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Ladies and gentlemen, good day, and welcome to Nitin Spinners Limited Q1 FY '25 Earnings Conference Call hosted by SMIFS Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Awanish Chandra from SMIFS Limited. Thank you, and over to you, sir.
On behalf of SMIFS Limited, I welcome you all to Quarter 1 FY '25 Earnings Conference Call of Nitin Spinners Limited. We are pleased to host the top management of the company. Today, we have with us Mr. Dinesh Nolkha, Promoter and Managing Director of the company; and Mr. P. Maheshwari, CFO of the company. We will start the call with initial commentary on results, then we will open the floor for question and answers.
Now I will hand over the call to the management, Mr. P. Maheshwari, CFO of the company. Over to you, Maheshwari, sir.
Thank you, Awanish. Good afternoon, and a warm welcome to all the participants to this Q1 FY '22 (sic) ['25] Earnings Conference Call of Nitin Spinners. I hope all of you have had a chance to look at our investor presentation that is uploaded on the company's website as well as stock exchanges.
Before Deneshji elaborate on present industry and business scenario, I'm giving the brief financial highlights for the quarter ended 30th June 2024. Revenue for Q1 FY '25 is INR 803 crores against INR 801 crores during Q4 FY '24, that's a nominal increase. On a year-on-year basis, revenue increased by 30% from INR 617 crores in Q1 FY '24 to INR 803 crores during the quarter, reflecting increased turnover from expansion undertaken during the previous year.
EBITDA for the quarter stood at INR 118.80 crores as compared to INR 116.24 crores in Q4 FY '24 and INR 76.10 crores in Q1 FY '24. EBITDA margin for the quarter is 14.8% against previous quarter margins of 14.52% and Q1 FY '24 margins of 12.33%. Profit after tax for the quarter is INR 42.12 crores against INR 39.17 crores in Q4 FY '24. That's an increase of 7.5%. As compared to Q1 FY '24, PAT has increased by 45.7% from INR 28.90 crores to INR 42.12 crores. EPS and cash EPS for the quarter is INR 7.49 and INR 14.02 per share, respectively, against Q1 FY '24 EPS and cash EPS of INR 5.14 and INR 9.24 per share, respectively. That is all from my side.
I now request Dineshji to appraise about industry and business scenario.
Good afternoon. Regarding the industry, the textile industry is on the path to recovery with a moderate improvement in demand in both domestic and export markets. While exports face challenges due to the ongoing Red Sea issues affecting the global supply chain and increasing logistic costs. A shift in sourcing preferences away from other countries has somewhat mitigated this impact for India.
Indian cotton prices, as such, have stabilized, ranging between INR 55,000 to INR 60,000 a candy, providing stability to our realizations and margins. However, during the same time, the international cotton prices in the last 3 months have gone down by about 10% to 12%, which is a cause of concern for the Indian textile industry as imported cottons are becoming more competitive.
Looking ahead, we expect the cotton prices to remain stable in India as well as international market due to good crop conditions around various countries and the anticipation of a good monsoon in crop in India as well. We also expect the utilization level across the industry to improve with gradual pickup in demand from various downstream segments of the industry.
Coming on to the company's performance. We have shown a stable performance during Q1 FY '25, and on account of improved utilization of assets and cost efficiencies despite ongoing geopolitical challenges, realizations across our various business segments have improved due to better product mix, indicating a positive trend for our financial health.
In the coming quarters, we aim to improve our position in key markets by focusing on optimization of product mixes, cost efficiencies and utilization of capacities. Going forward, our strategic focus will be to capitalize on emerging opportunities to drive long-term growth as well as investments in the renewable energy to ensure a sustainable growth. Our commitment to innovation, efficiency and value additions remain unwavering as we navigate the evolving market landscape and continue to deliver to our stakeholders.
I would now request to open the floor for the question-and-answer session.
[Operator Instructions] First question is from [Jatin Damania] from Swan Investments.
Good to see the improvement in the margin. Sir, in your opening remarks, you indicated that the international prices have dropped by 10% to 12%. And I'm just looking at the numbers, the current international cotton prices are almost 20% discount to the domestic prices. So how shall one look at this comparison when we compare to our domestic industry and the spreads movement in the coming quarters?
First of all, means we need to align ourselves with what number we are -- in the international cotton prices, what number we are talking about. I think you are talking about the New York Future prices?
Right.
So New York Future is just an index, which is not actually the real cost. It is just an index on which there are certain additions which is happening depending upon the quality of the cotton and other costs involved. So then there is a benchmark called Cotlook index, so -- where the similar kind of cottons are aggregated, top 6 cottons are aggregated. So the better comparison would be doing looking at the Cotlook index, which is the landed cost for any of the mills of our competitors or anyone.
So at this point of time, if you see the landed cost of any -- I mean, basically, let's not speak about landed cost, let's speak about the exact cost of any of the countries, there is a difference of about 7% to 8%. I mean the U.S. cotton or the Australian cotton or the Brazil cotton, which are the larger producers of cotton, are about 10% cheaper than our normal this thing. So we have to consider accordingly that they are about -- international cottons are about 10% cheaper. And in the case of landed cost, they are more or less at par.
Okay. So that means you don't see any major impact in terms of the spread as far as the cotton yarns are concerned?
At this point of time, nothing major is happening. But if we consistently -- let's say, today, we are at -- we are slightly below par. The Indian cotton is slightly expensive than the imported cotton. We -- and that is primarily due to the announcement of the minimum support price by the government and then there was a sudden spike in the cotton prices. Otherwise, we were running more or less at parity with the international cotton.
Right. And sir, secondly, now if you look on the sequential basis, we have been able to report an improvement in the margins, though marginally because of various product mix and cost optimization. Now on the revenue front, given our current capacity, we are already operating at the rated capacity. So definitely, growth prospects on the revenue front is not there. But what are the levers that -- levers are in place to improve the margin from the current level?
First of all, slightly -- we can slightly grow in the revenue side as well. If you see our numbers, we have not been able to ship out the total amount of quantity what we have produced in this particular quarter due to logistic concerns. Nonavailability of container as I was saying. So slight revenue improvement is definitely possible from there.
So we expect that to happen going forward. As far as margins are concerned, the major improvement in margin will come from the price improvement side. On the cost efficiency side, the margin improvement will not be that much since we are already optimizing and we are keeping on optimizing basically our operations. So the major pickup will come only when there is a better demand and there's a better realization. Of course, with better product mix, it can help, but major improvement will come from there only.
Right. And in terms of our solar energy, have you seen any benefit or probably that will come in the end of this financial year?
So already, we are having solar capacity. So that is already accruing to us continuously. So it is pretty good in the summer season. You can see our energy cost in comparison to last quarter has come down only. So that is a credit to the solar energy, which we are using. So additional capacity which we are going to put in that -- of course, that will kick in by the end of this financial year only.
Okay. And sir, last question, as we discussed in the previous call regarding the scope to increase the capacity in the fabrics segment, have we finalized any CapEx guidelines for the future growth drivers?
We have not yet finalized any CapEx guidelines. As soon as we are ready with this, we are evaluating various avenues in this particular thing -- in various segments of our business as well as outside our business segment. So once we are ready with that, we'll definitely come back to you.
Next question is from Manish Ostwal from Nirmal Bang Securities Private Limited.
My question on the next phase of CapEx plan, what is the update? When we are planning to announce the new capacity in our business given the current utilization and the capacity?
Basically, I just now answered that question as such. We are -- that is work in process. We are working out the various avenues where we can allocate our additional -- where we can allocate our capital going forward. So we'll come back to you shortly as soon as we are ready with this. It's a very dynamic situation at this moment. So we are working out the best possible options and then we'll come back.
Will it be very similar to the last CapEx size or it will be higher or lower than that?
Cannot comment on that particular part. Once it is ready, once it is ready, we'll come back -- we'll come with all the details. I do not want to give a half-baked answer.
Sure. And the second thing, sir, we have now given the current -- the situation of the international coal and the domestic thing, so your margin outlook remain -- we can sustain the current margin or we can further improve what is your outlook over there?
Last part of your question was, I mean sustained or what do you want to say...
Or we can improve, sir?
Basically, at this point of time, we are looking to sustain the margins. That is our first priority. As I answered in our first question itself that margins improvement from here will depend on the demand situation. If the downstream demand situation improves and we are able to have better realization, that will only be the major kicker for the improvement in the margins from here.
And lastly, from your remarks in the presentation, you said in your remarks that you anticipate a better demand situation in the coming quarters. And the second comment was more focused on the value-added segment. So can we presume that your -- the new CapEx will be focused on the -- more on the value addition aspect of the business?
Definitely, but we have to evaluate how much capital we have to allocate and the return on the investments on that part as well. So value addition is important, but we need to put in how much money we are allocating to that and what is the returns on the same? So we are working out everything. So we want to come up with a firm plan. So there only I will be able to answer this future CapEx part of it.
And lastly, on the U.S. and the Europe market, can you comment on the qualitative or the quantitative terms in terms of demand trend vis-a-vis last 6 months to currently? So what has changed if you give the qualitative or quantitatively, what is comfortable to you?
Like as far as the demand in the Europe as well as in the U.S., I think already the worst part is over. Demand is now slowly picking up. And we were seeing a reasonably good demand before this Red Sea crisis happened. In fact, due to the Red Sea crisis and increase in the transit times, the European demand has increased. But later on, the sea freight cost has increased substantially in last 2, 3 months due to certain changes in the policies of the U.S. government and a lot of material was being shipped from China to U.S.A. So I think that will normalize in another 1 or 2 months.
So once that has increased the cost of the sea freight and ultimately, the cost of the product to the customers. So I think that is still being getting absorbed by them. So we expect the demand will come up going forward as I would say the retail pipeline is quite empty at the moment. They are not carrying huge inventories. And that will actually aid the demand going forward in the festive season as well as the coming seasons of the -- balance season of this year.
The next question is from the line of [Rishabh Gang] from Sacheti Family Office.
Good set of numbers. Sir, I wanted to understand what are the key drivers, right, for -- in case you've mentioned it, can you just repeat a bit again? What are the key drivers of why our EBITDA margin has increased? And earlier, we have EBITDA margin of 20% to 25%...
Sorry to interrupt, your voice is not clear.
Is it clear now?
No, sir. Are you speaking from your handset?
Yes, is it clear now?
No, sir.
Hello?
Yes, it's is clear now.
Yes. So I wanted to understand what are the key drivers, right, which has caused the increase in the EBITDA margin right now? And earlier, we used to have an EBITDA margin of 20%, 25% in one specific year. So what were the key drivers which led to that kind of EBITDA margin in the historical years? And like, can you just explain on that?
I think the margin improvement -- EBITDA margin improvement is very, very small, since we have increased only 25 bps. That is a very small improvement given the -- we have just commercialized our plants and optimum utilization of those capacities, that kind of improvement comes automatically. There is nothing more to speak on that particular part if we see sequential margin improvement from last quarter to this quarter.
Coming to your second part of the question where you said that we used to have -- we had a 20%, 25% EBITDA margin, that was only, I think, once in '21, '22, and that was an extraordinary situation where the demand was very good. And accordingly, the prices were driven all around the world. So this is a similar thing what I have been speaking right now is that the margin improvement from here will happen, then there is an improvement in the demand. Downstream -- when the downstream demand improves and then there is a possibility to increase our realizations and margins.
So I understand that you're saying realization improved and then the EBITDA margin improved. So what causes the realization to improve? Like is it on the basis of increase in the cotton prices that leads to higher margin? How does the realization work?
No, it is not related with cotton prices. Rather when cotton prices are lesser, that is our raw material, we get better margins. It is the demand of the final products that is very important. If the demand of the final -- if there is a demand -- good demand all around, then the -- then we are able to increase our prices to a better level, and that leads to better margins. When there is a subdued demand, which has happened in the last few years due to various geopolitical situations all around the world, so that has actually resulted in a lower margin.
So the impact of the inventory gain is not so much in getting a huge EBITDA margins, right?
Impact of -- pardon?
Impact of inventory gains?
No, not if you see historically, our company, we have not -- never been keeping an extraordinary inventory. If you analyze the thing that we normally are running with a reasonable inventory and that we have a stated policy that we are -- we go as per our demand only. If the demand is more, then only -- if we sell more, then we keep more inventories. If we sell longer, then we keep more inventories. So it is not something which is related with the inventories at least for us.
All right. Got it. Also sir, on the EBITDA, can you just give some idea on what are the EBITDA margins across product categories? And how does it vary across domestic and export sales?
Hello, Rishabh, we're losing your audio.
Am I audible now?
No, please use your handset.
I'm using my handset only. Hello.
Hello.
Yes. Am I audible now?
We are not sharing our EBITDA margin across the various divisions and various products.
No, that's fine. Can you just share some directional idea on that?
I think that is something like asking the question other way around. So I would prefer to avoid answering that.
The next question is from the line of Akshay Kothari from JHP Securities.
Sir, just one question. How -- have we seen some improvement in demand from China?
No, sir. No improvement in demand from China. It is -- as it is, it is rather stable. The demand has been rather if we compare with the previous years, it is on the lower side only.
And do we expect it to come back or any inputs you are getting from the industry as such?
I think what we have been able to understand that they have majorly shifted their production capabilities towards synthetic manufacturing. So they have -- since they have a lesser cotton production and accordingly, also a lot of restrictions have come on the Chinese products when they sell into U.S. and Europe.
So there, they have tried to reduce the production itself and have imported raw cottons from U.S. or other countries so as to support that. So overall -- cotton textile overall has gone down only in China. So that has -- and synthetics have increased in China. So that is why their imports towards cotton as well as cotton yarn has not improved substantially in last 1 year or so.
And sir, secondly, on a more structural sort of thing that everyone knows that MMF to cotton ratio globally is in favor of MMF of around 70:30 and in India, it's reversed. But due to global warming and hotter climate, are we seeing internationally that cotton consumption is increasing as such and this ratio more be -- the cotton would grow faster than the MMF going forward?
Actually, if you see the consumption pattern, what we have -- the kind of cotton consumption, which we had seen in the last 3, 4 years, it is increasing only. The pace is about 2% to 3%, but the main reason for the lower increase in consumption was the raw material prices. We had a very high prices 2 years back, which actually restricted and moved some of the consumption towards the synthetic side.
That is again with the reasonable prices coming in the international market as well as in domestic market. So the consumption is again moving towards cotton. But we are not seeing that it is growing more than synthetics. I think it is retaining its share. That is all at the moment. In India, of course, we are not yet to see the reversal or reduction in the cotton consumption, the cotton part of it and the ratio is still to change.
The next question is from [Harshil Mehta] from Mehta Vakil & Company.
So there have been some reports lately that the Red Sea crisis and subsequent container shortages have impacted textile exports from India. This has led to an inventory pile up with Indian textile manufacturers and that report stated that some of this demand has shifted to China consequently. Have we been seeing something along similar lines? What are your thoughts on this? Is there any truth to this report?
First of all, that is -- your first part of your report is perfectly all right that there is certain -- there is a shortage of containers and there is a stockpile ups depending on product to product with the Indian suppliers. But this moving towards China is not at all right because China is also facing the similar problem and rather more acute problem. China, as you must be aware, on the EV batteries, U.S.A. has imposed a very heavy antidumping duty from 1st of August. So all the goods from -- which are of this product was to be moved from China to U.S. And that has resulted in container shortages because they were paying very, very heavy cost for that movement.
I think that part is nearly over now, and we should be seeing a normalized kind of situation. Red Sea crisis, we were able to navigate the Red Sea crisis reasonably. But this particular part of extraordinary movement from China to U.S. was for a very short-term period. So at that point of time, Indian ships were lesser, and we had an issue in that part. Now going forward, no movement as such from India towards China that I can confirm.
Okay. And just as a follow-up, sir. So in case these export difficulties continue for a while longer in case of container shortages, et cetera, are we trying to increase our penetration in the domestic market? Because I believe our export to domestic ratio has increased a little further this quarter as well. So any plans to kind of focus a little more on domestic to kind of overcome these export difficulties?
Yes. We can do it 2 ways that we can spread our export business towards more countries. So that can mitigate this effect and reduce our concentration on some particular countries and also improve -- increase in the domestic market. So we are focusing on both the sides. And we are also trying to see that our goods are shipped out in time as well because since it's an industrial product, it must reach to our customers also on time so that his production is also not hampered.
The next question is from the line of [Darshil Jhaveri] from Crown Capital.
I hope I'm audible.
Yes, yes, you are audible.
So just wanted to get a bit of sense from you that in terms of our revenue currently, I think we are at our optimum capacity utilization. So what kind of revenue could we maybe target for FY '25? Would our quarterly numbers be in the steady range of INR 800 CR? Or would there be maybe slight upward movement?
We should see slight upward movement. If you see our production capabilities, our fabric division has not produced the kind of quantities, which we...
Hello. I'm sorry, I lost the line for the management or I can't hear to them.
Thank you for patiently waiting. We have the management team back on call.
Can you hear me?
Sorry, sir you got cut. Yes. So just like with regards to revenue, you were just saying that...
Slight improvement is possible from here since our fabric division was not optimally running in the last quarter. So we can have the possibility to improve upon there. And also some small pile up can further aid to our revenues going forward.
Okay. Okay. But on a normalized -- so just wanted to ask, sir, that is like a INR 4,000 crores top line possible this year? Or would that be possible next year?
Not possible with the current capacity.
Okay. Okay. Okay. Fair enough, sir. And sir, just wanted to know that in the budget, has our industry been given some benefits in case...
At least from what I heard from the Finance Minister, I don't see anything which has come to textiles. Of course, we have to still see the fine prints if there is anything. But on the face of it, it looks as if nothing is coming. Only the programs which we have launched for the skilling and the initial worker, some advantage to the manufacturing industry. That is a welcome step, which should help us in garnering more workers and persons for our manufacturing operations.
Okay. Fair enough, sir. I just wanted to understand, maybe exports have been slightly higher in this quarter. So is the domestic demand a bit muted? Or could you just maybe picture like what is happening in the terms of export and domestic split for us?
Actually, as I was saying that normally, our export split is 60-40. And normally, our fabric is more into the domestic market. But since our operations, we had a major maintenance in our -- one of our weaving and processing plants during the last quarter, so because of that, our capacity was underutilized. And that -- if that would have been rectified and that sales would have come in, I think the ratio would have been 60-40 only, near to 60-40.
So you should consider it at 60-40 only. You see our fabric sales, it is lesser than the previous quarter and previous year itself.
[Operator Instructions] The next question is from [Chirag Jain] from Yoga Capital.
Sir, first question was on the spread. So can you comment on the -- what are the current spread of yarn versus the cotton?
Basically, the cotton-to-yarn spread is about INR 100 a kg at this point of time for the average of..
So they have moved up from around INR 80 per kg level to around INR 100 per kg level.
Last year, it was -- in the same quarter, it was at about INR 86, INR 86, INR 87. Now it has moved from INR 86, INR 87 to INR 100.
So how do we see them over the next 2 quarters or next 1 year?
If we see a good demand pickup, this may further improve going forward, that is -- it all depends on the kind of demand which we have there. So demand pickup depends on a lot of other factors apart from various other economic factors as well. As such, what I can say is cotton prices internationally and in India are near to its bottom. We do not have much scope from here to go down. So from here, then the only thing which we can have is improvement in the prices. Similarly, in the yarn prices also, we are nearly at the bottom of the price level.
Fair enough. Sir, second question was on the planned expansion side. So are we evaluating seamless knitting machines on that part?
Pardon, which machines?
Seamless, so which don't have any -- which don't require any break in between to join them. Seamless knitting machines.
We are evaluating various things. So I do not want to comment on one particular product itself. So we'll come up with whatever we are planning. So we'll definitely let you know whenever we are ready with this for the plans.
[Operator Instructions] The next question is from [Varun Gajaria] from Boring AMC.
So just wanted to understand how is the demand panning out in the U.S. considering last year was -- last year was kind of patchy?
This year, it is better than last year. First -- I must say that first 6 months has been reasonably better than last year, and we expect this trend to continue.
Okay. So our retailers now taking a little bit of a conservative stance on starting up inventory?
I think -- I mean this is a strategic call which each retailer has to take on its own. But in considering the -- if we consider the raw material prices, then it is at the lowest level. So considering that, it should be at -- they should be taking a call to improve upon. Already, they have destocked quite a lot of quantity. So...
So currently, what is the price of cotton? I suppose it went up to $0.83, right?
Pardon, which cotton?
U.S. cotton.
U.S. cotton is like -- you're talking about the futures, but that is not the price of the raw cotton. That is the basis on that basis, today, the U.S. cotton, the New York future is at about $0.70, $0.71 at this point of time.
Okay. Okay. While Indian cotton would be?
Around $0.86.
$0.86. Okay. Do you see any impact because of this -- the gap between the 2 of them?
Definitely, but this is -- this New York future is -- this is a future -- I mean this is a price, which is a spot price, which needs to be built in with various quality premiums and other costs which are involved. So landed costs are more or less like $0.87, $0.88 only for the U.S. cotton. And if it is landed cost in India would be not less than $0.87, $0.88 at this point of time.
And also, we have to see when they are going to come in. I mean, we all talk about their prices, but we have to see their logistics, whether they are able to ship or not and even if they have produced, they are capable enough to ship that kind of quantity or not is very, very important to be seen.
Okay. And how is the demand currently in the domestic market? Is it better than what it was last year?
Demand more or less is stable in the domestic market. It is not -- I would not say that it is very, very high. It's stable. Downstream segments are -- some of the segments have improved in comparison to the earlier period. Knit segment particularly has improved, which was down a lot during last particular year. There is -- we are seeing some improvement in the knit segment. So there is an improvement in all around in the segments -- downstream segment. So it's a stable kind of demand.
The next question is from [Manoj Jethwa] from KSA Lines Securities.
During last call, you had mentioned we would be exploring the opportunities of exports in Japan and African markets. Any update on that, sir, regarding?
We have been successfully able to do that also. We have increased our footprint in both these markets. We are already -- have started to export already in these markets. And going forward, we expect it to go better from here.
So what all the countries we would be targeting South Africa, Eastern markets or which part of the Africa we would be looking the opportunity?
There are -- I mean, frankly, on an earnings call, I would not like to share our marketing strategy. So I would not like to go in the details of which particular market or which market we are targeting. But yes, I can share with you that definitely, we are trying to increase our footprints around the various markets where we are not present at the moment.
Okay. And same is the case with the Japan also, sir?
Yes, definitely. Definitely, we have already -- we have made some inroads, and we are trying to increase the same.
Okay. So we see the huge opportunity for new geographies as far as Japan and Africa is concerned -- as far as our export business is concerned. Am I right, sir?
Basically, we're trying to maintain our export share and diversify the markets. That is the strategy. We do not want to be dependent on some 1 or 2 markets. So that's why we keep on exploring new markets so that we improve upon our geographical diversification as well as improvement in the realizations as well. So once you are not dependent on some particular market, you're able to navigate it better. And when you have so much of geopolitical upheaval happening all around the world, so it is better to diversify geographically as well.
The next question is from the line of [Nema] from Bajaj Alliance Life Insurance Company.
In our last interaction, sir, you had mentioned you were talking about specialized products that made up at the time around 35% of our business. Just to recollect, I think you mentioned cotton with linen effect, multifold bags, [indiscernible] toast yarn products of this sort. Are we getting to a better mix? I think you were aiming for a little more share in that. So have you seen any difference in the last quarter in this? Or are we still more or less at the same level?
We are -- at the moment, we are at more or less the same level of last quarter. Nothing -- not major improvement from here, not major, but we are trying to get into the areas where -- so that we can improve the share of this product. In fact, our capacity has increased. So overall, if you see, we have increased the quantities, but share-wise, it is at the same level.
Okay. And do you see this happening more over 1 or 2 quarters? Or is it more of a long-term plan?
It's more of a long-term plan, and it is our endeavor to improve upon this so that this helps us in improving our margins. So as a long-term strategy, we are trying to see wherever the opportunity comes and whatever products we can get into.
The next question is from the line of [Aman Vishwakarma] from PhillipCapital PCG.
Am I audible properly?
Yes, you are audible.
Sir, I have a basic question on your asset base and the revenues, right? So if I were to look at your asset base in 2019, it was roughly -- so I'm specifically talking about the gross block. So it was about INR 600 crores of gross block, which has now grown to INR 1,400 crores, right? So a rough addition of about roughly INR 800 crores, right? Against that INR 800 crores, we have also seen a jump of INR 1,900 crores of revenue in the same period. So I mean, what is the typical asset turn in your business that you're in? I mean, what has led to the significant jump broadly?
Actually, what you're referring to is the net block, not the gross block.
Okay. I believe the gross block number is at about INR 674 crores.
Maheshwari, can you second confirm what is the gross block. Because as far as I know, 2019, it was much higher.
2019 gross block was INR 900 crores.
INR 900 crores. And what is the gross block now?
INR 2,500 crores.
INR 2,500 crores. Okay. Got it. So when you do announce any sort of CapEx, right, so what sort of ROICs are you targeting broadly?
Basically, the ROI has to be in the range of 15% to 18%. Normally, we try to see on the upper side of the segment that we try to target 18% ROIs. That is what the typical normal which we have for our -- norms for our CapEx. And asset turns are normally in the textile asset turns are in the range of [ 1:1.2 or 1:1.3 ] depending on the product segment, except the garmenting part of the business. So...
Okay. Got it. So again, on the gross block part, right? So of the INR 2,500 crores that we have, so roughly, we have added about INR 1,600 crores of assets, right? So could you like give me a split between how much you would have spent on the yarn part of the business or the fabric part?
In this INR 1,600 crores, I think we have spent nearly INR 1,100 crores on the yarn part and INR 500 crores on the fabric part.
And what is the broad CapEx for your facilities, if I may, the last question?
Pardon?
What is the maintenance CapEx that you incur on a year-on-year basis?
As such, we do not incur -- means whatever maintenance expenses are there, then normally that is being debited to our revenue account. Major modifications and other things, then it comes. It depends on -- since we have newer plants, we need not do that CapEx to that level.
Okay. I mean I do understand that it has expensed out, but I mean, what is the general run rate just to get an idea of the operation?
Like about -- normally maintenance expenses are in the range of about 2% of the maintenance total capital cost. So that is a general -- that is a normal figure which we should consider.
The next question is from the line of [Suraj Deora] from Paladin Capital.
Please pardon me if my question is redundant. I'm not looking at this business before, and I'm just trying to understand the growth potential here. I saw that you've done a lot of CapEx, which has been capitalized in the last year. Are you fully utilizing all of that?
Yes. We are utilizing -- if you see whatever capacity expansion which we have done, we have nearly reached -- in the spinning business, the 3 segments, we have knitting, weaving and spinning. In spinning business, I think we are fully utilized, and we have reached 95% to 96% capacity utilization. For weaving business, weaving and processing business also, barring last quarter, we had a maintenance shutdown. We have reached there also on the top utilization level of about 90%. In the knitting segment, it is slightly down, and we are yet -- we are at about 50% to 60% only. So there is still a scope there to improve upon.
So more or less, this INR 800 crore run rate is where you would remain unless the prices of your products go up. And I think I heard you say that there is a likelihood of the spreads increasing, so maybe a realization might increase, but volume growth may not happen until you announce the next leg of CapEx?
Yes, exactly.
Okay. And I don't know if you already answered this, but do you have a view on how much realizations can go up by?
It depends on market, means we have how the cotton -- what is the raw material prices and the demand overall pans out, it depends a lot on that. But I can say that we are -- the finished goods prices are near to the bottom of the cycle.
And sir, again, this is my ignorance, please pardon me, but I think you mentioned cotton-to-yarn spread is INR 100. What has it been on average in the last few years? And what has it been in the worst?
When it was -- the worst has been about INR 70 to INR 75 a kg, which was about 1.5 years back, or even in the worst times in the COVID, it was even lesser. But from that time, the cost has also increased. And the best which we have seen is about INR 130 a kg, INR 135 a kg.
And this INR 130 was in which year?
It was in '21, '22.
FY '22.
The next question is from the line of [Nishita Jain] from [Equitech].
Sir, my question is on the Bangladesh market. So there has been issues going on in Bangladesh, which is an important market for yarn export. So have we also faced some issues there, sir? And we're expanding to other geographies? Is it in line with that issue, if you can tell about that?
Yes, of course, Bangladesh is a very important market for us as well. And -- but these issues have just cropped in the last 5 days. I think last 13th or 14th of July onwards, this problem has come up of agitation in Bangladesh. I think it has been sorted out, and we expect this to be settled down in another 3 to 4 days' time. So should not -- this should not have any major impact. At this moment, it does not look to have any major impact on any of the -- on the businesses as such.
Okay. Okay. Sir, just one more question. So you did highlight earlier about the benefit we will be getting from [Audio Gap]. So there is interest subvention and there is also capital subsidy. Can you please elaborate on both these benefits in detail?
We are supposed to get the subsidy is about 2.5% to 3% of our outstanding loans, which is about -- on the maximum side, this can be about INR 20 crores every year on the interest subsidy side, with the sanctions which we have received for our new project apart from what we are already getting for our old project.
As far as -- this is about interest subsidy, which will continue for next 5 years' time. And on the capital subsidy side, it is in the range of about INR 190 crores, which we may get for next 10 years. So the exact figure must be about INR 188 crores or INR 190 crores, which we'll get in next 10 years, which will be every year about INR 19 crores to INR 20 crores.
Ladies and gentlemen, due to time constraints, we will now take the last question from the line of Ronak from RK Securities.
Sir, Am I audible?
Yes, please.
Sir, as the cotton season is coming to an end, sir, how was the arrival during the ongoing season? And what is the new crop size expectations in the next cropping season?
The arrivals in this particular cotton season was around -- at this point of time, it is about -- already reached 315 lakh bales, and we expect it to end at about 320, and anything between 320 to 325 lakh bales. This is exactly the same number what we had seen in the last year in '22, '23. In the coming year, till now, the sowing has been more than the last year, 3% to 4% more than the last year.
We expect that we will -- at the end of the -- by the monsoon period, we should be able to do the similar kind of sowing what we had in the last year. And yields are expected to improve. A lot of work has been done by agriculture ministry as well as textile ministry to improve upon seeds as well as the practices. And we are expecting a better crop than last year, definitely.
Okay. Sir, just the last one, if you permit. We've been hearing this FTA from U.K. from last 1 year. Maybe if you can give some materiality on this? And if at all it comes, what -- how we will benefit from this FTA?
We are in the same boat. We are also hearing about this FTA, also talking to the various ministry officials also about the same and waiting this to happen. This is an important FTA for most of the textile companies because there are many brands to which we are catering in the U.K. which are again catering globally. So once this happens, it will be an important milestone and important thing for the textile industry as a whole, and we should be definitely also benefited by that.
I would now like to hand the conference over to Mr. Awanish Chandra for closing comments. Please go ahead, sir.
Thank you, Vinay. Sir, before taking your closing comments, before budget, we heard about PLI scheme, textile parks, anything. Do you want to add on anything because still a lot of details people are waiting for. So anything positive you are hearing from the government or any side on these things?
Still to see the fine print. We have heard that there are 12 individual parks, which has been declared. Rajasthan was one of the states which was supposed to get one. And in fact, very near to our place in Bilwara itself, we were expecting an industrial park to come in. So if that comes in, that should help us in expanding our capabilities going forward. So that is something which is still to hear, but we have not declared that part particularly.
So I cannot comment on that. Otherwise, still a lot of things in the fine print, as we all know. There are a lot of things in the fine print even on the custom side or even on the other side of the various development activities which are happening. So we'll see this more on the -- once we are through with this, then maybe we can share with you all about that.
Before closing, any final commentary from your side?
Yes. I hope we have been able to address all the queries which are there, and it's still -- and I must thank SMIFS and Awanishji for hosting this call for us. And if any further information is required, you can get in touch with our finance team and our Investor Relations adviser, SGA for taking it forward. Thank you once again for taking the time to join us on the call. Thank you so much.
Thank you.
Thank you. On behalf of SMIFS Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.