INDIA'S HOSIERY SECTOR IS AT AN INFLECTION POINT.
The introduction of the Goods &
Services Tax in 2017 represents an inflection point in the existence
India's hosiery sector.
By unifying the indirect tax structure the government has attempted to create a levelplaying field. For long unorganised hosiery sector brands outside the country's taxsystems and competed aggressively with tax-compliant players. In doing so they oftenunder-cut market realisations and disturbed market pricing.
The implementation of GST narrowed the cost between the organised and unorganisedplayers. By enhancing the relative competitiveness of the organised sector the governmenthas inspired a re-balancing of the business. The market share of the country's unorganisedsector is expected to decline; the share of the organised sector is likely to increase.When one considers that India's apparel and hosiery markets would continue to groworganically the reality is that India's organised players will need to catch up with twomarketplace shifts from unorganised to organised on the one hand and the organicgrowth of the market on the other.
At Lux we recognise that when a shift of such magnitude occurs the response cannot beusual. Such a scenario requires companies to restructure their businesses to address thepotentially unprecedented upside. Companies of responding to such a sectoral inflectionpoint by making only cosmetic changes in their business model would perhaps bye missingthe overall import of such an opportunity.
At Lux we responded with a bold and decisive initiative. In 2017-18 the companyannounced a proposal to merge its two group constituents
J.M. Hosiery and Ebell Fashions with itself. We wish to communicate to our shareholdersthat both these Group constituents are profitable and the decision to merge thesecompanies would prove value- and EPS-accretive. The appointed date of the merger was April1 2018 which means that the full impact of the merger will reflect from 2018-19 onwards.
The value that these constituents bring to the business is distinctive.
J.M. Hosiery owns the men's brand GenX; Ebell Fashions owns the women's brand Lyra.Their accretion to the Lux business will be complementary and profitable.
The consolidated impact on the business would result in each of the merged arms growingfaster than usual and their resulting synergies-cum-economies translating into acceleratedgrowth of the parent company as well.
Lux Industries finished 2017-18 with revenues of H1139 cr and following the merger weexpect to accelerate business growth to achieve H2200 crore in revenues by 2020.
In doing so we expect to sustain all the things that we hold dear to our company: theability to grow faster than the rest of the market the ability to strengthen operatingmargins and the ability to reinvest accruals to grow our brands visibility anddistribution network.
The principal message that I wish to send out is that the proposed merger is agame-changer strengthening our industry leadership and business sustainability.