S. P. Apparels Ltd
NSE:SPAL

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S. P. Apparels Ltd
NSE:SPAL
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Price: 919.45 INR 0.79% Market Closed
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Earnings Call Transcript

Earnings Call Transcript
2023-Q3

from 0
Operator

ladies and gentlemen, good day, and welcome to the SP Apparel's Q3 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 Private Limited. Thank you. Over to you.

P
Prerna Jhunjhunwala
analyst

Thank you, Ryan. Good afternoon, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q3 and 9-month FY '23 post results conference call of SP Apparels Limited. Today, we have with us the senior management of the company in Mr. P. Sundrarajan, Chairman and Managing Director; Mr. S. Santa, Joint Manging Director; Mr. S. Cardisure Joint Managing Director; Mrs. S. Latha, Executive Director; Ms. P.V. Jeeva, Chief Executive Officer; and Mr. V. Balaji, Chief Financial Officer of the company.

I would now like to the call to the management for opening remarks. Thank you, and over to you, sir.

C
Chenduran Sundararajan
executive

Yes. Thank you, good afternoon, everyone and [indiscernible] to all of you present on the call call to discuss our quarter 3 financial year '23 performance. [indiscernible] wish that everyone [indiscernible] and healthy and safe. I would like to update you on the buyback that the process is complete.

Let's discuss on the performance of the company division [indiscernible]. [indiscernible], our [indiscernible] garment division revenue for this quarter stood at INR 219 crores versus INR 219 crores of Q3 FY '22, okay, which is flat year-on-year. Total exported quantity stood at 13.3 million pieces. This quarter, we saw some push back from the retailers, mainly due to the inventory pile up with the retailers because of the container issues that happened during the month of October 2022.

For adjusted EBITDA of the garment division stood at INR [ 14 ] crores for the current year -- current quarter at 17.7% versus adjusted EBITDA of 22.2% year-on-year. Our current order book stands at INR 364 crores. Capacity utilization as of today is around 74% and is expected to increase by around 10,000 -- 10% to 15% going forward.

We have started working [indiscernible] new customers, 1 out of [indiscernible] and another one out of [indiscernible]. We expect tractor with these customers in coming quarters.

On the FDA front, we are looking for the [indiscernible] to be signed up by end of March, hopefully. As we informed you earlier, our new factory at [indiscernible] is the under process, and there is a push in the [indiscernible] due to Clarence process [indiscernible]. We expect the project to be completed, up and running by April 2024.

With regards to the spending, last 3-month spending production was reduced due to the high cotton price and low realization rate, and margins from spinning plants was negative at the EBITDA level during the quarter. Further cotton prices are corrected. And now we hope that cotton price will correct -- continue to correct. [indiscernible] shall contribute to the margins going forward. For [indiscernible], the on price is now stable.

With regards the processing unit, in spite of the coal availability issue and the raise in the input cost, our crossing division was able to perform well with good utilization levels and contributing to the margin effectively. With regard to the subsidiary SP Apparels UK Limited. It has seen a lot of disruptions in supply chain [indiscernible] the container issues yet to recover. It is slowly [indiscernible]. Revenue for the quarter stood at GBP 1.24 million as against GBP $2.1 million for 1 quarter. SP U.K. has made EBITDA breakeven as against 2.9% Q-on-Q. I am confident that SP U.K. will be able to come out of the crisis and will be able to do well going forward.

With regards to SP Retail Business Limited. Currently, we have 6 [indiscernible] stores under all [indiscernible]. We have opened 3 new stores for Reglan bucket in Bangalore, and it is doing well. We have also opened stores for [indiscernible], which is also doing well. SP Retail, which has made a revenue of INR 21 crores and made an EBITDA loss of INR 1.8 crores for the current quarter. [indiscernible] has been making profits continuously, however, the new brand that we have added under [indiscernible] pulling down margins.

We firmly believe that the other 2 brands that we have [indiscernible] will perform well. And we are confident that this [indiscernible] help an [indiscernible]. And also [indiscernible] will do well in the future.

Currently [indiscernible] after making INR 35 crores buyback, our liquidity position is very strong, and we have serviced all the debt today.

Thank you. Now over to, CFO, Mr. Balaji.

V
V. Balaji
executive

Thank you, Chairman. Good afternoon, every everybody. As the run through the presentation or the financial performance of the company, for the current quarter, we have made a [indiscernible] revenue of INR [ 258 ] crores on an tested revenue basis, and we have made an EBIT of INR 38 crores and PBT of INR 19.43 crores and [indiscernible] INR 13.2 crores. On a 9-month basis, we have INR 825 crores as against INR 609 crores year-on-year and an EBITDA of INR 134 crores as against INR 103 crores, with a PBT of INR 85 crores as against INR 78 crores year-on-year, on a pace of INR 62 crores as against INR [ 59 ] crores year-on-year.

On our division wise performance, our garment division made a revenue of INR 290 crores for the current quarter with an EBITDA of INR 17.7 crores. And our U.K. with revenue INR 11.5 crores and [indiscernible] is INR 20.7 crores with an EBITDA of minus 8.96%.

Now on the debt position, from 31/12, we have a long-term debt of INR 38 crores, short-term debt of INR 124 crores, a gross debt level of INR 168 crores. We have INR 78 crores in terms of cash and cash equivalent. So that position us on the summer is only INR 84 crores.

On working capital, we have INR 265 crores inventory as on 31st December. And we have accounts receivable of INR 59 crores as on 1st December, and an [indiscernible] of INR 50 crores as on December. So my net working capital is INR 274 crores.

So other information are available in the presentation, and we'll get into the [indiscernible].

Operator

[Operator Instructions] Our first question comes from the line of Shikha Mehta from Equity Capital.

S
Shikha Mehta
analyst

I just have a couple of questions. Looking at our presentation, what I understood was that our EBITDA has been pulled down due to the MTM ForEx loss of INR 8.5 crores. So is my understanding right that there will be a reversal of this next quarter and it should result in an improvement, say, next quarter?

V
V. Balaji
executive

So we have made an EBITDA gain last year and the reversal of that. Because if you recall what happened in the month of first week of October, there was a change in the prime minster standards in U.K. So [indiscernible] pound and euro was severe. So we had a gain last quarter, and there is a reversal of that impact this INR 8.9 crores.

S
Shikha Mehta
analyst

Okay. So this INR 8.5 crores is more of a reversal of last quarter than something that will be reversed next quarter? Correct?

V
V. Balaji
executive

Correct.

S
Shikha Mehta
analyst

Okay, sir. And sir, another thing I wanted to understand was if you look at the garment sector as a whole in the media, there has been a lot of negative news floating around. Today, there was an article in the newspaper about certain garment manufacturers that are not doing well and haven't been able to pay their portion of the EPS. Can you throw some light on how the garment division is doing overall, and how we are seeing this going forward?

C
Chenduran Sundararajan
executive

Yes, definitely. [indiscernible] the inventory -- at the retailers, the inventory management is a little bit chaotic due to the post-COVID the container issues. And so there has been a big necessary because they bought a lot for the last Christmas. But now slowly, they are getting into the ground reality and the real picture that there is some messaging most of the retailers inventory, the stock. So they really don't know which one to buy, which one not to buy, that's the kind of a situation. So they are just holding everything and graduate from their releasing the orders.

For example, one of our customers, suddenly, they said that [indiscernible] low orders. then within 1 rig to 10 days, they place 3 million pieces order. So this is a kind of situation continues to stay. So what happened -- so here, the customers, they do not give preference to the small players, small [indiscernible] players because most of the retailers rely on the big [indiscernible]. So that is why now the big factories are able to manage, but the small factories are not. This is 1 thing.

And giving this current scenario the retailers are trying to consolidate that. And actually, they want to reduce the number of suppliers and push the business to the big manufacturers, and they are asking us to increase the capacity. So this is also happening. So there are different -- there are -- there is a mixed view in regard to this industry. The small players [indiscernible] or no orders, but big players are majorly affected.

S
Shikha Mehta
analyst

So to consolidate everything you've said, we should benefit from your because of consolidation and our niche segment, correct?

C
Chenduran Sundararajan
executive

Definitely, we are expecting to -- we plan to gain in this situation in the consolidation, really one of our preferred factories by the retailer. It's the [indiscernible] of time 2, 3 months.

S
Shikha Mehta
analyst

All right, sir. Sir, another thing I wanted to understand was now we're almost midway through this quarter through Q4, how are we seeing our demand and margins shaping out? And if you could also shed some light on our spinning segment? And if we can see that on even breakeven or turn positive?

V
V. Balaji
executive

So you're looking at Q4 performance, right?

S
Shikha Mehta
analyst

Right. And also about the spinning segment and the margin.

V
V. Balaji
executive

Spinning [indiscernible], as spoke early about the cotton prices coming down, I think still correlation looking or the margin spread between [indiscernible] prices is very low. So I think once the demand in terms of [indiscernible] picks up, then spinning also should be in line. I think by March, it should be back.

S
Shikha Mehta
analyst

Okay. Okay. So Q4 also the spinning unit might be a rough quarter?

V
V. Balaji
executive

Maybe not as bad as Q3 or Q2. It should be definitely be better comparing Q3 and Q2.

S
Shikha Mehta
analyst

Okay. And, sir, we had alluded to around 20% growth for FY '23 and FY '24. After our Q3 performance, are we still holding to those guidance?

V
V. Balaji
executive

So like we have not said 20%. We said anywhere between 15% to 20%. So we still feel that 15% to 20% should be possible.

S
Shikha Mehta
analyst

Okay. For FY '23 and '24, right?

V
V. Balaji
executive

Yes.

Operator

Our next question comes from the line of Aman Agarwal from Canarian Capital.

U
Unknown Analyst

A few questions from my side. First was on the volume decline rate you volume. [indiscernible] We have come down some 16 million units to around 13.4 million units. So if you can touch upon like what is impacting this, and how we see volumes basically panning out in the future, like in the next few quarters?

V
V. Balaji
executive

So on the volume for the current quarter in the opening remarks, [indiscernible] spoke about the prospects that were happening. So -- and we have guided for a 25% growth for the current year, FY 23%. And we're still seeing that that 25% to 30% of growth for the current quarter and current financial year would be possible. And for FY '24, as large dollar after growth, we still stick to the guidance of 15% to 20%.

U
Unknown Analyst

Understood, sir. So in terms of production, if you can tell me like what was the production in terms of pieces for this quarter, like what just the inventory impact on us like inventory with the retailers, even on the production side, we have produced less garments during this quarter?

V
V. Balaji
executive

You are talking about the inventory stuff?

U
Unknown Analyst

I think the production volume for this quarter, like in garments.

V
V. Balaji
executive

Those numbers cannot be provided in terms of quantity. So you can look at the number for the whole financial year. We could anywhere be between 58 million to 60 million pieces.

U
Unknown Analyst

Got it, sir. And in terms of our capacity utilization and labor addition. So if you can give me any number like how much labor we have added during this quarter, like since the start of this year. So that would give an idea about how our labor procurement is basically going on [indiscernible] steps we have taken over the last few years?

V
V. Balaji
executive

So in the opening remarks, Mr. Sundar has spoken about the current capacity utilization of 74 percentage and it primarily increased by 10 to 15 percentage point forward. So that's where we are looking at in terms of utilization level. In the next financial year, we should be at somewhere around 80 to 85 percentage in terms of replication.

U
Unknown Analyst

Understood, sir. And like we mentioned it in our opening remarks that the new CapEx for garment facility, that will be ready by April 2024. Is that right, sir? Or like because it started like 1 year from now, so what is causing this delay in the CapEx for the garment facility?

V
V. Balaji
executive

So in terms of the delay, so Sundar, in his has spoken, about the delay because of the approval that needs to be paid from the competent authority. So that's the cost why it is very delayed. But we are on it, and we hope that things is almost [indiscernible] space, and we should start working on the factory from April onwards. And starting, I am talk about the building getting capacity.

U
Unknown Analyst

Understood, sir. Just a final question on the retail segment. Like so this is still making EBITDA losses like around 9% for this quarter. So any internal target we have to basically achieve EBITDA breakeven in this business, any internal time line we have?

V
V. Balaji
executive

See the new brands, the [indiscernible], we have started working with these brands only for this year. So opening up new store, opening up Point of Sale with the [indiscernible] channel was a tough task, and we have opened up. So we have opened up with so many lots panels like Shoppers, have opened up with [indiscernible], we have opened up with Central. So we are equally working on improving the [indiscernible] of the brands. So whatever we have put efforts during the current year will start leading results next year. So we expect, start next year, we should do a better EBITDA margin for the retail ventures.

Operator

[Operator Instructions] Our next question comes from the line of Prerna Jhunjhunwala from Elara Securities.

P
Prerna Jhunjhunwala
analyst

Sir, I wanted to understand the demand scenario with respect to kids and infants segment. Do we see divergent demand behavior as compared to others in current scenario? Or is it largely similar to the entire environment that we are in right now?

C
Chenduran Sundararajan
executive

Can you come again, please?

P
Prerna Jhunjhunwala
analyst

I was asking on the demand scenario for the babies and kids segment that we are in, as compared to the adult segment, is there any divergence in the demand scenario for the segment that we are looking for, especially with respect to recovery rather than the current scenario?

And second, are we also looking to expand our product basket to the adult wear?

C
Chenduran Sundararajan
executive

See, currently, -- as I always say, the kids and babies are always in demand. But now it is not -- there is a little bit of the demand. It's not dropped, it is going very, very steady, but the retailers are just waiting and watching to buy the next round of buying. When compared to men's and ladies, definitely kids and babies are doing better, and which is always good. And we are definitely -- as I mentioned, because of the consolidation happening, customers also wish to us to increase our departments to men's and ladies as well because those factories, our factories who can handle the dairies and kid, can easily manage ladies and men.

So we are getting the business of men's and ladies gradually from our existing customers. So this is a part of the consolidation, again, not only in babies and kids, while consolidation is happening, they are asking us to do even the other business.

P
Prerna Jhunjhunwala
analyst

Great. So what is the current contribution of adult wear in our current revenue? And where do we envisage this to be in the next 3 to 5 years?

V
V. Balaji
executive

Current percentage is about the 7% to 10%, and we anticipate around 20% by end of next year.

P
Prerna Jhunjhunwala
analyst

That's pretty good. And second question is on average utilization. This improvement in average ratio that we've seen this quarter, is it also because of the change in product mix? Or is it factor of only cotton, and it has -- it will revert back to normal levels when cotton -- with cotton prices coming down?

V
V. Balaji
executive

[indiscernible] average utilization [indiscernible]. There is some increase in the material cost because of which the selling price is getting increased. And also because of the mix that is happening, it is also increasing. So it is a combination of both. Quantifying the percentage will be very tough.

When prices have started coming down very next quarter, we will see that the average realization is coming down.

P
Prerna Jhunjhunwala
analyst

Okay. Okay. sir, there is also no supply disruption from Turkey and Pakistan, too, and they are large suppliers to Europe. Are we seeing any benefit because of disruption in supply chain coming in to our company?

C
Chenduran Sundararajan
executive

Yes, definitely, the customers are reluctant to place orders in Pakistan and Myanmar and also Bangladesh. Because Bangladesh, recently the wages the workers underspent because the age is they want the rates to be doubled 5x, -- 4 to 5x. So even if they settle it's 2x, 2.5x. So they are going to be expensive. That's #1. And the Myanmar, Pakistan, we are not in -- politically not stable. And China definitely still, but the anti-China sentiment is still happening. So in addition to that, if we get FDA, so all the more benefit.

P
Prerna Jhunjhunwala
analyst

Okay. okay. But are you in additional inquiries coming in because...

C
Chenduran Sundararajan
executive

So yes, it is coming. It is coming. I mean, now currently, they are just settling down with managing their inventory, the stock level. So probably from April onwards, there be an aggressive placing of orders, we expect. Until -- I mean, July -- sorry, from July onwards, there is an aggressive placing of orders.

P
Prerna Jhunjhunwala
analyst

From July onwards. So is also ready to be soft in...

C
Chenduran Sundararajan
executive

Yes, we are getting the -- for our capacity, not issue. For additional increase due to the consolidation, these things will happen from July onwards..

Operator

Our next question comes from the line of Ashwin Reddy from Samatva Investments.

A
Ashwin Reddy Ramayyagari
analyst

So I have a few questions. Firstly, on the top line, some clarification. So given that in the first 9 months, we've done approximately 32.5% growth in the top line. So for FY -- for the current year and for next year, I mean, what is the broad numbers we need to work with in terms of top line sales because there's some back and forth, I am unstaying to get clarification in terms of FY '23, FY '24?

V
V. Balaji
executive

Right, '23 and '24, we -- I think in a couple of core before, we have given a guidance of between 15 to 20 percentage of growth.

A
Ashwin Reddy Ramayyagari
analyst

This is in FY '24. So for FY '23, you're saying like [ 25 to 30 ] is what you need to work with?

V
V. Balaji
executive

Yes. One, we have completed 9 months in terms of quantity as well, we have done a 35 percentage of growth 9 months. So we expect to complete anywhere between 25% to 30% for the current financial year.

A
Ashwin Reddy Ramayyagari
analyst

Okay. Okay, that's helpful. Secondly, on the margin front, sir. So; one, because of the current demand scenario, has there been any pushback on the margins for us? I mean has there been any -- in terms of -- in our talks with the retailers, has there been any pushback on the margins?

V
V. Balaji
executive

There cannot be pushed back on the margins, but definitely, when you compare the cotton prices or yarn prices increase, the same incremental revenues is upcoming it. For example, if there is an increase in yarn prices by, say, 30%, same 30% increase on the output is not there. So there is a reduction. So next, only 10% is given as a sale realization.

So definitely, there is a pressure on the margin because the spreads are coming down. But now [indiscernible] the cotton business has started coming down, yarn prices have corrected. So we feel that we should be in line with the guidance of 18 percentage what we have already guided before.

C
Chenduran Sundararajan
executive

[indiscernible] So the volumes will go up, but there is a big challenge on the price [indiscernible], which we have to mitigate in other bits like managing by efficient, better efficiency and [indiscernible]. So we will definitely be able to manage and maintain the 18%.

A
Ashwin Reddy Ramayyagari
analyst

Got it. But in case in case we take the next 2, 3 years, given that we are guiding for an increase in the men's wear and women's wear, if that proportion increases in your overall sales, would that mean a lower margin table for you in the next 2, 3 years as a proportion, the sales might increase faster, but with the margins dip because of the increasing proportion of menswear and women's wear?

C
Chenduran Sundararajan
executive

The margin will not increase because the most competitive products are...

A
Ashwin Reddy Ramayyagari
analyst

I think will decrease because of the men's or women's wear, will the margins decrease because of that?

C
Chenduran Sundararajan
executive

Correct. But same in terms of percentage, there will be a decrease in the margin. That's the challenge and you have to manage it.

S
Sundararajan Latha
executive

But we'll have more of fashion in babywear and the site -- so we'll get better margins for the overall, we'll be able to maintain that 18% to 20%.

A
Ashwin Reddy Ramayyagari
analyst

So you're saying in spite of getting the increasing the men's wear, women's wear in the next 2, 3 years, still the margins can be maintained at 18% above what you're saying?

S
Sundararajan Latha
executive

Yes.

A
Ashwin Reddy Ramayyagari
analyst

Got it. Got it. It was helpful. And finally, sir, on the -- could you comment on the overall demand scenario and compare between the current scenario in U.S. versus U.K. because U.S. is very small for you, but you are making inroads there. Any thoughts on the U.S. versus on where U.K. is overall and where Europe is?

C
Chenduran Sundararajan
executive

[indiscernible] U.K. and the Europe that's again because of this Russia-Ukraine war. So it will settled down in almost 6 months' time, hopefully. So again, we have -- because of consolidation, [indiscernible] generally, the industry, yes, there is a problem in the Europe and the U.K., But as far as we are concerned, our business is being protected with our existing customers, and we are planning for adding a few more customers. But this is not the right time to have new customers at the moment because everybody is doing the consolidation. So we will wait for another 1 year day to add new customers. But compared to U.S., Europe and U.K. are not [indiscernible]

A
Ashwin Reddy Ramayyagari
analyst

Okay. Got it. Got it. And the last question I had is on the retail business. So what is the scale that you're looking at? Or what is the number in terms of stores that you want to have in the next 2 or 3 years? If you put together the existing [indiscernible] Indian market plus head, what is the number that you -- the broad plan that you have for the next 2 or 3 years?

V
V. Balaji
executive

you wanted a specific number?

A
Ashwin Reddy Ramayyagari
analyst

Or an approximate number, so just to know how we're thinking about the scaling up part of the retail part of the business.

V
V. Balaji
executive

We are looking at close to INR 120 crores of revenue next year [indiscernible] brought it and had [indiscernible]. May be [indiscernible], we take some more time for us to operate in putting [indiscernible], but we are looking at INR [ 150 ] crores of revenue next year, where we should be in a position to do 8% to 10% of EBITDA for the whole year.

Operator

Our next question comes from the line of Niraj Mansingka from White Pine Investment Management Private Limited.

U
Unknown Analyst

I just wondering, Sundara, how much is employee count at the end of the quarter?

C
Chenduran Sundararajan
executive

This quarter, we should be closer on 12,500.

U
Unknown Analyst

12,500. Okay. So last quarter, we had said that we had added 500 employees during the quarter. But has the shrinkage of employ? Or is it just a normal...

C
Chenduran Sundararajan
executive

See, this quarter, because of the the [indiscernible], usually, there will be reduction in employee trends during Diwali because people used to go their home say, they don't return back. And moreover, there is a number of working days in this quarter is also low. So usually, Q3 numbers will come down and then start picking up from April onwards. That's how we see for the whole industry.

U
Unknown Analyst

Got it. So what is the target? How employee addition that you're looking at [indiscernible]?

C
Chenduran Sundararajan
executive

So target in terms of employees as [indiscernible] based on employee strength. So when -- we talk about the 10% to 15% -- 15% to 20% is growth next year. We are looking at a 15% growth with employees also.

Operator

[Operator Instructions] Our next question comes from the line of Gunjan Kabra from [indiscernible].

G
Gunjan Kabra
analyst

Sir, I wanted to understand that you have guided 18% EBITDA margins to be sustainable. And as far as I understand, in 2021, 2022, when we were able to do 16% to 18% EBITDA margin, that time, sir, the yarn division or yarn sector was also spinning sector and as a goal was doing pretty well, like all the spinners are also performing very well. So that kind of helped us also, I feel. Then after that, now when the selling division is not doing -- when the spinning sector as a role is not doing well and not able to pass on the prices, so our margins have deteriorated. So when going forward, if we assume also that it stabilizes or -- stabilizes, then how are we seeing the margins to be 18%? Like how does that trajectory work, I wanted to understand that?

V
V. Balaji
executive

[indiscernible] Comparing [indiscernible] it all depends on the size of capacity is very, very important. So for us, we have 27,000 [indiscernible] capacity, which we only works only for our [indiscernible]. And we have [indiscernible] capacity, which also works for the [indiscernible] process. So I don't think you can compare the [indiscernible] as an industry and compare it to apparels because we are early backward integrated. And [indiscernible] production -- excess production we do [indiscernible] being sold outside. That's how we work. So so your question in terms of compression may not be right. But in terms of percentage of guidance of 18 percentage, since we feel that the yarn prices have corrected, and we expect [indiscernible] also to contribute to the overall -- overall stand-alone as a company, and that's where we are guiding 18%. If you recall, our last 2 calls, we have been saying that, because of spinning, our margins are under pressure. And if you look at last year, our EBITDA margins were close to 20 percentage that was also because of the spinning.

G
Gunjan Kabra
analyst

Correct. So sir, that is what I wanted to understand. I understand it is for just the captive views that we do. So when the yarn prices were high, it hedged us also in a way when we were able to do 18% EBITDA margin. I wanted to understand, even if the prices of yarn goes down going forward, how -- will we be able to maintain those 18% margins? And in the previous year, 2021 and '22, when yarn prices were high, we could do around 16% to 18% EBITDA margin, whereas in the previous years, we were doing around 14%, 15%, 13%. I wanted to understand if, going forward, the yarn prices also doesn't move so still we'll be able to maintain 8% EBITDA margin?

V
V. Balaji
executive

It's not about the movement of yarn price alone, right? Spinning is between content to yarn. So the spread being cotton to yarn is to be sustainable over a period of time, I think that could be margin. If the cotton price is higher and yarn realization is lower than the margins are [indiscernible]. So whenever we take orders, we take only the current market yarn price because every competitor works only from the yarn price. So the customer do not [indiscernible] works [indiscernible] where the different.

G
Gunjan Kabra
analyst

Okay. Sir, also 1 more question I had. Sir, if you can guide what would be the difference in EBITDA margins when we cater to children, baby wears and when we cater to adult and men and women wear. So if you can guide the difference in the EBITDA margins has been that be possible?

V
V. Balaji
executive

So see, if you wanted to work these [indiscernible] there the costing in terms of men and women, children would be all same because it's the [indiscernible] Sorry, the voice is break.

C
Chenduran Sundararajan
executive

[indiscernible] give you the margin greater for other kids or babies. Because our internal working where some orders we take in order to fill our dying capacity and the yarn collection capacity. And sometimes we use -- take orders and even cost to cost to [indiscernible] capacity to the overhead. So it's a combination of everything, and is closely we monitor every time when we receive an order. So the [indiscernible]. On 1 hand, we have to see the elite capacity. One other hands, [indiscernible] the competition. So we cannot practically give the -- individually for the product segment wise margin.

Operator

Our next question is from the line of Nirav Savai from Abacus Investment.

U
Unknown Analyst

My question is regarding the retail business. So what went wrong in this quarter? I actually missed the first few minutes of the call, but is there anything which went wrong in the quarter because we have reported losses at EBITDA level in the retail business?

V
V. Balaji
executive

No. We have made a top line of INR 21 crores, and we have made INR 1.8 crores at EBITDA level losses. So the losses is purely because of the [indiscernible] that the new brands are carry, and which is not supported by the top line. So that is where I said in the beginning that this brand, which are new, are now needs to be presented in all the point of sale. So now we are coming up with new [indiscernible]. You need to be present in all channels. So we are in the process of putting all the channels. And now we are present in [indiscernible] present in [indiscernible]. So we have started working with all. So I think next year will be the year where we will see all these brands coming up and our EBITDA should be positive.

U
Unknown Analyst

So in Q4 also, do we sees anything changing as far as the retail business is concerned? Or would we still the low margin or loss-making?

C
Chenduran Sundararajan
executive

Basically, [indiscernible] predominantly that large [indiscernible] of the total business, which does about 80% I think -- 85%. We can turn the round, it is -- the margin is sustainable now. There's been continuous EBITDA plus in [indiscernible] so which means the 85% of the total business is profit-making now. And [indiscernible] market is the new business. And so -- which needs to break in at a certain level. It would take about 2 to 3 years' time, already across 2 years of time between COVID came so all got disturbed. So maybe next year, we are hoping that we will be increasing the turnover of [indiscernible] by increasing the presence in various channels.

And we have same way for [indiscernible]. [indiscernible] if you look at the [indiscernible], the margins on costing is better, but only the overheads are pulling it down because we have to increase the number of outlets by increase the sales. So [indiscernible] and the hedge, the retail business is definitely very, very attractive and profitable. So since we have taken these 2 also, so [indiscernible] minimum time to breakeven, which is happening now. So FY '24, we are confident that there will be the EBITDA plus about 8% to 9%, that's what we are expecting, putting all together.

U
Unknown Analyst

Okay. And what is the exposure to pound if you, see for the third quarter because we had a M2M loss on ForEx, what would be an exposure on pound?

V
V. Balaji
executive

Pound exposure, we should be on 45 percentage.

U
Unknown Analyst

45% is pound. Okay. And going forward, will it be continued to be higher? Because I understand a lot of our receivables are also in dollars, which we had reduced the pound exposure and increased the dollar exposure. So we were selling in USD into a lot of the U.K. clients as well. So has anything changed there?

V
V. Balaji
executive

No. no. I say that, I told you -- I think [indiscernible] which came up from the customer. So see, we have been LTM gaining for the past 2, 3 quarters from Q4, we were making closely around the INR 13 crores, INR 14 crores of gains. And inherently because the quarter will be sort of the change in the prime minster candidate in Q3, there was a change in the currency. So that's why there is a hit in the current quarter. It is a reversal of last quarter's gain [indiscernible]. So ultimately, whatever margins which we book now -- which we show as [indiscernible] EBITDA margin is without [indiscernible]. So there is surely a reversal of the impact of the last 2, 3 quarters.

U
Unknown Analyst

Okay. Right, right. In this deferred revenue, which we had, I mean the -- there was some deferment of orders and all. So putting that, in the fourth quarter, do we see a good growth in the fourth quarter on a Y-o-Y basis?

V
V. Balaji
executive

Y-o-Y basis, yes, we should see some good traction [indiscernible].

Operator

Our next question comes from the line of Prerna Jhunjhunwala from Elara Securities Private Limited.

P
Prerna Jhunjhunwala
analyst

So just wanted to understand our capacity. Currently, we are at how many machines and what kind of additions we are looking at over the next 2 to 3 years? And CapEx for this year and next 2 years?

V
V. Balaji
executive

So currently, we are working with [ 3,400 ] edition on an average. So last quarter, we were at 3,400. And by March, we should be at 3,900, 3,800.

P
Prerna Jhunjhunwala
analyst

So that is a utilization or -- because we were at INR 5,100 crore is what I remember.

V
V. Balaji
executive

Yes. [indiscernible].

P
Prerna Jhunjhunwala
analyst

And what will be our capacity for FY '24 and '25? Are we looking at any addition?

V
V. Balaji
executive

Yes, we are looking at addition also. But, internally, for us, we still have a good headroom to improve by another 26 percentage on capacity utilization. And second also is that we are working; on [indiscernible] where we can look at, say, [ 500 ] of utilization on the [indiscernible] also is possible. So -- and we are also working on the new projects of [indiscernible], which could come by March. So next year, we feel that effective utilization in terms of the capacity could give us a growth of 15 to 20 percentage along with capacity addition also.

P
Prerna Jhunjhunwala
analyst

So what is the effective capacity at the end of next year?

V
V. Balaji
executive

Of this financial year?

P
Prerna Jhunjhunwala
analyst

Yes, after -- in FY '24 and, at the end of FY '24, what will be our effective capacity?

V
V. Balaji
executive

The effective capacity utilization should be 4,200 [indiscernible] on an average for the whole year.

P
Prerna Jhunjhunwala
analyst

Sir, not utilization. Actually, I just wanted the total available capacity.

V
V. Balaji
executive

85% could be the right number.

P
Prerna Jhunjhunwala
analyst

No, no, sir, I'm not asking for percentage. I am asking for the total number of machines that will be available.

V
V. Balaji
executive

1,200 machines on an average for the whole year.

P
Prerna Jhunjhunwala
analyst

Okay. That I get is the utilization. I understood, sir.

V
V. Balaji
executive

Like April, it could be 3,900, and March, it could be 4,500 crore. Average, it should be INR 4,200 crore for the whole year.

P
Prerna Jhunjhunwala
analyst

Okay, okay. Understood. And sir, I miss the order book number in the beginning of speech. What will be our order book and how much that will service for how many...

V
V. Balaji
executive

INR [ 364 ] crores is the current order book. And it will be over a period of 4, 5 months. Certain orders could be for 6 months also. But current order book is INR 364 crores and we have closed for the month of April.

Operator

Ladies and gentlemen, as there are no further questions, I now hand the conference over to the management for closing remarks.

C
Chenduran Sundararajan
executive

Thanks for everyone's participation on the various questions, which shows the interesting [indiscernible] in your company here. And we are very -- we are going very steady, and we are very clear about our plan. We have a very, very clear visibility despite the disturbances in terms of the logistics or any kind of [indiscernible] any recession or whatever it is, but still we have a very clear visibility of where we are heading to. So we are confident about the subsequent quarters to come. Thank you for your time. Thanks for the participation.

Operator

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

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