Himatsingka Seide Ltd

NSE:HIMATSEIDE

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Himatsingka Seide Limited Q1 FY '25 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma'am.

[Prerna Jhunjhunwala, analyst]

Thank you, Yusef. Good evening, everyone. On behalf of Elara Securities India Private Limited, I would like to welcome you all for Q1 FY '25 post results conference call of Himatsingka Seide Limited. Today, we have with us the senior management of the company, including Mr. Shrikant Himatsingka, Executive Vice Chairman and Managing Director; Mr. Sankaranarayanan M., President, Finance, and Group CFO; and Ms. Shilpa Shanbhag, who is V.P., Strategic Finance. I would now like to hand over the call to Mr. Shrikant Himatsingka for opening remarks. Thank you, and over to you, sir.

[Shrikant Himatsingka, executive]

Thank you, Prerna. Good evening, everybody, and thank you for taking the time to join us on this earnings call this evening. As always, I'll assume that you've been through the numbers and I'll take you through a business update, and then we'll be happy to take on any questions that you might have.

So our first quarter FY '25, we witnessed a range bound operating performance. It was pretty stable on the back of stable demand. Capacity utilizations also remained stable during the quarter and the raw material prices were also range bound -- largely range bound during the quarter.

The capacity utilization levels at our Spinning division stood at 99%, our Sheeting was at 66%, and our Terry division came in at 67% for the quarter. As far as we can see, we see a relatively stable demand environment, and we remain focused on expanding our client base, country presence, enhancing our channel presence and expanding our category presence. These are things that we continue to be focused on while the environment for demand remains stable. We've also continued to make progress with our foray into the Indian market, which we started somewhere during the third quarter of fiscal '24 and we now operate in the country with 3 brands.

We operate with the Himeya brand, we operate with the Atmosphere brand, and we operate with the Liv brand. Liv is a brand we've just launched. And the brand is positioned to be able to offer products at more competitive price points, which will enable the brand to have a broader distribution base than the Himeya brand.

So, through our Atmosphere brand, we offer Drapery and Upholstery products and the Imeya brand is for bedding and bath and allied products and [indiscernible], which is essentially [indiscernible] products, but the price positioning, Himeya is a little higher than the Liv brand.

So I think with these 3 brands, we're fairly well positioned from a standpoint of product portfolio and pricing strategies, and we continue to be optimistic about what India can do for us going forward. We have seen a pretty good traction on the brand so far.

We are present now in over 2,400 [indiscernible] of sale. We are present across 29 states and we are present in over 350 cities and this is what we've done in the last 6 months, and we have a lot more to cover. So, all in all, we remain very focused on making sure that India becomes important part of our revenue side.

Going forward, we'll be taking all steps that we believe can make that happen. That's all on the business update. As far as debt numbers are concerned, we have remained range bound for the quarter. Gross debt was INR 2,794 crores versus INR 2,798 crores at the end of March, a movement of approximately INR 4 crores and our net debt was approximately INR 2,670 crores versus INR 2,635 crores.

So with this, I conclude our business update, and I'll be more than happy to take any questions that you might have. Over to you all.

[Operator]

[Operator Instructions] First question is from the line of Rusmik Manilal Oza from Rusmik Oza's Sole Proprietor of 9 Rays EquiResearch.

[Rusmik Oza, analyst]

I just want to understand our utilization levels have been at that 66%, 67% since last, I think, Q2 FY '24. So just wanted to understand how do you see the path of utilization levels going in the next -- at least in the next couple of quarters in FY '25 and next in '26.

[Shrikant Himatsingka, executive]

So it's actually a good question. It is coincidental that it's range bound to back those kinds of numbers, but the way I look at utilization levels going forward, I think we should be looking at utilizing our capacities and taking the utilization levels over, I would say, 90% levels, over the course of the year -- next year. So I would say 12 to 18 months, that's what we have targeted. So you may not see movement. You will not be able to sort of predict which quarter this will sort of happen in terms of a run rate, but we would like to be in the high 90s over the next 12 to 18 months.

[Rusmik Oza, analyst]

And can you give us the path actually, how these utilizations will go up from 67% to 90% in terms of what kind of more client additions are you looking at or more regions or it will be more because of the usage of Indian business?

[Shrikant Himatsingka, executive]

Yes, I think it will be a combination of various things. So this is what our endeavor is, we might look it. We might fall a little short in terms of sharing with you what we think? How we are thinking and where we would like to be? I'm not giving you a forecast nor am I making commitment [indiscernible] to this, but I am sharing with your internal management thinking as to where we feel we should be -- and the way we're going to be achieving this is, the kind of pipeline that we have sort of put in place for ourselves, will unfold during this period.

As you all know, our Terry Towel plant is fairly new. This was commission in FY '20. And in a short period, we brought it up to 67%, which for a greenfield plant is fairly good. And I think the journey from zero to taking it to higher levels should be something that we will be able to facilitate the way we're looking at things now and the kind of pipeline we're putting in place. It will involve obviously expanding our global client base. It will involve tapping more jurisdictions. It will involve broadening our product offering, and it will involve deepening our channel mix. These will be the things that we'll be focused on to make sure that -- to ensure that we have made our best efforts to get the utilization levels up because that's a primary area of focus for concerns.

[Rusmik Oza, analyst]

Okay. Link question, Shrikant, is that our EBITDA margin like last year Q1 over 22% and then they've been ranging between this 20%, 22%, last quarter we did 20%. So if you are taking the utilization from 67% to say 85%, 90% somewhere next year, and how do you see the EBITDA margins panning out? Will there be range bound or?

[Shrikant Himatsingka, executive]

Yes, I think there will be a range bound. We have shared with investors that our business typically is between 18% and 22%. And that's what we feel will be the case even if we are utilizing our plant capacities at much higher levels. There will always be a headwind of some sort and a tailwind of some sort. So I don't think we will see any, I mean, I don't have any reason to believe that there will be expansion of EBITDA margins. I think it will be range bound at this area. And we'll move on account of product mix, from tailor costs and other factors. But yes, it will be range bound.

[Rusmik Oza, analyst]

Okay. My last question before I get in the queue is that with these 3 brands in India now, what is the next 2, 3 year pipeline in terms of revenue accretion you're looking at from these 3 brands in India going forward? And what kind of margins we can expect from these 3 brands going forward?

[Shrikant Himatsingka, executive]

So we had publicly stated and announced that we are looking at India to contribute INR 1,000 crores over the next 5 years. And we think that the market has that potential. We think our brands have that potential, and we are not just going to be present in Bedding and in Bath, but we're also going to be present in Drapery and Upholstery. So when I say Drapery and Upholstery [indiscernible] products, which is something that we also have as part of our portfolio.

So with all of these things plus our private label initiatives in India, plus our institutional initiatives in India because India is seeing a pretty robust institutional demand pipeline as well. So when I say institutional, it is hospitality and other forms of institutional requirements.

So all this put together, it's quite a compelling market for us to tap into. And so we believe that the 5-year direction is something that we should strive for and start working towards. As far as the revenue -- as far as the margin profile is concerned, these are the revenue streams that emanate from this jurisdiction. I've shared with investors earlier that we believe that the EBITDA combination from our [indiscernible] India should also be in the reasonable 18% to 20%.

[Rusmik Oza, analyst]

Okay. Okay. I was trying to understand, is there any distance because exports normally are to the developed markets, whereas India will have a lot of distribution network and you could note margins could be shared with a lot of intermediaries in between. So it's sort of that, you still feel that we should do around 18% to 20% margin in the India business.

[Shrikant Himatsingka, executive]

Yes. I mean, it is what we are done in for and what we're positioning ourselves for. As I said, if we fall short of 200 basis points, that's difficult for me to predict or if we enhance it by 200 basis points, it's something I can't tell at this point. But, internally, we're positioning ourselves, our pricing, our strategies for achieving that kind of margin growth rate of 18% to 20%, even though the intermediaries, and even though this market has its own structures and requirements, we feel that that's something that's achievable.

So I don't know if you heard me but I said, despite the fact that the intermediaries and so on, but there are channels of the market where there are no intermediaries or channels which are direct and so on. So when you blend everything, we feel that this kind of profile is something that we should be going for. That's what the [indiscernible].

[Operator]

Next question is from the line of Sunil Jain from Nirmal Bang Securities.

[Sunil Jain, analyst]

Yes. So my question related to, first of all, we had seen some gross margin correction in this quarter. So any specific reason for that?

[Shrikant Himatsingka, executive]

Nothing specific, Sunil. Just ordinary costs, product mix movements. Yes, nothing specific Sunil, just ordinary cost, product mix movements.

[Sunil Jain, analyst]

Okay. Okay. And sir, second question relates to if I see a longer-term period, our debtors -- absolute debtors has increased substantially in the last 3 years. So what change which has happened in the way of selling and all or how it can correct?

[Shrikant Himatsingka, executive]

Sunil, that will be pretty granular. So why don't you call us offline and then we'll take you through it, so that we can give you a full understanding of this point that you've raised.

[Sunil Jain, analyst]

Because a lot of money is getting occupied in this data period from INR 300-something crores to almost INR 900 crores.

[Shrikant Himatsingka, executive]

So we are roughly at about 120 days and we should be at a little lower. I mean, we should be lower. So if you take some time and call us, we'll take it through the model.

[Sunil Jain, analyst]

Sir, second, related to your India operation. So how much money we need to invest to develop this business, first of all, in working capital and then to develop the brand and all? Initially, you might have to invest beyond the brands also.

[Shrikant Himatsingka, executive]

The nature of the [indiscernible] India will be pretty asset-light and capital-light because the company has no intention of building new stores or operating any own stores as such. We will be leveraging existing distribution networks that exist, be it multi-brand outlet networks, be it large format store networks, be it e-com channel networks. So, therefore, the capital outlay to build stores and build a new physical infrastructure will not be required. The real investment will be -- as far as the balance sheet is concerned, we'll be making sure that we have -- we support it with the right requirements for products and so on. And that's really going to be the major investment. So overall, it will be capital-light and high on ROCE.

[Sunil Jain, analyst]

Yes, that is great. But working capital we need to provide or not?

[Shrikant Himatsingka, executive]

Yes, we'll provide working capital, but I think the working capital intensity will not be as much as the export business. It churns much better and these cycles are better. So we don't estimate any large investments even in the form of working capital at this point.

[Sunil Jain, analyst]

And for this business, whether we will be utilizing our existing capacity or it will be sourced from outside?

[Shrikant Himatsingka, executive]

It will be existing for all the products that we manufacture in house. If there are some products, I mean if we don't manufacture but we need it for our collection, then we will outsource it. We don't have any specific plans to really do that.

[Operator]

[Operator Instructions] Next question is from the line of Akshay Kotari from JHP Securities Private Limited.

[Akshay Kothari, analyst]

I just wanted to know that in the last call, you had guided to do INR 4,000 crores of revenue in the next 18 months. And if I do my calculations, we are going to require a significant working capital funding for this growth as well. Also, you have guided for some fund raise to ease out the funding crunch, which we are facing currently and reduce the borrowings. So what is the headway on that? And how are we going to fund this working capital requirement?

[Shrikant Himatsingka, executive]

Well, we are looking to debottleneck some of our current working capital, which will also [indiscernible] working capital for future growth requirements as the capacities and our utilization levels go up. And I think that should suffice. If there is any additional needs, then we will look at it at that point. But we will -- we are focusing [indiscernible] on the incremental working capital requirements at this stage. So that's what our focus is. If there's something that we do, we will try to make sure that we get it from within our current ecosystems by admonishing some of the current congestion on the working capital front.

[Akshay Kothari, analyst]

Where will the improvement comes from, sir?

[Shrikant Himatsingka, executive]

Decongestion of current working capital...

[Akshay Kothari, analyst]

In working case, we have three, debtor, inventory and creditors. Where are we expecting an improvement?

[Shrikant Himatsingka, executive]

On the first two most probably.

[Akshay Kothari, analyst]

And how do we plan to reduce that?

[Shrikant Himatsingka, executive]

I can't share with you a granular plan as to how we'll reduce it. But if you want to have a more detailed chat on it, I'll be happy to have it off-line.

[Akshay Kothari, analyst]

And then secondly this fund raise. Are we planning to do some sort of preferential allotment or a right sort of?

[Shrikant Himatsingka, executive]

We've taken an enabling resolution from various instruments. So we are evaluating which instrument will be optimal for us, and we'll look at it in that context.

[Operator]

Next question is from the line of Ms. Prerna Jhunjhunwala from Elara Securities.

[Prerna Jhunjhunwala, analyst]

I just wanted to understand the demand scenario in the U.S. largely given the recent update on [indiscernible] and how retailers are looking at demand scenario and giving orders?

[Shrikant Himatsingka, executive]

So Prerna, the U.S. remains largely stable. And honestly, our focus is not just the U.S., as it alluded to before, we are looking at much higher levels of presence in the EU and the U.K., in India, in the Asia Pacific region and so on. And we're making progress on all these fronts. So the way I look at U.S. at this point is, as I said, it's range bound. But the focus that it has on the financing client base and expanding our product portfolios and our channel, country mix gives us scope to look at growth opportunities in other jurisdictions. And honestly, that will be equal, if not higher area of focus of the company in the near future in the median terms, including our presence in India.

So I think there's a lot of growth that other jurisdictions are going to offer us. And we've seen that demand sort of build as we build our demand -- as we build our pipeline. So while even if the U.S. remain stable, we feel that there's opportunities to grow by doing these things and taking these initiatives in other jurisdictions.

[Prerna Jhunjhunwala, analyst]

Okay. And what has been the incremental share on FY '24 for the new geographies?

[Shrikant Himatsingka, executive]

I'll have to look at that number...

[Prerna Jhunjhunwala, analyst]

I mean range is good enough, if I could understand or should be good.

[Shrikant Himatsingka, executive]

We should see strong organic growth. I mean overall, might offset some growth somewhere else. But at this point, basically broad stability. So there could be timing differences between quarters and another. I'm seeing it as a team play out positively.

[Prerna Jhunjhunwala, analyst]

Okay, okay. And sir, how is competitive intensity in the segment today given that Pakistan is also facing some issues and China is also [indiscernible].

[Shrikant Himatsingka, executive]

I think the Pakistan and China [indiscernible] are playing out. While you've raised this question, your prior question and a couple of other questions earlier also alluded to utilization and so on. I'd like to say that we acknowledge the fact that we have been range bound in utilization. And it's been a little sluggish as far as growing the capacity utilization level got concerned.

I did thank our investors for their patience on this front. We did see a lot of volatility in global markets for various reasons over the last couple of years or a year or so. And maybe, as I said, we are building the pipeline, it may not show up next month. But we're working on this. But when it does show up, trust me it will keep our utilization levels [indiscernible] . So the 18-month horizon is what we are looking at, 12 to 18 months, and we'll see that happen during this course. And as far as the other external developments like China concern or Pakistan concern, I mean, they're definitely still there in terms of opportunities.

And now with what's happened in Bangladesh yesterday, that might also spend some opportunities. I am not certain as to how we manifest at this stage. But it's not a large producer of home textiles, but there is some production there as well and it may not be very comforting for international buyers at this point. So we'll wait and watch, but Pakistan and China remain jurisdictions where retailers are reducing some of their exposure as far as we can [indiscernible] gradually.

[Prerna Jhunjhunwala, analyst]

This really helps to understand the scenario. And I just wanted to understand on the interest cost. Do we see that coming down with the working capital reducing largely because I'm asking this quarter, we had higher consolidated sales whereas our stand-alone sales were largely flat, which means there could be some inventory release that could have happened in overseas subsidiaries. So just wanted to know that.

[Shrikant Himatsingka, executive]

Okay. If I've to answer that accurately, I'll have to just look at some of the numbers more granularly. It's largely been range bound Q-on-Q, we will -- we are working on bringing it down, as we've shared with investors. We remain sort of planning to obviously look at deleveraging initiatives, and we're working on that, including but not limited to strengthening our balance sheet by enhancing our equity base amongst other initiatives and obviously working on [indiscernible] some of our working capital in cycles. So as [indiscernible] initiatives, I think [indiscernible] something that we don't bring down on this.

[Operator]

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for the closing comments.

[Shrikant Himatsingka, executive]

Thank you all for asking all the questions that you did and I hope I've shed some light on your inquiries and so on. I have requested a couple of people to reach out to us for more granular insight to their questions. So do reach out, and we'll be happy to answer it for you whenever you have the time. Thank you very much.

[Operator]

On behalf of Elara Securities Private Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.