You bring up an interesting point.
There are phases of growth within a sector where every serious player does well, just that some do better. Watch the IT services trajectory till 2008, pharma trajectory till 2016 and then consumer segment trajectory till 2018. Within the specific category of innerwear, Page Ind was easily doing 20% growth till 2018. Others were growing at a healthy rate but nowhere close to 20%, till Demonetization and GST hit the consumption economy.
There are some more things to look at to. All innerwear players in India are primarily focused on the men’s segment which is hardly 11,000 Cr size. Women’s segment which is 2x the size has just 1 player > 500 Cr revenue which is Page Ind. On the other hand the men’s segment has more than 8 players who do revenue > 500 Cr. Once the men’s category got organized to a healthy extent, the growth rates had to taper down since the category itself grows at a rate of 9-10% in value terms every year.
So when you see every player looking at category expansion, the reason is that growth in their core market growth started slowing. Women’s segment has many challenges involved and it won’t be that easy to capture the market. The road less travelled is less travelled for a reason. Hence companies are branching out into athleisure, kids wear, thermals, casual wear, women’s leggings etc. There is a very clear method the madness that explains why growth rates were high till 2017 and then started falling for almost everyone. This kind of explains what the growth rates were at least in part.
But post COVID has brought some interesting differences to the fore -
Page Ind which is primarily urban focused started showing signs of consumer discretionary to some extent. Lux Industries which is semi urban and economy segment showed signs of consumer essential. For the past 4-5 Q’s Lux Industries revenue growth has been higher than that of Page Ind.
Page Ind had the best balance sheet since AR was low while all others had debt. Post COVID the channel organized and took out long AR cycle, net result is all others have reduced debt and generated free cash flows while Page Ind continues to remain as good as it was.
From here, my bet is that Page Ind will grow at a healthy pace but may not do 20% growth. While next rung of players will continue to do hygienic growth, some of them will grow in the range of 12-14% while some others will continue to do 7-9%.
Who will grow the fastest among the next rung?
The company that can do category expansion and channel expansion well without stressing balance sheet too much. Lux has a potential winner in Lyra since the base rate of growth in that segment is > 20%, Indian women are getting bulkier and leggings will offer more value than jeans and other bottom wear for this reason. Leggings are stretchable, others aren’t. I just hope they don’t overstretch themselves on the inventory front in the quest to open 150 EBO’s soon. Lux also has a dedicated team in place to handle the newer channels (ecommerce, EBO and LFS as and when they get started there). They also have the technology layer in place which should help processes scale. Their younger generation understands branding and the urban consumer better than their fathers do.
As for plans and commentary, I’d rather see actions and invest. Ideally invest when you believe the right things are being done and executed well but the numbers don’t reflect that yet, provided you have the conviction that numbers will eventually get better.
Not a pitch to invest into Lux but detailing my reasons behind why I saw value there even when the growth rate was in the 7-9%. Time will tell whether this thesis is right or wrong.
Disclaimer: Invested for self and customers, I am a SEBI registered IA