Initiating Coverage |Textile
01 Nov 2018
Radhika Modi - Assistant Research Analyst ([email protected]); 0261-6725518
Investors are advised to refer through important disclosures made at the last page of the Research Report. Jainam Share Consultant research is available on www.jainam.in
1 Jainam share Consultant Pvt Ltd. Sector : Textile
Index A. Company Overview
1. About…………………………………………………………………………..4 2. Investment Rationale………………………………………………………….5 3. Risk……………………………………………………………………………..7 4. Brief Conclusion………………………………………………………………..7 B. Industry Overview
1. Indian Innerwear Industry……………….……………………………………8 2. Men innerwear Market………………………………………………………..9 3. Women innerwear Market…………………………………………………..10 4. Growth Drivers……………………………………………………………….11 C. Business of the Company
1. Presence of the Company………………………………………………………………………….12 2. Milestones………………………………………………………………………………………………..13 3. Business Process……………………………………………………………………………………….14 4. Product and Segment………………………………………………………………………..………15 5. Brand………………………………………………………………………………………………………..16 6. Brand Ambassador…………………………………………………………………………………….17 7. Merger………………………………………………………………………………………………………18 8. Top Shareholders……………………………………………………………………………………...20 9. Management…………………………………………………………………………………………….21
D. Financial Outlook
1. Profit & Loss……………………………………………………….…………………………………….22 2. Ratio…………………………………………………………………………………………………………23 3. Balance Sheet……………………………………………………………………………………………24 4. Cash Flow Statement…………………………………………………………………………………24 5. Half-Yearly Update……………………………………………………………25 E. Analysis
1. Peer Analysis………………………………………………………………….28 2. Valuation…………………………………………………………………...…29
2 Jainam share Consultant Pvt Ltd. Sector : Textile
F. Conclusion
1. Recommendation……………………………………………………………..31 2. Sources………………………………………………………………………..32 3. Full Form & Glossary………………………………………………………….33 4. Report Gallery………………………………………………………………...34 5. Disclaimer……………………………………………………………………..35
3 Jainam share Consultant Pvt Ltd. Sector : Textile
Company Overview
About Lux Industries Ltd. Rating: BUY Target: 1755 Lux Industries Limited, incorporated in 1995 is Horizon: 12 months Potential upside: 14% one of the largest players in the hosiery business having a market share of ”20% of the organized industry. It is into the Latest Date 1st November manufacturing and marketing of Men’s, Current Market Price(Rs) 1557.00 Women’s & Kids lnnerwear, Winter wear, 52 week high (Rs) 2089.95 Socks & Slacks for Women in varied colors 52 week low (Rs) 1194.65 and designs. It has more than 100 products across 12 brands and with focus on growing TTM EPS(Rs) 31.38 exclusive retail outlets, the company’s TTM P/E(x) 50.33 products are available in 450000 retail points Price/BV(x) 12.45 spread across India. It has 6 manufacturing EV/TTM EBITDA 27.39 facilities and has a presence across the globe with exports to 47 countries largely Dividend Yield(%) 0.13 comprising Middle East, Africa, Australia and Current Book Value(Rs.) 126.67 Europe. Market Cap (Rs in Crs) 3828.73 In 2017-18, Artimas Fashion Private Limited RoE (%) 24.73 became the wholly owned subsidiary of Lux Industries and has acquired manufacturing RoCE (%) 22.75 and marketing rights of Virat Kohli's brand DEBT/EQUITY (x) 1.03 One8 No. of shares (in cr.) 2.53 MERGER
The Board of Directors have approved the scheme of merger of J.M. Hosiery & Co. Limited (JMHL) and Ebell Fashions Private Limited (EFPL) with Lux Industries Limited(LIL).They are both private limited company owned by the promoters of the company. J.M. Hosiery owns the men’s brand GenX and Ebell Fashions owns the women’s brand Lyra.
Exchange: BSE BSE Code: 539542 Current Market Price: 1557.00 Date: 01-Nov-18
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Investment Rationale
Strong Distribution Network : The distribution of Lux is very strong and the company is expanding it. Company has 950+ distributors, 160 large format stores and 9 Exclusive Brand Outlets. It is one of the few companies to have Exclusive Brand Outlets (EBO). Company has strong presence in Northern, Eastern and Western region which contributes to 65% of revenue. To provide customers with a seamless buying experience, the company’s products are available in 450000 retail points spread across India. Since the company has weak presence in southern region, it is focusing on expanding in the specified region by introducing 30-40 distributors on YoY basis for coming two years.
Number FY00 FY05 FY10 FY15 FY18 Distributors 300 400 650 900 950+ Retailers 75000 120000 260000 450000 450000
Implementation of GST: The inner wear industry is largely dominated by unorganized players.The market share of organized sector is 50% and that of unorganized sector is 50 %. Post GST, the cost differential between the organized and unorganized sector declined from 12% to 5%. Therefore, Implementation of GST will be beneficial for the organized player in the inner wear industry. To cater the share of unorganized sector in mass segment, Lux has endorsed Mr. Amitabh Bachchan as Brand Ambassador of Lux Venus (mass segment brand) Premiumization : There is an increase in premium brand contribution to revenue and margins are also expanding. The ONN brand which caters to premium segment is growing revenue at 30%.
Source : Investor Presentation
MERGER : The merger of J.M. Hosiery and Ebell Fashions ltd. with Lux industries will increase the bottom line figure by 47% and debt-equity ratio will come down from 1x to 0.9. Lyra brand (owned by Ebell Fashion ltd.) has a market share of 38% in mid to premium segment which will be beneficial for Lux Industries.
5 Jainam share Consultant Pvt Ltd. Sector : Textile
Collaboration with International Brand - Lux Industries has entered into an agreement with ONE 8, Virat Kohli’s brand management company. Company will be manufacturing and marketing a unique collection of socks, innerwear and sleepwear globally. With One8 Lux gained to disrupt premium inner wear segment. One 8 production process is going on and selling will start in Q4FY19. Brand earning : Lux has invested Rs. 386 Cr in brands across the 6-years ending FY18 but Lux profit from every rupee invested in brand spending increased from 5.74% in FY13 to 9.55% in FY18. It has Sustained brand investments at 8% of turnover.
Source : Investor Presentation
Export - The company is increasing its global presence by increasing the exports. Primarily Lux has always been exporting to the gulf countries and the African nations which forms the bulk of exports but now they are also looking into developed market such as France. Export forms 10% of the top line of Lux. Countries Exported
FY13 FY14 FY15 FY16 FY17 22 32 46 47 47
.
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Risks
Cash Conversion Cycle: The cash conversion cycle of the company is 149 days for FY18 but as per the management they are trying to reduce the working capital days by 20-30 days and its effect should be seen in Q3FY19 or Q4FY19. Volatility in Raw Material prices: The prices of the raw material like yarn, cotton and chemicals could impact the gross margins of the company but the company is backwardly integrated which help them in cost-saving. Fashion Trend: The industry and the trend are rapidly changing and the company needs to adapt those changes so that they don’t lose the customers. Competition : The company has a major competition form the unorganized sector as it forms 50% of the total inner wear industry. Also, the company face huge competition from its peers.
Brief Conclusion
At the CMP of Rs.1557, stock is trading TTM P/E of 47.27x and TTM EPS of Rs.32.59. Company is having more than 100 products across 12 brands with strong distribution network and has been benefited with GST. Also, LYRA brand is going to merge with Lux Industries, speeding higher on brand building.
We recommend our Investors to “BUY on DIPs" the stock with potential upside of 14% with Horizon of 1 year.
7 Jainam share Consultant Pvt Ltd. Sector : Textile
Industry Overview
Indian Innerwear Industry
The Indian inner wear market is estimated at Rs. 24,000 crore in 2015. The segment has grown at 15% during the period from 2010 to 2015. The inner wear market is estimated to continue at the same growth rate over the next five years and expected to become a Rs. 47,000 crore market which is nearly 8% of the total estimated apparel market, by the year 2020.
Source : Lux Annual report Indian intimate wear market is dominated by women’s segment which currently forms over 60% of the overall market and is valued at Rs. 14,500 crores. This segment has outperformed the overall market as well as men’s segment, which currently holds ~ 35% of the total market. Kid’s intimate wear market merely has a 4% share in total market.
Figure 5: Chart showing Category wise Market Size (Values - `/Crore)
Source : Lux Annual report
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Source : Lux Annual report
Men Inner wear Market
The men’s inner wear market is valued at around Rs. 8,500 crore in 2015. It has grown at a CAGR of 14% since 2010. With increasing disposable income and changing consumer’s attitude towards the category, the segment is expected to maintain the growth to reach Rs 16,500 crore by 2020.
Source : Lux Annual report
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The men’s inner wear market is characterized by the presence of numerous Indian and international brands catering to different segments of the market. The different sub-categories of men’s inner wear include vests, briefs / boxers, basic T-shirts, shorts / pyjamas, sleepwear and active wear. Consumers mostly purchase branded products for vests and brief / boxers, which are the largest category offerings from leading inner wear brands.
Source : Lux Annual report Women Inner wear Market
The women’s inner wear market worth 14500 crore is one of the fastest growing categories within the women’s apparel segment. This category is growing at a CAGR of 14% and is expected to reach 28000 crore by 2020. The women’s inner wear market is considered to be more dynamic, with many design variations and the regular introduction of innovative products. Contrary to men’s inner wear where a consumer comes across advertisements for several brands on a daily basis, brand promotion and advertising activities are comparatively lower in women’s inner wear. The sub-categories in women’s inner wear include brassieres, panties, camisoles, basic T-shirts, shorts / pyjamas, sleepwear, active wear and maternity wear. Consumers in this category mostly purchase branded brassieres and panties, which constitute more than 90% of the category mix. However, the penetration of brands is comparatively low for other sub-categories like camisoles, sleepwear, etc.
Source : Lux Annual report
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Growth Drivers
GST: After the implementation of GST the cost differential between organized and unorganized sector will decrease from 12% to 5% which will be beneficial for the organized player in the inner wear industry Brand consciousness: People are becoming brand conscious and changing their preferences which is not only restricted to metro cities but also to mini metros, the tier l -II and -III cities Innovation: There is a growing trend towards variants in the intimate wear category in terms of stitches, design, style, colour and comfort. The demand for value added products has been increasing with higher consumer disposable income. Technology: The Indian inner wear industry has seen many technological advancements and innovations. For example, briefs come in low-ascent, medium-ascent, skyscraper, and numerous cuts that can uncover or stow away different parts of our body. Rising exports: Many inner wear brands of Indian origin have made their presence felt in countries like Africa and Middle East and they are exploring more countries for exports Middle Class Boom: The middle-class population in India is at around 300-350 million.The booming middle class reflects rising consumption across all industries. Consumer Purchasing Power: The standard of living of the people is directly related to their per capita income.Consumer spending is on a rise because of increasing per capita income over time.Greater consumer spending increases the demand for better quality products in the inner wear category adding to the ‘feel good’ factor. Online Retail: E-Commerce is becoming popular in inner wear industry also and many companies are using this platform to increase their revenue.
11 Jainam share Consultant Pvt Ltd. Sector : Textile
Business of the Company
Presence Of Lux
Source :Investor Presentation
Headquartered in Kolkata, West Bengal. Six manufacturing plants at: - Ludhiana, Agarpara, B.T. Road, Dankuni, Dhulagarh and Tiruppur. 950+ distributors, 160 large format stores and 9 Exclusive brand outlets It has 450000 retail points and 5000 SKU’s Exports to 47 countries spread across the globe It has 350 knitting machines. It has manufacturing capacity of 20 cr garments annually and 5 lakh pieces daily. The Products range from Rs. 38 – Rs. 1,350
12 Jainam share Consultant Pvt Ltd. Sector : Textile
Milestones
1957 1964 1992 Late Sri Girdharilalji Todi The second generation of The first television set out to make everyday entrepreneurs assumed advertisement Ye Andar Ki inner wear comfort a management. Baat Hai featuring Sunny reality for Indians through Deol was launched. Biswanath Hosiery Mills 1993 1994 1995 Lux began to export Lux became the first Biswanath Hosiery was products to the Middle hosiery company to incorporated into Lux East, Africa and Europe. organize a conference for Industries Limited, making dealers to discuss business Lux the flagship company plans. of the Group.
1998 2000 2001 Lux widened its pan-India Sunny Deol was signed as Lux was incorporated as a footprint and established Lux Cozi’s brand public limited company.. its Delhi office. ambassador.
2003 2010 2013 The Lux IPO was launched Indian film icon Shah Rukh Lux became Comfort and massively Khan was engaged as Partner for Kings XI Punjab oversubscribed. brand ambassador for and Pune Warriors India in ONN. the IPL.
2014 2015 2016 Lux Cozi became title The shares of Lux were One of Eastern India’s sponsor at the Zee Cine listed on National Stock largest hosiery product Awards,seen by over 700 Exchange (NSE) and manufacturing plant at million viewers across 168 Bombay Stock Exchange Dankuni, West Bengal countries. (BSE). commenced operations. Lux became a primary 2017 2018 sponsor and Varun Dhawan was signed Mr Amitabh Bachchan was merchandising partner of as Lux Cozi’s brand appointed Brand Kolkata Knight Riders Lux ambassador Parineeti Ambassador for Lux Venus Glo, a sub brand of Lux Chopra was launched as and Lux Inferno Cozi, was launched. the Brand Ambassador for
the Lyra leggings brand Source : Lux Annual Report
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Business Process
Source :Investor Presentation
The company follows hub and spoke model. There are mainly 4 processes i.e. Knitting, Processing, Cutting and Stitching. Firstly, yarn is purchased from the local market and then the process of knitting is done in-house using 350 knitting machines. Then in processing, company prefers only dedicated vendors and further the process of cutting is completely done in-house. In stitching, as far as the mass and mid segment is concerned, it has been done on job booking basis and premium products are completely done in house. So, 50% of the process is done in-house for cost-saving and 50% of the process is outsourced to keep it asset-light and employee-light model.
01-11-2018 14 Jainam share Consultant Pvt Ltd. Sector : Textile
Product and Segment
The company is into the manufacturing and marketing of inner wear, sleepwear and active wear. It has a diversified product portfolio from men’s inner wear to men’s and women’s outerwear. It also has complimentary products like socks and children’s wear. Its product include Vests, briefs, trunks, boxers, thermal wear, Panties, camisoles, leggings, lounge wear, t-shirts and socks. Product offerings across ages, genders, geographies and seasons The Company’s product portfolio starts at Rs.38 while the top price range is Rs 1350.
Economy Lux Venus Lux Karishma Lux Cott’s Wool Segment
Mid Lux Cozi Big Lux Lux Cozi Lux Lux Cozi Premium Shot Touch Glow Inferno Inner wear Segment
Premium ONN One 8 Segment
Source : Investor Presentation Source : Investor Presentation
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Brands
Source :Investor Presentation
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Brand Ambassador
Mr. Amitabh Bachchan was signed as the Brand Ambassador of brand ‘Lux Venus’ and ‘Lux Inferno’. Lux Venus caters to the mass segment and with Amitabh Bachchan endorsing it, it has helped the company to gain market share in mass segment Launched Mr. Bachchan as its ambassador through an extensive campaign from January 2018 across a mix of media like Television, Online, Print and Out-of Home media
Mr. Varun Dhawan was signed as the new Brand Ambassador for the brand ‘Lux Cozi’ LUX Cozi is one of the most popular and the largest market share holder in the economy to the mid-segment of men’s inner wear. Varun Dhawan’s connect with the youth has worked in company’s favour. Lux Cozi revenues increased 14.46% in 2017-18
Lyra Brand was introduced in 2012. Parineeti Chopra was launched as the Brand Ambassador for the Lyra leggings brand in 2017. LYRA brand has a market share of 38% in the mid to premium segment.
01-11-2018 17 Jainam share Consultant Pvt Ltd. Sector : Textile
Merger
J.M. Hosiery & Co. Limited (JM) - The company is engaged in the business of manufacturing, marketing, selling and distribution of inner wear and sportwear for men. The manufacturing unit of the company is in Tiruppur,Tamil Nadu. It owns GenX Brand (introduced in 2010).which is a mid-segment brand. GenX brand provides comfortable inner wear and sportswear for men across metros, semi metros and semi urban India and is available through retail points spread across India.
Revenues (cr.) 291.67 251.18 2017-18 2016-17 16.12 % Profit After tax (cr.)
16.44 8.75 87.89 2017-18 2017-18 %
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Ebell Fashions Private Limited (Ebell) - The company is engaged in the business of manufacturing, marketing, selling and distribution of knitted apparel for women’s. The manufacturing unit of the company is in Dankuni,Kolkata. It owns Lyra Brand (introduced in 2012). LYRA offers young women inner wear and outer wear ranges in various colors and styles. Parineeti Chopra is the Brand Ambassador for Lyra Brand
Revenues (cr.)
198.05 164.82 20.16 2017-18 2016-17 %
Profit After tax (cr.)
21.05 16.57 27.04 2017-18 2017-18 %
Share Holding Patter of Lux Industries
Source : M&A Critique
* Promoters shareholding will be reduced as per the SEBI guidelines. ** Currently total number of issued share are 2.53 cr. and after the merger there will be 19% equity dilution due to which the total number of issued share will increased to 3.01 cr.
01-11-2018 19 Jainam share Consultant Pvt Ltd. Sector : Textile
BENEFITS OF MERGER
The bottom line of Lux Industries Ltd.will increase by 47% The debt-equity ratio will come down from 1x to 0.9. Lux will get benefit of GenX brand and Lyra Brand which caters to mid to premium segment and hence the margin will be attractive. The EPS will become more attractive for existing shareholders.
Top Shareholders
Name of Share holders No of shares Percentage
Panghat Vanijya Pvt. Ltd. 609000 2.41
Mangalnidhi Mercantile Pvt. Ltd. 445000 1.76
Cliff Trexim Private limited 183000 0.72
Garg Brothers Pvt. Ltd. 115000 0.46
Karvy Stock Broking Ltd (BSE) 147922 0.59
Monet Securities Private Ltd 152396 0.60
Avantika Commotrade Private Limited 89660 0.36
01-11-2018 20 Jainam share Consultant Pvt Ltd. Sector : Textile
Management
Name Designation About His forte lies in Marketing of the products and formulating various policies for Growth & Expansion of the business on pan India basis . He has rejuvenated with Mr. Ashok Kumar Todi Chairman exploring schemes for distributors, retailers and even for consumers . Has also been associated with various philanthropic organizations of the country Presently looking after the Product Development and Production. His forte is in developing new patterns, yarn Mr. Pradip Kumar Todi Managing Director combinations, knitting technologies. He has immense acquaintance in technical know-how in hosiery industry.
Mr. Saket Todi, son of Shri Ashok Kumar Todi, aged 27 years . Has done his post graduation in Brand Sr. Vice President Management and has Mr. Saket Todi (Marketing) eminent knowledge in marketing. Has been associated with the Company since 2014 with his in-depth knowledge in marketing
01-11-2018 21 Jainam share Consultant Pvt Ltd. Sector : Textile
Financial Outlook Profit and Loss Statement
Particulars FY16 FY17 FY18 Income from operations 940.87 957.97 1137.75 Growth (%) 3.52% 1.82% 18.77% Total Expenses 846.50 838.37 983.54 Operating Profit 94.37 119.60 154.21 Operating Profit Margin 10.03% 12.48% 13.55% Other Income 3.33 1.62 0.40 Other income as % of sales 0.35% 0.17% 0.04% Depreciation 9.75 7.09 4.12 Interest 25.42 22.00 11.96 Profit Before Tax (PBT) 78.68 92.13 122.38 PBT Margin 8.36% 9.62% 10.75% Tax 27.34 32.48 43.15 Net Profit 51.34 59.65 79.23 Net Profit Margin 5.46% 6.23% 6.96% EPS 20.28 23.62 31.38
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Ratio Analysis
Performance Ratios 2014 2015 2016 2017 2018 RoA % 7.74 8.84 8.62 9.29 9.06 RoE % 41.42 40.70 33.09 28.12 24.73 RoCE % 22.38 21.34 19.40 22.90 22.75
Efficiency Ratios 2014 2015 2016 2017 2018 Receivable Days 64.87 86.85 96.19 100.85 124.83 Inventory Days 71.45 67.60 75.45 82.47 95.98 Payable Days 49.64 39.36 45.46 49.99 71.09 Cash Conversion Cycle 86.68 115.09 126.18 133.33 149.72
Financial Stability Ratios 2014 2015 2016 2017 2018 Total debt/equity (x) 2.62 1.52 0.96 1.18 1.03 Current Ratio (x) 1.61 1.49 1.79 1.51 1.36 Interest Ratio (x) 3.69 4.85 7.58 5.19 5.81
Cash Flow Ratios 2014 2015 2016 2017 2018 Cash flow per Share -19.44 -37.59 160.29 8.13 -0.92 Price to Cash flow 0.00 0.00 4.12 87.63 -1846.51 Free Cash flow per share -79.96 -145.63 89.57 -9.17 -17.82 Price to Free cash flow 0.00 0.00 7.38 -77.64 -95.44 Sales to Cash flow -88.69 -47.88 11.62 46.68 -489.31
Valuation Ratios 2014 2015 2016 2017 2018 EPS (x) 12.43 17.91 20.28 23.62 31.38 P/E (x) - - 32.60 30.15 54.19 P/BV (x) - - 9.34 7.32 13.40 EV/EBITDA (x) 3.24 3.76 20.51 17.18 29.33
Du-Pont ratios 2014 2015 2016 2017 2018 RoE (%) 41.42 40.70 33.09 28.12 24.73 PATM (%) 3.60 4.98 5.46 6.23 6.96 Sales/Total Assets (x) 2.15 1.78 1.58 1.49 1.30 Assets to Equity (x) 5.35 4.60 3.84 3.03 2.73
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Balance Sheet
Cash Flow
Metric/Figures (cr) 2016 2017 2018 Cash Flow from Operating Activity 81.09 20.52 -2.33 Cash Flow from Investing Activity -24.85 -19.67 -18.76 Cash Flow from Financing Activity -90.45 -1.05 16.22 Net Cash Flow -34.29 0.20 -4.87
01-11-2018 24 Jainam share Consultant Pvt Ltd. Sector : Textile
Half-Yearly Highlights
Total Income from Operations for Q1FY19 grew by 7.00% and EBITDA grew by 19%. The inner wear market for men is expected to grow by 15% for the next three to four years mainly driven by the increase in income and change in attitude of the Indian consumers mostly contributed by the economy and the mid premium segment. Post GST, the cost of unorganized segment increased by 500 basis points and for organized segment, cost decreased by 100 basis points. The winter segment will grow at a CAGR of 5% for next 10 years mainly due to product innovation. ONN brand is to grow at the rate of 30% to 35%. It is more than Rs. 100 Crores brand now. Management is trying to improve working capital days by reducing the debtor days by 20-30 days but its effect should be seen in Q3 or Q4FY19. For Q1 of FY2019, company has started to export in the Eastern African continent also.. Brand investment is 7% to 8% of top line. Total Income from Operations for Q2FY19 grew by 31.00% and EBITDA grew by 51% yoy. For Q2FY19, 10% of total revenues is from winter segment - Lux Inferno Cotton prices are increasing from past 6-7 months. Also, there has been increase in jobbing expense which has been passed on in current quarter (Q2FY19) Advertisement is 7% of sales in FY19. For Q2FY19, Revenue from Venus brand is 35%, Lux Cozi is 25% and from ONN brand & exports is 25% approx. Lyra which is from Ebell Fashion Co. Ltd. reports 35% growth( 28% volume and 7-8% value growth) quarterly and half yearly. One 8 production is in work in progress and selling will start in Q4FY19. For Q2FY19. ONN which is a premium brand reported volume growth of 22% and value growth of 3-4% yoy. The Dankuni plant is fully utilized and in 2-3 years management is looking at expanding production facility. Contribution of revenue from e-commerce is only 1-1.5% which is majorly through premium segment. For the FY19, management will try to reduce the borrowings by Rs. 70 to Rs. 80 Crores.
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Quarterly Profit & Loss
Particulars Q2FY19 Q2FY18 Var % Q1FY19 Q1FY18 Var % Revenue 277.0 211.4 31% 262.3 246.1 7% EBIDTA 43.2 28.7 51% 38.4 32.3 19% EBITDA margin (%) 15.6 13.6 14.6 13.1 Depreciation 2.8 2.3 2.7 2.3 EBIT 40.4 26.3 54% 35.7 30.1 19% EBIT % 14.6 12.5 13.6 12.2 Finance Cost 6.1 5.7 7.1 6.1 PBT before Tax 34.3 20.6 28.6 24.0 PBT % 12.38 9.74 10.90 Tax 12.9 7.3 9.8 8.3 PAT 21.4 13.3 61% 18.8 15.7 19% PAT% 7.73 6.3 7.1 6.4 Other Income -0.1 0.0 0.9 0.0 Total Income 21.3 13.3 19.7 15.7 EPS 8.46 5.27 7.79 6.21
HY1 FY19 - Profit & Loss
Particulars H1FY19 H1FY18 %ch Income from operations* 540.3 457.6 18% EBIDTA 81.6 61.0 34% EBITDA margin (%) 15.1% 13.3% Depreciation 5.5 4.6 EBIT 76.1 56.4 35% EBIT % 14.1% 12.3% Finance Cost 13.2 11.8 PBT before Tax 62.9 44.6 PBT % 11.64% 9.75% Tax 22.7 15.6 PAT 40.1 29.0 38% PAT% 7.4% 6.3% Other Income -0.1 0.0 Total Income 40.0 29.0 EPS 15.89 11.49
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HY1 FY19 - Balance Sheet
Metric/figures (cr) 2018/09 2018/03 Cash & cash equivalents 1.4 2.2 Debtors 302.4 389.1 Inventory 357.8 299.2 Loans & advances 2.8 0.8 Investments 0.8 0.8 Fixed assets 128.1 128.1 Other assets 59.5 54.6 Total assets 852.8 874.8 Share capital 5.3 5.3 Total reserve 355.3 315.3 Current liabilities & provision 172.1 224.3 Debt 310.0 316.5 Other liabilities 10.1 13.4 Total liabilities 852.8 874.8
J.M. Hosiery Ebell Fashions
Source : Investor Presentation
01-11-2018 27 Jainam Share Consultant Pvt Ltd Sector : Textile
ANALYSIS
Peer Analysis
LUX PAGE VIP RUPA DOLLAR
Bangalore (9), Hassan, TamilNadu, West Bengal TamilNadu, Mysore, Nashik, Karnataka, Plant (4), Punjab, Kolkata, Tiptur, Haridwar Ghaziabad, Tamil Nadu Punjab, Delhi Gowbribidan Kolkata ur
Capacity/day 5 lakh pieces - - - 3 lakh pieces EBO 9 470 - 10 - Distributors 950 - - 1000 915 Retailers 450000 50000 - 125000 95000 CCC 149 days 80 days 235days 126days 140 days Revenue (cr.) 1138 2551.37 222.38 1156.76 982.52 Market Cap (cr.) 3828.73 32079.77 332.46 2367.51 1,673.22 ROE(%) 27.99 45.88 28.27 19.84 18.17 ROCE(%) 24.92 64.12 3.16 27.01 24.29 Promoter 73.71 48.32 52.67 73.29 57.02 Holding PAT (Cr.) 79.23 346.98 -3.07 94.61 64.02 PATM(%) 6.96 13.60 -1.38 7.88 6.52 CFO (Cr.) -2.33 454.56 -16.62 50.29 -31.08 FCF(Cr) -44.99 386.92 -28.16 21.71 -53.33 D/E (x) 1.03 0.08 0.41 0.22 0.52 EPS(Rs) 31.38 311.08 -0.37 11.90 11.29
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Scenario Analysis
Assumption:
In Fy18 Revenue from operation of Lux Industries standalone is 1139 cr. , J.M. Hosiery is 291.67 cr. And of Ebell Fashions Ltd. Is 198.05 cr. total of which amounts to 1628.72 cr. and according to management the company will grow at a CAGR of 16%, so sales in FY20 is assumed to be 2200 cr.
Currently total number of issued share are 2.53 cr. and after the merger there will be 19% equity dilution due to which the total number of issued share will increased to 3.01 cr.
Part-1 - Based on Profit after Tax margin
Currently PE of the company is around 50.33x, so being on conservative side we have assumed PE to be 35x.
PAT margin for Fy18 is 6.90% so it is assumed that it will remain same by Fy20.
Part-1 FY20 (E) 5 yrs. Average PATM (%) - A Sales (cr.) 2200 PATM (%) 6.90% PAT (cr.) 151 P/E (x) 35 MCap (cr.) 5285 No. Of shares (cr.) 3.01 Price (Rs.) 1755.81
01-11-2018 29 Jainam Share Consultant Pvt Ltd Sector : Textile
Part 2 - Based on Profit before Interest, Depreciation and tax margin
Currently EV/EBITDA of the company is around 27.39x, so being on conservative side we have assumed EV/EBITDA to be 22x.
EBITDA margin for Fy18 is 12.02% so it is assumed that it will remain same by Fy20.
Part-2 FY20 (E) 3 yrs. Average EBIDTA (%) Sales (cr.) 2200 EBIDTA (%) 12.02% PBIDT (cr.) 264.44 EV/EBITDA (x) 22 EV (cr.) 5817.68 Debt 329.15 Cash 2.22 MCap (cr.) 5490.75 No. Of shares (cr.) 3.01 Price (Rs.) 1824
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Conclusion
Recommendation
Lux Industries Limited is having a strong distribution network of 950+ distributors, 160 large format stores and 9 Exclusive Brand Outlets. The management is focusing more on format stores, modern retail on expanding in the southern region by introducing 30-40 distributors on YoY basis for coming two years. With implementation of GST, the organized players of inner wear industry will be beneficial as the cost difference between organized and unorganized players will reduces from 12% to 5%.
The company is focusing more on premium brand as the margins from premium brand is high. Lux has entered into agreement with One8 (Virat Kohli’s brand) and its production is in work in progress and the sales will start in Q4FY19. Since its a premium brand, Lux will be benefited from it.
The merger of J.M. Hosiery and Ebell Fashions ltd. with Lux industries will increase the reach of Lux Industries in women wear and premium segment. The merger will increase the bottom line of Lux Industries by 47%
Lux is also increasing its exports by exploring new countries. Although the cash conversion cycle of the company is high, but the management has taken effective steps for it, the result of which will be seen in Q3 or Q4FY19.
So, we recommend our Investors to “BUY on DIPs" the stock with potential upside of 14% with Horizon of 1 year.
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Sources
Annual Report Lux Industries Ltd. Website Investor Presentation Conference Call BSE website Web based Software – Ace Analyser M&A Critique
Name Designation Email Id Tejas Jariwala Research Head [email protected] Jimit Zaveri Sr. Research Analyst [email protected] Vaishali Patel Sr. Research Analyst [email protected] Karan Agarwal Assistant Research Analyst [email protected] Vandana Pareek Assistant Research Analyst [email protected] Riva Patel Assistant Research Analyst [email protected] Radhika Modi Assistant Research Analyst [email protected] Shahrukh Nalbandh Sr. Research Executive [email protected] Drashti Patel Jr. Research Executive [email protected] Dhruvish Bakshi Jr. Research Executive [email protected]
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Full Form & Glossary
Abbreviation Full Form BV Book Value CAGR Compound Annual Growth Rate CAPEX Capital Expenditure COGS Cost of Goods Sold DPS Dividend Per Share EBIT Earnings before interest and taxes EBITDA Earnings before interest, tax, depreciation and amortization EPS Earning Per Share EV Enterprise Value FY Financial Year GP Gross Profit HY Half Year MCap Market capitalization NAV Net Asset Value NII Net Interest Income NOI Net Operating Income NOPAT Net Operating Profit after Tax NPV Net Present Value OCF Operating Cash Flow OI Operating Income P&L Profit & Loss P/E Price/Earnings Ratio PAT Profit After Tax PATM Profit After Tax Margin PBT Profit Before Tax QOQ Quarter on Quarter RE Retained Earning ROA Return on Assets ROCE Return on Capital Employed ROE Return on Equity ROI Return on Investment ROIC Return on Invested Capital RONA Return on Net Asset TTM Trailing Twelve Month WC Weighted Average Cost of Capital YOY Year over Year
01-11-2018 33 Jainam Share Consultant Pvt Ltd Sector : Textile
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01-11-2018 34 Jainam Share Consultant Pvt Ltd Sector : Textile
Disclaimer
Research Analyst Details
Name: Radhika Modi Email Id: [email protected] Ph: +91 0261-6725518
Analyst ownership of the stock: No
Details of Associates: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
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