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Lux Industries Ltd
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A warm welcome to everyone. I hope everyone is keeping safe and healthy during this pandemic. Along with me, I have Mr. Udit Todi, Mr. Ajay Patodia; and SGA, our Investor Relations Adviser. I hope you have received our results and investor presentation by now. For those who have not, you can view them on our website. I'm happy to share that your company has delivered another quarter of steady performance in the backdrop of the continuing macroeconomic challenge on account of COVID-19 pandemic and nation-wide lockdown thereafter.For the half year gone by, we witnessed several structural change across industries, both in the Indian and the international market and the innerwear industry was no different. The Indian innerwear industry had been continuously evolving, and there has been structural shift during this pandemic too. Customers are becoming more informed about the use of branded quality product, which is helping us penetrate better, not only in the organized market, but also gain share from the unorganized sector.We are seeing significant green shoots in the Tier 2 and Tier 3 towns, which continued to outperform the metro cities. Youth residing in metros and mini metros who are mostly working from home have started engaging themselves with mid-premium and premium wear innerwear and activewear products, which significantly led to the increase in the volumes of the branded and the comfortable innerwear products.In addition to that, we saw significant demand coming from e-commerce space as compared to the previous quarters. With this vigil and preferential shift, coupled with good winter wear product offtake, we have been able to grow our revenue for the quarter by around 9% compared to the same period last year. Going ahead, we expect a larger share of pie from the branded player and expect to outperform the industry trends.Now coming to your company over the last -- over the years, we have undertaken several initiatives to improve operating efficiencies and optimize costs which is helping us yield stronger results and constantly outperform the industry standards. Our state-of-art facility, strong portfolio -- product portfolio management, quality products, permanent celebrity endorsements as well as innovation in the products and services has helped us meet consumer expectations even in the difficult business environment.Now I would also like to share an update on our winter wear segment, which has also witnessed strong volume growth. We have a wide range of winter wear products, which are available at retail points right across India as well as several online platforms. Our winter wear products endorsed by Mr. Kartik Aaryan and Mr. Amitabh Bachchan has a good brand recall, which is helping us to offtake the winter wear product despite the cut in the ad spend, which is by around 3% to 4%. We are on track for maintaining our advertising and marketing expense of around 4% to 5% for the full year ended March 2021.With this, I will now ask Mr. Udit Todi, who is heading the strategy for the company to take the speech forward.
Good afternoon, and a very warm welcome to everyone. We have witnessed a strong growth during the quarter, and our results demonstrate the growing capability despite unprecedented situations arising due to COVID-19 pandemic and its repercussions. However, the last -- the latest news of Pfizer's COVID-19 vaccine proving 90% effective, has given us new hope in fighting the pandemic soon.We have always believed in constantly evolving and adopting ourselves with the ever-changing environment by taking several strategic initiatives. Our initiatives involve brand building and strengthening of our product portfolio, implementation and adoption of latest technology in our manufacturing process to improve quality, which has helped us stay ahead of the curve in this industry, and which is clearly reflected in our Q2 results.Despite being present in an industry where there are a large number of unorganized and small-scale manufacturing units, we have been able to establish and leverage our parent brand Lux in a way that we have not only been able to gain market share from unorganized sector but also penetrate in the organized space.On the supply chain aspect, we have one of the largest distribution networks in this industry, having strong presence in North, East and Western parts of the country. Our distribution network of approximately 950 distributors has helped us in last-mile delivery of our products even during this lockdown phase. Going ahead, it will be our effort to further invest and improve our distribution and reach in our country.Now coming to our working capital cycle. Our endeavor to optimize our working capital has started reaping benefits. For the half year ended September 30, 2020, our working capital requirement reduced by INR 86 crores and is outstanding at about INR 413 crores compared to INR 499 crores on September 2019. We have also reduced our debt and have now become a net cash company.During Q1 of FY '21, our export market was impacted due to supply chain disruptions. However, in Q2 FY '21, we saw some encouraging responses on the export front and expect export trade to return to normalcy in coming few quarters. We continue to engage with our customers through various social media campaigns and advertisement and carry out various brand-building activities, which has helped us in maintaining strong brand recall and loyalty.We believe that with the complement of improving exports, traction in e-commerce sales, better product mix, celebrity endorsements and high-quality products should further enhance our revenue across segments. We expect the second half of the year to be better in terms of revenue as well as profitability compared to the first half. Our proposed scheme to merge J. M. Hosiery and Ebell Fashions Private Limited with Lux Industries Limited is on track. Post our merger, we believe to further strengthen our position, not only in terms of growth, but also in terms of product portfolio reach and efficiency of our balance sheet, which will ultimately benefit our stakeholders at large.Now I hand over to our CFO, Mr. Ajay Patodia, who will provide you an insight of our financial performance.
Thank you, Udit ji. Despite uncertain economic conditions, our company reported a strong growth for the quarter and half year ended September 30, 2020. Our revenue for the quarter stood at INR 388 crore as against INR 355 crore, registering a growth of 9% compared to same period last year. This is mainly attributable to high-volume growth in our winter wear, mid-premium and premium product categories.Our EBITDA for the quarter stood at INR 74 crore, registering a growth of 37% as compared to INR 54 crores during the same period last year. Our EBITDA margin stood at 91% (sic) [ 19% ], which have seen a significant improvement of 380 basis points year-on-year, which was majorly attributable to better product mix and also product cost rationalization measure undertaken by us.Our PAT for the quarter stood INR 51 crore, registering a growth of 25% as compared to INR 41 crores during same period last year. We have also seen an improvement in PAT margin by basis point to -- 160 basis point, majorly driven by our operational efficiencies. We have reduced our working capital cycle over the last year. This has helped us reduce our interest cost as well. Our interest cost for the quarter stood at INR 2.3 crore only. The revenue of J. M. Hosiery Limited are INR 91 crore in quarter 2 FY '21, while Ebell Fashions revenue is stood at INR 53 crore.Now coming to our half year performance. Our revenue for H1 FY '21 at INR 635 crores as against INR 618 crores for the same period last year. Despite demand as uncertainty on account of COVID-19 pandemic and nation-wide lockdown, which led to significant loss of revenue and profitability, we were able to register a revenue growth of 3% year-on-year basis.EBITDA for H1 FY '21 stood at INR 121 crore as compared to INR 90 crore in H1 FY '20, signifying a growth -- a strong of 35% year-on-year. The EBITDA margin has significantly improved by a stellar 460 basis points, which stood at 19.1%.During the period, we have undertaken significant cost-cutting measure, majorly on our advertising and marketing spend, which we plan to keep at 4% to 5% of the revenue as against 7% to 8% historically. PAT for H1 FY '21 stood at INR 82 crores as compared to INR 59 crore in H1 FY '20, registering a growth of 37% year-on-year basis. The PAT margin stood at 12.8% for H1 FY '21, showing an improvement of 321 -- 320 basis points year-on-year. Revenue of J. M. Hosiery Limited are INR 159 crores in H1 FY '21, while Ebell Fashions revenue stood at INR 69 crore.With this, we will now open the floor for question and answer.
[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.
Saket and Udit, first of all, congratulations on a very good performance, especially in the background. Three questions from my side. First, on the performance, if I look at your margins, one key driver has been the gross margin improvement, and you mentioned about the mix improvement. And I think in Q1 itself, you had said that there was an increase in demand for the economy segment. So if you could just highlight in the last 3 months, what has changed? And specifically, is there any specific category, which is higher margin, which has driven this margin improvement for us?I'll come on the other 2 questions after.
So Nihal, as we can see that we believe that the main boost in profitability is coming on the EBITDA front on account of reduced advertisement expenditure. So the contribution from the gross margin is not so significant as is the contribution from the advertising -- reduction in advertising spend. Although the product mix has definitely shifted more towards the mid-premium segment -- from the mass segment, we have shifted towards mid-premium. But overall, we believe that the main driver of EBITDA improvement was on account of reduced A&M expenses.
Okay. Because if I compare from last year also, there has been a 500 bps improvement. And even from last quarter from 47%, we've gone to 57%. I know I think on the previous trajectory has been similar on the gross...
Nihal, what we believe is that you have to also take into account subcontracting and jobbing expenses into account because as the nature of the business stands, we generally look at gross margins, after taking into account which -- subcontracting and jobbing expenses, which is a very, very integral part of your manufacturing process, and which is directly linked to production. So if you factor jobbing expenses into account, subcontracting expenses into account, after that, you will get a realistic picture of gross margin.
I get that. That will be helpful. So Udit, just a follow-up would be that could you give a sense of what was our advertising spend this quarter compared to the last quarter of FY '20?
So this quarter, we spent -- we've spent about roughly about INR 15 crores in advertisement, which for the corresponding period last year was about INR 25 crores.
On the advertising part, I think in the opening remarks, you mentioned that longer term, you're looking at bringing it down to 4% to 5%. Ideally, Lux, as a house, has quite a few brands, some which are well established, with need branding and others which we are trying to grow. So in that background, once things normalize, do you still expect that the branding spend of 4% to 5% would be enough or you would want to get back to the original.
Nihal, we believe that what we had mentioned even during our call was that the 4% to 5% bracket of advertisement expenditures was for the current year. Given the COVID-19 scenario, we have cut down our expenditures, but historically, we always spend around 7% to 8% of our top line on advertisement. And we believe that it is a very comfortable percentage to be in. And given the number of brands that we have in-house, we will require that sort of a budget going forward also.So as you very, very correctly mentioned, if we have to nurture our brands, we have to build our brand stronger, then we are looking at from the next year onwards -- next financial year onwards, we'll be looking at bringing back our advertisement expenditure to a historical normal level of about 7% to 8%. So current year is just an outlier because of the current COVID-19 situation. Otherwise, we have historically maintained 7% to 8%, and that is what we believe we will maintain going forward also.
That's Last question from my side. On the recovery that you've seen in terms of the growth be it for H1 or for the second quarter, is it possible to give a sense how the difference has been between rural and, say, the top 7, 8 cities? And I ask this because there has been quite a divergence, if I check with some of the other retailers. So I just wanted to a sense from you, and that would be helpful.
So yes, earlier, see, during the quarter 1, the majority of growth, which was witnessed was coming in from the rural sector. Because the urban sectors were witnessing a stricter lockdown. But talking about quarter 2, we believe that lockdown rules were quite relaxed during quarter 2. So during quarter 2, there was a growth which was coming in both from the rural as well as the urban sector.So both these sectors have performed equally well in the current quarter. That is for the current half year and going forward, we believe that in the next half of the year, the growth should be even better because of the -- because of festive demand which we are seeing right now, this is quite a very good demand picture right now, which we are witnessing. Whether it be our summer products or winter products, overall, all sorts of products are witnessing very good demand at least until now what we have witnessed during the Diwali sales. So we are very upbeat about the performance going forward, and we believe that H2 is only going to be better than H1.And the kind of support, which our customers have before in the company by purchasing our products only reinstates the fact that our products are more of -- products are more of a basic necessity or a basic essential for them rather than something which can be postponed. And that is quite visible, if you see even during the quarter 1 sales, the sales of the company, we had bounced back to about 95% of our sales. So we are very thankful for our customers in that aspect that they have always been loyal to the brand, and we have always believed that we'll give such basic essentials that you need to consume them.
[Operator Instructions] The next question is from the line of Shalini Gupta from Quantum Securities.
Sir, I just wanted to check this merger -- impending merger with the group companies, that is going to really strengthen the company. But when I just look at my numbers, I find that the return ratios will come down quite substantially post the merger. So if you can discuss the logic behind the merger? And why is the merger taking so long? It was first announced in July 2018, and it has not yet fructified. So if you could talk about this.
So Shalini, just to talk about -- just to spend some time on the merger base, the merger was announced quite back in 2018. But in fact, we have also mentioned it in our presentation and in our balance sheet as well. So we had a very successful hearing with the NCLT about 1 month ago. And the company, both -- all the 3 companies involved, which is Lux, J. M. and Ebell Fashions, are scheduled to have their EGM on the 27th of this month itself, whereby all the shareholders will be meeting up, all the sundry debtors and sundry creditors will be meeting up, and the process is already on a faster track than what we were in our previous call.So compared to our previous call, we have already moved 1 step ahead. And after our 27th of November Annual -- Extraordinary General Meeting, we believe that after that, it shouldn't take much time because the ball has already started rolling, and now it's just a procedural time of -- we get about approximately 3 months. So what we are targeting is that by around February -- mid of February or end of February is what we are looking at closing the merger provided subject to that all the regulatory bodies take up the case, as we have already been doing. So we are already there. And the merger process is already underway. In fact, from the last call, we have already made a lot of progress.And talking about the financials of the merger, we believe that -- we somehow couldn't get the point as to how the return ratios are deteriorating because if you look at the numbers 2 years ago as well as last year, the listed entity, which is Lux Industries Limited, it's always been an EPS-accretive deal for Lux Industries Limited. If you add up the top lines and the bottom lines and if you happen to -- take into account the dilution, which is happening as well as the profitability which is coming in, you'd only see that the EPS -- we are expecting the EPS to shoot up by 20%, 25%.
No, no. We're not talking about EPS. I'm basically talking about the ROC and the ROE. So EPS, I'm not at all contesting that. That will go up. But what I was really surprised by is the fact that the return ratios are coming down. So I mean basically, I really don't want to say anything more, sir, on this issue.
So talking about ROC and ROE. So if you look at our second quarterly results, Lux itself is a net cash company as of now. And given the COVID-19, we believe that it was quite a feat for our company to, in fact, achieve that. Even under such very difficult times, the company has, in fact, been able to bring -- retire all debt and become net cash. Even talking about Ebell Fashions Private Limited, that also is a net cash company as on date. And there is very limited amount of debt, which is there on the books of J. M. Hosiery. But if you look at the group entities combined, the debt will again come down to 0. So we believe that going forward, the return ratios will definitely bounce back.
No, no, it's not about return ratios. Basically, the capital employed is going to go up because of the price that you are paying for the merger. It's not about debt. It's not about EBITDA and stuff like that. It is basically about the money that you are paying for the 2 companies. So because of that, the capital employed goes up. And because of that, the return ratios come down. It's not It's -- I mean, those are 2 very good companies, very good brands. No doubt about that.Okay, I guess I'll take this off-line, sir. I guess, I'll take this off-line. And sir, I had a couple of more questions about the merger. I guess in terms of the increase in turnover and PBT because as per my calculation, in financial year '22 is when the merger -- we will actually see the benefit of it. PBT is up by 75%. And turnover, I mean, I have some numbers. I just wanted to bounce them off of you to just to understand that I'm not going off track on those. Sir, I guess I'll speak to -- who can I speak to?
Mr. Patodia, our CFO, will be the right person you can contact. He can take you through all the financials. And if there is any sort of a confusion which is there, will get cleared out.
Sure. And sir, I just wanted to check the number of distributors that you have right now, also the number of outlets and the -- what shall I say, the air conditioned outlet, basically the -- not the regular outlets. I just forget what you call them. So if you could just -- and also the EBOs...
So we have around 950 distributors. We don't have an exact -- 950.
950.
We have a 950 number of distributors with us, and we don't have the exact count of the number of retailers. But a rough estimate, which we get from our dealers is approximately around 2 lakhs active retail outlets, which we have. So we don't have the exact count because we deal in a wholesale model as well as a retail model. So we have a rough count of retailers. And the number of EBOs right now, we are in a development stage of the EBO. So I think this would be the right time to talk about it because we are in a development stage and some more work is being done into that aspect. And we will be able to guide you better relating a review in the next con call.
Okay. And sir, last question from my end. You were talking about the fact that there has been a mix change for the better for you. So I just wanted to get a better sense of this because on the one hand, we have a situation where the economy segment because of lockdown and stuff like that. It's actually -- it's actually growing faster than the work growing faster than the rest of the company. Rather, what was the reason for pushing growth in the rest of the company? And now we see a gross margin expansion because of -- partly because of a mix change. So if you could just please explain this?
Like we were comparing our gross margin numbers and mix change in comparison to quarter 1 of this financial year. So what happened in quarter 1 of this financial year our mass segment in the economy segment -- we have 2 segments. One is the mass segment, which is Lux Venus and one is the mid-segment, which is Lux Cozi. So when we saw the mass segment to move at a very high growth than the medium segment of Lux Cozi. So that happened in quarter 1.And in quarter 2, the reverse of that happened. We saw the medium segment, which is Lux Cozi started moving faster than our mass segment, Lux Venus. So it is both the segments together attribute towards the economy segment, but there has been a mix change. And now we are moving towards a normalized mix, which was there at pre COVID level. So that is why in quarter 1, there was a gross margin decline. And in quarter 2, the gross margin has remained almost same as that of FY '20.
The next question is from the line of Prerna Jhunjhunwala from B&K Securities.
Congratulations, sir, on a strong set of number across P&L and balance sheet. So I would like to understand what was the volume growth for the quarter and realization growth?
So the split between volume and value was about 50-50. So in a totality, it was roughly 4% volume growth and 4% value growth.
Okay. Okay. And sir, yarn prices in the quarter were quite low. We didn't see any benefit of that coming into the gross margin despite higher share of premium products. I would like to understand what happened in the raw material cost?
So when the yarn prices are declining. So if the company is already having certain amount of stock in their hand. So it is -- it's like a more FIFO basis. So the company is already -- the stock, which is there will get sold out first. So the reduced yarn prices will impact, the benefit will accrue in the coming months. And in fact, right now, the yarn prices have bounced back and we are at a lifetime high. In fact, the yarn prices have gone up by about 15%, 20% in the last 1, 1.5 months.
Yes, but you will be having an inventory of which you would have accumulated 1, 2 months back, so that benefit would be seen in Q3 for the same.
Definitely.
Okay. And sir, I also wanted to understand that this whole first half was actually -- there was a supply constraint in the market, which led to the market turning into favorable for the manufacturers and brand players. Do you -- what do you -- how do you see the market -- when the normalcy comes in and your -- and the impact of the same on your receivables. Do you see all the players in tight on their receivable days as now? Or we'll have to be a little relaxed on that term to gain market share. Maybe second half, maybe next year or beyond?
We won't be able to comment about the market, but about us, we will be able to maintain the same number of debtor days coming forward. In fact, our plan in the coming long-term perspective is to reduce the number of debtor days.
Okay. And what would be your long-term target? Any targets to share there?
Right now, we don't know actually till when the COVID scenario would extend up to. So we would be able to give you a better target when I think everyone is vaccinated and the market normalizes.
Okay. Okay. And sir, you would be running at full capacity as I'm seeing that your subcontracting expenses are increasing. Do you plan any CapEx going forward to cater to the increased demand?
The further CapEx is under consideration. If there will be any announcement, where we will be informing you.
But we are definitely expecting some amount of CapEx in the current fiscal year.
The next question is from the line of Sunil Jain from Nirmal Bang Securities.
Yes. My question relates to the subcontracting cost itself. Why this has increased so much in this quarter? Any specific reason for that? And whether this has any impact on the gross margin?
So as we mentioned during the beginning of the call, whenever you're looking at gross margins pertaining to our industry, it will be a more appropriate measure when you take into account subcontracting expenses as a direct cost. So after you take subcontracting expenses as a direct cost and then if you arrive at the gross margins, that will be a more realistic holistic picture.So because subcontract -- because the production in which we are operating, bulk of our productions are getting contract manufactured. So different job brokers who are there with us is very, very long. So in fact, that has been a very direct cost for us. So we believe that we should always see subcontracting expenses as a part of direct cost and arrive at gross margins after that.
Yes. That only I've done. In fact, when I see your subcontracting cost, it is one of the highest in last so many quarters. I was just thinking that some margin may have been lost in that and because of that gross margin [indiscernible].
So there has been no margin erosion on account of subcontracting expenses because when we talk about subcontracting expenses, the cost -- so the cost per unit, the cost per unit is fixed. So they -- if I have to manufacture one dozen of vest or one dozen of brief, the cost to manufacture 1 dozen of brief has been preset. So whenever the subcontracting expenses are going up, that only means that the production is going up.So there is no margin addition or margin erosion on account of subcontracting expenses. It is a purely, purely directly variable cost of production, and it is directly linked to production. And when we -- when your -- I mean the subcontracting expenses have gone up, you can also see that the inventory has also gone up in accordance to that.
Okay. I think I was thinking on that line, like you had done more subcontracting in this quarter because of [indiscernible]
So when you are arriving at gross margins, you need to take into account cost of material consumed, stock in trade, change in inventory as well as subcontracting jobbing expenses. Once you add up all these four, then you'll get a very realistic picture of the gross margin level.
Yes. Sir, the second question, like in...
Sorry, Sunil, you're not audible. Can you a bit loud, please?
Yes. Now I'm audible?
Yes.
Slightly better. Go ahead, please.
Yes. Second question is more about the advertisement spend. You had done around 4% in this quarter. So coming 2 quarters will be around 4%, 5% or it can be higher, specifically third quarter when we have IPL and all?
No. So we -- for the entire year, we have earmarked about 4% to 5% as advertisement expenses. And the distribution of the advertisement expenses overall will be 4% to 5%. If you look at quarter 1, 2, 3, 4, we believe that all the 4 quarters will roughly see an equitable distribution of 4% to 5%. That is how the provisioning has been done. So going forward in Q3 and Q4 also, you can expect a 4% to 5% budget of advertisement expenses.
And sir, about this Ebell, there, we have not seen much recovery. And how -- what's the reason and how you see in the coming quarter?
So, so talking about Ebell, Q1 was very down. So the performance of our second quarter has been much better than our first quarter. So in our first quarter, we were doing about 40 -- 40 we had only bounced about 40% to 50% of sales. Talking about quarter 2, we have bounced back to 70% of sales. And talking about quarter 3, quarter 3, we have, in fact, come back to pre-COVID levels. In fact, we have seen good amount of growth coming in the quarter third. So all the pent-up demand, which was there in quarter 1 and quarter 2 is spilling over to quarter 3.
Okay. That is great to hear that.
So it just depends on the consumers and customer sentiment. It is just that the ladies customers are coming in to shop a little later.
Yes, true. Agree. And sir, the last question relates to your winter season case, which generally happened in Q3 or what?
Can you please repeat yourself? You were not quite audible.
This winter season sales, sir, normally happen in Q3, if I'm not wrong?
So bulk of the sales -- the sales are equitably distributed between Q2 as well as Q3 because a lot of our distributors prebook and take the winter stock in advance because of the -- because of the predicted sales. No one wants to wait for the last minute to book their stocks. So the sales are equitably distributed between quarter 2 as well as quarter 3. So talking about quarter 2, quarter 2, our winter wear sales this year was about 100 -- about 125 in -- about INR 120 crores, INR 125 crores.
Okay. And similar sale can come in even Q3 as well.
Q3 would be slightly lesser. Overall, we expect about INR 200 crores, INR 220 crores of winter wear sales. So out of INR 200 crores to INR 220 crores, we have already achieved about INR 120 crores, INR 125 crores in quarter 2, and the balance will accrue in quarter 3.
Whether winter has a higher margin or it's comparable margin?
Definitely. Winter -- we are talking about winter wear products. Winter wear products see one of the best margins across the entire product portfolio. So winter wear is a very, very profitable category. And this year, on account of COVID, the supply of -- there has been a supply constraint on the winter wear segment. And on the other hand, as you can see all across newspapers and everywhere in media, the winter this year has been quite good. In fact, in Northern India, in Delhi and everywhere else, it has been one of the coldest Novembers that we have ever seen.So winter going forward as -- even until now, we have seen a very good traction coming in on the winter wear side. So we kind of expecting winter wear to be really good, both on account of supply constraint as well as demand being very upbeat. And being an organized player, so not everyone is able to manufacture the winter goods. So even during the current situation, the organized players will be able to leverage this supply constraint to their side, to their benefit.
Agree. Agree. And sir, last question about the market share. How much is our market share? And whether it has improved in the current period?
So it is very difficult to come up with the market share because the market is very, very fairly unorganized. So it is very difficult to come up with a market share. But yes, talking -- giving you a very qualitative sense, our growth compared to the industry has been on the higher side. So we have definitely being witnessing an increase in market share, and we expect the increase...[Technical Difficulty]
Ladies and gentlemen, it seems the line for the management has been disconnected. I request all of you to stay connected while we reconnect them.Sorry, ladies and gentlemen, we have the line for the management reconnected. Sunil, may I please request you to repeat the question, please.
Yes, yes. My question has been answered.
The next question is from the line of Sachin Kasera from Svan Investments.
Congratulations for a good set of numbers. My first question was regarding winter wear. So if you could just tell us what was the growth in winter wear for this quarter per se? And when you indicated that you'll be doing INR 200 crores upwards for this winter, what is the profit for the entire season growth vis-à-vis last year?
So for the current quarter, in the winter wear segment, we've seen about a 15% growth. And we believe that if you look at the entire season, we are again looking at a 10% to 15% growth.
Sure. Secondly, you mentioned that the [indiscernible] was 4% volume and 4% better realization. So that all 4% is because of price hike? Or again, there's a component of better product mix and price hike and good quality fibers too?
So the product mix has -- as you can see, the product mix has shifted a bit towards the winter side because the winter has seen a fair amount of growth in the current this thing. So it has been on account of product mix change that you can see better realizations coming in.
So fair to say that last part of this 4% is because of better process and much less due to the price hike?
Correct.
Okay. Secondly, regarding this merger of the 2 companies, are we sharing their annual reports on the website just because there are some confusion regarding the recurring on capital dilution that this 2 could has. So I just wanted to inquire whether we are sharing the annual reports so that in...
All the previous annual reports of the 2 unlisted entities have been there on our website.
Sure, sure. And since you mentioned that the gross margin is the right way to look into the subcontracting expense, I would suggest that from the presentation, I mean the presentation if you could share the gross margins after doing that, that will be better idea how the gross margins are moving?
So the gross margins after taking into account jobbing expenses is somewhat flattish at 33% -- 32%, 33%.
Sure. And my last question is that you mentioned that post the merger also more or less you will be debt-free. So going ahead, what is going to be the dividend payout policy? Or is it that you are looking at some growth opportunities either in terms of a large CapEx or on acquisitions? Or will we look in terms of a buyback or a higher dividend?
So until now, all the cash which was generated in the company was used to retire debt. In fact, now that we are in net cash, going forward, we have already stated our dividend policy to be about 25% payout ratio. So whatever PAT is coming -- whatever PAT the company is generating, about 25% of the PAT will be distributed as dividend. That is what the company intends to do. And we believe that given our set of numbers, we should be comfortably able to achieve that. And there was another question which you mentioned?
Where the growth opportunities...
Yes. So talking about CapEx and growth -- talking about CapEx and growth opportunities, obviously, the company is on the lookout if there is any interesting opportunity which is there underway, the company should pick it up, and the company is always actively on the lookout of any growth opportunities which comes on the way. As we mentioned that some amount of CapEx might already happen in the current fiscal because when we want to grow, we also want to increase our capacity. So some amount of money will also be deployed there. And talking about the 2 unlisted entities, there was a slight error that the annual reports are not there on the website, but it is available with the ROC. In fact, we have also -- the current year the FY '20 ended audited balance sheets are also filed with the ROC. So you can just file for an application and get a copy for Ebell Fashions Private Limited and J. M. Hosiery Limited.
Yes. But since we are looking -- Lux is now starting to look in very high in terms of corporate governance centers and transparency. My suggestion would be if you can put it on the website, that would be really helpful.
That is a very valuable solution from your end, and we'll definitely take it up.
Yes. And just one last question regarding the mix changes. So what is the current share of revenue between premium, mid and economy? And how do you see that mix changing over the next 2 to 3 years?
So talking about the mix change. So in fact, it is very difficult to give a quarter-on-quarter comparison for mix change because of the uncertainties which are there in the market, but you are talking -- giving you a very broad sense as to where -- to what it stood last year. So seeing FY '20 last year, our product mix, as mentioned in the presentation, if you can see, the premium segment is contributing roughly about 21%. The mid-premium is contributing about 46%, and the economy segment is contributing 33%.
Yes. So that I have seen. But if you could just tell us broadly over a 2- to 3-year period, how that would remains?
So this is only possible at the end of the year, but, yes, talking about where will we be standing at the end of FY '21. So right now, given the COVID situation, it is very tough to predict as to where the market will go. But as of now, we are more or less standing at a similar pyramid as of now.
So I'm not talking of this year. I'm seeing your medium to long-term objectives, say, from 2 to 3 years perspective, '21.
[ Nawab saab ].
In the long term objective, the premium segment is growing at a higher rate than the mid and the normal segment. The premium segment would be growing anywhere between around 15% to 20%, whereas the mid segment would be growing around 10% and the economy segment will be growing at a lesser rate than 10. So we would see gradually a mix between the premium segment and the economy segment.
Is there a significant difference in gross margin between premium rate and economy?
Yes. The economy segment, the mass segment would be anywhere around 8% to 10% EBITDA-level margin, whereas the premium segment would be around 18% EBITDA-level margin.
The next question is from the line of Riddhima Chandak from Roha Asset.
My question is on this economy, mid and premium wear category. So EBITDA margin difference is slightly quite high between the mass and premium wear. So what is the difference between the gross margin in these categories?
So the difference between the gross margin would be same as the EBITDA-level margin because our overall overheads are distributed equally between the premium segment and the economy segment.
Okay. As you said that our premium products would be grow at a CAGR -- would grow at a CAGR of 20% in the next 2 to 3 years?
15% to 20%.
Yes, 15% to 20%. So does it mean that a share of revenue contribution from 21% will increase to 25% or 28%. Then parallelly, our EBITDA margin would grow accordingly.
Yes, it should.
Okay. And in terms of volume, what is the volume number Q2 versus last Q2 and half yearly?
The volume numbers -- just a minute -- so the volume numbers for FY '21 for Q2 was around 5.32 crores, whereas for quarter 2 FY '20, it was 5.08 crores.
Okay, okay. And half yearly?
Half year. I'll tell you the volume numbers for Q1 also, you can add it up. For Q1 FY '21, it was 4.69 crores and Q1 FY '20, it was 4.68 crores.
Okay. Okay. And my next question is on the Ebell and J. M. Hosiery Fashion. So our FY '20, revenue was approximately near to the INR 310 crores in the J. M. Hosiery and Ebell is approximately INR 271 crores. So what is our look out in the next 2 to 3 years that what sort of level we want to take it for both these entities?
So both these entities, last year, it was unmerged, and we expect that this year it would be merged. So we will see a separate figure by this financial year-end. We would see a merge figure, firstly. Secondly, the business in these companies are growing at the same level on a long-term basis as that of Lux. This year being an outlier, if you just leave this year, FY '21, from the next year FY '22, this would grow at the same level together combined as that of Lux.
Okay. Okay. And as we said that our direct reach was approximately 2 lakh retail outlets. So is there any plan to open EBOs and increase our direct retail outlets, whether through MBOs or whether through LFS, what is our 2 to 3 years internal plans?
So we have already -- we'll be happy to announce that the company has launched its first EBO store just last Sunday. This is about 3 days ago by the name of Cozi World. So the first store was opened in Calcutta (sic) [ Kolkata ], and we have a plan that within this financial year itself, we'll be opening about 20 to 25 stores. And going forward, by the end of FY '22, we are looking at over 100 to 150 stores. So this will be a mix of company-owned and -- like company-owned stores as well as franchisee-operated stores. So we believe that going forward, the company is also exploring the modern trade route, and this should auger very well for the company in terms of brand building, in terms of sales, in terms of grabbing new customers. So the store which was opened was opened by the name of Cozi World. It will be housing all the brands which are owned by the Lux group of entity.
Okay. Okay. So what is the CapEx per store on an average?
So the CapEx per store would not really be mattering because the first few stores which we will open will be company owned. The balance, all the stores will be basically under the franchisee. So the investment will be made by the franchisee. So yes, it will be mostly funded through the franchisee route. And the only investment which goes in from the company side is basically in the stock -- on the stock side, which is not really a matter of concern for us because it's company-owned stock, so at any point of time, we can liquidate it.
And on that side, so on the advertisement and promotion side, going forward, which of the category would be our major focus in terms of advertisement? As we said that we want to grow in the premium and high premium segment. So what is the strategy on the A&P spend?
So the strategy as far as the A&P spend is concerned is looked after by the management. It's very difficult to spell out as to what we will be doing going ahead. But yes, just to give you a sense that, definitely, the company is looking at spending more and more on the mid-segment as well as the premium segment because these are areas where the company enjoys higher margins. So the company's ad will be directed more towards these segments.
The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
Congrats for the good set of numbers. My first question is on the receivable days, where we have seen an improvement on almost more than 20 days on a Y-o-Y basis. So my question is how sustainable is this improvement given that there could be tailwinds pertaining to COVID as well, where several other companies are also seeing improvements from the receivable product?
So for the receivables, we feel that this will be consistent as we have taken out a very unique scheme for our distributors to reduce our receivables and -- which was highly successful in the market. So we believe that the same would be continuing on comparison to Y-o-Y basis, same would be continuing forward. In the coming 2 to 3 years. In fact, we are planning to reduce it further.
And secondly, is it fair to say that both J. M. and Ebell would also have a similar working capital cycle as a LUX stand-alone given that at the group level also Lux has net cash?
Yes. If we combine both together, it would be at the same position as the Lux Industries.
The next question is from the line of [ Pushkar Jain ] from Sequent Investments.
Congrats on a good set of numbers. I just have a couple of questions. What do you think will be our sustainable EBITDA margin going forward post the merger?
So right now, we have the stand-alone numbers with us, talking about Lux. If you look at the margins, right now, the margins are -- the EBITDA margins have improved mainly on account of advertisement, but we believe that going forward, that would not really -- we would kind of bring advertisement accounts to normal level. So we believe that the -- going forward, the same EBITDA level. It will be slightly difficult to maintain, but we should be looking at about 16% to 17% EBITDA levels going forward.
So that would still be an improvement of a percent, right, so if its 17%. 16% is our normal EBITDA, right?
Yes. So 16% to 17% is what we are looking at.
And the second question was with the outlook. So last -- on the CNBC interview, you said that the -- you gave a guidance of a single-digit growth for FY '21. Is it -- is there any change there?
We are looking -- right now, our internal target is a double-digit growth, but still, we would be guiding for a single-digit growth.
Thank you. Ladies and gentlemen, that would be the last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.
I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with our Strategic Growth Advisors, our Investor Relation advisers. Thank you, and wishing you all a very, very happy Diwali and a very prosperous New Year. Stay healthy and stay safe.