Arvind Ltd

NSE:ARVIND

Earnings Call Analysis

Arvind Limited Q2 FY 2024 Earnings Rise Sequentially

Arvind Limited's Q2 FY 2024 revenue increased 4% sequentially to INR 1,922 crores with a profit after tax of INR 79 crores. The Textile segment's revenue rose 3% from Q1 to INR 1,455 crores, improving margins to 11%. The Advanced Materials Division (AMD) saw a 20% plus volume growth, albeit with a revenue dip to INR 350 crores due to price adjustments matching input cost decreases, resulting in a robust EBITDA margin of 15.7%. The company predicts a significant improvement in Textile volumes from Q4, propelled by China Plus One strategy and sustainable products with traceability features. Ongoing festival demand is expected to bolster domestic markets. Debt reduction continues with INR 49 crores repaid in Q2, and net debt stands at INR 1,333 crores.

Capacity Utilization and Expansion

The company is operating at approximately 80% capacity utilization overall. Garment production is at about 75% capacity, with aspirations to reach full utilization within 6 to 9 months. Denim and Woven operate at around 80% and are very close to full capacity respectively. The management emphasized the intention to expand the garment segment from 40 million to 60 million over the next few years while maintaining high operational efficiency in denim.

Financial Stability and Growth

The company's Advanced Materials Division (AMD) is highlighted as a high priority, with significant investment and a targeted 20% growth rate. Textile business is also anticipating growth, aiming for a 7-8% increase. Despite a dip in realization compared to the previous year due to falling commodity prices, the company expects to maintain or slightly improve upon the current profit margins in the coming years. In terms of profitability, AMD boasts a PAT margin almost 100 basis points higher than the textile side due to lower investments and thus full taxation, as opposed to other business segments.

Optimization and Efficiency

Operational efficiencies have improved with reductions in chemical, water, and power consumption, and waste percentages have hit all-time lows, helping to counterbalance softer demand. Automated manufacturing, particularly in garments, is seen as a path to further margin improvement. Despite demand pressure, particularly in mass market segments, the company maintains a strong position in premium products, equipping them with more resilience and flexibility in shifting market conditions.

Strategic Investments

Over the next two years, the company plans to invest INR 600 crores, with about INR 250 crores already committed. In the medium term, the management is looking forward to improving margins by approximately 100 basis points. Investments align with key strategic directions, including advanced materials for human protection and the MMF area, positioning the company for growth in athleisure and sportswear segments, which are globally expanding markets.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Arvind Limited Q2 FY '24 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Samir Agrawal. Thank you, and over to you, sir.

[Samir Agrawal, executive]

Thank you. Good afternoon, and thank you all for participating in today's call to discuss the second quarter results of Arvind Limited for the financial year FY 2024. Joining me today is Mr. Punit Lalbhai, Vice Chairman of Arvind Limited and Executive Director on the Board; Mr. Jayesh Shah, Group CFO and Executive Director; Mr. Nigam Shah, who is CFO Designate; our Head of Investor Relations, Mr. Satya Prakash Mishra.

Before I get into the results and read those out, I'd just take a couple of minutes to share the observations we are having on the macro environments that is relevant for our businesses. Consumer demand in key markets like U.S., U.K., Europe continues to be tepid given high interest rates, food and energy prices. Continuing war in Europe and new uncertainties in Middle East certain to put additional pressure on the situation.

On the good side, parallel though, the inventory correction cycle, which was playing out for last 2, 3 quarters, seems to have tapered off. And our customers have begun fresh buying discussions, although they are going to buy in small lots and closer to the actual demand, but those discussions have resumed.

As far as domestic markets are concerned, as we have been sharing, the first half of the year was quite muted in terms of the consumer demand because of the overbought situation from the last year. And hence, the H1 results were -- H1 marketing and market event was soft. As we opened this quarter in the initial few days of October, there seems to be some resumption in the consumer demand and buying and like-to-like growth has resumed.

Specifically for premium and more premium segment in the market, things are looking up. Cotton and other input prices continue to be range bound and are not expected to show any sharp changes in the near future.

Coming to our Q2 results. The revenues were INR 1,922 crores, which was up 4% compared to Q1 on a sequential basis. Excluding other income, EBITDA stood at INR 206 crores, which translates into an overall operating margin of 10.7%. Profit after tax was reported at INR 79 crores.

Textile volumes, especially in export markets were on the stable during the quarter. Denim clocked 13 million meters and Woven delivered 29.4 million meters. Garment volumes also improved slightly on a sequential basis compared to previous quarter stood at 7.6 million pieces.

Overall, in terms of revenues, the Textile segment reported INR 1,455 crores, which was 3% higher than the corresponding Q1 numbers. Textile margins improved to 11% for Q2. AMD continues to deliver the volume growth for the quarter at 20% plus. Although when talking to revenue, we reported 13% because prices have to come down in tandem with the input RM costs coming down and revenue stood at INR 350 crores for the quarter. EBITDA margins improved to 15.7% as a result of input cost and growing size giving operating leverage.

Looking ahead for the rest of the financial year, we expect Textile volumes to start seeing significant improvement from Q4 as a result of China Plus One and increased requirements around sustainability with traceable solutions. Domestic markets are also expected to remain strong and build upon the ongoing festival season momentum. We continue our trajectory of reducing long-term debt and have repaid INR 49 crores in Q2. Overall net debt stood at INR 1,333 crores at the quarter end.

This concludes my opening remarks. Before we open it up for questions, I request Punit bhai to share his perspective on the market and our outlook forward.

[Punit Lalbhai, executive]

Good afternoon, everyone. Welcome to the call. Pleasure to interact with all of you today. I think given the difficult environment in which the textile industry is currently operating, we are -- we can say that this is a decent result. And according to our expectations, we had maintained earlier that Q2 should be slightly better than Q1, which we have achieved.

I think Samir has already mentioned in quite some detail the market scenario. I think what I would like to say is that we are continuing with our efforts to -- on the strategic side to unlock operating efficiency in the overall business, which is starting to show in the operating margin. We are focused on growing AMD as fast as we can, and we are on track to maintain that growth level over a long period -- over the medium term where we aim to grow at 20% plus. And we are focusing our efforts to become better at our vertical business on the Garment side, where in H2, we should see an uptick in volumes.

The main sort of headwind right now is demand across the world because of all the reasons that Samir mentioned. And we are investing and working very hard to sort of compensate for the difficult environment by investing in innovation, by investing in technology, by investing in people. So we are on track with all those plans.

So that is the general commentary and now open the floor for questions.

[Operator]

[Operator Instructions] The first question is from the line of Nisarg Vakharia from NV Alpha Fund Management.

[Nisarg Vakharia, analyst]

Congrats on your continued strength in the AMD business. Just wanted to understand from you on the developments now that we have on the garmenting side because we've seen a couple of Indian companies scale up their operations quite well at stable margins. So just wanted to get your sense on what are the margins today in the garmenting business? And what is your outlook over the next 3, 4 quarters on that business?

[Punit Lalbhai, executive]

So on the garmenting side, still our demand is in a challenging environment. So we are not yet at 100% capacity. So our scale in garmenting is going to improve going forward and that should lead to an uptick in margins. We are currently in the single digits. Overall in Garments, we should be in the high single digits. And our attempt is that in a few quarters, we should be able to get into double digits. So that is the sort of transition that we are all working very hard towards.

And in order to do that, one is, of course, filling up our capacities to amortize all the fixed costs. That is the highest effort that is going on now. Parallelly, our investment cycle has also kicked in, and we are -- our first priority for our investment is to automate the existing plants so that we can have more throughput for the same amount of cost. So over a period of time, once this cycle is complete, we should see some improvement coming from those initiatives as well.

[Nisarg Vakharia, analyst]

When you say high single-digit margin, does it include the fact that we source the fabric in-house or it is at an arm's length basis?

[Punit Lalbhai, executive]

It is the arm's length basis.

[Nisarg Vakharia, analyst]

Okay. So high single-digit margin is good. I mean that's what generally most garmenting companies do. Do you have a certain anchor customer? Because generally, we've seen typically a lot of these garmenting companies either have one core expertise of either making jackets or they have one anchor customer who drives the margins for them going forward? Do you want to comment something on those lines?

[Punit Lalbhai, executive]

If you look at the way our garmenting is structured, I mean, we look at it as a way to make our entire textile business more strategic to our customers. And therefore, we focus on verticality. So what we -- our business is focused on Denim, Knits and Wovens, and we are vertical in each of those segments.

So we will have a set of customers for Denim. We will have a set of customers for Woven. We'll have a set of customers for Knits. And you are right that 3 or 4 anchor customers will make up 80% of the demand. So we have those for each of these segments.

[Operator]

[Operator Instructions] We take the next question from the line of Bajrang Bafna from Sunidhi Securities.

[Bajrang Bafna, analyst]

Congratulations for decent set of numbers to the entire management that we have been able to deliver Q2 better than Q1. So sir, my first question is pertaining to -- in the opening remarks, Samir has talked about traceability solutions that is something that is going to come out from Q4 and where we'll be having significant edge and can see significant growth.

So just to get some sense that we guided in our first -- last con call that second half is going to be better than first half. And how do we see this Q3 in line with Q2, whether Q3 is going to be a little better than Q2 because festive season is there and then, of course, the Q4 side?

And my second question is pertaining to -- you have also talked about in your notes that the subsidiary structure is getting simplified, which we requested in the last call. So some progress on that in some detail will be really helpful. That's all from my side, sir.

[Punit Lalbhai, executive]

Thank you for the question. So I think when Samir was talking about capability, he was talking about it in the overall context of sustainability where we are making rapid progress. We are -- our hybrid solar wind project has kicked in, which has taken our renewable component of energy to almost 49%, 47% to 49%, which is quite significant.

We are investing in a special boiler in partnership with one of our major customers to make our entire Denim operations coal free. We, of course, work with almost 100,000 farmers to grow sustainable cotton where significant amount of the supply chain carbon footprint comes from. So that is a major carbon mitigation exercise that we are doing.

And in continuation with that, we provide the possibility of having traceability across this entire supply chain, especially tracing it back to the farm is an area that overall with what is happening in China forced labor, all of that, that remains to be -- that remains worry for a lot of the customers.

And the fact that we have solutions that are able to provide traceability in a transparent manner helps add credibility to our sustainability performance. So we are already high on sustainability performance. We are continuing to invest in that area and maintain that leadership. And traceability is one of the things that allows this leadership to be viewed as transparent by all parties involved. So I hope that answers the question around sustainability and traceability.

In terms of Q3, your question of whether Q3 will be better than Q1, yes, there will be a gradual improvement as we grow sequentially. So Q3 things will be better than Q2. And we -- the second question of yours was around subsidiaries, which I would request Jayesh bhai to answer.

[Jayesh Shah, executive]

So this -- there were certain special purpose companies where list -- I mean, incorporated for the purpose of several initiatives and joint ventures. Some of them were of no immediate interest. So we are trying to align all of that so that the structure becomes simple. The idea is to reduce subsidiaries to bear minimum. Unless there is a strategic reason, we would not want to have a subsidiary for over a period of time. That's what we are trying to achieve.

[Bajrang Bafna, analyst]

Got it, sir. Sir, by when we can expect this to be a little simplified, maybe next 12 months kind of time frame?

[Jayesh Shah, executive]

It is a gradual process, legal process. So our effort is wherever we can as soon as we can in terms of tax and other issues, we are examining all of that, and we will keep -- as you will keep hearing that it is being simplified as the time progress. I wouldn't say 12 months, maybe a couple of years, it should become very simple.

[Operator]

The next question is from the line of Biplab from Antique Stockbroking.

[Biplab Debbarma, analyst]

Sir, my first question is on the capacity. Currently, what would be the effective capacity in Denim, Woven and Garments?

[Punit Lalbhai, executive]

Capacity, we are currently utilizing it to the extent of about 80%. As far as Garment is concerned, the overall full Garment have essential business where we make innerwear, which is a very large quantity. So we don't count that in our capacity. But our full garment is around 40 million to 42 million, currently at about 75% utilization.

[Biplab Debbarma, analyst]

Sir, Woven?

[Jayesh Shah, executive]

Woven is at about 130 million, and we are very close to that utilization.

[Biplab Debbarma, analyst]

And Denim is around...

[Jayesh Shah, executive]

80%.

[Biplab Debbarma, analyst]

80% is the capacity utilization. So it is around 50 million. That means, capacity is around 62 million, 63 million, right?

[Jayesh Shah, executive]

60 million, yes.

[Biplab Debbarma, analyst]

60 million. Okay. Okay, sir. [Foreign Language]. And second question, because what you are doing in AMD is kind of continuously growing more than 20% margin is more than 15% EBITDA margin. So my understanding is that you are doing CapEx in this around INR 240 crores. Has the CapEx started, sir?

[Punit Lalbhai, executive]

Yes. So what we had said is across the company, we will spend INR 600 crores across 2 years. That broadly will be in track. It's about 1/3 of that should go to AMD.

[Biplab Debbarma, analyst]

And sir, what would be the PAT margin for AMD and the rest of the textile?

[Punit Lalbhai, executive]

Sorry?

[Biplab Debbarma, analyst]

How do you get the PAT margin typically, sir, because we don't -- typically, PAT margin, what would be that for AMD and textile?

[Jayesh Shah, executive]

So AMD -- so basically, both would be very similar in terms of PAT percentages. Our AMD will be slightly higher because the CapEx so far has been lower. But the overall PAT margin will be a couple of percentages higher for AMD compared to overall number. And for textile, it will be less, 1% less than what is being reported as overall number.

[Biplab Debbarma, analyst]

So it will be something 7%, 6% for AMD and 4%, 5% for textile?

[Jayesh Shah, executive]

8% to 9% for AMD.

[Operator]

The next question is from the line of Vikas from Equirus.

[Vikas Jain, analyst]

Yes, sir. Am I audible? Hello?

[Punit Lalbhai, executive]

Yes. You are audible.

[Samir Agrawal, executive]

You are, yes.

[Vikas Jain, analyst]

Congrats on the great set of results. Sir, my first question is with respect to our commentary on the -- in the outlook section. While I do understand that the cotton prices have largely -- if I see, it have largely stabilized at around 68,000 per candy. But our commentary suggests that we expect a further drop in the realization across segments. Can you please draw some light there as to why do we expect a further drop in the realizations going ahead?

[Jayesh Shah, executive]

I think the further drop in realization is vis-à-vis the Y-o-Y numbers and not sequential. So it is -- maybe it's slightly confusing, but the idea is to say that last year Q3 compared to that, the commodity prices have fallen. And as a result, you will see a dip in the realization.

[Vikas Jain, analyst]

Sure, sir. Sure. Sure. Sir, secondly, as you just said that CapEx -- about the CapEx of INR 600 crores, would you highlight means how much CapEx you have already incurred out of that? And in which segment typically is the AMD segment, which is the first one that is happening?

[Jayesh Shah, executive]

I think it is a combination of all the segments where we are investing. Of course, the AMD is a high priority for us. We are also -- as Punit mentioned earlier, we are also investing in automation of garments because that's another high priority for us. Processing is another area where we keep adding certain machines to improve product mix or to offer better service to our customers.

We are on track to invest this INR 600 crores over 2 years. We would have committed almost more like INR 250-odd crores so far, not fully cashed out, but committed that much, and we will be commenting more in the -- some quarters to come.

[Vikas Jain, analyst]

Sure. Sure. Understood. One question is with respect to AMD margins. While for last 1Q as well as 2Q we have been saying that there is a benefit of lower RM cost which has aided the margins. So when can we expect these margins to normalize, probably next quarter or a couple of quarters beyond that?

[Jayesh Shah, executive]

I think these are now at levels that we should be able to maintain at the current levels. What you saw in H1, we should be at similar, slightly plus/minus levels next year or next half. However, our LC as we have been saying that this is a business where we have been incubating a small -- many, many smaller businesses as well.

So there would be those negative impacts which we currently also take. But as the business grows and becomes larger, our aim will be to continue with small increases in the margin over next few years. So in medium term, we should hope to improve the margin by maybe 100 basis points, if not more going forward over next couple of years.

[Vikas Jain, analyst]

Understood. Understood. And sir, last question, any color with respect to domestic demand? How are we seeing that panning out in October for all the Textile segments?

[Jayesh Shah, executive]

So margins across the Board are -- if you look at demand across the Board is kind of muted. So while there is an uptick because of festival and I do expect it to improve, it's not as good as what it is in a normal or good year. So there is definitely pressure on demand. And what we are seeing within demand is also that the mass segments are experiencing much lower demand. The premium segment seems to be fine.

[Vikas Jain, analyst]

Okay. Right. Correct. Correct. And can you like broadly classify how much would be out of all the products should be towards the large segments and to the premium if at all we have...

[Jayesh Shah, executive]

So I mean, your distribution has to be across all segments. But as a company, we are hiring more highly indexed on premium. So we are -- and we have the ability to sort of pull levers and go in the direction where the demand is more robust. So in that sense, we are probably better placed than many to be able to be flexible about where we -- because our customer mix is diverse across multiple geographies and multiple segments.

[Punit Lalbhai, executive]

If you notice our sales price -- average sales price for best product category is much higher than the average for the nation because of the fact that we are making those premium products, and that's a segment that is dominant in our product mix as of today.

[Operator]

The next question is from the line of Surya Narayan from Sunidhi Securities.

[Surya Narayan Nayak, analyst]

Congratulations, sir, for good set for number. So sir, just to -- I have 2 couple of questions. One is, see, if you can -- am I audible, sir?

[Jayesh Shah, executive]

Yes. You are.

[Punit Lalbhai, executive]

Yes. You might want to speak a little louder, a little feeble voice.

[Surya Narayan Nayak, analyst]

Okay. Okay. Okay. So the composite segment of the AMD has grown significantly. So will it be possible to give some color as to which segment is moving very fast because we heard that the railway segment is seeing a lot of demand. So can you just throw some light on the composites along with why the Industrial is a little bit lagging. So that is my first question, sir.

[Punit Lalbhai, executive]

For composites, I'll ask Samir to give you color because he runs that business. So over to you, Samir.

[Samir Agrawal, executive]

So look, as you know, composites, we make a range of products, which includes the parts for the Vande Bharat and other train programs in the country. And yes, those programs are being implemented at a fairly rapid pace, so that's certainly one key driver of the volume growth which we are seeing. But having said that, we do make a much wide assortment of products which go into various applications. And we are seeing a reasonably secular demand growth coming out of all segments, be it construction, Industrial platforms, cooling towers, telecom products.

And the consumption of composites is kind of doing quite well across the board. Many of these are B2B projects or Industrial projects which are not impacted by the immediate downturn. So yes, I think the market has done well, and we have done exceptionally well within the market as well to capture a good part of the growth. So that's on composites.

Punit, if you want to share about the industrial piece...

[Punit Lalbhai, executive]

So on Industrial, I think besides belting, which is about 15% to 20% of the overall volume, all other segments in volume terms are doing okay. They are also doing very well on margin terms. Our margin in Industrial is extremely robust. Belting is down because of online warehouse demand has been tepid across the world, and people have very high raw material inventory situation, which should clear out by Q4.

Other than that, Industrial has been maximally impacted by raw material deflation. So that is why that number is looking small. Otherwise, there is -- the business is very much on track. Margins are extremely robust, and belting should recover in a quarter or maximum 2 quarters.

[Surya Narayan Nayak, analyst]

And sir, as we have allocated INR 200 crores to AMD and balance INR 400 crores will be allocated among the Denim and Woven -- sorry, Woven and Garments. So -- and sir has said that in Woven, we will be doing more on the processing of the textiles rather than front-end capacity creation. So what is the sense of how much capacity from the Woven side will be increased if at all and Garment side?

[Punit Lalbhai, executive]

So Garments, we are -- we have indicated in the past also that over a 3-year period, we would like to go from 40 million capacity to around 60 million capacity, and that is broadly what we will try and achieve.

On the Woven side, when we say investment in processing, a lot of that investment is in capability enhancement, not necessarily volume enhancement, but to be able to do more premium products or address segments that are today not very under addressed. We have increased Woven fabric capacity to some extent, but that is to feed the raw material into our Advanced Materials Human Protection division. And so that CapEx has already gone into place. And to keep growing AMD at 20%, it was necessary to do so.

[Surya Narayan Nayak, analyst]

So sir, can we expect the margins in the Woven to rise going forward?

[Punit Lalbhai, executive]

Margins in Wovens are already very robust. So the verticality will grow. The end-to-end return on capital employed should improve, but margin as overall is probably the healthiest in Wovens out of all segments in textiles.

[Surya Narayan Nayak, analyst]

Okay. And in Garments, are we planning to enter into higher value-added segments like blazers and others rather than shirtings?

[Punit Lalbhai, executive]

No, for us, as I mentioned earlier, there are 3 strategic segments for garmenting, where we are going to focus all our efforts, it's denim bottoms, shirts and other tops for verticalizing our wovens factory and then our knits tops, which is to verticalize our knits fabric.

So it is the strategic alignment between our fabric and garment businesses is very important so that we become very strategic and deep with the set of customers we have, and that's why we are thinking of this in that way. One area over the medium term where we will base capabilities is the MMF area where athleisure and sportswear, which is a very large and growing segment globally, that's where we will create capability of doing high-end garments and which is sort of underrepresented in India today. So that we are building, but we are building it gradually slowly. The immediate focus is on denim shirts and knits.

[Operator]

[Operator Instructions] The next question is from the line of Manish Ostwal from Nirmal Bang Securities.

[Manish Ostwal, analyst]

Very good set of numbers given the operating environment for the business. My question on the Slide #10, where we mentioned that the onetime gain from the lower RM prices, can you quantify in terms of bps on the operating margin?

[Jayesh Shah, executive]

So the -- as the business where the raw material prices come down, we have that lag effect which takes a couple of months, but that's a very small number. It's not materially impacting the numbers. We don't see any in a way margins to be impacted in any form in the coming quarter, if at all, they should be slightly better. As the raw material prices and the other -- so cotton yarn and other chemicals and dice prices have stabilized, we believe that the margins will stabilize or improve as we improve our operating leverage.

[Manish Ostwal, analyst]

And second question on the operating environment in the domestic market, how the demand scenario setting up in the festivity and wedding season? So...

[Jayesh Shah, executive]

Just in fact, Punit bhai just answered that question earlier that the markets are slightly better than what they were, but they are not as good as one would have expected them to be. But with festive demands kicking in and the inventory in the pipeline going down, especially marriage season also is coming in, so we expect retail environment to be better and I think that's what in fact the commentary from most of the retail brand companies is that the H2 they feel should be better than what they had experienced in H1.

[Manish Ostwal, analyst]

And lastly one small data point, what is the CapEx incurred in the H1?

[Jayesh Shah, executive]

So as we said, the total committed CapEx as of today is about INR 250 crores. Outflow depends on -- I mean, we would have spent over INR 100 crores in H1 but the outflow will depend upon delivery schedules and the project completion. But as of today, the commitments are about INR 250 crores.

[Operator]

The next question is from the line of Jainis Chheda from Spark PWM.

[Jainis Chheda, analyst]

Congratulations for a good set of numbers. My first question is that is there any PLI benefits that have impacted the P&L this quarter?

[Jayesh Shah, executive]

Our PLI investments have not yet been completed. So there are no benefits. In fact, the first operating year is next financial year for PLI company, which will kick in once our investments are completed.

[Jainis Chheda, analyst]

Okay. So these are basically operational numbers, pure operational numbers. That's good. Secondly, what is the current order book in case of AMD, if any? And are there any plans for demerger of AMD business in the next 2 to 3 years?

[Jayesh Shah, executive]

So order book is normally a couple of -- I mean we get firm orders for a few months and indication for even for the couple of months, which is the normal situation and we believe that should continue.

As far as reorganizing the company, I think those are decisions which Board will take at appropriate time, if at all, the Board feels it is necessary for us to do in the interest of fundraise or any other reasons or governance. As of today, we are just focusing on growing this AMD business.

[Jainis Chheda, analyst]

And are we cash flow positive in case of AMD?

[Jayesh Shah, executive]

Yes, we are significantly cash flow positive.

[Operator]

The next question is from the line of Biplab from Antique Stockbroking.

[Biplab Debbarma, analyst]

Sir, so coming back to the capacity and the production is Denim and Woven. So 50 million meters for Denim and around 120, 125 million meters for Woven fabric. Are these numbers the new normal for these 2 segments?

[Jayesh Shah, executive]

No, I think our Woven capacity is about 130 million meters and our Denim capacity is 60, 6-0 million meters, and that is the installed capacity.

[Biplab Debbarma, analyst]

Okay. So are these numbers are the new normal? So we'll be producing around Denim 50 million, 55 million meters and Woven around 125 million, 120 million meters. And this would be -- going forward, maybe this is -- these are the numbers that we'll see?

[Jayesh Shah, executive]

I think that the Denim volumes have been subdued for quite some time. It happened also because of the cotton price spikes that we saw earlier. I think they have gotten slightly normalized, but they are not still what it could be. Again, just to -- I mean it's more about quarterly impacts, but quarter 3 generally for every fabrics like Denim is very weak. But we will see some improvement further in Q4, and we will continue to see reaching to our almost full capacity over next 1 year.

[Biplab Debbarma, analyst]

Okay. Okay. And sir, follow-up to the previous question. See, if you -- you mentioned that the PAT margin for AMD is almost 100 bps higher than the PAT margin for the textiles. But if you see the EBITDA margin for [ candy ], it is much higher, around more than 400 bps higher than AMD of textiles. So what am I miss, sir, here? Why the PAT margin then -- it doesn't get reflected into PAT margin and the EBITDA AMD is high?

[Jayesh Shah, executive]

I think if you look at PBT margins, they will be different. But the PAT margin because the investments in AMDs are much lower, so the tax is full, which will not be the case for the other side of the business. So it's just -- if you were to go back and look at it PBT, there will be at a significant advantage compared to the textile margins.

[Biplab Debbarma, analyst]

Okay. Okay. Understood. And my final question is, if your Garment capacity utilization is currently at 70%. And why do you have then the CapEx spend environment? I mean...

[Jayesh Shah, executive]

I think as you would have heard from us and some of the other players in the garment industry, I think we have bottomed out. I think the demand is picking up. It may take a few quarters, plus or minus, but we believe that India garment is a strong story, and we would want to try and achieve full utilization over the next 6 to 9 months or maybe maximum, yes, 9 months.

And we want to be ready for further garment capacity when the orders are flowing in for the company and the country. So I think that's the reason why we want to invest and automation in the existing facility also helps us reduce cost and improve the margin as we expand the capacity.

[Punit Lalbhai, executive]

Lead time to increase capacity in Garment is long, so you need to start well in advance of when you need that capacity.

[Biplab Debbarma, analyst]

And this automation and CapEx environment would lead to how much increase in capacity then?

[Jayesh Shah, executive]

I think overall, between automation and expansion on greenfield, brownfield projects, I think we are looking at adding our 20 million capacity over next 3 years. And from 40 million it will go to maybe around 60 million, which is what the plan is.

[Biplab Debbarma, analyst]

So by FY '26, this capacity will be operational?

[Jayesh Shah, executive]

It should be operational. Efficiency -- I mean, capacity will be there. Efficiencies will have to be seen. But yes, the answer is that capacity would have gotten great.

[Operator]

The next question is from the line of Prerna Jhunjhunwala from Elara Capital.

[Prerna Jhunjhunwala, analyst]

Sir, I had 2 questions. One on EBITDA margins of Textile business. After many quarters, we have come back to 11% margin. I would like to understand how much improvement can we expect further in this business over the longer term and in near term second half?

[Jayesh Shah, executive]

So there are a couple of inputs into improving margin. One is capacity utilization. So as demand scenario improves, hopefully going forward, that will be one area which will impact margins favorably. And the other thing is operational efficiency, where I think a lot of work has been done over the last 1, 1.5 years, and extremely good work has been done in the last 6 to 8 months, which is now paying dividends in terms of the margin expansion. So I think put together, I think 100 to 150 basis points over a couple of years is still possible, and we'll have to work hard to achieve that.

[Prerna Jhunjhunwala, analyst]

Okay. Sir, could you elaborate on the work done in the last 6 to 8 months so that we get a sense of what we can expect?

[Jayesh Shah, executive]

So I think there were a few pockets of inefficiency that were there for long periods of time that have been very targetedly attacked and resolved. For example, our dispatchable percentages in Denim are at an all-time high. Our raw material efficiency in Denim are at an all-time high. Our wastage percentages in Woven are at an all-time high.

Our sort of chemical, water and power consumption in Knits are at an all-time low, meaning all-time best. So all these factors have been sort of -- when demand is low, we need to find other ways to make money. And people have really -- the team has risen to the occasion to unlock all these pockets of inefficiencies that were sort of persistent in our system, and they wind them out.

Of course, then it becomes much more harder when -- to unlock more once the low-hanging fruit is done. So that is -- now we are back to a continuous improvement process, which will pan out over a couple of years. And operating leverage will come in as we get better and better capacity utilization. That is now the real focus. We need to get close to 100% capacity utilization everywhere.

[Prerna Jhunjhunwala, analyst]

Okay. And sir, Denim capacity is at 60 million meters, do we aspire to go back to 100 million meters that we were at? Or it remains at 60 million meters now?

[Jayesh Shah, executive]

Before we think about going back to 100 million meters, I would like to verticalize this 60 million meters a lot better. So -- and I think that will unlock more value and unlock more ROCE for the company. So the first effort is that. Then if the need is there, we can -- it is very easy to add a few machines here and there and debottleneck our capacity.

[Prerna Jhunjhunwala, analyst]

Okay. Okay. And when do we start seeing the benefit of interest costs going down because we have been repaying our long-term debt, which are higher cost debt, so when do we really see the effect of interest cost?

[Jayesh Shah, executive]

The interest percentage an absolute amount, if we were to distinguish the percentages have been high because of the interest rate cycle that we are going through. Really speaking, there is no much difference between now short-term and long-term borrowing costs because the subvention amounts have been restricted as possibly you know.

So the interest cost reduction, really speaking, will come if our debt further goes down from here on. Otherwise, there is no significant change that we would see on absolute amount of interest that we have paid, maybe a small marginal change. I think we are also now instead of focusing on debt, I think we want to focus on opportunities and growth. As we announced earlier, organic growth in all segments of businesses that we are in, which is garments, advanced material and some of the textile assets. We will also look at different kind of -- different ways to grow faster if there is an opportunity. So the focus, there will be an eye on debt, but not a focus on debt. So that's...

[Punit Lalbhai, executive]

Yes, we are now at comfortable levels. So it's not an area where we are now constantly working to reduce. We are now increasing our outlook for opportunities that, that can help our growth and create more shareholder value.

[Prerna Jhunjhunwala, analyst]

Okay. Sir, last question from my side. What should be the sustainable growth rate then going forward for the company?

[Punit Lalbhai, executive]

So we are targeting a 20% growth for AMD and a 7%, 8% growth for textiles.

[Operator]

We'll have to take that as the last question. I would now like to hand the conference back to the management team for closing comments.

[Punit Lalbhai, executive]

Thank you all for joining us today. If there are any pending questions and further clarifications, Satya, from Investor Relations team, is always there to answer those. We'll see you back in 1 quarter. Thank you, and good evening. Bye now.

[Samir Agrawal, executive]

Happy Diwali.

[Jayesh Shah, executive]

Happy Diwali to all of you.

[Operator]

Thank you very much. On behalf of Arvind Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.