Ladies and gentlemen, good day, and welcome to the Lux Industries Limited Q4 and FY20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. The statements are not 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, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal 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, President of Marketing. Thank you, and over to you, sir.
Good morning, and a very warm welcome to everyone. I, along with me, have Udit Todi and our CFO, Mr. Ajay Patodia, and SGA, our investor relation advisors. I hope you have received our result and investor presentation by now. For those who have not, you can view them on our website. Before we proceed with the highlights for the year and the quarter gone by, I hope you and your near ones are safe and healthy. The last few months has been tough for everyone, and I'm sure all of us, both in work and personal life, have discovered a whole new way of living. These are challenging and uncertain times as India got struck by COVID-19 pandemic in mid-March 2020. Since then, the government across states started implementing stringent lockdown measures, which led to disruption and halt in economic activities across industries and sectors.
We were growing at a healthy rate until the last few days of the quarter, where we had to temporarily shut down our plants and business operation as per government's lockdown directives. This led to the loss of revenue and thus, in turn, impacted our bottom line. Despite these challenging situation, our performance has been noteworthy, and we have been able to maintain our margins, which are way better than the industry average. We have been able to resume our plant operation from May 2020, after taking all regulatory approvals and are adhering to all regulatory norms for social distancing, health and safety. Since lockdown restrictions have eased out in major cities and states of the country, we are seeing good traction in sales and distribution. We are expecting a gradual demand uptick in the coming quarters, and we hope things will normalize to pre-COVID levels ASAP.
The innovative industry is filled with advancements, and we have already been at its forefront over the years. There has been an evident shift in the industry, and this situation has been no different. Our decades of experience in the industry, strong business model in place, team of experienced professionals, coupled with the state-of-the-art manufacturing facilities, gives us the confidence and about adapting to these changing business environments and respond suitable, suitably to fulfill the needs of our customers. I am happy to state that during this quarter, the board of directors have recommended a final dividend of INR 2.5 per equity share of INR 2 each. This will take our total dividend paid for the year to INR 12.5 per equity share.
Our dividend payout is in line with our endeavor to maintain a payout ratio of 25% of the annual standalone profit after tax for the company. Also, the group debt level as of March 2019 was around INR 185 crore, out of which we have been able to retire most of it in the current quarter due to the strong demand. With this, I will now ask Mr. Udit Todi, who is spearheading the strategy for the company, to share his thoughts.
Hello. Good morning, and a very warm welcome to everyone. I hope everyone is keeping safe, and my prayers to those who are fighting this out. Now, coming to our quarterly and yearly performance as on March 21, 2020 , we have delivered a better-than-expected fourth quarter, considering several operational challenges amidst lockdown in the second half of March 2020 . Our manufacturing, marketing, sales and distribution team continued business as usual until March 22, and we were growing at a desirable pace until government directives to temporarily shut our business operations amidst lockdown. Despite these hurdles, we have been able to demonstrate better operating metrics, which are better than industry averages. This is an outcome of our continuous focus on brand-building activities, strong product portfolio, and adoption of latest technology in our manufacturing processes.
On the supply chain aspect, we have one of the largest distribution networks in this industry, having strong presence in North, East, and West parts of the country. During these testing times, we have been in constant contact with our distributors, dealers, and retailers, who have managed to provide us with valuable data points to sense the market pulse. As we are aware that lockdown restrictions have eased out in most parts of the country, we are witnessing good demand trajectory in the rural and semi-urban areas. This is mainly attributable to our widespread dealer network, strong brand equity, and goodwill. Our industry is extremely fragmented, with multiple small players with limited financial resources. We believe there is bound to be a consolidation in this current market situation, which will throw us both short-term and long-term opportunities.
Given our financial stability and response strategy, we feel confident of emerging as a stronger player from this pandemic and grab the market share from the unorganized sector. Now, on the working capital front, our focus has been to constantly shorten our working capital cycle and thus, in turn, to improve our operating cash flows. For the year ended March 31. 2020 , our working capital cycle has reduced since September 2019. Going forward, our aim is to reduce our working capital even further. Our proposed scheme to merge JM and Ebell Fashions Private Limited with Lux Industries is on a speedy path, and we expect it to complete as soon as possible. We believe this merger will strengthen our position and will help us fulfill financial objectives, not only in terms of growth, but also in terms of strength and efficiency of our balance sheet.
This will ultimately lead to long-term value creation for our stakeholders. Lastly, if not for COVID, we would have seen a revenue growth of 8% for the quarter, with EBITDA and PAT growing by 6% and 22% respectively. We have seen minimal impact on Q1 since we restarted operations in May. For the quarter, our revenues would be impacted between 5% to 12%. We have seen good traction in the domestic market in May and June. Our revenues would be slightly lower only due to reduced exports since there are global restrictions on the same. With this, I would like to hand over to Ajay to provide the financial highlights for the quarter and full year.
Thank you, Udit Todi. Our company reported a strong quarter and year ended March 31,2020 . Our revenue for quarter four FY20 stood at INR 288.2 crore versus INR 391.2 crore, registering a degrowth of 26%. This was on account of loss of revenue due to plant shutdown. Our EBITDA stood at INR 47.7 crore as compared to INR 64.6 crore in quarter four FY19. We have been able to maintain our EBITDA margin at 16.5% as compared to quarter four FY19. Our PAT for the quarter stood at INR 29.8 crore versus INR 36.8 crore in quarter four FY19.
PAT margin for the quarter ended at 10.3%, showing an improvement of 90 basis points compared to 9.4% in the same period last year. Coming to quarterly performance of J.M. Hosiery clocked at revenue of INR 80 crore, while Ebell revenue stood at INR 61 crore. Now, coming to our yearly performance. Our revenue stood at INR 1,209.9 crore versus INR 1,260.1 crore. Revenue remained flat on account of some impact of plant shutdown due to COVID. Our sales and marketing expenses stood at INR 89 crore, which is approximately 7.36% of our revenue. We have invested INR 566 crore in our brand across the eight year ending FY 20.
EBITDA for FY20 stood at INR 190 crore as compared to INR 187 crore in FY19, registering a growth of 2% year-on-year basis. The EBITDA margin has seen an improvement of 33 basis points, which stood at 15.7% versus 15.4% in FY19. PAT for FY20 stood at INR 122.5 crore as compared to INR 98.8 crore in FY19, recording a growth of 24% year-on-year basis. The PAT margin stood at 10.1%, a stellar improvement of 200 basis points as compared to 8.1% in FY19.
Coming to yearly performance of J.M. Hosiery and Company, it closed a revenue of INR 309 crore, while Ebell Fashions revenue stood at INR 271 crore, thus making the group turnover around INR 1,790 crore and a group EBITDA level around INR 270 crore. For FY20, our return on capital employed stood at 27.8%, whereas return on equity stood at 24.7%. Net debt to equity ratio for the year stood at 0.3. With this, we will now open the floor for question and answer.
Thank you very much. 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. Reminder to the participants, anyone who wishes to ask a question may press star and one. The first question is from the line of Lakshmin arayanan K from ICICI Mutual Fund. Please go ahead.
I think, in terms of export, what has been... Sorry.
Mr. Narayan, your voice is not audible. Please use the handset.
Yeah. Is it better now?
Yes, it's better.
Yeah. I just want to know what is the mix of exports and domestic for the full year? How was it last year, FY20 and FY19?
The export is around INR 135 crores, which is the same as 2019, and domestic remains at around INR 1,075 crores.
What has been our distribution expansion this year? How many more kind of, you know, footprint we have actually expanded?
... the net distribution expansion has been the same. The distributor numbers has been the same as on FY 19. There has been new distributors we have added, plus some of the distributors have retired also.
Got it. And what total number of multi-brand outlets?
Sorry to interrupt you. Please repeat your question. Your audio is not clear.
What is total EBO reach you have via these distributors? What is the mix across the regions? If you can give some idea.
We are not exactly present in the EBOs. Our channel of distribution is a wholesale channel of distribution, who in turn sell to the MBOs, and finally to-
Sorry. I was thinking about MBOs. My bad. So I was just thinking MBOs.
Yes. Can you come again with the question?
Okay. What is the reach for MBOs? I mean, I made a mistake. I shouldn't have asked EBO, MBOs.
Okay, the total reach out for MBOs is approximately between 2.5 lakh to 2.105 lakh.
Okay. And what's the distribution across the your sales across the various regions, North, East, West, and South?
The Eastern would be around 27%, the Western would be around 19%, the Central would be around 16%, and the Northern would be around 25%, and the remaining is for South India.
Got it. Thank you, sir.
Thank you. The next question is from the line of Nihal Jham from Edelweiss. Please go ahead.
Yeah, thank you so much. I have a question, Saket and Anil, both of you are doing fine.
Thank you.
My first question was, you know, just to specifically understand, in Q4, when you say that, there was a degrowth of 26%, is basically that you were not able to ship the orders to the wholesale channel, and that is how you have calculated the impact. Is that the right way to look at it?
More or less, yes, that should be the right way to look at it, but because we always have a March scheme for our distributors. So, that came to a calculation that there were orders which we had to ship, as well as we had to receive few orders from our distributors on the front, so that they can close their scheme and achieve their targets.
Sure. The other question is that, you know, innerwear is mainly a non-essential category, and, you know, in Q1, for most part of the country, you had an impact, and most of the shops were closed. And even for some of the other categories that we've checked, Q1 has been quite a washout. What is surprising is that how is it that only your sales have fallen 5-10%, which I think, as you've given the breakup, is only for the month of April? So again, is it that you've, you know, sent it to the distribution or the wholesale channel, and you will wait for them to liquidate it in the coming months?
How is that the impact is much lesser than what other players are, have experienced, and despite the fact that being a non-essential category, there was a complete lockdown for Q1?
So actually, what we are trying to say is that, the kind of products which we are selling, which is basically men's innerwear category, even though the government does not classify it as essential, but in practical daily purposes, it is the most essential product which all of us would use on a day-to-day basis. Although during the lockdown, I mean, during the first few days, we were not able to sell, but the consumption of our products had not stopped even for a single day. There has not been a single day during which any of our consumer will not be using our products. So during this time, the consumption has been proper, and after the lockdown was announced on the of March 22, and we have been able to resume our operations from of April 29, which is end April, beginning of May.
So since the beginning of May, we have been started to ship all our orders to our distributors and dealers. And coming to the second part of your question, which was that whether the dealers are stocking the products and not being able to liquidate them. So I would just like to give you a better understanding of the same. In fact, our dealers and distributors have been, are willing and have quite done so. They are paying us upfront money for all the products which they are purchasing, because in turn, the sales which they are also seeing cash sales happening. So in fact, the credit in the system has gone down substantially. We have been taking upfront money from our distributors, and our distributors have been taking upfront money from our retailers.
So whatever goods we have shipped has ultimately gotten liquidated even at the distributor and the retailer point. So the entire supply chain right now is kind of going on a hand-to-mouth basis. So the demand in the current quarter we are seeing is pretty good.
Also, I would like to add to it that the product category which we deal in is not a cyclical purchase. Like, our consumers who purchase our products, it is a necessity purchase for them. They don't have a habit of buying it once every year or once every eight months or ten months. They have a habit of buying when it is required for them or when the products are in such a bad shape that they need to require to buy a new product. So our product doesn't fall into the cyclical purchase category, but into a necessity purchase category. So there has been a continuous purchase and demand of our products to our consumers as they require it, as they do not have any other choice during that time.
Absolutely. So, if I just clarify better on that, would it be right to say out of the two and a half, two point seven lakh MBO outlets, that you mentioned on the start of call, most of them are obviously not in the top ten cities, where, you know, there was limited lockdown and they continued through the quarter. Would that be a right way to think of it?
... That would be absolutely right. Most of these retail counters would be outside. Although we have a lot of retail counters even in the urban areas, but a bulk of it would be in the non-urban areas, and even during the lockdown, by different kind of means, all of them were more or less operational. Because, under the rural side, even in the rural areas, the lockdown, I think the impact of the lockdown was not felt so much. So our products have been able to do quite well. In fact, it is just an insight which we received during this lockdown days, that, in the rural belt, a lot of kirana stores are in fact have also started selling, basic men's innerwear. So that again, became a new sort of a counter during this lockdown.
That is what the people came up. That was a different kind of a solution which, the retailers and the distributors have come up with. So all of these, combined, has helped us, achieve, good sales figure for quarter one, because right now also, quarter one is underway, and we will not be able to give you any, exact numbers of the same. But, just to give you a guidance, that quarter one sales and demand, both have been, pretty good.
Yes, sir.
The entire channel and pipeline, right from the manufacturer down to the distributor and the retailer, has been on a hands-to-mouth basis, and the channel is quite empty right now.
Sure. Just one last question from my side. Could you update on how the performance of ONN and One8 was for the entire of this year and, you know, if you have any targets for the next year?
So as far as ON is concerned, for the year FY20, we in fact seen a growth of about 5%. Vis-à-vis, with the company sales have remained flat, ON as a sector has grown about 5%. And, considering our middle and the economy segment, so the middle segment has done better than the economy segment. So overall, the product mix has changed for towards the betterment of EBITDA margins.
And One8?
One8, actually, the distribution of it has just started during the quarter four of FY 20, so it will be unwise to compare it to the quarter four of FY 19. So.
Cool. Thank you.
So that's all. And I'll get back in the future with any further questions. Bye.
Thank you. Reminder to the participants, anyone who wishes to ask a question may press star and one. The next question is from the line of VP Rajesh from Banyan Capital. Please go ahead.
Hi, thanks for the opportunity. You had mentioned that your manufacturing capacity is for about two thousand lakhs of garments each year. So could you just share with us what has been the production in fiscal year twenty, in terms of pieces?
Could you please come back with the question once again?
I wanted to know the garments pieces that you have produced in fiscal year 2020, given that you have mentioned your capacity is 2,000 lakhs.
This is actually the sale of our products in pieces, not actually the manufacturing in the year, FY20.
So you're saying two thousand lakh garment pieces were sold in fiscal year 20. Is that right?
Uh, yes.
Okay. And then my second question is that, if you look at your price range, it varies from, let's say, INR 50-INR 350 per piece. So what will be the average selling price across all your products?
The average selling price ranges around INR 61-INR 63 per piece.
Across all the pieces, right? That's.
Yes.
Sixty-two or so, thereabout. Okay. And then lastly, in terms of these two subsidiaries that you are combining with the main company, what were the EBITDA margins for the first nine months? Because I'm ignoring Q4, so I'm just curious, what were the EBITDA margins for these two businesses for the first nine months of the last financial year?
EBITDA margins for Ebell Fashions stood at around 18%, and EBITDA margin for JM stood at around 11%.
Okay. And why was J.M. Hosiery down so much in Q4 compared to, let's say, Ebell?
This is an average of an annual number.
Right. So my last question was, in terms of Q4 decline in J.M. Hosiery, it was 36%, right? Whereas Ebell was only down 10%. So, what is the reason behind it? Is it that J.M. Hosiery is selling different kind of innerwear or, there is something unusual there?
Exactly. The product offerings between J.M. and Ebell Fashions are quite different. For Ebell garments, it was primarily womenswear, which is outerwear garments. When it came to GenX, it was a mix of innerwear as well as outerwear, primarily men's. Owing to the different, the corresponding period for J.M. had witnessed very high sales figure in FY19. When we are comparing it to FY19, therefore the decline looks a little more sharp.
... I see. And just one last question. What is your sales from, let's say, rural and semi-rural markets versus the urban markets?
See, actually, we have a wholesale selling-wise policy. So if a distributor is present in the urban market, it is not necessary for them to sell to the retailers in the urban areas. So it is very difficult to assess that how many retailers are exactly there in the urban market and how many retailers are there in the rural market. But overall, on an average, when we take out, it's an 80%-20% ratio. 80% should be rural, and 20% should be urban.
I see. That's all I have. Thank you so much, and if I have more, I'll get back in the line.
Sure. Thank you.
Thank you. The next question is from the line of Sachin Kasera from Svan Investment. Please go ahead.
Yeah. So just one question on working capital. You mentioned that you have reduced it quite a bit in the June quarter. Did you give any number?
For our
June quarter, how much reduction you've been able to achieve in the working capital?
June quarter, which year?
June quarter of the ongoing this quarter, which is just ended, so ending today. You mentioned that the sales will increase by between 5% to 12%, but you also mentioned that you have been able to reduce the working capital this quarter. So can you give us some sense how much has been the reduction?
The reduction has been drastic, but we won't be able to give you the numbers right now. That would be able by the end of this quarter.
Sure. But this reduction is a consequence to a lower revenues or the reduction that we have achieved, would you think would be sustainable?
The reduction is mainly due to the strong demand in the market, because the channel is empty and the distributors are demanding the product, and they are ready to pay upfront.
Okay, so we have seen reduction on both inventory as well as receivables?
Mainly receivables. Inventory to some extent, but mainly it's due to receivables.
Okay, fine. And secondly, on this merger, now, what are the timelines that we are looking at, and what are the permissions which are pending? You mentioned that you now hope to close it soon, but just for an update, what are the pending permissions, and what do you think is the likely timeline by when the permission should come in?
So our application for merger is already filed with the NCLT, and it is pending before NCLT. But as you know, under the current COVID situation, the courts are also not functioning in full strength and capacity.
Mm-hmm.
Everything is taking more than natural time in its due course. We are already pushing them for giving us a hearing date.
Mm-hmm.
And, it is up to the courts now to, you know, provide us with a date and take it forward. So that said and done, we still believe that by within this financial year or, say, by within this calendar year, by November, December, we are pushing them and trying to get it done by December this year.
But now other than NCLT, there is no other permission which is pending as far as regulatory authority is concerned, right?
No. So we are pending before NCLT.
Okay. And you shared the EBITDA number, for J.M. Hosiery for FY20. Can you also share the PAT number? That will be really helpful.
So both the companies are right now private limited, and their accounts have not yet been audited.
Mm-hmm.
So we will not be able to share you the exact PAT figures, but, the sales figures are more or less accurate, as well as the EBITDA margin guidance is, you know, the figures will be in line with the guidance. And, I mean, right now, that's all that we can comment on the group companies.
Sure, but can you just once again share the EBITDA number for both FY19 and FY20 for JM and Ebell?
Yes, sure. We'll do that. Do we have that?
For FY20, the EBITDA level is around 70 crores of JM and Ebell, and for FY19, the same would be at around 60 crores.
Okay. So INR 60 versus INR 70 crores EBITDA. And just one thing, do these companies have any debt on their balance sheets, or they are more or less debt-free companies?
They are more or less debt-free, but they do have debt. As I mentioned, that the total consolidated debt is at around INR 185 crores.
Okay, okay, I missed that, so you mean to say including Lux, JM, and Ebell put together, INR 185 crores as on March?
Yes, that's correct.
But any number you have in mind for this year, where would you like it to be, like hundred and twenty, hundred? What is your internal target for this number for FY 21 end?
So going forward in the current year, as we have already mentioned during the beginning of the speech, that Ebell is more or less debt-free, Lux is almost debt-free, and there is a certain limited amount of debt in JM. So at the group level, if you see, by within this current year, we will be within. We'll be less than about INR 100 crores.
Wow!
Much within INR 100 crores.
Superb.
And, uh-
Sure. Any idea on the CapEx number this year?
Right now, there are no plans of any CapEx, but if there will be any, we will be informing you as soon as some decision is taken at the board level.
Sure. Thank you, and all the best.
Thank you. Reminder to the participants, anyone who wishes to ask a question may press star then one. The next question is from the line of Prerna Jhunjhunwala from B&K Securities. Please go ahead.
Thank you for the opportunity. So congratulations on this reduced receivables numbers. I would just like to understand whether these numbers are sustainable going forward, the moment, you know, markets become normalized and competition starts getting in again for you? Or there is enough inventory on the shelf. Right now, there is not enough inventory, so we are able to reduce the receivables that is, so that will be the right way to put it.
So as you see, our intent has always been to reduce our working capital days and requirement, and we've been able, we've always been guiding that, and we've been able to achieve that in the last four quarters at least. But right now, under the COVID situation, it is an unprecedented situation. None of us have gone through this before. So how exactly the market plays out in the coming future is really hard to comment as of now. But yes, this intent is always there to reduce the working capital, and as of now, at least in the first quarter, we've seen the receivables. You know, we've seen very strong receivables right now, but how much of it will be sustainable going forward is right now a little difficult to comment.
We believe that, in the next quarter, in the next three months, the entire picture will become much more clear, and we'll be able to give you a firm guidance as to what we will be able to achieve for the full year.
No, I am asking for three to five years position, like when the shelf space, you know, gets again filled and there is enough pipeline in the supply chain.
Looking at the long-term period, as we've always mentioned that we overall, this is one of the most important objectives of the company, to reduce its working capital, and we've already been able to do that in the last year. In FY20, the working capital compared to FY19 on accounts of receivable and everything has been in a much better shape. And going forward in the next three to five years, we will be able to reduce it further.
Okay. So my next question is on competitive intensity. Do you see shifts from unorganized to organized segments happening because they will be facing supply chain issues much more than us?
Exactly. I think the impact of COVID with regards to the unorganized to organized shift will be much more stronger compared to a Demonetization or a GST implementation. The COVID is a much stronger consolidation factor compared to the previous two incidents. Because right now, under the current circumstances, production is actually quite a big challenge for the unorganized players. We being a much organized player and having a much older presence than the rest of the players, we've been able to ramp up our production to almost pre-COVID levels right now. But that is not the same for the entire industry. The entire industry, even right now, is struggling with production issues.
Thankfully, our company has been in a better shape, but overall, the industry position with regards to supply is not a very happy picture. We believe that going forward, there should lead to a better market share being captured from the unorganized sector. In fact, going forward, we are looking at everyone is starting to prepare for the winter season, and not many manufacturers will be able to achieve even pre-COVID, sorry, last season winter figures. We, as a company, are aiming at an increased level of production compared to last year winters, anticipating that going forward, now we'll be able to again capture good market share from the unorganized players. We are quite upbeat about the shift from the unorganized to the organized sector.
As far as the Winter products is also concerned, last season, the entire Winter products at the channel level also got sold. So the channel right now is also quite empty. Plus, not many people will be able to supply this time. So all these factors combined together, we believe that going forward, the winter season also should look good this season. And monsoons, as we are seeing that the prediction for monsoons has been quite great. India hasn't seen such a good monsoon for many years right now. So with all the money flowing into the rural sector, the demand from the rural side in the summer as well as continuing into the winter season, should be pretty strong.
Okay. So that's quite helpful. Sir, can you throw some light on innerwear versus outerwear sales also? Because you do quite a lot of outerwear also. What would be your percentage on outerwear, and how has been the demand in the outerwear versus innerwear for you?
Right now, our outerwear percentage in comparison to innerwear is very minimalistic. So it won't be wise to say, growth in outerwear because the percentage growth can be a big number, but the absolute number will not have a big effect on the overall sales of the group company.
Okay, okay. Because we've seen good demand for casual wear because everyone is working from home. So that segment, as per our channels, is showing good traction. So I thought maybe here you-
No doubt, there's a good demand for casual wear, but what we are seeing that there's a better demand for innerwear.
Okay.
The products which we supply, as I said before as well, that our product is a necessity product because it's not a cyclical purchase for a consumer.
Okay, okay. That's helpful. Sir, my last question would be on the sales loss in 4Q. It's almost INR 120 crore odd loss that you were saying in the month of March, and that, too, in a period of last 15 days. Even if you assume that there were logistical disruptions starting from March 15 also, that's quite a huge number considering the. Is it a normal practice or was there something exceptional in this quarter?
No, it's quite a normal practice. See, what happens is, during the year-ending, there are a lot of year-ending targets which the distributors are given. So during the last two to three weeks of March, a good bulk amount of sale happened because of closing their incentives and target schemes.
Okay.
So that is the period when they really stock up. So that is the exact period when we lost the sales because of the implementation of lockdown... And so I think a lot of sales, even the sales which are lost during the end of March, a lot of it has also spilled over to quarter one this year. So therefore, we are seeing quarter one to be good.
So, sir, did you increase, you know, carry forward the incentive scheme because of the inability of people to?
We have not done that.
Okay, okay. Thank you, sir. Thanks for the clarity. I will come back for questions if more.
Thank you. The next question is from the line of Sunil Jain from Nirmal Bang Securities. Please go ahead.
Yeah, good evening, sir. Good afternoon, sir. Congratulations on good numbers. Sir, my question relates to other expenses, which are comparatively down in this quarter, fourth quarter. Any specific reason for that? Is there a reduction in ad spend, or what could be the reason?
Hello, Sunil. Hello?
Yeah.
Hello. Looking at other expenses which have been done, our advertisement has been more or less flattish compared to the corresponding period in the previous year. It's been roughly similar, excepting a small amount of decrease itself. A big number which was featuring in FY19 March was Forex loss, Forex currency translation, which has not happened in this year. We'll do one thing. There is an entire list of other expenses which have happened for both the periods. We will be able to share the details with you over mail maybe, so that you can analyze the different headings for yourself.
Yeah, yeah. Thank you very much for that.
You can analyze them for yourself. You'll get a much clearer picture as to what is happening within the company.
Fine, fine. Great. Sir, one question related to Q1 results, where you had said that sales has bounced back in May and June. But we are seeing a lot of cost is being lower, if it is yarn cost and all. So are these need to be passed on or is there any possibility that we can retain that?
I think you brought up a really nice question. Mentioned in the interview today in the morning. The cotton pri- the yarn prices are really down in the current quarter, and, since but the demand has been pretty strong and, there are a lot of logistical challenges itself. We've been able to retain the benefit of the yarn prices within the pricing itself. The reduced prices have not been passed on. That has been the benefit of it has been absorbed by the company. And also the advertisement expenses for Q1, Q2 should be on the lower side because we are trying to cut down costs of advertisement in the first two quarters. Overall, if you look at FY 2021, the advertisement percentages should be coming down. Should be coming down.
Please, one more question. We are seeing the labor issue, so how now the things are getting resolved also. So what is the status now with, at what level the productions are running right now, and, how do you expect it in coming one or two months?
In our industry, the bulk of the most labor-intensive part is stitching of garments. And stitching of garments is one area which we are getting done on a job working basis. And for all these job workers, which are more than 500 in number, are in and around our manufacturing facility itself. This has been helping us in two ways. Number one is, during the lockdown, we were spared of the labor cost because of them being on a job working basis. That has helped the company reduce its cost.
B, because of them being in the vicinity of our manufacturing plant, we have been able to resume our supply of, you know, the supply of goods have been able to come back to pre-COVID levels because most of them were in and around Bengal itself. They were not migrant labor. Supply challenges we were able to overcome because of owing to both these factors.
So the production level at current point of time is at normal level?
Yeah, so the current production is almost at par with pre-COVID level.
Okay, great. And the last question related to export. You said that the export got some impact in Q4. So how is the situation and how, what's the outlook for the export for the year?
For the year, the outlook of export doesn't look that great because we have been exporting to more than forty countries, and each country has a different policy for the COVID-19 situation. So it's very difficult to find out that what exactly will be our export and how much we are going to grow in the export, because if the situation of India improves and to the country where we are exporting, the situation of that country doesn't improve, so still the export doesn't takes place.
Sir, margins in exports are similar to India or they are different?
Better than India.
Like India. Okay, great, sir. Thank you very much.
Thank you. This is from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead.
Yeah, hi. Thanks for the opportunity, and congrats on achieving-
Sir, please increase the volume of your phone.
Yeah. Hello, is it audible now?
Yes, it's audible.
Yeah, so, thanks for the opportunity, and congrats on achieving encouraging sales trends in challenging times. So, you indicated about some pass-through sales from Q4 to Q1, so of about 150 crores. So will we, will we be able to achieve all, the entire 150 crores of that in Q1?
No, actually, see, there has been a sales loss of around INR 135 crores, and that is due to the target incentives which we had with the distributors, and the same target incentive hasn't been carried forward for the current year. So, there has been no pass on from the previous year's orders to the current year. It's a freshly new order, and this, these, these new orders and supplies are being taking place mainly due to the strong demand in the rural market and the channel being empty.
Perfect. And, are there any attractive trade schemes for wholesale channel, which could have helped these sales in Q1? For FY21, I'm talking.
So currently, we don't need any attractive sales scheme because whatever has been, is being produced on a day-to-day basis is getting supplied to our distributors. So we are working on a hand-to-mouth basis.
Right. Okay, thanks. Thanks. That's it from my side.
Thank you. The next question is from the line of Aviral Jain from SG India. Please go ahead.
Yeah, thank you. My only question was, what's the ballpark contribution or the share of unorganized players in the industry? And you can talk about share by nineteen or by twenty numbers. And because what I understand is we have the unorganized players are
Yeah, so come to the unorganized sector, again, estimate there is no formal study which is conducted to give us an exact figure. But the idea, the sense of, the sense which we are getting is, in the mass market segment, the unorganized sector is roughly about 40%-50% of the market.
Okay, that's very helpful. Thank you.
Thank you. The next question is from the line of Abhishek Rathi from India Ratings. Please go ahead.
Hello, yeah. Thank you for the questions, and thank you for giving the opportunity. And so my question was again on the demand side, where you have clearly mentioned that it's currently a hand-to-mouth situation. But given that, we have been facing very declining demand, we've seen that in Q3 and now in Q4, what would be your outlook for FY 2021? Would it be a 70%, 80%, or 90% of a normal year?
So, it will be difficult to comment as to what the entire guidance for FY 21 would look like. Right now, we are just three months into this current year, and as you see, this current year has been acting quite funny for everyone. It is very difficult to predict as to what will happen three to six months down the line. Right now, what we are witnessing is what we have shared in Q1. But going forward for the entire year, I think we should wait for another two to three months. In the maybe in the next concall, we'll be able to have a much clearer picture as to what FY21 would look like. Right now, well, Q1 FY21 looks fantastic, great. But for the entire FY 20, right now it is difficult to commit on any guidance.
Okay. On the ad and promotion expenses, since there will be an FY 21, which is an uncertainty, what would be the guidance for this year on the ads and promotions?
So ads and promotion, as you said, will be brought down. So generally, on an average, we maintain about 7%-8% of sales as advertisement expenditures, which under the current year will be brought down. What exactly would it be? It's tough because it's a very big call for the company. It's a, you know, it's a discussion at the board level. It's a board-level discussion. But yeah, to give you a ballpark sense, we are believing that it should be down by about 1% or 2%.
Okay. And my last question would be on the export side. So we have been hearing in the market, in the industry, that there is a sourcing away from China everywhere flowing in the world. Do you see the impact actually coming in, in form of inquiries or higher export orders from existing clients who are buying from China or other countries?
To the countries where we deal in, exactly, they are mainly in Africa and the Middle East, so there, the undergarments have been primarily bought in these countries through India itself, and China doesn't play a major role here, but in the highly organized, developed countries like Europe and America, yes, China does play an important role out there, but currently, we are not focusing, or we are not present in those countries, but yes, we are receiving positive inquiries, but still it's yet to get converted.
Okay. Thank you, sir. That's all from my side. Thank you.
Thank you. The next question is from the line of K. Dhar from Composite PMS Please go ahead.
... Hi. So my question is on the trajectory of the advertising spends from here with a medium-term perspective. So the general run rate of 8% of sales, which we've been sticking to for the past couple of years. So do you see that moving linearly as you start operating it at a higher revenue base, or how should we look at it going forward?
For the next three to five years, we believe that this 8% will be stagnant, but for the current year, due to the COVID situation, as we are uncertain about the next three to four months, that how the market is going to take place due to COVID, so we have stopped advertisement. As well as another important reason for this is that whatever we are producing is get easily absorbed in the market due to the current high demand situation.
Mm-hmm. Mm-hmm. So in that case, if you are working with a static target of, say, 8% of revenue, so going forward, in a sense, what sort of thought process or internal framework do we have to ensure that the effectiveness of or the ROI of this is very high? Because, as you know, it's intangible and you can't directly measure whether what you are actually investing in terms of market development is that translating into the ground or not.
So just curious to figure out, in a sense, three years to five-year horizon, can we get to a situation where, let's say, your revenue base is actually 50% higher compared to the current level, but your advertising expense may, let's say, move from a level of INR 90 crores to INR 120 crores, which in turn can actually unlock lot of value, both for the people running the business as well as for the shareholders?
See, what happens is, every industry or every company, so as to say, has an optimal level of advertising spend as a percentage of revenue, which is achieved over a longer period of time in the long run. When the company was started 10-15 years back, the advertising spends were much higher. As and when the revenue base kept on growing, we ultimately, the percentage kept on dropping, and it came roughly. We kind of believe that 7%-8% was that optimal level, which we kind of, you know, which we kind of maintain in the long term.
Now, talking about the ROI of the advertising spends, what happens is, when you stop spending on a brand, in the first one or two or three years, you'll not be feeling any impact, but the impact is felt only in the long term when the people start... You know, you need to. Your brand always needs to be fresh in the minds of your consumers. Brand image is something which gets, which takes time to build. It takes at least three to four years to build that image, and people also don't forget that image in three to four years. They take time to forget that image.
So in order for the brand to be relevant in the minds of the consumer, a certain amount of money has to be spent, which what we maintain is, in the long term, 7%-8% of our top line. Also, as and when the company grows, you keep on launching newer and newer products under newer and newer sub-brands or mother brands. In order for the newer products to become more popular, we carve out the advertisement expenditure from the same pool, which is about 7%-8%. The pool is 7%-8%. Maybe the ad spend on a certain established product might go down and a certain newer product might be more, but overall, the pool is 7%-8%.
Okay, that makes sense. So the second question I had was that, what's the proportion of sales from the online channel so far? I know it is low, but, what have been the range for FY20?
So talking about online sales, the kind of products which we are dealing with is present in every nook and corner. So online sales for us as a channel is quite minimal. And for the mass and the medium segment products, online sales do not matter much because the products are really, really present across everywhere. Yeah, the online sales becomes quite relevant when it comes to the premium category. So for our premium category, the online sales is contributing anywhere around 1.5%-2% of our top line.
Okay. And is this number consistent for the Lyra brand as well, or is that at a slightly higher number?
No, it's consistent. Even the Lyra brand, it's been similar, about 1.5% of our top line is coming in from online.
Okay. So one final question from my side is, right now we seem to be, on a relative basis, underrepresented in the southern part of the country. So do we have any plans of targeting that in the medium term, or do you think it's a better idea to focus on the stronger areas where we are already present?
So we have always been quite strong in the northern, eastern, and central belt of India. Southern has been relatively weak for us, and we've been focusing on that market. And over the last two to three years, we've seen good results also coming in. So it takes time to develop a market. So we believe we need another couple of years when we see South India also emerging as a big contributor into the top line.
Okay. Thank you. That is from my side.
Thank you. Ladies and gentlemen, due to time constraint, we'll take this as the last question. I would now like to hand the conference over to the management for closing comments.
I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with us or Strategic Growth Advisors, our investor relation advisors. Thank you once again.
Thank you. On behalf of Lux Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.