Ladies and gentlemen, good day and welcome to Lux Industries Limited Q2 and H1 FY 2022 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 the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal for an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Saket Todi, Executive Director from Lux Industries Limited. Thank you and over to you, sir.
Good afternoon, and thank you everyone for joining the earnings conference call for the quarter and the half year ended 30 September 2021. Along with me, I have Mr. Udit Todi, Executive Director, our CFO, Mr. Saurabh Kumar Bhudolia, and SGA, our investor relations advisors. I hope you have received our quarterly results and investor presentation by now. For those who have not, you can view them on our website. I hope you and your family are keeping safe. We have reported a very strong performance in the first half of FY 2022, with our revenues growing by 28% year-on-year, driven by healthy demand traction across all our product categories. This growth was largely driven by the rising adoption of branded innerwear products across our customer base.
We have witnessed strong revenue growth in our economy and mid-premium categories, which registered a growth of 16% and 25% respectively as compared to the same period last year. Our premium category is also witnessing strong growth in the demand and has reported a revenue of INR 1.4 crores, registering a stellar growth of 83% year-on-year. Furthermore, we are also witnessing healthy traction in our womenswear portfolio, which is practically untapped by the branded player. This segment is now opening with time and with greater exposure and acceptance. This augurs well for the industry and offers major avenues for growth in our womenswear portfolio. For H1 FY 2022, our womenswear brand Lyra contributed to approximately 12.8% of our total revenue, which stood at INR 133 crores.
We are gradually growing from a pure play innerwear player to a mix of athleisure and outerwear player, as we believe that the successful brands create a strong consumer pull and also help us to negotiate better business and payment terms with our trade partners. With a diversified portfolio of the homegrown brands across demographics has helped us outperform the market and generate a pricing premium, which in turn has helped us to achieve a broad-based growth and deliver a steady rise in our margin profile, which is one of the highest in the industry. Our EBITDA and PAT margin for H1 FY 2022 stood at 22.05% and 15.57% respectively. Advertisements and marketing has been one of the key aspects in building our brand equity.
For the half year ended 30 September 2021, every rupee spent on branding and marketing expense has yielded us INR 15.57, while the total branding and marketing expenses for the same period stood at INR 67.57 crore, which is approximately 6.42% of our H1 FY 2022 revenues. The company's plan to undertake a greenfield capacity expansion of INR 110 crore is on track and will be funded through internal accruals. With the CapEx coming on stream, the company is expecting to generate an incremental sale of INR 400 crore from it. We will continue the journey of investing in innovation and capability building, which will yield us gains in the market share and operating model efficiency.
Given the recovery of the economy in the Q2 FY 2022, our differentiated domain expertise, along with the waning pandemic and improvements in the supply chain condition, we believe all three categories, economy, mid-premium and premium, are well positioned for sustained growth for H2 FY 2022 and for the coming years as well. With this, I will now ask Mr. Udit Todi to share his thoughts.
Hello, good afternoon and a very warm welcome to everyone. Over the years, the innerwear industry is gradually evolving from a functional category to a fashionable one. Today, consumers across demographics now have personal preferences in color, design, and style while choosing innerwear products. The innerwear industry, which was historically dominated by the unorganized sector, is now shifting towards the organized players. This shift has especially accelerated after the pandemic, as many of the unorganized players got affected due to operational, liquidity, and supply chain related issues. Lux, being one of the leading organized players in the industry, understands the magnitude of such shifts and is well positioned to address this unprecedented upside the industry has to offer.
In this regard, we have proactively enhanced our operating, manufacturing, and supply chain efficiencies, which has helped us grab the market share across product categories. Today, Lux has approximately 15% market share in the organized men's innerwear segment and a fill rate of approximately 95% as against an industry average of 80%. We have one of the largest distribution networks in this industry, having a strong presence in regions and states. As of 30th September 2021, we have approximately 12 depots, 1,170 dealers, 674+ district presence, and 200,000+ retail touch points across India, which showcases our well-penetrated network and strategic relationships built over the years ensuring last mile delivery.
Even though Q1 FY 2022 was a marginally subdued quarter on account of second wave COVID induced lockdown, quarter two FY 2022 saw significant green shoots in demand as major states started to lift the lockdown restrictions, leading to resumption into global supply chain. This in turn aided to our export sales gradually returning near normalcy levels. Our export sale for half year ended FY 2022 contributed approximately 8% of the revenues, which comes to roughly about INR 83 crores. Currently, we export to 46+ countries, majorly in the continents of Asia and Africa, and are endeavored to grow our export revenue by 60% to 60+ countries by 2025. Now, coming to our e-commerce sales. The company is currently shipping 4,000+ online orders daily and have also entered into marketing alliances with Amazon, Myntra, Flipkart, Ajio, among others, to ride the growing popularity of marketplaces.
Our working capital cycle as of thirtieth September 2021 stood at 159 days due to the seasonal nature of the business. Going ahead, we will stay focused on our capacity enhancement along with several other strategic initiatives to increase operational efficiencies, which will help us deliver differentiated products in the market and ensure complete satisfaction and utmost comfort for every consumer by creating top-notch products. With this, I would now request Mr. Pradip Kumar Todi to take you through the financial performance.
Thank you, Udit Todi. Our company reported a very strong growth for the quarter and half year ended 30 September 2021. Our revenues for the quarter stood at INR 631 crores as against INR 504 crores, registering a growth of 25% compared to the same period last year. This growth was led by strong demand across our product portfolio. Our EBITDA for the quarter stood at INR 141 crores, registering a growth of 44% as compared to INR 98 crores during same period last year. Our EBITDA margin stood at 22%+, which has seen a significant improvement by 300 basis points year-on-year, which was majorly attributable to improving product mix, prudent cost rationalization measures taken by the company over a period of time.
Our quarterly profits crossed the INR 100 crore mark for the first time ever, registering a strong growth of 50% over same period last year. PAT for the quarter stood at INR 100+ crore as compared to INR 67 crore in Q1 FY 2021. We have also seen an improvement of 264 basis points in our PAT margin, which stood at 15.86% as compared to 13.22% in Q1 FY 2021. Now coming to our half year's performance. Our revenues for H1 FY 2022 stood at INR 1,052 crore as against INR 824 crore in H1 FY 2021.
Despite demand uncertainty on account of second wave of pandemic in quarter one FY 2021 and lockdowns, we were able to register a revenue growth of 28% in half year FY 2022. The region-wise revenue contribution for the past first half of FY 2022 is as follows. Northern India, 30%, supported by Eastern India, also 30%, Western India, 22%, Central India, 15%. Southern India is very minimal, around 3%. While revenue split from segment is stood as follows: mid-premium, 56%, economy segment, 30%, and premium segment is supported by 14% of revenue. Over the years, the company have invested in a basket of more than 15, 16 brands which enjoy unaided brand recall for comfort, innovation, and a superior value proposition.
From FY 2017 onwards, the company have invested INR 709 crore in branding and marketing, which is approximately 8% of the company's revenue. This brand strength has translated into growing margins and a net cash surplus position. Absolute EBITDA for half year stood at INR 232 crore as compared to INR 155 crore last year H1 FY 2021, registering a stellar growth of 50% year-on-year. The EBITDA margin also has shown significant improvement of 327 basis points, which stood at 22.05% as compared to 18.78% in H1 FY 2021. PAT for H1 FY 2022 stood at INR 164 crore as compared to INR 104 crore in H1 FY 2021, a growth of 58% year-on-year.
The PAT margin stood at 15.5% as compared to 12.5% in H1 FY 2021, showing an improvement of 300 basis points. Our working capital days as on 30th September stood at 159 days. As on 30th September 2021, the company's gross cash balance and cash equivalents balance stood at INR 166 crore, while the debt-equity ratio stood at 0.14 as against 0.16 in 30th September 2020. This signifies our constant endeavor to deleverage the balance sheet and create strong liquidity buffers. The Board of Directors at its meeting held has declared payment of interim dividend of 600%, that is around INR 12 per equity share. This is in line with our constant endeavor to reward equity shareholders of the company.
Going forward, we expect positive momentum in our revenues to continue, and we'll continue to adhere to the highest of ethical standards and transparency in all business dealings and transactions. With this, we will now open the floor for question and answers.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star and one. The first question is from the line of Chirag Lodha from ValueQuest. Please go ahead.
Yeah, thank you for the opportunity, and congratulations on great set of numbers. My first question was on volume growth. H1, we have seen muted overall volume growth of just 2%. Trying to understand what is the expectation for full year in terms of volume growth?
For the H1, the volume growth was mainly subdued because of the higher ASP growth and the increase in the cost of production. As you would have seen in the premium, mid-premium, and the economy category, we have divided all three categories by the volume growth and the value growth in our presentation. There has been a tremendous growth in the premium segment, then a lesser growth in the mid segment, and the least in the economy segment as the prices are continuously increasing. Currently, the situation of the market where the cost of the product is continuously going up. It would be very unfair to judge for the next six months how the volume growth would pan out.
Definitely once the market gets stable, the volume growth across all three categories would be in a healthy position, which will be mainly dominated by the premium category.
Got it. Second question was on overall price increases. What kind of price increases you would have witnessed in last six months and maybe in last 12 months?
Last 12 months, the average price would have gone up by around 11%-12%.
In first six months of this year?
It is very difficult to say exactly in the first six months how much the prices have increased because it is divided brand-wise, where we increase the prices of a particular brand on a particular time period. All the brands' price increase across all the brands doesn't happen simultaneously.
Got it. Sir, lastly, what is the working capital target for by this year end?
Hopefully we will be able to achieve our last year number, and we will be able to maintain our working capital as on March 21.
Okay. Can you also provide numbers for, you know, corresponding H1 for premium, semi-premium and economy?
Yeah, definitely those numbers we'll provide separately, and my IR will be in touch with you, who can, again, arrange the numbers for you.
Sure. Thank you, Saket Sir.
Thank you.
Thank you very much. Next question is from the line of Prerna Jhunjhunwala from Batlivala & Karani Securities. Please go ahead.
Hello. Congratulations on a strong set of numbers, sir. Just wanted to understand the elasticity in the economy segment in terms of demand, because you mentioned that price hikes have been taken due to cost inflation, the demand or volume growth remains muted in the economy segment. How do you see this segment going forward? Not from six months point of view, but maybe do you see people now adjusting to higher rates of prices over a longer period of time that these levels will not be achieved and eventually come out for buying products? They shift to premium categories and hence premium becomes much more important and growth drivers for you?
You see, when we talk about the economy segment, the price points are already much lower compared to the mid segment and the premium segment. You mentioned about the elasticity of demand in this segment. If the kind of products which we are selling at and the kind of target audience we are catering to, obviously the cotton prices have gone up, raw material prices have gone up, so therefore the finished prices have also gone up. The products which we are making are a very basic necessity product. It's a daily wear product. People, you know, tend to take some amount of time to adjust to the new prices, but ultimately they end up adopting the new prices because, you know, below the economy level of segment, there is no other segment which is there.
When the raw material prices have gone up, they have gone up for the entire industry, be it any player. Ultimately, a person will have to adjust to the new prices sooner or later. You know, even if you look at it at the MRP level, a person will end up spending approximately say about INR 10 a piece or INR 15 a piece more than what he used to. At that level, and for a product which is so basic and a necessity product, the demand does not tend to be so elastic at for a INR 10-15 rupee price increase per piece. You had mentioned about people moving up to premium and mid-premium categories.
Premium category, people those who are purchasing products of the premium category are relatively not so much bothered about the price hike which the company takes. We always end up taking a price hike at a 6-12-month interval. We have always been able to do that, and we are quite sure and confident that going ahead, we will be able to do that again.
Okay. How sustainable are the margins that we are seeing today? Because if we look at four-five years back, we were at a much around 15% kind of twelve to 15% range, and now we are not crossing 20%. At a much lower ad spend that we were doing earlier, so as a percentage of sales, not in quantum. How do you see the sustainability of these margins, whether we look at it as these margins will improve further or remain here or it contracts if we increase our ad spends and other costs gets increased with time?
As we have said it again and again in all our previous con calls, that last year our advertisement expenses were a bit lower, and from this year onwards, we are looking at restoring it to normalcy levels. If you happen to look at the figures a bit more closely, you'll be able to see that we have increased our ad expenditure to about 6.5% at the half yearly level. We generally approximately maintain an average of around 7%-7.5%, which vis-à-vis last year was about 4.5%. Despite increasing our ad expenses by 200 basis points, we have still been able to expand our EBITDA margins because ultimately the gross margins have increased, and that is where that is flowing directly to your EBITDA and PAT.
As you correctly mentioned about four-five years back, we were at levels of 12%-15%, and right now we are north of 22%. Going forward also we will be able to maintain these margin levels. In fact, we'll be looking at expanding the margin level because mainly, if you look at it carefully, you will see it is the change in margin is coming primarily on account of change of product mix. The product mix is changing. The company is moving more and more towards from economy to mid and from mid to premium. If you look at current year, current year's level, the contribution of the premium wear category to the overall sales now stands at 14%, which last year was about 10%.
Ultimately, we are moving up the ladder. The product mix is changing, and that is why you see healthier gross margin and healthier EBITDA margin.
Despite increasing our ad expenditure and bringing it back to normalcy levels, we have still been able to deliver better EBITDA margins. We believe that going forward, we'll definitely be able to maintain these margins.
Where do we see our premium segment moving to over the next three to five years as a contribution to revenue?
See the premium margin is growing at double the rate of what the company is growing at. Although right now we are standing at about 14% contribution from the premium wear category, but it is growing at double the rate of the overall company average.
This growth rate will continue.
In the next three to four years obviously something which is contributing at 14% right now should be in the range of about 20-25%.
Okay. I'll come back to the question queue for more questions. Thank you and happy Diwali.
Thank you. Next question is in line of Nihal Jham from Edelweiss. Please go ahead.
Yes. Thank you so much, and good afternoon to management and congratulations.
Sorry to interrupt, Mr. Jham, but your voice is a bit low. Can you speak a bit loud, please?
Apologies. Is it audible now?
Yes, much better. Please go ahead.
Sure. Thank you. First of all, congratulations on the strong performance, Saket and Udit. Three questions from my side. If I look at economy segment sales, they have seen a slight deceleration from last quarter to this quarter, whereas obviously there's been a significant improvement in the premium and the mid-premium segment. Is this primarily attributable, you say, to the price hike that we've taken or any other specific reason?
No. I believe that the reason for this is that for the H2 of last financial year, if you would have seen or overall the last financial year, there was a skewed growth in the economy segment. There was a skewed growth out there, and right now it is being much matured. Going forward in the next few quarters, it will again move back to its normal growth level.
Understood. The other question related to our segments was that, when we say that the ASP increase is around 47% in the premium segment, this would have a major component of mix, I would assume, right? Given that you said on an average, you've taken 11-12% kind of price hike versus last year. The remaining 30-35% increase is primarily mix driven. Is that a right way to understand it?
Yes. In our presentation also in page number 35, we have mentioned that the premium has grown by 86%, whereas the economy has grown by just 15%. There has been a definitely mix change here.
Absolutely. In the premium segment itself, I was asking, because in the premium itself, the ASP growth is 47%, so there also I was just trying to understand the bifurcation between the price hikes you've taken and the mix improvement in the premium segment itself.
Yes. Like, the last few quarters we are seeing that the outerwear segment is growing more than the innerwear segment in the premium wear category itself. The ASP in itself is also going up.
Understood. Saket, in the premium category, what would be our ASP say for the innerwear and the premium wear category, just approximately to understand?
We won't have exactly the numbers right now between the innerwear and the premium wear, but overall as a whole, the premium wear average ASP would be around INR 185.
Sure. This also would include some component of athleisure in it, right?
Yes. Definitely. It includes all the component of the athleisure in the premium wear category.
Right. Just one last question from my side that you mentioned obviously in your presentation that the increase in the working capital is a seasonal phenomenon. I would assume that given that you would be stocking up for winter wear, the inventory would ideally end up seeing an increase. Just on the increase in the receivables, anything specific there or and do you expect it to reverse itself by the end of the year?
We would expect it to get reversed by the end of the year. Even in fact, as we are speaking, as the festive season is coming in, we are seeing a good liquidity flow again back in the market, where our debtor days are continuously going down and by March 2022, we would be able to achieve our last year debtor days.
Sure. Any specific reason that it increased maybe before this quarter ended?
No. Actually, what had happened in the last six months, people were very scared regarding the third wave of COVID. Instead of paying up to the company, the demand was good in the market, but instead of paying up to the company, they had held back their liquidity in case of any third wave issue of COVID. After the second week of October, we are not seeing any such incidents in the market and people are releasing back the liquidity in the market and paying up the companies. This we had expected in the last three months and that has panned out. It is continuously on its route back that the liquidity is getting improved.
Helpful, Saket. That makes it clearer. Wish you all a very happy Diwali. Thank you so much.
Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. Next question is from the line of Mayank Lakdawala from Concept Investwell. Please go ahead.
Hello, sir. Two questions from my side. One is on how much distributor reach have you increased, and what is the penetration of distributor in South India? Second question is how many EBOs till date you have added, and can you give a bifurcation on CoCo and FoFo model? Thank you.
We had already mentioned as half year ended, we are having about 1,170 dealers. We do not have the exact figure available.
Sorry about that, sir. Mr. Lakdawala, if you can just please mute your line.
Yes, sir.
Thank you. Sorry, sir. Please continue.
We had already mentioned we have about 1,170-odd dealer network half year ending. Yes, South India contributes a very small insignificant number, percentage of turnover to the overall turnover share. The number of dealers present in South India are also few. As we had also mentioned, that is one of the focus areas for the company. Going ahead, we will be aggressively marketing our products in the South India region and adding more and more dealers in that zone. As far as EBOs are concerned, we have about 10-15 EBOs as we are speaking. We are working towards our direction, like to have around 30-50 EBOs over a period of another six-nine months.
Thank you. Lastly, just want to know that, in the previous conf call, as you said that you would be adding some regional content for going into the South India. Can you please let me know on that?
Yes, that is work in progress and, it is, handled by our marketing and advertisement team, so it would be very unfair to openly discuss about the campaign for the South India.
Thank you, and a very happy Diwali to you.
Thank you. Next question is from the line of Dhruv Bhatia from Sixteenth Street Capital. Please go ahead.
Hi, good afternoon, sir. Just two questions. One is could you talk about, you know?
Your voice is a bit feeble. Can you speak a bit loud, please?
I'm audible now?
Yeah, better. Please go ahead.
Yeah. Yeah, if you can just talk about, you know, during the pandemic, the organized players gained a lot of market share due to supply side issues for the unorganized players. Do you think that trend still continues? Is that, you know, the growth rate for organized players and it's getting reflected in your numbers as well as the others. Do you think that has, this will continue going forward at the rate at which you are growing? I mean, it seems to be a normalized growth rate of 15% is something that the industry should grow at, but all the organized sector players are growing at a much healthier rate. Do you think these numbers are sustainable for you?
Like, we would firstly need to define the organized and the unorganized segment across all three different categories. Mainly the unorganized is dominated in the economy segment category and which I said sometime back that there was a huge growth in the last FY and which had matured in the H1 of this FY 2022. Going forward, as you would see that the economy segment growth will be back towards normalcy and the shift from the unorganized to the organized segment would be a gentle shift going forward.
Okay. You mentioned the price increase you have taken of 11%. Is that enough to cover for cost inflation, freight inflation and, you know, other costs which have been increasing?
Yes, that is according to our costing only, and you would have seen that has been very well reflected in our gross margins also that our gross margins have improved continuously.
Sure. Just lastly, you know, this is, you know.
One thing I would like to add to that, this 11% is just not a one-time phenomenon. It has been continuously happening since the last 10 months, and we would expect the same to continue to happen for the next six-seven months as well. Because there has been a continuous increase in the costs, the same trend.
Sure. The EBO count which you just mentioned is currently at 15 and you intend to open another 60, you mentioned, right, for the next nine months?
Yeah, around 40-50.
The target of INR 150 as mentioned in the presentation by FY 2023 still holds?
Yeah. It will take some time because as we know there was a lockdown and there was a lot of decoupling going on in the market because of this pandemic. We are reevaluating the situation and we'll come back with a revised number or with the timelines. Yeah, very much to the extent of 70%-80% we are on track.
This will be a combination of COCO and FOFO, right?
Almost the complete direction is to go with the FoFo model because unnecessarily we don't want to put our money in the form of CapEx or in the working capital. Primarily basically we are getting a lot of interesting queries to get into a FoFo model. People are more than happy to sign the contract with us. We are evaluating mainly for the FoFo model way of opening the store.
Sure. Perfect. Thank you so much. All the best.
Thank you. Next question is from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead.
Hi. Good afternoon to everyone, and thanks for taking the question. My question is on the women's wear brand Lyra. We are already touching a pretty good annual run rate of INR 250 crore plus for this brand. Just wanted to know your thoughts as in what we are doing in terms of improvement in the product mix as well as improvement in the network coverage for this brand?
Hello?
Yeah. Hello.
As you see, we were primarily a bottom wear driven brand and we still continue to be. Bulk of our revenue comes from the bottom wear category. In the last couple of quarters we've made a focused effort to diversify our product basket. Right now, about 80% of our top line would be coming in from the bottom wear category, whereas 10% each would be coming in from the innerwear category as well as the loungewear category. Going forward we will be looking at growing the innerwear and the loungewear category at a much faster rate and offering more and more product in that zone. When we talk about the organic growth in the bottom wear category, the bottom wear category itself right now has been predominantly dominated by the unorganized sector.
People are gradually shifting more and more towards better branded, organized, offering products. We also expect a good demand to be coming in for the bottom wear category. That is the vision that going ahead we'll be looking at three way growth. That would be, A, bottom wear category, B would be loungewear, and C would be innerwear.
In terms of distribution reach for this category, how are we placed versus the overall distribution reach of about 2 lakh outlets?
Right now we have about 450-500 dealers on board, those who are selling these products. On average, each dealer sells to approximately 100 retail outlets. We could approximate the retail touch point at about 50,000.
Sure. That's helpful. Lastly, apart from increase in raw material prices, there is also likely an impact of increase in GST rates next year. How do you see this impacting our margin or we will be able to completely pass it on to the customers?
You see the change in the GST rate would be a fundamental change and economy-wide change which every player in this industry has to go through. When we talk about moving from 5% to 12%, the incremental 7% is something which is too big for any firm to bear on itself. We will be looking at definitely passing on the increase in tax rate to the dealer and then forwarding it to the consumer at the last level. Because you know, it's a fundamental change which will be affecting every player, every player will be looking at forwarding it onwards.
That's helpful. Basically my concern was since raw material prices are also increasing and then in addition to that this is also going to come, so will we be able to pass it on completely or we will have to take some hit?
As a company, we are taking the approach of passing it on only because the kind of margins which we are operating at are very fair and very optimum level margins. We've never charged a very high level of margin so that we can create some buffer to bear any shock. We've, you know, we've always operated at fair margins, optimum margins, and always believed in a volume play. You know, the kind of whatever increase in tax rate will be there, it will definitely be passed on at the consumer level.
Thank you, sir. Wish you a happy Diwali. That's it from my end. Thanks.
Happy Diwali to you.
Thank you. Next question is from the line of Dhiral Shah from PhillipCapital. Please go ahead.
Yeah, good afternoon, sir, and thanks for the opportunity. My question is pertaining to the gross margin expansion ex of subcontracting costs. How much of that would be low cost of inventory plus the synergy benefit of the merged entity?
Could you please repeat your question, please?
Whatever gross margin expansion which we have seen, ex of subcontracting costs, basically raw material costs. How much benefit we have got from the low cost of inventory as well as the synergy benefit of merged entity?
Dhiral, it will be very difficult to bifurcate the savings in the margin in two different buckets. The way we have done the analysis, it seems around 100-150 basis points of the improvement has come through the rationalization of the merger. The balance is through the low cost of the inventory for which we have taken the price hike, but we have already booked the inventory in advance so that we can leverage the P&L.
Sir, on one side, you know, we are seeing that there is a shift in the unorganized to organized sides. I believe, you know, this would largely benefit the mass and the economy segment. That benefit is not occurring to us because our volume growth is net-net negative, if you see H1, even in the H1 basis.
Even in H1, if you see out of three different baskets, there is a very huge volume growth in the premium and the mid-premium category. There is no or almost at the break-even level in the economy segment. Overall, there is a increase in the market share, but there is a change in the shift or migrating the customer from economy segment to the premium segment. Also for the economy, it should be wiser to see the last 18 months growth as, there was a huge growth in the last financial year in the volume-wise economy segment. As the data is only available for the organized level players, we do not have any access to data of the unorganized players.
If we happen to see during this COVID period, since the last year to the current year, the sense that we get from the market is that, although our, you know, our volume growth must have not been that, you know, so fantastic. If you look at the overall market, we've definitely gathered more market share because the unorganized players have shrunk. As we have also mentioned during the presentation, that the company being such a large player, we've been able to leverage our supply chain management, liquidity and everything in order to, so that the production can be done smoothly and we will be able to supply the products in the market, which the unorganized players have not been able to do.
Okay. Got your point, sir. Sir, lastly, again, on the gross margin side. Gross margin of H1 FY 2022 is around 38.5%. If I see historically also our band was something like 34%-35%. You know, now the low cost inventory won't be there. Okay? We will again fall back to 34%-35%, or you feel, you know, this will be sustainable range, 38%-39%?
See, the gross margin expansion, as we mentioned, was also on account of change in product mix, moving up to the premium and the mid-premium categories, the higher margin products selling more. If you look at our export category, the womenswear category and the own segment, all of these three are higher margin products, whose contribution has significantly increased. As we had also mentioned that, going forward, we'll be looking at maintaining similar levels of EBITDA margins also.
Okay. What percentage of, you know, growth we have seen in the athleisure side and how much it contributed to H1 growth?
See, we always analyze and bifurcate our sales brand-wise level rather than category-wise. We'll definitely ask our IR team to get back to you as to if we can be able to provide you data for athleisure versus innerwear.
Okay, sure. Just last one question, sir. Regarding our distributor count also, last quarter, we have given this figure of 1,170, and this quarter also our figure has remained same. We have not added any new distributor?
You see, adding of distributor is a call which is taken by the marketing team, and we only end up adding distributors where we feel it is necessary for us to do. It is not that you add up a distributor and you will get an incremental sale. We only add up distributors where we feel there is a need in the market. Rather we try and get more sale out of the existing distributors itself. That will help us more.
Okay. Sir, what are the contributions from the modern retail side, and how much online growth we have seen in this quarter?
We can just give you a qualitative sense. E-commerce, we feel that this year we'll be looking at least about 50%-100% growth compared to last year. E-commerce has done fantastically for us this time. Going forward also, e-commerce will be one of our,
Focus area. We are quite sure that in the next three to four years, we are targeting to reach a three-digit figure for sales coming in from the e-commerce side.
Okay. Sir, lastly, on the ad spend side. Ad spend for FY 2022, would it be driven at 6.5% or you wanted to inch up to 7%, sir, for FY 2022?
Sorry, you are asking about the.
Ad expenses.
Ad expenses. Till now, like, we are expecting that our year should end with around 7-7.5% kind of total advertisement expenses. In addition to H1 closure, we have incurred around 6.5%.
Okay, maybe H2, the ad spend would be higher.
Because anyway, the entire idea was to take the ad expenditure in the range of 7-7.5% range. Initial last two to three months, there was very minimal level of the spend or the ad has been deferred to some extent. The thing should start improve during the second half of the year.
Okay. Thank you so much, that's it from my side.
Next question is a follow-up from the line of Chirag Lodha from ValueQuest Investment Advisors. Please go ahead.
Sir, my question was on the two brands, ONN and GenX. If you can help us understand what is the current product portfolio mix in ONN as well as GenX. What is the strategy for both these brands, you know, to grow over the next two to three years? What one should expect in this brand?
For ONN and GenX, we have a mix of both innerwear and athleisure wear at 50-50 percentage level. GenX, as it deals in the fashion wear, mass wear category, it has grown by 15% in the H1 of FY 2022. ONN, as it is in the premium wear category, has grown by 80%. We are seeing a pull in the demand of both these brands as they are catering to different categories. Thus, the sales growth in both the brands are different. The innerwear and the athleisure, we are seeing a constant growth in both the segment, in which the athleisure wear is heading its way.
Okay. In terms of size, what to expect in next two to three years? What would drive it? It is more, distribution expansion, it is more new product introduction, what will drive the growth overall?
It is not distribution expansion in ONN as well as in GenX. As we rightly said some time back, that distributors are necessary only where we feel that we have a weak distribution point. Unnecessary, just to increase the primary sales, we don't add up the distributors. Firstly. Secondly, how to grow in these categories could be to adopt the new product categories in the new product portfolios and to increase the retail points and places where we are not present as these categories are driven mainly by the sales team. Adding new retailers, touch points with the brand is necessary, and also adding new product portfolios.
Got it. In terms of the thermal wear, what is the opportunity size overall and what can be the size one can expect in this part of the business? Because, you know, the thermal wear you have been in the business for long. Absolute size, if we see, it's still, very, relatively small compared to the opportunity size. What are the efforts, you know, to grow this category overall?
For the thermal or the winter wear category, we mainly serve the innerwear category in this format. We don't serve the outerwear category. The innerwear category is relatively very small to the outerwear category in the winter wear segment. Second, the winterwear segment is highly seasonally driven. If the season is good and the market sentiments are good during those two months or 45 days or 75 days of the market, then there is a tremendous increase in the sales. As we have seen in Q2 , FY 2022, the demand in the winter wear category was not that strong because people were very skeptical about the third wave of COVID.
After fifteenth of October, we have seen that the winters is also helping us to improve the sentiment as well as the overall sentiment regarding the COVID has also improved. There is a good traction coming in the winter wear segment currently.
What is the growth we have seen in this H1 for thermal wear?
The growth would be around 8% for H1.
Okay. Thank you.
Thank you. Next question is from the line of Aakash Manghani from BOI AXA Mutual Fund. Please go ahead.
Yeah, good afternoon. Could you talk about the working capital? I mean, you briefly mentioned earlier that you will normalize the number by March 2022. I'd like to understand what led to such a big spike in inventory specifically. I mean, inventory days are up by 32 days, which led to a negative operating cash flow for you this first half. I mean, over the last three financial years, FY 2019 to 2021, the operating cash flow was quite healthy, and FY 2021 almost INR 400 crore. That was quite encouraging. I mean, this financial year, I mean, so far it doesn't seem to be that things are progressing. I mean, I was thinking that probably from 122 days, which you ended last financial year at, I mean, we would start trending downwards and go towards 100 eventually.
This is completely the opposite. Could you provide some comfort on how it'll end this year and more so for the next, you know, two, three years? What are the steps you're taking to structurally bring down the working capital investment of the business? That's my question. Thanks.
When you talk about working capital, if you look at the overall industry, the working capital has gone up for every player. That is how the industry has performed. As we had mentioned also that by end of the financial year, we'll be looking at achieving a similar target. Last year it was around 120 days. That is what we are targeting that by the end of March 2022, we'll again be looking at closing to a figure which is somewhat similar. Yes, the inventory levels have definitely gone up. The raw material prices are on the increase. We have seen a very sharp surge in prices, and the company is also stocking up on the raw materials so that right now, in fact, most of the cotton and yarns are getting exported.
In such a situation, it becomes very, very important that the supply chain does not get disrupted. At the same time, you would want to take benefit of the lower price rates which were earlier there. Keeping everything in mind, we had invested more so into our inventory. Going forward, as and when the company will start selling the product, ultimately we'll get liquidated. Money is also starting to flow back into the system. Debtors have earlier on account of fear of the third wave of COVID, people were a bit reluctant in the winter wear segment as well as people were stocking up on liquidity. They were not very, you know, they were not doing away with liquidity.
Now that things are normalizing, so even winter wear sales are now driving up. People are, as we speak, the liquidity has also improved. What we feel is that by end of the financial year, we should be looking at a similar figure which we had ended with last year. Structurally, the company has the. In fact, if you look at the last two to three years so as to say, we had started off with a figure of 150 days approximately, and we've been able to bring it down to 120 days to 100. Unlocking one month of working capital at this level of, you know, at a growth phase that the company is already growing.
I think that speaks a lot about the efforts which have gone into the reduction of the working capital.
Let's assume you end this financial year at 120-odd days. I mean, two to three years out, how much could you lower it by, you know? Could it be 10 days? Could it be five days? I mean, what is the number that you would be comfortable achieving?
Going down the line, we'll be looking at a similar number, maybe reducing it by another 10-15 days. That would be a steady state number below which we will not be able to go down.
Okay. You'll be at around 100-105, you'll normalize somewhere there.
Say about 110 days, that would be a comfortable number for us to stay at because the method of production which we adopt vis-à-vis the other players which are there in the market. A lot of processes are done in-house for us, which takes a longer production cycle and more investment into the working capital.
Understood. This inventory days increasing, you're saying it was primarily because of your upstocking raw materials and raw material inflation by itself.
Exactly.
It's not finished goods inventory buildup.
It is throughout. It is at the yarn level, the work in progress level, as well as at the finished goods level. It is at all the three levels that we have seen an increase in inventory. Obviously, the increase in inventory has been higher on account of yarn and work in progress on the raw material side rather than on the finished goods side.
Understood. Also, one more question on Lyra. I mean, you mentioned Lyra is INR 250 odd crore. What sort of revenue trajectory can Lyra witness over the next couple of years? I mean, that category has been growing at a brisk pace. So where could you see this brand in the next three years? Will it be a INR 500 crore or INR 450 crore brand? And what are the profit margins over here, the EBITDA margins or the gross margins, if you can sort of give some band. Thanks.
If you look at our investor deck, we've already placed it in three buckets. Lyra definitely enjoys a good level of margin. Talking at the PBT level, we approximately have about 20%-26% margin level. Going forward, we are seeing good growth in this category. Yes, you know, we are looking at expanding our product portfolios and the category itself is doing quite well. In the next, say, three to four years, we're looking at reaching the INR 500 crore mark.
Okay, thank you so much.
Thank you. Ladies and gentlemen, we will take our last question now, which is from the line of Rajiv Bharati from DAM Capital Advisors. Please go ahead.
Yeah. Good afternoon, sir. Thanks for this opportunity. My question is, what are the kind of price hike we are looking at in Q3, Q4, at industry level? I understand that once you announce a price hike at a channel level, there will be some frontloading of demand by the channel, right? In anticipation of the price hike which is coming through.
You see, if you talk about quarter three, we're looking at a price hike of about in the range of 5%-10%. Yes, people will be in anticipation of buying a lot of products. When we look at quarter four, we are again looking at the new GST regime kicking in, which will be applicable from first of January 2022.
Again, in quarter four, there should again be a price hike owing to the increase in the GST rate. We'll be looking at a price hike in quarter three as well as a price hike in quarter four. Price hike of quarter three will be driven by raw material prices and price hike of quarter four will be driven by the new GST regime.
If you look at the numbers of Q4 FY 2021 on the economy side, where you had 18% ASP growth on that segment, and then you had 31% kind of volume growth in that quarter. We see the -2% which we saw in Q1 and Q2. I'm assuming that, I mean, this demand in this category shouldn't have been affected even because of second wave so much. This is basically that the volume growth, what you captured in Q4 is getting normalized in the subsequent quarters and some similar kind of pattern we'll see in, I mean, let's say whenever price hike you take in Q3 and it'll happen in maybe Q1 of next year.
Not necessarily, Rajeev. The way we are seeing that the volume growth, see, overall the company is growing at a rate of around, say, 2%, which is a very minimal growth by way of comes in the volume numbers. But if you see at a different category, premium category is growing at a rate of 38%, well supported by ASP growth of 30%, right? The way I see the data, there is a shift of the customer from the economy to the premium, or we are adding more customers in the premium category rather than economy. As rightly said by Saket Todi and Udit ji just a few minutes back, that economy segment has already seen a lot of penetration and a growth in last 9-12 months.
Now the time has come that economy segment should get consolidated at its level, and we should start focusing on the premium and the mid-premium category.
No, I agree. I take your point. That's why I was talking about e-commerce because another peer of yours had 0% growth in the first half. Our situation is also similar if I ignore the premium side. My point is this frontloading is basically playing out now because of the price hikes which we have taken in Q4. If there is a substantial price hike coming through, then we'll see a similar pattern in subsequent quarters?
Yes. We should see a similar pattern maybe Q3 into Q4 of FY 2022. Overall, on an annualized basis, the volume-wise economy segment should grow around at 7%-8%.
Okay, great. Thanks. Thanks a lot. That's it. All the best.
Thank you very much. Ladies and gentlemen, that was our last question for today. I now hand the conference over to the management for closing comments. Over to you.
I take this opportunity to thank everyone for joining the call. I hope we've been able to address all your queries. For any further information, kindly get in touch with our Strategic Growth Advisors, our IR advisor. Thank you. I'm wishing everyone a happy Diwali and a prosperous New Year. Stay healthy, stay safe.
Thank you very much, sir. Ladies and gentlemen, on behalf of Lux Industries Limited, thank you all for joining us. You may now disconnect your lines.