LUX INDUSTRIES IN A ‘COMFORTABLE POSITION

Some of the strengths of Lux Industries include rich sectoral experience, extensive distribution network, substantial cost leadership, proprietary manufacturing ability, vast product variety and sharp focus on the mid-price segment

Lux Industries is a company based in India, mainly engaged in the manufacture and sale of knitted apparels, including hosiery. The company is perhaps the largest mid-segment hosiery enterprise in India. The brands operated by it generate annual revenue of more than Rs 100 crore each. Lux Industries is observed to be working with the largest number of trade partners and its products are also capable of reaching about 5,000 rural sectors. Its products are available not only in India but over 46 countries across the globe. The company offers several products for men, women and children.

The brands include Lux Cozi, Lux Cozi Big Shot, Lux Venus, Lux Classic, Lux Cozi GLO, Lux Karishma, Lux Touch, Lux Inferno and Lux Cottswool. Its main manufacturing units are located in Kolkata and Kerala. It also exports products to Africa, the Middle East, Singapore, Malaysia, Cameroon, Australia and North America. Lux Industries has undoubtedly maintained an uncompromised stance on the quality and comfort front since its inception. Providing the consumers with the best quality products has been the core established philosophy of the company.

Its automatic sewing machines are imported from Italy to provide the best quality. As yarn is the major raw material, Lux Industries ensures its supply from the best manufacturers in India and abroad. Each garment goes through a stringent, four-point inspection system that ensures complete quality control and the best outcome in terms of comfort and satisfaction. Some of the strengths of Lux Industries include rich sectoral experience, extensive distribution network, substantial cost leadership, proprietary manufacturing ability, vast product variety and sharp focus on the mid-price segment.

Sector Overview

The Indian knitwear industry is now a century old. It was given a boost in Calcutta, then the commercial capital of East India. The innerwear industry is one of the high growth industries in the apparel category and also promises innovation. The women’s innerwear products contribute about 60 per cent of the market. Higher income along with higher discretionary spending and growing fashion orientation of the customers have turned innerwear from a traditionally utilitarian item to an essential fashion requirement. The growth of the innerwear category can be mainly tagged to urban India. The power looms and hosiery and knitting sector also form the largest part of the textile sector.

The uniqueness of the textile industry comes from its linkage to the agricultural sector for the raw material needed and the ancient traditions and cultures of the industry. It is observed that Indian textiles have the ability to produce a wide variety of products suitable for different segments in India as well as outside. In FY19 the textile industry contributed about 7 per cent of the industry output in terms of value. Besides, it also contributed 2 per cent of the GDP of India and employed over 45 million people. The export earnings contribution from the textile sector is up to 15 per cent. The textile industry has employed over 4.5 crore workers, which includes 35.22 lakh workers in the handloom sector.

There was seen a jump in investments in the textile sector in the past five years. The industry has attracted foreign direct investment (FDI) worth USD 3.45 billion from April 2000 to June 2020. The Indian government has also come up with several initiatives to give a boost to the textile sector. It has allowed 100 per cent FDI in the sector under the automatic route. The future of this sector can be seen a promising one in view of the rising domestic consumption and also the export demand. The impact of the pandemic is a major component to be considered in considering the performance of this sector in 2020. The government’s step to close all the malls and retail outlets during the lockdown resulted in a significant reduction in sales of domestic textiles and clothing.

Pandemic Impact As an indicator to the company’s performance during the pandemic-triggered lockdown and post-lockdown phases, Lux Industries filed a disclosure with the BSE. The company was able to see good revival of sales and distribution of products in the post-lockdown phase. During this crucial period the company did not plan any capital restructuring as the banking credit lines and the internal accruals were adequate for the company to continue its operations. It also had in place a cash flow management system considering the possible impact on cash flows in the coming quarters. Debt and other liabilities were also serviced punctually. Overall it seems that Lux Industries was able to sustain itself through the pandemic and revive itself post easing of restrictions.

Financial Overview

Regarding the performance of Lux Industries in the previous quarters, we can see that on a consolidated quarterly basis the net sales inched up to Rs 385.45 crore in Q2FY21 as compared to Rs 352.44 crore in Q2FY20. In spite of decrease of 36 per cent in other operating income, sales have been seen increasing. The operating profit increased 36.61 per cent from Rs 54.34 crore in Q2FY20 to Rs 74.23 crore in Q2FY21. The net profit came in at Rs 50.69 crore in Q2FY21 as compared to Rs 40.60 crore in Q2FY20, a rise of 24.86 per cent. On an annual basis, net sales were seen declining by 0.08 per cent from Rs 1,207.05 crore in FY19 to Rs 1,206.13 crore in FY20.

The operating profit increased 1.61 per cent in FY19 as compared to FY20. The net profit on an annual basis was seen giving a substantial rise of 23.98 per cent in FY20, standing at Rs 122.48 crore as compared to Rs 98.79 crore in FY19. Lux Industries was able to reduce its working capital in the six months ending September 30, 2020 in spite of the pandemic and also paid off its debt, dropping their net debt-to-equity ratio from 1.0 in March 2018 to -0.1 in September 2020. The return on capital employed and return on equity also inched up in September 2020 as compared to March 2020.

Conclusion

The innerwear industry has a vast sweep in the rural as well as semi-urban areas of India. The mid-priced products of the innerwear industry are inelastic demand-wise as in the past also people have purchased these products due to necessity. Lux Industries destocked its inventory and also found it to be liquidated with people purchasing its products soon after the easing of the lockdown. With consumer sentiments being hesitant as at present, the demand would gravitate to those companies which own stronger brands. Lux Industries has been successful in establishing stronger and unaided brands from the scratch. It continues to grow its business with lower balancesheet load while enhancing its presence in the premium innerwear segment. Considering the substantial growth in the financials of previous the quarters, we suggest BUY for this stock.