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Gokaldas Exports Ltd
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Ladies and gentlemen, good day, and welcome to Gokaldas Exports Q4 FY '22 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Binay Sarda from Ernst & Young LLP. Thank you, and over to you, sir.
Thank you, Tanvi. Good morning to all the participants on this call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risks, that could cause future results performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements. Please note that we have mailed the results and the presentation, and the same are available on the company's website. In case you if you have not received the same, you can write to us, and we will be happy to send the same over to you.
To take us through the results and answer your questions today, we have the top management of Gokaldas Exports Limited, represented by Mr. Sivaramakrishnan Ganapathi, Managing Director and CEO; and Mr. Sathyamurthy, CFO. We will start the call with a brief overview of the quarter gone past and then conduct Q&A session.
With that said, I'll now hand over the call to Mr. Siva. Over to you, sir.
Thank you, Binay. Good morning, everyone. Happy to have you at our earnings call for the financial year of 2022. We are living in special times. Festive markets that we're recovering from a severe bout of COVID is now steepening this inflation, a byproduct of economic measures taken to combat COVID, and now the Russian invasion of Ukraine. Fresh outbreaks and stringent COVID control measures in Asian countries, is holding back the growth in those markets.
Shipping logistics stayed disrupted through FY '22, raising costs and building an inventory of goods in the supply pipeline. Supply chain disruption increased factor costs, compromising availability and price of raw materials. Cotton, a key agricultural commodity, was also in short supply globally, resulting in an extraordinary price inflation impacting Indian textile industry. Governments worldwide are taking steps to address the situation, and hopefully would be able to combat inflation in a concerted manner. Such situations bring in opportunities and [ effects ] to various players in the industry, and we are no exception.
FY '22 ushered in several opportunities, in terms of global sourcing moving away from China, driven by cost and political considerations, supplier consolidation towards efficient and well-capitalized players, rapid rollout of vaccination across India, resulting in our supply side bouncing back quickly, vis-a-vis other competing countries, witnessed the supply-side instabilities in key producing countries like China, Vietnam and Sri Lanka and Pakistan as well.
Post-COVID demand surge, particularly in the U.S., led by reopening of the economy and back-to-work program, strengthening dollar, central government initiatives like PLI scheme supporting new investments in MMF segment, state government initiatives to support job creation by supporting capital investment in labor-intensive sectors and lastly, bilateral initiatives like FTA, with several key countries.
Inflation and volatility remains a key threat to the global economy and textile and apparel business is no exception to this concern. In these particularly egregious times, the company has operated with a lot of determination, while constantly assessing risks and above all, showing courage. An agile, high-performance and entrepreneurial organization like ours, not just survived, but thrived on this disruption. During this period, we seized new opportunities, grabbed market share, expanded our manufacturing footprint, invested in productivity improvement areas and emerged as an indispensable part of the global value chain.
In FY '22, our company reported a total income of INR1,801 crores, registering a 47% growth in revenues. Our export revenue grew by 58%, which was in contrast to India's April export growth of 30% during the period. We generated an EBITDA margin of 12% for the year, earning INR216 crores. Our net profit adjusted for deferred taxes was INR105 crores, which is a milestone. The company recorded one of the best quarters ever posting a revenue of INR588 crores in Q4, a growth of 58% over previous year, and delivered an EBITDA of about INR80 crores, a Y-o-Y growth of 109% and an adjusted PAT of INR49 crores.
The company generated INR117 crores as cash flow from operations. We managed to contain our working capital to 70 days of sales. We unlocked the fixed deposits with the bank, to the extent of INR132 crores and will unlock the residual amount in FY '23. With a singular focus, we unlocked capacity in our existing facilities, upgraded our machinery for productivity and ensure optimal utilization of capacity, while staying razor sharp on customer delivery metrics, emerging as an indispensable part of the global value chain.
We commissioned 3 new units in Karnataka and Tamil Nadu, which are ramping up well and initiated work on a new factory in Madhya Pradesh. In October, we successfully raised equity capital of INR300 crores through QIP, to support our ambition for growth. Our business segment continued to grow in FY '22, share of casual outerwear and sportswear segments [ increased ]. Our focus on U.S. markets continue to pay off, as the market showed the most amount of recovery. European consumption is yet to catch up to pre-pandemic level.
We continue to invest in capacity creation and modernization. We have incurred a capital expenditure of INR84 crores in the financial year. and expect to continue with investments in FY '23. With a diversified customer base, we anticipate the higher growth of our top -- of our non-top 5 customers, accounts with FTA negotiations between India and U.K. gaining ground, there is an opportunity to focus on the market, going forward.
With consumers getting back to work and socializing, woven products could also gain traction. There are headwinds and tailwinds for global trade in FY '23 and apparel is no exception. While no one can predict the events that will unfold, we remain optimistic about our order book for FY '23. We have good traction for H1. Our service delivery is exceptional and customer satisfaction is high. We continue to see growth opportunities in FY '23, despite the expected uncertainty from a peculiar combination of headwinds and tailwinds.
I thank you all for listening, and would be happy to address any questions that you may have.
[Operator Instructions] The first question is from the line of Gautam Trivedi from Nepean Capital.
Yes. I think a fantastic set of numbers and very, very impressive, not just quarter-on-quarter, but also year-on-year, stellar numbers. The question I have for you is, that your EBITDA margins are actually at -- moving significantly from the fourth quarter of FY '21, which was 10.2% to 13.5% for FY '22 fourth quarter. Now I have a question with respect to raw material prices, and to what extent have you been able to navigate cotton raw material prices? I mean, clearly cotton prices have gone through the roof, and other input costs. So I want to get a sense of that. And also in your case, labor is a big element. How much are you seeing pressure on wages, as well?
See, raw material costs have been rising, and that's a fact of life for all industries or particularly in the manufacturing sector. So cotton prices have gone up pretty significantly over the last 1 year. But then, cotton yarn prices have not risen as much. And when you finally look at woven fabric, the price increases are in the range of about 10% Y-o-Y. So that's because the cotton content in the fabric is only to that extent. So there are other value additions that happened.
And we have long-term supply contracts with our suppliers, which help us get better than the market prices, as well as we have the ability to pass on some of these cost increases back to the customer, and we have been quite successful in doing that through the year. So raw material prices, while they have gone up, both in cotton price as well as on man-made fiber-based fabric, we have been reasonably successful in passing on our cost increases back to our customers. So that explains the raw material cost.
As far as other factor costs go, particularly labor, through the year, the later costs remain static. We have once a year inflation-linked wage increase, which we usually see. So we had a wage increase in April 2021. That was about 4.5% at that point in time. And from April '22 onwards, there's another 4.5% wage increase for our labor force, and that will get baked into our costing from April onwards. 4.5% to 5% labor cost increase, effectively translates to about 1% of revenue in terms of overall cost increases.
We typically tend to offset it by driving a higher productivity. We have always a year-on-year productivity growth. We have usually witnessed a 3% to 4% productivity growth year-on-year. I'm talking of CAGR over the last 5 years, and we have every reason to believe that, we will be able to drive that as well. And the weakening rupee also absorbed some of the labor cost inflation and other factor cost inflation.
So overall, I think -- while there may be cost pressure, we -- our ability to push back some of these prices with our suppliers, push it back to the customers or bake it into their costing and absorb it through productivity increases and rupee depreciation, all of which combines us to neutralize some of these effects.
Understood. There's an article in today's Times of India that there's a major issue with respect to the heat, which unexpectedly -- you saw the month of March was the hottest month of March ever. Month of April, was the hottest April ever in India since the records began in 1901 or whatever. [ The point ] I'm going to make is that with respect to that heat, does that impact the cotton crop as well, or is it only grain? I mean would you know that?
See, no, I don't track cotton as an agricultural commodity or cotton growing, because we only buy fabric. So we are far removed from cotton as an agricultural commodity. I don't believe that it's going to impact as much, but then I'm no expert on it.
Okay. Fair enough. I think these are really fantastic numbers and the stocks obviously reacted very well and it's done very well. So all the best.
The next question is from Pulkit Singhal from Dalmus Capital Management.
Congrats on an excellent set of numbers and performance. Just on the costing base itself, I'm just trying to understand the P&L a bit better, because it seems quite different from other quarterly P&L. Q-on-Q, we see a revenue increase, but we've seen -- almost seen, I think, 4% gross margin contraction, or 3.5%, whereas the costing, employee costs and other expense were all lower than the previous quarter. So if you can help understand how does that happen, while there were many [ inklings ] that the costs are low, at least in the operating costs?
Okay. So when it comes to gross margin, it's difficult to -- we essentially make a very wide variety of products. Our gross margin does not necessarily translate proportionately to the EBITDA market. The reason is, that depending on the product types that we make, the material content could be very different. So if I produce more of outerwear, which is what we usually produce in certain quarters. So for instance, this quarter, we had a little higher volume of outerwear. We typically tend to have a higher material content in our revenue and in our cost. So it has the tendency to show a lower gross margin, but the manufacturing margin that we get from such products are usually higher and hence, we make better EBITDA margin finally on those products.
I have said this before in my calls as well. So a good way to imagine this would be think of us making a cotton shirt, where the raw material for the shirt is -- the fabric is INR100 and pricing the shirt at 200, I'm just giving you a very macroeconomic here. And my cost of manufacturing is, let us say, INR75, I make INR25 on that particular shirt. Now if let us say, I am given an order to produce a linen shirt, where the cost of fabric goes to INR200, but I am given a price -- a price of, let us say, INR325 or something like that. My cost of manufacturing still remains INR75, and I can earn another INR50 per shirt. But if you look at the gross margin statistics, which will be INR200 on INR325, that's the cost, so INR125 on INR325, it will look that my gross margin is lower, but my net realization will be higher. So there is a bit of this conundrum going on in our P&L, because of the product variety that we handle.
Coming to the employee cost, what we usually do -- since we have a very large employee base. By the way, we have 32,000 employees now. Our employee benefits and retirement provisions are made in the first 4 quarters, and -- first 3 quarters, and then based on the actuarial valuation, we adjust it in the fourth quarter. So this time, we got certain provisions which we had to write back from the previous quarter, because we had actually made higher-than-expected provision. So to that extent, the employee cost came down, particularly because we made higher provisions in Q2, Q3. So that's the reason why our EBITDA margin is slightly overstated in Q4, and employee cost may look a little lower.
Right. And then -- but what about the other -- so what would be the right employee cost to look at, adjusted for this provision? Because I know you're scaling up as well, simultaneously here, so...
So all -- the total employee cost, which is the factory labor cost plus the overhead plus HO, complete employee cost, a good metric would be about 30%.
30% of sales, okay. And in terms of the other expense, that also is lower, why this is surprising to me, because you are also expanding and you have new units coming up. So typically one expects that costs should go up Q-on-Q. That's what I'm just trying to understand?
See, other expenses normally accounts for manufacturing expenses and the price -- the supply chain cost also reflected there. So technically, because of the 3 new units have come up, those costs are included, when you really look at it. If you look at it Q-on-Q, there was -- some [indiscernible] element was there in Q3. And between Q3 and Q4, you could see some variance. But otherwise, it is the normal expenses, which was incurred for the manufacturing, as well as our supply chain costs and administrative costs, are grouped as other expenses.
Okay. Just last question. I mean in terms of the working capital, very good improvement. The database has come from 50 days to 28 days. I mean, this has never happened before, so what should be the right database to look at going ahead, is it 28 or will it be higher?
Yes. The one factor could also influence, because of the separated business trends. So if you really look at in our inventory, inventory days are slightly higher. So the finished goods to the extent we carry, carry almost about close to [ 15 days ]. Otherwise, if we look at it combined between inventory and data, we really work reasonably well. Our data numbers, we usually look at it around 25 to 28 as a reasonable number.
25 to 28 should be how -- we should look at going ahead. So this is our reset -- a onetime reset, which has happened from 50 days to 25 I mean, because in the past, you never had 25, I mean...
Yes, we have done. In fact, we have gone back and we have done also -- participated in the -- early payment program. We have done that to bring down our inventory -- I mean, [ the stockholding ].
[Operator Instructions] The next question is from the line of Jayant Mamania from Care PMS.
Congratulations for a great set of numbers. Yes. Sir, our volume in 2020 was around 25 million garments and in 2022, it is around 22.6%, almost 10% lower. But our turnover is higher by 35%. So how would you attribute this to product mix and the rise in raw material price?
So the reason for that is that, we are focusing more and more on high-value garments. So when I make outerwear -- today, outerwear is 41% of my total turnover. Outerwear is a more complex garment, is equaling to 10 of the regular garments that we produce. So when you look at the number of pieces we produce, it is misleading in many ways, because we take one outerwear and add it to one shirt, let us say, it just becomes 2 garments. But effectively, an outerwear could be 10x that of a shirt, in terms of production effort. So don't go just by number of pieces shipped, it's just a direct -- it's an indicator of how we are progressing and how we are growing. But then the composition of that also matters. As you can see that higher ASP garments are forming an increasing proportion, of what we sell and ship.
Sir, if you can quantify, what would be the quantum of sales that is attributed to the rise in raw material prices?
Rise in raw material prices will be about 4% or 4.5%.
Okay. Okay. Okay. Sir, our margin in Q4 have gone up to 13.5%. So what would be the sustainable margin going forward?
So as I said earlier, the margin of 13.5% is slightly inflated because of a little lower provisioning for employee benefits and retirals in the previous 2 quarters. So realistic, it is overestimated to the extent of 1%. So realistic estimate of our performance for Q4 is 12.5%. We would like to maintain that going forward, but there are a few cost pressures that we will see going forward. For one, it is the wage increases that we will be experiencing from April onwards. That is a 5% wage increase on account of dearness allowance increase, as per government notification, which has a 1% impact on the EBITDA. We will, of course, offset this with higher productivity. So I would reckon that overall for the year, we should be at par or slightly better than the FY '22 level. That's what we are gunning for in the future. We will have to ratchet up our productivity to offset some of these cost increases, as we go along, which we are working on.
We will also have an additional cost for employee stock options, which we recently issued. I'm not factoring in that, because that is a separate [indiscernible] calculation, and it can come in as a onetime item for the year -- for the next 3 years, because it's a 3 year stock vesting program. But it's a non-cash item. It will not have an impact on our free cash flow, but it's an accounting cost that we will have to take. So there will be a bit of that. I'm not factoring that at the moment in the calculation. Barring that, we should try to hold on or improve our margins with the effort that we are putting.
The next question is from the line of Dhaval Shah from Svan Investments.
Sir, 2 questions from my side. Sir, first is, given the increased lead and we are in labor-intensive industry, do we see any impact on the yield on the productivity side?
When you say yield, yield meaning output per person or something like that?
Productivity. Yes, yes.
As I said, historically, we have seen about 3% productivity gain Y-o-Y. So we have every reason to believe that, that journey will continue at least in the near future.
Got it. Okay. And sir, second question is on the price increase, which we would have negotiated with our customers. Now in this quarter, in which we have increased our EBITDA margin quarter-on-quarter. So is there a large part of the increase, that has come in the current quarter and then the further rise -- the further inflation, which we would be seeing, would that be again getting reflected in the next round of negotiation, which might happen maybe 2 quarters down the line? Can you just help us understand this entire -- our practice of renegotiation and when would it get reflected in the numbers?
So the way we price our orders, are that when we get a spec for a particular garment, we go back and look at what are the factor costs. So what is the fabric cost? What are the trim costs, what are the packaging costs, et cetera, et cetera, what's the cost of manufacturing and all that. Develop a cost base, secure the prices from our suppliers and then quote a price to our customer, close the price and back-to-back secure the prices from our suppliers, so that we are not exposed to any price variations, once an order is booked.
So that's how we plan our business. So when we take an order, we know exactly what my cost structure is. I have already locked in my raw material costs at that point in time, and have made my determination on what should be my profit margin on the particular product.
So increase in raw material costs, we have by and large been able to push it back to our customers. So to that extent, there is a price increase. The revenue growth is largely driven by volume growth. Volume adjusted for the complexity of the garment. So we calculate on based on number of [ minutes ] rather than just number of pieces, so that how -- what is the total work content, which goes up. And we have seen about 34% volume growth in the FY, FY '22 versus FY '21, and the rest of it is the price increase or the realization increase, which partially could be because of the raw material cost increase and also because of the mix of the product that has changed. Does that clarify?
Yes. Sir, sorry to interrupt, when you say we lock the raw material -- so like you today, you get an inquiry, then you give your quotation. So for how many days does this quotation remain open or valid? Then the client comes back to you, number one. Number 2, the quotation would be for a certain volume for a certain number, so maybe for one batch of order or -- because if you are entering into a yearly contract or a 6-month contract, you would not be going -- will you be booking the entire fabric for the next 1 year duration of the contract or the entire life of the contract? Otherwise, if it was such back to back, then raw material would never be a problem in your kind of business. So just want to understand these 2 things?
So when we get an order, we typically tend to get a quotation which is valid at least for a couple of months from our suppliers. So we lock them in for that period. If we go back to them, placing the order or if that price point is valid -- is enforceable. And then we go ahead and secure the business from our customers, and then back to that close it with our supplier. So the price quotations that we get from our suppliers is locked in, and we have enough time to get back to them and close it and hold them accountable to the prices given to us.
So as you said...
Totally 6 months -- for example, so if you book a quantity, a particular quantity. So the quantity would be deliverable for what? 3 months, 6 months, how would that be?
So there are both kinds of businesses. A large proportion of our orders are shorter duration rather than very, very long duration of 6 months, 1 year. We usually have a turnaround time of 3 months, by which time we will have to give -- turnaround the product. We usually tend to have -- we will -- there is an order, which is say a long term, that is a continuous supply over a 6-month period, a generic commodity kind of product, then we tend to negotiate appropriately with the supplier. Also keep in mind, that a lot of our raw materials are also nominated suppliers. So we get into a 3-way discussions between ourselves, our buyers, which is a large customer, as well as the fabric supplier and the fabric supplier price point becomes binding on the customer as well, since it's a 3 way dialogue.
So there is a lot of these contractual safeguards that we have in place, which allows us to price things in -- to our customers.
[Operator Instructions] The next question is from the line of Akhil Hazari from RoboCapital.
Sir, regarding what you had mentioned about the revenue growth, which is based mostly on the volume growth, and not that much on the price increase. So going ahead, would the quarterly run rate of revenue be around INR500 crores only for FY '23?
No. I think we should be able to do better than that, better than the INR500 crore run rate. I think we -- fourth quarter, we did about INR588 crore, right? So we are also adding capacity as we speak. So we are intending to grow our growth. Our growth momentum will continue. As of now, we do have a very good visibility for H1. We have order book, which is reasonably robust for H1. And keep in mind that, for Indian garment suppliers, Q3 and Q4 are, when you produce garments for spring and summer, for the Western world. And that's the peak season for us. So Q1 and Q2 usually has got a small dip, and then Q3 and Q4 picks up pretty strongly. By and large, we have insulated our own business from seasonal vagaries and seasonality, as we do a lot of outerwear in the first and second quarters, to pull up supply. But our revenue growth in FY '23 is assured. So we will have growth over 22%. We are seeing a good traction for our business as well.
Okay. And so what is the -- since you mentioned, a robust order book, what is the current order book right now?
So I have -- we normally don't give out those numbers, but I have a fairly full capacity book for H1.
Okay, fine. And just to squeeze in 2 more questions. Since you mentioned your -- the company has grabbed market share, so how much -- what is the current market share, and how much has it increased there?
So market share has to be looked at slightly differently. We tend to look at it on a granular fashion. So what my market share will say yes as a customer. What's my market share with -- Walmart as a customer and so on and so forth, correct? And within that, again, which subsegment that I grab. So we tend to look at it differently. Otherwise, if you look at all India exports, FY '22 was INR16 billion, out of INR16 billion, we did about INR1,800 crores, which is what, about INR250 million. So from that perspective, our market share within India apparel exports is tiny, INR250 million on a INR16 billion. So I see the opportunity landscape to be immense, and there is enough potential for people like us to grow.
Right. And my last question is regarding the CapEx that you're doing in FY '23, INR160 crores and INR120 crores. Out of that, how much is going to be the debt funding?
About INR75 crores, we anticipate over a period of next 2 years.
INR75 crores over the next 2 years?
Correct. FY '23 and '24.
The next question is from the line of Venkat Samala from Tata AMC.
A very good job on both the top line and the bottom line. Sir my first question is, there were some articles going around, wherein Gokaldas -- one on the PLI scheme. So could you give some more color as to which products are we manufacturing? What could be the outlay and the benefit that we entail to receive from the government side?
Okay. So we applied for a PLI scheme. There was scheme 2, which is for INR100 crore CapEx, we could produce garments which fall under the MMF product category, and the government has specified specific 40 specific [ HS scores ], which qualify -- the products, which fall under those HS scores, would qualify for PLI incentives. So the investment is work in progress. The factory is under construction, which is in Madhya Pradesh. We intend to produce the products which fall under those HS scores. It will take at least a year, before the factory starts becoming able to produce and generate the targeted revenue. The targeted revenue for INR100 crore investment as per PLI scheme is INR200 crores of revenue falling under the specific HS score. And for that, in year 1, the government will give a 11% PLI incentive. And for year 2, they would expect a 25% growth over the year 1 level. So INR200 crores, going up to INR250 crores, and for the incremental revenue, they'll get 9%. So it's a sliding scale 11, 9, 7, 5 so on and so forth for 5 years. and incremental 25% gets the benefit. That's the kind of broad PLI scheme construct.
We -- by the time we actually realize the PLI revenue, PLI incentives that were qualified for PLI scheme, it will be FY '25. So it's a bit way off at the moment. But the notion here is that, it brings in the ability to Indian manufacturers to get into MMS-based products, incentivize Indian manufacturers to produce more of man-made fiber-based to garment. The raw material ecosystem for that is pretty weak at the moment. It needs to be established. We already produce garment under these HS scores. We do have the technical capability to do so. So we are, in a sense, a little better qualified to take advantage of it, but it's something which will take a bit of time, before we start seeing the benefits of PLI.
Right. Sir and just as a short follow-up to that. So as you mentioned then, the incremental revenue over that INR200 crores was 25%, on which you will get the PLI benefit furthermore, as the time horizon extends. So do we need to further keep investing into these realized benefits beyond that 11% in the first year?
So we may have some investments going on. So based on the first INR100 crores itself, we can produce much more than INR200 crores. So I don't see way too much investments going forward, to continue to realize that PLI benefit. It may be some notional, marginal investment.
Understood. Understood. And one last question is, when we look at the Europe's share of our revenue mix, that has been consistently coming down, right, and that is -- despite the fact, that even historically also, we were over-indexed towards U.S. So I mean, how do we see this moving forward?
Good question. So I see the trend reversing going forward. The reason why we have focused on U.S. was manyfold. One, U.S. is a large homogenous market. So we get very good run prices and hence, a better profitability as compared to Europe, which is fragmented. 2, when we go to Europe, we tend to compete with Bangladesh, which goes duty-free into Europe, as opposed to ourselves, where we go with the 10% to 11% duty. So we have a duty disadvantage going into Europe. So clearly, the margins catering to Europe is not as great. And third, post-COVID, U.S. saw best bounce back of the economy, unlike Europe, which continued to stagnate in calendar 2021. And now again, Europe will go slow because of the war in Europe.
So all of these reasons, we focused more and more on U.S., and we were opportunistic. We were also very conscious of our bottom line and focused on the larger markets for us. Now going forward, with FTA expected with U.K. by the year-end and FTA negotiations, which could start with Europe in calendar '23, it presents a good opportunity for us. We are looking at slightly reversing the European trend and going a bit more focused on Europe, in anticipation of FTA coming in place.
We move to the next question from the line of Yash Bajaj from Lucky Investment Managers.
Sir, I just wanted to understand, what would be a mix in terms of cotton and manmade fiber apparel?
Okay. So cotton is about 60% of our total fiber mix. We will also have linen and viscose added up to another 10%, 12% to it and the rest will be polyester, nylon and others.
Okay. Okay. And I mean just to understand like, how different would be the costing in terms of all these 3 types of apparel?
So what happens is that we -- depending on the fabric [ etched ] out between us and the customers, we tend to factor in, what is the cost of the particular raw materials, the fabric and the other trends associated with it. And then we calculate the cost and bake it into our costing. So it's become a pass-through to the customer. So the costings could vary from what the product type is, what kind of blend it is and so on and so forth. But for us, it just is a pass-through.
Okay. Okay. So like just to understand for me -- like just to understand, there is no difference as such in terms of that, because it's just a pass-through?
Correct.
Okay. Okay. And sir, coming to the CapEx side, how much -- I remember, I think the Q2 call, we were deciding whether to make any CapEx in Bangladesh. So what's the status with that?
Right. We are working on the Bangladesh project. We anticipate that we should have some amount of output coming from Bangladesh in the second quarter. We are still contemplating between leasing a factory versus building our own. Building our own takes time. So it will delay the commissioning of the project, and basically take it to FY '24. So we are thinking of starting off with lease, in which case we may not have as much of CapEx. So it's all work in progress as we speak.
Okay. Okay. And sir, MP project...
MP project is under construction. We believe that it should be completed by end of June or early July, post which it will start with pilot runs and then start ramping up over the next 6 months or 9 months.
Okay. So we can expect a full ramp-up around -- after 9 months.
Correct.
Congratulations on a great set of numbers.
The next question is from the line of Gunjan Kabra from Niveshaay.
Congratulations for an set of numbers. I wanted to understand like with production issues in Sri Lanka and Pakistan, are we getting more order inquiries because of that also, which is tendering our order book?
Okay. So you know, Sri Lanka does a lot more knit and intimate wear, we don't do those products at the moment. So while we intend getting into knit going forward. At the moment, we are not as much in competition with Sri Lanka, and for that matter with Pakistan. So answer is no. Those are not benefiting us in particular. But we do tend to benefit from COVID in China, COVID related closedowns in Southern Vietnam. So those benefits have come to us, actually make a lot more complex products, and we are more in competition with suppliers in those countries.
Okay. Okay. Sir, also, the MP project also, is it part of the PLI scheme, or will we be establishing a new plant for PLI?
No, the MP project is part of the PLI scheme.
It is a part of PLI.
The next question is from the line of Cheragh Sidhwa from ICICI Securities.
Congratulations on a very good status numbers. Sir, my first question pertains to the quarter-on-quarter growth. So you already had a very high base in the third quarter, and reporting a 12% growth on that. So just wanted to understand, what will be the rough price hike and the volume growth for the current quarter?
Yes. You're talking about Q4 or you are -- you are asking for Q4?
From Q3 to Q4, the 12% Q-on-Q growth. How much will be the price range growth in that?
Price, I mean, in terms of realization, it's almost about 17%.
Realization? Okay. So volumes have kind of -- this quarter? Because of the higher outlook that is...
Linear, Q3 to Q4.
Sorry. What I talked about is, Q4 over Q4, Y-o-Y only I talked about. You want Q3...
We will get back to you with your answer, just bear with us, we will come back.
Sure. And sir, second question is on the Karnataka plant, which we had commissioned in the previous quarter. If I'm not wrong, that plant contributed close to around INR16 crores in the previous quarter. So what would be the contribution in the current quarter from this plant?
So we commissioned 3 units, 2 in Karnataka and 1 in Tamil Nadu, Krishnagiri.
Correct.
Correct? And the contribution from all these 3 new plants put together in the quarter 4 was close to INR40 crores.
Close to INR40 crores. Okay, okay. And the capacity utilization in the current quarter will be trending more than 50%, 60% for these plants?
For those plants, yes, it will be around that level.
Okay. That's great. And also just one follow-up question from one of the previous participants, if I just look at the last 4 years, our growth CAGR has been close to around 15% from FY '18 to '22. But that is mainly driven by our realization growth. So going forward, what should one kind of factor in? Will we expect similar kind of mix, like around 14% would be realization growth and single-digit volume growth? Or going forward, volume growth would be close to around double-digit and a lower realization growth?
That it's -- here is the current run rate. The way I see my volume growth this year was 34% over last year, of course, the last year at was COVID impacted year FY '21. The reason is, that we don't look at piece per piece, each piece as our volumes, as the piece work content in HP would be very, very, very different. So yes, you can assume that the volume growth will be there, if you -- repeat volume at unique pieces of garment, the volume growth will be about 10% or 12% and the realization will be higher. But that's simply because the mix -- till the mix keeps changing in favor of more and more outerwear, you will find that realization per piece will keep going up faster.
[Operator Instructions] We will move to the next question from the line of Dixit Doshi from Whitestone Financial Advisors.
Just one question. So as you mentioned that it is not prudent to look at the number of pieces, and also the ASP changes with the product mix. So considering whatever capacity you have, and considering the best possible product mix, what kind of top line we can do with the current capacity, and also considering the Tamil Nadu and MP plant, what kind of revenue we can do?
Okay. So the current capacity utilization that is in Q4, we were at full capacity utilization. Based on our current capacity, we may see some incremental utilization coming from our 3 new factories that we set up in the second half of last year. So they are on a ramp-up. They have almost ramped up to 50%, 60% levels and there is an incremental ramp-up we will get. So we can have that incremental revenue coming in from there. So that's the growth.
MP will start contributing revenue only from the third quarter of next year of this year, that is FY '23. And it will start slow and then it will start ramping up Q-on-Q. the Tamil Nadu new units, which is the knit-fabric processing unit, which will get commissioned by end of FY '23. So really strictly speaking, its own contribution will start coming in from FY '24. So this year, the growth will come from some more incremental capacity unlock from our existing factories. The incremental growth of the 3 units we set up in H2 of FY '22, and the Bhopal unit, which will be contributing, as we go forward.
We'll also -- based on demand/supply situation, we'll also be looking at additional capacity to be set up, garment capacities to be set up in this year. That indirectly we will keep announcing, as and when plans are firmed up. We may also have some revenue coming in from Bangladesh towards the second half of the year, based on what we are working on. So all put, there is decent revenue growth that we are expecting. It will all pan out in the quarters ahead, more so in the second half of the year.
Just one small thing. So typically, how much would be the [indiscernible] whatever CapEx we do...
Specifically, the revenue will be 4 to 4.5x that of the CapEx that we make, when it is fully ramped up. So if I invest INR100 crores, I can expect a revenue of INR400 crores to INR450 crores, once the CapEx -- once the factory is commissioned, and the factory then ramps up to full capacity.
The next question is from the line of Bharat Chhoda from ICICI Securities.
Basically, I was looking at this presentation, in that you have given this like the outerwear proportion. Basically, the ASPs INR450 crores has increased from 59% to around 88% in FY '22. So what has actually contributed this change in that entire thing, like the ASPs have been significantly narrow, what has been contributing to that?
So, the higher proportion of outerwear in our product suite, even the other garments, sportswear, casuals, we have tended to focus on higher ASP products. That's the reason why our mix is weighted towards higher value products. So we picked INR450 because that's the average price of woven garments exported out of India and the vast majority of our output is at a much higher rate. For example, in FY '22, our realization per piece is in excess of INR700, so about INR730-odd, INR738. So it's on an upward trend and that is because of the product types that we have focused on.
And sir, on the CapEx front, like in FY '22, could you provide us a break-up of the CapEx, like which capacities, how much you have like invested? And probably also, similarly, the FY '23 we are planning, how you would be distributing that among the different capacities?
So FY '23, for all the new plants, we invested close to around INR22 crores. In the existing plants, for the capacity expansion and for the modernization, we've invested around INR18 crores. Then we also have invested around INR30 crores in 2 of the new projects which are going on; one in Bhopal, almost about INR19 crores. And for the fabric processing unit in Tamil Nadu, about INR11 crores is invested. That is as far as FY '22 is concerned. FY '23, our investment plan is about INR160 crores. It includes about normal CapEx in our existing plants to the tune of INR20 crores. For the new project in Bhopal and for new additions, we estimated around INR70 crores. Another INR70 crores is likely to be invested for our fabric processing unit Tamil Nadu.
We'll move to the next question from the line of Ankit Pande from Quant Money Manager.
Many congratulations on a very good quarter. My question would be especially given the estimations from some of the proxy advisers, what would be the approximate ESOP charge that we'll have to take in FY '23?
I think we'll do the final calculation based on how much of ESOPs are being handed out to the employees. So we've had a board meeting. We have finalized it. And once that calculation is made, we will share with you based on what is the quantum of ESOPs being allocated. So bear with us for some more time, we will get back.
And my other questions -- various questions are by and large answered. So thanks very much and [ this to ] the very best.
The next question is from the line of Prerna Jhunjhunwala from Elara Capital.
Congratulations on good set of numbers. Sir, the first question is that in your opening remarks you mentioned that you've invested in productivity improvement areas. Could you highlight some of the initiatives taken by you to help us understand how the improvements are coming in?
Prerna, in all our existing factories, we have added a lot of machines to automate our production. So several such investments have taken place within our existing factory. So machineries, which can automate collar, attach pins, well pockets, many such investments. Even we have upgraded our cutting and sewing machines. We upgraded our embroidery machines, printing machines. So those things will actually give a higher throughput and some of these newer machines have a lower cost of operations as well. So it will indeed help us in getting productivity up going forward.
That is working sir, which will add to the 3% improvement in productivity that you've been...
Correct, correct.
Understood. And sir my next question is on the inflationary trend that you are witnessing right now. In such inflationary trend also your suppliers are binding by the court that you see wait for 6 months or how is the industry working in current scenario because prices are moving up regularly? And how are the customers taking it forward? Are they looking into product mix change to manage the supply, increase cost or how things are happening?
Bright side, let us say on fiber price goes up pretty significantly, automatically it will lead to fiber blending and all of that. So rather than use pure cotton, you will use cotton dispose and so on and so forth. So a bit of that happened. The woven fabric price increase is not as high in relation to cotton price increase as compared to say a niche fabric price because it will have a higher cotton increase and the yarn price increase will be much higher. So from translation from a percentage increase of cotton to a percentage increase in fabric, it comes down quite a bit as there are several other value-adding pieces in the production of fabric itself.
So computing all of that and the fact that the end consumer -- that our customer is aware that the fabric prices have to go up, we will tend to price in the higher fabric cost. The customers in turn or the brands in turn are reacting by increasing prices of apparel as well. So on an average, we find that the U.S. apparel prices have also gone up, thanks to inflation. It's about 6% or 7% increase we're finding in apparel price increase as well in the U.S. market. So it is getting passed down to the end consumer, which is what is the most important trend to track.
If any consumer is paying for all of this, then I think we are good. The raw material prices need not be absorbed by the value chain, it can be passed on to the end consumer. So far, we have been able to do that. Brands have been also able to do that. Some of it may have to be absorbed by the value chain, which can happen only through productivity improvements or say currency depreciation, et cetera. This is also getting done to an extent. But largely from our standpoint, we are pushing back the pricing, which then gets pushed back to the end consumer. Does that answer your question?
Yes sir, almost. And sir, my last question is on...
[Operator Instructions] The next question is from the line of Devesh Kayal from Omkara Capital.
Sir, what would be our share of autumn and winter apparels in our total revenues in FY '22 and what was it in FY '21?
So FY '21, it was 37%. It is going up to some 40-odd percent.
And sir, what was your tax payout in FY '23? What are you expecting?
You said tax payout?
Yes.
Yes, we are getting into a regular tax. And for the current year, FY '23, the effective tax rate will be at 25.17%.
The next question is from the line of Vikas Kasturi from Focus Capital.
Sir, my question is regarding your working capital base. So since the time you took over, it has reduced dramatically from about 108 days to 75 days. So is this a reflection of your growing importance in the supply chain of your customers? That is the only question I had sir.
So a portion of it is because we have negotiated better payment terms with the customers. So we have brought down receivable days. We have also got better terms with our supplier which has also increased our number of days that we get to pay to our raw material suppliers. And we have also managed inventory tightly. However, I should say that in FY '22, our inventory management was not as effective simply because of a lot of logistical challenges that we had.
So to an extent, one could argue that we can operate at a lower working capital cycle than what we currently have if only there was a bit of stability in the supply -- logistics supply chain. We, for instance, for imported materials, we start importing material at least one to 2 months in advance just to account for volatility in supply timing, et cetera. So shipping -- ships were getting delayed, containers were not being found. So there were so many other challenges resulting in us having to keep more raw material inventory and oftentimes even SC inventory.
The next question is from the line of Nishid Shah from Ambika Fincap.
Congratulations on an extremely good set of numbers. Siva, my question is a broad reason. You are one of the largest listed garment exporter from India. There is an unlisted company. But on a 5 year road map, I mean, now we are on a run rate of about INR2,500 crores, INR2,600 crores per year. So when do we see $1 billion and beyond the $1 billion and benchmarking with the global players? Could you just give some color on that?
Very good question. So we need to keep up our growth momentum going forward. And we believe for that we need to keep growing at a strong cliff. So not withstanding short-term headwinds, like the inflation in the U.S. or war in Europe, which are I think at most can impact the market by a year or so. I think the longer term prospect for this industry is pretty robust. And hence, our ability to keep growing will be good.
So we should -- we are clearly setting our sights on that long-term growth. We would, of course, like to grow to INR5,000 crores, INR10,500 crores, as we mentioned, and keep growing. Timeframe, I think we would like to do it at the earliest, I would say, but then there are a lot of short-term challenges that I see in the market. But overall, we are reasonably on track to keep up our growth percentage or growth momentum.
Just to add on to that, these China Plus One factor and now the COVID in China and also in Vietnam should be helping us in making inroads into newer variety of governments, higher margin product as well as with sticky customers, which was earlier little difficult for an Indian garment manufacturer. So how do you react on that?
So you're right in that. We tend to produce more complex garments, which are typically produced in China, Vietnam and other places. So we are seeing traction on some of those product types and increasingly more and more of the Western buyers are shifting that to India and players like us. So we do tend to compete a lot with them. We do tend to have a good track record of delivery.
So I see that as a bigger opportunity because costs in China, for that matter, China and Vietnam are only going up and up and up at the -- to an unrealistic level, so much so that India can compete very effectively with them. The only drawback we currently have is the fabric ecosystem. Most of the fabric process products we are still importing from Taiwan, Korea, China, et cetera, at the moment. But even then, if we are seeing a good order book from which we're able to be produced there, it means that the consumers are seeing some value out of India. So we do have a good opportunity in that space.
The next question is from the line of Ravi Naredi from Naredi Investment.
Whether the margin of financial year '22 are sustainable at this higher cost of cotton?
So there are all kinds of forces. So there is a higher cost of raw materials. This is not just [indiscernible] but even MMS. There is a higher cost of business inflation. And the trick is how much can you pass it back through to your customers. So we've seen a high -- as cotton -- higher cotton price effectively has led to about 10% increase in higher cotton fabric price. Now 10% fabric price increase means, to me, in revenue terms, it is about 4%-odd increase in pricing. Now if I'm able to pass it all through to customer, then I don't have a margin impact. If I'm able to pass it -- pass zero to the customer, then I take a 4% hit.
Now the reality is that, so far, we have been able to pass most of it back to the customers. Wage cost increase, we would have 1% impact on EBITDA, which we intend to offset it to productivity improvement. So we will not have as much of an issue there. And any other cost that we end up absorbing in the mutual negotiation, we do have some relief coming in the form of rupee depreciation. So if the rupee depreciates by about 3%, 4%, then I think a bit of our cost increases can be offset there. So that's how we look at the business.
Our endeavor is to like to be able to sustain the EBITDA margin. In the longer run, I continue to maintain that I will be able to improve my EBITDA margin by 1.5% in a 2 and a half, 3 years' timeframe simply because there will be an operating leverage as we grow in scale and productivity, there will be some benefits. In the short-term, random cost increases or sharp cost increases may have some negative impact in a quarter or 2. But overall, for the year, I think we should be on track for FY '23.
The next question is from the line of [indiscernible], RW Investment Advisors.
Sir, what would be the EBITDA margin profile for all the product categories, casual, outdoor, bottom and sportwear?
So we usually have a bit higher EBITDA margin for outerwear. It will be about 1% to 1.5% higher and casualwear will be proportionately slightly lower. But more or less, you could assume if 12%, 12.5% is the average EBITDA margin, outerwear will be plus 1.5%. The others will be minus 0.5% or minus 0.75%.
And one more thing on the number of pieces shipped, I did not understand how do you compute this thing. So how is the volume competition done. You said something on outerwear, number of pieces.
So the number of pieces are total number of pieces. So if I shift 10 and 10 shirts, I'm counting as 20 garments shipped because that's a number of leases, correct? But jacket could take, let us say, 200 minutes to produce. That's the emitted, let's say, effort to make it. A shirt, let's say, takes 20 minutes to produce, a jacket takes 10x that of shirt. Now this depends on the type of jacket and type of shirt. So please take it with that caveat. So every product is different since we make a wide variety.
So if you look at, let's say, a t-shirt making company, the bulk of the product will be a round-neck t-shirt or polo neck t-shirt with the same level of effort. So we can define capacity in terms of number of units as the units are more or less standardized. Unfortunately, in our case, we are making wide variety of garments which have got humongous amount of delta in terms of product complexity. This is why defining capacity in number of pieces becomes a bit of a challenge. And that's the reason also why the realization per piece is vastly different between complex. So we have products which are $20 products as well and we have products which are like $5. So the variety is huge.
The next question is from the line of Aashish Upganlawar from InvesQ Investment Advisors.
Sir, you explained in the earlier part of the call that this conundrum between the percentage gross margins and the net realization that you would have, we understood that. Just to understand, is it difficult to pass on the absolute, maybe rupee kind of change in the raw material cost in terms of the increase in the price of the final product in terms of the net realization. I mean, I'm trying to understand whether in absolute basis, your margins can stay protected and you can pass it on, because you also said that when you contract with the customer, you do a back-ended contract with suppliers? And to what extent the inflation can be managed in today's -- in this kind of formula that you have?
So our endeavor is to pass 100% back to the customers, correct? Of course, we will negotiate with our suppliers the best possible price since we have long-term supply contract and then pass it back to the customer. Now the -- most of the instances, we do tend to get away by passing to the customers because we also have -- we also bring in the customers into nominate the fabric supplier and nominate the pricing of the fabric as well. So it becomes a 3 way understanding between ourselves, the customers as well as the raw material supplier, when fabric is the largest raw material by the way.
So from that perspective, we do tend to lock in the pricing with the customers, a clear understanding. So it is largely passed through. In the event there is a small amount where we lose out in negotiation, we tend to make up this higher productivity in other parameters. But by and large, over 90% of the cases, we have been able to pass it into.
If I could ask one more question. On the ESOP cost, you said the final -- the quantities and the value is still to be finalized. But can you give us some direction as to is it going to be, say, 1% of the overall capital or something like that or is it going to be a higher amount that you think...
I think roughly ballpark-wise, the final cost is -- I don't it here on the table, but it's a level over INR5 crores a quarter.
So INR20 crores a year?
Yes. But keep in mind that this is an accounting charge. It does not impact free cash flows as there is no actual cash payout and it does give us a tax shield. So in that sense, from a free cash flow standpoint, it actually increases the free cash flow.
The next question is from the line of Mithun Aswath from Kiva Advisors.
I think a follow-up from most of the question is, you put up 3 units this year, what was the CapEx on that? And you referred to that the asset turnover is typically around 5x to 5.5x. So just wanted to get an indication of where we are with those new plants in terms of annual run rate and what run rate we would have done in Q4?
So the 3 units that we put up in the second half of last year, 2 were in Karnataka and in Tamil Nadu. The full capacity run rate for the 3 units put together would be about INR220 crores once they are -- once they reach the full -- INR220 crores per year, once they reach the full capacity level. So about say, INR55 crores per quarter. Currently, we maybe at about 60% of those levels in those 3 units, all put together. So there is some residual growth that we can anticipate from those units.
The CapEx for those units were...
For the year, in FY '22, we incurred almost close to INR22 crores. Some more investment is happening in FY '23.
Got it. But that refers to maybe almost a 10x sort of asset turnover, right?
That is correct. So some more CapEx you said will happen in '23. The reason in that particular instance is because some of it is also leased capacity. So we did not do a full refill investments. We also need some machinery. So in that particular instance, we may get a higher asset turnover, but then the OpEx cost will be a little higher because we did -- one of the factories came with some amount of machinery with it. So when you go and lease capacity, you will have to take what is available rather than the way you want it to be done.
Just one more broader question is, how competitive has India become? Is this a more short-term opportunity because of COVID and the business moving to India or what has led to this sort of change of supply happening here, because if once COVID goes away, do you think Vietnam and China will be back if they are more competitive? So just wanted to understand from that standpoint whether the labor cost is cheaper here or what is the driver for us to gain more market share?
So apparel is labor-intensive. And if you look at the labor cost in China, it's in excess of about $370 -- $350 to $370 per month. Vietnam is closer to $250 in places like Ho Chi Minh City and Hanoi, it will be even higher. So the labor cost is high in India. It is about $160-odd per month. So even adjusted for productivity, assuming that the Chinese labor or Vietnamese labor are more productive, Indian costs are still lower than those places. So naturally, there is a cost arbitrage, which is sought out by large brands as they seek to buy more and more garments from cheaper and cheaper locations. So this is point number one.
The second one is banning the trade actions against China. So banning Chinese cotton, increasing the duties on products from China, et cetera, as well as the political risk factor that one associates with China, particularly for U.S. companies, means that they have to diversify their buying outside of China. Now this will be a more long-term trend than a short-term trend. For instance, most of the large brands would be sourcing anywhere between 20% to 40%, 45% from China, and usually, on the top end of this band rather than the lower end of this band. So when you're buying that quantity from China, any risk, any geopolitical risks impact the stability or earnings of the brands itself or the retailer. So they are also under pressure to diversify their procurement.
And when you look at the world of production, unfortunately, there's only Asia, which seems to shine well. Africa, showed province, but Ethiopia didn't work out, Kenya did no scale up, Central America, like Nicaragua, AG, et cetera, couldn't scale up, Europe or ancillary parts to Europe, like Turkey, et cetera, are also high cost. So literally, they have to look at other locations in Asia. Vietnam is more expensive. Cambodia is growing very fast. And so is India and Indonesia and Bangladesh continues to grow. So it's these regions, which are the only one place for a buyer or a large brand.
Now apparel trade itself is approaching $500 billion. So when you have $500 billion worth of goods to be produced, you need large manufacturing center. And if there are good players in India who can step up to the plate, then you can get business. So from a larger strategic perspective, I don't see getting business or growth is a challenge. The challenge is really how do you set up capacity? How do you ensure that your execution is flawless. In this business, since you are producing a wide variety of goods and goods are continuously changing, I am not producing one type of garment for -- from January to December. The product type is continuously changing in the factory, so are the raw materials used to make the product.
So if we are able to handle the SKUs, handle variety in the factory, and yes, order after order after order, do a timely delivery, on-time and full delivery, I think there is no challenge to your ability to grow from a business volume standpoint. It's only an execution challenge which will govern how much you can grow.
We'll move to the next question from the line of Nilesh Jethani from BOI Mutual Funds.
Congrats on a great set of numbers. So my first question is on the overall CapEx plan we had. Some few quarters back, you were envisaging around INR300 crores, INR350 crores kind of a CapEx. So I believe 3 units are already been set up. So wanted to understand how much CapEx is planned in this new upcoming net wear and the empty capacity? What balance is not announced than can happen in the future? And what is the asset turnover we can expect on the overall INR300 crores, INR350 crores CapEx?
So overall FX turnover, as I said, it will remain at about 4x to 4.5x. The CapEx envisage in FY '23 is close to INR160 crores. INR20 crores is modernization CapEx, so for productivity improvement in existing units, automation, et cetera. About INR70 crores of that CapEx will go into the fabric processing unit, which we will be setting up in FY '23 and that will go into production only in FY '24. And another INR70 crores will go into garment manufacturing capacities that we will setup, which includes Madhya Pradesh and any other facility that we are still work in progress. There will be some amount of it which will also go into Bangladesh. All put together, INR70 crores.
And one last question from my side. Just clarification. So I heard we can -- there is hope to improve EBITDA margin further by 1%, 1.5%. It is on the Q4 exit rate or the FY '22 base?
FY '22 base, and that is a 2 year or 2 and a half year -- 2 year timeframe to do that. In the short-term, there could be ups and downs because of volatility in raw material prices. So I'm talking of annual, we will try to maintain that trajectory, some small interfere here or there, but those will all get evened out through the year if there is any exceptional volatility, otherwise, we will still maintain. We'll try to maintain that over the annual level of FY '22. And I'm not factoring in the ESOP cost in this for the moment.
We will move to the next question from the line of Tejas Mehta from Omkara Capital.
Just a couple of quick questions. One is, are you a bit worried about the U.S. market slowing down? Since last quarter, the U.S. market has shown about a dip in their GDP growth. And sooner or later, people are expecting sort of a recession coming over there. So are you likely to see a demand impact? And how would you kind of try to offset that?
So these things can happen, right? We are -- that's why in my opening remarks, I did mention that there are headwinds and tailwinds, right? So there are challenges. The world is pretty volatile as we speak. U.S. interest rates are expected to go up. U.S. inflation is high. Even U.K. inflation is almost at a 200-year high. So there are all these factors which can result in disposable income with the people maybe coming down, people may have -- they reduced their spend. We're not seeing that as much at the moment. But who knows, a year, 9 months from now, 6 months from now how things will be. So we are keeping a very close view or a close watch on some of those numbers.
The way to mitigate this is as follows; try to diversify our customer base as much as possible. So in the event that one customer experience with a lower sales, then at least you have the possibility of working with another customer to go in with more high fashion products so that there is a bit of pricing elasticity there and you are able to still push those products through to the market. We are doing both of that. I'm also hoping that after 2 years of lockdown when mix and casualwear was going up and up during this period, we could perhaps see some amount of resurgence in woven products because people will start going back to offices, people will start attending social functions.
So if there is a need to refresh your wardrobe, at least some amount of spend will go into woven garments, buying those garments which are meant for social occasion. So we may see some tailwind for us, but the headwinds are indeed there in the major market of U.S. and Europe. We are watching it and we are trying to diversify ourselves away from it. We will -- we are hoping that eventually the market will work itself out.
And just one more question, sir. So do we have a medium term or say a long-term target to kind of reach a 15% kind of EBITDA margin? And if that's the case, then what will it take for us to be able to reach that kind of a margin?
I feel that, as I said earlier, 1.5% growth over the current levels in the longer term is a definite possibility. And when I say current levels, I'm saying FY '22 levels. There will always be short-term-related issues where if there is a drastic increase or sudden volatile increase in raw material prices or something like that, it may impact a quarter or so. But overall, the trend will be about 1.5%. I don't think going up to 15% is realistic at today's level. We will surely work towards a higher and higher profit margin.
We are very conscious of the product types that we choose to produce or choose to take so that we are able to deliver a higher margin. So we are very conscious of that. What can come in the way is only a very sharp movement in raw material prices, which at a very, very short-term, we may not be able to pass it on. unlikely at the moment, the way I see it, because we have been able to push everything back and the consumers have -- customers have been also able to take it up in their costing. So our business cannot grow very sharply. Whatever movements will happen will happen gradually only. So we will try to protect our EBITDA margin for sure. We'll see if we can grow it, but 15% seems high.
The next question is from the line of Abhishek Agarwal from Prithvi Finmart.
Sir, I want to know what's the reason exactly to setup a facility in Bangladesh compared to India. So what the environment and all?
So we do have -- all our facilities are currently in South of India. We wanted to diversify ourselves outside of that, and that's one of the reasons why we went to Madhya Pradesh and we're setting up a factory there. We wanted to diversify our production base even more, and that's one of the reasons why we are looking at Bangladesh. Bangladesh has got a very robust garment manufacturing industry. Worker availability is strong. And our ability to grow there will be faster simply because of the established ecosystem care and the government support that we get there. So that's one of the reasons. So diversification, ability to grow faster, access to European markets as figure to Bangladesh has enjoyed duty-free access to Europe. So several of these factors meant that we thought we would be the footprint in that location to take advantage of some of these.
So can we say that because we are not catered to European market because of cost advantages Bangladesh have, so that's why we are planning to setup a facility in Bangladesh?
As I said, that is one of the reasons. But the other reason is also because we can probably setup a factory faster and ramp-up faster there as the prevailing ecosystem is very robust there. So water availability, mid-management availability is strong in Bangladesh as the industry has evolved much more in that country.
And sir, one more thing. Are we planning to explore opportunity at technical textile?
At the moment, it's only in the thought stage, but no.
The next question is from the line of [ Ankit Dikshit ], individual investor.
Sir, I want to know that what is the demand scenario going forward in the U.S. market as the recession -- we are listening that a recession could become in the next 6 months. So I just want to know -- and of with the FTA with U.K. and Australia and UAE, what would be our revenue going forward?
So I did talk about the U.S. inflation just 5 minutes back. U.S. inflation is here to stay. It can be a risk factor for the industry as a whole. I thought why only apparel industry, for anybody who is exporting anything to the U.S. But that said, we are taking mitigating measures by trying to diversify our customer base within U.S. as well as outside of U.S. As far as FTA with Europe -- FTA goes, I view Australia and UAE as very, very small market. A population of Australia will be less than that of Bombay or maybe that size. So you can imagine how much of apparel consumption will happen. Whereas, U.K. is a much larger market and a well-paying market.
We are hopeful of the FTA with U.K. getting concluded by end of this year, which would mean opening up a very large opportunity. And more importantly, U.K. becomes a core runner for opening up FTA with Europe. And if that happens, that opens a very, very large market for India. So FTAs with U.K. and Europe is the most critical one the 2 watch out for, which will open up a large market for the country. Automatically, we will start focusing more and more on those sub-segments from a growth standpoint as it does bring in a huge arbitrage potential for all of us.
We'll take the next question from the line of [ Mohammed Rafiuddin ], individual investor.
Congratulations for the good set of numbers. Most of my questions have already been answered, but a question on the long-term horizon 3 years to 5 years, and actually $1 billion was in my mind. But are there any milestones you wish to touch when you go to that number, something like the dividend policy, something like promoter shareholdings going up, something like those?
So I don't want to speak up for shareholding in the company, but at the moment, I think the milestone that we are always looking out for are all the financial milestones and operating milestones. And so far, I think we are well on course for decent growth.
Would you be continuing to be at a net debt level to be negative where you are currently?
Say that again. Net debt level? Yes, for the current year and as of 31st March, we have net debt as the cash surplus INR119 crores. For FY '23, we anticipate we'll end up with INR50 crores surplus.
Any other landmark that you have? I'm asking from a long-term investor point of view that would excite us.
So see, the way I see it is that the market is very big, right? Apparel exports are huge. The slow and steady decline of China is here to stay. So that's also a factor to keep in mind. And China still is 10x that of India or at least 8x that of India, and anything that comes out of China will be huge for incremental growth in India. So that opportunity exists. Apparel trade or apparel consumption is not going to come down any time soon as the world's population is only growing from 7 billion, it will touch 8 billion. So there will be a lot more apparel purchase and emerging economy -- we sell to almost 50 countries. So as emerging economies also grow with the growing GDP terms, I think consumption will only go up.
So the long-term prognosis is strong for apparel consumption. From a production standpoint or supply standpoint, the story for India is strong. Government of India is supportive of this sector. That is why I think they have given a clear announcement of holding RoSCTL until FY '24, making those policy announcements, working on FTA with several countries. So government is intent on supporting this sector. They want to support manufacturing. They see this as a segment or a sector which will also help the country socially as we can generate a lot of employment. And the last and most important point is that you will also find that this segment is also consolidating us with suppliers who are strong. So people like us who have the ability to keep investing in sustainability, et cetera, et cetera, will also tend to prosper in the long-term.
So there is a bit of supplier consolidation going on, consolidation towards India, which gives present an opportunity to India, but more so for the larger players in India. So that long-term story is intact. I don't see a disruption to that any time in the -- for the next 7 years or 10 years. There is no other country in the horizon which can pick up that plat from China. So -- and Chinese population is also aging. And you need -- as a workmen, you need younger people who will work in this. So this is the non-strategic industry for them. So more and more has to get produced outside. Indonesia could be one, India could be one, Bangladesh will continue to grow, but there aren't too many countries outside of the 3 or 4 that I mentioned. So the prognosis is good.
That was the last question. As there are no further questions, I would now like to hand the conference over to management for closing comments.
Thank you. So clearly, the way I see it is that we have done -- our team has done a great job in navigating pretty choppy waters in FY '22. We had -- we started the year with a Delta wave of COVID, which shut down our factories. In early January, we had Omicron, which also resulted in a lot of our workers reporting sick for quite some time. So we did have some production impact. So all of these are -- the year was characterized by a lot of challenges. Supply chain remains the challenge. Raw material prices was [ soberly ] high and resulted in us having to sit and had lot of discussions with suppliers, buyers, et cetera.
So this volatile environment I anticipate continuing in FY '23 for a whole lot of new reasons as well. One is inflation. The other is war in Europe, et cetera. So we need to stay focused. We need to stay close to the ground to offset any negative event that may come our way. Some amount of volatility can be expected because of reasons which is completely outside our control. But the long-term prognosis for this industry is strong. Our own company has got a good order book, so we do have -- tend to have some good degree of visibility in terms of growth and stability in our business. We had hope to capitalize on it and build upon it.
At the moment, we are holding on to our CapEx plans and continuing with it. So we seem comfortable going ahead with those plans for growth. If there are any short-term further impact, we will obviously react immediately to those events. For now, I take comfort from the 2, 3 year trajectory that the industry is poised with and the opportunities that I see for a larger high performance player like us. And I feel confident that as shareholders you will have -- you can see some good progress in the years to come.
Thank you, sir. On behalf of Gokaldas Exports, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. Bye, bye.