Himatsingka Seide Ltd

NSE:HIMATSEIDE

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Himatsingka Seide Limited Q2 FY '23 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. Thank you, and over to you, ma'am.

[Prerna Jhunjhunwala, analyst]

Thank you, Inba. Good evening, everyone. On behalf of Elara Securities India Private Limited, I would like to welcome you all for Q2 FY '23 post results conference call of Himatsingka Seide Limited. Today, we have with us the senior management of the company, including Mr. Shrikant Himatsingka, the Managing Director and CEO; Mr. K.P. Rangaraj, President, Finance and Group CFO; and Mr. Dilip Panjwani, Executive VP and CFO, Strategic Finance.

I would now like to hand over the call to the senior management of the company and post which we will take the Q&A session. Thank you, and over to you, sir.

[K. Rangaraj, executive]

Thank you, Prerna. Good afternoon, ladies and gentlemen. This is Rangaraj, President, Finance and Group CFO, Himatsingka Seide Limited. Let me, first of all, welcome you all to this Q2 FY '23 earnings call.

As always, I will start this with a short business update, followed by some comments on the financials. And the floor will be open to question-and-answers by -- addressed by our Managing Director, Mr. Shrikant Himatsingka. So first, starting with the business update.

Q2 FY '23 and the First Half of the Fiscal Year, operating performance has been severely impacted by raw material inflation, energy inflation and inventory correction initiatives that were undertaken by global clientele. Therefore, both operating margins and total income have been impacted during this period. As a result of the above, capacity utilization across all our plants was marginally impacted during the quarter. The capacity utilization for our manufacturing facilities during the quarter stood as follows: Terry Towel division recorded 56% utilized the capacity utilization versus 54% in the previous quarter. Sheeting division recorded 53% against 55% in the previous quarter. And the Spinning division recorded a capacity utilization of 75% against 78% in the previous quarter of this fiscal year.

During the quarter, revenue streams from brands stood at INR 402 crores versus INR 575 crores during the previous year and INR 439 crores in the previous quarter. Our first half financial operating performance is in line with our expectations, given the headwinds we faced on account of raw material inflation, energy inflation, supply chain challenges and inventory correction initiatives undertaken by global clientele.

As shared with stakeholders earlier, we expect progressive recovery on the operating performance front going into H2 of this fiscal year. We've already begun to see the easing of cotton prices with the arrival of '22-'23 cotton crop and in addition, we are also witnessing the easing of supply chain congestion and disruptions over the last couple of months.

We continue to be focused on rationalizing our inventory levels to drive more efficient working capital cycles. I now move on to comments on financial performance. The consolidated total income for the quarter stood at INR 639.68 crores versus INR 816.21 crores in the previous year. This represents a decline of 21.6% year-on-year.

Consolidated EBITDA for the quarter stood at INR 52.68 crores versus INR 144.55 crores in the previous year. The EBITDA margin for the quarter stood at 8.2% versus 17.7% in the previous quarter.

Consolidated EBIT for the quarter stood at INR 11.34 crores versus INR 104.41 crores in the previous year. The consolidated PBT for the quarter stood at a loss of INR 56.57 crores versus a profit of INR 63.34 crores in the previous year.

Finally, the consolidated PAT for the quarter stood at a loss of INR 33.89 crores versus a profit of INR 48.03 crores in the previous year.

Some comments on debt. The consolidated gross debt as of the 30 September '22 stood at INR 2,898 crores compared to INR 2,977 crores at the end of the previous quarter. The total term debt stood at INR 1,694 crores, and the total working capital debt stood at INR 1,204 crores.

The cash and cash equivalents stood at INR 125 crores as of 30 September. In addition, the total amount of unsold RoSCTL scripts stood at INR 150 crores as of the 30 September '22.

Consequently, the company's net debt outstanding as of 30 September stood at INR 2,773 crores compared to INR 2,797 crores at the end of the previous quarter.

With this, I would like to complete my update. We'll be happy to take on your questions now. I now hand over the call to our Managing Director, Mr. Shrikant Himatsingka.

[Operator]

Mr. Himatsingka, could you please unmute your audio, sir? May we open the line for questions now.

[Shrikant Himatsingka, executive]

Yes. Am I audible?

[Operator]

Yes, sir.

[Shrikant Himatsingka, executive]

Okay.

[Operator]

[Operator Instructions] Our first question is from the line of Umamaheswaran B S from Kotak Bank.

[Umamaheswaran B S, analyst]

Thanks for this call being managed. Just wanted to understand how was the segmental sales Terry Towel vis-a-vis bedding? How are these 2 segments shaping up? How has the performance of Terry Towel being in Q2 vis-a-vis...

[Shrikant Himatsingka, executive]

We don't share the revenue breakup between Bath and Bedding. As you know, the total revenue stream comprises of pretty much entirely on textiles. So it is some of our Bedding and Bath division. But to answer or put throw more light on your question in terms of how both the divisions are doing.

So as we've highlighted to stakeholders, the first half of this fiscal was going to be strained given the reasons that Mr. Rangaraj had cited, that was extreme levels of raw material inflation and energy inflation coinciding with an overbought inventory situation across global markets.

And so this combination obviously did not order well for the operating performance of the company during this time, which is something we were transparent about with stakeholders and our operating performance is in line with what we expected. But Other than the short-term challenges, the ramp-up of the Terry Towel division has been progressing well.

At the close of FY '22, the division had notched up over 70% utilization. Do keep in mind that this is a new unit of the group, and it was commissioned as recently as Q3 FY '20 and then subsequently, it last time during the post-COVID situation in terms of operations, but it saw one of the fastest ramp-ups in capacity utilization during the last fiscal. So I think as soon as some of these conditions to improve, which I estimate will progressively improve starting the second half of this fiscal, as we have outlined, and we should head towards normalcy post that.

We are confident and optimistic about our Terry Towel division and its contribution to the home textile industry. And as far as Sheeting is concerned, that's in our business portfolio that's part of our mix for a much longer time. And I see broad stability on that front that I see more growth probably coming from the [indiscernible] division in terms of trajectory going forward.

But overall, I think stability in shaping, resuming as we go along, progressively. And Terry Towel has seen a good ramp-up during FY '22. We're seeing the short-term challenges as we are opened. But with this progress in recovery I think that should get back as well.

[Operator]

[Operator Instructions] The next question is from the line of Roshan from B&K Securities.

[Roshan Nair, analyst]

Sir, in first half, we saw CapEx of around INR 38 million. So what should we see for FY '23 and FY '24? What CapEx are you planning to declare in FY '23 and '24?

[Shrikant Himatsingka, executive]

I'm not sure why you're getting this number of INR 38 million from. We'll be happy to discuss this offline. But Roshan, our CapEx outlays and view on CapEx is extremely clear as far as we are concerned. At this point, we are focused only on our organic CapEx cycle, which is typically INR 60 crores to INR 80 crores a year, and nothing more than that.

We are only focused in making sure that we head back to normalcy after these short-term headwinds that we have witnessed of late. And we are not on CapEx move at all. So our CapEx will be light. Our major CapEx cycle is over. And we will -- we are focused on sharing our assets and making sure that they deliver as we had set out to deliver. We are indeed running behind schedule on that front for reasons that I've outlined. But more certainly, our CapEx will be broadly contained in that vicinity. There could be some minor movements here and there, but nothing of major levels.

[Roshan Nair, analyst]

Okay. That helps. And on the debt front, do you have any plans to reduce debt as in some internal targets as such are?

[Shrikant Himatsingka, executive]

Yes, so gross debt corrected by about INR 100 crores from last quarter. And we are -- we have also made our stance on debt fairly clear, which is as soon as we have done dealing with the short-term headwind, which is making our deleveraging exercise run behind schedule. As soon as we see this progress and recovery come through, we should also continue to see the deleveraging exercise pan out because as I said, our major CapEx cycle is over, we will be sticking to our organic CapEx only and the rest of the accruals will be channeled towards debt reduction.

If there's something that is on our rate which is over and above this, we will let stakeholders know, but at this point, we are focused only on this.

[Operator]

Our next question is from the line of Vikram Suryavanshi from PhillipCapital.

[Vikram Suryavanshi, analyst]

Basically, I just wanted to opportunity or how is the situation of raw material import because we do import significant amount of raw materials. So how is our mix for cotton imports compared to past? And I guess there was a duty-free import allowed. How is the current situation? Is there any duty on that or update on that?

[Shrikant Himatsingka, executive]

Yes. So I'll divide the raw material sort of update in 2 buckets: domestic, imported. So on the domestic front, you may see cotton prices cool off with the arrival of the new crop. And of course, it's not started on the 1st October, but on a weighted average basis, it's coming down gradually, which is a good sign, and it's going to help the operating performance. International raw material prices have also softened or begun to soften over the last 45 days-or-so.

And the company continues to use imported cotton as well. So depending on the variety of cotton, the weighted average costs will be marginally different, but that has also started to cool off. So as we go forward, we should progressively see this benefit coming. As far as the duty is concerned, yes, there was a short holiday for the duty. However, the government has not made clear its stands on what the duty structure and quantum will be going forward. So one has to wait and see what they announce.

[Vikram Suryavanshi, analyst]

Okay. But is our import quantities around 50%-or-so or higher than that?

[Shrikant Himatsingka, executive]

No, on a total portfolio, it's probably lower than that.

[Vikram Suryavanshi, analyst]

Okay. And second, on your outlook on how the inventory level in USA are setting up going forward and how much time it will take to normalize, what are the industry expectations on that front? And second thing is on opening up of the opportunities with the FDA in Australia and how is the industry feedback on possibility of FTA with EU, any development on that front?

[Shrikant Himatsingka, executive]

I think we are progressively seeing the easing out of some of the initiatives that our global clients had undertaken on the inventory correction front. So it is not as intense. And some of them have concluded whatever they were set out to achieve, and they're slowly inching back to normal order cycles. So we should see progressive improvement on that front as far as the inventory easing initiatives were concerned. We feel that we will see the gradual easing off of that.

As far as the impact and positives coming in through initiatives being taken by India on the FTA front. Thematically, it is most definitely going to be an opportunity, not just in industrial but in various sectors of textiles. But at this point, the FTA with the U.K. is still pending. And what we've signed with certain other jurisdictions are not necessarily, at least the size of [material] is concerned. -- then it's thematically positive, but they are not going to be number swingers in the short term.

I think the U.K. will be a larger opportunity in size, even when it comes through. So that's how I see the FTA part play out. But I must comment here that there are other themes in favor of the industry in the India as far as in textiles is concerned and at least in our view. And those other themes increased in China Plus One theme that continues to sort of hang in there. And we feel that, that will continue to play out. And we will also see relative instability in other jurisdictions for various reasons, which could present opportunities for India in the short to medium term or long term going forward, including issues on inking jurisdictions like Pakistan and opportunities coming into India in that context. So the themes, the macroeconomic regulatory/policy driven/balancing driven themes are not limited just to FTAs, but also the market business.

I feel that the medium- to long-term perspective and prospects for our industry, undoubtedly remains strong, and we remain optimistic about the fundamentals in the medium to long term. The short-term headwinds have caused a little bit of a setback in terms of achieving some of the targets we have set out to achieve and so on. But that's something that's purely external in nature, and we will have to just rate it out. But I think the worst is behind us, and we should see progressive recovery going forward.

[Vikram Suryavanshi, analyst]

Okay. Got it. And last question from my side just to try to understand from your end. What we have seen is that with the ban on Xinjiang cotton, a lot of Chinese. Actually, cotton yarn is also getting to Indian market either directly or through Vietnam. And we have seen that impact on our domestic cotton yarn prices. So I just wanted to take though we are primarily in export market like USA and Europe and particularly for USA, you might be using the Indian cotton or imported cotton. But is that actually impacting the overall pricing situation in the cotton and cotton yarn.

So are the customers in the export market of taking it separately and ready to pay higher premium for our product or will they ask us to price products based on the overall market -- commodity market situation? So that I just wanted to understand from your end, how that is impacting the overall profitability or business for the exporters?

[Shrikant Himatsingka, executive]

Our own opinion and perspective on this is our global clients will most certainly benchmark yarn and cotton prices towards reasonable and what is considered average when compared to competing jurisdictions by these people. They won't give us a premium just because of some of our raw material inputs are not expensive than others. But I don't think that's ever happened in this industry.

And I don't think we, as a jurisdiction or as a company, are materially off on pricing either. There could be some minor variations in the ordinary cost. But I don't think we are materially off in most product categories. There could be a couple of exceptions in product categories where India is less competitive, but in the areas that we operate in and compete in I don't think there is material differences in raw material input perspective.

What could cause material differences in input prices, which is we have old contracts on certain varieties of cotton and they are continuing to be sort of used, then until such time that these old contracts last and the fact that they're higher than current marketplaces to that extent, we will be [worse off]. But I think that company-centric issue depending on which company has their contracts. Also in conclusion, I don't think that in our industry vis-a-vis what we operate in, our raw material prices are materially or significantly off from counterparts.

And the second conclusion is, to the best of our knowledge and in our opinion, our clients will not pay us the premium based on our input prices per se which are specific to us. They will be more sort of focused on global averages in the industry benchmarks.

What they didn't pay us as the premium cost is innovation, brands, services, which are more holistic or more integrated than others and specialized products and so on and so forth. So those are buckets that would attract premiums, not inherent cost structures.

[Operator]

Our next question is from the line of Krishna Kumar S from Lion Hill Capital.

[Krishna Kumar S, analyst]

Good evening, Mr Shrikant. I know times have been very tough. But just to understand, sir, from a market just to explain that things will get better from here. But particularly in terms of pricing, if you could give some more color, sir? Because right now, our gross margins are down to 50% from probably a much higher level, which probably means that we haven't been able to pass through the costs. You explained the previous participant being highly more brand-oriented player, is it -- should we expect in the near future that the price pass-through will happen and the margins is restored at a gross level, gross margin level? If you could give some perspectives of it in terms of how do you see the pricing playing out?

[Shrikant Himatsingka, executive]

Yes. Krishna, thanks for your question. So as I said earlier, look, the Himatsingka and the industry, in general, but I'm talking about Himatsingka. We've had extreme headwinds for 4 quarters now vis-a-vis raw material prices. It started in Q3 FY '22 in terms of really hitting our operating performance. It continued during Q4, and we have then spoken with stakeholders that we are likely to see this in the first half of FY '23 as well. And then in fact, it probably with greater intensity and that's what happened.

So now if you are looking into our gross margins, it's therefore [eaten] into our EBITDAs, and this recent inventory correction exercises has sort of exacerbated the impact of these events. But we have to take this in our stride. These are rare events and challenges the industry has faced. It's not something that the industry faces every couple of years. If you think, I have been operating in this space for over 15 years. It's the first time we seen it as extremely good.

But I'm looking forward, I feel that there is progressive recovery that's going to happen. The raw material prices have already begun to ease, they will come off the peak by approximately 30% on an absolute basis. On a weighted average basis, it will defer from company to company depending on how much they had of which variety. But prices have come off by 30% from peak. Supply chain disruptions that existed during the last 3, 4 quarters and as recently as a month or 2 ago have begun to ease.

We also hope that energy inflation will soon sort of ease off. And with this, our gross margins will start heading back to or progressively heading back to normal. So it might take a couple of quarters to get there. But I think -- I mean I won't hold you to this, it's difficult to predict in such volatile times as to how long it will exactly take. I'm not a future teller by any means. So our best guess is this is directionally what we see because if the prices are easing of raw material and some of these other, let's just say, areas then it will automatically lead to better gross margins, which is what we see.

[Krishna Kumar S, analyst]

Sir, would we have to pass through any benefit of raw material going forward? Like you mentioned, we can't pass through cost increases. So would we be able to keep the benefits of raw material cost reductions or would we have to share it with the...

[Shrikant Himatsingka, executive]

[indiscernible] in question. I mean, look, you will get to keep some. You'll have to give back some because clients will expect that, there is no doubt in the matter. But they also understand where the supply base -- suppliers stands and the inflation rate is. So I think it's going to be a give and take. But net-net, it should have a positive impact. And then there are other tailwinds including going forward, some currency tailwinds and things like that, which will help balance some inflation.

So I think all in all, we should progressively and I'm stressing on the word progressively head towards gross margin expansion and normals -- I mean reverting back to our operating performance levels as we had. And as I said, other than the inflation piece, this is also contingent on the demand in the ecosystem coming back to normalcy, which was disrupted in the short term for the reasons that were outlined.

And at least in most cases, I see that directionally happened. So this is what we see at this point. And therefore, we have to go through this short-term pain and then head back to our broader performance parameters, which we would normally have.

[Krishna Kumar S, analyst]

Yes. Sir, just on the logistics, ocean freight part. Generally, on our business, do we bear it or is it more on the client side? So would we benefit...

[Shrikant Himatsingka, executive]

Generally, in our business and in this industry, the ocean freight is borne by the client. But the disruptions in oceans -- I mean, generally, in our case and in this industry is borne by the client for the most part.

There could be certain transactions and/or contracts or understandings with clients, where the supplier is required to have inventory in their international warehouses in which case, some of -- in which case, to that extent, you would have to bear the expenditure on ocean. But as part of the overall portfolio, it's largely done by the clients. Inflation was witnessed not just in ocean freight, but even in inland freight, which has gone up significantly.

And the other challenges that came through because of supply chain disruptions, Krishna, because creating a lot of stir in terms of throughput, in terms of holding up production and so on because it feels we are running behind schedule.

One cannot endlessly store products on their shop floor. So these are challenges the industry faces vis-a-vis disruptions, but that began to ease out. Ocean freight costs have begun to come down, corrected by about 30%. And inland freight, it is still high. But I guess, at some point, we will see some easing out in that area as well.

[Operator]

[Operator Instructions] Our next question is from Prerna Jhunjhunwala from Elara Capital.

[Prerna Jhunjhunwala, analyst]

Sir, I just wanted to understand if there are any green shoots visible in the demand recovery today so that we can understand the gradual recovery that you're talking about. What kind of recovery we can expect over the next 6 months or 1 year? So just understand if you could give some instances or anything that you can help us to understand the liability of the issue or improvement in the scenario?

[Shrikant Himatsingka, executive]

Well, I think, Prerna, to be honest, we have seen recovery in certain buckets -- we are stronger than in certain other buckets. I cannot say whether that's an industry-centric phenomenon, or anything that centric phenomenon that I would choose to call it as [indiscernible] centric phenomenon for the simple reason that I don't know/cannot comment exactly what's going on with others. But -- so the utilization levels that we've called out in start of this call. So we see our utilization levels in our steel plant heading up -- heading back to north. So they are already, as we speak, across the 80% mark and heading towards 85%, 87%. Again, it may not be the weighted average for this particular quarter that we are now in, but it's headed in that direction. And I think it will go back to being a -- pretty much full.

As far as Terry Towel is concerned, we're also seeing a lot of positive traction under our marked portfolio. And it should head back over a 6-month period, if not in and around that period. It should head back to the levels that we saw in FY '22. And once we hit that level, we'll sort of plan to go beyond that. So utilization levels are running back to pre-drop, I would just call it pre-drop levels.

Please keep in mind, last year, we had record revenues of over INR 3,300 crores and utilization levels across our plants were healthy, and our Terry Towel plant was ramping up well. So Terry Towel is also headed back in that direction, and I think, a comfortable timeframe that you spoke about.

So both these buckets are headed back. Our Sheeting bucket is a little slower in these 2 buckets at this point, bedding bucket. So it's more stable at this point with some positive buyers. So we are working on that front. So I think 2 out of the 3 are headed back. This is what we have seen in the bedding front. We will keep stakeholders posted on how that's panning out over the next couple of months.

[Prerna Jhunjhunwala, analyst]

And sir, we've seen some challenge on the brand side also because our brand revenues were at around INR 400 crores against INR 570-odd run rate that we were having. And most of the known news that we read -- talk about that retail sales in the U.S. are not that impacted to a large extent, but there is an inventory glut in the retailers. Can you just help us understand how we should look at your brand portfolio going forward? And what is happening over there?

[Shrikant Himatsingka, executive]

I think with the coming -- or rather than maturing of our bedding portfolio -- sorry, our bath portfolio, which has added a significant number of clients to our roster and broad-based our client and market mix, I think it's safe to assume that maybe the percentage of revenues from brands will use out but that won't affect our model as such.

It will -- because it's just that the private label revenue streams are also expanding and maybe they're expanding at a faster pace than some of our branded revenue streams, simply because of the new capacities sort of come on board and so on. So our margin structure will not be necessarily impacted because of this change or this change in complexion going forward.

But I would, as an expectation, keep in mind that some of our branded revenues might ease out. And in fact, if there are some brands in Himatsingka's portfolio which we believe are underperforming or creating a drag on our operating performance and so on, Himatsingka will not hesitate to rationalize those parts of its portfolio because we're not in the business of collecting brands, we're in the business of leveraging brands to enhance our operating performance.

If they are not achieving that objective, then we will make sure that we balance it right. So I think going forward, our strength and the margin strength is not necessarily positively correlated to what our branded revenues are. As long as they are as integral and significant part of our portfolio, I think that in itself gives us an edge in the medium to long term. But I don't think that our sort of financial performance will be driven by the quantum of branded revenues alone.

[Prerna Jhunjhunwala, analyst]

Understood. Sir, just a follow-up on this question on your commentary only that is there -- do you think that the branded Home Textile portfolio with U.S. consumers are not finding -- they are okay with doing private labels and stuff and they're not really brands [indiscernible] as consumers. I mean that's the change that you are seeing in the U.S. consumer psyche?

[Shrikant Himatsingka, executive]

I can't make a generalization like that to our -- in our experience, they are very alike to brands, and they love brands. They see value in brands and so on. But that doesn't mean that every brand that one has in their portfolio is going to achieve that objective. So -- which is why I say that if the -- if we feel that there are brands that are dragging -- that are creating a drag on our operating performance because of the inherent cost structure of the brand, then we will most certainly make sure that we rationalize that part of our portfolio, even if it means that there is a slight reduction in branded revenue streams in favor of private label revenue streams.

As I said, we are an integrated player that design, develop, manufacture and distribute a suite of products -- textile products. As long as we have a reasonably strong portfolio of brands, as long as Himatsingka is at the forefront of traceability, as long as our renovation quotient is strong, I don't think movements in the percentage of our brands and the percentage of our total revenues will make much of business to our model.

And therefore -- yes, and I think it will also iron-out expectations because we're not a collector of brands, it's not our objective where 100% of our revenues comes from brands. That's not our objective. Our objective is to make sure that we have a good balance between brands and private label revenue streams. And that Himatsingka is driving the right amount of integration, the right amount of services for our clients and the right amount of solutions for our clients and making sure that our model delivers on being capital efficient, making sure that we're focused on our teams with deleveraging.

Some of these objectives have obviously not come through in recent times, Prerna, for factors that we've shared that are entirely external. It is -- I'm indeed running way behind schedule in terms of us delivering some of these things. But unfortunately, some of these events are not in our control.

So that's how I see this whole equation of brands in private labels going forward. The consumer will always have affinity for brands and branded propositions. But it's the supplier that has to be careful about which brands and how much? Because as I said, it's not necessary that every brand will drive home results.

[Prerna Jhunjhunwala, analyst]

Makes sense. Sir, this is quite enlighting and detailed response. Sir, the last question from my side is on inventory. Just wanted to understand the breakup of inventory in terms of finished goods and maybe WIP are in this quarter end? And...

[Shrikant Himatsingka, executive]

We'll have to take that offline, Prerna.

[Prerna Jhunjhunwala, analyst]

No problem, sir. And is there any write-down that we will have to take because of the price correction that has happened in cotton or input cost?

[Shrikant Himatsingka, executive]

I don't think there is any write-down. The price correction in cost will not surface in the form of a write-down. The price correction in cotton will surface in the form of lower gross margins and its anyway, what we are facing already that is the price is higher for cotton. But if the market prices have fallen and as I said, you have some old cotton, which is at a higher price, it will not come in the form of a write-down, it will come in the form of we having lower gross margins than we should.

[Prerna Jhunjhunwala, analyst]

Okay. And anything on the finished goods side that we will have take?

[Shrikant Himatsingka, executive]

As far as finished goods write-down, nothing to report as of now. As of now it's okay. We've reduced inventory by around INR 100 crores from June. It has come down. There's been some translation impact because of the dollar, failing which it could have been even lower, but it's come down. So we hope to bring it down a little further. But if the cycle goes back progressively up, we'll see how it pans out.But right now, we're working on rationalizing the prices.

[Operator]

Our next question is from the line of Mithun Aswath from Kivah Advisors.

[Mithun Aswath, analyst]

Yes, sir. Two, three questions. I just wanted to understand among the competitors are looking at India as a growth opportunity. I just wanted to understand what are your domestic sales? And any plan to kind of ramp that up as well? That was question one.

Question 2 was, what are your net debt levels currently, and what your cost of debt at the current juncture? And you do mention that the second half should be much better. Any target in terms of margins in the second half that you'd be targeting? And do you expect FY '24 likely to be more like FY '22 or is it too early to take that call?

[Shrikant Himatsingka, executive]

Okay. So there are 4, 5 questions in your bucket list. Let me address one by one. I'll address first question #3. I'm going to clarify, I didn't say that H2 will be much better, it could very well be, but what I did say is we will progressively improve operating performance as we go into H2, right, for the reasons that raw material prices are easing out, some of the supply chain congestion issues and challenges are easing out and the inventory correction initiatives which were undertaken by our global clients and customers seem to be coming to a close in some cases; the intensity is coming down in certain other cases. So -- these were the factors that we felt will guide progressive recovery going forward. So that's one point.

The second point is as far as the domestic market is concerned, it is undoubtedly an important growth opportunity. But I would like to add that it's an important growth opportunity, not in the short term necessarily, but in the medium to long term one cannot and should not ignore Indian jurisdiction.

Himatsingka's India plans and revenue streams are very low, which is not something that we're necessarily happy about. But at the same time, we are trying to plan out our India strategy, which is taking time because it's not a simple market in terms of growth. It's fragmented. It has challenges. And its the optics of the size of the market belies its underlying fragmented nature and challenges. So while it's an interesting opportunity and at some point, it will become substantive as well. At this point, we're trying to figure out how to make sure that we get our strategy right in India and not start another sort of exercise, which creates a drag on operating performance.

So as an opportunity, I resonate with your comments. But in terms of specific strategies as to how to see this opportunity there are challenges, which we're working on and trying to see how to create strategies where we don't create short-term drag of any consequence on our operating performance. We currently have 2 small brands operating in this jurisdiction, [indiscernible] of any consequence in terms of size.

As far as your India question is concerned, work in progress, taking its time. Honestly, we've been more preoccupied with fighting battles in the inflation front and other macroeconomic challenges that which we discussed. So once we settle those challenges, we will come back to addressing this opportunity of India. So that's all as far as India is concerned.

Sorry, what is your third point? So there was India, there was the second half, then you had one more question.

[Mithun Aswath, analyst]

On the net debt level currently? And what's your cost of debt?

[Shrikant Himatsingka, executive]

The cost of debt is probably under 10%, probably in the 8% to 9% region, which we'll take offline and we'll be happy to share with you. And the second point is net debt is INR [2,773] crores as outlined, but it excluding any unliquidated scripts, if you particularly liquidate the scripts, which is not technically sitting in cash and cash equivalents, but which is more or less of that. It should be probably coming down to 264 -- INR 2630 crores range. But technically, for the conventional definition where this outlined [indiscernible] the net debt level is [INR 2,773] crores.

And as far FY '24 is concerned, I think, yes, it's a good time frame to be headed back to where we should be. The benchmark of where we should be in terms of margins is definitely not FY '22 because FY '22 saw us we hit by inflation in the second half. Himatsingka led the industry and industry space in operating margins up until FY '19. When we were hit in '20 with COVID, so the second half has created a wash on our margin profile for that fiscal.

And then thereafter, there were some interruptions at the other post-COVID, so I think '24 should be good for us in terms of time frames, heading back to more solid operating performance. FY '22 H1, we were positioning ourselves to achieve EBITDAs over INR 600 crores with Terry still having to ramp up and with some inflation pressure.

But I think our assets are well sort of put together, they're world-class. Our capacities at our global scale, brands are strong. I think if the macroeconomic environment supports us as it normally does, but has been not. It's not been the case over the last year or so.

Our assets are poised to deliver EBITDA, I would say, new EBITDA margins should be even more -- as we've always shared with stakeholders, earlier, we used to say 20%, 22%, puts on a more cautious note given the global volatility, I would sort of a bit more in the region of 19%, 20% somewhere there.

And there is more revenues to the clocked than what we did in FY '22. So the remarks, I think that there is more revenue potential. And then with this margin profile, I would say that's what our assets should deliver a normal macroeconomic environment.

[Mithun Aswath, analyst]

Just one last question. In FY '22 despite a reasonably good performance, we were not able to bring down our debt. I just wanted to understand, are there some vagaries in the industry that prevented from bringing down...

[Shrikant Himatsingka, executive]

No, we had 2, 3 issues in FY '22. There was over INR 200 crores of unsold scripts -- I don't know, over INR 200 crores of unsold scripts, which normally wouldn't have piled up to that extent. But it piled up because the government of India were sorting out some procedural/regulatory issues with regard to the sale of scripts. So that caused some revenue capital expansion. That is one issue.

The second issue was inflation in working capital, which we witnessed during that time. The third issue was some of our other subsidy/incentives due from other stakeholders, including the states are behind schedule, which normally isn't the case. So all this put together created a situation where we couldn't bring down that as much as we should. We also had some additional working capital, which was because of buildup in inventories. So these were specifically the reason why we couldn't bring it down. We should have but we couldn't. And so that's the answer to your question vis-a-vis FY '22.

[Operator]

I would now like to hand over the conference to the management for closing comments.

[Shrikant Himatsingka, executive]

So ladies and gentlemen, thank you so much for taking your time this evening and joining us for this call. I do hope we thrown light and giving you satisfactory answers and responses to your queries. If you still have anything, you'd like to clarify and/or know more about get in touch, and we'll be more than happy to assist you with anything you need. Thank you again, and look forward to our next session. Thank you very much.

[Operator]

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