Concall AI

Lux Industries Limited — Q4 FY22 earnings call

Call held 31 May 2022

Management summary

Lux Industries delivered robust full-year performance in FY22, achieving record revenue and strong profit growth, primarily driven by premiumization and strategic price increases. Despite a challenging Q4 marked by raw material inflation and demand disruptions, the company prioritized margin protection through calculated inventory management. Key brands like ONN and Lyra demonstrated significant growth, contributing to an expanding premium segment share. Management outlined plans for continued market share capture, digital transformation, and export growth, while addressing concerns regarding working capital and a SEBI investigation.

Highlights

FY22 Revenue reached a record ₹2,312 crores, growing 18% YoY.
FY22 EBITDA stood at ₹490 crores, up 25% YoY, with margin expanding 121 bps to 21.2%.
FY22 PAT increased 25% YoY to ₹338 crores, with PAT margin at 14.5%.
Premium brand ONN revenue grew 52% YoY to ₹120 crores in FY22.
Women's flagship brand Lyra revenue grew 34% YoY to ₹302 crores in FY22.
Average Selling Price (ASP) increased 19% in FY22, driven by price hikes across categories.
Q4 FY22 revenue saw a marginal 1% de-growth to ₹593 crores due to industry challenges.
Working capital cycle stretched to 188 days, with inventory days at 132 days, due to strategic raw material stocking.

Concerns

Cotton Price Volatility and Inflation

Key financials

2 periods

Q4 FY22

Revenue
₹593 Cr
YoY -1%
EBITDA
₹113 Cr
EBITDA Margin
19.1%
PAT
₹73 Cr
PAT Margin
12.3%

FY22

Revenue
₹2,313 Cr
YoY +18%
EBITDA
₹490 Cr
YoY +25%
EBITDA Margin
21.2%
PAT
₹338 Cr
YoY +25%
PAT Margin
14.5%
ASP Increase
19%
Volume Growth
-1%
Debt Equity Ratio
0.26×
Interest Coverage Ratio
29×
Working Capital Cycle
188 days
Inventory Days
132 days
Gross Cash Balance
₹140 Cr

What they filed

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

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	677	553	818	604	779 +15%	673 +22%	873 +7%	609 +1%
Expenses	613	503	741	569	735	637	809	566
EBITDA	65	50	77	35	44 −32%	36 −28%	64 −17%	43 +23%
Margin	10%	9%	9%	6%	6%	5%	7%	7%
Other income	14	4	2	9	5	0	11	7
Interest	5	5	6	7	10	10	11	12
Depreciation	6	6	7	7	7	8	8	8
Profit before tax	68	43	66	30	31 −54%	19 −56%	57 −14%	30 +0%
Tax rate	24%	26%	27%	24%	27%	34%	17%	24%
Net profit	52	32	48	23	23 −56%	13 −59%	47 −2%	23 +0%
EPS	17.02	10.66	15.99	7.84	7.80	4.29	14.59	7.36

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

ONN (Premium Men's Wear)
₹120 Cr Revenue (FY22)52% Growth (FY22)
Lyra (Women's Wear)
₹302 Cr Revenue (FY22)34% Growth (FY22)22% Volume Growth (FY22)12% Value Growth (FY22)13% Contribution to Total Revenue (FY22)
Lux Cozi (Flagship)
₹619 Cr Revenue (FY22)12% Growth (FY22)
Economy Segment
19% Sales Growth (FY22)32% Contribution to Total Revenue (FY22)
Mid-Premium Segment
13% Sales Growth (FY22)54% Contribution to Total Revenue (FY22)
Premium Category
36% Sales Growth (FY22)14% Contribution to Total Revenue (FY22)
Exports
7% Contribution to Total Revenue (FY22)₹169 Cr Sales (FY22)

Guidance & targets

Online Sales

Online Sales Revenue Run Rate Online Sales · next 12-18 months · High confidence ₹100 crores

So, I believe on a 12-month basis, in another 12 to 18 months' time, we should be in a position to get a run rate of (Rs. +100) crores kind of number.

— Saurabh K. Bhudolia, CFO

Ad Spend

Ad Spend as % of Revenue Ad Spend · FY23-24 · High confidence 7%-8%

FY23-24 going ahead see as a policy we always maintained to try to keep it at around say 7% to 8% and that is what we are targeting to do in the coming year as well.

— Udit Todi, Executive Director

Topline

Revenue Topline · 3.5-4 years · Medium confidence ₹5,000 crores

That we can say about 3.5-4 years should be a good target for Rs. 5,000 crores of top line? It is difficult to put a number, exact number to it but yes, we are looking at a healthy growth rate and we're looking to beat the, we're looking at capturing more market share and beating the industry growth rate.

— Vishal Bagadia (Analyst) / Udit Todi (Management)

Export Sector

Export Sector Growth Export Sector · going forward · Medium confidence 15%-20%

So, we believe that going forward we are expecting the export sector to grow around 15% to 20%.

— Udit Todi, Executive Director

Profitability

EBITDA Margins Profitability · next fiscal year · High confidence intact

So, yes if I look at the entire overall fiscal next year, we always try and maintain our EBITDA margins intact and that is how we try and increase our prices.

— Udit Todi, Executive Director

Inventory

Inventory Levels Inventory · some point in time · Medium confidence normalize

At some point in time, we would take a call to normalize these inventory levels as well.

— Saurabh K. Bhudolia, CFO

Volume

Volume Growth Volume · coming year · Low confidence good growth

So, as we all know that the premium segment commands a better margin than economy segment so, due to this mix change, there has been a good margin increase also and in the coming year we can expect the same scenario happening and if the cotton prices get stabilized then we would see a good volume growth as well.

— Saket Todi, Executive Director

Risks & concerns

Cotton Price Volatility and Inflation
high

Cotton prices have sharply increased from ₹250-300/kg to ₹400-450/kg, impacting raw material costs and working capital requirements, necessitating price hikes.

Both acknowledged
Demand Disruption and Lagged Customer Adoption to Price Hikes
medium

Customers are taking time to adjust to new price regimes, leading to some resistance and a slight volume degrowth in Q4, though innerwear are considered basic essentials.

Both acknowledged
Stretched Working Capital Cycle and Inventory Buildup
medium

Working capital cycle at 188 days and inventory days at 132 days (up from 90 days) due to strategic raw material stocking, leading to a net debt situation.

Analyst acknowledged
SEBI Investigation and Board Absence
medium

A SEBI investigation involving 14 parties led to the temporary leave of absence for Mr. Udit Todi and Mr. Pradip Todi from board meetings discussing the matter, though a confirmatory order has modified restrictions.

Analyst acknowledged

Areas of evasion (1)

Market rumors about brand separation between families

Q&A highlights

2 direct, 1 evasive

Q4 Performance & Working Capital Deterioration Direct

See if you'll see the top line, the top line is almost flattish in the Quarter 4 and definitely we were very much conservative and we were very proactive to manage our working capital. That was the reason we have not allowed to dilute our credit control cycle which we have already put on the debtors. That was the one reason we kept toppling in our control and from the working capital cycle days anyway the way we have explained, there was a lot of ambiguity in the market and in recent past we have seen that there is a sharp increase in the raw material prices. So, company has taken a calculative decision that instead of keeping the money in the FDs or in the investment, we wanted to invest our money in the inventory. So that that is a margin can be protected and in the coming few quarters we can see the good result out of that.

Management directly explains the Q4 dip and stretched working capital as a strategic move to protect margins against rising cotton prices, providing a clear rationale for the financial metrics.

Asked by Bhargav B (Kotak)

Board Changes & Family Separation Rumors Evasive

I don't think there is any kind official statement from the company side on this topic. I believe this is more of a rumor and the speculation in the market unless and until we don't get the clarity we do not want to comment on this question. ... That point of time that notice has been served by SEBI on the company. Actually, from the prudence point of view Mr. Udit Todi and Pradip Todi, being the related party, they have served the notice to the company that till the time the investigation is not getting over they do not want to participate in the agenda in which these discussions are going to be discussed.

Addresses a significant governance concern, confirming temporary board absence due to a SEBI investigation while deflecting rumors of family/brand separation, which could impact investor sentiment.

Asked by Amit Shah (Deep Research Capital)

Inventory Strategy & Cotton Price Volatility Direct

So, we have taken a very calculated decision. When we see that the yarn prices are on the uprise, we would rather want to hold onto that yarn price rather than buy it at the highest price. So, as I had earlier mentioned, whatever yarn prices or whatever yarn also that we are holding on our inventory, the value of those yarn prices if I do a mark to market position, we would tend to gain. Had we not purchased the yarn at that point of time we would have to purchase it at a much higher price.

Clarifies the strategic rationale behind the increased inventory levels, framing it as a proactive measure to mitigate raw material cost inflation and secure future profitability, despite the immediate impact on working capital.

Asked by Anurag Jain (Green Lantern Capital)

3 min read 7 chapters

Detailed narrative

Robust FY22 Performance Driven by Premiumization and Price Hikes

Lux Industries achieved its highest-ever revenue of ₹2,312 crores in FY22, marking an 18% year-on-year growth. This was underpinned by a 25% increase in EBITDA to ₹490 crores, with the EBITDA margin expanding by 121 basis points to 21.2%. Net profit also grew by 25% to ₹338 crores, resulting in a PAT margin of 14.5%. The company strategically implemented price increases, leading to a 19% rise in Average Selling Price (ASP) across its portfolio, which helped mitigate the impact of rising raw material costs and a marginal 1% dip in volumes.

Strategic Inventory Build-up Amidst Cotton Price Inflation

The company's working capital cycle extended to 188 days as of March 31, 2022, with inventory days increasing to 132 days from 90 days in the prior year. Management clarified this was a 'calculated decision' to stock raw materials, particularly yarn, at lower prices. With cotton prices soaring from ₹250-300/kg to ₹400-450/kg, this strategy aimed to protect future margins, despite leading to a temporary net debt position and higher working capital requirements.

Strong Growth in Power Brands and Premium Segment

Lux's power brands demonstrated significant growth in FY22. ONN, the men's premium wear brand, achieved ₹120 crores in revenue, growing 52% year-on-year. Lyra, the women's flagship brand, reached ₹302 crores in revenue, growing 34% year-on-year (22% volume, 12% value growth), and now accounts for approximately 13% of total revenue. The overall premium category, including One8 and Lux Premium, grew 36% and now contributes 14% to total revenue, up from 12% last year, indicating successful brand-building initiatives.

Q4 FY22 Headwinds and Focus on Profitable Growth

The fourth quarter of FY22 saw a slight de-growth in revenue by 1% to ₹593 crores, with EBITDA at ₹113 crores and PAT at ₹73 crores. Management attributed this to the Omicron COVID-19 wave, higher raw material prices, supply chain disruptions, and a lagged customer response to price hikes, particularly in the mid and economy segments. During this challenging period, the company prioritized 'profitable growth' and margin protection over volume growth, opting to sustain margins even if it meant slower topline expansion.

Digital Transformation and E-commerce Expansion

Lux Industries is actively pursuing digital transformation, focusing on digitalizing Standard Operating Procedures (SOPs) for smoother workflows and integrating with retailers to leverage data for business scaling. The company is also expanding its e-commerce presence through partnerships with major platforms like Amazon, Flipkart, Myntra, and Ajio. Currently, online sales have a run rate of over ₹50 crores, with a target to achieve a run rate of ₹100 crores within the next 12-18 months.

Long-Term Growth Ambitions and Market Share Capture

The company reiterated its long-term aspiration to achieve ₹5,000 crores in revenue within 3.5-4 years, driven by healthy growth rates and increased market share. Management expressed confidence in underlying demand, noting that innerwear are basic essentials. They also project the export sector to grow by 15-20% and plan to maintain advertising and promotion spends at 7-8% of revenue in FY23-24 to support brand visibility and market penetration.

SEBI Investigation and Board Governance

Management addressed analyst questions regarding a BSE notification about the temporary leave of absence for Mr. Pradip Kumar Todi and Mr. Udit Todi. They clarified that this was a voluntary decision by the related parties to not participate in board discussions related to a SEBI investigation involving 14 parties. A confirmatory order on May 27, 2022, modified restrictions, allowing them to deal in other listed scrips but not Lux Industries' scrip until the investigation is complete, with management asserting business as usual.

This is an AI-generated summary of a publicly available earnings call transcript.

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