KPR Mill Ltd
NSE:KPRMILL

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Earnings Call Analysis

Q4-2024 Analysis
KPR Mill Ltd

K.P.R. Mill's Resilient Performance Amid Market Challenges

K.P.R. Mill reported stable revenue amid a challenging fiscal year 2023-2024, driven by fluctuations in cotton prices, lower apparel demand, and increased energy costs. Despite pressures, the company's integrated business model ensured profitability, with ongoing expansions enhancing future growth prospects. Margins for yarn fell to 10-12% from 17-18%, while garment margins remained steady at 22-24%. The company plans to complete its brownfield expansion by mid-year, potentially increasing capacity. The current order book stands at over INR 1,000 crores, with hopes that market conditions will improve in the second half【4:1†source】【4:6†source】【4:10†source】.

Navigating a Difficult Landscape

K.P.R. Mill Limited is operating in a challenging textile market, facing various pressures such as fluctuating cotton prices, increased energy costs, and heightened competition from international players, especially in countries like China. Over the past three years, the company's revenues grew from INR 4,800 crores to INR 6,000 crores, but the EBITDA has stagnated around INR 1,300 crores, and PAT is approximately INR 800 crores. The EBITDA margin, previously around 17-18%, has seen a decline to 10-12%, indicating significant margin pressure primarily in the yarn segment. This is attributed to reduced demand and increased competition【4:0†source】.

Current Demand Challenges

Presently, the demand for yarn and garments is lower than expected, exacerbated by the difficulties faced by smaller players in the garment industry. Order volumes have dropped, leading to reduced yarn prices and corresponding EBITDA drops. The company’s executives have indicated that an improvement in demand is critical, particularly in the garment sector. The current market challenges can be summarized as a 30-40% reduction in normal demand for raw materials【4:1†source】【4:4†source】.

Strategic Growth Initiatives

K.P.R. remains committed to enhancing its market position through strategic brownfield expansions, expected to complete within the first half of the current fiscal year. This expansion will add an additional capacity of 30 million garments, allowing the company to maintain production rates of approximately 40 million garments in the first half and increase to around 45 million in the second half【4:10†source】【4:14†source】. Additionally, the firm aims to capitalize on advantageous governmental agreements, such as the anticipated UK Free Trade Agreement, which could boost its export capabilities and market share【4:16†source】.

Balancing Margins and Revenue Projections

The garment margin is projected to stabilize between 22% to 24%, while the yarn segment is expected to maintain margins around 12%. Despite facing operational issues, K.P.R. believes in its integrated model's resilience, which has allowed them to remain profitable amidst wider market struggles【4:2†source】【4:8†source】. Going forward, the company anticipates garment realizations to remain around INR 170 per piece, unless external factors significantly alter material costs【4:18†source】.

Opportunities and Inventory Management

Current inventory levels include a stock of cotton expected to last approximately three months, enabling the firm to adjust to fluctuations in raw material prices. The ongoing management maintains a cautious but optimistic outlook, hoping that market conditions will improve, allowing K.P.R. to leverage its strengths, including a robust order book exceeding INR 1,000 crores【4:10†source】【4:15†source】.

Conclusion: Future Outlook

K.P.R. stands well-positioned to navigate its current challenges with a focus on strategic growth and operational efficiency. Management's emphasis on adapting to market conditions while expanding capacity reflects a proactive approach to secure its market presence. The company’s ability to weather the current difficulties could lead to improved performance as market demand rebounds and as they enhance their operational frameworks【4:5†source】【4:4†source】.

Earnings Call Transcript

Earnings Call Transcript
2024-Q4

from 0
Operator

Ladies and gentlemen, good day, and welcome to the K.P.R. Mill Limited Q4 FY '24 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited.

[Operator Instructions]

Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.

A
Archit Joshi
analyst

Thanks, Mia. Good evening, everyone. On behalf of B&K Securities, I welcome you all to the Q4 FY '24 Earnings Conference Call of K.P.R. Mill Limited. We have with us today Mr. P. Nataraj, Managing Director; Mr. P. Murugappan, Chief Financial Officer; and Mr. P. Kandaswamy, Company Secretary. Without further ado, I'd like to hand over the floor to Mr. P. Nataraj for his initial remarks, post which we can take questions from participants. Thank you, and over to you, sir.

P
P. Nataraj
executive

[Audio Gap] For the financial year 2023-2024. The financial year, '23, '24 was a challenging year for the textile industry as a whole. The fluctuation in cotton prices resulting in lower realization or beyond, reduced the demand from downstream apparel companies, increase in energy cost, piling up of inventories, severe competition from competing countries, et cetera were some of the contributing factors. However, embracing the challenges and opportunities, K.P.R. could achieve considerable revenue and profitability with the support of its integral strength. Aggressive competitiveness, the ability to meet the changing market trend and the supportive garment segment. Its expansion in vortex spinning, strengthening of renewable power resources through rooftop solar power plant and modernization of spinning division to improve quality and productivity further are expected to drive its growth level to the next stage. We are continuously monitoring the textile market conditions still beyond market is under continuous margin prefer and lower demand.

In general, garment orders and Tirupur market is lower compared to previous year, but K.P.R. has good orders on hand. The present brownfield expansion is expected to complete during the first half of the current year, we are waiting for the market to improve to plan for further expansion. We are seeing some improvement in the yarn market during the current year. K.P.R. with its unique strength is processed with requisite in growth sector and the ability to mobilize lever to expedite its expansion plan at any time. With these opening remarks, the floor is now open for a question and answers session. Thank you.

Operator

[Operator Instructions]

The first question is from the line of Rushabh from RBSA Investment Manager.

R
Rushabh G Shah
analyst

So regards to the African operations, we have had a bitter experience in the past. But recently, we have seen that a couple of entities, including an Indian company, they have acquired manufacturing setups in Kenya and Ethiopia. So how is the situation now in terms of feasibility of doing business there? Is it same or is it better, sir?

P
P. Nataraj
executive

We have set up the manufacturing facility in Ethiopia, where in the particular region, there were some issues, so we have not proposed to go for further business opportunities in Africa right now. You maybe seeing it in the later.

R
Rushabh G Shah
analyst

But in terms of doing business there, is it feasible now? Or is it committed a problem that you're seeing?

P
P. Nataraj
executive

Ethiopia is not feasible, because [indiscernible] both Europe and the U.S. has withdrawn the tax when we agreed to extend it to Ethiopia.

R
Rushabh G Shah
analyst

So what about Kenya or other African countries? Are we open to doing some business there in terms of -- some of our big customers say so, or we are looking at only Indian expansion going on.

P
P. Nataraj
executive

Now we are looking at Indian expansions only, not looking at the overseas expansion.

R
Rushabh G Shah
analyst

Okay. So any new customers we added in this quarter?

P
P. Nataraj
executive

Yes. We are -- we have added a few customers in the U.S. in a smaller way, like Big B BBB is one of the subsidiary of [indiscernible] and all we have added. Some of the new customers also in pipeline we expect it to come.

Operator

The next question is from the line of Deepak from Sundaram Mutual Fund.

U
Unknown Analyst

I have a couple of questions. My first question is, since the past couple of months, there are talks about U.K. FTA. Now my question is, is FTA does comes through, what could be your addressable market opportunity in terms of dollar-rupee term for cotton-based basic knitwear apparel. And are we seeing increased inquiry from existing clients such as Primark or Marks & Spencer or prospective new clients in this regard?

P
P. Nataraj
executive

Presently, the market is more or less stable, not much of new inquiries are coming. The existing buyers are continuously placing the order and they're taking goods. The other portion is comparatively better than the previous period. We are having an order of close to 1,000 plus kind of order INR 1,000 crores plus kind of order position. If U.K. FTA happens, it will be rather advantageous for K.P.R. because we are already in Europe in a big way. It will help us to increase the market share.

U
Unknown Analyst

Okay. And sir, according to what could be the TAM or addressable market, which you are seeing for that cotton-based basic knitwear if that comes through?

P
P. Nataraj
executive

It's only the U.K. The deal is going to happen in the U.K. only. The addressable market would be U.K. only. Then we feel it may increase by another 5%, 10%.

U
Unknown Analyst

Okay. And so moving to second question sir, I have seen that whatever EBITDA margin you have shared in the past couple of years, if I calculate your EBITDA on per piece basis, it has jumped from INR 30-odd to, let's say, INR 40-odd presumably in FY '24. I want to understand, sir, what has caused this delta of EBITDA per piece to move from INR 30 to INR 40. And is it sustainable? Or will it move back to pre-COVID levels?

P
P. Nataraj
executive

So it is sustainable regards because we have increased the value addition in this segment. We already explained to you like we have introduced full body printing, [indiscernible] printing, garment printing, embroideries and other things in the recent past 2, 3 years' time. So slowly, the value additions are increasing in the garment. Even though it's a basic garment, we are adding some value addition then it is resulted in increased margins in the garment segment.

U
Unknown Analyst

Okay. So then it has nothing to do with power consumption cost reduction or gross profit per piece increase. It has everything to do with only value addition?

P
P. Nataraj
executive

Yes, everything to do with value addition.

U
Unknown Analyst

Okay. Sir, one last question from my end. Sir, what was our total units generated in Cogen for FY '24? And how much was it used for captively consumption in million units?

P
P. Nataraj
executive

We have produced somewhere around 11 crores units both the wind power and the solar and entirely captively consumed.

U
Unknown Analyst

Okay. So I'm asking specifically for Cogen?

P
P. Nataraj
executive

Sorry, Cogen, we have produced to somewhere around 32 crore unit. It's unit consumption will be somewhere around 12 crores units for sugar production only, not for the [ fixed provision balance ] is sold in the market.

U
Unknown Analyst

Sir, 32 was full, and I could not hear the captive one.

P
P. Nataraj
executive

32 crores units out of reach 12 crore units consumed in-house.

Operator

The next question is from the line of Awanish Chandra from SMIFS.

A
Awanish Chandra
analyst

Congratulation management team on a good set of performance. Sir, my first question is related to garment. So we had 40 million piece production. So can we maintain this run rate? And my related question is the CapEx you announced for 30 million additional capacity. So will that come into the picture in FY '25, and we will be able to maintain this run rate.

P
P. Nataraj
executive

Yes, yes, we can maintain this run rate. And we hope that the brownfield expansion is expected to complete in the first half of the year. So second half, we hope it will increase.

A
Awanish Chandra
analyst

Okay. So after -- in the first half, we will have that 30 million additional capacity and we can maintain this run rate.

P
P. Nataraj
executive

Yes.

A
Awanish Chandra
analyst

This year, we had more million of pieces than the rated capacity. So how much outsourcing we have done or how did we manage this number?

P
P. Nataraj
executive

So brownfield expansion is going on. It is like, it is not a new expansion. Now, in brownfield, we are adding machines because of the production is a little higher.

A
Awanish Chandra
analyst

Okay. And sir, fabric number in rupees and 1 million tons per quarter?

P
P. Nataraj
executive

Yes. For the quarter, we have produced about 22,000 tons of fabric. 2,285 tons of fabric and the value of about INR 56 crores.

A
Awanish Chandra
analyst

Okay, value of INR 56 crores. And sir, whatever we sell outside, everything is processed fabric. We don't sell anything gray fabric.

P
P. Nataraj
executive

No, we sell only grey. We don't sell only fabric -- processed fabric.

A
Awanish Chandra
analyst

Okay. So outside sales is grey fabric and captives is processed one.

P
P. Nataraj
executive

Yes. For our own consumption, we process.

A
Awanish Chandra
analyst

Okay. And sir, last question. Sir, any other CapEx we have -- we are planning in ethanol or sugar segment or anything on the garment different segment?

P
P. Nataraj
executive

Right now, we are not planning for any expansion as it is. We will inform a lot of extended programs around now in discussion, we will inform you as and when it gets finalized.

Operator

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

R
Rajesh Kothari
analyst

A few questions from my side. One, how do you see the overall demand environment from the garment division perspective, if you can give the country-wise Europe, North America, Australia, in terms of the inventory destocking, is it over? And how is the likely season currently what do you see?

P
P. Nataraj
executive

We are carrying inventory of about a 1-month stock. And presently, the geographical sales is, Europe around [ 50% ]. U.S. is about to 20%, Australia is about 15%.

R
Rajesh Kothari
analyst

Yes, correct. I'm not asking the sales, as I'm saying, how do you see the each market in terms of the demand outlook for this...

P
P. Nataraj
executive

Stable. Target is Stable. Whatever expansion we are doing in brownfield, we hope that it will be met with the demand.

R
Rajesh Kothari
analyst

I mean are you seeing that basically in the first 6 months itself, you were able to run at optimal utilization?

P
P. Nataraj
executive

For 6 months, we take to complete the project. We booked in the second half of the year, we will run it at optimal.

R
Rajesh Kothari
analyst

Okay. And typically, the optimal utilization generally in the first 6 months, typically, how much one should assume?

P
P. Nataraj
executive

First 6 months, somewhere around the same model as we have done this quarter somewhere around 40 million garments.

R
Rajesh Kothari
analyst

No, no, no. I'm saying, once your expansion project starts, say, for example, from September, am I right? For the...

P
P. Nataraj
executive

We expect it to complete by September. So from the second half of -- not exactly. From the second half of the year, we quote that the production will come from the new brownfield expansion.

R
Rajesh Kothari
analyst

Correct. So my question is, during October to March, how much do you think you are likely to produce from this new capacity?

P
P. Nataraj
executive

Hopefully, somewhere around 45 million garments per quarter.

R
Rajesh Kothari
analyst

40 million garments per quarter?

P
P. Nataraj
executive

45 million garments per quarter.

R
Rajesh Kothari
analyst

Okay. So basically, what we are seeing is. So from 38 right now, your average is around 30, if I am not wrong, correct? From 38 you expect it to go up to 45? 40 to 45, something like that.

P
P. Nataraj
executive

Yes.

R
Rajesh Kothari
analyst

So in first half before this starts, do you expect 40-some million and then 45 in the second half, that's how you are seeing it?

P
P. Nataraj
executive

Yes, first half is somewhere around 40 million, and the second half expected to be somewhere around 45 million.

R
Rajesh Kothari
analyst

Okay. And in terms of the overall realization per garment, do you see the new capacity, is it going for more value-added segment? Or do you think the realizing likely to product mix [indiscernible] the same?

P
P. Nataraj
executive

Remain the same.

R
Rajesh Kothari
analyst

Okay. Okay. Understood. And in terms of the raw material prices and margin, how do you see that? Are you getting any inventory right now from that perspective, yarn as well as fabric as well as your key raw materials?

P
P. Nataraj
executive

Inventory stock, you are asking for?

R
Rajesh Kothari
analyst

Yes, yes.

P
P. Nataraj
executive

And we have a cotton stock of about 3 months. Yarn, on average, it's market-driven. We are having a stock of about 10 to 15 days.

R
Rajesh Kothari
analyst

Understood. Cotton inventory, you have about 3 months?

P
P. Nataraj
executive

Three months, yes.

R
Rajesh Kothari
analyst

And are you seeing any significant increase in freight cost? Or is it broadly manageable.

P
P. Nataraj
executive

Broadly manageable.

R
Rajesh Kothari
analyst

Okay. And in terms of the competition, how do you see the competitive environment? Are you seeing a very tough environment? Or is it by and large -- how do you treat the competition right now globally?

P
P. Nataraj
executive

Globally, competition is tight only on the Asian countries like Vietnam, Bangladesh, China and all competing rigorously. So it is same only.

R
Rajesh Kothari
analyst

I see.

Operator

Sorry to interrupt you, sir. I request you to come back for a follow-up question.

R
Rajesh Kothari
analyst

Okay. This is just last question. So I'm seeing further significant improvement from second half. Maybe this kind of a demand is already tied up with the customer, this kind of supply of the new capacity?

P
P. Nataraj
executive

No, no we won't tied up in advance. We will do it in the course of the business.

Operator

The next question is from the line of Aman Agrawal from Carnelian Capital.

A
Aman Agrawal
analyst

Just wanted to get an idea on the EBITDA margin for yarn and garment segment for this quarter.

P
P. Nataraj
executive

Yarn is about 12%. Garment is about 24%.

A
Aman Agrawal
analyst

If you can explain the decline in margins like yarn, if I'm not wrong, was 15% in last quarter, right? And garment was 27% so what is the reason for the decline?

P
P. Nataraj
executive

Being the seasoned there is a little fluctuation in the cotton prices.

A
Aman Agrawal
analyst

The treatment of cotton stock, we are carrying, like would be the cost of that like, which we are carrying on [indiscernible].

P
P. Nataraj
executive

We cannot disclose the prices on whatever is the cost of material [indiscernible] approximate number only we can tell.

A
Aman Agrawal
analyst

Sir, any reason for the decline in garment market. Is it also like the cotton prices or was there any other factor.

P
P. Nataraj
executive

They are basically the inventory cost.

A
Aman Agrawal
analyst

Sir, we had announced a CapEx for processing facility, which we are expecting to finish in 1, 1.5 years. So how is that progressing in terms of getting government approvals and like when can we have that processing facility available, which will be, obviously, for our future growth, not for the current, but like for the future growth.

P
P. Nataraj
executive

Yes, it is in progress. We hope that it will be completed as per the plan.

A
Aman Agrawal
analyst

By when, do we expect that to complete?

P
P. Nataraj
executive

I expect it to be first half of 2025, '26.

A
Aman Agrawal
analyst

Sir, are we seeing any impact due to the Red Sea issue or like that is behind us like if you can talk about? Are we seeing any impact of the Red Sea issue like in terms of availability of containers for exports? So just wanted to get an idea on that.

P
P. Nataraj
executive

Not much of an impact, sir. Not much of the impact and the business is as usual.

Operator

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

V
Vikas Jain
analyst

Sir, firstly, if you could comment the 40 million pieces of garment that we did. How much was the share of essentials or pollen garments?

P
P. Nataraj
executive

So it's more or less completely essential. We are into that segment only.

V
Vikas Jain
analyst

So ideally, is it like -- is there any dramatic change in the product mix between -- on a year-on-year or on a sequential basis between last quarter and this quarter?

P
P. Nataraj
executive

No, sir, more or less the same.

V
Vikas Jain
analyst

More or less the same. Okay. Okay. And sir, in terms of garment margins, of course, in lower scenario, which is, say, 26%, 27% margins as well. But on a steady state basis, 24% is something that we should.

P
P. Nataraj
executive

It's 22% to 24% as far as we can take it as a steady margin.

V
Vikas Jain
analyst

Okay. Okay. And sir, if you could take -- give a difference between the revenue of sugar and ethanol and the margins there as well?

P
P. Nataraj
executive

Yes, sure, the Sugar division, I suppose the margin is about 28%. Sugar revenue, INR 225 crores.

V
Vikas Jain
analyst

Sorry sir, could you repeat it?

P
P. Nataraj
executive

Sugar revenue is about INR 73 crores for the quarter. The ethanol is about INR 150 crores.

V
Vikas Jain
analyst

Okay. And the margins for both the segments individually?

P
P. Nataraj
executive

Individually we do not have, but competitive margin is about 28%.

V
Vikas Jain
analyst

And sir, just one small request. If you could share these operational details, along with the presentation, I believe that could be much better for the investor side. Just a small request from my side.

P
P. Nataraj
executive

Yes. Actually, it will come in the balance sheet detailing. Maybe in 10, 15 days' time, we'll be publishing it. Anyway, we will discuss with our team and let you know.

Operator

The next question is from the line of Yash from ithought PMS.

Y
Yash Tanna
analyst

If you could firstly repeat the CapEx plan, my line got disconnected. And secondly, I believe a few of the peers are looking at a little slightly more aggressive CapEx in terms of garment expansion. So wanted to understand what is our strategy over the next 2 to 3 years, probably of our existing capacity? What sort capacity are we planning to put up. Yes, that's the first question.

P
P. Nataraj
executive

We propose to investing in the textile segment only right now. And we are waiting for the market to improve basically in the yarn segment is still carrying a margin pressure and yarn segment having a margin pressure means in the garment business has to improve, then only the margin will improve.

So the garment industry, especially the knitwear industry is still having order issues. So the market situation is not very comfortable. So we hope that the things will improve in the coming half of the year, then we will degrade the further CapEx in the textile business. By the time we are doing the brownfield expansion, it will continue. It will be completed sometime in the first half of this year, and it will start giving revenue in first half of the year. Other expansions, we have not debated it.

Y
Yash Tanna
analyst

Okay, sir. So brownfield is 30 million, right? if I'm not wrong?

P
P. Nataraj
executive

Yes.

Operator

The next question is from the line of Ahmed Madha from Unifi Capital.

A
Ahmed Madha
analyst

Just I wanted to understand the garment number a little better for the Q4. If I look in the Q4 volume data, it is roughly 41 million pieces. So how we have been able to do this much volume considering our capacity, I think annual near 150 million. So I'm not able to understand how the volume number is so high? Is it -- did we have any some inventory? Or what is the...

P
P. Nataraj
executive

The same volume is a little fair because we have some of the inventories have got liquidated during this quarter. Actual production volume is about 40 million and sales volume is about 49 million.

A
Ahmed Madha
analyst

Okay. Okay. And we should be able to sustain 40 million in the next year first half?

P
P. Nataraj
executive

Yes, right.

A
Ahmed Madha
analyst

Okay. And regarding the realization decline about 20% realization decline compared to Q2. So is it just a function of cost cotton price? Or is it a function of any value mix change?

P
P. Nataraj
executive

More of the cotton price.

A
Ahmed Madha
analyst

Okay. Okay. And on the sugar business, I think we had a couple of weak quarters for Q3 and Q4. So I think is it fair to assume that in the next couple of quarters. So that this sugar season, 2023, '24, it will be this and then from next season onwards, which will pick up. How should we think about the sugar business.

P
P. Nataraj
executive

This is offseason for sugar for the first half of the year will be a little less and the second half being seasoned, it will be a little higher. Overall, we have achieved somewhere around 28% for the year. We hope that the things will be good for the coming year also.

A
Ahmed Madha
analyst

But sir, I'm not able to understand that sugar volume peaks. Why are the volumes down for there? I understand you cannot utilize full capacity, but volumes should be good. What am I missing?

P
P. Nataraj
executive

Yes, yes. Sir you're right. But what happened is sugar, when we produce more sugar, we have to wait for the government getting started for selling, that way the volume is a little less.

A
Ahmed Madha
analyst

So how much inventory we are taking on as of now?

P
P. Nataraj
executive

We have inventory of close to about 150,000 tons.

A
Ahmed Madha
analyst

So do you expect that based on your inventory quota as of Q4 and you'll get some volume quota for the next couple of quarters?

P
P. Nataraj
executive

For 2 quarters, we will get the reserves.

Operator

The next question is from the line of Mulesh Savla from Shah & Savla LLP?

M
Mulesh Savla
analyst

Can you hear me?

P
P. Nataraj
executive

Yes, yes, yes, sir.

M
Mulesh Savla
analyst

Sir, can you throw a little more light on the FASO activity, FASO business because how it is doing and what steps are we taking to increase the visibility and all those things?

P
P. Nataraj
executive

In the marketing side, we are taking the next level of advertisement and the sales promotion activities in South India. It is going under -- we hope that it will be increasing the volume and the value also. The theater and the advisement in the newspapers and the handouts and the in-store advisements those things are all going on. We hope that it will give a good result in the coming period.

M
Mulesh Savla
analyst

By and large, are we now pan-India? Or still we have restricted our marketing efforts towards South.

P
P. Nataraj
executive

South India only.

M
Mulesh Savla
analyst

Okay. And can you share the top line and EBITDA margin on that particular division?

P
P. Nataraj
executive

It's not meaningful compared to the volume, whatever we have, but it is close to the top line, and I can tell you, it is somewhere around 25 crores now.

M
Mulesh Savla
analyst

For the quarter or for the year?

P
P. Nataraj
executive

For the year.

M
Mulesh Savla
analyst

So I think we need to push this up.

Operator

[Operator Instructions] The next question is from the line of Biplab Debbarma from Antique Stockbroking.

B
Biplab Debbarma
analyst

My first question is on the garment expansion. So has the situation improved in Europe or Germany, for you to consider greenfield expansion environment or the situation is still the same as we [indiscernible].

P
P. Nataraj
executive

So the situation is still green. Now the board in Europe and especially Germany and [indiscernible] problems, especially higher inflation and lower demand and other things. We hope that the things will improve. It is because of the world order. We hope that things will improve in the coming period.

B
Biplab Debbarma
analyst

Okay. That's good. And the second question is on your sugar and ethanol production. If normal crushing we need this year, there is a normal crushing season. What is your estimate of sugar production and ethanol production in the financial year if everything remains normal?

P
P. Nataraj
executive

First half of this year, if you want me to tell you the season, it is expected to be normal. But because of this drought situation in Karnataka and Maharashtra, government asked us to produce more sugar during this season. So the sugar production is higher than the ethanol production, and we expect it to be higher only in the sugar side. So ethanol production will be less. But in the coming season, hopefully, the things will be normal.

B
Biplab Debbarma
analyst

So that's what in FY '25, what do you think would be ballpark sugar production and ballpark ethanol production?

P
P. Nataraj
executive

We expect to be somewhere around the 2 lakh tons of sugar, it is about the 67 crore liters of ethanol.

Operator

The next question is from the light of Aditya Surana from AMSEC.

A
Aditya Surana
analyst

I just wanted to know about the volume and revenue split between yarn and fabric?

P
P. Nataraj
executive

Yes. Volume, yarn 19,000 tons, fabric 2,000 tons. Value for yarn is INR 496 crores, fabric INR 56 crores.

A
Aditya Surana
analyst

Okay. And what is the production number of sugar and ethanol in FY '24?

P
P. Nataraj
executive

Sugar production in '24 in 1,76,000 tons sugar, 9 crores liters of ethanol.

A
Aditya Surana
analyst

Sorry, for ethanol?

P
P. Nataraj
executive

9 crores liters of ethanol.

Operator

The next question is from the line of Vineeth lambu from HSBC PMS.

V
Vineeth lambu
analyst

Yes. So looking for FY '24 average realization for garment is around INR 170. So this would be -- for the FY '25, this will be the run rate? Or would you expect it to improve?

P
P. Nataraj
executive

Basic prices are more or less the same when if the cotton prices fluctuates, it will may vary a little. Otherwise, we expect it to be the same line.

V
Vineeth lambu
analyst

So we are expecting it to be around INR 170.

P
P. Nataraj
executive

Yes, around INR 170.

Operator

The next question is from the line of Lokesh Manik from Vallum Capital.

L
Lokesh Manik
analyst

Sir. Sir, my question is on the U.K. FTA. So just to understand if India goes through with the U.K. FTA, does this give you access to the European markets in terms of we have to go directly through to you FTA. So would you be able to service European markets though the U.K. FTA route with the brands that we are associated with other customers that you are serving.

P
P. Nataraj
executive

We have to see the final form of the FTA, then only we can comment about it.

L
Lokesh Manik
analyst

But would there be any intercountry duties between U.K. and the U.S. [indiscernible] if it is supply for...

P
P. Nataraj
executive

[indiscernible].

Operator

The next question is from the line of Amruta Sane from Wealth Managers India Private Limited.

A
Amruta Deherkar
analyst

So I have 2 questions. First is regarding the garment capacities. As in right now, we have 157 million garment capacity, which we are increasing to 170 million garment capacity, right?

P
P. Nataraj
executive

177, correct.

A
Amruta Deherkar
analyst

So after this, do we have any scope for any further brownfield expansion? Or will we have to do greenfield expansion there?

P
P. Nataraj
executive

More or less, the brownfield expansion will be completed. Then we're going to be the new capacity only.

A
Amruta Deherkar
analyst

My second question is regarding the ethanol and the sugar segment. As in the ethanol sales are right for FY '24 are around 51% of the total sugar segment. And we see that the margins also have increased in the Sugar segment to say, 24%. So FY '25, '26, do we expect the ethanol to continue to remain higher as in the proportion to sales similar percentage.

P
P. Nataraj
executive

Ethanol will be higher only. But in the coming year, the sugar sales will be a little higher than the ethanol sales.

A
Amruta Deherkar
analyst

Okay. So the margins might go back to the previous average?

P
P. Nataraj
executive

So there will be some impact, but not to the previous level.

A
Amruta Deherkar
analyst

Okay. And last question, what is the order book that we have currently?

P
P. Nataraj
executive

Around INR 1,000 crores plus kind of order book.

A
Amruta Deherkar
analyst

Sorry?

P
P. Nataraj
executive

More than INR 1,000 crores order book.

Operator

The next question is from the line of Sunil Shah from SRE PMS.

S
Sunil Shah
analyst

Sir, K.P.R. has been one of our portfolio companies for more than 10 years. Sir, just if I observe the way in which we have grown from just pure yarn to fabric and then to value added garments. But in the last 3 years, our EBITDA has been in that range of INR 1,300 crores mark and PAT has been in the range of about INR 800 crores mark. Now top line has grown from INR 4,800 crores to INR 6,000 crores, et cetera, but our EBITDA margins have come down. So I want to understand, is there any structural issue which is causing this kind of thing because 3 years in a row, we have not seen EBITDA consolidate or PAT consolidate. Now Europe is a challenge where about 60% of our revenue or exports are coming through China. U.S. is about 20%.

So I want to understand, is there anything from the demand side? Or is there anything from extra new competition? Why are we consolidating at these levels? If you could explain this or make me understand this much better.

P
P. Nataraj
executive

Basically, if you look at the textile industry as a whole. In 2022, 2023, and 2023, 2024 is facing a margin pressure in all sense. Especially yarn is facing a tough scenario. And margins used to be somewhere around 17%, 18%. Now it is somewhere around 10%, 12%. So the margin pressure is on the yarn front and the cotton reduction in the EBITDA percentage, and we were able to pull it down because so if you look at the spinning companies, they are having a very tough time. Because of our integral strength and the fully integrated business model, we were able to maintain the profitability, even though in the tough times.

Otherwise, the margin pressure is there in every equipment because the yarn -- from yarn to garment, every stage we have a margin pressure because of the integration and the unique manufacturing setups, we were able to fully turn up. If the market is turned back, the things will improve substantially.

S
Sunil Shah
analyst

Okay. So we are seeing some challenges on the demand side. That's the reason why we are seeing this consolidation and what is it that is going to change going forward?

P
P. Nataraj
executive

Basically, the yarn demand need to be improved from the present level to next level. And the garment demand also has to improve because we are being the large player, we were able to get orders and to produce more number of garments. But the small garment players are facing problems. If you look at [ RM ] position, sir, more or less 30%, 40% lesser than the normal. So the demand for yarn has come down substantially that resulted in the lower margins in EBITDA for the yarn business. So those things need to be improved.

The strategic near Tirupur is being knitwear cluster of India, the market should improve, then only the yarn prices will improve. The other business also will start improving like fabric sales [indiscernible] and other things will improve. So overall market sentiments will improve.

S
Sunil Shah
analyst

So my one more point is that if we see this kind of prolonged demand challenges, could we see many players winding up and moving out of the business and then a few successful strong integrated players will have better opportunity is that a reasonable assumption?

P
P. Nataraj
executive

Would be possible, sir, but it's not entirely correct because in the spinning industry people investing a lot of money, So they can withhold them for some time.

S
Sunil Shah
analyst

Okay. Globally, China is causing any challenge for us in terms of providing these products to the European and the U.S. market.

P
P. Nataraj
executive

China is coming as a competitor for yarn and fabric, they are selling it at a discounted prices in the market that causes the yarn margins and the fabric margins.

Operator

[Operator Instructions] The next question is from the line of Biplab Debbarma from Antique Stockbroking.

B
Biplab Debbarma
analyst

Sir, the margin pressure that you are seeing, is it because of the competition or because the overall demand from our export country is muted. And I'm just trying to understand what is causing this margin pressure.

P
P. Nataraj
executive

It is basically because of the lesser demand from the garment manufacturers because yarn needs to be sold to the [indiscernible] and the users garment manufacturers where the [indiscernible] orders are very low, so the demand is not there because there's a lot of -- too many suppliers in the market for us now comparatively lesser buyers.

B
Biplab Debbarma
analyst

That I understood. So the demand for garment, is it lesser in Vietnam because of the competition from that Bangladesh and other Vietnam or because of the overall demand, overall buy from Europe has shrunk.

P
P. Nataraj
executive

Overall demand from Europe is getting affected because of this war.

B
Biplab Debbarma
analyst

So these things may improve as the situation in Europe improve?

P
P. Nataraj
executive

It is slowly improving.

B
Biplab Debbarma
analyst

Okay. Okay. So the things would be back to normal.

P
P. Nataraj
executive

Back to normal, yes, 24%.

Operator

[Operator Instructions]

The next question is from the line of Anush Kumar from Spark Asia Impact Managers.

U
Unknown Analyst

Sir, this is Anush. So I had a question, and my question is on FASO. So what is your aspirational targets like 3 to 5 years down the line, what would be the contribution from FASO to the top line? And this is a different business to your existing core textile, which is more of a B2C business, and that would be cash burn. So with respect to addition store addition as well as the employee cost. So what is your target in terms of on both top line and bottom line with respect to FASO?

P
P. Nataraj
executive

So we have a target of about INR 100 crores in 3 years' time. And the stores are not [indiscernible]. Now, We are operating on dealer model.

Operator

The next question is from the line of Pratik Kothari from Unique PMS.

P
Pratik Kothari
analyst

My first question on we are generating quite some INR 600 crores, INR 700 crores of cash every year in our CapEx plans, at least in the near term doesn't seem to be so high? I mean, yes, we have increased dividend, but any plans for buyback or any -- are you thinking -- what are you thinking about the further capital allocation from here?

P
P. Nataraj
executive

Just we are seeing the opportunity, if we get some opportunities, we will be utilizing it. Otherwise, we'll decide the further course of action.

P
Pratik Kothari
analyst

Because even to put up a greenfield, I mean, like we did last year, last time, greenfield government capacity does not require so much CapEx. So unless we are putting that money in sugar, we might not require such large CapEx.

P
P. Nataraj
executive

That's what I'm telling you. We are just waiting for some opportunity because business, we need to invest because it can generate a lot of money. So we are just waiting for some opportunity in the first half. We will decide what to do.

P
Pratik Kothari
analyst

Opportunities on the sugar side or textile garment?

P
P. Nataraj
executive

Basically, in the textile, in case any opportunity comes in the other segments also, we will look at it.

P
Pratik Kothari
analyst

Fair enough. And sir, I mean, yes, the realizations on garment are lower, but volume-wise, we have grown quite well this year. I mean, from 128 million to 150-odd, this is despite U.S., Europe not lifting as much volume as they used to do a year back or the demand they're not being as good. So what is driving this growth for us? Is it just new customers? Or are we replacing someone different, if you can just talk about how are we outperforming the end market in this year.

P
P. Nataraj
executive

Being a large player in this segment, the [indiscernible] in the garment segment, we were able to compete with the others because others are having some issues in a stand-alone garment units, they have to buy everything from outside. The margin is comparatively lower. So the [indiscernible] is also the big players wanted to place with the large manufacturers so that the delivery time and the price competitiveness also will be good. That's why we are able to perform well. We are expecting that we will continue to perform.

Operator

[Operator Instructions] The next follow-up question is from the line of Vikas Jain from Equirus Securities.

V
Vikas Jain
analyst

Sir, one question from my side. Given the fact that our cotton prices remain stable at current levels, garment realizations for the next year will largely remain at the same pace? Or are there any value additions that we're doing in our overall offerings?

P
P. Nataraj
executive

We've already done all the value additions we proposed. So expected to be around this level only.

Operator

The next question is from the line of [ Dipen Shah ] our Individual Investor.

U
Unknown Attendee

I had one question on the cotton side, sir. Could you just give us some more insights on how are the cotton prices currently in respect to the international prices, we are listening and hearing or maybe reading reports that international cotton prices have started coming down significantly. So what impact could it have on our cotton procurement and what are our plans maybe over the next 2, 3 quarters, sir?

P
P. Nataraj
executive

Actually, the garment being agricultural commodity and the seasonal, and the new season will start from October. Already, the mills would have purchased for this quarter. And the next quarter, they may be purchasing it. The prices of international, international cotton prices are lesser by about 3%, 4% than the Indian prices. So the import -- where we import the medium staple cottons from overseas, it costs about 5% more, 5.5% more because of the duty. So more or less, the prices are in line with the Indian prices. We don't see much of a traction in that.

U
Unknown Attendee

Okay. So on an average, for the current year, our cotton cost should be similar to the last year, around that much only?

P
P. Nataraj
executive

The first half instead of full year we cannot predict, the first half expected to be the same.

U
Unknown Attendee

Okay. It's expected to be the same.

Operator

[Operator Instructions] The next question is from the line of Deepak from Sundaram Mutual Fund.

U
Unknown Analyst

Sir, just a follow-up question on garment. Sir, could you please share what was the revenue from just the garment product sales and the incentives which we clock for FY '24?

P
P. Nataraj
executive

Incentives is somewhere around 7% and [ garment sales ] is around INR 170.

U
Unknown Analyst

Sir, could you repeat again?

P
P. Nataraj
executive

The incentives includes the 7%. If you have [indiscernible].

U
Unknown Analyst

Sir I'm asking what was our garment product sales? Because I understand that in your garment, you include your export incentives and some other income as well. I'm just asking what was the garment product sale, which you report in your annual report?

P
P. Nataraj
executive

Yes, you send a mail, sir, we'll send it to you.

Operator

Thank you. As there are no further questions from the participants. I now hand the conference over to management for closing comments.

P
P. Nataraj
executive

Indian textile industry is expected to rebound in the current year and consistent improvement in the domestic demand, lower cotton prices and gradual recovery in exports is an ability to achieve impressive performance, even in difficult market conditions, strategic diversification, adapt to changing market dynamics and a focus on emerging opportunities. K.P.R. stands well positioned to further expand its market share and maintain its consistent growth level. Thank you once again. Thank you all.

Operator

On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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