DURING THE YEAR UNDER REVIEW THE COMPANY'S PATIENT INVESTMENT IN BRANDBUILDING PAIDOFF.
We believe that our sustained investment in this direction will strengthen our overallprofitability revenues and value.
At Lux we went into business with the objective to create brands that would evoke apositive recall superior offtake and sustainable margins. We have good reason to believethat in the process we have not just created successful brands; we have created enduringproperties that have since translated into multi-year revenues.
This is evident in the numbers.
We had 15 brands on our books at the close of 2018-19. Ten of our brands have been inexistence for more than ten years indicating the enduring nature of assets on our books.
The big question: why are in general brands more relevant today than ever before?
The answer lies in the dynamic ferment of society. Even as the population of Indiagrows larger than possibly any other country the country is among the youngest amonglarge countries. It is not the population increase by itself which is responsible for thechange in consumption mindset as much as what is happening within that population.
The Indian population is urbanising faster than ever. The proportion of India'spopulation living in its urban clusters is expected to increase from around 32% today toaround 40% by 2030.
The impact of this transition cannot be understated. We believe that urbanisation isexposing today's India to several influences: smartphones and WiFi connectivity a growingrole of social media in one's lives desire to live well spend well and wear well thedesire to buy into brands more enthusiastically than buying into lowest cost products andthe need for brands to take the buyer's personality ahead.
This societal ferment has been accompanied by prominent structural shifts.Demonetisation affected the capacity of the smaller innerwear hosiery manufacturers tocompete against the larger brands. Besides the introduction of the Goods & ServicesTax largely leveled the playing field between organised and unorganised players reducingthe cost difference and creating a larger incentive for consumers to buy into organisedvisible and branded equivalents.
At Lux we believe we are attractively placed to capitalise. Our products have beenstyled manufactured packed and branded around the highest standards. The result is thatwe provide class comfort and convenience; we provide function and fashion in the samebreath; we enhance pride and performance.
Our branding strengths
At Lux Industries we believe that successful brands represent an insurance.
They outperform the market; they generate a premium over the prevailing average; theygenerate a consumer pull that encourages trade partners to pay advances; they enhancevalue for the buyer the intermediary and the Company.
At Lux we owe our existence to the capacity to create nourish and leverage brands.
We invested a sizable H380.56 crore in brand building in the last five years. Weinvested H90.89 crore in our brands during the last financial year. This brand investmentaccounted for 7.47% of our revenues in 2018-19.
The impact of this brand building was evident in our financials of the last financialyear. The Company reported a revenue growth 2.5x the sector's growth. We strengthenedEBIDTA margin by 1.10 bps to 15.56%. Every rupee invested in brand building generatedH13.40 in revenues compared with H9.93 in the previous year validating the strength ofour brand engines.
The premium factor
At Lux there is a theme that runs through our brand spending.
We believe that as consumer aspirations increase and as spending on looking betterrises there will be an increase in the need for premium products.
At Lux we progressively seeded our product portfolio with increasingly premiumproducts in the last few years.
The Company increased brand investments in its premium products; it launched premiumbrands like GenX and ONN. It recently acquired the manufacturing and marketing rights ofVirat Kohli's brand One8 which plans to grow its share of the men's premium innerwearsegment.
The result is that the share of mid-premium portfolio in our overall portfolioincreased driven by the fact that the Company's mid-premium portfolio is growing at twicethe rate of the Company's growth rate. The growing focus on premium products is expectedto be earnings-accretive margins being at least 100 bps higher over mass varieties.
Going ahead we intend to enhance the visibility and offtake of our premium brandsthrough an increased stocking in modern trade and online channels. Lyra is expected to beone of the growth drivers of our revenues from premium brands.
The Company expects to grow revenues from premium brand ONN. Besides we believe that acomplement of exports celebrity endorsements and cutting-edge manufacturing technologiesshould enhance revenues from the premium segment strengthening business sustainability.
Merger of units
At Lux Industries we believe that the proposed merger of J.M. Hosiery and EbellFashions will enhance shareholder value (awaiting statutory approval). These privatelyheld companies are owned by the Todi family who are also the promoters of Lux Industries.While J.M. Hosiery owns the men's brand GenX Ebell Fashions owns the women's brand Lyra.Their accretion to the Lux business is expected to be complementary profitable andtransparent strengthening governance.
During the year under review the Company's patient investment in brand building paidoff. We believe that our sustained investment in this direction will strengthen ouroverall profitability revenues and value.
We have successfully demonstrated our brand building capability and expect to do soacross the foreseeable future strengthening value for all those associated with ourcompany.
Ashok Kumar Todi