There are a number of reasons that make Lux an attractive proxy of the growth ofIndia's consumption story and its fashion hosiery sector.
At Lux Industries we believe that the fashion hosiery sector is a dynamic face of thecountry's consumption story. A simple argument bears this put. Consumers may select towear jeans or not; they may select to wear linen shirts or not; they may select to investin khadi apparel or not. Each of these is an option; the consumer may select to buyand wear these or the consumer may well not.
However there is no option when it comes to a fashion hosiery product like innerwear.The selection of innerwear is generally a given a must in the wardrobe. It is somethingthat most Indians would have to buy and wear. The selection of innerwear then issomething that represents the building block of fashion consciousness; it is the baselineof the country's textile sector; it will endure in its stable use even as most externalfashions evolve.
This reality represents a simple understanding of innerwear products and its relevancein a growing India.
Interestingly even as the use and scope of the product appears relatively stable asweeping marketplace transformation makes this product segment increasingly relevant.Consider what is transpiring around us. India took more than six decades to reach itsfirst trillion dollars in GDP size; the next trillion dollars took less than ten years;its GDP is expected to approximately treble to $7 trillion by 2030. This will have adirect trickle-down impact on the country's consumption appetite. We believe that thebiggest impact will be visible in the country's rural consumption; we foresee an increasein incomes being mirrored in an increase in aspirations stronger offtake of textileproducts and a visible graduation towards branded hosiery products. The fact that thecountry's rural consumption of fashion hosiery products will increase is a forgoneconclusion; what is relatively under-appreciated is that when India's rural population(and possibly the largest such cluster anywhere) selects to spend more on what they wearthe consumption implications would be felt across the country and the world.
At Lux Industries we are prepared for this impending wave. In the last few years weembarked on a complete reinvention of our business with the singular objective of emergingfuture-ready. We invested an unprecedented H82.64 crores in our new integrated Dankuniknitting and cutting facility that makes it possible to provide more than 95% of ourproducts with captive knitting with adequate provisions to grow our capacity across theforeseeable future and address growing demand. We possess one of the lowest manufacturingcum conversion costs within our business. We strengthened our brand building invested anaggregate H277 crores in our brands across the five years ending 2016-17. We premiumisedour product offering generating a progressively larger proportion of revenues out ofvalue-added products.
We created a robust Balance Sheet marked by a gearing of 0.93 which indicates thatgiven the vastness of our opportunity we are extensively under-borrowed on the one handwith growing margins on the other.
What we have achieved in the past 11.34% CAGR in revenues across the five yearsending 2016-17 is possibly no patch on what we are likely to achieve across theforeseeable future. This is an India that is warming up to retail-oriented marketing asdistinct from products that are sold anonymously off-the-shelf; Lux is unique in marketinga product like Cozi extending the comforts of premium products to mid-end retail whichrepresents the retail of the future.
This is an India that is responding better to pioneering and innovative comforts; Lux'sGLO Collection comprises new introductions like cotton modal and has democratised the useof premium lifestyle products for the benefit of the vast mid-end consumer economy. Thisis an India willing to respect better-finished products through enhanced offtake andincreased prices; Lux invested in technologically-advanced 100% automated cuttingequipment in its state-of-the-art Dankuni facility. This is an India where the preferencefor improved innerwear is extending to related products like lingerie; Lux helped widennational product categories through the launch of relevant products that acceleratedrevenues.
I must end with an overview on the Goods & Services Tax that was introduced fromthe second quarter of the current financial year. We believe that this game-changing taxreform will benefit us at two levels: narrow the differential in terms of the costadvantage that was for long enjoyed by the country's unorganised sector outside thepurview of the tax net that will strengthen our overall competitiveness; it will alsoenable us to move products faster across the country reinforcing our logistics andworking capital outlay.
At Lux Industries we believe that we are placed at an attractive juncture that shouldtranslate into sustainable growth for our company and shareholders.
Ashok Kumar Todi