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Lux Industries Ltd
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Ladies and gentlemen, good day, and welcome to Lux Industries Limited Q3 and 9 months FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not a guarantee of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saket Todi, Promoter and President, Marketing, Lux Industries. Thank you, and over to you, sir.
Good morning, everyone, and thank you for taking out your time in joining us today and discuss our Q3 and 9 months FY '20 earnings performance. Along with me, I have Mr. Udit Todi; Mr. Ajay Patodia; and SGA, our Investor Relations advisers. 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 we have delivered yet another strong quarter despite several issues in the economy. The innerwear industry is evolving at a rapid pace. And today, innerwear as a product category is no longer perceived as a commodity. Over the years, consumers are becoming more informed, which has resulted into an evident shift in the industry, where other aspects like color, pattern, style and fashion have been equally important, along with the right fit and comfort. To cope up with the evolving trend, we at Lux have always been proactive in adopting newer methods of production, developing innovative products and targeting the right audience via branding and promotional activities. Our customer-centric approach has helped us to expand our visibility and created a strong brand equity for our entire brand pool. We believe that successful brands generate a consumer pull and, in turn, help us to negotiate with better payment terms with our trade partners. With our strong portfolio of 15 brands offering mass, mid-premium and premium products across demographics, it has helped us to outperform the market and generate a pricing premium. I would also like to share an update on our plan to merge J.M. Hosiery & Co. Limited and Ebell Fashions Private Limited with Lux Industries Limited, which was approved by the Board of Directors in June 2018. As a part of the merger process, the promoters of Lux Industries Limited have strategically disinvested 4.21% of the total equity of the company. I am happy to share that this sale would advance the progress of the proposed scheme of amalgamation, and we expect it to complete in the next few months. We strongly believe that the merger of these entities with Lux Industries Limited will help us to expand our presence across markets, help us to gain market share and will lead to higher growth potential with a portfolio of well-established brands under an umbrella. With this, I will now ask Mr. Udit Todi, who is spearheading the strategy for the company, to share his thoughts.
Good morning, and a very warm welcome to everyone. Before taking you all through the financial and our operational highlights, I would like to provide an update on our dividend and dividend policy. During the quarter, the Board of Directors have announced an interim dividend of INR 10 per equity share, that is 500% of face value of INR 2 each. To reward the shareholders on a regular basis, the Board has monetized the dividend distribution policy and has inserted a clause that the company shall endeavor to maintain a dividend payout ratio of 25% of the annual stand-alone profit after tax of the company. Now coming to our financial performance. We have delivered a strong growth for the quarter and 9 months ended 31st December 2019, despite continued weakness in demand, coupled with several macroeconomic challenges. Our company has delivered a 7% revenue growth, a 290 basis point EBITDA margin expansion and a PAT growth of 40% during the quarter, which is way better than the industry. Our consistency in delivering strong numbers is on account of our continuous focus on brand-building, strengthening our product portfolio, implementation and adoption of latest technology in our manufacturing processes. On the supply chain aspect, we have one of the largest distribution networks, which is the core strength of our company. Our strong brand equity and goodwill has helped us maintain long-term relations with our distributors, dealers and retailers. We are the largest domestic innerwear player by volume, with strong presence in Northeast and Western parts of the country. We endeavor to further strengthen and streamline our distribution network to reach the untapped and undertapped markets and invest heavily in brand-building and promotional activities. On the working capital front, we expect to grow revenues with the same amount of working capital, which we expect will translate into a superior return on capital employed. This has resulted in increased operating cash flows. Our working capital cycle has reduced from 149 days as of December 2018 to 131 days currently. Going ahead, we expect to moderate our working capital cycle across more than 5,000 SKUs. We are undertaking several measures to aggressively promote and position our brands, and will strive to adhere to the highest of corporate governance and transparency at all our business dealings and transactions. We would also like to inform you that the Board has approved the appointment of Ernst & Young as the internal auditors of the company for the calendar year 2020. Now I hand over to our CFO, Mr. Ajay Patodia, to provide you with insight of our financial performance.
Thank you, Udit-ji. Our company reported a strong growth for the quarter and 9 months ended 31st December 2019. Our revenue for quarter 3 FY '20 stood at INR 306 crores versus INR 285 crores, registering a growth of 7%. EBITDA has seen a strong growth of 28%, which stood at INR 55 crores as compared to INR 43 crores in quarter 3 FY '19. We have seen a stellar improvement of 290 basis points in our EBITDA margin on account of better product mix. Our EBITDA margin for the quarter stood at 17.9% as compared to 15% same period last year. Our PAT for the quarter stood at INR 33 crores versus INR 24 crores in quarter 3 FY '19. PAT margin for the quarter stood at 10.9%, showing an improvement of 250 basis points compared to 8.4% in the same period last year. Coming to quarterly performance of J.M. Hosiery and Ebell Fashions, the former grow at revenue of INR 64 crores as compared to INR 54 crores in quarter 3 FY '19, a growth of 19%; while Ebell revenue stood at INR 66 crores as compared to INR 57 crores, a growth of 17%. Now coming to our 9-month performance. Our revenue stood at INR 924 crores vis-à-vis INR 827 crores, registering a growth of 12%. EBITDA for 9 months FY '20 stood at INR 144 crores as compared to INR 123 crores in 9 months FY '19, registering a growth of 18% year-on-year basis. The EBITDA margin has also seen a healthy improvement of 80 basis points, which stood at 15.6% versus 14.8% in 9 months FY '19. PAT for 9 months FY '20 stood at INR 93 crores as compared to INR 62 crores in 9 months FY '19, recording a growth of 49% year-on-year basis. The PAT margin stood at 10%, a stellar improvement of 250 basis points as compared to 7.5% in 9 months FY '19. The revenue of J.M. Hosiery Limited has grown by 13% to INR 229 crores, while Ebell Fashions has seen a growth of 12%, which stood at INR 210 crores.With this, we will now open the floor for question and answer.
[Operator Instructions] The first question is from the line of Sanjay Ladha from Concept Investments (sic) [ Concept Investwell ].
Congratulations for the good set of numbers. My first question -- I have a couple of questions. So we'll start with tariffs. So if you can share the revenue contribution of one8 brand? And do we have any other strategic tie-up pipeline, if you can share, in the premiumization side?
Strategic tie-ups for the premiumization side is still only -- still pending currently. But for the brand money, the revenue is still very minuscule. The 3-month revenue for one8 is around INR 1.9 crs.
INR 1.9 cr, okay.
Yes. But we are trying to launch it in the general trade category, quarter 4.
Okay. So in the coming 3 to 5 years, can we see our premiumization product in innerwear can go up to 40%, 45% in the revenue terms? I'm talking about the long term, not the short term.
See, premiumization 40%, 45% would be a big number because the base of the whole group together would be above INR 2,000 crores. So we cannot exactly comment what the numbers would be after 3 to 5 years, but definitely, the premium products growth would be more than the mass segment product growth.
So the growth in premiumization side will be in the range of 30-plus. Can we expect that?
20-plus. 20-plus percent.
Okay. And my last question will be, how you see your EBITDA margin will be in 3 to 5 years? Can it be maintained at current level? Or can it be improved? Any guidelines on your side?
The EBITDA margins might remain the same or might improve. Our plan is always to improve. But let's see where we stand after 3 to 5 years.
The next question is from the line of Himanshu Nayyar from Systematix.
Firstly, on our growth, if you can just highlight what would be the volume growth for this quarter and the contribution from winter wear products?
The volume growth for this quarter is around 17%, 1-7, whereas the winter wear range, the total 9 months growth is around 23%. But for quarter 3, it is mainly flattish, because in quarter 2, we did majority of the sales of our winter wear product.
Okay. Just to clarify, you said volume growth of 17% for the quarter?
Yes.
And value growth of 7%.
Yes, 7%.
Okay. So that means our realization and mix has deteriorated year-on-year, because of winter wear, you're saying it's flat, right?
That's correct. Because our winter wear products, the ASP is higher than our vests and briefs. So our winter wear hasn't seen growth in quarter 3 because the majority are taking place in quarter 2. But our innerwear products, growth we have seen in quantities where the ASP is lower than the winter wear. So there has been a quantity increase -- volume increase of 17%, whereas the revenue increase is around 7%.
And on a portfolio basis, how much of price change would we have taken, up or down?
See, the price remains fluctuating as per the price of the cotton. But more or less, in quarter 3, it was more or less flattish. There hasn't been any change in the prices.
Understood, understood. Secondly, on the margin front, we have seen this very strong improvement, mainly led by lower other expenses. So could you give some more color on what really -- what were the key items which are down? Have we taken a reduction in A&P spends or any other significant items which you can highlight?
Mainly advertisement expense has gone down to a tune of INR 8 crores, which has led down to an increase in the EBITDA margins. And the advertisement expense, our target is to maintain it at around 8% yearly, which we would continue to do.
Any other key items, because the reduction there seems quite sharp?
All items have contributed, that is there, but all at a minuscule level. The main item which has contributed was advertising.
Understood, understood. Secondly, on -- if you can just highlight specifically on the performance of ONN, our premium brand. I mean how is it growing? And what's the sort of competitive scenario out there in the premium segment as of now?
See, the value growth of ONN is around 18% for quarter 3, and the ASP of ONN has increased. So the volume growth might be a little lower than that of 18%.
And a 9-month number, if you can share on this?
9-month number should be approximately 12% to 13%.
Understood, understood. And a final question on the working capital side. I mean we are seeing a decent improvement there. So how much you think we can improve this without impacting our growth going forward?
I think so working capital has been a continuous improvement, if you would see in the last few quarters. And our target is that we'll maintain the absolute value wise same working capital while increasing the sales.
And then, sorry, 1 final question. I mean would you be in a position to give any guidance on growth and margins for the next year?
Our target is to maintain around 12% to 15% value growth yearly.
Understood. And anything on margins?
So margins would somewhere be in the -- at current level, 9-month level, the EBITDA margin stands at roughly 15.5%. So it should somewhere be within the same zone, maybe a 25 to 30 basis point improvement in take rates.
[Operator Instructions] The next question is from the line of Tanvi Shetty from Axis Securities.
Basically, on the price increases, which the earlier analyst also clarified, actually, I wanted to have more sense on how do we -- like what -- do we pass on the increase on raw material prices to our customers? And how do we do it? Via increased incentives to our distributors or lower MRP?
So generally, as a policy, what we maintain is that any increase or decrease in raw material prices are passed on to the consumers, so it kind of keeps our EBITDA margins intact. And the method by which we do is that the incentive structure for the dealers and the retailers are tweaked in a fashion in which the impact is given. So MRP is not something which we change on a regular basis. The MRP changes happen in the long run. But in the short term, it's only the incentive structures which are changed to accommodate any increase or decrease in raw material prices.
Okay. Okay. And like, what would be the quantum of price increases if you have taken in these 9 months of FY '20?
So with changes and with fluctuations in raw material prices, the prices have -- the selling prices have also kind of fluctuated, so it would be difficult to see -- I mean we actually need to understand from what perspective are we trying to understand, whether there was increase or decrease in price.
Okay, sir. And your outlook for -- on yarn prices, what do you think on the prices?
So the yarn prices, I think after the coronavirus breakout, the yarn prices are softening up a bit and it should be better for the industry.
Okay. And my next question was, sir, on the distribution front. We have around 950 distributors at the moment. At what rate can we see them increasing? And which region in India do we -- are we planning to penetrate more, apart from the Northern region -- Northern and Eastern, where we are present extensively at the moment?
So right now, we are also -- our main focus is on changing our product mix as well. And that is where we believe the future growth will be coming in from. And at the same time, we're also looking at increasing our dealer distributor network base. But our primary focus is right now on the product mix. So going forward, we're looking at increasing our dealer distributor network by adding around 5 to 10 distributors every month for the next 3 to 4 months.
Okay. And sir, changing our product mix means as in expanding womenswear or at leisure or the premium ONN and one8, which one of it would be focused more?
So it is not that anything will be focused. More or less everything is given its due focus. But yes, the faster-growing segments are definitely the outerwear segments and our premium wear as a category as well as the ladies segment. These are the segments which are growing faster than the core segment.
Okay. Sir, could you give a breakup of...
These segments are, again, the segments which are of a higher ASP and a better margin profile. So going forward, it leads to better margin realization as well.
Okay. So we don't see much of a growth contribution from our brands like Venus and Cozi, is it, sir?
So Venus and Cozi have been kind of growing at a steady rate. But obviously, it will be slightly lesser than the premium product portfolio's growth rate. So they have -- since their base effect -- since their base is also pretty huge and the contribution in the overall sale is pretty big. So obviously, the growth rate is slightly lesser than our premium products' growth rate. And that is what the company has also been focusing upon, which is premiumizing its product portfolio mix.
Okay, okay, sir. And what is the contribution from Venus and Cozi on an annual basis on an average?
So on an annual basis -- can we get back to you with this figure in a while? So we'll look at what it was in FY '19, and we'll get back to you with the figure.
Sure, sir. Sure, sir. And one last question, sir. On the working capital side, you mentioned that you've improved the days by -- to 131 days from 149. I wanted to know what initiatives have led to this improvement?
So we've been more strict with our debtor days and better efficiency in terms of stock management. So on account of both of these factors, we've been able to slightly reduce our working capital days, although the current economic situation has been sort of challenging, but we've been trying to reduce our working capital days, and we believe that going forward, this is what we will be able to maintain. So our long-term target is around 120 days, and we've been already able to arrive at 130.
130. Okay. Sir -- and 1 bookkeeping question. What would be your CapEx plan for FY '20 and '21?
So FY '20 and '21 should be just marginal incremental CapEx. We are not looking at any huge CapEx going forward right now.
That's all from my side. Congratulations on a good set of numbers.
[Operator Instructions] The next question is from the line of Sabyasachi Mukerji from Centrum Portfolio.
Congratulations on a good set of numbers. Just to understand on your volume growth of 17% in Q3, do you see some kind of customers doing down-trading? Because we have seen some of the -- your peers reporting volume decline or maybe a much lower volume growth compared to you. Do you see some kind of down-trading happening in the market, consumers preferring for lower ASP products in the category?
No. Here, it is not about lower ASP or higher ASP. Here the thing is about the product mix. Our thermal range, which is of a higher ASP, which is around INR 200 per piece, and the innerwear is around INR 50 per piece. So the thermal category has seen a flattish growth, and the innerwear category has been a big growth for the quarter 3. That's why there has been a quantity growth in quarter 3, more than that of the revenue. So it has no connect to a basic or a mass segment. It is just the product portfolio.
I understand. But -- so you're saying that thermal has seen almost a flattish growth. That means that...
In quarter 3. But overall 9 months, there is a growth, because we did the majority sales in quarter 2. Quarter 2 thermal was around up 55%.
So just to give you a clarity on the winter wear segment, so compared to our peers, we are the largest winter wear player in our industry. So this year, the entire winter season, we've clocked sales of about INR 200 crores, which was up about 23% from last year. So our total winter wear contribution in this entire portfolio is around about INR 200 crores, which again, as I mentioned, is far more than anyone else in this industry. And this has also seen a growth of 23% overall within the entire season. But due to marketing strategies and everything, a bulk of the winter wear sales were booked at the end of quarter 2. So that is why the winter wear sales are not reflecting in quarter 3. But overall, the winter wear has performed really well this year. The winter season, entire across India, has been phenomenal.
And what has been the traction in Q4 to date in the winter wear, so Jan and Feb and almost [indiscernible]...
Q4 is a season where we don't -- I mean from the company, from the manufacturers' end, the selling of winter wear kind of ends, so winter wear sales are primarily booked in quarter 2 and quarter 3. In quarter 4, it's only the distributors and retailers who kind of clear their winter wear stock.
Right. On the margin front, you mentioned almost 17.5%, if I heard correctly, in quarter 3, the operating margin, I'm talking about. Do we have any signs of Ind-AS impact in it?
No. We are not having any kind of Ind-AS impact. It is only on account of operational -- operating activities of the company. There is no accounting side to it. But we kind of, on an annualized basis, on a long-term basis, we kind of expect 15.5%, 16% EBITDA level.
All right. And 1 last thing, on the operating cash flow and your debt level, where do you kind of see your debt level in the next probably 2, 3 years? Do you expect it to come down?
So looking -- so if you talk about debt levels, our debt levels are quite low. As of now, we are -- at this point of time last year, we were at about INR 242 crores, whereas at -- on 31st December 2019 ended, we were at about INR 93 crores. So all our operating cash flows have been used to repay debt. And in fact, whatever amount of debt also which you're seeing right now, is on account of export packing credit and working capital. So this would be kind of -- that is what the debt structure looks as of now.
The next question is from the line of Kedar B from Composite PMS.
Can you help us with the export revenue numbers for Q3 and 9 months, please?
Export numbers for Q3 and 9 month ended.
The export for quarter 3 has remained flattish. And the export for 9 months has grown approximately around 9% to 10%. I will come back to you with the exact figure of our export for the 9 months.
Okay. My second question is specific to the one8 brand. So we see that it's already been launched across the e-commerce as a channel. But what other channels do you see yourself focusing on for this particular product? And how is the channel strategy going to be different compared to, let's say, some of the other premium products that you have?
See, what I believe that the premium product channel is through retailing only, so -- which is general trade. The e-commerce right now in our country is very minuscule in comparison to the total general trade platform. So e-commerce was launched first, which was in quarter 2. Now, in quarter 4, this year, when our season actually starts, so we have launched it in the general trade category. And we can see a good number in quarter 4 for one8 brand.
Okay. So when you say general trade, are you referring to the normal distribution channel? Or we are focusing specifically on, say, the modern retail store as a format?
General trade would mean our MBOs, there are -- like that is through distributors, but -- to MBOs, not wholesaling.
And with the export numbers, for the 9 months last year, these were around INR 95 crores. And this year, we are at around INR 103 crores.
Okay. Okay. So final question from my side. So coming to J.M. Hosiery and Ebell. So what has been the PAT trend for the first 9 months look like compared to the previous year?
On so talking for Ebell Fashion, so we have seen a revenue growth of 17% in quarter 3 and the PAT levels are roughly similar to what they were last year. It should slightly be higher on account of the tax impact which is coming in. But since it was -- earlier, we used to be taxed at about 30% -- effective tax rate was about 30%, which has now come down to 25%. So due to the effect of tax rate, there should be a better realization of PAT margins. And that's the same with J.M. as well. And -- but at EBITDA level, it should somewhere be in a similar range.
Okay. Okay. And the advertising spends, was I right in getting the number that it is INR 8 crores for Q3?
No, it was INR 8 crores down.
Okay. INR 8 crores down compared to Q3 of last year.
Correct.
[Operator Instructions] The next question is from the line of from [ Kshitij Jain ] from [ 2020 Capital ].
So I wanted to check what is the total ad spend for the 9 months?
The total ad spend for the 9 months is around INR 76 crores.
INR 76 crores. Perfect. And do we also track our secondary sales in MBO channels, by any chance?
See, we sell it -- for Lux, it's mainly to our distributors, and then they sell it to their wholesalers, then it goes to the MBOs. So it's really difficult to track the MBO channel. But yes, definitely, our distributor and the wholesalers, we keep tracking them about the sales.
Just to give you a different perspective of your question. So there is an indirect way of kind of seeing sales conversion at the secondary level, which is when the distributors start paying up and kind of reduce their debtor days, it is kind of a signal that at the secondary level, at the retailer level, stock is moving fast. So that is when -- that is a kind of an indicator of stock movement at the retailers, consumer level.
Understood. So we are seeing inventory reduction at our distributor levels?
So we are seeing faster payment cycles from distributor level.
Understood. And overall, what is our inventory days and receivable days, because I see a substantial improvement in working capital? But just wanted to know the split between receivables and inventory.
So our inventory days were approximately -- so we have -- the inventory number for December '19 is around INR 292 crores in comparison to December '18, which is around INR 323 crores, which is going down. And other sundry debtors was around INR 257 crores, which has gone up to INR 302 crores, which is mainly due to the increase in sales. And the sundry creditors has gone down -- has -- was -- December 2018, the number was INR 124 crores, which has gone up to INR 151 crores.
Understood. That's very helpful. And in terms of our schemes and incentives, have we seen any increase over the last few months or going up? Because the 17% growth, is it coming because of higher incentive, or is it more traction and share gain that we are seeing?
What I believe, that our incentives keep on changing due to the cost of the product or the cost of the cotton. But here, our -- the major sales increase is due to the traction of the products rather than that of schemes.
Understood. So our schemes and distributor realization has more or less been the same?
Yes.
Perfect. So 1 last question. Any specific reason for bringing Ernst & Young on board at this point? Do we see a [ stack ] auditor change as well on the cards?
So it's a little too soon to comment anything going forward. But yes, that is something which we should be considering.
The next question is from the line of Himanshu Nayyar from Systematix.
Can you give us some color on the synergies expected, given that the merger is now closed, especially on the distribution front? Whether our current distributor network is of 950, sells Ebell and J.M. products as well? Or do we have a new or a different distribution network, which gets added on once we merge the entire entity? Just wanted to understand the synergies in terms of distribution.
So talking about the merger, we'd like to talk a few points. I would address your questions as well. So as we've mentioned in our introductory note, that the promoter has already divested the required percentage in order for the merger. That was one of the major roadblocks for the merger. So that has already been done. And going forward, that would really speed up the merger process, and we are looking with just the regulatory approvals, and should be completed in a couple of months. That was -- and talking about the synergies arising from the merger, so it is more so of a financial merger. It's more of a restructuring exercise, where everything is being brought under the same umbrella, but the shares of ratio and what -- is being done in a shares of ratio, there is no cash outflow. And the shares of ratio is such that it is really EPS accretive for Lux Industries Limited. The merger issue numbers is already out there in our investor presentation. You all can have a look. The graph -- the graph really depicts the EPS accretion, which comes into play. And talking about the sales network of both J.M. and Ebell Fashions, so there is -- they have their own exclusive distributors as well and, obviously, there are some distributors which are overlapping. So if you look at a combined effect, so our dealer and distribution network should increase marginally.
Understood. And just 1 final book...
At an operational level, it -- we're not looking at any major synergies at the operational level. It should be more of a financial restructuring.
Understood. And just final 1 bookkeeping question. I mean can you share the 9-month operating cash flow number?
INR 109 crores, that is operating cash level for the 9 months.
INR 109 crores?
Yes.
The next question is from the line of Sanjay Ladha from Concept Investments (sic) [ Concept Investwell ].
So my question would be, can you share your volume growth in innerwear side, in the premium side, in the mid-premium side and the lower side?
So we've taken down your question, Mr. Sanjay. And if you could just get in touch with our Investor Relations adviser, we'll share the numbers with them so that they can forward it down to you.
[Operator Instructions] Next question is from the line of [ Kshitij Jain ] from [ 2020 Capital ].
Just wanted to understand the merger status. By when do we expect the merger to be effected?
I think we've just spoken about this a while back. So the major roadblock for the merger going ahead was the promoter stake exceeding the threshold limit. So the promoters have already brought down their stake, and now we have already applied at the stock exchanges. So we are just waiting for them to revert back. And we're expecting it to finish it in the next, say, around 5 to 6 months.
The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.
My question was on Lyra. So we have seen Go Colors scaling up very nicely. And recently, what we are hearing is that W is also launching their brand on leggings by the brand [ 11 ]. Do you see this space getting more hypercompetitive? And what would be our strategy to scale up in the next couple of years on Lyra? It will be helpful.
Pankaj, so yes, as you correctly mentioned, Lyra earlier has started off as a leggings brand. But going down the line, our strategy is more of making it a wholesome brand rather than restricting it to just leggings. So although many players -- other players are coming up with their leggings offering, whereby we have started diversifying more so into lingerie space as well T-shirts as well as more so into the garments space. So I think that is a strategy which we are trying to follow and creating it more of a wholesome brand rather than just taking it to 1 particular product.
So in terms of growth rates, what can we expect from Lyra now, because the space seems to be very exciting, but growth rates are -- the numbers which you gave in the first 9 months was about 12%, 13%? So how can we escalate the growth rate there? Any thoughts would be helpful.
So with Lyra, the thing is that we are one of the biggest players in this industry, having sort of one of the highest market shares in this category, so -- which is leading to a kind of a slower growth rate. And at the same time, this year, overall, the economic scenario wasn't very good for the entire -- for entire India, so as to say. So even in such circumstances, we've been able to deliver a 10% to 12% growth rate. And going forward, we believe that as and when we are entering newer categories and with the market situation changing, the growth rate should also better up.
The next question is from the line of Mehul from SPA Securities.
My question is on gross margins. If we look at Y-o-Y, we have seen 180 bps increase in gross margin. So what explains that?
Can you again come up with the question? It was inaudible.
Gross margins. My question is on gross margins. We have seen 180 bps improvement Y-o-Y. So what explains that?
That has been mainly due to the change in the product mix category. As we would have explained before as well, that the thermal wear category, which commands a higher ASP and higher EBITDA level, as well as ONN, our premium wear, as well as exports, they have grown together faster than that of the company.
But if I look at quarter 3, you are saying winter wear has remained flat, right?
Yes. Quarter -- for 9 months, winter has grown up by...
I'm talking about quarter 3 in particular.
I'm explaining, like, for quarter 3, the winter has been flattish. For 9 months, winter has grown up by 23%, which mainly was in quarter 2, which has grown up by 55%.
But that doesn't explain quarter 3 improvement. If there is anything, otherwise, like it's good only. But the only thing I wanted to have a reason that, like why. Is it the raw material costing or our incentives and all that we have come off? Like why is it like? Because winter wear has remained flat during quarter 3, right?
No, but quarter 3 hasn't seen improvement.
Has seen. Like if I look at Y-o-Y, quarter 3 FY '19 margin was 64.4%.
Okay. All right. Just a second. Maybe minus...
Yes, so if we look at gross margin, it has improved, 66%. It has improved from 64.4%. Is it not?
I don't know what exact figures are you taking. But in our numbers...
I'm taking from quarterly -- yes. So your number suggests what, like it remains flat, is it?
So our gross profit margins compared to Q3 FY '19 and Q3 FY '20, our gross margins earlier were about 35.8%, which have reduced to 34% in Q3 FY '20.
Okay. Let me come back on this. Another question of mine was on Ebell and J.M. Is it that sequentially we have degrown as compared to quarter 2 FY '20, I'm talking about?
I'm sorry. Can you come back again on this question?
See, Ebell and J.M. quarter 2 FY '20 as compared to that in quarter 3 FY '20, we have degrown. Y-o-Y, we have seen growth. But is it that sequentially, both of these businesses have degrown?
No. I think both of these companies have been delivering good growth rates, Ebell -- compared to the corresponding year.
Ebell in quarter 2, I think, was INR 82 crores of revenue?
No. So there is seasonality in the business. So in the garments business, if you're looking at the absolute numbers, that is not a fair way of looking at the business because the kind of products that we have to offer, both Ebell and J.M., are much lesser on the winter portfolio side, they are more heavy on the summer portfolio. So when we -- when it comes to the quarter 3, which is October, November, December, the -- if you just look at -- if you compare it to quarter 2 over quarter 3, you will look at a decline, but that is due to the seasonality of products. So a fair way of comparing a garments business would rather be when you compare it to the corresponding period in the previous year.
But quarter 2 has like more of summer product, is it? Quarter 2 is like September ending [indiscernible]...
So summer products are -- summer products sell in quarter 1, quarter 2 and quarter 4. Quarter 3 is a quarter where summer products don't do well. It's the time for winter wear products. And quarter 2 is more of a festive sale as well. So if you have to actually compare it, a more fair comparison would be if you compare quarter with the corresponding period in the previous year rather than sequentially. So you have to take into account the seasonality of sales as well. So if you look at a 9-monthly figure -- if you look 9 months over 9 months, both Ebell and J.M. have been growing at 10% to 12%.
10% to 12%.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
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 Strategic Growth Advisers, our Investor Relations adviser. Thank you, everyone, once again.
Thank you very much, sir. Ladies and gentlemen, on behalf of Lux Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.