LUX INDUSTRIES - Can it Scale?

dj123 · May 28, 2021, 1:09pm

In a developing economy with rising per capita income and aspirations …premiumisation is a secular megatrend… This will happen all over the industry and product chain and the hosiery industry is no exception.

My observations are little different , the covid for sure has resulted into less overall demand and affordability. But it’s the unorganized supply side which has beared the brunt more. So the organized players are able to get bigger pie. Such market capture hardly revert back to previous levels.

Inflationary trends are there to stay but also one should consider the price points of hosiery expenses , these are pretty small and at the same time essential as well. This relives the worry that in this industry the consumer might cut back on spending considering the ticket size.

Advt spends are not very low …they are about 5 % as compared to pre covid levels of 8 %… The management after merger has indicated that there will be savings due to advts overlaps. Also once a brand reaches a sizeable size ( 500 Cr ) in this industry fixed advt spends might not pull in extra sales…this might dawn on a prudent management and they might even cut back on that.

They need to have a visible strategy for their premium and semi premium brands as compared to jockey and the likes… cause this is where the cream lies…better product offerings , Inventory management and excellent quality might go a long way here.

Maybe @zygo23554 can share his insights on the future road map…

Best
Divyansh

zygo23554 · May 29, 2021, 5:44am

Roadmap for the industry should be straightforward, view already expressed here - LUX INDUSTRIES - Can it Scale? - #69 by zygo23554

View on advertising spends expressed here - LUX INDUSTRIES - Can it Scale? - #40 by zygo23554

FY21 has been the year of abnormal margins across so many industries that one loses count - consumer, domestic pharma, chemicals, PVC, Steel etc. Obviously FY22 onward we will see a normalization of margins to some extent and some elongation of the working capital cycle as management start investing into businesses (capex, credit terms). But the shift to unorganized to organized hardly reverses once it materializes, COVID appears to have accelerated this shift like nothing else across industries.

The leading innerwear players over the next 4-5 years will do category expansion and increase revenue contribution from segments like athleisure, loungewear, women’s leggings, maybe T-shirts too eventually. Some will do this better than the others, but all of them will do it in some form or the other.

Who to bet on from the current level should be a function of current business valuation vs expected growth rates rather than business quality alone. Page Ind continues to be the best business but the others have narrowed the gap and will continue to do so over the next few years, especially Lux Ind.

It is time for investors to have a logical, grounded & independent view on what valuation Lux Ind deserves to trade at and to take decisions accordingly.

We are investors looking to get the best return on our capital, we aren’t academicians who will be given a prize for writing the best business analysis paper or for winning debates.

Dev_S · July 27, 2021, 3:13pm

Q1 presentation - visually appealing at the same time quality and information coverage is good

Higher margin segments mix helping increase margin

New customer segments and premiumization play driving growth

Global revenue at 9%
near term Capex of 110 cr - to add 400 cr in topline
Working capital and margin improvement continues along wit higher cash flows( ** multiple quarters of consistency driving a major contribution in re rating**)

All in all a clear multi quarter consistent story which is helped by sector tailwinds( unorganized to organized, work from home etc), pricing power to some extent and ability to grow margins inspite of RM inflation, pedigree of new management and efforts visible.

steep run up in last two quarters on valuations front with rerating across sector. Expectations on growth are built in now and priced in.

Invested from lower levels, thanks to @zygo23554 for his insights in thread.

Evaluating with tracking position in next set of players.

Dev_S · July 28, 2021, 8:16am

Double digit growth and 20%+ EBDITA guidance

zygo23554 · September 3, 2021, 1:19pm

Will be interesting to see what valuation Go colors lists at, they have filed a DRHP in August.

The Ebell fashions business (Lyra brand of leggings) is in direct competition to Go colors, TCNS Clothing too is entering the women’s bottom wear segment with it’s Elleven brand and plans to open around 40-50 dedicated EBO’s in the next 12-18 months.

A good valuation for Go Colors might rub off well on Lux Industries too, this is how the narrative in bull markets go anyway.

Disclosure: Invested for myself and external capital, I am a SEBI registered IA. Transactions in the past 30 days

Dev_S · September 3, 2021, 6:16pm

Lux AR is out

Highlights from AR on future strategy for growth - Bold callouts including past weaknesses

Launch and Scaling Lux cozy world - customer engagement, product pricing validation, data analytics play - brand ambition to convert push to pull

Virtually every company in India’s mid-segment hosiery space has been driven by marketing and distribution; Lux’s extension into retail was the first instance of a company selecting to engage directly with consumers

The Company launched 4 CozyWorld stores in FY 2020-21 and intends to scale this to 50 in FY 2021-22 (company-owned or franchised); these sales are targeted to account for 5-10% of domestic revenues in three years.

South geo as next growth driver

The time has come for Lux to widen its footprint from a multiregional brand to a pan-Indian personality.

Lux’s penetration of South India will be increasingly visible from 2021-22, initiating the next growth
phase for the Company

Online channel - numbers and brand perception benefit

The Company has its task cut out: sustain double-digit growth from online revenues and generate at least 2% of revenues from online sales across the foreseeable future.

Premiumization push

The Company has its objective charted: extend beyond the functional to the fashionable; premium segment contributed 11.73% to the overall revenues in FY 2020-21.This will achieve the desired objective - each time the consumer thinks of enhancing his or her lifestyle, there is only one company the person will recall. Lux.

Capitalising with speed on a structural market shift

WORKING CAPITAL EFFICIENCY- Receivables sustainable value-creation. management in a low liquidity market

Screenshot_20210903-231316_OneDrive1200×582 167 KB
New products launches during the pandemic

The result of going back to the drawing boards generated preemptive buying for a product that had been within the Company’s offerings for decades, the full impact of which is likely to be felt in 2021-22

Valuations

Markets have rewarded the innerware segment players well in last 3 quarters, esp lux catching up with segment leader Page ind… some interesting facts in comparing both player

12 Qtr view
Lux wins hands down on consistency, biz resilience during corona impact. Sales growth and margins trajectory as well goes in favor of lux. Even if in all fairness to page we consider non Corona times such as Q3 19 >Q3 20 > Q 3 21, Lux has done better here as well

Long term view - 5 Yrs

If we compare last 5 years for both players together

Page 5 year avg PE ratio has been 69 and Lux has been at 33

Here are long term numbers for Lux

Here are long term numbers of Page

Given mkt is forward looking

Can lux deliver industry leading sales growth?
Industry itself will grow at 10% CAGR for innerware and allied categories - Lux has guided and delivered for mid to high teen growth and has delivered as well. AR also calls out some bold and interesting steps in this direction.

Can lux deliver industry leading margins?
Lux has guided for 20% + EBDITA , it can get further upside support from product mix tilt towards high op mgns premium segment, Page has their long term margins have been in similar range.

Industry dynamics well articulated by @zygo23554 , LUX INDUSTRIES - Can it Scale? - #69 by zygo23554

For FY 22 ( approximation)

Page optimist case ( normalized Q1 - removed corona impact) Page at market cap of 36K cr, 9X sales( at 4000 cr), 45X EBIDTA ( 20%)

For similar sales growth, similar margin profile, somewhat catching up working capital and balance sheet quality( lux may continue to lag here in forseeable future, point is reducing gap)

Lux has 12K cr mkt cap, is available at 4.5X sales( 2500 cr sales), 25X EBDITA ( 20%).

We have crazier valuations(10-15X sales) in pharma and chemicals etc

AR further strengthens the future outlook and conviction. Future is exciting and there is lot to unfold in coming times to help sustain further rerating as long as mgmt keeps delivering.

Invested - among top PF holdings

tarundsingh · October 1, 2021, 9:23pm

connecting the dots

A yarn manufacturer talking about the growth being witnessed in mid tier hosiery companies (lux/dollar/rupa?)

Vaibhav_Gupta1 · October 23, 2021, 12:08pm

Found below in Latest Annual Report

The company is purchasing Property from Promoters worth ~Rs 27.2Cr. Is there a way to figure out if transaction has happened at fair cost ?

They have taken loan of 13Cr from Related Parties. Is there a way to check at what interest rate does this happen ? And why not go to banks when interest rates have dropped considerably ?

KS16 · November 1, 2021, 8:46am

Exchange time 12.03 today
stellar numbers all around both y on y and q on q
Q2FY22 vs Q1FY22 vs Q2FY21
Rev 630.86Cr vs 421.09Cr vs 504.51Cr
PBT 133.93Cr vs 84.02Cr vs 94.03Cr
PAT 100.04Cr vs 63.72Cr vs 66.72Cr
EPS 33.40 vs 21.34 vs 22.36

Surender · November 1, 2021, 10:03am

How about the KPIs from the Balance sheet and Cash Flow statement?
All KPIs at one place-

Come to your own conclusions!!!

Disclosure - Not invested. Shared for collaborative learning.

Dev_S · November 1, 2021, 10:58am

No doubt that Qtrly numbers look good

What surprises is that whole of growth is attributed to price increase? There is no volume growth? If that’s the case - numbers maynot be sustainable - as without volumes picking up there isn’t much that one can play with price increases bsyong a point- @zygo23554 your thoughts please?

Lux Q2 presentation

small peer Dollar industries also posted good numbers( didn’t get volume details in their presentation)

Invested

zygo23554 · November 2, 2021, 3:30am

Yes, volume growth of 7-8% combined with value increase to make up the rest of the revenue growth would be ideal. Volume growth being low should be a concern unless this is a conscious step by the management to change the business and channel mix before they launch the next rung of growth.

There is a limit to which one can increase prices, this limit is set by what Jockey and other brands sell at. At the same price point most consumers would prefer Jockey over Lux purely because of the brand pull.

Typically volume growth can be derived from the following -

Category expansion into adjacent areas like leisurewear, leggings, winterwear etc
Focusing on geographical penetration - Trying to crack into the tough South India market
Channel expansion - Open EBO, higher sales from online, tie up with LFS, more distributors

Lux is doing all of these things to grow the business at a healthy rate, obviously these will take time to show results. At the same time not all of these initiatives may work out, some are likely to fail.

So far the second gen management has been doing the right things in terms of reorienting the business from being a junta, distribution led business to a semi premium garments business. All about execution from here, balance sheet is healthy enough to try a few things without worrying too much about debt or working capital elongation.

*Disclosure: Invested for self and customers, I am a SEBI Registered IA

Dev_S · November 2, 2021, 10:47am

Thanks @zygo23554.

Notes from Q2 concall

First on not so good parts

Working capital rise is temp, to normalize by enc of FY 22 at levels o FY 21, I.e. 124 days. Steady state in best case they see at 110 days in few years. Rise attributed to RM+WIP+FG, industry wide phenomenon
Volume growth missing- FY21 saw lot of volume growth with unorganized to organized in economy, many are now moving up in mid premium and so on. At annualized level they expect 7-8% volume growth in economy, to play out in Q4 22.
Multiple price hikes taken in last 6 mo( 10%+), 5-10% in Q3 months planned, Q4 hikes for passing GST - per mgmt consumers don’t get affected by smaller rises in essentials- they believe margins are fair and do not want to absorb any input cost rise
No new distributor added - focus on mining current ones

Good parts

Pure play innerware to adding athleisur and outerwear player
Lyra doing well, high growth and high margins, 80% bottomware, 500 cr in 3 years
Marging expansion sustainable - 22% EBDITAand 15% PAT, led by premium portfolio can even expand further
eCom in 3 digits in 3 years, 4000 orders per day currently
Export doing well at 8% of PF , expansion ftom 40 countries to 60 countries
15 EBO to 50 in a year
15%+ market share
GM expansion is sustainable at current levels
Liquidity better in channel with 3rd wave risks abating, working capital to normalcy

Next generation of Promoter- Sanket and Uday seem calm and clear in strategy, would be keen to hear volume situations for other players in industry.

FY22 will do 2500- 2700 cr topline and 400 cr-425cr PAT, even after Q1 cobid hit. Available at mkt cap of 11K cr and sub 30 PE. If sinhle digit volume growth returns, WC and cash flow normalized and margins sustain, can continue to re-rate.

Invested

jainaj · November 3, 2021, 3:53am

2500-2700 cr topline was the guidance by the company in the concall or this is your estimate?

kartik_bhat · November 3, 2021, 4:38pm

I think this was answered by @zygo23554 in earlier posts - LUX INDUSTRIES - Can it Scale? - #67 by zygo23554 and LUX INDUSTRIES - Can it Scale? - #69 by zygo23554

Dev_S · November 4, 2021, 7:01am

These were my estimates.

Lux has delivered 4 consecutive Quarters improvement, reflects in increasing research analyst coverage and institutions holding increase

ranvir · January 8, 2022, 5:41pm

Notes from AR 2020-21 iro Lux Industries -

Established in 1957. Currently a leader in branded inner wear segment in India. Has 7 state of the art manufacturing facilities across India with a cumulative capacity to make 30 cr garment pieces per year. ) Company’s 03 plants are in WB, 02 in TN,01 in Punjab and 01 in UP. Lux is the number 1 mid segment inner wear brand in India. Also the largest inner wear exporter from India. Exports to 46 countries - mostly to LMIC countries in Asia and Africa.
Last 3 yrs sales, EBITDA, EBITDA margins data -

Sales - 1216 cr, 1674 cr, 1964 cr
EBITDA - 186 cr, 275 cr, 392 cr
EBITDA margins - 15.3%, 16.4%,19.9%
( Margin expansion in a pandemic year with expanded distribution and tighter control on working capital was the highlight of the FY and points towards improvement in financial quality of the company )

Key initiatives this year-

(a) Courageously launched retail venture ( Cozy World ) when most others stayed defensive - Every mid segment Indian hosiery company has always relied on marketing and distribution. Lux’s extension into retail is a first of its kind initiative to engage directly with the consumers. Launched 04 Cozy world stores in the FY. Aim to scale this to 50 stores in FY 21-22 ( company owned or franchised). Aim to target 5-10 pc sales through these EBOs in 3 years.

(b) Extending distribution presence in South India - Current region wise sales break up -
Central - 18 pc
East - 28 pc
North - 30 pc
West - 21 pc
South - 3 pc

Company’s penetration in South should be increasingly visible from FY 21-22.

(c) Enhancing online presence - Created a proprietary team to build the E-commerce business. Entered into marketing alliances with Flipkart, Amazon, Myntra, Ajia and Nykaa. Online revenues doubled this year. Aim to hit 2pc of sales through online channels in the foreseeable future.

(d) Thrust on premiumization - Reinforced premium brand presence with the launch of One8 brand. This segment has completely different dynamics, packaging, designs, touch and feel. The premium brands - ONN, One8 and Luz Premiums ( for Exports ) reported far higher growth than company average. Currently 12 pc of company revenues come from these premium brands.

Pandemic induced shift from unorganised to organised - this was really visible this year due better avlb of labour and bank credit to organised players.
Company now focusing on ensuring better financial hygiene by tightening its liquidity standards to moderate its working capital. Lockdowns tested this resolve but the company persisted with its liquidity discipline. Net result was reduction in receivables cycle by 12 pc. Corrospondingly, the short term debt moderated from 228 cr to 108 cr.
New product launches - were restrained launches due pandemic. Launched women’s tunic from 100 pc rayon that enhances softness. Also launched night suits, side pattern tracks and beginner’s brassiere under the Lyra brand. Other launches included - ONN junior hoodie jackets, sweatshirts and One8 boxers.
Chairman’s message - Revolves around 3Ms

M1 - Milleniels - born between 1981 and 1996 - show distinctly different consumer behaviour vs the older generation. This is now the company’s core audience.

M2 - Markets - Are transitioning from economy to mid and premium segments. Plus the shift from unorganised to the organised. Lux believes that Women and Children’s segments are on the cusp of a take off. Plus the new reality of online markets - towards which Lux is actively working.

M3- Merger - Merged Lux Industries, JM Hosiery and Ebell fashions Pvt ltd on 01 Apr 2020. Benefits - Company gains scale, ability to attract better talent, Reinforces that promoters have no other business interests ,making Lux enter women’s segment as Lyra was under the Ebell fashions umbrella. Merger also save admin costs.

Improving liquidity helps in buying efficiency. Cash on books on 31 Mar 19 was 7 cr vs 84 cr on 31 Mar 20 which helps buy RMs in bulk during the start of the season when stocks are adequate and prices are lower. This improved liquidity should only increase going forward.

Disc : invested, biased

Regards,
Ranvir Dehal

Krishna1 · January 25, 2022, 3:27am

FIRE40 · January 25, 2022, 4:50am

Summary of the sebi order:

Those banned by Sebi include Udit Todi, the son of the managing director of Lux, and is currently holding the post of executive director in the company, according to an interim order.

Would really appreciate the views of current investors on this. @Dev_S @ranvir @zygo23554 ?

Disc: Not invested but interested.

jyothi · January 25, 2022, 5:09am

SEBI’s action has shaved off investors wealth. As an investor I look at fundamentals and governance hygiene stuff. It never occurred to my mind that insiders with their stupid actions caused wealth destruction to investors.
How do we foresee this risk?