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Lux Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Lux Industries Limited Q4 FY '21 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 guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference has been recorded.I now hand the conference over to Mr. Saket Todi from Lux Industries Limited. Thank you, and over to you, sir.
Good afternoon, and thank you, everyone, for joining the Earnings Conference Call to discuss the performance for the quarter and full year ended March 31, 2021. Along with me, I have Mr. Udit Todi, Executive Director; our CFO, Mr. Saurabh Bhudolia; and [indiscernible] our Investor Relations Advisers. I hope you and your family are keeping safe during these tough times. The second wave of COVID, which started in the first quarter of FY '22 has been more severe than the last year. We at Lux Industries understand the importance of following the necessary COVID protocols issued by the authorities, and we extend full cooperation in the fight against COVID. Our employees have been made aware of the need to adhere to these guidelines and are taking all the precautions.We are pleased to report a resilient performance for the quarter gone by. After the initial challenges posed by the restrictions and lockdowns, at the start of the year, we have bounced back extremely well to cover the lost ground, but also outperformed last year numbers as well. The performance has been majorly driven by progressive improvement in demand and consumption across the innerwear industry. We witnessed healthy traction for our economy and mid-premium categories and saw a gradual pickup in our premium and export segment.While demand remains strong, the supply situation over the next few months is likely to be adversely affected, impacted by the disruptions from COVID-19 lockdowns in India. But we expect it to be better than last year as businesses are more prepared than last year and the lockdowns are restricted to certain states and not the entire country.We expect quarter 1 FY '22 to be relatively weak due to the pandemic and expect to improve gradually from the second quarter. We will remain well equipped to address these challenges and drive consistent, competitive and cash-accretive growth over the medium to long term. The innerwear industry is constantly evolving, and we have always been at the forefront of this evolution, having implemented innovative ways of offering differentiated products in the market by undertaking breakthrough marketing and brand promotion activities.Our commitment towards addressing environment, social and governance-related issues has been unparalleled. We understand the need of a sustained progress of society to pursue the long-term goals that are beneficial for the community and helps us to make a difference in society by giving back in equal measures.Coming to our performance for the quarter and the year ended March 31, 2021. FY '21 net revenue is up by 17% to INR 1,965 crore. Whereas for the quarter 4 FY 2021, it's up by 49% to INR 601 crore, highest ever quarter in the history of Lux.Between the categories, premium segment has registered a total growth of 48%, whereas mid-premium and economy has registered a growth of 42% and 59%. Overall volumes for FY '21 and quarter 4 '21 increased by 13% Y-o-Y and 29% Y-o-Y, respectively, which was well above the industry average.Given our steady increase in volume and other strategic initiatives, we have been able to increase our market share during the year. Lux enjoys approximately 15% market share in the organized men's innerwear category. In line with our guidance for advertisement and the marketing spend for FY '22, our spending for the year stood at INR 106 crore, which is approximately 5.4% of the total revenue. We expect to gradually reinstate and make it back to 7% of our revenue for the current financial year.With this, I will now ask Mr. Udit Todi to share his thoughts.
Hello. Good afternoon, and a very warm welcome to everyone. I hope everyone is keeping safe and healthy during this situation. I'm glad to share that during quarter 4 FY '21, we have completed the merger of J. M. Hosiery Company and Ebell Fashions Private Limited with the company Lux Industries Limited. The merger of these 2 companies with Lux will strengthen our presence across geographies and product categories and bring in a lot of operational and financial synergies.Our company has posted robust performance for the year ended March 31, 2021 despite COVID-19 pandemic-induced challenges. Also, with the completion of merger, we are reporting the merged financials for FY '21 as well as FY '20. Besides, these companies will also help us strengthen our post-merge business model.J. M. Hosiery & Co. Limited, with the brand GenX and others, while Ebell Fashions Private Limited with the brand Lyra. They're coming into Lux's umbrella, they'll strengthen our overall portfolio. This, in turn, will help us leverage our men's innerwear portfolio with a value-added womenswear portfolio, which will make it possible for us to carve away a larger share of the overall wardrobe spending.This merger will also help to unlock substantial value for our stakeholders and streamline the business as well as help us to achieve a newer growth trajectory. Our EPS post-merger FY '21 stood at 90.25 versus 48.66 pre-merger state last year. We have a strong presence in Central, Eastern, Northern and Western parts of the country and have plans to foray into Southern region of India very soon.Region-wise, revenue contribution as of now stands at: Northern India being about 30%; Eastern India, about 28%; Western India, 21%; Central India, 18%; South India, 3%. While revenue split from segment stood as follows: mid-premium contributing 57%; economy, about 31%; and premium, about 12%.Lux, which is a dominant player in the men's innerwear segment, is also accelerating its growth driver via new expansion to capture market share in the ladies and kids segment. With the business of GenX and Lyra getting merged into lux, the company will have a larger product offering that also offers premium innerwear under the brand ONN and one8. Post-merger, Lux Industries Limited would be among the top company in terms of volume, and India-wise, reaching up to 300 million pieces for FY '21.Online sales, which has more than doubled in the last few quarters and continuously showing this same growth trajectory, and is expected to reach the INR 100 crore mark within the next 3 to 4 years.EBOs. Under the name of Cozi World are the new offerings, which will, again, help us to accelerate and achieve our vision.In working capital side, we have been able to continuously optimize our working capital cycle days. For the year ended '21, our working capital days stood at 122 days, a significant improvement of 38 days over the last year.We continue to maintain our net cash company status and have a gross cash and cash equivalent balance of INR 261 crores. We believe despite the challenging situation caused due to COVID-19, your company has demonstrated superior execution during the recent past and has successfully leveraged the power of our brands and our distribution network to sail through these tough times. We have always strived to make our products available with speed. So that they are always available on the shelves when the customer needs them. This has been able to be achieved with a 95% fill rate versus an industry average of 80%.With this, I would now request our CFO, Mr. Saurabh Bhudolia, to take you through the financial performance.
Thank you, Udit. Hello, everyone, a very good afternoon and a warm welcome to all. Our company reported a strong performance for the quarter and full year ended March 31, 2021. Our revenues for quarter 4, 2021 stood at INR 601 crore versus INR 404 crore, registering a stellar growth of 49%.Our EBITDA has stood at INR 129 crores as compared to INR 66 crores in quarter 4, financial year 2020, a strong growth of 95%. We have been able to improve our EBITDA margin by more than 500 basis points. So current EBITDA margin percentage is at around 21.45% as compared to 16.4% in quarter 4 2020.Our PAT for the quarter stood at INR 91 crores versus INR 41 crores in quarter 4 last year, which registered more than double growth of 118%. Tax margin for the quarter stood at 15.07%, showing an improvement of more than 470 basis points as compared to last year same quarter.Moving to our yearly performance. Our revenue stood at INR 1,965 crore vis-à-vis INR 1,674 crores. We are happy to share that we have registered the highest ever revenue in FY '21, registering a growth at a rate of 17% over the same period last year.Our sales and marketing expenses stood at INR 106 crore, which is approximately 5.4% of our revenue. In last 5 years, we have invested around INR 641 crores to build our brand.EBITDA for current year stood at INR 393 crore as compared to INR 275 crores same period last year, growth rate at a rate of 43% Y-o-Y. The EBITDA margin has seen an improvement of 355 basis points, which stood at 19.99% versus 16.4% in FY '20.PAT for current year stood at INR 269 crore as compared to INR 177 crore last year FY '20, growth rate at a rate of 52%. The PAT margin has also shown a big improvement with 300-plus basis points as compared to last year same period.Our return on capital employed also went up by 2%. Last year, it was 34%, whereas in this year, the ROC is coming at 36%. As rightly said by Udit, our working capital days reduced to 122 days as compared to 160 days last year, significant improvement by 38 days in the working capital cycle.The debt-to-equity ratio for the year stood at 0.13 multiple. During the FY 2021, company has generated an operating cash flow of INR 389 crore. Out of which, around INR 66 crores have been used for the purpose of CapEx. Another INR 112 crore has been used to repay the borrowing. As on closing date, the net cash positive by this company is around INR 138 crores. With the investment and other -- and the cash being invested in the bonds, the gross cash flow is coming at INR 261 crore.Our prudent financial decisions have helped us reduce our debt and become a net cash positive company. Please note the numbers highlighted in the speech and the presentations are consolidated numbers post-completion of merger with our group companies, J. M. Hosiery & Co. Limited and with Ebell Fashions Private Limited.Now let me quickly give you an update on the dividends. Considering the current pandemic situation, the Board of Directors of the company has decided to conserve the cash and postpone the decisions to declare any dividend for the financial year ended March 31, 2021. Looking at how the pandemic situation will evolve, the Board of Directors would consider rewarding the shareholders in the due course of time.Additionally, on implementing better compliance and governance, we have continued our engagement with E&Y as our internal auditor. And we have also inducted economic law practice, ELP, as our compliance consulting for the purpose of indirect taxes. The journey towards to appoint a big 4 is already on, and we are expecting that big 4 should be onboard in the next 12 to 18 months.With this, we will now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of Varun Goenka from Nippon India AMC.
Yes. Saurabh, Saket, Udit. Let me first congratulate the exceptional performance, completely unbelievable and a very good detailed presentation. I think in terms of the brand-wise data that you guys have given, it's very commendable the way you've presented it.I have 3 broad questions. One, like you say in the presentation, 30 crore pieces around INR 1,960 crore revenue. So our ASP -- our average ASP comes to around 66. So I thought it will be good to have your view that how do you -- based on the product mix, and how do you see this ASP moving? At what rate should it grow? That's one.Second, in terms of our dealer throughput, where are we today? And where do you think -- because we are launching so many adjacencies of womenswear and kidswear, where do you think this can go to?And final point, our mix around top 8, 10 cities, Sales versus the mix 15, 20 semi-urban, urban, rural, however, we captured it, if we get that data. Those are the 3 questions.
Thank you, I'd like to take up that question. You first mentioned about how the ASP would evolve in the coming few years. So as we see that the products mix has now been changing with athleisure coming in, womenswear coming in. That is why a change in ASP has already been witnessed. And going forward, we have seen that the yarn prices are on the high. The yarn prices are still on the increase. So as the yarn -- as the input cost increase, our output costs will also go up, which would result in the higher ASP, which would be an organic growth in ASP.Apart from that, we also -- we are expecting that in the current fiscal year about 5% -- the ASP should go up by about 5%. And at the same time, we will be also looking at a better product mix over the -- if I talk slightly medium term to long term, we would see that the product mix will be changing towards higher ASP products, such as outerwear and garments. So as the company goes ahead, we'll be selling more of garmentwear rather than innerwear, which will gradually lead to a higher ASP inorganically also.And coming to your next question, you'd mentioned about how -- about the dealer throughput. So in the earlier presentations, we have mentioned that we are having about 950-plus-odd dealers, which is now, after the merger and everything increased, to about 1,150-plus dealers. So as a company policy, what we maintain is, in any kind of a market, we assess the market situation, what is the depth of the market, what is the requirement of the market? And if we feel that we could get a better throughput by appointing a new distributor, only then do we go and appoint a new distributor over there. So that decision is taken on a market-to-market basis. Because in some markets, the distributors and dealers are so strong that they can handle maybe all the 2, 3, 4 brands combined together. Whereas, in certain markets, the markets which are very remote and maybe a Tier 3 or a Tier 4 city, over there, you'll have to depend on a single particular dealers, so as to say. So it truly, truly depend on the market. But yes, going ahead, we see that South India is one of the regions where the company is aggressively looking to market itself. So that will be one area where we believe that inorganic growth in terms of sales, in terms of our network and distribution, we'll be seeing a good amount of sales going ahead from the South Indian market.
Right, right. And are mix -- are sales mix towards however we capture metros, nonmetro, semi-urban, urban, rural, if we have that?
So we do not have that quite handy with us right now, but we'll ask our IR team to get back to you, once we have the data. So we've done more of a geographical split and a category-wide split. But I mean Tier 1 and Tier 2 split, we do not have it handy with us. We'll get back to you.
[Operator Instructions] The next question is from the line Bhargav Buddhadev from Kotak.
Congratulations for a very strong execution.
Thank you.
Sir, my first question is that, post-merger, our revenue side has become close to about INR 2,000 crores. So we believe that at this size, the acceptance of the brand amongst our customers as well as the credit channel can sort of significantly improve. And this, in turn, can help us push our new categories, like the ones you mentioned like womenswear and kidswear. That's my first question.
Can you come again with the question, again? Actually, it wasn't very clear.
Can you hear me properly now?
Yes. Can you be a little loud?
Sure. Sir, I said that our revenue size is now close to INR 2,000 crores. So given our size, do you believe that the acceptance of the brand with our customers as well as the channel partners can see a significant flip, and they can sort of consider us more seriously, given that we are now close to INR 2,000 crores? And so this -- will that be easier to sort of push our new categories like womenswear and kidswear more successfully?
Yes. As we can see that in the last financial year, there has been a very huge shift from the unorganized segment to the organized segment. And the brand which has the most pull towards the consumers, consumers are opting those brands in the organized segment. So we are seeing that the brand has a very strong acceptance in the organized market, mainly towards the mid-premium and the economy category.And out there, we are witnessing a very strong growth, which we haven't witnessed in the last few fiscal years as well as to launch new segments. So we haven't concluded as of now that those new segments will be launched under the brand Lux or any other brand, or it can be a new brand altogether in itself. So we haven't concluded that. And as it will get concluded, then we can be able to give you a better picture that how the brand, how that particular brand would be moving forward in its new segment.
Okay. The second question is on working capital. So we've done a very good job in terms of reducing our cash conversion cycle to about 122 days in FY '21. Now that we are sort of a size to reach that INR 2,000 crores, do you think we can sort of go aggressive in terms of improving this further? And if so, what could be the targets that we're looking at in the next 2 years?
For this financial year, I don't think so. It wouldn't be possible to reduce the working capital further because as we are seeing the pandemic, which is spreading out throughout the country, so it would be very unclear for us as of now where the working capital will stand. But our target mainly -- majority would be to maintain the working capital as it was last year. And for a long-term view, over 3 to 5 years, yes, our target would be to reduce the working capital if the situation in the country remains normal.
And my last question is on price hikes. So do you believe that the inflation, which we've seen in raw material has been broadly passed onto the price hikes? Or are we still in the journey of passing the entire inflation?
Till now, we have passed on whatever inflation has been taking place. We have passed on completely that to our consumers, and it has been very well accepted in the market. The price hike started from the month of November. The inflation started in the month of November. And the price hike started from the month of mid-December. So December, January, February, March, there were different tranches in which the price hike has been taking place, and there has been no adverse effect because of that.
The next question is from the line of Nihal Jham from Edelweiss.
Yes. Three questions from my side. First is, if you -- if I look at the performance of the 3 categories, that is in the premium, the mid-premium and economy, for a ear as a whole, we do see the divergence that economy is definitely outperformed. I know you've alluded to the fact that there has been a big shift of unorganized to organized. But other than that, anything worth highlighting about what has caused such a strong divergence, specifically maybe related to the other 2 segments also?
So as you see during the last year, the COVID pandemic was in full swing. And it was the rural towns, which were g Tier 2, Tier 3 cities, were doing much better than the urban areas. So when you look at the rural areas, he consumption is more for the economy product compared to the mid and the premium segment products. So that is why that is one of the major reasons because rural market being more functional and more operational. We saw a shift slightly. The economy products trade well compared to the mid-premium and the premium products. And that was primarily on account of, a, an organic to organized shift, and b, on account of the rural demand.And going ahead, as a direction, we have always maintained that we are looking at increasing our portion of mid-premium and premium segment. And if you look at -- if you give -- if you leave aside this exception of the COVID year, if you look at the trajectory of the segment-wide split, we have fairly moved more so towards the mid and the premium segment.
That's helpful. Just a related question. So this quarter's performance obviously includes the consolidation. If you were to compare this number to 2 years back, not last year, because last year, I know you mentioned there was an impact, which happened and that sales got spilled over to May and June. But compared to, say, 2 years back, how has the growth been this quarter?
So see, right now, we're talking mostly on basis of the merged number because even the FY '20 numbers were revised for a like-to-like comparison. We had revised the FY '20 numbers again on a merged entity basis. So talking about any figure for the pre-merge basis, we'll ask our IR team to get back to you.
Sure. I'll check that certainly. The second question was now with J. M. and Ebell being merged and the process more or less clear, we also see that there is an addition to the Board related to those companies. But generally, as the new entity forms, what is the potential structure? Do we expect that you would have separate brand heads for those new brands? And what is it that would change now that it is a part of the Lux entity? I'm just trying to think about that would the marketing spends potentially be higher or any other things that you want to highlight post-merger?
So see, post-merger -- the directors have a very clear-cut role with regards to what brands we are looking after. So even apart from being collectedly together in a strategic decision-making process, but on a day-to-day operational basis, every director is taking care of a particular brand as per se.With regards to your marketing expenditure, last year, we had seriously cut down on our marketing expenditure. And this year, we were kind of contemplating on bringing it back to normalcy, but after the second wave of the COVID and supposedly talks of a third wave also coming in, we will be looking at revising our marketing expense, down, again this year. Yes, we have also added a few independent directors onboard with us. I will just ask our CFO to take you through them.
Nihal, so like -- this time, both of directors has approved to take 2 independent directors on the Board. One is Rathna Kakkar, another one is Mr. Rajneet Rikhi. So let me quickly take you through with the candidature of Rathna Kakkar. So Kakkar is a graduate in B Honours from University of Calcutta, and she has done the business administration from IIM Calcutta. She has overall 40 years of reach experience in banking and financial services. She has taken the citizenship in London, based off in London. And she has a very good relation with several banking sectors based off in London. And I believe she will add so much of the value in Lux by bringing the financial decision and to make it more governance and risk clients -- more governance and risk compliant companies.Whereas Rajneet Rikhi, he is a Law graduate and holds a master degree in business admin from Faculty of Management Studies, Delhi University. Overall, again, he has 30 years of industry experience in sales marketing and so as other function. He has worked and advised clients across pharma, education, et cetera. He has also served as a Chief Revenue Officer at TV Today Network Limited, India Today Group. He was also associated with The Times Group as Director response. And he also started as the Group and Business Director at Kantipur Media. So I believe the company is moving towards to take the further space to professionalize the entire culture and a way of working, which would be more corporate governance, risk controlled managed company. And with this, I agree on these 2 gentlemens will be on the Board, it will really help company to scale up further.
Saurabh, that's very helpful. I actually had my last question on this incremental aspect of people. It's a commendable part. You mentioned that you're looking at appointing one of the big 4 auditors also. As a timeline, isn't there a possibility that in the upcoming AGM, you can change the auditors? Or there are certain other processors because which you're giving a 12- to 18-month timeline?
Nihan, like on these AGM, if you're asking me specifically, it would be very difficult. Because just a few months back, we have started our journey. We are fixing the entire process and the system. And I believe on a shorter view, it will not be before 12 months, and on a larger timeline basis not more than 18 months. So between 8 -- 12 to 18, we are very confident that the big 4 will be on both.
Absolutely. Congratulations.
Thank you. Thanks a lot, Nihal.
The next question is from the line of Ajay Khandelwal from BOI AXA Mutual Fund.
Sir, I wanted to know, with the kind of changes that we have done in our supply chain, and considering that our fill ratio is highest in the industry, what kind of working capital we can expect? And maybe qualitatively, if you can highlight how we have achieved this? And how is trade has responded to this? How has competition responded to this? That will be helpful to understand.
So see, as a company policy, we have looked at -- even in the last 4 to 5 con calls, we have always mentioned that we are looking at bringing on our working capital days. So there were a couple of levers which we have used to bring it down. IT has played a very important role, in fact, in bringing this down. So we have invested a lot of time and effort in setting up our IT team. So all our dealers and distributors have now access to their set of accounts on their mobile phone itself. So that was one very big lever.And on the other hand, even in terms of credit period base, the company has become more strict. With terms to credit days earlier, the company was slightly more flexible. But over a period of time, we have gradually reduced the credit days. And because a good amount of brand pool is now there in the market for our products, so even the dealers are now paying up more in -- the dealers are now reducing their credit days, and they've been paying up quicker. That was one of the major factors. The other factors, if you also see that, we have kind of -- there has a slight change in the credit outstanding day for our vendors because we believe that we do not want to increase our working capital efficiency by penalizing our vendors.And thirdly, if you see, our stock turn ratio has seriously increased. We've been able to manage our stock more efficiently. And so on the basis of these 2 or 3 grounds, we've been able to reduce our working capital days. Right now, the current situation, it is difficult to predict how -- difficult to project how this year will play out with regards to working capital, with regards to going forward, how the performance plays out. But going by the experience which we had last year, as soon as the markets open up, we see that our products are one of the basic necessities the customer needs. So when it comes to apparel [indiscernible] and brief is one product that you cannot postpone the consumption of. So given our past experience, we are optimistic about the way going forward, but quite difficult to say how the year plays out. We -- I think we'll be able to project it better at the end of quarter 1. So when we meet again at -- once we meet again for the quarter 1 con call, we'll be able to give a clearer picture with regards to that aspect.
Sir, I'm trying to understand from the perspective of not compromising on our fill ratio, will this level be sustainable? And if competition extends credit period, then do we need to change our course?
No, no, no, not at all. So we believe that even 122 working capital days is, we believe that it's slightly on the higher side. And if I talk about medium to long term, we'll be willing it to reduce even further from here. And talking about competition, so see every brand has their own brand strength and brand pool in the market. So we believe that the brand equity, which we've enjoyed right now the amount of money which we've invested in branding over the last 4, 5 years. So this is the time to reap the benefits. And we believe that any effect of competition extending their credit period is will not have any impact on our credit outstanding. In fact, I think it even works out to be better because if the competition ends up getting more credit, your stock turn increases even better. It always works out. It's a very counter-intuitive pack. But in case the competition increases, it literally turns out to be favorable for us.
Great. Just one more question, sir, in our journey of branding, where are we? What kind of expenditure -- we are to the largest competitor in the industry. Our added expenditure are far higher? So where are we in terms of developing our brand and in terms of -- because we are changing our product mix moving towards more value-added, high-premium brands? So where are we in that journey?
I'm sorry, could you please be a little more specific as to what exactly do you want to know?
What could be our brand expenses to sales? And where are we going to spend and put our...
So at the company level, historically, we have maintained an average of 8% of our topline as brand expenditure. Last year was an exception because of the situation. We had brought it down to 5%. And this year, again, we will be reviewing it whether to maintain at 8% or maybe bring it down to 6% to 7%. And the way this ad expenditure budget is split across different brands depends upon different kinds of market situations and the company's policy as a whole. So as you very correctly mentioned, we are looking at premiumizing our product portfolio from economy to mid and from mid to premium. So the company spends more on their premium and mid-premium offering rather than the economy offerings.
Great. Sir, just one last question. Any kind of margin pressure do we expect in near term in terms of raw material pricing?
So see, whenever the raw material prices increase, the company always ends up passing it on to the consumer. And we've done that historically. We've done that last quarter, last to last quarter, and we'll be doing it again. So our margins do not get affected by any inflationary pressures on the input side.
The next question is from the line of Ankit Kedia from Phillip Capital.
Sir, my first question is on the ASP. If I look for FY '21, the ASP increase in premium was only 10% vis-à-vis 6%. But in quarter 4, the price increase in premium is 12% vis-à-vis 18% in economy. So what would be the -- now the absolute price differential between economy to mid to premium to premium category now for us? So from a customer upgrade perspective, right, what kind of money does a customer need to spend to upgrade from economy to mid-premium for us?
So see, generally, what happens is the -- whenever the input costs go up, the percentage of cotton in the entire product is obviously more so in the economy products. And as you move up the ladder, the percentage contribution of the raw materials drops down because the margins increase. So whatever inflationary pressure is there is definitely passed on to the consumer.
So Ankit, like, as rightly said by Udit, again, the question what you are asking, like how much the extra buck a customer need to incur while moving from one basket to another basket, right? So if you see my average pricing for the premium product, say, like ONN or one8, it is coming in the range of around INR 150 plus. Whereas my economy range starts from say INR 30, INR 35, till INR 60, INR 70 types. So it all depends in which product we are buying, which kind of category we are buying. Otherwise, the difference between the economy and the premium would be very significant. There is a range of around INR 30 to INR 80 in economy, whereas premium starts from, say, around INR 150 to INR 180, INR 190, INR 200 types.
Sure. Sir, my second question is regarding GenX. Now if I look at JMHL had a INR 300 crores of topline, which got merged. But if I look at the athleisure part of GenX, it's only INR 100 crore business. So the remaining INR 200 crores business of this company predominantly lies in which brand or which category? If you can help us understand because our understanding was bulk of that business is actually athleisure and GenX.
So actually, the business in J. M., which was majoritively under the brand GenX, we have done a brand restructuring, which started last year, and which is continuing for this year and will go ahead for the next year as well. So it's a complete 3-year project. And in that project, we have restructured many of our products under the GenX brand to come under Lux Venus and Lux Cozi. Because we have believed that such products can have a better pull in the market, as they are dedicated to such kind of consumers which are very well attracted towards the Lux brand. So Lux Venus, Lux Cozi and Lux Karishma are the 3 brands which are carved out of the business of J. M. And the GenX, which is mainly the athleisure in it, has a total revenue of around...
INR 103 crores.
INR 103 crores. And our profit is majoritively dominated by the athleisure. And the total athleisure wear in the company, which includes in GenX, Lyra, ONN and one8 is approximately INR 150 to INR 160.
Sure. Sure. And sir, my last question would be on the margins front. Now with the merger coming in, do we expect any merger synergies to come in, given that as you just said that in GenX, the brands have been restructured to some of the existing brands in the company there could be HR, advertising overlap, which could have happened? So the 20% margins, which we saw this year, given that the ASP is lower, and even in FY '22 you are guiding for lower A&P spend. Can we safely assume that the commodity thrived installations remains the way it is, we will be able to achieve the 20% EBITDA margin for FY '22?
So Ankit, Saurabh here again. So the thing is that definitely, as rightly asked by you, this merger is going to bring some level of the synergy on the table. We are also expecting the way we have restructured the brand and the way we are seeing the sales growth on the other aspect of the business, we are expecting around 150 basis point kind of margin improvement, should be there for the current year. And like last year, we have spent around 5.5% in the advertisement. But a few minutes back, as we clarified that this year again, the advertisements costs can bounce back to around 7% type. So it may offset to my incremental margin. So EBITDA, definitely we can maintain at the same level.
[Operator Instructions]The next question is from the line of Shalini Gupta from Quantum Securities.
Sir, I had -- I wanted to -- accurately I'll say last year most of the economy business was driven by rural sales. And now this year, we have a situation where rural sales are impacted because of far higher COVID impact over there. So -- and also now the rural lenders, there are lot of lockdowns and all that, which were not there last year. So we have a high base of rural last year in terms of income. So what is your outlook in terms of topline growth going forward? As in which segments do you see pushing your growth in the future in financial year '22?
So for the rural/urban shares, the rural has approximately 70%, 7-0 percent of the market share, and the urban has around 30% of the market share. Now coming that the rural demand would be weak, what we have deciphered since the last 12 months that because of COVID, the unorganized production is getting shut down and that production benefit has been taken place by the organized sector. So if -- even if the demand is going down by a few basis points, the production of the supply in the economy segment, which is towards the rural area, rural part of the country is getting down by a much, much further basis. So that is why there has -- so there is a new market being created, new consumer segment being created in the rural economy. And the brands which has the most hold in the organized sector will benefit out of it.
Okay. And sir, I had a -- since you restricted the number of questions to 2, there are a couple of -- like some data points which you had mentioned earlier in the presentation. You said economy segment grew by 42%, correct?
Yes.
And mid and mid-premium segment?
So mid-premium is -- are you talking about the year or for the quarter?
We're talking about the quarter, I think.
Yes. So economy segment has grown at a rate of 30%, that is the complete sales growth for economy. Mid-premium is around 13%. And premium is 7%. That is for the year. Economy has grown by 59% in the quarter, mid-premium is 42% and premium is 48%. Booked together, the total growth for the company is coming at around 48%, 49%.
So economy segment has grown by 59% during the quarter. Mid-premium has grown by how much during the quarter?
42%.
42%. Okay. And premium has grown by 48%?
Yes.
Okay. And sir, you...
Even you can refer to Slide #35. The date which is referred on our company's website. We have given the complete bifurcation over there.
Okay. And sir, what was the volume growth in the quarter?
The total volume growth for the quarter is around 29%, 30%. And balance is because of the price growth and the mix.
Okay. And sir, I wanted to ask you -- if I can just squeeze in 1 question. So basically, you have seen a huge jump in your gross margins. So how much -- and okay, how much would you -- about 10% is because of price increase and the rest is because of your mix change?
Yes. True. Yes, right, Shalini, even if you see my presentation, we have parted at around 13% to 14%. We have gone the price hike since quarter 4 and balancing because of the change in mix. And that has given me a levy to have my margin more stronger as compared to last year same quarter.
Okay. And sir, my last question, what is your raw material outlook?
So the raw material prices right now because majority of the raw material comes from Tamil Nadu and Gujarat. So Tamil Nadu again is a state which is under complete lockdown right now. Gujarat has just opened up. But talking to the people in this industry and the people those who are in the yarn manufacturing, we get a sense that the raw material prices are on the inflationary side, they are going -- once the market opens up, we expect the raw material prices to go up. But as we have always mentioned and we'll mention it again, that if we face any increase in raw material prices, we increased the price of our products, pass it on to the consumer and maintain our margins impact.
The next question is from the line of Punit Mittal from Global Core Capital.
Congratulations for a good set of numbers. My first question is related to your advertisement and branding spend. How much of the total amount that you have spent as a percentage? How much is going towards the new Gen digital to event in terms of advertisements on Facebook, Instagram and so forth?
So from this year, as we mentioned, one of our focus areas is growth coming in from our e-commerce sales. And so we are getting our web page, and we're getting our -- every -- the platform ready. And along with that, we'll also be looking at increasingly spending on the digital platform. So right now, most of our sales are happening through third-party websites like Flipkart, Myntra and Amazon. So whatever e-commerce sales we get, so the company spends roughly about 5% of sales from the e-commerce platform in the digital advertising space. And going ahead, we believe that we are looking at a very high-growth rate coming in from the e-commerce sector. And therefore, we'll also be considerably increasing our ad spend, diverting more of our ad spend towards the digital space because that is where we believe that the future lies.
Okay. Okay. Got it. And a related question on that. So you highlighted, historically, you have spent about 8% of revenues on advertisement and branding. Now given the base is very large of INR 2,000 crores right now, and going forward, as you say the base becomes even bigger. And also the fact that we mentioned that we do enjoy a very big brand pull in that equity in the market at this stage. So given these 2 factors, do you think -- how do you explain that 8%, which is quite a sizable number? And as the base effect goes higher, it's a large number to spend. Also given where the competition is. How do you explain that? And do you really think it's necessary for the company to spend that high number in terms of revenue?
So see that the position that -- right now we've reached about roughly INR 2,000 crores in sales. And one of the major reasons for us outperforming our peers in the market was because we've always invested in our brand-building exercise. And whatever brands that the company now has under its belt, every brand you can see is set to reach the INR 500 crore mark and become a INR 500 crore brand. So all of this is only achievable on grounds of spending your ad expenditure on maintaining the brand-building exercise. And so that is one area where we believe that it is more so of an investment rather than an expenditure. And over the past 5 years, we've always invested in our brands. And we believe that it's a number which has already been factored into our costings and into our margins. So going ahead, it should be somewhere in the similar zone.
Okay. Okay. And then my second question is regarding your push into the Southern region of India. So what -- is there a specific strategy that we are adopting for the Southern market because it's a new region for you? And what are the challenges that you see for you to penetrate deeper into that region?
So see the South Indian market, if you see, is a very peculiar market. It behaves very differently from Northern India because there is a language barrier. The entire North India speaks and understand Hindi and English as a common language. But when it comes to South India, all the 4 states of Southern India have their own regional languages. And Hindi is not quite popular over there. So that is why our advertisement kind of do not make a mark in the South Indian market.So yes, as a strategy from -- in the next -- we believe in the next 2 to 3 years will be kind of investing in local advertising, making -- adopting more of the local strategy to penetrate that market. They're having local pocket players in every state. And we believe that the company has always been very, very strong in its marketing strength and marketing team. So with the required amount of effort, dedication and advertisement, we'll be able to correct that market.
[Operator Instructions] The next question is from the line of Arpit Shah from Stallion Asset.
Congratulations for a great set of numbers. I just had 3 questions for you. If I look at the Lyra. Lyra is very aggressively on the rural front with the new portfolio, right? And if you -- the Lyra is very aggressive on the rural front, how do you look to defend other players in that kind of a market? And even if I look at all other players, lets say, Rupa or Dollar Industries are all focusing on expanding distribution, they are focusing on premiumization of the portfolio. So how do you differentiate yourselves from that competition?
See the more differentiating factor is the brand, the most differentiating factor is a brand which is not available with our competitors. And as we see that in the market and the research, which we also conduct in the market that our brand has been projected as a most full brand. So we believe that this is a USP which we have, which our competitors don't have. And because that is the reason we have been able to lower our better days in the market, and our distributors are paying up pretty faster than that of our peers.
Got it. Got it. Got it. As I look at your sales mix this year, we have seen a big jump in economy segment, right? And despite that, we have seen a big jump in margins and which is broadly matching to the leader. So where do you see the margins going, let's say, the next 3 to 4 years? We are broadly 20%, 22%, let's say, for quarter 4. So where do you see it going in the next 3, 4 qualitatively?
So for the current financial year, our target is to maintain the last year financial year margin, which is approximately 19.99%. So because we see a good improvement in the gross margins, which can be adjusted with the margins going down due to advertisement. So the net margins should remain the same.
Got it. Got it. Sir, if you can just provide some color on how the working capital can move in the next 3 to 4 years. We have guided 122 days right now. So how do you expect in the next 3 to 4 years? What would be the trend be like?
So see, what we see that anyway in the last 12 to 18 months, we have worked very rigorously to bring down our working capital cycle. And by seeing the current pandemic, it is not advisable as well as we are not taking any aggressive decision further to reduce the working capital at least for this year. It would be very unfair if I can say anything immediately just how it will look like after 2 to 3 years because I believe we should wait for some time, let this pandemic get over. Our economy should get stabilized. We should be back to the normalcy. And then, I mean, we will reburn our working capital cycle as [indiscernible].
Got it. Got it. And what would be your reinvestment plans going forward? Given the cash that you are generating around INR 350 crore, INR 400 crore, what would be a typical reinvestment plan going ahead? Would you be spending on brands? Would you be spending on capacities? Would you be spending more on promotion, advertising work? How the reinvestments would look like?
So see, the cash can be mainly used for 2, 3 different purpose. So like as you rightly said, a part of the cash can be used for the purpose of expansion. Definitely, a substantial chunk of the money should be used for the purpose of rewarding the shareholders who has actually put their hard-earned money in the company to get into the growth path. So I believe these are the 2, 3 verticals where definitely company is evaluating that how and when, how much investment can be done.
The next question is from the line of Sufiyan Lakdawala from Lalkar Securities.
I just want to know you had the CapEx spend of INR 110 crores, right? So what is towards that was premium products, the premium segment. And how much of that can be [indiscernible].
Yes. Your voice is completely inaudible.
Am I audible?
Yes, I can hear.
Yes. So the company has a CapEx of INR 110 crores expansion plan. So will it be towards like which product segment?
Okay. So the majority of...
In the -- '22 CapEx, can you give the guidance?
The majority of the CapEx will be dedicated towards economy and the mid-premium segment. Because as currently, we are seeing that the demand in the economy in the mid-premium segment is so strong that it might not be possible for us to cater the whole demand in the market. So our immediate requirement would be to set up the CapEx for the economy in the mid-premium segment.
Okay. So what will the net total capacity? Anything for segment-wise?
The total capacity would be very difficult to project as of now because the CapEx is -- the factory is still under construction and it will take at least next 12 months more to completely start up with it. But majoritively, will be dominated by the economy and the mid-premium segment.
Okay. So INR 110 crores is CapEx spend FY '22, again?
Can you come again? Sorry.
The total is INR 110 crores for FY '22?
So it will be over a period of 12 to 18 months, the CapEx -- we have already started incurring the CapEx. But I believe, I think the current pandemic, it may be delayed by around 3 to 6 months. So there will be a spillover to FY '23 as well. But the company is not holding the entire project. As and when the -- one of the facility will be up and running, we will start using that facility.
The next question is from the line of Shirish Pardeshi from Centrum Capital.
Yes. It's a very good presentation I have come across from you, and I really appreciate further details. However, I have got 2, 3 questions. When I refer your Slide 35 and which says that your ASP growth is 13%. While in reality, the yarn prices has gone beyond so would you be able to help me to understand what is the dated inflation we are facing? And what -- to what extent we have taken the price increases? Or is there any more price increases are in pipeline?
So actually, whatever -- there's an increase in the yarn prices, that doesn't reflect the increase in the price of the product totally because there's a percentage of the yarn which goes into the production. Other processes which is pitching, dieing, bleaching, cutting, packing and all other overheads are also a part of the product. So according to that -- according to the yarn prices increment, there has been an increase in the actual costing of the product by approximately 13% and for which the increase in the costs have taken place.
So you mean to say that, if I understand correctly, the current inflation is 13%, which is dated, and you have taken a complete pass on. If there is further price increase, we will wait for another price, down the price increase?
So that completely depends on the yarn prices, how it reacts after the Tamil Nadu market is open. It completely depends on that. But what we are seeing and what we are hearing all around is that there will be again an increase in the yarn prices, so there would be a further increase in our sales price.
Okay. Wonderful. You did mention in the beginning, the 300 million pieces is the volume for FY '21, correct?
Sorry, can you come again?
FY '21 volume was 300 million pieces.
Yes.
So does that include the 2 large entity or it is outside?
Yes, it includes all. Lux includes now everything.
So it's a number of the complete consolidated Lux group of companies, Lux, Ebell, J. M. and Artemis.
Wonderful. Would you be able to split like you give the split of revenue by segment, which is premium, mid-premium and economy for value. Can you split that 300 million pieces for volume also?
So in the percentage terms, it's already there in the deck. If you see like the volume percentage between premiums, sub-premium and economy, it is there on the Slide #20, but it is just from the growth perspective. If you need a absolute number, definitely, my IR can provide those numbers to you.
Ladies and gentlemen, we will take the last question from the line of Nikhil from SIMPL.
Am I audbile?
Yes.
Congratulations on a great set of numbers. Congrats for a great work. I have 2 questions. One is if we look at our realization, it comes to around INR 66 per piece based on the total sales and volume. Now if you have to move on the higher price bend, then our premium brands like ONN, one8, Lyra and some of the thermals and all have to contribute. Thermal has grown very strongly. On ONN and -- if we look at the trajectory of the brand ONN and Lyra and all, how do you see the -- what -- how do you see the growth for brand ONN and for Lyra? If we look at -- there is a lot of competition, even organized, unorganized. And even the listed players, both are also there in the leggings segment. How do you see overall price range moving up for Lyra?And just connected question is, if we look at our P&L based on the annual report, for Ebell, which we had shared, the ad spend and promotion is almost 12% to 15% of sales. Would you say that the quantum of investment which we were doing behind Lyra will sustain? Or would that also come back to 7%, 8% which we are guiding for the company level? If you can just help me on these 2 brands because these will drive the premium journey a lot.
Yes. So as you had mentioned, so last year was an exception because of the COVID scenario, in which we have seen a slight decline. In Lyra, we were able to capture 90% of sales of what we did in the corresponding period last year. So -- and because, as you know, in the COVID scenario, womenswear, all across the economy, whether it is apparel, whether it is cosmetics, whether it is any other segment, womenswear -- products being consumed by women has taken the majority of the hit. So even despite that situation, we were able to recover 90% of our sales, which we believe was also commendable task.And going ahead, as you mentioned, within the -- right now, about 80%, 85% of our sales is being driven by the leggings segment. And going ahead, we are expanding more so in the athleisure for women under the same brand, Lyra, and also in the innerwear space which is lingerie for women. So these are the 2 areas which are our focus areas for growth within the same brand. And we believe those are the areas where we'll be able to build the brand better and at the same time, get better margins and better ASP. So we -- our products in the athleisure and the innerwear segment are already out there in the market, and they are doing quite well. It is just that in the next maybe 2 or 3 financial year, we'll be able to ramp it up and maybe multiply 2x every year. So that is what we're looking at when it comes to the brand Lyra.So we believe that in the next 2 to 3 years, we'll see a good -- a major driver of the growth coming in from Lyra. And as well as ONN is concerned, again, if you see making an exception of the last year, if you see the last to last year, the growth has always been there in the premium segment. And again, even within the portfolio of the ONN, athleisure and the category has been doing quite well and performing quite well. So these are the reasons I believe that the ASPs will be higher. And at the same time, it will be one of the major growth drivers for the company. I believe I've been able to answer your question.
So just 2 things. One is since we are adding more product lines behind Lyra, so the investment behind ad spends and promotion, which was like fairly high as compared to our company average of 12%, 15%...
So I'm just cutting you in, but we believe that even if you look at the balance sheets of Ebell Fashions which was mainly Lyra, our ad expenditure has, in fact, been at par with what we do in Lux which is about 8%. In fact, it was slightly lesser than 8%. It was about 6% to 7%.So we believe that 6% to 7%, even during the current financial is what we are guiding as an advertisement expenditure. And our ad expenditures will remain in the same category.
Sir, sorry to elongate it, but if I'm not wrong, the numbers from the annual report which I get, the ad spend and promotion was around INR 30 crores, INR 40 crores on a topline of INR 200 to INR 300. This is based on the annual report, which we had filed with the ROC. Probably I can...
From which financial year?
From '18 to '20. '21 numbers we don't have so.
Okay.
Sure We are taking this question...
I take it offline. So second question was, sir, as you mentioned that on the unorganized side, as you said that in the rural, many of the plants have been shut down and supply is a major issue. And over the last 1 year, what we have seen is we have done a great job in reducing our working capital. But even for our listed competitors, they've been able to do a decent job in reducing the net working capital days. And one thing which you mentioned that even if the players or the unorganized regional or the competitors, even if they increase the credit period, it will be beneficial for us. I didn't get it intuitively. If you can just spend some time and help me understand why it should be beneficial. I would have thought that the distributor would be like going for a product where he is getting a more credit period or probably better margin?
So see, so it is a completely market-driven strategy, and it's a marketing call. So what happens is, see, what happens is, it is not that [Foreign Language]goods will get sold first. It is always what the customer is demanding in the market, what gets sold. So if the customer comes and demand that I want a particular brand called Lux from the market, so the distributor will always have to supply that brand first. So it is -- so the credit period is a direct function as to what your brand pull is. So that is why we mentioned that even after we have reduced our credit period in the market, it will -- and if the competition react in whatever way, it will not affect our brand pool in the market because, ultimately, when the customer is coming into the shop and asking you for a particular branded product, the retailer as well as the distributor has to supply that particular brand, and that is how the marketing always works.
Thank you. Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to Mr. Udit Todi for closing comments.
I would like to take this opportunity to thank everyone for joining this call. I hope we've been able to address all your queries. For any further information, kindly get in touch with our strategic growth advisers, those who are our Investor Relations advisers. Thanking you once again for participating in the call.
Thank you. Ladies and gentlemen, on behalf of Lux Industries Limited, we conclude this conference. Thank you for joining us. And you may now disconnect your lines. Thank you.