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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 464.18 | ACUITE AA | Stable | Reaffirmed | - |
| Bank Loan Ratings | 1.50 | - | ACUITE A1+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 465.68 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘Acuité AA’ (read as Acuité double A) and the short-term rating of 'Acuité A1+' (read as Acuité A one plus) on the Rs. 465.68 crore bank facilities of Lux Industries Limited (LIL). The outlook remains 'Stable'. |
| About the Company |
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Incorporated in 1995 as Lux Hosiery Industries Ltd., the company subsequently changed its name to Lux Industries Limited (LIL) in 2007. LIL is engaged in the manufacturing and marketing of innerwear, thermals, and casuals under various brands, with ‘LUX’ being its flagship brand. The company has more than 100 products across 16 brands to address the growing needs of customers. The company has seven manufacturing facilities that possess a cumulative capacity of 34 million garment pieces a year. The company’s manufacturing units are located in India, in Punjab, Tamil Nadu, and West Bengal. Lux also has a presence across the globe, with exports to over 46 countries. The company is currently managed by Mr. Ashok Kumar Todi and Mr. Pradip Kumar Todi.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of Lux Industries Limited (LIL) to arrive at the rating.
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Key Rating Drivers
| Strengths |
| Established business risk profile with a long track record of operations
Lux Industries Ltd. has been operating since 1995 and has an established presence in the hosiery business. The company has emerged as the largest mid-segment hosiery enterprise in India and has more than 100 products across 16 brands to address the growing needs of customers. Lux Industries Ltd. is into the manufacturing of men’s innerwear, athleisure clothing, and ladies’ leggings. The company is managed by Mr. Ashok Kumar Todi and Mr. Pradeep Kumar Todi, who have over three decades of experience in the hosiery business, and is supported by the third generation of the promoters. The established market presence and experienced promoters have helped the company in scaling up its business, as reflected by revenues of Rs. 2367.97 crore in FY23 compared to Rs. 2273.00 crore in FY22 and Rs. 1953.34 crore in FY21. The company has achieved revenues of Rs.1158.75 Cr in H1FY2024. The scale of operations of the company remained healthy over the years, supported by the demand for premium, semi-premium, and economy brands in rural as well as metro cities. Additionally, the brand building initiatives of the company have provided sustainable growth through the years by spreading awareness regarding the branded innerwear, which has led consumers to gradually move from the unorganised sector to the organised sector. Acuité derives comfort from the company’s long track record of operations and believes that the extensive expertise of the management will continue to support LIL’s growth plans going forward. Strong distribution network along with a diversified geographical presence The company has a strong network comprising more than 1170 distributors with less than 1 percent dealer attrition. Moreover, the products are available at 4,50,000 retail points spread across India. Also, the company is expanding its online presence through e-commerce websites such as Flipkart, Amazon, Myntra, Ajio, etc. The company enjoys a wide presence in the northern, eastern, and western parts of the country, generating around 80 percent of its revenues from these zones. The company invested in information technology to strengthen its distribution efficiency, resulting in an informed perspective on prevailing market realities. Although the company has a strong presence in Western and Central India, its wide-reaching wholesale and retail distribution network maximises the company’s capacity to serve each and every one of their customers as per their convenience while optimising sales and distribution costs. Of the total revenues, 7-8 percent constitute exports, which are mainly to African and South Asian countries. The company was awarded "Star Export House Status’ from the Ministry of Commerce and Industry. Healthy financial risk profile The financial risk profile of the company remained healthy, marked by strong net worth, low gearing, and healthy debt protection metrics. The tangible net worth of the company improved to Rs. 1463.23 crore as of March 31, 2023, from Rs. 1316.49 crore as of March 31, 2022, due to accretion to reserves. The gearing of the company marginally improved to 0.14 times as of March 31, 2023, as against 0.23 times as of March 31, 2022. The total debt of the company majorly constitutes short-term borrowings of Rs. 191.63 crore, and the rest of Rs. 13.89 crore is long-term borrowings as of March 31, 2023. The total outside liabilities/tangible net worth (TOL/TNW) stood at 0.42 times as of March 31, 2023, as against 0.50 times as of March 31, 2022. The debt protection metrics of the company remain healthy, but they witnessed deterioration during FY23, primarily on account of declining profitability. The Interest Coverage Ratio (ICR) deteriorated to 10.97 times as of March 31, 2023, as compared to 35.33 times as of March 31, 2022, and the Debt Service Coverage Ratio (DSCR) also dipped to 6.36 times as of March 31, 2023, as compared to 20.04 times as of March 31, 2022. Acuité believes that the financial risk profile of the company will likely be healthy due to healthy capital structure with no major debt-funded capex plans; however, the declining profitability margins which led to slight weakening of the debt protection metrics will remain a key monitorable going ahead. |
| Weaknesses |
| Declining profitability for consecutive quarters
The profitability of the company has witnessed a sharp decline in the last seven consecutive quarters up to Q1FY2024. The operating profit and PAT margin of the company declined to 9.30 per cent and 6.20 percent in FY23, respectively, as compared to 21.02 per cent and 15.02 percent in FY22. Furthermore, the profit after tax (PAT) of the company deteriorated to Rs. 146.76 crore in FY23 as against Rs. 341.39 crore in FY22. The deterioration in profitability of the company further impacted the RoCE and RoE levels, which declined from 34.43 and 25.93 percent for FY22 to 13.36 and 10.03 percent for FY23, respectively. The decline in margins is primarily on account of providing discounts at the dealer and distributor levels due to increased competition and an increase in raw material prices by 20–22 percent during the same period. Also, due to delayed winters in major parts of the country in FY2023, the volume offtakes were lower. The Company has also incurred sizeable advertisements expenses, the benefits of which are expected to accrue to the Company over the medium term. However, Acuité notes that the company’s operating profitability margin has slightly improved in Q2FY2024 to 9.59 per cent from 6.83 per cent in Q1FY2024. The company endeavours to increase the share of premium segment products which fetch higher margins. Acuité believes that, going forward, improvement and stability of the profitability of the company will remain a key rating sensitivity over the near to medium term. Working capital-intensive nature of operations LIL’s working capital-intensive nature of operations is marked by a high Gross Current Asset (GCA) of 251 days for FY23 as against 258 days for FY22, primarily on account of high inventory build-up and receivable days. The inventory period of the company improved yet remained high at 113 days for FY23 compared to 166 days for the last year. The high inventory level is maintained due to the nature of the business, wherein the manufacturing cycle is long and the number of stock-keeping units (SKUs) is large. The company markets a wide range of products and, accordingly, has to maintain a large quantity of inventory in each product category apart from the inventory of raw materials. The debtor period of the company remained high at 123 days for FY23, compared to 103 days for FY22. However, the working capital utilisation of the company remains moderate between the range of 40 per cent to 50 per cent. |
| ESG Factors Relevant for Rating |
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The company has taken several stringent steps to reduce its environmental footprint, including installing a 1 MW rooftop solar power plant at its Dankuni, West Bengal, unit and using process technology to help save water. Around 2 lakh litres of water are saved every day through the state-of-the-art processing technology. 30–40 percent of the company’s total power requirements are met through renewable sources. LIL’s products are made of 100 percent natural fibre, and they use recyclable packaging. Energy-saving LED lighting systems in the plants save energy. Capacitors are installed to reduce plant loads. Developed one operation theatre at Tata Medical Centre by contributing Rs. 2.50 crore, including infrastructure and medical equipment. Commitment for support of Rs. 2 crore towards the building of a free residential school project for over 1000+ unprivileged girls in Joka, West Bengal, out of which Rs. 75 lacs have already been spent. Contributed to a school project under the "Help Us Help Them’ foundation. Built the Saraswati Sishu Mandir School at Bali (Murshidabad). Contributed Rs. 1.5 crore to the Dhanuka Dhunseri Foundation for the promotion of chess activities. 2000+ trees were planted on 35–40 acres of land.
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| Rating Sensitivities |
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| All Covenants |
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None
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| Liquidity Position |
| Strong |
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The company’s liquidity position is strong, marked by healthy net cash accruals and moderate working capital utilisation. The net cash accruals dipped in FY2023 but stood healthy at Rs. 165.85 crore in FY2023 as against a low debt repayment burden of only Rs. 7.71 crore over the same period. The cash and bank balances stood at Rs. 27.10 crore in FY2023. The current ratio of the company stood strong at 2.95 times as of March 31, 2023, as against 2.71 times in FY2022. Furthermore, the fund-based bank limit is moderately utilised between the range of 40 per cent to 50 per cent.
Acuité believes that going forward, the company’s liquidity position will remain strong on account of healthy cash accruals and moderate utilisation of working capital limits. |
| Outlook: Stable |
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Acuité believes that the outlook of the company will remain 'stable' over the medium term backed by its established market position, strong brand recall, vast distribution network and diversification in its product mix. The outlook may be revised to ‘Positive’ if the company registers an unanticipated growth in revenues while improving its operating profitability and improving its debt protection metrics which would further improve its financial risk profile over the medium term. Conversely, the outlook may be revised to ‘Negative’ in case of lower than anticipated revenues or further deterioration in profits, more than expected elongation in its working capital cycle or if the financial risk profile deteriorates owing to any large and unexpected debt funded capital expenditure programme.
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| Other Factors affecting Rating |
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None
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| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 2367.97 | 2273.00 |
| PAT | Rs. Cr. | 146.76 | 341.39 |
| PAT Margin | (%) | 6.20 | 15.02 |
| Total Debt/Tangible Net Worth | Times | 0.14 | 0.23 |
| PBDIT/Interest | Times | 10.97 | 35.33 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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