Lux Ind Promoters Stake Sell to Enable Merger Plan

Lux Industries – the hosiery product maker for men, women, and children – has experienced a reversal in fortune during the last six months.

After sliding to year low at Rs 984 in late July, its share price has staged a remarkable comeback by hitting year high of Rs 1,473 earlier this month, a cool 50% gain from lows.

The price has since retreated to the current level of Rs 1,300.

Let’s understand the reason behind price fluctuations and the management’s perspective on the business prospects.

Lux Industries EPS grew by a stonking 37% in the last year.

And it has bolstered its earnings per share by 32% per year over the last five years.

It has a price to earnings ratio of 29.52, based on the last twelve months.

This means high expectations of what the company can achieve in the future.

The company’s shareholders think it will perform better than other companies in its industry classification.

In recent interactions with media, Lux Industries management has underlined several reasons for strong performance and expectations in the near term.

It witnessed the overall revenue growth of 12-13% while the industry grew at 7-8%.

Its premium products are growing at 20%.

Taking advantage of high valuations, Lux Industries promoters sold the stake in the company.

The stake sell activity is undertaken with a view to enabling merger among subsidiaries as per the scheme of arrangement.

Post this scheme, the promoters stake will rise to 75%.

The merger among subsidiaries to add Rs 575-600 crore to its overall revenue, which will be EPS accretive.

For Q2FY20, Lux Industries reported revenue growth of 27% on year (YoY) to Rs 350 crore with volume growth of 21%, primarily led by the winter wear portfolio.

EBITDA (earnings before interest, tax, depreciation and amortization) margin was also consistent at 15.1% as strong cost controls were offset by higher manufacturing expenses.

Net profit grew 95% at Rs 40.6 crore on year basis

The Lux Industries has seen some block deals off late largely to ensure that the merger of family-controlled private entities are merged with the parent company which would add revenue to the overall business of the company.

While margins of these private entities is not clear we understand that once the merger is put in action one will see the impact on financials ahead. Net net this is a good move by the management to add value to existing shareholders which is already enjoying premium valuations in a strong B2C business model which hopefully would increase profits and profitability ahead.

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