and once the network, the channel the customers move from the unorganized product to the organized product, they generally don't move back to the unorganized segment.
And with the raw material prices being so high, it always -- working capital is always an issue with the unorganized players. So with raw material prices high and the kind of industry scenario, which is playing out right now, it is only helping the organized players even more.
And with regards to the market outlook, we believe that okay, the market has been slightly sluggish of late. So -- but we are expecting that because the festive season is about to start with Rakhi coming in, and this festive season goes all the way up to Diwali. After which the winterwear sales starts to happen.
So from Rakhi until Diwali, until the winter season, we are expecting the market to bounce back.
Okay. So sir, what kind of sales force you are looking at in this year because this is a very challenging year. It is difficult to visualize growth like a normal year?
It would be a double-digit growth, but it could be [indiscernible] from our side to give any kind of guidance at this point of time. So I believe it [indiscernible] get for some time. And by the end of quarter 2, we will get the right visibility to comment on the year-end numbers.
Okay. Understood, sir. Sir, 2 more questions from my side. One is EBOs. You have 12 EBOs today. What is the outlook on EBO openings? And how has been your experience in terms of EBOs because you've just started operating EBOs in last 1, 2 years. So any learning experience that you would like to share. How would it helping you...
The running experience has been great, and that is one of the main reasons why we have also opened up the EBOs to get a deeper sense of the retail market. And as far as the financial performance is concerned, it's kind of a mixed bag result. Some of the stores are doing really well. Some of the stores are sluggish. So overall, it's a mixed bag kind of a response. But yes, from the learnings point of view, it is a great learning curve and the company, the organization as a whole gets to learn a lot from the customer sentiments and what is the actual need of the customer at the grassroot level.
So these EBOs, are they in your financial investment or they are largely marketing investment kind of thing, and we should not see a very aggressive EBO? Or is it a financial marketing touch point and we should actually see a aggressive EBO opening maybe after a year or 2 or something like that?
So it's more of a marketing strategy only. But anyway, largely, almost more than 70%, 80% of the EBO are in COCO model. So we are -- we have tied up with so many franchisee owners who actually buy the material from me on a bought-out basis. And in turn, they are doing the secondary sale.
Okay. Okay. And sir, lastly the Lyra. How has been the traction on the lingerie segment, which has been launched recently? And any numbers that you would like to share?
So lingerie, we are seeing very good traction because as we said, that, that is one category which we earlier -- on a national level, you see very few advertisers advertising that category. So in quarter 1, we went quite bullish with our advertisements and we'll be continuing to do that throughout the year. And once the category has started to see advertisements, it's good -- a good awareness regarding the brand has come in. Earlier Lyra was perceived more so as a leggings brand/bottoms wear brand. But with this new advertisement also, it has helped us to reposition our image as a complete womenswear brand.
So overall, the positioning of the brand has improved. The traction in the lingerie segment has improved. So overall, it has been quite good for the brand. And we can see that percolating down in the numbers as well.
Sir, what is the reach in the lingerie segment currently?
You mean number of stores?
Either number of stores, distributors or in terms of east, west, north...
We are working with about 170, 180-odd distributors as of now because we wanted to go slow. And now that we have started to market the product, we are aggressively increasing our distributor reach as well.
And it is largely based in East or pan-India?
It will be mostly pan-India, it will be mostly pan-India.
All the best for the difficult and challenging year.
[Operator Instructions]
Next question comes from the line of Anika Mittal from [indiscernible].
Sir, if I look -- in quarter 4 financial year '21, you have sanctioned investment of about INR 110 crores for expansion into existing and new geographies. And from that quarter, you are -- in all investor presentations, you are mentioning about short-term investment is approximately INR 110 crores. And additional value for proposed expansions will be INR 400 crores, but if we look at quarter 1 financial year '23 presentation, that -- when your guidance is missing and short-term investment amount is of INR 50 crores. Does it mean that have you incurred INR 50 crores [ spilled it ] or anything else?
So no, I believe -- let me try to clarify you. So last 2 years, we have sanctioned an amount of around INR 110 crores for an expansion in Eastern India. The factory is almost done. It is -- maybe it will be functional in another 3 to 6 months of the time. And then we can see the numbers will start coming in, in the books of account. This INR 50 crores of the approval for CapEx has been given for a new setup we are planning to have in the Ludhiana. So this will be the new setup and new investment of the CapEx starting from this year.
Okay. And sir what about the revenue guidance?
Sorry, come again?
What is about the revenue guidance that you have given in your investor presentation?
Yes. So last time the way we have -- we are completely on track, that once my factory will be kick running for this INR 110 crores of the investment, company can easily see that over a period of 2 to 3 years, we should be in a position to get a INR 400 crore of the additional business in the top line side.
Next question comes from the line of [ Amit Shah ] from [ Ace Securities ].
Sir, I have a couple of questions. Sir, firstly, how much ad spends are we planning this year? I mean as we have reduced ad spend due to COVID last couple of years.
Historically, we've maintained about 8% of top line as ad spend. During COVID, we had really gone down to about 4.5%, 5%. But as we had already suggested during our previous con calls as well that we'll be bouncing back to roughly about 8% going ahead.
And because in the last 2 years, we've not spent much. So maybe this year, we might exceed 8% or maybe it will be border line 8% to 9%.
Understood, sir. And sir, what is the strategy to -- in penetrating our Southern region?
So Southern region, we are aggressively looking at increasing our distribution network in the South, which will in turn help us to convert it to sales.
[Operator Instructions] Next question comes from the line of [ Devesh ] from [ TS Investments ].
My question was relatively if you were to look 3, 4 years out, which is starting from 2018, '19 onwards. So we did a great job wherein your top line grew high teens and margin expansion happened. And we were about 21% plus last year, right? Now as you called out in your opening remarks as well that the mix would tilt towards small premium things. So if you were to sort of broadly talk about next 3 to 4 years from here, how do you see the growth quality both in top line and margin trajectory?
So as far as premium is concerned, currently, my revenue share from the premium segment is around 12% to 13%. And gradually, the way we are seeing that over a period of another 3 to 4 years, the premium segment should reach to a number of around INR 500-plus crores. So maybe, see, that point of time, the overall revenue will also go up but still, we are expecting that around 15% -- between 15% to 20%, my premium segment contribution should come in.
Got it. And if you could also comment that last year we had about 21% plus type margins. How would it evolve over the next few years? Do you think this is more sustainable range where we were last year?
We should hold on kind of like, again, the way we are seeing the premium segment should give me a gross margin in the range of 40% plus. But from the bottom line perspective, we need to factor so many other things. That's how we are going to strategize our advertisement costs and other overheads.
Right, right. And one more transactional element. If I were to look at Q-o-Q, there is a sizable jump in the employee expense. Is it -- is there a one-off in here? Or this should be the new base? How should we read this?
No. You can see the -- on a Y-o-Y basis, there is an increase in employee costs by around 100 basis points. So mainly because as we said earlier also, the company is very much eager to invest in the people and in the IT. So that is the reason we are filling up a few of the key positions, and we have given a right salary hike also to the existing employees. That is the reason. So this is one of the costs and company is well maintained to carry this level of the cost for the -- as far as the employee is concerned.
Sure. Sounds good. And one last more qualitatively, if you could comment about, if we were to see, we are probably the second largest in the organized segment, right? How do you see competitive intensity within the organized sector? Do you see enough room for everybody to grow? Or do you see that the market itself is expanding slow, so there would be a heightened competition within organized players? How do you see that game?
See, within the organized space, we see -- we feel that there is enough room to grow, provided that you have the right mindset and the right vision. So vision and approach and direction of the company should be proper and then there is enough room for growth. And by vision and direction, I mean that we should be tapping the right categories at the right time and all of that. Yes. When we talk about the basic essentials, such as the men's western brief, that would be growing at almost industry average rate, give or take a percentage or 2 because of the shift from the unorganized sector to the organized sector.
But when we talk about the company growth rate within the organized sector, in that case, there are so many new categories which are opening up, which is basically -- which is the outerwear play, which is the athleisure play, which is the womenswear play.
So when you take all of these into account, it is mostly the organized players, which are able to capture such kind of growth. So when you look at a more macro picture, the organized, we believe that there is still -- at the company level, the organized sector should grow fairly well.
Thank you. This was the last question. So we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
I would take this opportunity to thank everyone for joining the call. I hope we've been able to address all your queries. For any further information, kindly get in touch with us or Strategic Growth Advisors, our Investor Relation advisers. Thank you all.
Thank you. On behalf of Lux Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.