Lux Industries Limited — Q1 FY22 earnings call

Call held 28 Jul 2021

Management summary

Lux Industries delivered a strong Q1 FY2022 performance, showcasing resilience amidst the COVID-19 second wave. Growth was fueled by increased consumption in semi-urban and rural markets, a structural shift from the unorganized to the organized sector, and effective price hikes. The company reported significant improvements in revenue, profitability, and margins, while also focusing on strategic expansion in premium segments and digital channels.

Highlights

  • Revenue grew 32% YoY to ₹421.09 Crores in Q1 FY2022, driven by strong demand in semi-urban and rural markets.

  • EBITDA increased by 59% YoY to ₹91 Crores, with EBITDA margin expanding by 373 basis points to 21.6%.

  • PAT surged 73% YoY to ₹63.72 Crores, and PAT margin improved by 360 basis points to 15%.

  • Premium category revenue registered a robust growth of 136%, while the mid-premium segment grew 30% with 12% volume growth.

  • Working capital days reduced by 13 days YoY to 165 days as of June 30, 2021, with a near-term target of approximately 120 days.

  • Advertising expense stood at ₹26 Crores (6% of Q1 revenue), with management guiding for 6-7% of revenue for FY2022.

  • Management targets ₹500 Crores revenue from the premium wear category by FY2025 and ₹100 Crores annual ex-factory sales from e-commerce in the next three years.

Key financials

  1. Revenue ₹421.09 Cr +32%YoY
  2. EBITDA ₹91 Cr +59%YoY
  3. EBITDA Margin 21.6%
  4. PAT ₹63.72 Cr +73%YoY
  5. PAT Margin 15%
  6. Volume Growth 9%
  7. ASP Growth 24%

What they filed

Q1 FY27: revenue up 0.8%, net profit up 0.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue677 553 818 604 779 +15%673 +22%873 +7%609 +1%
EBITDA65 50 77 35 44 −32%36 −28%64 −17%43 +23%
Net profit52 32 48 23 23 −56%13 −59%47 −2%23 +0%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹417 Cr Total
  • Mid-Premium ₹195 Cr 46.8%
  • Economy ₹165 Cr 39.6%
  • Premium ₹57 Cr 13.7%

Guidance & targets

Revenue

  • Premium Wear Revenue Revenue · FY2025 · High confidence ₹500 Crores
    In our premium category, the growth registered is at 136%, we expect a revenue share of Rs.500 Crores from our premium wear category by FY2025.

    — Saket Todi, Executive Director

  • ONN Brand Revenue Revenue · 2-3 years · High confidence ₹150 Crores
    ONN has almost reached to Rs.80 Crores to Rs.90 Crores and we are very much sure that over a period of two to three years it will become around Rs.150 Crores brand

    — Saket Todi, Executive Director

  • E-commerce Ex-Factory Sales Revenue · next three years · High confidence ₹100 Crores
    E-com we have set an internal target that in the next three years, we will reach a run rate of Rs.100 Crores per year ex-factory sales

    — Udit Todi, Executive Director

Advertising Expense

  • Ad Spends as % of Revenue Advertising Expense · FY2022 · Medium confidence 6-7%

    Previously 7-8% → 6-7%

    As guided earlier for FY2022, we will gradually be reinstating our ad spends back to 7% to 8% of our revenue but seeing the pandemic situation of the current year, we might even revise it back to 6% to 7%.

    — Saket Todi, Executive Director

Profitability

  • Synergy Benefits (Cost Revenue) Profitability · few quarters · High confidence 100 basis points
    Around 100 to 100-basis point of the cost revenue has already been factored in the P&L and we believe that this is the range which will continue for the few quarters.

    — Saket Todi, Executive Director

Risks & concerns

  • Impact of COVID-19 on operations and demand

    medium

    The company lost working days due to lockdown, and the unorganized sector faced liquidity issues, though demand shifted to organized players.

    Management acknowledged

  • Raw material price volatility (Yarn prices)

    medium

    Yarn prices were up 20-30% in the last six months, but management stated they had stocked inventory at lower costs and implemented incremental price hikes.

    Analyst acknowledged

Q&A highlights

3 direct
Gross Margin Expansion Drivers Direct
Approximately because of the mixing there will be an increase of around 200-250 basis points from the mix change in the gross margin level whereas the remaining 400 basis point would be coming from the increase in the price.

Management provided a clear quantitative breakdown of the factors contributing to the significant gross margin expansion, attributing 200-250 bps to product mix and 400 bps to price hikes.

Asked by Vaishnavi Mandhaniya

Sustainability of EBITDA Margins Direct
Yes definitely it is very much sustainable, even if you see my EBITDA margin of March 2021, it is in the similar line so since last two quarters I think we are very much delivering the number in the similar range and we do expect that for coming few quarters this number should continue in the similar range.

Management confidently affirmed the sustainability of the 20-21% EBITDA margin, citing that price increases have been incremental compared to raw material cost increases, ensuring continued profitability.

Asked by Vaishnavi Mandhaniya

Sequential Decline in Mid-Premium Segment Revenue Direct
So Inferno as a product is a winter wear product, so the sales will come in quarter second and quarter third, so that is why Lux Inferno right now is standing at zero and if I talk about growth of each individual brand in the mid premium category, so it is just to give you a flavor that as I said because of the low base effect you could see astounding figures so for example Lyra would have grown by about 180% and GenX has been fairly flattish because last season also we did quite a good amount of sales, Lyra has grown quite fast and talking about Cozi, Cozi has grown by about 17% to 18% and Inferno as because it is not the season for Inferno, we do not see any figure for that.

Management clarified that the sequential dip in mid-premium revenue was primarily due to the seasonality of winter wear products like Inferno and the reduced number of working days in Q1 FY22 due to lockdown compared to Q4 FY21.

Asked by Dhruv Bhatia

2 min read 6 chapters

Detailed narrative

Robust Q1 FY2022 Financial Performance

Lux Industries reported a strong Q1 FY2022, with revenue growing 32% YoY to ₹421.09 Crores. This was accompanied by a 59% increase in EBITDA to ₹91 Crores, leading to an EBITDA margin of 21.6%, a 373 basis point expansion. Net Profit after Tax (PAT) surged 73% YoY to ₹63.72 Crores, with the PAT margin improving by 360 basis points to 15%.

Segmental Growth and Product Mix Shift

The premium category was a significant growth driver, registering a 136% increase in revenue. The mid-premium segment also performed well, growing 30% with a 12% volume growth and 20% ASP growth. The company noted a structural shift in consumer preference from the unorganized to the organized sector, particularly benefiting its strong presence in semi-urban and rural markets.

Margin Expansion Driven by Price Hikes and Mix

Gross margin expansion was attributed to a combination of product mix change and price hikes. Management stated that 200-250 basis points of gross margin improvement came from the shift towards higher-margin products, while 400 basis points resulted from price increases. These price hikes were incremental, exceeding the 10% increase in raw material costs by 1-2%.

Strategic Focus on Premiumization and Digital Channels

Lux Industries is actively pursuing growth in its premium segments, targeting ₹500 Crores in revenue from premium wear by FY2025. The ONN brand is expected to reach ₹150 Crores in 2-3 years. The company has also established separate verticals for e-commerce and Exclusive Brand Outlets (EBOs), aiming for ₹100 Crores in annual ex-factory e-commerce sales within the next three years.

Working Capital and Advertising Efficiency

Working capital days improved by 13 days YoY to 165 days as of June 30, 2021, with management expecting it to stabilize around 120 days in the near term. Advertising expenditure for Q1 FY2022 was ₹26 Crores, approximately 6% of revenue. While typically 7-8%, the company plans to maintain ad spends at 6-7% of revenue for FY2022, optimizing costs.

Distribution Network and Market Reach

The company leverages a robust distribution network comprising approximately 1,170 distributors, 12 depots, and over 2 lakh retail outlets across India, which proved crucial for last-mile delivery during the pandemic. Lux Industries holds approximately 15% market share in the organized men's innerwear category and plans to further invest in expanding its presence in the South India market over the next 4-5 years.

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