LUXINDNSEQ1 FY23August 17, 2022

Lux Industries Limited

5,826words

91turns

11analyst exchanges

2executives

Download PDF ↗LUXIND stock page →

Management on call

Udit Todi

- EXECUTIVE DIRECTOR, LUX INDUSTRIES LIMITED

Saurabh Kumar Bhudolia

CHIEF FINANCIAL OFFICER, LUX INDUSTRIES LIMITED

Key numbers — 40 extracted

36%

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

Rs. 30 crore

d with its legacy brands, Cozi and Venus. For the quarter gone by, ONN has reported a net sale of Rs. 30 crore, which grew over 94% for the same period last year. Whereas when we talk about the womenswear bra

94%

nd Venus. For the quarter gone by, ONN has reported a net sale of Rs. 30 crore, which grew over 94% for the same period last year. Whereas when we talk about the womenswear brand Lyra, which stood

Rs. 97 crore

same period last year. Whereas when we talk about the womenswear brand Lyra, which stood at about Rs. 97 crore in this quarter, which was a growth of about 136% over the same period last year. Brand Lyra cont

136%

nswear brand Lyra, which stood at about Rs. 97 crore 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

17%

r, 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 offerin

eriod 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 h

rs,

ge of more than 100 products, under 15-plus different brands ensuring relevance across ages, genders, geographies and seasons, leading to enhanced value of the brand. Being one of the biggest player

Rs. 100 crore

urrently shipping more than 4,000 orders daily. Going forward, the Company aims to generate about Rs. 100 crore of top line coming in from the online channel. Now coming to marketing and advertising spend, w

Rs. 836 crore

developing the Company's brand equity. The Company has invested a sizable amount of approximately Rs. 836 crore in brand building over the last 6 years while brand investment in the first quarter of FY '23 sto

Rs. 42 crore

ilding over the last 6 years while brand investment in the first quarter of FY '23 stood at about Rs. 42 crore. This brand investment accounts for about 7.5% of its net sales, which is similar to what the Com

7.5%

the first quarter of FY '23 stood at about Rs. 42 crore. 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

Advertisement

Guidance — 20 items

Udit Todi

opening

“Going forward, the Company aims to generate about Rs.”

Udit Todi

“The raw material prices, Mayank, now have already started to decline, so we can expect better gross margins going ahead.”

Akash Mehta

“And secondly, on the working capital side, can you just throw some light on the working capital going forward and when is it expected to come down?”

Saurabh Bhudolia

“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.”

Nikunj Somani

“So, in the premium volumes, in the premium segment, can you give any guidance?”

Saurabh Bhudolia

“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.”

Udit Todi

“So, we expect the gross margins to be better in the near future.”

Prerna Jhunjhunwala

“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 correction that you expect?”

Prerna Jhunjhunwala

“And what can be that hit, if at all it will be there?”

Saurabh Bhudolia

“So, the inventory which I'm carrying now, definitely, this inventory will get channeled by the end of next quarter.”

Risks & concerns — 12 flagged

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.

— Saurabh Bhudolia

Actually, point is that quarter-to-quarter since 2 quarters, we are seeing decline in sales.

— Mayank Makkar

The raw material prices, Mayank, now have already started to decline, so we can expect better gross margins going ahead.

— Udit Todi

So, see, this is something which is quite difficult to comment.

— Udit Todi

Firstly being, can you throw some light on such a steep decline on EBITDA margins?

— Priyanka Gandhi

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%.

— Udit Todi

Once the gross margin is getting dipped, definitely all other bottom line ratios, you will see that there is a decline.

— Saurabh Bhudolia

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 correction that you expect?

— Prerna Jhunjhunwala

450 raw material price increase, then if raw material prices decline maybe Rs.

— Prerna Jhunjhunwala

It is difficult to visualize growth like in a normal year?

— Prerna Jhunjhunwala

So, it will be a double-digit growth, but it would be very difficult from our side to give any kind of guidance at this point of time.

— Saurabh Bhudolia

All the best for this difficult and challenging year.

— Prerna Jhunjhunwala

Advertisement

Q&A — 11 exchanges

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?

Saurabh Bhudolia

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 do not have the figures handy with us. This is something which we can provide with the IR team. If you can just get in touch with them, we'll provide them with the data. We don't have it ready with us right now. And also, now another question is that can you give the inventory breakup into finished goods, raw material and W

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?

Udit Todi

So, see, this is something which is quite difficult to comment. But we don't have any such plans. We haven't even given it a thought as of now. So, not 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. And secondly, on the working capital side, can you just throw some light on the working capital going forward and when is it 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 co

Sir, my first question is about that . How do you cater the women's segment because it is a big opportunity and you should have more brands in this segment? And what you’ve planned for this segments?

Saurabh Bhudolia

Can you please come once again? I kind of understood. So, see with the womenswear 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 big 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 tapped by the brand. Sir, my second question is related to about the volumes i

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?

Udit Todi

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%. And out of that, about 4.5% 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. Bu

In quarter 4 call, you said the Company kept raw material stock and continued 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 the reason behind this?

Saurabh Bhudolia

See, again, 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. But beyond that, the Company is absorbing that cost because suddenly 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 Rs. 350 of the yarn cost, we have managed to pass on to the customers, but the raw material prices have gone up to Rs. 4

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?

Udit Todi

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-tapped market of South India is one of the areas where we believe that we want to expand our distribution network in. And on the retail touch points? So, the retail touch point goes hand-in-hand with the distributor ex

I had the missed the initial comments, so sorry if the questions get 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 correction that you expect? And what can be that hit, if at all it will be there?

Saurabh Bhudolia

So, Prerna, as I explained in the last question, that Company has already passed on the cost to the extent of Rs. 350 of raw material cost to the customers. And anyway, there was a dip in the margin in the current quarter. So, almost the increase in the raw material cost has already been absorbed in quarter 1. And Company always follows the policy to carry the inventory at cost or NRV, whichever is lower. So, definitely, my sales price is much higher as compared to my cost price. So, there is no question that we should take any kind of hit or provision as far as inventory is concerned. So, may

Sir, if I look in quarter 4 financial year '21, you have sanctioned investment of about Rs. 110 crore for expansion into existing and new geographies. And from that quarter, in all investor presentations, you are mentioning about short-term investment is approximately Rs. 110 crore. And additional value for proposed expansions will be Rs. 400 crore, but if we look at quarter 1 financial year '23 presentation, that when your guidance is missing and short-term investment amount is of Rs. 50 crore. Does it mean that have you incurred Rs. 50 crore spilled it or anything else?

Saurabh Bhudolia

So, no, let me try to clarify you. So, last to last years, we have sanctioned an amount of around Rs. 110 crore for an expansion in Eastern India. The factory is almost done. 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 Rs. 50 crore of the approval for CAPEX has been given for a new setup we are planning to have in Ludhiana. So, this will be the new setup and new investment of the CAPEX starting from this year. And sir, what about the revenue guidance? Sorry, come again? What is about the r

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.

Udit Todi

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%. And sir, what is the strategy 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 t

My question was relatively if you were to look 3-4 years out, which is starting from 2018-2019 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?

Saurabh Bhudolia

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 Rs. 500-plus crore. So, maybe, see, that point of time, the overall revenue will also go up but still, we are expecting that between 15% to 20%, my premium segment contribution should come in. 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 sustaina

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 advisors. Thank you all.

Management

Speaking time

Udit Todi

Saurabh Bhudolia

Moderator

Prerna Jhunjhunwala

Mayank Makkar

Devesh

Akash Mehta

Abhishek Singhal

Darshit Shah

Anika Mittal

Advertisement

Opening remarks

Udit Todi

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 advisor. 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 Rs. 30 crore, which grew over 94% for the same period last year. Whereas when we talk about the womenswear brand Lyra, which stood at about Rs. 97 crore in this quarter, which was a growth of about 136% over the same period last yea

Saurabh Bhudolia

Thank you, Uditji. The Company has posted robust performance for the year ended 30th June 2022. Despite the industry experiencing multiple challenges, the Company has reported a revenue of Rs. 572 crore, 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 region wise 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%. Well, 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

Advertisement

← All transcripts LUXIND stock page →

Lux Industries Limited

Market Movers