Very warm welcome to everyone. I hope everyone is keeping safe and healthy during this pandemic. Along with me, I have Mr. Uday Todi, Mr. Ajay Patodia, and SGA, our Investor Relations Advisor. I hope you have received our results and investor presentation by now. For those who have not, you can view them on our website. I'm happy to share that your company has delivered another quarter of steady performance in the backdrop of the continuing macroeconomic challenge on account of COVID-19 pandemic and nationwide lockdown thereafter. For the half year gone by, we witnessed several structural changes across industries, both in the Indian and the international markets, and the innerwear industry was no different. The Indian innerwear industry has been continuously evolving, and there has been structural shift during this pandemic, too.
Customers are becoming more informed about the use of branded quality product, which is helping us penetrate better, not only in the organized market, but also gain share from the unorganized sector. We are seeing significant green shoots in the Tier 2 and Tier 3 towns, which continue to outperform the metro cities. Youth residing in metros and mini metros, who are mostly working from home, have started engaging themselves with mid-premium and premium wear innerwear and activewear products, which significantly led to the increase in the volumes of the branded and the comfortable innerwear products. In addition to that, we saw significant demand coming from e-commerce space as compared to the previous quarters. With this behavioral and preferential shift, coupled with good winter wear product offtake, we have been able to grow our revenue for the quarter by around 9% compared to the same period last year.
Going ahead, we expect a larger share of pie from the branded player and expect to outperform the industry trends. Now, coming to your company, over the last, over the years, we have undertaken several initiatives to improve operating efficiencies and optimize costs, which is helping us yield stronger result and constantly outperform the industry standards. Our state-of-the-art facility, strong portfolio, product portfolio management, quality products, prominent celebrity endorsements, as well as innovation in the products and services, has helped us meet consumer expectations even in the difficult business environment. Now, I would also like to share an update on our winter wear segment, which has also witnessed strong volume growth. We have a wide range of winter wear products, which are available at retail points spread across India, as well as several online platforms.
Our winter wear products, endorsed by Mr. Kartik Aaryan and Mr. Amitabh Bachchan has a good brand recall, which is helping us to offtake the winter wear products, despite the cut in the ad spend, which is by around 3%-4%. We are on track for maintaining our advertising and marketing expense of around 4%-5% for the full year ended March twenty twenty-one. With this, I'll now ask Mr. Uday Todi, who is heading the strategy for the company, to take the speech forward.
Good afternoon, and a very warm welcome to everyone. We have witnessed a strong growth during the quarter, and our results demonstrate the growing profitability, despite unprecedented situations arising due to COVID-19 pandemic and its repercussions. However, the latest news of Pfizer's COVID-19 vaccine proving 90% effective, has given us new hope in fighting the pandemic soon. We have always believed in constantly evolving and adapting ourselves with the ever-changing environment by taking several strategic initiatives. Our initiatives involved brand building and strengthening of our product portfolio, implementation and adoption of latest technology in our manufacturing process to improve quality, which has helped us stay ahead of the curve in this industry, and which is clearly reflected in our Q2 results.
Despite being present in an industry where there are large number of unorganized and small-scale manufacturing units, we have been able to establish and leverage our parent brand, Lux, in a way that we have not only been able to gain market share from unorganized sector, but also penetrate in the organized space. On the supply chain aspect, we have one of the largest distribution networks in this industry, having strong presence in North, East and Western parts of the country. Our distribution network of approximately 950 distributors has helped us in last mile delivery of our products, even during this lockdown phase. Going ahead, it will be our effort to further invest and improve our distribution and reach in our country. Now, coming to our working capital cycle. Our endeavor to optimize our working capital has started reaping benefits.
For the half year ended 30 September 2020, our working capital requirement reduced by INR 86 crores and is now standing at about INR 413 crores, compared to INR 499 crores on September 2019. We have also reduced our debt and have now become a net cash company. During Q1 of FY 2021, our export market was impacted due to supply chain disruptions. However, in Q2 FY 2021, we saw some encouraging responses on the export front and expect export trade to return to normalcy in coming few quarters.
We continue to engage with our customers through various social media campaign and advertisements, and carry out various brand building activities, which has helped us in maintaining strong brand recall and loyalty. We believe that with the complement of improving exports, traction in e-commerce sales, better product mix, celebrity endorsements, and high quality products, should further enhance our revenue across segments. We expect the second half of the year to be better in terms of revenue as well as profitability compared to the first half. Our proposed scheme to merge JM Hosiery and Ebell Fashions Private Limited with Lux Industries Limited is on track. Post our merger, we believe to further strengthen our position, not only in terms of growth, but also in terms of product portfolio, reach, and efficiency of our balance sheet, which will ultimately benefit our stakeholders at large.
Now, I hand over to our CFO, Mr. Ajay Patodia, to provide you an insight of our financial performance.
Thank you, [Udit]. Despite uncertain economic conditions, our company reported a strong growth for the quarter and half year ended 30 September 2020. Our revenue for the quarter stood at INR 388 crore, as against INR 355 crore, registering a growth of 9% compared to same period last year. This is mainly attributable to high volume growth in our winter wear, mid-premium and premium product categories. Our EBITDA for the quarter stood at INR 74 crore, registering a growth of 37%, as compared to INR 54 crore during the same period last year. Our EBITDA margin stood at 91%, which has seen a significant improvement of 380 basis points year on year, which was majorly attributable to better product mix and also product cost rationalization measure undertaken by us.
Our PAT for the quarter stood at INR 51 crore, registering a growth of 25% as compared to INR 41 crore during same period last year. We have also seen an improvement in PAT margin by 160 basis points, majorly driven by our operational efficiencies. We have reduced our working capital cycle over the last year. This has helped us reduce our interest cost as well. Our interest cost for the quarter stood at INR 2.3 crore only. The revenue of JM Hosiery Limited are INR 91 crore in quarter two FY 2021, while Ebell Fashions revenue stayed at INR 53 crore. Now, coming to our half year performance. Our revenue for H1 FY 2021 at INR 635 crore as against INR 618 crore for the same period last year.
Despite demand uncertainty on account of COVID-19 pandemic and nationwide lockdown, which led to significant loss of revenue and profitability, we were able to register a revenue growth of 3% year-on-year basis. EBITDA for H1 FY 2021 stood at INR 121 crore as compared to INR 90 crore in H1 FY 2020, signifying a strong growth of 35% year on year. The EBITDA margin is significant, significantly improved by a stellar 460 basis points, which stood at 19.1%. During the period, we have undertaken significant cost cutting measure, majorly on our advertising and marketing spend, which we plan to keep at 4%-5% of the revenue, as against 7%-8% historically.
PAT for H1 FY 2021 stood at INR 82 crore as compared to INR 59 crore in H1 FY 2020, registering a growth of 37% year on year basis. The PAT margin stood at 2.8% for H1 FY 2021, showing an improvement of 321 basis points year on year. Revenue of JM Hosiery Limited are INR 159 crore in H1 FY 2021, while Ebell Fashions revenue stood at INR 69 crore. With this, we will now open the floor for question- and- answer.
Thank you very much. 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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nihal Jham from Edelweiss. Please go ahead.
Yeah. Hi, it's Nihal from Edelweiss. First of all, congratulations on a very good performance, especially in the background. Three questions from my side. First, on the performance, if I look at your margins, one key driver has been the gross margin improvement, and you mentioned about the mix improvement, and I think in Q1 itself, you had said that there was an increase in demand for the economy segment. So if you could just highlight in the last three months, what has changed? And specifically, is there any specific category which is higher margin, which has driven this margin improvement for us? I'll come on the other two questions after.
So, Nihal, as you can see that, we believe that the main boost in profitability is coming on the EBITDA front on account of reduced advertisement expenditure. So the contribution from the gross margin is not so significant, as is the contribution from the advertising, reduction in advertising spend. Also, the product mix has definitely shifted more towards the mid-premium segment. From the mass segment, we have shifted towards mid-premium. But overall, we believe that the main driver of EBITDA improvement was on account of reduced [A&M ]expenses.
Okay. Just because, you know, if I compare from last year also, there has been a 500% improvement, and even from last quarter, from 47%, we've gone to 57%. I know, I think-
Okay.
The previous trajectory has been similar on the gross.
Nihal, so Nihal, what we believe is that you have to also take into account subcontracting and jobbing expenses into account, because as the nature of the business stands, we generally look at gross margins after taking into account which your subcontracting and jobbing expenses, which is a very, very integral part of your manufacturing process, and this is directly linked to production. So if you factor the jobbing expenses into account, subcontracting expenses into account, after that you'll get a realistic picture of gross margin.
I get that. That will be helpful.
Yeah.
So Uday, then just a follow-up would be that, could you just give a sense of what was our advertising spend this quarter compared to the last quarter of FY 2020?
This quarter, we've spent roughly about INR 15 crores in advertisement, which for the corresponding period last year was about INR 25 crores.
Got it.
So-
Advertising part, I think, in the opening remark, you mentioned that longer term you're looking at bringing it down to 4%-5%. Now, ideally, Lux as a house has, you know, quite a few brands, some which are well established, which need branding, and others which we are trying to grow. So in that background, once things normalize, do you still expect that the branding spends of 4%-5% would be enough, or you would want to get back to the earlier days?
Nihal, we believe that what we had mentioned even during our call was that the 4%-5% bracket of advertisement expenditures was for the current year. Given the COVID-19 scenario, we have cut down our expenditures, but historically, we always spend around 7%-8% of our top line on advertisement, and we believe that it is a very comfortable percentage to be in, and given the number of brands that we have in-house, we will require that sort of a budget going forward also.
So as you very correctly mentioned, if we have to nurture our brand, we have to build our brand stronger, then we are looking at from the next year onwards, next financial year onwards, we'll be looking at bringing back our advertisement expenditure to a historical normal level of about 7%-8%. So currently, yeah, the current year is just an outlier because of the current COVID-19 situation. Otherwise, we have historically maintained 7%-8%, and that is what we believe we will maintain going forward also.
That's helpful, Udit. Last question from my side. On the recovery that you've seen, in terms of the growth, be it for H1 or for the second quarter, is it possible to give a sense, how the difference has been between rural and, say, the top seven, eight cities? And I ask this because there has been quite a divergence if I check with some of the other retailers. So I just wanted a sense from you, and that'll be helpful.
So yeah, earlier seen, during the quarter one, the majority of growth which was witnessed was coming in from the rural sector, because the urban sectors was witnessing a stricter lockdown. But talking about quarter two, we believe that lockdown rules were quite relaxed during quarter two. So during quarter two, there was a, you know, growth which was coming in, growth from the rural as well as the urban sector. So both these sectors have performed equally well in the current quarter. That is for the current half year, and going forward, we believe that in the next half of the year, the growth should be even better because of festive demand, which we are seeing right now. It's quite a very good demand picture right now, which we are witnessing.
Whether it be our summer products or our winter products, overall, all sorts of products are witnessing very good demand, at least until now, what we have witnessed during the Diwali sales. So we are very upbeat about the performance going forward, and we believe that H2 is only gonna be better than H1. You know, the kind of support which our customers have bestowed upon the company by purchasing our products only reinstates the fact that our products are more of a basic necessity or a basic essential for them, rather than something which can be postponed. That is quite visible. If you see, even during the quarter one sales, the sales of the company, we had bounced back to about 95% of our sales.
We are very thankful for our customers in that aspect that they have always been loyal to the brand, and we have always believed that, you know, these are such basic essentials that you need to consume them.
Sure, Udit, that's helpful. I think I'm done, and wish you all a very happy Diwali. Thank you so much.
Thank you so much.
Thank you. Thank you. Any participants who wish to ask a question at this time, then may please press star and one. The next question is on the line of Shalini Gupta from Quantum Securities. Please go ahead.
Yeah, good evening to everybody. Sir, I just wanted to check, you know, this merger, impending merger with the group companies, that is gonna really strengthen the company. But when I run my numbers, I find that the return ratios will come down quite substantially post the merger. So if you can discuss the logic behind the merger, and why is the merger taking so long? It was first announced in July 2018, and it is not yet ratified. So if you could talk about this.
Shalini, just to talk about, just to spend some time on the merger bit, the merger was announced quite back in 2018, but in fact we have also mentioned it in our presentation and in our balance sheet as well. We had a very successful hearing with the NCLT about one month ago, and the company, all three companies involved, which is Lux, JM, and Ebell Fashion, are scheduled to have their EGM on the twenty-seventh of this month itself, whereby all the shareholders will be meeting up, all the secured debtors and secured creditors will be meeting up, and the process is already on a faster track than what we were in our previous call. Compared to our previous call, we have already moved one step ahead.
And, after our twenty-seventh of November annual extraordinary general meeting, we believe that, after that, it shouldn't take much time because the ball has already started rolling, and now it's just a procedural time of, we guess, about approximately three months. So what we are targeting is that by around, February, mid of February or end of February, is what we are looking at, closing the merger, provided the subject to that all the regulatory bodies take up the case as, as they have already been doing. So we are already there, and the merger process is already underway. In fact, from the last, call, we have already made a lot of progress.
And talking about the financials of the merger, we believe that we somehow couldn't get the point as to how the return ratios are deteriorating. Because if you look at the numbers two years ago as well as last year, the listed entity, which is Lux Industries Limited, has. It's always been an EPS accretive deal for Lux Industries Limited. If you add up the top lines and the bottom lines, and if you happen to take into account the dilution which is happening, as well as the profitability which is coming in, you'd only see that the EPS, we are expecting the EPS to shoot up by about 20-25%.
No, no, we're not talking about EPS. I'm basically talking about the ROC and the ROE. So, EPS, I'm not at all contesting that that will go up. But, what I was really surprised by is the fact that the return ratios are coming down. So, I mean, basically, I really don't want to say anything more, sir, on this issue.
Talking about ROC and ROE, if you look at our second quarterly results, Lux itself is a net cash company as of now. Given the COVID-19 scenario, we believe that it was quite a feat for our company to in fact achieve that. Even under such very difficult times, the company has in fact been able to bring, retire all debt and become net cash. Even Ebell, talking about Ebell Fashions Private Limited, that also is a net cash company as on date. There is very limited amount of debt which is there on the books of JM Hosiery. But if you look at the group entities combined, the debt will again come down to zero. We believe that going forward, the return ratios will definitely bounce back.
No, no, it's not about return ratios. Basically, the capital employed is gonna go up because of the price that you are paying for the merger. It's not about debt. It's not about, you know, EBITDA and stuff like that. It is basically about the money that you are paying for the two companies. So because of that, the capital employed goes up, and because of that, the return ratios come down. It's not also... It's a-- I mean, those are two very good companies, very good brands, no doubt about that.
So that is.
Okay, I guess I'll take this offline, sir.
Thank you.
I guess I'll take this offline, and sir, I had a couple of more questions about the merger. I guess I'll push in terms of the increase in turnover and PBT. Because as per my calculation, in financial year 2022 is when the merger will ... we will actually see the benefit of it. PBT is up by 75%. And turnover, I mean, I have some numbers. I just wanted to bounce them off you to just understand that I'm not going off track on those. So sir, I guess I'll speak to ... who can I speak to?
Mr. Patodia, our CFO, will be the right person you can contact. He can take you through all the financials, and if there is any sort of a confusion which is there, we'll get cleared out. Sure, sure.
Sure. And, sir, I just wanted to check the number of distributors that you have right now, and also the number of outlets and the, you know, what shall I say, the air-conditioned outlets, basically not the regular outlets. I just forget what you call them.
Yes.
If you could just... and also the EBOs.
So we have around 950 distributors. We don't have an exact-
Mm-hmm.
950.
950. Mm-hmm.
We have a 950 number of distributors with us, and we don't have the exact count of the number of retailers. But a rough estimate, which we get from our dealers, is approximately around two lakh active retail outlets, which we have. So we don't have the exact count because we deal in a wholesale model rather than a retail model. So we have a rough count of retailers. And the number of EBOs right now, we are in a development stage of the EBO, so I don't think so this would be the right time to talk about it, because we are in a development stage and some more work is being done into that aspect, and we will be able to guide you better relating our reviews in our next concall.
Okay. And, sir, last question from my end. You were talking about the fact that there has been a mix change for the better for you. So, I just wanted to get a better sense of this, because on the one hand, we have a situation where the economy segment, because of lockdown and stuff like that, is actually growing faster than the rest of the company. Rather, what's the reason for pushing growth in the rest of the company? And now we see a gross margin expansion because of, partly because of a mix change. So if you could just please explain this?
Yeah, like we were comparing our gross margin numbers and mix change in comparison to quarter one of this financial year. So what happened in quarter one of this financial year, our mass segment in economy segment, we have two segments. One is the mass segment, which is Lux Venus, and one is the mid segment, which is Lux Cozi. So we saw the mass segment to move at a very high growth than the medium segment of Lux Cozi. So that happened in quarter one, and in quarter two, the reverse of that happened. We saw the medium segment, which is Lux Cozi, started moving faster than our mass segment, Lux Venus.
So it is both the segments together contribute to the economy segment, but there has been a mix change, and now we are moving towards a normalized mix, which was there at pre-COVID levels. So, that is why, in quarter one, there was a gross margin decline, and in quarter two, the gross margin has remained almost same as that of FY 20.
Okay. Thank you, sir.
Thank you. The next question is from the line of Prerna Jhunjhunwala from B&K Securities. Please go ahead.
Thank you for the opportunity. Congratulations, sir, on a strong set of number across P&L and balance sheet. So I would like to understand what was the volume growth for the quarter and realization growth?
So the split between volume and value was about 50/50. So, in a totality, it was roughly 4% volume growth and 4% value growth.
Okay, okay. And, sir, yarn prices in the quarter were quite low. We didn't see any benefit of that coming into the gross margins despite higher share of premium products. I'd like to understand what happened in the raw material cost.
So when the yarn prices are declining, so the company is already having certain amount of stock in their hand. So it is, you know, like a, it's like a more [FIFO basis], so the company is already the stock which is there will get sold out first. So the reduced yarn prices will impact, the benefit will accrue in the coming months. And in fact, right now, the yarn prices have bounced back, and they are at their lifetime high. In fact, the yarn prices have gone up by about 15%-20% in the last one and a half months.
Yeah, but you will be having an inventory of, which you would have accumulated one, two months back.
Yeah.
So the benefit would be seen in two, three quarters then.
Definitely.
Okay. And sir, I also wanted to understand that, you know, this whole first half was actually there was a supply constraint in the market, which led to, you know, the market turning into favorable for the manufacturers and brand players. How do you see the market when the normalcy comes in and the impact of the same on your receivables? Do you see all the, you know, players, you know, sitting tight on their receivable days as now, or will have to, you know, be a little relaxed on that term to gain market share?
Uh-
After maybe second half, maybe next year or beyond.
We won't be able to comment about the market, but about us, we will be able to maintain the same number of debtor days coming forward. In fact, our plan in the coming, long-term perspective is to reduce the number of debtor days.
Okay. And what would be your long-term target? Any targets to share there?
Right now, we don't know actually till when the COVID scenario would extend up to. So we would be able to give you a better target when I think everyone is vaccinated and the market normalizes.
Okay, okay. And sir, you would be running at full capacity, as I'm seeing that your subcontracting expenses are increasing. Do you plan any CapEx going forward to cater to the increased demand?
The further CapEx are under consideration. If there will be any announcement made, we will be informing you.
But we are definitely expecting some amount of CapEx in the current fiscal year.
Okay, okay. Thank you, sir. I'll come back to the question queue for further questions.
Thank you. The next question is from the line of Sunil Jain from Nirmal Bang Securities. Please go ahead.
Yeah, good evening, sir. My question relates to the subcontracting cost picture. Why this has increased so much in this quarter? Any specific reason for that? And whether this has any impact on the gross margin?
So as we, as we mentioned during the beginning of the call, whenever we are looking at gross margins pertaining to our industry, it will be a more appropriate measure when you take into account subcontracting, subcontracting expenses as a direct cost. So after you take subcontracting expenses as a direct cost, and then you, if you arrive at the gross margins, that will be a more realistic, holistic picture. So because subcontract, because our, the method of production in which we are operating, a bulk of our productions are getting, contract manufactured. So different, so different job workers, those who are there with us is very, very long. So in fact, that has been a very direct cost for us. So we believe that we should always, see subcontracting expenses as a part of direct cost and arrive at gross margins after that.
Yeah, that only I've done. In fact, when I see your subcontracting cost, it is one of the highest in last so many quarters.
Yes.
So I was just thinking that, some margin may have been lost in that, and because of that, the gross margin might have got impacted.
There has been no margin erosion on account of subcontracting expenses, because when you talk about subcontracting expenses, the cost, so say the cost per unit is fixed. So say, if I have to manufacture one dozen of vest or one dozen of briefs, the cost to manufacture one dozen of briefs has been pre-set. So whenever the subcontracting expenses are going up, that only means that the production is going up.
Mm-hmm.
So there is no margin addition or margin erosion on account of subcontracting expenses. It is a purely directly variable cost of production, and it is directly linked to production.
I think we will still... Yeah, I-
When the subcontracting expenses have gone up, you can also see that the inventory has also gone up in accordance to that.
Yes, completely. Yeah. Okay, I'll take... I was thinking on that line, we like, you had done more subcontracting in this quarter because of maybe-
When you are arriving at gross margins, you need to take into account cost of material consumed, stock in trade, change in inventory, as well as subcontracting jobbing expenses. Once you add up all these four, then you'll get a very realistic picture of the gross margin levels.
Yeah. Since that's the second question, like.
Sorry, Sunil, you're not audible. Can you be a bit loud, please?
Hello. Yeah, now I'm audible?
Yes.
Hello.
Slightly better. Go ahead, please.
Yeah. Second question is more about the advertisement spend. You had done around 4% in this quarter. So coming two quarter will be around 4%-5%, or it can be higher, specifically third quarter when you have IPL amount?
No. So we, for the entire year, we have earmarked about 4%-5% as advertisement expenses. And, you know, the distribution of the advertisement expenses overall will be 4%-5%. If you look at quarter one, two, three, four, we believe that all the four quarters will roughly see an equitable distribution of 4%-5%. That is how the provisioning has been done.
Okay.
Going forward in Q3 and Q4 also, you can expect a 4%-5% budget of advertisement expenses.
Right. And sir, about this Ebell, there we have not seen much recovery. And, what's the reason and how you see in the coming quarter?
Talking about Ebell, Q1 was very down, so the performance of our second quarter has been much better than our first quarter. So in our first quarter, we were doing about, we had only bounced back about 40%-50% of sales. Talking about quarter two, we have bounced back to 70% of sales, and talking about quarter three, we have in fact come back to pre-COVID levels. In fact, we are seeing a good amount of growth coming in in the quarter third. So all the pent-up demand, which was there in quarter one and quarter two, is spilling over to quarter three.
Okay, that is great to hear that.
Yeah. So it just depends on the customer sentiment. It is just that the ladies customers are coming in to shop little later.
That's true. I agree. And, sir, the last question relate to your winter season sales, which generally happen in Q3 or what?
Can you please repeat yourself? You were not quite audible.
This winter season sales normally happen in Q3, if I'm not wrong?
So bulk of the sales, the sales are equitably distributed between Q2 as well as Q3, because a lot of our distributors pre-book and take the winter stock in advance because of, you know, because of predicted sales. No one wants to wait for the last minute to book their stocks. So the sales are equitably distributed between quarter two as well as quarter three. So talking about quarter two, quarter two, our winter wear sales this year was about INR 100, about INR 125, about INR 120, INR 125 crores.
Okay, and similar sales can come in even Q3 as well?
Q3 would be slightly lesser. Overall, we expect about INR 200-INR 220 crores of winter wear sales.
Okay.
Out of INR 220, INR 200-INR 220 crores, we've already achieved about INR 120-INR 125 in quarter two, and the balance will accrue in quarter three.
Whether winter has a higher margin or it's a comparable margin?
No, definitely. Winter, we're talking about winter wear products. Winter wear products see one of the best margins across the entire product portfolio. So winter wear is a very, very profitable category. And this year, on account of COVID, there has been a supply constraint on the winter wear segment. And on the other hand, as you can see all across newspapers and everywhere in media, the winter this year has been quite good. In fact, in Northern India, in Delhi and everywhere else, it has been one of the coldest Novembers that we have ever seen. So winter going forward, as you know, even until now, we are seeing a very good traction coming in on the winter wear side.
So this year we are expecting winter wear to be really good, both on account of supply constraint as well as demand being very upbeat.
Okay. Let me ask a question about-
And being an organized player, so not everyone is able to manufacture the winter goods. So, even during the current situation, the organized players will be able to leverage this supply constraint to their side, to their benefit.
... Agreeably. And so last question about the market share, how much is our market share and whether it has improved in the current period?
So it is very difficult to come up with a market share because the market is very, very fairly unorganized, so it is very difficult to come up with a market share. But yeah, talking, giving you a very qualitative sense, our growth compared to the industry has been on the higher side, so we have definitely been witnessing an increase in market share, and we expect the increase-
Ladies and gentlemen, it seems the line for the management has been disconnected. I request all of you to stay connected while we reconnect them. Thank you. Yeah, you're reconnected. Sorry, ladies and gentlemen, it's, we have the line for the management reconnected. So Sunil, may I please request you to repeat the question, please?
Yeah, yeah. My question has been answered, and thank you very much for taking my question and all the best for the future and thank you.
Thank you. Thank you. The next question is from the line of Sachin Kasera from SVAN Investments. Please go ahead.
Yeah, congratulations, and, for a good set of numbers. My first question was regarding winter wear. So if you could just tell us, what was the growth in winter wear for this quarter per se? And when you indicated that you're building INR 200 crores upwards for this winter, what are the targets for the entire season growth with the last year?
For the current quarter in the winter wear segment, we've seen about a 15% growth. And we believe that if you look at the entire season, we are again looking at a 10%-15% growth.
Sure. Secondly, you mentioned that the break-up of 4% volume and 4% better realization, so that all 4% is because of price hike or again, there's a component of better product mix and price hike, and could quantify those two.
So, the product mix has, as you can see, shifted a bit towards the winter side, because the winter has been a fair amount of growth in the current this thing, so it has been on account of product mix change that you can see better realizations coming in.
So fair to say that last part of this 4% is because of better product mix and much less due to the price hike?
Correct.
Okay. Secondly, regarding this merger of the two companies, are we sharing the annual reports on the website? Just because there are some confusion regarding the return on capital dilution that this too could have. So I had, I just wanted to inquire whether we are sharing the annual reports so that-
So all the previous annual reports of the two unlisted entities have been there on our website.
Sure, sure. And since you mentioned that, you know, the gross margin, the right way to decrease to the subcontracting expenses, I would suggest that, you know, from the presentation, I mean, the presentation, if you could share the gross margins after doing that, that will be better, that will give me a better idea how the gross margins are moving.
So the gross margins after taking into account jobbing expenses is somewhat flattish at 33%, 32%-33%.
Sure. And my last question is that you mentioned that post the merger also more or less we'll be debt free. So going ahead, what is going to be the dividend payout policy? Or is it that we are looking at some growth opportunities either in terms of a large CapEx or some acquisitions, or will we look in terms of a buyback or a higher dividend?
So until now, all the cash which was generated in the company was used to retire debt. In fact, now that we are in net cash, going forward, we have already stated our dividend policy to be about 25% payout ratio. So whatever PAT is coming, whatever PAT the company is generating, about 25% of the PAT will be distributed as dividend. That is what the company intends to do. And we believe that, given our set of numbers, we should be comfortably able to achieve that.
Mm-hmm.
And, there was another question which you mentioned.
Growth opportunities.
Yeah. So talking about CapEx and growth, talking about CapEx and growth opportunities, obviously, the company is on the lookout. If there is any interesting opportunity which is there underway, the company should pick it up, and the company is always actively on the lookout of any growth opportunities that comes on the way.
...As we mentioned that some amount of CapEx might already happen in the current fiscal, because see, when we want to grow, we also want to increase our capacity. So some amount of money will also be deployed there. And talking about the two unlisted entities, there was a slight error, that the annual reports are not there on the website, but it is available with the ROC. In fact, we have also the current year, the FY 2020 ended audited balance sheets are also filed with the ROC. So you can just file for an application and get a copy for Ebell Fashions Private Limited and JM Hosiery Limited.
Yeah, but since we are looking at, you know, Lux is now starting to look in a very high term of corporate governance standards and transparency, my suggestion would be if you can put it on the website, that would be really helpful for us.
That is a very valuable suggestion from your end, and we'll definitely take it up.
Yeah. And just one last question regarding the mix changes. So what is the current share of revenue between premium, mid, and economy, and how do you see that mix changing over the next two to three years? Thank you.
So talking about the mix change, so in fact, it is very difficult to give a quarter-on-quarter comparison for mix change because of the uncertainties which are there in the market. But yeah, talking, giving you a very broad sense as to where, as to what it stood last year, so seeing FY 2020 last year, our product mix, as mentioned in the presentation, if you can see, the premium segment is contributing roughly about 21%, the mid-premium is contributing about 46%.
Mm-hmm.
and the economy segment is contributing about 33%.
Yeah. So that I have seen, but if you could just tell us broadly over a two to three-year period, how that would change?
So this pyramid is only possible at the end of the year. But yeah, talking about where will we be standing at the end of FY twenty-one, so right now, see, given the COVID situation, it is very tough to predict as to where the market will go, but as of now, we are more or less, standing at a similar pyramid, as of now.
I'm not talking of this year. I'm saying your medium to long-term objective, say, from two- to three-year perspective, not from FY 2021.
So the long-term objective, the premium segment is growing at a higher rate than the mid and the economy segment. The premium segment would be growing anywhere between around 15%-20%, whereas the mid segment would be growing around 10%, and the economy segment would be growing at a lesser rate than 10. So we would see gradually a mix between the premium segment and the economy segment.
Is there a significant difference in gross margin between premium, mid, and economy?
Yes. The economy segment, the mass segment, would be anywhere around 8%-10% EBITDA level margin, whereas the premium segment would be around 18% EBITDA level margin.
Sure. Thank you very much, and wish you all the best.
Thank you.
Thank you. The next question is from the line of Ridhima Chandak from Roha Asset. Please go ahead.
Good evening, sir. Thank you for the opportunity. My question is on this economy, mid, and premium wear category. So EBITDA margin difference is slightly quite high between the mass and the premium wear. So what is the difference between the gross margin in these categories?
The difference between the gross margin would be same as at the EBITDA level margin because our overall overheads are distributed equally between the premium segment and the economy segment.
Okay. As you said that, our premium products would grow at a CAGR of 20% in next two to three years.
15%-20%.
Yeah, 15%-20%. So, does it mean that share of revenue contribution from 21% will increase to 25% or 28%? Then, parallelly our EBITDA margin would grow accordingly.
Yes, it should.
Okay. And, in terms of volume, what is the volume number, Q2 versus last Q2 and half yearly?
Just a minute. So the volume numbers for FY 2021 Q2 was around INR 5.32 crores, whereas for quarter two, FY 2020, it was INR 5.08 crores.
Okay. Okay. And, half yearly?
Half year, I'll tell you the volume numbers for Q1 also. You can add it up.
Okay.
So for Q1, FY 2021, it was INR 4.69 crores.
Okay.
Q1, FY 2020, it was INR 4.68 crore.
My next question is on the Ebell Fashions and JM Hosiery. So our FY 20, the revenue was approximately near to 310 crores in the JM Hosiery, and Ebell is approximately 271 crores. So what is our outlook in the next two to three years that what sort of level we want to take it both these entities?
So both these entities, last year it was unmerged, and we expect that this year it would be merged. So we won't see a separate figure by this financial year-end. We would see a merged figure, firstly. Secondly, the business in these companies are growing at the same level on a long-term basis as that of Lux. This year being an outlier, if you just leave this year, FY 2021, from the next year, FY 2022, this would grow at the same level together combined as that of Lux.
... Okay, okay. And, as you said that, our direct reach was approximately two lakh retail outlets. So, is there any plan to open EBOs and increase our direct retail outlets, whether through MBOs or whether through LFS? What is our two to three years internal plans?
We have already. We'll be happy to announce that the company has launched its first EBO store just last Sunday, which is about three days ago, by the name of Cozi World. The first store was opened in Calcutta, and we have a plan that within this financial year itself, we'll be opening about 20-25 stores. Going forward, by the end of FY 2022, we are looking at opening about 100-150 stores. These will be a mix of company-owned and franchisee-operated stores. We believe that going forward, the company is also exploring the modern trade route, and this should augur very well for the company in terms of brand building, in terms of sales, in terms of grabbing new customers.
So the store which was opened was opened by the name of Cozi World.
Okay, so
It will be housing all the brands which are owned by the Lux Group of entities.
Okay. Okay, so what is the CapEx per store on an average?
The CapEx per store would not really be mattering because the first few stores which we will open will be company-owned, whereas the balance, all the stores will be basically under the franchisee. The investment will be made by the franchisee.
Okay, so-
Yeah, yeah, it will be mostly funded through the franchisee route. And the only investment which goes in from the company side is basically in the stock, on the stock side.
Okay. Okay.
Which is not really a matter of concern for us because it's company-owned stock, so at any point of time, we can liquidate it. So-
Okay.
Yeah.
And, on that side, so, on the advertisement and promotion side, going forward, which of the category would be our major focus in terms of advertisement? As we said that we want to grow in the premium and high premium segment. So what is the strategy on the A&P spend?
So the strategy as far as the A&M spend is concerned is looked after by the management. It's very difficult to spell out as to what we will be doing going ahead. But yeah, just to give you a sense that definitely the company is looking at spending more and more on the mid segment as well as the premium segment, because these are areas where the company enjoys higher margins. So the company's ad will be directed more towards these segments.
Thank you. Ms. Chandak, I request you to join the question queue for any follow-up. The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund. Please go ahead.
Yeah, good evening, team, and, congrats for the good set of numbers. My first question is on the receivable days, where we have seen an improvement on, almost more than 20 days on a YoY basis. So my question is: How sustainable is this, improvement, given that, there could be tailwinds, pertaining to COVID as well, where, several other companies have also seen, improvement from the receivables side?
So for the receivables, we feel that this will be consistent as we have taken out a very unique scheme for our distributors to reduce our receivables, and which was highly successful in the market. So we believe that the same would be continuing on comparison to YOY basis, same would be continuing forward in the coming two to three years. In fact, we are planning to reduce it further.
And secondly, is it fair to say that both JM and Ebell would also have similar working capital cycle as the Lux standalone, given that at the group level also, Lux is net cash?
Yes, if we combine both together, it would be at the same position as Lux Industries.
Okay. Okay. Thank you very much, and all the very best.
Thank you.
Thank you. The next question is on the line of Pushkar Jain from Sequent Investments. Please go ahead.
Hi, sir. Congrats on the good set of numbers. I just have a couple of questions. What do you think will be our sustainable EBITDA margin going forward post the merger?
So right now we have the standalone numbers with us. Talking about Lux, if you look at the margins, right now, the margins are, the EBITDA margins have improved mainly on account of advertisement, but we believe that going forward, that would not really... You know, we would kind of bring the advertisement accounts to normal levels. So we believe that they might, you know, going forward, the same EBITDA levels will be slightly difficult to maintain, but we should be looking at about 16%-17% EBITDA levels going forward.
So that would still be an improvement of a percent, right? So fifty, if it's 17%.
Yeah.
16% is our normal EBITDA, right?
Yeah, so 16%-17% is what we are looking at.
Okay.
We will see.
The second question was towards the outlook. Last, on a CNBC interview, you said that you gave a guidance of a single digit growth for FY twenty-one. Is it, is there any change there?
We are looking right now, our internal target is a double-digit growth, but still we would be guiding for a single-digit growth.
Okay, sir. Thanks a lot.
Thank you. Ladies and gentlemen, that would be the last question for today. I now hand the conference over to the management for the closing comments. Thank you, and over to you.
I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with our strategic growth advisor, our investor relations advisor. Thank you, and wishing you all a very, very happy Diwali and a very prosperous new year. Stay healthy and stay safe.