LUXINDNSEQ4 FY22June 04, 2022

Lux Industries Limited

8,511words

114turns

10analyst exchanges

1executives

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Management on call

Todi. Saket Todi

Good afternoon. Thank you everyone for joining the earnings conference call for the quarter and

Key numbers — 40 extracted

Rs. 100 crore

er the past many years. For the first time of premium brand ONN has surpassed the revenue mark of Rs. 100 crores, registering arevenue of Rs. 120 crores, a growth of approximately 52% over the same last year.

Rs. 120 crore

me of premium brand ONN has surpassed the revenue mark of Rs. 100 crores, registering arevenue of Rs. 120 crores, a growth of approximately 52% over the same last year. While Lyra our women’s flagship brand ha

52%

revenue mark of Rs. 100 crores, registering arevenue of Rs. 120 crores, a growth of approximately 52% over the same last year. While Lyra our women’s flagship brand has surpassed a revenue mark of Rs

Rs. 300 crore

2% over the same last year. While Lyra our women’s flagship brand has surpassed a revenue mark of Rs. 300 crores registering a revenue of Rs. 302 crores, a growth approximately 34% over same last period last

Rs. 302 crore

ur women’s flagship brand has surpassed a revenue mark of Rs. 300 crores registering a revenue of Rs. 302 crores, a growth approximately 34% over same last period last year. Lux Cozi too delivered a strong gro

34%

a revenue mark of Rs. 300 crores registering a revenue of Rs. 302 crores, a growth approximately 34% over same last period last year. Lux Cozi too delivered a strong growth number of Rs. 619 crores,

Rs. 619 crore

proximately 34% over same last period last year. Lux Cozi too delivered a strong growth number of Rs. 619 crores, a growth of 12% over the same last year. We have seen a shift towards aspirational buyings, the

12%

st period last year. Lux Cozi too delivered a strong growth number of Rs. 619 crores, a growth of 12% over the same last year. We have seen a shift towards aspirational buyings, the innerwear industr

Rs. 2312 crore

nges especially in the last quarter of FY22. The company has reported the highest ever revenue of Rs. 2312 crores, a growth of approximately 18% % over the same last period. The company has reported solid top l

18%

. The company has reported the highest ever revenue of Rs. 2312 crores, a growth of approximately 18% % over the same last period. The company has reported solid top line and bottom-line growth drive

19%

e company has undertaken several price increases during the year which has led to ASP increase of 19% in our premium wear category, 14% in our mid-premium wear category and 25% in our economic wear c

14%

ce increases during the year which has led to ASP increase of 19% in our premium wear category, 14% in our mid-premium wear category and 25% in our economic wear category. Sales of our Lux ® Inne

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Guidance — 20 items

Saket Todi

opening

“14.96 for every rupee spent from FY20 onwards we plan to progressively restore our ad spending.”

Udit Todi

opening

“We aim to further strengthen and streamline our distribution network to reach the untapped and under tapped market of south India where our sales contribution right now stands at 4%.”

Udit Todi

opening

“We already shipped over 4000 orders daily each day and intend to achieve Rs.”

Bhargav B

“When do we expect improvement in terms of working capital cycle because earlier you were net cash, I think we have now net debt as well.”

Udit Todi

“But if you look at it from a long-term perspective of a medium-term perspective, all of this raw material which is of a lower price which we right now have in hand, later on will ultimately convert to profitability for this one because even the average price of this yarn compared to right now what the prevailing price of the yarn is, we are spending to benefit.”

Udit Todi

“So, see going forward how will the yarn prices play out, it's difficult to comment.”

Saket Todi

“So, for improvement in margins whatever margins would be improved that would be generally from the mix change but the margins would remain the same of every single segment but whatever it will be from the mix in that we have seen in the last financial year that the premium segment has been growing at a much higher rate than the economy and the mid-premium segment.”

Saket Todi

“So, as we all know that the premium segment commands a better margin than economy Lux ® Inners & Casuals 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.”

Udit Todi

“As the cotton prices are already on the high, we are definitely taking, we've already taken a price hike and we will be taking a price hike also again depending on how the cotton prices move.”

Udit Todi

“So, for example, we will be taking up, we are already in the process of taking up price hike in the current quarter as well.”

Risks & concerns — 15 flagged

390 crores same period last year despite disruption in supply chain, increase in raw material price and impact of the third wave of COVID in Quarter 4 FY22.

— Saket Todi

This improvement was largely facilitated by the command of pricing and the complete effective inventory and supply chain management across our vendor network which helped them to mitigate the risk of price inflation to an extent.

— Saket Todi

My first question is we have seen extremely strong performance in nine months however in the fourth quarter there has been a significant dip in performance especially double digit volume decline and also a significant deterioration in balance quality with cash cycle deteriorating for the 190 days.

— Bhargav B

It's difficult to pass on the pricing increases to the market.

— Anurag Jain

So, see going forward how will the yarn prices play out, it's difficult to comment.

— Udit Todi

Right now it's bending at a lifetime high and we do not see any signs of it coming down for at least the next month or so and beyond that it's difficult to comment because ultimately it’s a global commodity Lux ® Inners & Casuals and global commodity, you know there are many factors influencing the price of a global commodity.

— Udit Todi

While our peers who are at a lower margin, it would be difficult for them to increase the margins to our standards and have a volume growth when the cotton prices gets stabilized.

— Saket Todi

Quarter 4 volume decline is in the single digit only but we have, we are just overseeing the numbers.

— Saurabh K. Bhudolia

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.

— Udit Todi

But how the industry pans out in the next few years is difficult to comment.

— Udit Todi

I get but my point is this volume decline which you're seeing (-5%) is it going to somebody else or that I mean?

— Rajiv

It is difficult for a customer to move from a branded to a non-branded product.

— Udit Todi

It’s quite difficult to comment on current quarter figures.

— Udit Todi

See the volumes I would say are decent, they're not bad but yes, it's difficult to give an exact picture of the current quarter.

— Udit Todi

It is, it will be very difficult for any player in this economy to comment as to how the winter will play out because it is something which the season only, the weather was only, how will the weather turn out to be.

— Udit Todi

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Q&A — 10 exchanges

Saurabh K. Bhudolia

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 calculativ

I have just one question. Actually, the market chatter does suggest that there is some kind of brand separation which has happened amongst the two families. So, some of the brands bought by Ashokji’s family and some of the brands have come to the Pradipji’s family. So just a follow up on that if that is true and is that going to happen between the both the families, so how will the company operate, would there be an alternative structure to support the same? How will everything look like if the market chatter is true’?

Saurabh K. Bhudolia

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. Is this something which has been on discussion for a while on the board level? No.

Just one question on the inventory part. We have largely built up this raw material inventory. So, would it be possible to break up of how much would be the basic and how much would be the finished goods in terms of the total inventory breakup?

Saurabh K. Bhudolia

Yes, that the breakup is immediately not available. We'll share it with our IR and in turn they can share the database with you. But largely it would be the basic raw material? I just wanted to understand that part. Lux ® Inners & Casuals It is a mix of all the three factors put together between raw materials, WIC and the finished goods but yes, definitely the inventory has gone up because we have increased our inventory days in the raw material largely. Understood. That's all from my side

My question again was on working capital, so initially if I look at it credit days, debtor days, everything has worsened. While I can understand that we would have supported our vendors, payments or our distributors but even our vendors also we sort of made early payments. The other part was on the inventory really, so then cotton prices are so high and we are actually seeing some kind of a demand disruption happening and some resistance in passing on cotton and yarn prices, is it prudent to hold on to such high levels of inventory at this point in time? Just wanted your thoughts.

Udit Todi

Could you please repeat the last part of your question. What I was saying was that cotton prices have gone up so much, there is kind of demand disruption which is happening. It's difficult to pass on the pricing increases to the market. In such a scenario of cotton prices the likelihood is that they would come down at some point in time. Does it make sense to hold on to such huge levels of inventory at this point in time, it should rather be advisable to be lean on the inventory? So, we have taken a very calculated decision. When we see that the yarn prices are on the uprise, we would rather w

My question is if I look at our competitor, despite price hike they have been able to show the volume growth in FY22so which is not the case for us.

Saket Todi

So Dhiral even if you see if you're comparing with our peers like we have managed to at least sustain our margins, so we wanted to be very clear that unless and until we are not very much profitable, we are not going to run behind the topline. But if you compare with our peers, they have lost a considerable amount to secure their margin whereas Lux is considerably almost flat as far as margin is concerned. We were more eager to have a profitable growth instead of just having a top line and to manage the financials. So, this will remain same even for FY23 or are we looking for any volume growth

My question is on the ASP side. We are seeing that cost pressures are still going on. In the new fiscal, since the half of the quarter has gone by; have we seen any price increase and on the future for the near term in this year, are we expecting any further price increases?

Udit Todi

As the cotton prices are already on the high, we are definitely taking, we've already taken a price hike and we will be taking a price hike also again depending on how the cotton prices move. So, for example, we will be taking up, we are already in the process of taking up price hike in the current quarter as well. 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. If you could quantify what is the price hike we have taken in the quarter, April and May month as a percentage? I said we wi

If you can help with the volume numbers across the three segments for the quarter because your slide #35 has a full year number?

Saurabh K. Bhudolia

Yes, the full year number is there. The quarter number we will share with our IR and in turn they can share it with you. Do you have it handy for Lyra, for example that segment has done well? We have the full year number with us. At full year we have, at the volume level we have grown about 22% and we do not have the quarterly numbers with us but quarterly yes, in the we've seen a good growth coming in but we don't have the exact figures with us right now. But on the fiscal Lux ® Inners & Casuals year-to-year level, we have grown about 22% overall from fiscal year ended March ‘22 over fiscal y

What kind of demand environment are we witnessing in Q1-Q2 as of now? Are we seeing that our inventory is getting picked up and will that lead to lower inventory levels, going ahead?

Udit Todi

It’s quite difficult to comment on current quarter figures. But yes, overall, we would say that it's a mixed kind of a response. It is still the yarn prices at which we were in Q4, they are standing at a much higher yarn price in Q1. So, as I said that again when we take a price hike, again the customer tends to respond it with a lagged- effect. The yarn prices are only keeping up it's reaching a lifetime high every day. So, at whatever price you end up buying you end up tending to be a gainer only. I understand the pricing environment. The environment that I want to understand as the volume e

Thad few questions. One is out of your total ASP growth of 19% how much will be the total price hike that would be contributing to it?

Udit Todi

Yes, there has been a slight product mix change also. We have moved the premium product portfolio has done much better but I would still contribute most of the ASP growth coming in from the price hike. The bulk of it would be price hike and a bit of it would be due to mix change. So, can I assume 15%-16%? Yes. Lux ® Inners & Casuals You have mentioned, your presentation is very detailed and just going through it and wanted to understand this accelerating digital adoption. So, what exactly are you doing here in terms of digital adoption? Could you please explain that slide? So, allow me to bifu

I take this opportunity to thank everyone for joining the call. I hope we have been able to address all your queries. Por any further information kindly get in touch with us or Strategic Growth Advisors, our IR Advisors. Thank you everyone.

Management

Speaking time

Udit Todi

Saurabh K. Bhudolia

Moderator

Rajiv

Prerna Jhunjhunwala

Dhiral

Bhargav B

Saket Todi

Vishal Bagadia

Rushabh Shah

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Opening remarks

Saket Todi

Good afternoon. Thank you everyone for joining the earnings conference call for the quarter and the year ended 31" March, 2022. Along with me I have Mr. Udit Todi— Executive Director, our CFO — Mr. Saurabh Kumar Bhudolia, Mr. Jitender Kumar Shah — VP (Finance) and SGA, our Investor Relation Advisors. I hope you have received our result and investor presentation by now, for those who have not you can view them on our website. We have witnessed healthy demand across all our product categories in FY22. This growth was largely driven by our power brands especially ONN and Lyra and as well supported by our flagship brand Lux Cozi, the brand which has delivered consistent growth over the past many years. For the first time of premium brand ONN has surpassed the revenue mark of Rs. 100 crores, registering arevenue of Rs. 120 crores, a growth of approximately 52% over the same last year. While Lyra our women’s flagship brand has surpassed a revenue mark of Rs. 300 crores registering a revenue

Udit Todi

Good afternoon and a very warm welcome to everyone. During the quarter, the company debuted its lingerie product lines under its women’s flagship brand Lyra and promoted it through a targeted television campaign. Previously the majority of this market was unorganized and import dependent but there has been a significant shift towards branded products for wearing the right fit and comfort. The company is transforming Lyra from a single product category which was primarily leggings to a multi-product, multi-category women's wardrobe brand with this launch. Increased penetration in the women's wear category will not only assist Lux in creating brands across gender but has also contributed to increased sales and profitability. Lyra our women's wear brand accounted for approximately 13% of our overall revenue of 2,312 crores in FY22. Our men’s premium wear brand ONN has reported net sales of 120 crores with an overall growth of 52% over the same period last year. Lux ® Inners & Casuals With

Saurabh K. Bhudolia

Thank you Uditji. The company has posted robust performance for the quarter and the year ended 31* March, 2022 backed by that accelerated demand across categories. Our revenues for the quarter stood at Rs. 593 crores as against Rs. 601 crores registering a de-growth of approximately 1% compared to the same period last year. During the quarter the industry encountered multiple challenges including Omicron COVID-19 wave early in the quarter and higher raw material prices due to supply chain disruption as well as the rising demand for cotton in international markets. Our EBITDA for the quarter stood at Rs. 113 crores as against Rs. 129 crores during the same period last year. The EBITDA margin is at 19.07%. Our quarterly profits stood at 73 crores as against Rs. 91 crores in the same period last year. PAT margin for the quarter stands at 12.33%. Now coming to the yearly performance, our revenues for FY22 stood at Rs. 2,313 crores as compared to Rs. 1965 crores in FY21, registering a growt

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