LUX Industries Ltd. Q1 FY23 Result Updates.
Healthy sales growth, margins impacted due to higher raw material cost.
Lux Industries Ltd. (LUX), reported sales of Rs. 5687 mn for Q1FY23 increased by 36.2% YoY backed by a volume growth of 14% YoY at 75 mn pieces and average selling price increase of 19% YoY. Growth in volumes was largely driven by increased demand for branded products from Tier I, II and III cities. Volumes in the economy/mid-premium/premium segment increased by 8%, 27%, 1% respectively while rest of the growth was on account of increase in price and product mix. Share of exports was 6% of total sales.
Net profit for Q1FY23 declined by 20.9% YoY to Rs 507 mn. PAT Margin was at 8.9% vs 15.4% YoY.
Company has been taking regular price increases in order to pass on higher raw material cost. Gross margin for Q1FY23 declined by 600 bps YoY to 31.8% on account of increase in raw material cost, stocking of high cost inventory in the previous quarters & volatile price of raw materials. In Q1FY23 EBITDA declined by 14.3% YoY to 748 mn. EBITDA margin for Q1FY23 declined by 776 bps YoY to 13.2%, mainly led by decline in gross margins and increase in advertisement expenditure which increased by 62% YoY at 420 mn.
Gross margins were impacted due to high cost inventory stocking in the previous quarters and volatile prices of raw materials. Company witnessed healthy traction for its men’s premium brand “ONN” (contributed 5% of sales in Q1FY23) with sales of Rs 300 mn up 94% YoY & women’s brand “Lyra” (contributed ~17% of sales in Q1FY23) with sales of Rs 970 mn up 136% YoY. Company’s latest offering of brand Lyra has been gaining good response from the market helping it to evolve from legging centric brand to multi-product, multi-category women’s wardrobe brand. Management highlighted that going forward with softening of raw material prices & streamlining of the high cost inventory, it expects gradual improvement in margins.
Growth on account of price increase and product mix.
In Q1FY23 company reported a volume growth of 14% YoY at 75 mn pieces, while rest of the growth was on account of price increase and product mix. Growth in volumes was largely driven by increased demand for branded products from Tier I, II and III cities. For Q1FY23 economy segment’s (35% of Q1FY23 sales) revenue grew by 20% YoY to Rs 1,980 mn while revenue from mid- premium segment (52% of Q1FY23 sales) grew by 52% YoY to Rs 2,960 mn. Additionally, revenue from the premium segment (13% of Q1FY23 sales) increased by 25% YoY to Rs 710 mn. Volumes in the economy, mid-premium, premium segment increased by 8%/27%/1% YoY respectively. Average realisations increased by 11%/20%/23% YoY respectively. Overall ASP increased by 19% YoY on account of price increases taken by the company to pass on higher raw material cost. In Q1FY23 geographical mix of sales was North: 35%, East: 21%, West: 25%, Central: 15%, South India: 4% In Q1FY23 womenwear brand “Lyra” reported sales of Rs 970 mn up 136% YoY. Lyra contributed 17% of total revenue. In Q1FY23 company’s premium brand “ONN” reported revenue of Rs 300 mn up by 94% YoY (contribution 5% of sales). Since premium brands have higher gross margins, increasing contribution should help the company to improve overall margins of the company. In Q1FY23 advertisement spend was Rs 420 mn (7.4% of Q1FY23 sales).
The shares of LUX Industries Ltd. are trading at Rs. 1763, up by 0.05%.
Valuations:
The return on equity (ROE) is 29.3% for the quarter ended June 2022. The price-to-earning (P/E) ratio stood at 16.1. The return on capital employed (ROCE) for the company is 34.7%. The price to book value of LUX Industries Ltd. is 4.05. The EV/EBITDA is 11.6. EPS during the quarter came at Rs. 110.
