Ladies and gentlemen, good day, and welcome to Lux Industries Limited Q3 and nine months FY2020 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, 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, Promoter and President, Marketing, Lux Industries. Thank you, and over to you, sir.
Good morning, everyone, and thank you for taking out your time in joining us today and discuss our Q3 and nine-month FY 2020 earnings performance. Along with me, I have Mr. Udit Todi, Mr. Ajay Patodia, and SGA, our investor relations advisor. I hope you have received the result and investor presentation by now. For those who have not, can view them on our website. I'm happy to share that we have delivered yet another strong quarter despite several issues in the economy. The innerwear industry is evolving at a rapid pace, and today, innerwear as a product category is no longer perceived as a commodity. Over the years, consumers are becoming more informed, which has resulted into an evident shift in the industry, where other aspects like color, pattern, style, and fashion have been equally important, along with the right fit and comfort.
To cope up with the evolving trend, we at Lux have always been proactive in adopting newer methods of production, developing innovative products, and targeting the right audience via branding and promotional activities. Our customer-centric approach has helped us to expand our visibility and created a strong brand equity for our entire brand portfolio. We believe that successful brands generate a consumer base and in turn help us to negotiate with better payment terms with our trade partners. With a strong portfolio of 15 brands offering mass, mid-premium and premium products across demographics, it has helped us to outperform the market and generate a pricing premium. I would also like to share an update on our plans to merge J.M. Hosiery & Co. Limited and Ebel Fashions Private Limited with Lux Industries Limited, which was approved by the board of directors in June 2018.
As a part of the merger process, the promoters of Lux Industries Limited have strategically disinvested 4.21% of the total equity of the company. I am happy to share that this sale would advance the progress of the proposed scheme of amalgamation, and we expect it to complete in the next few months. We strongly believe that the merger of these entities with Lux Industries Limited will help us to expand our presence across market, help us to gain market share, and will lead to higher growth potential with a portfolio of well-established brands under our umbrella. With this, I will now ask Mr. Udit Todi, who is spearheading the strategy for the company, to share his thoughts.
Good morning, and a very warm welcome to everyone.
Before taking you all through the financial and our operational highlights, I would like to provide an update on our dividend and dividend policy. During the quarter, the board of directors have announced an interim dividend of INR 10 per equity share, that is 500% of face value of INR 2 each. To reward the shareholders on a regular basis, the board has modified the dividend distribution policy and has inserted a clause that the company shall endeavor to maintain dividend payout ratio of 25% of the annual standalone profit after tax of the company. Now, coming to our financial performance, we have delivered a strong growth for the quarter and nine months ended thirty-first December 2019, despite continued weakness in demand, coupled with several macroeconomic challenges.
Our company has delivered a 7% revenue growth, a 290 basis points EBITDA margin expansion, and a PAT growth of 40% during the quarter, which is way better than the industry. Our consistency in delivering strong numbers is on account of our continuous focus on brand building, strengthening our product portfolio, implementation and adoption of latest technology in our manufacturing processes. On the supply chain aspect, we have one of the largest distribution network, which is the core strength of our company. Our strong brand equity and goodwill has helped us maintain long-term relations with our distributors, dealers, and retailers. We are the largest domestic innerwear player by volume, with strong presence in north, east, and western parts of the country. We endeavor to further strengthen and streamline our distribution network to reach the untapped and undertapped markets, and invest heavily in brand building and promotional activities.
On the working capital front, we expect to grow revenues with the same amount of working capital, which we expect will translate into a superior return on capital employed. This has resulted in increased operating cash flows. Our working capital cycle has reduced from 109 days as of December 2018 to 131 days currently. Going ahead, we expect to moderate our working capital cycle across more than 5,000 SKUs. We are undertaking several measures to aggressively promote and position our brand, and will strive to adhere to the highest of corporate governance and transparency in all our business dealings and transactions. We would also like to inform you that the board has approved the appointment of Ernst & Young as an internal auditor of the company for the calendar year 2020. Now, I hand over to our CFO, Mr.
Ajay Patodia, to provide you an insight of our financial performance.
Thank you, Udit Ji. Our company reported a strong growth for the quarter and nine-month ended 31st December 2019 . Our revenue for quarter three FY 20 stood at INR 306 crore, versus INR 285 crore, registering a growth of 7%. EBITDA has seen a strong growth of 28%, which stood at INR 35 crore as compared to 26 crore in quarter three FY 19. We have seen a stellar improvement of 690 basis points in our EBITDA margin on account of better product mix. Our EBITDA margin for the quarter stood at 17.9% as compared to 16% same period last year. Our PAT for the quarter stood at INR 33 crore versus INR 24 crore in quarter three FY 19.
PAT margin for the quarter stood at 10.9%, showing an improvement of 250 basis points compared to 8.4% in the same period last year. Coming to quarterly performance of JM Hosiery and Ebel, the former logged a revenue of INR 64 crore as compared to INR 54 crore in quarter three FY 2019, a growth of 19%, while Ebel revenue stood at INR 66 crore as compared to INR 57 crore, a growth of 17%. Now, coming to our nine-month performance, our revenue stood at INR 924 crore, either by INR 827 crore, registering a growth of 1%. EBITDA for nine months FY 2020 stood at INR 144 crore as compared to INR 123 crore in nine months FY 2019, registering a growth of 18% year-on-year basis.
The EBITDA margin has also seen a healthy improvement of 80 basis points, which stood at 13.6% versus 14.8% in nine months FY 2019. PAT for nine months FY 2020 stood at INR 93 crore as compared to INR 62 crore in nine months FY 2019, recording a growth of 49% year-on-year basis. The PAT margin is stood at 10%, a stellar improvement of 250 basis points as compared to 11.5% in nine months FY 2019. The revenue of J.M. Hosiery Limited has grown by 13% to INR 259 crore, while Ebel Fashions has seen a growth of 10%, which stood at INR 210 crore. With this, we will now open the floor for question and answer.
Thank you, Ajay sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question, please press star, then one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Our participants are requested to use handsets while asking a question. Anyone who wishes to ask questions, please press star, then one. The first question is from the line of Sanjay Ladha from Concept Investwell. Please go ahead.
Good morning, and congratulations on the good set of numbers. My first question, I have couple of questions. So we'll start with this. So if you can share the revenue contribution of One8 brand, and do you have any other strategic tie-up pipeline, which you can share in the premiumization side?
Strategy tie-ups for the premiumization side is still pending currently. But for the brand One8, the revenue is still very minuscule. Three-month revenue for One8 is around 1.9 Cr.
1.9, okay.
We are planning to launch it in the general trade category in quarter four.
Okay, so in the coming three to five years, can we see our premiumization products in premium go up to 40-45% in the revenue terms? I'm talking about the long term, not the short term.
In premiumization, 40-45% would be a big number, because the base of the whole group together would be above 2,000 crore. So we cannot exactly comment what the numbers would be after three to five years, but definitely the premium product growth would be more than the mass segment product growth.
The growth in premiumization side will be in the range of thirty plus, can we expect that?
20+%, 20+%.
Okay, thank you. And my last question would be: How you see your EBITDA margin will be in three to five years? Can it be maintained at current level, or can it improve? Any guidelines from your side?
The EBITDA margins might remain the same or might improve. Our plan is always to improve, but, let's see where we stand after three to five years.
Okay, thank you. Thank you so much.
Thank you. The next question is from the line of Himanshu Nayyar from Systematix. Please go ahead.
Yeah, hi, thanks for taking my questions. Firstly, on our growth, if you can just highlight what would be the volume growth for this quarter and, the contribution from winter wear products?
The volume growth for this quarter is around 19%, whereas the winter wear range, the total nine-month growth is around 93%. For quarter three, it is mainly flattish, because in quarter two, we did majority of the sales of our winter wear products.
Okay. Just to clarify, you said volume growth of 17% for the quarter?
Yes.
Value growth of 7%.
Seven percent.
Okay, so that means our realization and mix has deteriorated year-on-year because of winter wear. You're saying it's flat, right?
Yes, yes, that's correct. Because our winter wear products, the ASP is higher than our innerwear and beachwear. So our winter wear hasn't seen growth in quarter three, because the majority are taking place in quarter two.
Right.
But our innerwear products, growth, we have seen in quantities where the ASP is lower than the winter wear.
Okay.
So there has been a quantity increase, volume increase of 17%, whereas the revenue increase is around 10%.
On a portfolio basis, how much of price change would we have taken up or down?
See, the price remains fluctuating as per the price of the cotton.
Mm-hmm.
But, more or less, in quarter three, it was more or less flattish. There hasn't been any change in the pricing.
Understood, understood. Secondly, on the margin front, we have seen this very strong improvement, mainly led by lower other expenses. So could you give some more color on what really, what were the key items which are, which are down? Have we taken a reduction in AMP spends or any other significant items which you can highlight?
Actually, advertisement expense has gone down to a tune of eight crore, which has led down to an increase in the EBITDA margins. The advertisement expense, our target is to maintain it at around 8% yearly, which we would continue to do.
Any other key items? Because the reduction there seems quite sharp.
All items have contributed, that is, well, but all at a minimal level. The main item which has contributed was advertising.
Understood, understood. Actually, on, if you can just highlight specifically on the performance of ONN, our premium brand, I mean, how is it growing, and what's the sort of competitive scenario out there in the premium segment as of now?
The value growth of ONN is around 18% for quarter three, and the ASP of ONN has increased, so the volume growth might be a little lower than that of 18%.
A nine-month number, if you can share on this?
Nine-month number should be approximately 12%-13%.
Understood, understood. And final question on the working capital side, I mean, we are seeing a decent improvement there. So how much you think we can improve this without impacting our growth going forward?
I think the working capital has been a continuous improvement, if you would see, in the last few quarters. And our target is that we maintain the absolute value by same working capital while increasing the sales.
Mm-hmm. And then sorry, one final question. I mean, would you be in a position to give any guidance on growth and margins for the next year?
Our target is to maintain around 10%-15% value growth yearly.
Understood. And anything on margins?
Margins would somewhere be in the, at current level, nine-month level, the EBITDA margin stands at roughly 13.5%. So it should somewhere be within the same zone, maybe a 25-50 basis point improvement can take place.
Understood. That's all from my side, guys. Thank you. All the best.
Thank you. A reminder to the participants, to ask a question, please press star, then one. The next question is from the line of Tanvi Shetty from Axis Securities. Please go ahead.
Hello. Thanks for taking my question, sir. My question was basically on the price increases, which the earlier analyst also clarified. Actually, I wanted to have more sense on how do we, like, what do we pass on the increase on raw material prices to our customers, and how do we do it? By increased incentives to our distributors or lower MRP?
So generally, as a policy, what we maintain is that any increase or decrease in raw material prices are passed on to the consumers, so it kind of keeps our EBITDA margins intact. And the method by which we do is that the incentive structure for the dealers and the retailers are tweaked in a fashion in which the impact is given. So MRP is not something which we change on a regular basis. MRP changes happen in the long run, but in the short term, it's only the incentive structures which are changed to accommodate any increase or decrease in raw material prices.
Okay. Okay, and, like, what is the quantum of price increases which you have taken in these nine months of 520 ?
So with changes and with fluctuations in raw material prices, the prices, selling prices have also kind of fluctuated. So it would be difficult to say. We actually need to understand from what perspective are we trying to understand whether there was increase or decrease in price?
... Okay, sir, and your outlook for on yarn prices, what do you think on the prices?
So the yarn prices, I think after the coronavirus outbreak, the yarn prices are softened up a bit, and it should be better for the industry.
Okay. And my next question was, sir, on the distribution front, we have around 950 distributors at the moment. At what rate can we see them increasing? And which region in India are we planning to penetrate more apart from the northern regions, northern and eastern, where we are present extensively at the moment?
Right now, our main focus is on changing our product mix as well, and that is where we believe the future growth will be coming in from. At the same time, we are also looking at increasing our dealer distributor network base.
Okay.
But our primary focus is right now on the product mix. Going forward, we are looking at increasing our dealer distributor network by adding around five to 10 distributors every month for the next-
Okay.
Three to four months.
Okay, and, sir, changing our product mix, as in, expanding women's wear or leisure or the premium ONN and One8, which one is it would be focused more?
So it's not that anything will be focused more or less. Everything is given equal focus. But yeah, the faster growing segments are definitely the outerwear segments and our premium wear category, as well as the lady segments. These are the segments which are growing faster than the core segments.
Okay. Sir, could you give a breakup of-
These are, these segments are, again, the segments which are of a higher ASP and a better margin profile, so going forward, it leads to better margin realization as well.
Okay, so we don't see much of an growth contribution from our brands like Venus and Cozi, is it, sir?
Venus and Cozi had been kind of growing at a steady rate, but obviously it will be slightly lesser than the premium product portfolio's growth rate. They have, since their base effect, since their base is also pretty huge, and the contribution in the overall scale is pretty big. Obviously, their growth rate is slightly lesser than our premium products growth rate. That is what the company has also been focusing upon, which is premiumizing its product portfolio mix.
Okay. Okay, sir, and, what is the contribution from Venus and Cozi, on an annual basis, on an average?
So on an annual basis, can we get back to you with this figure in a while?
Sure, sure.
So we'll look at what it was in FY 19, and we'll get back to you with the figures.
Sure, sir. Sure, sir. And one last question, sir. On the working capital side, you mentioned that you've improved the days to 151 days from 149. I wanted to know what initiatives have led to this improvement?
So we've been more strict with our debtors and a better efficiency in terms of stock management. So it, on account of both of these factors, we've been able to slightly reduce our working capital days, although the current economic situation has been sort of challenging, but we've been trying to reduce our working capital days, and we believe that going forward, this is what we will be able to maintain. So our long-term target is around 120 days, and we've been already able to arrive at 130.
Okay. Okay, sir, and one bookkeeping question. What would be your CapEx plans for FY 2020 and 2021?
FY 2020 and 2021 should be marginal incremental CapEx. We are not looking at any huge CapEx going forward right now.
Okay. That's all from my end. Thank you and all the best, and congratulations on the set of numbers.
Thank you.
Thank you. Participants, to ask a question, please press star, then one. The next question is from the line of Debashish Mukherjee from the Centrum Broking. Please go ahead.
Yeah, hi, thanks for the opportunity. Congratulations on the good set of numbers. Just to understand on your volume growth, 17% in Q3, do you see some kind of, you know, customers doing downtrading, you know, because, you know, we have seen some of your peers reporting, you know, volume decline or maybe a much lower volume growth compared to you. Do you see some kind of, you know, downtrading happening in the market, consumers shifting for, you know, lower ASP products in the category?
No, here it is not about lower ASP or higher ASP. Here, the thing is about the product mix. Our thermal range, which is a higher ASP, which is around INR 200 per piece, and the innerwear is around INR 50 per piece. So the thermal category has seen a flattish growth, and the innerwear category has seen a big growth for the quarter three. That's why there has been a quantity growth in quarter three, more than that of the revenue. So it has no connect to a basic or a mass segment. It is just the product portfolio.
... I understand, but, you know, so, so you are saying that thermal has seen almost a flattish growth. That means that-
Overall, nine months, there is a growth, because we get the majority sales in quarter two. Quarter two, thermal was around up 55%. So just to give you a clarity on the winter wear segment, so compared to our peers, we are the largest winter wear player in our industry. So this year, the entire winter season, we've clocked sales of about 200 crore, which was up about 23% from last year. So our total winter wear contribution in the entire portfolio is around about 200 crore, which again, as I mentioned, is far more than anyone else in this industry. And which has also seen a growth of 23% overall, this in the entire season. But due to marketing strategies and everything, a bulk of our winter wear sales were booked in at the end of quarter two.
So that is why the winter wear sales are not reflecting in quarter three. But, overall, the winter wear has performed, really well this year. The winter season, entire across India has been phenomenal.
Mm-hmm. What has been the traction in, you know, Q4 till date in those intervals, January and, you know, most of the-
Q4 is a season where, I mean, from the company, from the manufacturer's end, the selling of winter wear kind of ends. So winter wear sales are primarily booked in quarter two and quarter three. And in quarter four, it's only the distributors and retailers who kind of clear their winter wear stocks.
Right. On the margin front, you mentioned almost 17.5%, if I heard correctly, in quarter three, the operating margin I'm talking about. Do you have any kind of index impact in it?
No, we are not having any kind of index. In fact, it is only on account of operational activities of the company. There is no accounting side to it. So we kind of, on an annualized basis, on a long-term basis, we kind of expect 15.5%-16% EBITDA levels.
Mm-hmm. And one last thing on the, you know, operating cash flow and your debt level, where do you kind of see, you know, your debt level in next two to three years? Do you expect it coming down?
So if you talk about debt levels, our debt levels are quite low as of now. At this point of time last year, we were at about INR 242 crore, whereas at December thirty-first, 2019 ending, we were at about INR 93 crore. So all our operating cash flows have been used to repay debt. And in fact, whatever amount of debt also which you're seeing right now is on account of export packing credit and working capital. So
Okay.
kind of, that is what the debt structure looks as of now.
All right. Okay. Thank you. Thanks a lot.
Thank you. The next question is from the line of Jigar Mehta from Composite PMS. Please go ahead.
Hi. Could you help us with the export revenue numbers for Q3 and nine months, please? Export numbers for Q3 and nine-month ending.
The export for quarter three has remained flattish. And the exports for nine months have grown approximately around 9%-10%. I will come back to you with the exact figure of our export for the nine months.
Okay, thank you. My second question is specific to the One8 brand so we see that it's already been launched across e-commerce as a channel but what other channels do you see yourself focusing on for the first twelve months and how is your channel strategy going to be different compared to, let's say, some of your previous products that you have?
See, what I believe that, the premium product channel is, through retailing only, so which is general trade. The e-commerce right now in our country is very minuscule in comparison to the total general trade, platform. So e-commerce was launched first, which was in quarter two. Now in quarter four, this year, when our season actually starts, so we have launched it in the general trade category, and we can see a good number in quarter four for, One8 brand.
Okay, so when you say general trade, are you referring to the normal distribution channel, or we are focusing specifically on, say, the modern retail store as a format?
General trade would mean, our MBOs that are, like, that is through distributors, but through MBOs, not wholesaling.
Okay, I...
With the export numbers, for the nine months last year, we were around INR 95 crore, and this year we are at around INR 93 crore.
Okay. Okay. So final question from my side: So coming to J.M. Hosiery and Ebel, so what has the brand trend for the first nine months look like compared to the previous year?
Talking about our Ebel Fashions, we have seen a revenue growth of 17% in quarter three, and the PAT levels are roughly similar to what they were last year. It should slightly be higher on account of the tax impact which is coming in. But since it was earlier, we used to be taxed at about 30%, effective tax rate was about 30%, which has now come down to 25%. So due to the effect of tax rate, there should be a better realization of PAT margins. And that's the same with JM as well, and but at EBITDA levels, it should somewhere be in a similar range.
Oh, okay. And the advertising spends, was I right in getting the number, which is eight crore for Q3?
No, it was eight crore down.
Okay. INR 8 crore, INR 8 crore down compared to Q3 of last year.
Correct.
Oh, okay. That's, that's all.
Thank you. Participants who would like to ask questions, please press star, then one. The next question is from the line of Kshitij Jain from 2Point2 Capital. Please go ahead.
Hi, thanks for taking my question. So wanted to check, what is the total ad spend for nine months?
The total ad spend for the nine months is around INR 76 crore.
76 crore. Perfect. And, do we also track our secondary sales in MBO channels by any chance?
See, we sell it for Lux, it's mainly to our distributors, and then they sell it to their wholesalers, then it goes to the MBOs. So it's really difficult to track the MBO channel, but yes, definitely our distributor and wholesalers, we keep tracking them about the sales.
Uh, so-
Just to give you a different perspective of your question. So, you know, there is an indirect way of kind of seeing a sales conversion at the secondary level, which is when the distributors start paying up and kind of use their database. It is kind of a signal that at the secondary level, at the retailer level, the stock is moving fast. So that is a kind of an indicator of stock movement at the retailer consumer level.
Understood. So we are seeing a inventory reduction at our distributor level?
We are seeing faster payment cycles from our distributors.
Understood. And overall, what is our inventory days and receivable days? Because I see a substantial improvement in working capital, but just wanted to know the split between receivables and inventory.
Our inventory days was approximately. We have the inventory numbers for December 2019, it's around INR 292 crore, in comparison to December 2018, which is around INR 333 crore. Which has gone down.
Mm-hmm.
Our Sundry Debtors was around INR 257 crore, which has gone up to INR 302 crore, which is mainly due to the increase in sales. Our Sundry Debtors has gone up. Was December 2018, the number was INR 124 crore. It's gone up to INR 151 crore.
Understood. That's very helpful. And, in terms of our schemes and incentives, have you seen any increase over the last few months or going up? Because the 17% growth, is it coming because of a higher incentive, or is it more traction and share gain that we are seeing?
What I believe that our incentives keep on changing due to the cost of the product or the cost of the cotton. But, here, our the major sales increase are due to the traction of the product rather than because of schemes.
Understood. So our schemes and distributor realization has more or less been the same?
Yes.
Perfect. So one last question: Any specific reason for bringing Ernst & Young on board at this point? Do we see a statutory audit or change as well on the cards?
So, it's a little too soon to comment on anything going forward, but yes, that is something which we should be considering.
Perfect. Thank you.
Thank you. The next question is from the line of Himanshu Nayyar from Systematix. Please go ahead.
Yeah, thanks for the follow-up. Can you give us some color on the synergies expected, given that the merger is now closed, especially on the distribution front, whether our current distributor network, of 950, sells the Ebel and JM products as well, or do we have a new or a different distribution network which gets added on once we merge the entire entity? Just want to understand the synergies in terms of distribution.
Talking about the merger, we'd like to talk a few points. I would address your questions as well. As we had mentioned in our introductory note, that the promoter has already divested the required percentage in order for the merger. That was one of the major roadblocks for the merger. So that has already been done. And going forward, that would really speed up the merger process, and we are looking with just the regulatory approvals, and should be completed in a couple of months. That was... And talking about the synergies arising from the merger, so it is more of- more so of a financial merger. It's more of a restructuring exercise, where everything is being brought under the same umbrella.
But the share swap ratio and what is being done in a share swap ratio, there is no cash outflow. And the share swap ratio is such that it is really EPS accretive for Lux Industries Limited. The merger issue number is already out there in our investor presentation. You all can have a look. The graph really depicts the EPS accretion which comes into play. Talking about the sales network of both JM and Ebel Fashions, so there is they have their own exclusive distributors as well, and obviously there are some distributors which are overlapping. So if you look at a combined effect, so our dealer distribution network should increase marginally.
Understood. And just one final book-
At an operational level, it, we're not looking at any major synergies at the operational level. It should be more of a financial restructuring.
Understood. Just final one bookkeeping question. I mean, can you share the nine-month operating cash flow number?
INR 109 crore is the operating cash flow for the nine months.
INR 109 crore. Understood. Thanks. Thanks. Thanks a lot, guys.
Thank you. The next question is from the line of Sanjay Ladha from Concept Investwell. Please go ahead.
Thank you for the, giving me again. So my question would be, can you share your volume growth in innerwear category, in the premium side, in the mid-premium side, and the lower side?
So we've taken down your question, Mr. Sanjay, and if you could just get in touch with our investor relations advisor, we'll share the numbers with them so that they can forward it on to you.
Thank you. Thank you so much, sir. Thank you.
Thank you. Participants who want to ask a question, please press star then one. The next question is from the line of Kshitij Jain from 2Point2 Capital. Please go ahead.
Yeah, just wanted to understand on merger status, by when do we expect the merger to be effective?
As we... I think we've just spoken about this a while back. So the major roadblock for the merger going ahead was the promoters' stake exceeding the threshold limit. So the promoters have already brought down their stake, and now we have already applied at the stock exchanges. So we are just waiting for them to revert back, and we'll be expecting to finish it in the next around five to six months.
Okay. Thank you.
Thank you. The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund. Please go ahead.
Yeah, good afternoon, Saket. My question was on Lyra. So we have seen competitors scaling up very nicely, and recently what we're hearing is that Dollar is also launching their brand on leggings by the brand Eleven. Do you see this space getting more hypercompetitive, and what would be our strategy to scale up the next couple of years on Lyra? It will be helpful, thanks.
Hi, Pankaj. So, yeah, as you correctly mentioned, Lyra earlier had started off as a leggings brand, but going down the line, our strategy is more of making it a wholesome brand rather than restricting it to just leggings. So although many players, other players are coming up with their leggings offering, whereby we have started diversifying more so into lingerie space, as well as T-shirts, as well as more so into the garments space. So I think that is a strategy which we are trying to follow and creating it more of a wholesome brand rather than just sticking it to one particular product.
In terms of growth rates, what can we expect from Lyra now? Because the space seems to be very exciting, but growth rates are, the numbers which you gave in the first nine months was about 12%-13%.
Right.
So how can we escalate the growth rate there? Any thoughts would be helpful?
So with Lyra, what the scene is that we are one of the biggest players in this industry, having sort of one of the highest market shares in this category, so which is leading to kind of a slower growth rate. And at the same time, this year, overall, the economic scenario wasn't very good for the entire India, so as to say. So even under such circumstances, we've been able to deliver a 10%-12% growth rate. And going forward, we believe that as and when we are entering newer categories and with the market situation changing, the growth rate should also better.
Great. Thank you so much.
Thank you. The next question is from the line of Mehul from SPA Securities. Please go ahead.
Good afternoon, gentlemen. My question is on gross margins. If we look at YOY, we have seen 180 increase in gross margins. So what explains that?
Can you again come up with the question? I did not-
Gross margins. My question is on gross margins.
Yes.
We have seen 180 basis points improvement YOY, so what explains that?
Hello?
Yeah.
That has been mainly due to the change in the product mix category. As you would, as we would have shared before as well, that the comfortable category, which commands a higher ASP and higher EBITDA level, as well as on our premium wear, as well as export, they have grown together faster in that of the company.
... But if you look at quarter three, you are saying winter wear has remained flat, right?
Yes, quarter for nine months, winter has grown up by-
I'm talking about quarter three. I'm talking about quarter three in particular.
I'm explaining, like, for quarter three, the winter has been flattish.
Yeah.
For nine months, winter has grown up by 23%, which mainly was in quarter two, which has grown up by 55%.
No, but that doesn't explain quarter three improvement, if there is anything. Otherwise, like, you know, it's good only. But the only thing I wanted to have a reason that, like, you know, why is it that so much is costing or our incentives, and all that we have come off, like, you know, why is it less, you know? Because winter wear has remained flat during quarter three, right?
No, but quarter three hasn't seen improvement.
Has seen, no. Like, you know, if I look at YOY, quarter three of FY 2019 margin was 64.4%. Okay. All right. Sure, just a sec. Maybe my mistake. Yeah, so if we look at gross margin, has improved 66%, has improved from 64.4%. Is it not?
I don't know what exact figures I will be taking, but in our numbers-
Yeah, your numbers suggest what? Like, you know, it remains flat, is it?
So our gross profit margins compared to Q3 FY 2019 and Q3 FY 2020, our gross margins earlier were about 35.8%, which have reduced to 32% in Q3 FY 2020.
Okay, let me come back on this. Another question of mine was on Ebel and JM. Is it that, you know, sequentially we have de-grown? As compared to FY 2020, I'm talking about.
Can you come back again on this question?
See, Ebel and JM, quarter two FY 2020, as compared to quarter three FY 2020, we have de-grown. YOY, we have seen growth, but isn't that sequentially, both of these businesses have de-grown?
So I think both of these companies have been delivering good growth rates, even, compared to the corresponding year.
For Ebel, in quarter two, I think, was INR 82 crore of revenue.
Oh, no. So there is seasonality in the business. So in the garment business, if you're looking at just absolute numbers, that is not a fair way of looking at the business, because the kind of products that we have to offer, both Ebel and JM, are much lesser on the winter portfolio, and they are more heavy on the summer portfolio. So when it comes to the quarter three, it is October, November, December. If you just look at, if you compare it to quarter two over quarter three, you will look at a decline, but that is due to the seasonality of products. So a fair way of comparing a garment business would rather be when you compare it to the corresponding period in the previous year.
But quarter two has like, you know, more of summer products, is it? I mean, quarter two is like, you know, September, October.
Summer products sell in quarter one, quarter two, and quarter four. Quarter three is a quarter where summer products don't do well. It's a time for winter wear products.
All right.
Quarter two is more of a festive sale as well. So if you have to actually compare it, a more fair comparison would be if you compare quarter with the corresponding period in the previous year rather than sequentially.
All right.
So you have to take into account the seasonality of sales as well.
Thank you.
If you look at the nine-monthly figure, if you look nine months over nine months, both Ebel and JM have been growing at 10%-12%.
10%, 12%. Okay.
Right.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with our strategic advisor or investor relation advisor. Thank you, everyone, once again.
Thank you very much, sir. Ladies and gentlemen, on behalf of Lux Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.