Vardhman Textiles Ltd

NSE:VTL

Earnings Call Analysis

Vardhman Textiles Sees Improved Business and Future Growth Plans

Vardhman Textiles reported a noteworthy improvement in their business due to favorable pricing and efficient raw material procurement. They successfully covered costs for the season at advantageous rates, despite the reduction in yarn prices over the recent months. The management anticipates reaching INR 10,000 crores in sales for the fiscal year, driven by value addition and optimized utilization. However, sustaining a 15% margin remains challenging due to high raw material costs. The company is focusing on modernization and capacity expansion to enhance efficiency and reduce costs, aiming for full benefits by the next financial year.

Performance Overview

The earnings call indicates an overall improvement in Vardhman Textiles Limited's operations during Q1 FY '25. While retail demand has decreased, particularly in the last two months, the company managed to maintain relatively better realization for their products during this period, aided by their strategic raw material procurement.

Raw Material Management

The management discussed how they were able to procure cotton at favorable prices (INR 54,000 to INR 55,000 per candy) compared to the global market values. This preemptive procurement strategy positioned them advantageously before the prices escalated to INR 58,000 - INR 59,000. However, they noted that with the decline in New York Futures and a productive crop in the U.S., the yarn prices have begun to drop, impacting their pricing competitively in the domestic market.

Minimum Support Price (MSP) Concerns

An essential point raised was about the MSP for cotton, which has seen a 7% increase to around INR 60,000 per candy. This reinforces competitive pressures, as the company faces potential disadvantages if domestic cotton prices remain higher than international prices.

Future Revenue Expectations

Management expressed optimism about achieving revenue targets, suggesting the possibility of reaching INR 10,000 crores for the year. This target is described as ambitious, particularly because it hinges on volume and value addition rather than capacity expansion, which is currently not in the plan.

Margin Sustainability Challenges

Despite achieving a 15% margin, management cautioned that sustaining this level will be challenging. They indicated that improvements would primarily come from better volumes rather than price increases due to current market conditions. The general expectation is that margins could face pressure in the near term, especially with inventory costs and international pricing fluctuations.

Investment in Capacity and Efficiency

The company is investing significantly—INR 2,500 crores—part of which aims for green power initiatives and debottlenecking processes to enhance efficiency in operations. They plan to enhance capacity marginally from current levels, which they believe will reinforce their competitive position as the market normalizes.

Emerging Market Dynamics

The company is seeing increasing inquiries from international brands seeking Indian suppliers as part of their 'China Plus One' strategy, with expectations for shorter delivery timelines and competitive pricing. This shift offers potential for growth in both spinning and fabric segments if Vardhman can efficiently navigate these demands.

Conclusion and Strategic Outlook

In conclusion, Vardhman Textiles finds itself in a transitional phase, balancing favorable raw material costs with potential market challenges from increased MSPs and international pricing. Their focus on investment in capacity and efficiency improvements presents a forward-thinking approach, potentially preparing the company for a stronger position in the competitive landscape, particularly as global dynamics shift.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Vardhman Textiles Limited Q1 FY '25 Conference Call hosted by Batlivala & Karani Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Roshan Nair from Batlivala & Karani Securities. Thank you, and over to you, sir.

[Roshan Nair]

Thank you. Good evening, everyone, and welcome to Q1 FY '25 Earnings Conference Call of Vardhman Textiles Limited. On behalf of B&K Securities, I welcome all the participants and the management of Vardhman Textiles Limited to the call. We have with us Mr. Neeraj Jain, Joint Managing Director; Ms. [indiscernible] Executive Director; Mr. Sushil Jhamb, Director or Materials; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, Head, Fabric Marketing; and Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the floor to Mr. Neeraj Jain for his opening remarks, post which we can have a Q&A session. Thank you, and over to you.

[Neeraj Jain, executive]

Thank you, Roshan. Good afternoon, everyone, ladies and gentlemen. So welcome to all of you for this early call of Vardhman Textiles. The numbers you would have seen yesterday, there has been some improvement in the business of the company, especially for the companies where being [indiscernible] was covered during the season at the right prices. The deal of future when we started the quarter was at a reasonable level of [indiscernible] and the yarn prices were also formed accordingly.

But I think over the buildup last 2 months or so, slowly, the de of retail has been coming down and the prices of yarn also kept coming down. So as a result of that, though we think we have always sold sometimes for the future business for 2, 3 months, I think the realization in this period has been relatively better, which is a little down as of now on the current basis.

On the raw material side, since that was that the full season was where the New York Future was at about $0.80, $0.82 and the available of imported cotton across the world was in the range of $0.90, $0.92 or so. And whereas the reason in India, the cotton was available at INR 54,000 INR 55,000, which in terms of U.S. was relatively okay and in the range of about $0.82, $0.83 [indiscernible] years in. The company covers most of the raw material at those prices. And as a result of that, I think and immediately after the cotton season was over, the pricing went up to almost INR 58,000, INR 59,000 from INR 55,000. So that was the traditional advantage which the company was getting or still is getting.

In the meantime, the New York Future target coming down because of a better crop estimation in U.S.A. and the better value condition in Texas. And as the entire world looked at the New York Future, the yarn prices are also starting coming down, which is definitely giving a content as of now [indiscernible] because the pricing in India definitely higher compared to the market as of now.

The second important issue for the industry is the minimum support price. The Government of India announced the support price, minimum support price of cotton also for the next year, where they enhanced it by almost 7%. And the price for the [indiscernible] fixed at [ INR 7,521 ] per [indiscernible] And if we look at -- if you look at converted in terms of candy, it will be close to about INR 60,000 or so on the minimum support price. And I think that's definitely giving us a concern at [indiscernible] I think we will be very close to about [indiscernible] how the Indian industry will play in the next 3 to 6 months' time. So that's definitely a concern as of now.

In terms of the overall business, we can say, I think the company has done decent, both in terms of the cost efficiency, in terms of the product, in terms of the internal cost saving initiatives. We've been looking at all those ideas and working very hard on that. Two, we've been discussing last 3 years the issue of China [indiscernible], and our belief is and have been repeating it in every call, I believe there seems to be a reality today where more and more brands are looking at India as one of the important vendor-based country for their product. And we are looking more and more business coming to from those vendors.

The only choice will be 1. Whether we can deliver them in 2 to 3, 4 weeks' time is the one to the number of fibers are going to be much more than better as well as cotton. So how do we prepare ourselves for the flexibility, both in terms of the product as well as the number of days with the time. And in case we are in a position to do that, I think that business is improving, increasing dramatically in India. And definitely, Vardhman, being one of the larger and having all kinds of technologies, all kind of products, we have that option available to us, where the customer wants to deal with the better companies, better organized companies, and we definitely fall into that.

The only choice will be whether we can continue to deliver them all these things. And for that, what more is required to be done internally so that we can continue to grab that business, which is a profitable business and it is sufficient in terms of volume as well. So those are the opportunities as well as some issues and concerns on the economies side.

In terms of customer product efficiency costs, I think company is being really good. But definitely, the raw material prices are higher. That's going to give some concern to us for the overall India, for which we are requesting commit also to look at, and we might have to look at how the next season goes in. In the meantime, it looks like since the international price of cotton has lowered, it may -- and though the India direct import is not there, but we can import under advanced where the duty incidents will be relatively lower.

It looks like India is ready to impose [indiscernible] cotton this year and already that import started contracting. And it may be possible that India may import a larger volume to ensure the availability of cotton at the right prices, which is -- and to that extent, the pressure on Indian cotton will be lower in terms of the buying or the cost, but we do not know ultimately what happened to whatever stocks are left there, either with the partners or with the PPA or the individual owners or how will it look like at the end of next conference season. That's something we have to really go and look at how do the entire market scenario behave in this manner.

So that's on the selling side. And also in terms of the -- or the monetization and the expansion projects, which were announced last time, I think the work has started happening on most of the projects. We are on track and we are expecting it to be completed by this deal, which are decided internally. Most of these projects should be completed in this financial year as well as next financial year. Of course, [indiscernible] financial year itself.

We are all on track, all orders, majority of the orders have been placed notable the construction at state and things are working well. And sure, once these projects are completed, it will reduce. It will give us lots of advantages, both in terms of cost as well as improvement in flexibility and some production increase as well, which will further develop the optimization to our overall operations of the company.

So that's on the selling side relative to the many things we can discuss during the QA. And before that, I request Fabric to give some idea -- to start with the could give some idea on the trade marketing and then there are Sarita could take that. So over to you, Mukesh.

[Mukesh Bansal, executive]

Yes. Thank you, Neeraj Jain, and good evening, everyone. As far as fabric is concerned, generally, the period of quarter 1 is there all holiday season period, wherein the demand for cotton textile is anyway lower than yearly averages. So that is why the Q1 is generally lower for the Indian textile companies. But this year, it was an exception due to a couple of reasons. One, of course, is the China Plus One which Neeraj Jain has also elaborated. I think is due to the reg condition, the times are longer so all the buyers wanted to pull forward their already placed orders, or they also preponed some of the orders so that they can make up for some of the lead time that in transit will be higher.

So there was a flow of higher orders during this period as compared to last year same time. Third is that in the past, we have invested into capacity building and capability building in terms of handling more number of fibers and also doing some cotton products, which are specific to the fall holiday season. And fourth reason was that, as we mentioned in the last call also, the inventories with the international retailers, especially in the U.S., they are continuously coming down to a level, which were higher 3 quarters, 4 quarters ago. And the retail sale is also better. So there is more demand coming back to us, which has led to a good quarter last quarter, and same is continuing in this quarter as well.

As far as the other markets are concerned, Europe, not as good as the U.S., but still some recovery has started happening. Some brands which could not bear the pressure of high inflation and lower sales, their business share has gone to some brands who could be better. So somebody's loss is somebody's win. So likely, we are well positioned with the and our businesses, more or less stable. I will not say it will be robust but it is stable and so in the other markets.

The third biggest market for us is the Indian market. Indian market in Q1, it was not very robust but not very low also. The retail sale was not as good because of [indiscernible] decrease. And these sales channels were also disrupted because of the election and other kind of activity. But we are hopeful that Indian market also will have a good demand in Q3 and Q4 because of these activities and also the various sales, which is the main reason for the consumers to buy. So demand is coming back in Q2 from the Indian market as well. That's it from my side. Rajeev, you can take it from there.

[Rajeev Thapar, executive]

So we can start with the QA portion, and I think all the business queries from the or can be answered there only.

[Operator]

[Operator Instructions] Our first question is from the line of Ayun Oswal from Fin Interest Capital.

[Unknown Analyst]

Sir, my question was on the -- like say the last call, you mentioned that about expansion and utilization rate of 72% to 75%. Have you seen any changes in this metric in Q2?

[Neeraj Jain, executive]

So the overall company's utilization is still at the core rate of about 75% only and I think slowly that utilization has come down only. So there is no change in the utilization of spending until now.

[Unknown Analyst]

Okay, sir. And sir, last quarter, you guided for INR 2,000 crores of CapEx. But since then you increased to INR 2.5 crores. So I just wanted to understand what is the additional INR 500 crores going to be used for?

[Neeraj Jain, executive]

So out of this INR 500 crore, about INR 100 crores is the expansion, which we're doing in the open end. I think we are increasing that capacity, and another INR 400 crores for the boilers, along with the power systems where we want to look at the green part. So the existing coal base for a be gained along with some addition for power condition.

[Unknown Analyst]

Okay, sir. And sir, last question from my side. How has the progress been in increasing our green power consumption to 25% to 30%?

[Neeraj Jain, executive]

So as I mentioned, I think we are within the target was taken because we have allocated almost to INR 40 crores for this to be done in the next 2 years. We are progressing well and I'm almost confident that within next 1.5 years, we would have a provision to

[Operator]

Our next question is from the line of Prerna Jhunjhunwala from Elara Capital.

[Prerna Jhunjhunwala, analyst]

Congratulations on the marked improvement scenario and good performance. Sir, I wanted to understand now that Indian cotton is expanding to international cotton as you mentioned in your opening remarks, how is the industry going to have a better margin going forward? Or how is the margin -- how are you thinking about margins right now in the spinning business?

[Neeraj Jain, executive]

Yes. So definitely, there is a concern today because if you go by the today's cotton prices and the margins, which is based upon the international cotton prices, that's definitely a concern. So going forward, a couple of things can happen, a couple of scenarios may develop. The conditions like this. So to that extent, that will be the Indian industry will pass through relatively more disadvantage.

Two, the Indian will also start importing cotton in big ways. And maybe because in the advantaged lines, the overall impact of bits only about the duty impact is about 3.5%. So maybe to that extent, we will import more and more cotton compared to using the domestic cotton. Third, the India, the textile appreciation has been talking to the government to look at some policy where to decide the -- even if they prepare large quantities of cotton, will be their sale policy. So the industry doesn't cover but the government is yet to respond on to that because [indiscernible] in the near future goes by, it goes up by $0.07, $0.08 in the next couple of months, then probably that disadvantage will be relatively much less or the Indian cotton may also be aligned to the word market.

So if you go by the overall cost of the farmers internationally, I think this is a very exceptionally low cost. They're not making any money so that could be a possibility. We are hoping that New York Future exports may go back to $0.75, $0.77. And to that extent then, that disadvantage today may be reduced or may not be there at all. But these are all various scenarios putting our let's see what happens.

[Prerna Jhunjhunwala, analyst]

So then achieving normal margins of 18% to 22% as your ranges looks distant even today?

[Neeraj Jain, executive]

It is, it is. Again, there are 2 factors there: one is a normal margin; second, the utilization of the industry. Since the time industry is utilizing 75% capacity only the moment margin starts improving, the rest of the will also start coming in. So unless we look at the utilization of industry, which is north of 90%, the overall margins may not improve on a consistent basis. Whenever we look at the margins are improving, a lot of those players who are stuck today, they'll also start coming back to the system. I think we'll have to wait for some more time.

[Prerna Jhunjhunwala, analyst]

Understood. And what are you saying for fabric? Have the margins for fabric also started improving largely because an is continuously under pressure? Maybe margins are not normalized. So is fabric able to get a little higher margin because of transfer pricing? I mean, as an industry on a basis? Or there also, we take issues on margin front?

[Unknown Executive]

There has been a slight improvement in margins but that would not be as [indiscernible] also said. That is because of our diversified customer base and also diversified on market. So you can also say for margins to improve on a consistent basis, the industry dynamics should improve.

[Prerna Jhunjhunwala, analyst]

Okay. So which means capacity expansion in fabric business may also not happen in near term? You're almost running full utilization in fabric business?

[Unknown Executive]

Yes, we are at a maximum capacity utilization but we are progressing well towards our expansion plans, and we are under as we had discussed last time as well.

[Prerna Jhunjhunwala, analyst]

Okay. I'm just saying in fabric, you haven't announced anything on normal -- the existing fabric business CapEx?

[Unknown Executive]

So in the normal fabric business, we are planning to expand our solid dye by around 8%, 9% and dye by around 15% to 20%. This was also considered the solid dye was part of demand part of product mix changes. And we saw certain segments where we wanted to enter. That would be our capacity expansion of normal fabric business.

[Neeraj Jain, executive]

So this was the part of the announcement, which was made last quarter where the INR 2,000 crores included the debottlenecking and some marginal improvement also in terms of production.

[Prerna Jhunjhunwala, analyst]

Okay. So this will increase our capacity from 170 millimeters to 180 millimeters to how much now then?

[Neeraj Jain, executive]

About 200 millimeters.

[Operator]

Our next question is from the line of Awanish Chandra from SMIFS Limited.

[Awanish Chandra, analyst]

Sir, congratulations, management team on reaching 15% margin after a long, long time. And sir, my question from this only. In your earlier remarks, you talked about that China Plus One has become reality. Though you have soon concern over margin continuing, but it's still 15% margin look like a good margin to think about adding spend there. So you have already announced INR 2,500 crores CapEx, but very few capacity in reality we are adding on the spinning side. So any thought, any change in the difference in thought towards the spinning capacity as beyond this [ 56,000 ].

[Neeraj Jain, executive]

No. As of now, I think most of the CapEx which is happening other than this open-end project is on the monetization, where we feel see all the making as well as the monetization of our plant and machinery will help us to reduce costs as well as enhance our flexibility to give this differentiated product. So as of now, there's no plan to expand the capacity because this itself is a huge expenditure for us going by our conservatism. And I think we'd like to do this and maybe we can wait for a year or so before we start taking up the project after that.

[Awanish Chandra, analyst]

Okay. So for the number point of view, with this capacity has strengthened our fabric [indiscernible] [ 200 ] on capacity -- and this will be completed by then by FY '26 or mid of '26?

[Neeraj Jain, executive]

On the in, we have mentioned 2 years, which is the current financial year and the next financial year. But I hope most of these things will be applicable or implemented maximum by September next year, so which will be about 1.5 years on this full year, 6 months for the next financial year.

[Awanish Chandra, analyst]

Is there any issues we have faced due to this recent Bangladesh issue? Any demand slowdown in that reason or do we have very less exposure there?

[Neeraj Jain, executive]

Bangladesh is the biggest customer for the export as of now. So out of India, almost 25%, 30% goes to Bangladesh only. And any disruption over there will have the issues here also. But since it's a small kind of a thing, so I mean, it's not really very big. And as of now, there is no impact on the demand, but unless it is will that it continues for a long because there could be a concern. But as of now, there doesn't seem to be an issue.

[Awanish Chandra, analyst]

Okay. And sir, one more thing on this PLI scheme or FDA, any developments you have heard? I mean, we keep reading in the media all these positive news. But in reality, anything you think that PLI something will come and it will help cotton textile industry?

[Neeraj Jain, executive]

Government is announcing it. I mean, they are talking to it on every various forums. So last couple of meetings we have attended with them, they've been only saying that the next PLI is likely to come very soon, which will include the government go also. So we'll have to wait and much only when they announce it.

[Awanish Chandra, analyst]

And sir, 1 very quick thing, that 15% margin, it is very far from 18% to 20%, but considering we are doing so many value addition and projects. And also can you think that at least this margin will be sustained, if not this goes towards 18% in at least we can maintain this level?

[Neeraj Jain, executive]

On par, but I think, again, we'll have to look at the raw material prices also because if the raw material prices in India are higher compared to the world market, I think then it's going to be at least on the spinning side, at the same time, happy definitely can sustain these kind of margins. So it's going to be very challenging and frankly going by the as cotton prices in media, it may be difficult to sustain that for sure.

But let's look at India's also supports by taking some steps, then there is a possibility to sustain it in by as we complete all our modernization and expansion, definite cost reduction and increase in production, we'll definitely look at how to improve upon this. But the question, I think I'm afraid of answering that we -- if we can maintain it at these levels in the given current situation.

[Operator]

Our next question is from the line Resham Jain from DSP Asset Management.

[Resham Jain, analyst]

So 2, 3 questions. So the first one is I think you have mentioned about China Plus One strategy showing some positive traction in your business. I presume this is for fabric business?

[Neeraj Jain, executive]

Both spinning and fabric they're finding that overall sector finding people are interested to look at Vardhman Textiles.

[Resham Jain, analyst]

Okay. And what kind of inquiries? If you can just share more thoughts around it, what kind of inquiries, what kind of size because I presume this will be all large-sized customers. So what are their expectations? And you have explained some of those aspects, but how can Vardhman as a company can leverage out of it?

[Neeraj Jain, executive]

So their expectation the prices have to be competitive compared to the Chinese and the delivery has to be within 3 to 4 weeks for the spinning and maybe about 6 weeks from the fabric. So both these things are the quality is given the prices are given and it's only the which can make a difference. And there, too, you have to manage their the immediate orders as well as the smaller orders. Any company, any country which can do that, I think there's enough business eligible.

[Resham Jain, analyst]

Understood. And are this more profitable business than, let's say, your average kind of margins currently and the margin...

[Neeraj Jain, executive]

Once we are running the products like, I think compared to that, all these businesses, which are relatively lower in volume but more in flexibility and fashion, definitely, the margin there would be better, provided we can produce it at the right cost. In case because of the smaller or very discontinued kind of a product will give the cost increase, then probably you don't take advantage of that. But the entire game will be whether we can produce these products as keeping the costs in control, then [indiscernible] better margin products.

[Resham Jain, analyst]

Understood. Sir, my second question is with respect to the profitability between spinning and fabric. If you can help with the rough cut, what would be the profitability coming from the fabric business, including processing? Out of your total, let's say, profit during Q1, 60-70, whatever rough cut, if you can help, that would be helpful.

[Neeraj Jain, executive]

Very difficult because the reason we have never given the separate numbers for these 2 businesses, so I can only say generally. I mean, the spinning margin, you can calculate it 70%, 75% conversion cost or would the margin and then we have to do that math yourself. From company's perspective, we definitely do not share these numbers.

[Resham Jain, analyst]

Okay. Because 7, 8 years like you used to give separate margins, you have discontinued that. But given that the current spinning situation is not good, is it fair to assume that 75% -- 70%, 75% profitability must be coming from fabric?

[Neeraj Jain, executive]

Not really.

[Resham Jain, analyst]

Things will be better than higher, definitely. Okay, understood. And sir, my last question is with respect to the overall business model. Last 3, 4 years, we have seen spinning facing more challenges than the fabric business overall. And you have more of an integrated business. But a lot of companies have built business model whereby they can buy yarn from outside as well, some kind of yarn so that they can scale up the fabric business much faster. Are you thinking on those lines or that's something which is farfetched?

[Neeraj Jain, executive]

So one, whether we are not expanding the business of fabric because of any constraint or financial, that's not an issue of concern. So whatever are the opportunities we have in the fabric business, we are expanding it without looking at where the yarn comes from. So it's not that there is any constraint on the resources that you don't expand the spending capacity and you expand the fabric business. Both the businesses are independent running and looking at their own opportunities where both the business want to expand this type.

So on the fabric side, we're very clear that whatever are the opportunities, we are actually looking at that, and we are expanding into that business. So there is no financial constraint or a change that the fabric is not being expanded because that money is being utilized by testing. More businesses are looking at their own options, own opportunities and both businesses are going.

Two, in any state, whether it's an outsourcing of the or visit the company the atrium gets the can as the market prices only. Margins are less or higher at separation. In any case, once there are some advantages of internal spending also in terms of quality, in terms of flexibility, in terms of the overall consolidation and vertical integrations. A lot of customers are common where they want to buy both yarn as well as fabric those are the different advantages and disadvantages. But I can only assure you that the public growth is not less because there are not resources available, whatever has then opportunities available, we are doing that.

[Operator]

Our next question is from the line of Nikhil Agarwal from Kotak AMC.

[Nikhil Agarwal, analyst]

Sir, you had mentioned that you have purchased cotton at INR 54,000, INR 55,000 per candy. So for how -- like have you covered -- are you covered for the entire year or is it just for a few months?

[Neeraj Jain, executive]

No, it's only for the season because most of the the Indian cotton season will start from the month of October or so. So entire bottom buying happens only up to the season. The next season will have to buy it at.

[Nikhil Agarwal, analyst]

Okay. So this year, you -- I believe last year also you had procured for the whole year, I mean, in October, right?

[Neeraj Jain, executive]

No, not October. October, we are buying and I think buying continues until February or March. So by the end of March, we generally have the stock for about 7, 8 months. And that's our general thesis what we do unless we find different ways in terms of we have a budget but in terms of the pricing going forward. So most of the time, our is to buy the cotton in the season so that we can secure the right quality of cotton as well.

[Nikhil Agarwal, analyst]

Understood. So the reason why the margins went up this quarter, we can attribute it to the lower price we bought cotton, like that can be the sole reason for that, right?

[Neeraj Jain, executive]

No, no, no. That's not the sole reason in between because the near future was also firm so the price of yarn but also better. So our quarter for the second quarter, the cost is going to be the same, but the margins may or may not be the same depending about the gas prices, which are today depressed because of today's New York Future.

[Nikhil Agarwal, analyst]

Understood. Can you help me with the yarn prices that were there in Q4 FY '24, Q1 FY '25 and currently?

[Neeraj Jain, executive]

So the prices in the last year was in the rate of about $3, I'm talking of counter China was $3. [indiscernible] in between it went as a [ 25 to 30 ] also . And today, it will again to that to $3 or so.

[Nikhil Agarwal, analyst]

All right, understood. And lastly, sir, about the U.K. FPA. So is the still hoping for it or it's a thing of the past?

[Neeraj Jain, executive]

Sorry, come again? By not so the government is talking, they have been announcing it and any FDA which happens, is going to be an advantage to us. So we are hopeful and anything which happened in favor of the industry, we can expose the government and ensure it will be an overall advantage for the entire textile industry.

[Operator]

Our next question is from the line of from [indiscernible] Research Private Limited.

[Unknown Analyst]

Sir, first of all, if you can help me, like for example, as compared to FY '23, we have increased our inventory significantly by approximately 75 percentage. So out of this inventory, what percentage of that would be raw material? Why I'm asking this question is because given that we have increased our inventory substantially to INR 4,000 crores to INR 4,500 crores as of FY '24. And given that, the international cost prices are around 10% to 15% lower from the current level. So as a company, will we be at a disadvantage as compared to a company which has not secured cotton inventory? Just wanted to move on that thing.

[Neeraj Jain, executive]

I'm sorry, I couldn't understand your question.

[Unknown Analyst]

Sir, as compared to FY '23, we have increased our inventory on books by approximately 75 percentage. If you look at the numbers that you have reported, the inventory [indiscernible]

[Neeraj Jain, executive]

Compared to what?

[Unknown Analyst]

Compared to FY '23 last year. So out of that, first of all, I wanted to understand what percentage of that would be the raw material portion? Because given that you procure your inventory, the cotton start from October, so I believe that you would have 7 to 8 months of cotton inventory. And now given that the international cotton prices are 10% to 15% lower, so as a company, will we be at a disadvantage or not? Just wanted to understand on that.

[Neeraj Jain, executive]

No, no, no. So one, whatever the deal, that's primarily on account of cotton only. That's for sure compared to the last year quarter 1. Two, take advantage is still not there because the Indian prices are still higher than that. So the international prices have come down, which has given disadvantage in terms of the lower yarn prices. But when it comes to India, our pricing because of the MSP or inventory held by product operation in India, Indian prices of cotton are still much higher than the price at which we have bought the cost.

[Unknown Analyst]

Okay. So now, sir, for example, as we compare to, let's say, if there's an understanding company who was not too cotton and if they are importing cotton. So as compared to them, will be as compared to a peer or someone, will we be at a disadvantage because they will be getting a cheaper cotton as compared to us?

[Neeraj Jain, executive]

No, no, no. So generally in cotton because the cotton prices have come down only in about last 1 month only. And at the moment, you want to contract any cotton will be available to us, the shipment will happen after 1 month or 1 to 3 months and then another 2 months for the delivery of those cotton also. So you can't -- you will see imported cotton if the New York Future goes down today, you can't start using it from tomorrow itself. So there is a minimum time of 3 to 4 months' time where we have to plan and import the cotton and it's only after that you can use that cotton. So most of the Indian in spite of a new lower New York Future, they are relying only and only on the Indian cotton because the import will take its own time.

[Unknown Analyst]

And also, sir, given that we have increased our inventory substantially, I'm talking as of March '24 as compared to March '23, sir, what was the strategy behind the same because the operations were at the same level, we didn't expand the capacity and we have increased our inventory by approximately INR 1,600 crores to INR 1,700 crores. So what is the reason for the same? Like how are we looking at the scenario? And what is the strategy going forward?

[Neeraj Jain, executive]

So there are 2 things happened together. One, this year was a normal period where we wanted to cover our full season and we covered the cotton for the full season by 31st March. So because we were expecting the prices to go up because the MSC prices are still higher in the and the other traders are buying in a big way and the export was also happening in the season. So our expectation as case that the cotton prices will start build up in India, which actually happened.

So to that extent, we've got the advantage and our strategy both for the quality as well as the cost were definitely well [indiscernible] this year. While the quantity is increase or the price or the volume has increased, last year, the prices of cotton was very high so we did not stop it in the normal way. So it's not only that this year, we have done something exceptional. Last few years has been exceptional that the prices were so high, given the reason that we decided not to store the inventory for the full year.

So this year, whatever it happens that was a normal behavior, if you look at our CTS balance sheet of the company, most or 80% of the time, which is the bare which we have shown in this year. Last year was an exception because of high prices, we did not cover the cotton on a full basis.

[Unknown Analyst]

Okay, okay. So given that the inventory also will last until October only, you are trying to say that, right, over the next 6, 7 months only, and from October, we'll start again acquiring them next year?

[Neeraj Jain, executive]

Yes, that is, we can start, we'll have to start buying it.

[Operator]

[Operator Instructions] Our next question is from the line of Riddhesh Gandhi from Discovery Capital.

[Riddhesh Gandhi, analyst]

Sir, I just wanted to understand from you, how do you expect this discrepancy between the Indian and international prices to ultimately actually play out, given sort of MSPs are high, given global prices are low? I mean, how does this get resolved?

[Neeraj Jain, executive]

No. Again, we have to look at the MSP is one where the government wants to support the partner. But that doesn't mean they'll give the same prices to the industry. There could be a possibility with even if you want to support department, which is a good thing. So the advantage should not be read to be due and eventually the cost, if there is any has to be taken by the government. That's one proposition.

The second, I think going by the cost of farmers internationally also the price of [ 69, 70, 71 ] since unthinkable. And eventually, it can't be remained at deeper because we understand because outside it were also [ 75, 76, 77 ] is the lowest cost thermals for the partner there. So in case the prices do not go up. Next year, we'll probably come down in a big way and then the prices start shipping a big, big, big way. So I think eventually saw in demand and applies a polite the international prices day goes to [indiscernible] then there is no problem on the India also. And [indiscernible] seems to be an exception to do here in spite of -- because the crop price happen is very, very good demand is as of now, relatively lower. So prices have gone down. But eventually, these prices remain. I'm not very sure how much area will come down in the world next one and next year. And to that extent, the price will again start to rise.

[Riddhesh Gandhi, analyst]

Sir, you have given we have sort of revised our CapEx slightly higher. Is that an indication of how we are seeing the overall industry pan out towards the next kind of couple of years or so?

[Neeraj Jain, executive]

Definitely, we are looking at all the options and opportunities to us going by the overall business sentiment and scenarios that margins could be lower, but definitely opportunity looks to be very bad for India as well as to as of now. So we are in And I'm sure if this continues, the trend continues and we continue to get better service, better products, we will not hesitate to expand further in the business. With the [indiscernible] step we have taken, where in spite of the business conditions, we are so confident about the overall business scenario for Vardhman or for all the opportunities, which are mentioned at the so we are expanding our business. And then sort if there's opportunities out there in future also we'll keep looking at that.

[Riddhesh Gandhi, analyst]

Got it. And lastly, are there any potential inorganic opportunities given smaller players may not be able to...

[Neeraj Jain, executive]

We keep looking at it. But I think as size has become so big that for any small unit will not make a, small site will not make them sense to us. So radically, yes, we are open to the idea, but practically, it looks very, very difficult that we'll be in a position to find some alternate to this.

[Operator]

Our next question is from the line of Monish Ghodke from HDFC Mutual Funds.

[Monish Ghodke, analyst]

Sir, do we plan to import cotton under advanced authorization, given prices are so low? Even if we receive delivery after, say, 3, 4 months, I think we will still be getting cheaper cotton, right?

[Neeraj Jain, executive]

Yes. So most of the good spinning mills in India are looking at that option. So definitely is one of them.

[Monish Ghodke, analyst]

Okay. And sir, last time, you had announced INR 2,000 crore CapEx in that, around INR 400 crores, you had said was for green power. And now I think for boiler, we are setting -- we are spending another INR 400 crores. So would this INR 800 crores be sufficient to increase our green mix to 25%?

[Neeraj Jain, executive]

No. Because again, in this, whenever we are creating an SPV for the green power. That SP will be taking their own loans as well as we will be participating a part of nearly [ 26% ] also in the equity. So from our CapEx bids, INR 400 plus INR 400 should be [ 5% ]. But for 25%,it may not be sufficient because that has [indiscernible] whoever is the partner for that, they will also be testing into this.

[Monish Ghodke, analyst]

Okay. And sir, one question on strategy side. So our debt is quite low and our debt-to-equity ratio is quite comfortable. And many state governments offer interest of pension scheme if you are setting up spending capacities. So are we exploring that opportunity? I mean after subvention, the interest cost would be pretty low.

[Neeraj Jain, executive]

Our process is always the business model has to be there if we want to expand the company or the business. Is there opportunity there? Anything over and above in terms of subsidy, it should be nice to have, but it should not be a compulsion that because the facility we are expanding the business. So whenever we find or the teams, there's a business case for expanding the business, we will definitely do that and look at whatever are the centers available, we take advantage of them. But as of now, we have never expanded into pricing only because of the incentives.

[Operator]

Our next question is from the line of Resham Jain from DSP Asset Manager.

[Resham Jain, analyst]

Just 1 bookkeeping question. What is the gross debt and the cash at the consolidated level?

[Rajeev Thapar, executive]

As of June, it is around INR 1,150 crores so also around INR 900 crores of long-term debt and remaining is the working capital.

[Resham Jain, analyst]

And cash, sir?

[Rajeev Thapar, executive]

Cash is also as of June [indiscernible] is close to INR 1,800 crores.

[Resham Jain, analyst]

Including long-term investments and everything else, everything altogether?

[Rajeev Thapar, executive]

Everything is included.

[Resham Jain, analyst]

Understood, sir. And sir, what is the cost of debt for us and what is the yield on cash for average?

[Neeraj Jain, executive]

That's why if you see that the rates are different for short term and long term because clearly the EPC subvention was able to us which we are using in the month of June. So 2% subvention was there, which has gone out for us. And long-term debt, of course, the rate is around, let's say, 8% around 8% or so on...

[Resham Jain, analyst]

I'm just asking what is the average cost of debt and what is the average yield on investment?

[Neeraj Jain, executive]

What we see the cost of our investment from a short-term basis on or liquid fund, then they've taken that disadvantage which was there earlier. So it could be opening around 8% in this quarter and last quarter also.

[Operator]

Our next question is from the line of Apurva, an individual investor.

[Apurva Sharma, analyst]

Yes. This is Apurva from BugleRock Capital. Just last time we spoke about technical exit. I just wanted some more color on -- where are we on that? I think, 15 lakh meters capacity that we have some.

[Unknown Executive]

Yes. So we are -- the work is progressing well. We are currently in the process of ordering machinery. We've ordered some machinery, and we expect to close this process by another 4 to 5 weeks. We are also waiting for rain to subside and then we will officially start civil construction. I'm happy to share that we've gotten all our legal compliances out of the way. And we are confident that by next year, September, this project should be up and running.

[Apurva Sharma, analyst]

Okay. And maybe you had answered it last time, but just on customers and any tie-ups are we looking at? Or is it too early to -- or how...

[Unknown Executive]

Yes. Right now, we're open to opportunities and if something comes up, we will be sure to let you know.

[Apurva Sharma, analyst]

And this also is, as you have mentioned, this was a varied sector, right? So any particular sector that you would want to concentrate given the opportunity for China Plus One, if at all?

[Unknown Executive]

So the opportunity is there for multiple segments. So the most obvious for us is obviously active sports verticals. There are some brands which we are already doing business with. Apart from that, there is also big fans and industrial. They would be more complex, so perhaps we would be taking them up once we are more confident and once we've established ourselves in the relatively basic products.

[Operator]

[Operator Instructions] Our next question is from the line of Falguni Dutta from Financial.

[Falguni Dutta, analyst]

I just have a basic question on yarn, domestic yarn prices. Do they always match import parity? Or I mean, I just wanted to know how are yarn prices? Directionally, obviously, they'll follow U.S., but otherwise. I mean, are they...

[Neeraj Jain, executive]

India is a net exporter of yarn. We are not importer of yarn, so the domestic prices and the export prices generally could be matching plus/minus INR 1 or INR 2 most of the time.

[Falguni Dutta, analyst]

Domestic and export prices would be matching, but now if suppose the international prices come off, then obviously, we'll have to...

[Neeraj Jain, executive]

Then the matching prices will also come down.

[Falguni Dutta, analyst]

Okay. Fine, sir. To the same extent?

[Neeraj Jain, executive]

Yes

[Operator]

Our next question is from the line of Manish, an individual investor.

[Manish Dhariwal, analyst]

Sir, would you be comfortable with giving guidance on the sales side? Would you be able to achieve INR 10,000 mark for this financial year?

[Neeraj Jain, executive]

Yes, going by the volume and the, I mean, we feel there could be a possibility to go up to INR 10,000 crores.

[Manish Dhariwal, analyst]

So it is like a conservative mark or like the higher side?

[Neeraj Jain, executive]

No, because there is no capacity expansion happening in this particular year, so it has to be only through the value addition or better utilization only. So our first quarter is close to about INR 2,300 crores. So if I becomes INR 9,200, so to that extent, it's an optimistic number only.

[Manish Dhariwal, analyst]

Okay. And you just mentioned that 15% margin would be like challenging to sustain. So even if we sustain or even if we improve, so that would be predominantly due to volume growth or price change?

[Neeraj Jain, executive]

So the -- whatever is happening today, any increase happens, definitely, there will be an improvement in the margin because most of the are already covered by the company. So more and more volume in case, we can do a spinning, we're running already running at the full capacity fabric, full capacity. So it's only addition of margins by better products or within that if we do some debottlenecking and we can increase the production that's going to give us the ratio.

[Operator]

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

[Neeraj Jain, executive]

Yes. Thank you, Roshan. So really, thanks very all the investors to be with the part to be a part of the company and attending these calls. I'm sure as I mentioned earlier also in terms of the various opportunities both in terms of customer or the cost optimization, the company is looking at it very, very and is open to all the new ideas. And I think our management is -- all of us are working very hard to achieve to that as well.

The prices or the global phenomenon, we have to give that, but I'm sure we are on the right track in terms of cost or in terms of the efficiencies, those opportunities will also be available to us from time to time. And in the meantime, the advantage to the company today is even though the cotton higher or the spinning margins are lower, but to that extent, I think our public business has been too good. So the overall company that is still the margins are okay.

I'm sure as the time passes as the business becomes more and more normal, things will be better only from these levels in the times to come. Two, also with all these modernization debottlenecking and expansion, which we are doing, it will definitely reduce our cost in big way, which will be available to us partially in the next financial year. I'm sure 6-month advantage would come in the next year and the full advantage in the next year after that. It will definitely give us a huge advantage compared to the rest of the players in the country.

So I'm sure -- and so whatever our thought process, we've been sharing it very well transparent, even the times are good, bad, or whatever we feel we have said it. Let's wait and watch how the things go and what kind of rate changes happen, what kind of sales or the fabric, both in terms of the prices and demand changes. But then sure, whatever happens, we're looking at it, watching it very carefully, where we let and wherever, whenever there's any opportunity and testing not to that. So thank you very much, once again, to all of you. Good day.

[Operator]

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