Lux has been in business for more than five decades.
In the early years of the Company's existence there was a conviction that innerwearhosiery was an item of fundamental clothing that would always be required.
Around that time India had a population of 907.57 million. A number of people usedinnerwear as their workday piece of clothing. The product range was limited. Purchase wasintended to last for months (if not years).
However the management of our Company could see what lay ahead. It felt that Indiawould move to better innerwear quality wider product range superior manufacturingtechnologies and a greater role for the brand.
Over time this perspective was validated. As India grew in terms of populationincomes and aspirations the offtake of innerwear increased. We now have a scenario whereinnerwear is ubiquitous - for its sheer variety sizes quality accessibility extensioninto outwear and superior price- value proposition.
The inspiring India story
Several people asked me after Lux's record performance during the last financial year:'Where does the Company go from here Rs.'
My answer is consistent.
We go where India goes. We scale how India scales. We evolve how India evolves.
My answers are based on where India has come from in the last 30 years and the rapidlytransforming India story.
India is the world's fastest growing major country the third largest economy bypurchasing power parity and the fifth largest at the current exchange rate. The countryhas grown 8 to 9% in 25 years in dollar terms. The gap between India and China is farnarrower in PPP versus GDP measured using official exchange rates.
India is now the world's seventh largest consumer economy having risen from the 12thposition 25 years ago. The quantum of consumer spending has grown six times during thisperiod;
US consumer spending merely doubled (albeit on a larger base) while that in Japanremained almost unchanged. This indicates that a powerful income current is presentlyunder way within India about to emerge as the world's most populous country by 2023.
India recently accounted for the fastest forex accumulation in the world the highestinward remittance from abroad and the highest share of IT in services exports. BesidesIndia's export growth is the second highest in the world and the fifth highest foreigndirect investment recipient.
Despite the general perception of a relatively modest Indian industry performance(versus services)
India's industrial growth in the last 25 years has been second only to China. TodayIndia has the 5th largest industrial economy in the world up from the 13th in 1996. Thesize of industry has jumped six times in dollar terms during this period.
India is one of the most attractive countries by consumer demand. This has been drivenby a combination of strong income growth relatively low penetration levels (when comparedwith countries with similar size and demographics) for most consumer products a youngpopulation and rising aspirations. India rose from the eighth to the second position in 25years when measured by growth in per head consumer demand.
Drivers of India's growth
At Lux we are optimistic that the India growth story will not just sustain but willaccelerate. I see the following catalysts of India's growth through the Twenties someinflation spike in our resource costs notwithstanding.
Population: India will emerge as the most populous country by 2023. The countryadds around 1% to its population annually - around 14 million widening the market forconsumer-driven and retail-driven companies like Lux.
Desires: Population growth means nothing if the incremental population is noteconomically productive. The population that is now emerging possesses higher aspirationsthan their predecessors; they wish to wear eat and live better. The result has been adecline in price-sensitivity and a willingness to spend higher for something better.
Formalising: There is an industry shakeout transpiring through India. Following theintroduction of GST we are seeing a formalisation of India's innerwear hosiery sector.This means that consumption is shifting from unorganised to organised brands as the costdifference that unorganised players once enjoyed is declining and the overall valueproposition is gravitating towards organised brands.
China + 1: As the world seeks to broad-base its supply chain with moderation in itsexcessive dependence on China a new opportunity is emerging for Indian textile companieslike Lux. An entry into large global supply chains could translate into a large visibleand sustainable revenue pipeline an incentive to reinvest and grow faster.
A five-year perspective is a reasonable period across which to appraise the performanceof a company.
When you apply this prism to Lux what you get is a picture of attractive growth.
If you take FY 2017-18 as the base year what you get is a remarkable sequence of ouryear-on-year performance.
Lux reported revenues of Rs.1079.36 crore during FY 2017-18 and revenues of Rs.2312.92crore during FY 2021-22.
Lux reported EBITDA of Rs.156.07 crore during FY 2017-18 and an EBITDA of Rs.490.27crore during FY 2021-22.
Lux delivered an EBITDA margin of 14.46% during FY 2017-18 and an EBITDA margin of21.20% during FY 2021-22.
Lux paid Rs.25.42 crore of interest during FY 2017-18 and Rs.16.01 crore during FY 22.
During FY 2021-22 Lux's brand wise performance has been summarised as under:
|Categories ||% of total revenues |
|Premium ||13.56 |
|Mid-premium ||54.28 |
|Economy ||32.16 |
There is a growing premium on governance in business success.
As I understand it governance is the capacity to be completely trusted not only for asystems- driven enterprise but also by the virtue of periodic validation of the system.
At Lux we have lived this governance ethic. During the last few years the Companymerged its Group companies into its listed flagship organisation. At Lux we are takingour governance commitment ahead. The Company engaged the reputed EY as a part of itsgovernance-deepening team. The Company strengthened its GST and other compliances. TheCompany will soon graduate to one of the Big Four accounting firms for its auditembracing global standards of accounting interpretation.
As India moves deeper into a dramatic growth decade we expect that growth to translateto the textiles sector and then to companies like ours focused on making Indians look andfeel better.
At Lux we see ourselves at the bottom end of a long growth curve. We don't just seeourselves growing; we see ourselves growing at an attractive gallop we see ourselvesgrowing around superior realisations we see ourselves extending from the usual inner wearto fashionable outerwear and we see a deepening of our recall - 'If you need anyrespect-enhancing hosiery product Lux will be able to provide.'
Our time starts now.
Ashok Kumar Todi