Lux Industries Limited — Q3 FY22 earnings call

Call held 4 Feb 2022

Management summary

Lux Industries reported strong Q3 and 9M FY2022 results, driven by robust demand across product categories and an increased share of value-added products. The company achieved significant growth in revenue, EBITDA, and PAT, with healthy margin expansion. Strategic focus on premium segments, brand building, and e-commerce expansion contributed to this performance, despite some working capital challenges and a notable corporate governance concern regarding a SEBI interim order.

Highlights

  • Q3 FY22 Revenue: ₹668 Crores, up 24% YoY.

  • Q3 FY22 EBITDA: ₹145 Crores, up 33% YoY, with a margin of 21.74% (up 154 bps).

  • Q3 FY22 PAT: ₹101.2 Crores, up 35% YoY, with a margin of 15% (up 122 bps).

  • 9M FY22 Revenue: ₹1720 Crores, up 26% YoY.

  • 9M FY22 PAT: ₹265 Crores, up 48% YoY, with a margin of 15.5% (up 230 bps).

  • Premium category sales grew 16% in Q3 FY22, contributing 13% to overall sales.

  • Lyra (women's wear) accounted for roughly ₹220 Crores (13%) of 9M FY22 net sales.

  • Working capital cycle increased to 168 days, with inventory days at 119 days due to raw material build-up and delayed winter.

Concerns

  • SEBI interim order against Mr. Udit Todi (Executive Director) and his wife for alleged insider trading.

Key financials

3 periods

Headline

  • Working Capital Cycle
    168 days
  • Debtor Days
    97 days
  • Inventory Days
    119 days

Q3 FY22

  • Revenue
    ₹668 Cr
    YoY +24%
  • EBITDA
    ₹145 Cr
    YoY +33%
  • EBITDA Margin
    21.7%
  • PAT
    ₹101.2 Cr
    YoY +35%
  • PAT Margin
    15%

9M FY22

  • Revenue
    ₹1,720 Cr
    YoY +26%
  • EBITDA
    ₹377 Cr
    YoY +43%
  • EBITDA Margin
    22%
  • PAT
    ₹265 Cr
    YoY +48%
  • PAT Margin
    15.5%

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

  • Mid-premium Segment (9M FY22)
    55% Revenue Contribution
  • Economic Segment (9M FY22)
    32% Revenue Contribution
  • Premium Segment (9M FY22)
    13% Revenue Contribution
  • Premium Category (Q3 FY22)
    16% Sales Growth
  • Economy Category (Q3 FY22)
    64% Sales Growth
  • Mid-Premium Segments (Q3 FY22)
    9% Sales Growth
  • Lyra (9M FY22)
    ₹220 Cr Net Sales13% Contribution to Net Sales

Guidance & targets

Profitability

  • EBITDA Margin Profitability · coming quarters · High confidence 20% plus
    The company's strong brand equity combined with well thought business acumen has helped us consistently deliver a 20% plus EBITDA margin over the last five quarters which among the best in the industry and we intent to maintain the same in the coming quarters as well.

    — Saket Todi, Executive Director

Marketing

  • Ad Spend as % of Sales Marketing · FY2023 onwards (normalized situation) · Medium confidence 7.5 to 8%
    Actually it depends on the pandemic situation if another COVID wave comes in India and how severe it is that will go down but everything is normalized suppose it is FY2020 right now and FY2020 the same situation then it will normalize again back to 7.5 to 8%.

    — Saket Todi, Executive Director

Revenue

  • Lyra Brand Revenue Revenue · long term / next couple of years · High confidence 500 Crores
    See in the long term we will definitely be looking at 500 Crores brand under the brand Lyra and we have already spoken about it in the past concalls that we are trying and expanding the product portfolio within the same brand...

    — Udit Todi, Executive Director

  • Online Sales Revenue Revenue · over the next 3 years · High confidence 100 Crores
    We have currently shipping 4,000 plus online orders per day and aim to generate 100 Crores online sales revenue over the next 3 years.

    — Udit Todi, Executive Director

  • Annual Revenue Growth Rate Revenue · annual (future years) · High confidence above 20%
    Yes, we are expecting to have an annual growth rate of above 20%.

    — Saket Todi, Executive Director

Market Share

  • Growth vs Industry Market Share · going ahead · High confidence 200 to 300 basis points
    The company has already been enjoying a good CAGR over the last couple of years and going ahead we should be able to maintain our growth rate and we believe that we should be able to beat the industry growth rate by about 200 to 300 basis points and as you have very correctly mentioned this would primarily be on account of shift from the unorganized to the organized sector.

    — Udit Todi, Executive Director

Risks & concerns

  • SEBI interim order against Mr. Udit Todi (Executive Director) and his wife for alleged insider trading.

    high

    SEBI passed an interim order against Mr. Udit Todi and his wife; management clarified no direction against the company, Mr. Todi has complied with directions, and the matter is under investigation.

    Analyst acknowledged

  • Inventory buildup of finished goods due to delayed winter.

    medium

    Working capital cycle increased to 168 days, with inventory days rising to 119 days, partly due to delayed winter and a conscious call to build raw material inventory.

    Management acknowledged

  • Raw material price inflation.

    medium

    Management made a conscious call to build raw material inventory expecting price increases, and stated they pass on price increases to consumers in the long term.

    Management acknowledged

  • Impact of COVID-19 on distribution network expansion, particularly in South India.

    low

    COVID-19 restricted distribution expansion efforts, but management expects to become more aggressive once the situation normalizes, given the milder Omicron strain.

    Management acknowledged

Areas of evasion (1)

  • exact number of dealers and distributors in the South India market

Q&A highlights

2 direct
Sustainability of gross margins amidst rising raw material prices and inventory gains. Direct
See partly the gross margin which you have seen expanding over the last couple of years has also been in account of change of product mix so the premium portfolio of the company is also gaining pace compared to the semi premium and mass category. See we also have to keep that in mind that the product mix has also been changing favorably for the company and yes you are also right to a certain extent we have gained from the old raw materials in an inflationary scenario so those gains are also there...

Clarifies the drivers of margin expansion, attributing it to both favorable product mix and temporary inventory gains, which is crucial for assessing margin quality.

Asked by Ishrat Khatri

Corporate governance concerns regarding a SEBI interim order against Mr. Udit Todi. Direct
No definitely we completely agree and even if you insist let me give you a quick update on the corporate governance point of view that SEBI has passed an interim order against certain person in the matter of alleged insider trading in the case of our company. Mr. Udit Todi and his wife are also named in the order. There is no direction or any observation against the company in the SEBI order and as such no bearing on the company in any manner.

Addresses a critical, sensitive issue directly, providing an update on the SEBI order and management's stance, which is vital for investor confidence and transparency.

Asked by Sandeep

Expansion strategy and distribution network in the South Indian market. Partial
As you can see we have already trying to add on distributors into the South Indian market and we are in talks to the couple of them already but overall yes per distributor sale with the existing set of distributors has already gone up... as far as the exact number of dealers and distributors in the South India market is concerned that is a very marketing or strategic call so we would not want to be open with the number of the distributors which is present in any particular geography.

Probes the execution of a key growth strategy for an untapped market, revealing management's efforts while also highlighting their reluctance to disclose specific operational details.

Asked by Mayank Lakdawala

2 min read 5 chapters

Detailed narrative

Strong Q3 & 9M FY22 Financial Performance

Lux Industries delivered robust financial results for Q3 and 9M FY2022. Q3 revenue grew 24% year-on-year to ₹668 Crores, with EBITDA increasing 33% to ₹145 Crores, and PAT rising 35% to ₹101.2 Crores. EBITDA margin expanded by 154 basis points to 21.74%, and PAT margin improved by 122 basis points to 15%. For the nine-month period, revenue stood at ₹1720 Crores (up 26% YoY), EBITDA at ₹377 Crores (up 43% YoY), and PAT at ₹265 Crores (up 48% YoY), demonstrating strong operational leverage and a commitment to maintaining 20%+ EBITDA margins in coming quarters.

Segmental Growth and Product Mix Shift

The company witnessed strong demand across all product categories, with overall volume growth of 6% and ASP growth of 16% in Q3 FY22. The premium category, including brands like ONN and Lux Premium, registered a sales growth of 16% in Q3 FY22 and now contributes 13% to overall sales, up from 11% last year. The economy category showed exceptional growth of 64%, while mid-premium segments grew by 9%. This favorable product mix shift towards higher-value offerings is a key driver of margin expansion.

Strategic Focus on Brand Building, Distribution & E-commerce

Lux Industries continues to invest in brand building, having spent ₹108 Crores on advertising and promotion in 9M FY22, representing 6.4% of net sales, with a plan to restore it to 7.5-8% in FY23. The women's wear brand, Lyra, contributed roughly ₹220 Crores (13%) to 9M FY22 net sales, with a long-term target to become a ₹500 Crores brand. E-commerce presence is expanding, with a target to generate ₹100 Crores in online sales revenue over the next 3 years, up from a current run rate of ₹40-45 Crores, indicating a strong push into digital channels.

Working Capital Management

The working capital cycle increased to 168 days as of December 31, 2021, primarily due to a conscious decision to build raw material inventory in anticipation of price increases and a buildup of finished goods inventory due to delayed winter. While debtor days improved to 97 from 121 days, inventory days increased to 119 from 101 days. Management expressed confidence in reducing working capital days in the coming quarters through continuous monitoring and control.

Corporate Governance Update

A significant concern regarding a SEBI interim order against Mr. Udit Todi, Executive Director, and his wife for alleged insider trading was addressed. Management clarified that the order has no bearing on the company, and Mr. Todi has complied with SEBI's directions, clarified his position to the board, and voluntarily recused himself from board meetings pertaining to the order. The matter is under investigation, and the company is cooperating fully to demonstrate innocence, with external advisors indicating no criminal liability at this stage.

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