Neeraj Dewan decodes why this apparel stock could be a Dhamaka pick

“Lux Industries right now is quite fairly valued at only 20 times to FY24 earnings. With a target of Rs 2,650, for long-term investors, it is a good opportunity to invest in and accumulate the stock,” says Neeraj Dewan, Director, Quantum Securities.

Why are you positive on Lux Industries and what is the rationale?
The stock that I want to recommend today is Lux Industries. It is a premium player in the apparel industry and they contribute 15% of the organised men’s innerwear market. The company has more than 100 products across 11 powerful brands like ONN and One 8 which are very well established. They have got 5,000 SKUs.

The price of the stock had seen a massive correction after the Q1 results due to increase in cotton prices which is the raw material for the company and because of that we saw a margin compression happening in Q1. Towards the end of Q1 in June, the company had taken price increases and cotton prices over the previous quarter have come down by 18% to 19%.

This will take care of the margin compression that we saw in the first quarter. Plus, the company is working on a premiumisation for increasing the sales of premium products. The capacity expansion that they are doing at West Bengal and Ludhiana will also help in increasing the topline plus improve the margins of the company going ahead.

The company also benefits from China plus one opportunity as they move to 46 countries, which is about 6% of their sales and that also should continue and increase the global footprint for the company. The company also has the online market wear, they are seeing good growth and good traction there and expect about Rs 1,000 crore of sales from only online channels in the next two to three years.

We feel that because of the correction, the company right now is quite fairly valued at only 20 times to FY24 earnings. With a target of Rs 2,650, for long-term investors, it is a good opportunity to invest in and accumulate the stock.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)