ValuePickr Forum

LUX INDUSTRIES - Can it Scale?

Lux Industries is a company engaged in manufacture of hosiery wear. The product range consists of men and women’s inner garments, leisure wear etc. Details of all its products with the photographs of celebrities endorsing the products are available on company website or in annual reports.

cmp 1250, market cap 3200 crores. Promoter holding 73%.

Peer is Page industries with market cap of 22000 plus crores.

MANUFACTURING FACILITIES

Company has manufacturing facilities at Agarpala, Dhulagarh, Ludhiana, Tirupur, BT Road, and a dream project at Dankuni West Bengal.

OPPORTUNITY SIZE

Addressable market in male and female innerwear in 2015 was 24000 crores which is expected to go up to 47000 crores by 2020.

This is because of expansion of category into leisure wear, sports wear etc and increase in per capita spend on the innerwear segment from Rs 150 to Rs 300.

PRODUCT RANGE

ECONOMY SEGMENT Lux Venus vests and briefs, Lux Karishma panties, Camisole, Leggies, Lux Cotswool therrmals.

MIDPREMIUM SEGMENT Lux Cozy big shot premium trunks, Lux touch panties, Camisoles, Leggies, Lux cozy glow collections, Lux inferno, Quilted thermals, Lux Cozy innerwear

PREMIUM - ONN, One 8.

Company has a wide product range from Rs 38 to Rs 1350 with over 5000 SKUs.

Luxury brand ONN has been growing at 30% CAGR.

Company stated aim is to increase sales of luxury range and thus improve margins.

Net Margins have improved from 4% in FY 13 to 10% in FY 19. Operating margins during same period has gone up from 6% to 15%.

SEGMENT WISE CONTRIBUTION AND MARGINS

ECONOMY REVENUE 34% EBIDTA MARGIN 8-10%

MID PREMIUM RANGE REVENUE 45 % EBIDTA MARGIN 13-15%

PREMIUM RANGE REVENUE 21% EBIDTA MARGIN 15-18%

Company targets to grow the premium range by 30% over next few years .

MANUFACTURING

Company is one of the lowest cost manufacturers with most of the work done inhouse. However stitching is outsourced to keep the employee base in check.

Company manufactured 20 crores innerwear pieces in a year which is the largest for any innerwear company in India.

DISTRIBUTION

Company has 950 plus large distributors and some with relationship over 35 years.

It has 160 large format stores which help in showcasing a large portion of the company’s product range. It has 9 exclusive brand outlets.

It is one of the few Indian innerwear companies to organise distributor and owner conference in and outside India.

Company has a pan India distribution network with strong presence in West and Central India with highest absolute sales coming from UP, MP and Uttarakhand.

Exports to 47 countries including those in Africa, asia and Europe and Australia. Focus is to be countries with demography similar to India.

ENDORSEMENTS

Lux has over the years roped in celebrity endorsements with personalities such as SRK, Sunny Deol, Varun Dhawan , Amitabh Bachchan etc.

Company has sustained brand endorsements of around 8% of total sales and spend 109 crores in FY 18 and 91 crores in FY 19 as advertising expenses.

FINANCIALS

¨FY 19 REVENUES AT 1218 CRORES VS 1079 CRORES IN FY 18, INCREASE OF 13%.

¨EBIDTA INCREASED 21% TO 189 CRORES.

¨NET PROFIT INCREASED TO 101 CRORES FROM 78 CRORES AN INCREASE OF 30%

¨EBIDTA MARGINS IMPROVED FROM 14.5 % TO 15.6% AND PAT MARGIN FROM 7.2 TO 8.3%.

¨FY 19 EPS AT 40 PER SHARE VS 31 FOR FY 18.

¨LONG TERM DEBT AT 5.3 CRORES AND SHORT TERM DEBT AT 173 CRORES (DOWN FROM 316 CRORES IN FY 18)

¨SINCE FY 13, REVENUES HAVE GROWN AT 9% CAGR, PAT HAS GROWN AT 31% CAGR AND EBIDTA MARGIN HAVE IMPROVED FROM 6.3 TO 15.6% AND NET PROFIT MARGINS HAVE IMPROVED FROM 2.9% TO 8.3%.

¨FY 19 ROE 24.5%, ROCE 30% AND NET DEBT TO EQUITY 0.4%

GROUP COMPANIES MERGER.

¨JM HOSIERY REVENUE INCREASED FROM 293 CRORES IN FY 18 TO 328 CRORES IN FY 19.

¨EBELL FASHIONS REVENUES INCREASED FROM 198 CRORES IN FY 18 TO 254 CRORES IN FY 19.

¨BOARD OF DIRECTORS HAVE APPROVED THE SCHEME OF ARRANGEMENT OF MERGER OF THESE TWO COMPANIES WITH LUX. REGULATORY APPROVALS AWAITED.

VISION 2020

¨TO ACHIEVE TURNOVER OF 1500 CRORES HAVING 13-15% CAGR.

¨MAINTAIN SUSTAINABLE GROWTH IN EBIDTA MARGIN OF 100-150 BPS.

CONSTANTLY ADD NEW AND INNOVATIVE PRODUCTS TO GAIN SIGNIFICANT MARKET SHARE AND CAPTURE MORE EXPORTS FROM VARIOUS COUNTRIES

INVESTMENT THESIS

¨GOOD OPPORTUNITY SIZE FOR A DECENT COMPANY.

¨PREMIUM SEGMENT GROWTH TO HELP CONTINUE MARGIN IMPROVEMENT.

¨COMPANY HAS CONTINUED TO LAUNCH NEWER PRODUCTS AND CREATE NEW CATEGORIES LEADING TO EXPANSION OF ADDRESSABLE MARKET.

¨FOR A COMPANY WITH GOOD MANAGEMENT AND DECENT OPP SIZE, VALUATIONS ARE REASONABLE. CAN BE SOME RERATING IF GROWTH CONTINUES.

¨RISKS CAN BE SLOWDOWN IN CONSUMPTION, HIGHER TAXES.

KEY MONITORABLE IS CASH FLOWS AND WORKING CAPITAL MANAGEMENT AS THE COMPANY GROWS.

A CASE HAS BEEN GOING ON AGAINST THE TWO PROMOTERS IN SUPREME COURT FOR ABETTING SUICIDE.

disc: I hold an investment in the company.

This is not a recommendation and anyone contemplating buying or selling should do their own diligence or take advice of their financial advisor.

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Attached a presentation I made on the company at VP Chintan Baithak 2019 at Goa. LUX VP PRESENTATION.pptx (277.6 KB)

Please share all comments, links etc related to the company in this thread.

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A link was posted in my portfolio thread regarding integrity of promoters of Lux Inds citing a case in SC.

This kind of a matter remains a matter of concern and if judgement comes adverse, may impact stock price though business wise things might not change too much.

The matter pertains to abetment to suicide. I think its largely a family matter and the Todis not approving of a love affair of a daughter of their family with a Muslim boy. If a conservative family Hindu girl does have a love affair with a Muslim boy its bound to create tensions in the family but what kind of things these promoters have done and how much gets proved needs to be seen.

If u see the news report is dated October 2018 and it seems has largely been factored in.

The concern regarding cash flows is of more importance.

The company has a lot of SKU and also exports to 47 countries which might account for higher receivables. But if one were to look at the balance sheet presented along with FY 19 results, things seem to be have improved if seen in percentage terms. Plus the debt also has reduced.

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Thanks Hitesh for starting a thread

I think Lux makes less margin than Page and the quality of lux is not really great

The sales is mostly due to brand endorsement by celebrities. If lux has to sell this might be an ongoing cost to offset the lower quality

A brand needs to have a strong moat, how much moat will lux be able to create

I think moats are created when people look at something as premium or in case of thumps up, they associate it with childhood

Lux will probably do well for a reasonable future but it won’t be very difficult to topple them

I had invested in lux and hence was very interested, I think they have expanded into Bangladesh as well but I might stand to be corrected

We shareholders drive prices higher when we are buyers of either a good story or increasing profits. It lux does get very big there will be many companies waiting to topple it. The story as of now is not juicy.
Those are my two worries.

Disc: not invested, watching

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sharing fundamental data from screener for comparison

overall technical trends for the industry is downwards and on technical shows not a healthy time to enter i may be wrong

Disc : not invested in the above scrips .This is not buy or sell recommendation I am not sebi approved advisor or analyst

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Yes, not much differentiation in quality compared to Rupa, Dollar, VIP & other unlisted peers. VIP Frenchie used to be the most old and renowned brand but their company performance went to downhill in the last 3-4 years.

On Lux, those who are from Kolkata, know, promoter got involved into a social maelstrom involving his daughter

While I don’t want to elaborate here but for me, that is a big question mark on the integrity of the promoter. Means in case he handles that case so crudely, how he will be dealing with his shareholders or everything is fine now

Hope this post will not be flagged off as inappropriate…

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You are right as i found old news regarding Ashok Todi’s case

old interview

in july 2018 on merger of two companies
The Lux Industries board has approved the transaction last week and the promoters will get fresh 48.43 lakh shares of Lux Industries.

The stock price had soared to Rs 1910.90 at BSE on the last trading day of the week against a price of Rs 1779 a share used for valuation purpose for the merger. This results in an notional gain of around Rs 55 crore for the promoters.

reference at:

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JM and Ebell made a combined revenue of Rs 582 cr in FY19 and they were valued at Rs 861 cr according to ET news article. Aren’t they merging them at a very cheap valuation? It’s not even 2X sales for a branded business. What’s the catch?

Lux Industries has grown its Profits from 3 Cr to 80 Cr in lat 10 years. Cumulative PAT is 317 Cr. But where is the cash ??

Only 26 Cr Cumulative Cash from 317 Cr Cumulative Profits. Rest all stuck in Working Capital. Does the Company give lucrative payment conditions to its buyers ?? and keeping large SKU’s requires lot of money.

views invited

Disclosure :- Not Invested

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@gurjeev

Cash flows is a genuine concern in case of Lux. But to arrive at the calculations, maybe you can put in the figures for money spent on brand building in terms of sponsorships, endorsements and advertisements.

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Yes Sir. I understand what you mention about the brand building exercise done by the management for future benefits. But the numbers show a different picture.

Money getting stuck in Working Capital (almost all of it when we include tax payouts also)

in 2019 this contributes 92% of the balance sheet total.

Management has kept the brand building exercise stable in the range of 5-6 % of sales all these years where the scale up is seen in last 2 years. Where they have gone aggressive. Almost doubling in fy18. May be thats good going forward.

Sir i may be wrong in my assessment but trying to see in layman’s perspective. To run the business one needs to rotate inventory and collect as fast as possible. Certainly the profits have grown but being a owner what can one do with these profits. Cannot take out money from business.

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I think what Hiteshji actually meant was to look at advertising spend of the company and add it to the cash flow to see the real picture. For instance, Lux spent 70 odd crore and 100 crore on ad spend in FY17 and FY18. CFO doesn’t look so bad when looked from this perspective.

Also LUX managed to reduce both its inventory and receivables according to FY19 results. This excess cash was probably used for debt reduction.

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Hi,

I have personally known Lux Promoters since 15 years and do quite some business with them.

Good point

  • Has one of the most recognisable brand in India. Ask anyone and he knows about the brand.

  • While all other old innerwear makers fell off the way side (Vip, dora, parrot), Lux and Rupa really thrived and grew and adapted to new style of business.

  • Company has reached a critical mass and it can continue to invest in Brand Building and Ad spend. Imagine the fact that they spend 100 Crores on advertisement , which is less than 10% of their value. This is a self sustainable advantage. Because they are big, they can spend big and can remain big.

  • They have created good new brands in terms of Lyra and Onn, which is a huge market.

Grey Areas

  • The promoter family who built the business are typical old world Kolkata businessman and have not been good on dividend payout, corp governance etc
  • Cash Flows is an issue (but I believe that is due to seasonality of business and stocking of RM during March end.

Whats Changing

  • After one makes money, one needs recognition. Lux new generation also wants market cap. The new generation is really good and devoted to business.
  • They have a chance to transform themselves under guidance of Sunil Singhania’s fund. They will attempt better cop governance and policies to ensure market cap wealth is generated.
  • Merger of sister concerns at reasonable valuations show intent of promoter group
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Hi Ashwini sir,
As you have mentioned that you have 15years of business relationship with lux.
So, please share some of your experience specially from dealership angle/ecosystem, about company’s advertisement expenditure policy and other things which you have felt during the course of business with this company.
Thanks a lot.

Lots of Related Party Transactions. Promoter Private Firms in same line of business.




Complex Structure of Related - Party Transactions

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Is Lux Industries involved in contract manufacturing with JM Hoisery and Ebell Fashions? Because that would partially explain the merger at proposed valuations. Other transactions look strange, especially transactions involving individuals like Ashok and Pradip.

SEBI ORDER FOR MANIPULATIVE TRADE on a related party of Lux Industries. (Company has disclosed Hollyfield Traders Private Limited as a related party)

Lux also gets regular loans (capital) from this related party

Where the related private business is itself debt ridden upto the level of 700Cr plus.

and this private company has the same address and email address as lux industries. Directors of Lux Industries are also directors of Hollyfield Traders Private Limited

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J.M. HOSIERY & CO LIMITED TOP LINE 290 CR. PAT 5.5% as stated by management. But he forgot to mention of 474 Cr for JM and 29 CR EBELL totally 503 Cr of Debt.

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lux industries.pdf (3.6 MB)