Vardhman Textiles Ltd

NSE:VTL

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Vardhman Textiles Limited Q2 FY '23 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Nigam from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.

[Abhishek Nigam, analyst]

Yes. Thanks, [ Nigam ]. Hello, everyone. Good evening, and thank you for joining us for Vardhman Textiles' Second Quarter Results Conference Call. We are joined today by Mr. Neeraj Jain, Managing Director; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, who is the senior VP from the Fabric Business; and Mr. Sushil Jhamb, who is the Director for Raw Materials. And I now hand over the conference to Mr. Jain for opening remarks.

[Neeraj Jain, executive]

Abhishek, I hope we are audible.

[Abhishek Nigam, analyst]

Yes, you are audible. Loud and clear.

[Neeraj Jain, executive]

Good afternoon, everyone. The second quarter numbers are over. This is already with you, which I'm sure you would have looked at by at this time. Just to give you a brief, this was a period which was kind of a very unique period, where most of the spinning industry not only in India, but I think outside also is suffering as of now.

There are basically 2 challenges where the industry was facing or it continues to face. One, the Indian crop last year was damaged and the overall quarter crop was much less, close to about 30 million bales or so. On the top of that, because of the custom duty, the imports could not be done well on time because the cost was much more expensive.

As a result of that, Indian cotton started increasing -- the prices started increasing in India much more than the international parity. So the Indian spinners had a bigger disadvantage compared to the other parts of the world, where we started losing our competitiveness. And as a result of that, the spinning capacity was much underutilized. It is estimated as of today, I think almost the cotton consumption is not more than 50% of what it used to be the normal consumption. That's the estimate as of today, which has both the factors; one, part of the spindles were stocked in India and also the part of the spindles were converted on the alternate products, which may be viscose, which may be 100% poly spun and so and so on, that the profitability could be either very low or maybe not -- maybe small losses could also be there.

But the fact is that the cotton consumption has come down to 50% during this period. So the peak consumption, which was estimated close to about 90,000, 95,000 bales a day. In this period -- most part of this period, it was estimated we were -- India has been consuming close to about 50,000 bales per day. We also -- because -- we achieved target because generally, from India, we were doing an export of close to about 110 million to 120 million kg per month. In this period, if you look at the last 3 months, our average export from India has been in the range of about 35 million, 37 million kg only, so which means we've got close to about 70% of our exports in this period. And also the domestic demand also had some pressure because all this capacity, which was stopping, which is stopped initially but tried to develop in the domestic market. And the domestic could not absorb so much of yarn. As a result of that, things became worse.

Also, if you look at the other segments, whether that's home textile, they've been operating at a much less capacity for the last 6 months, denim, similar condition, netting also in a similar condition. So the overall scenario to growth, the only silver lining in this period has been the woven yarn, which was better than the rest of the industry because as we -- after the COVID end, the markets started opening as the offices were opening, schools were opening, and there was some surge of demand on the woven fabric side and -- which is -- I'll not say very great, but definitely better compared to the other parts of the textile value chain. And we are also operating our woven segment -- woven fabric division close to about 90% utilization.

So that's another. So this is related to India. If you look at the outside India, all of us are aware that there's been issues of high inflation, interest rates increase, EMI increasing because of that. And also the gas price issue because of the Ukraine war, where the disposable income in the hands of -- in the hands of people, whether it's Europe, USA has been much less compared to what it used to be. And it has an immediate impact on the discretionary demands. So discretionary demand wherever the demand could be postponed. I think textile comes into that segment.

Look at the demand in this period has been much, much, much less, and even sentiment as on today is not very positive. So I think that's also what is causing the misutilization. So India, we started losing more or we started losing our competitiveness much before. But eventually, as the time passed, I think starting from where August and September, most part of the work today will be operating in our view at a capacity utilization of about 70% when it comes to the spinning, be it China, be it Vietnam, be it Pakistan, Pakistan had their own issues of floods and all where the cotton crop is not available.

So they were losing more. India has already explained. So even Vietnam, Bangladesh, Pakistan, I think the overall utilization has been very less. The third factor in this segment was also -- the last year when the COVID was there, there were lots of challenges on the supply chain. So most of the brands were they do putting up more orders than what they could have consumed for 2 reasons. One, the supply chain, they were not very sure when the materials have been reaching them; two, since the prices are going up daily. So nobody was minding it. So everyone wanted more material to be bought because otherwise in Dubai after a couple of weeks it was increasing prices.

So everyone was happy buying more, both on supply chain and increasing price trends. And in this period, supply chain was far better. It started restoring their old position. We were reaching a normal period of time. So whatever was the excess inventory in the system. The brands were not ordering their further orders on account of reduction in the overall stocks, which they were carrying.

This was the third impact. So one is the normal demand, which got concerned; two, the demand from India because the bottom prices was a challenge; and third, most of the people who serve -- was there in the world market, they had excess inventory and since the price of cotton started coming down, infection concerns were there, everyone was having a concern on the consumption going forward. So everyone in the system decided to reduce their inventories.

So whatever the normal demand -- normally comes in even that was not there. And in the last 2-month, 3-month period has been pretty petty bad from that perspective, not only for us, but I think for most part of the [indiscernible] worldwide. So these were the 3 major factors which have impacted the overall textile industry.

Coming specifically towards demand. So in terms of our spinning capacity, I think off and on, we have been reducing -- stopping the capacity in the range about 10% or so. So our production was 10% -- some 12% -- 10% down. And we had another about 8% to 10% capacity diverted to the alternate product, which was non-cotton. So maybe not making money, but at the same time, maybe helping us in reduction in the losses. When it comes to our woven fabric, we were still in a position to utilize almost 90% of capacity on the process woven side. There's a grade even we sell some surplus grade weaving [indiscernible] utilization mode in the range of about 80%, 85%.

But the process I think still we could manage to do close to about 90% plus. So the future prospects, now the new cotton crop has started coming in India. And also the last year since the quantity was not there, the quality of the cotton was also very bad. So it was also a challenge to maintain the quality of final products with that kind of a quality of cotton. So most of the spinners are taking losses in terms of realization, but in terms of yield to ensure that the proper quality of yarn would be there in the market. The next season is started in terms of prices. In the meantime, New York Futures kept coming down and from a peak of about USD 1.40, USD 1.45 per pound. It is today close to about USD 0.72 per pound. So continues to come down to about 50%.

The Indian prices have not come in line as of now because we still have a shortage in India because the season has just started, and we hope maybe next 1 week or 2 weeks' time, our prices will get totally aligned or in parity with the international prices. So the Indian prices are still close to about INR 2,400, INR 2,500, which is positive on the near future, which is one of the highest. And then that's again a cost of shortage. And our arrival is likely to pick up in the next 1 week. And we hope, by that, our Indian cotton prices will also be in parity with the international prices, which means the Indian spinner will start losing or gaining.

We've seen that not with the other parts of the world are doing. Last 3 months was the situation where we were losing more because our cotton prices were higher compared to the other parts. But I hope now going forward, I think towards the -- in the middle of November or end of November, depending upon which spinner has how much cotton available to them with the previous stocks. But surely December onwards, I think our prices -- our loss or gain would be aligned to the international gain or loss as far as the spinning is concerned. Two, the overall quantity of crop looks good. And whenever the quantity is good, the quality generally is good. So if these things both go in higher demand.

So the quality is good when its quantity would be good or vice vera, if the quantity is good, the quality is also likely to be good. The overall crop size as per the CAI figures, we have estimated it to be close to about 344 lakh bales, whereas the industry estimates are this could be in the range of about 36 million -- 360 lakh bales for this season. The quality seems -- till now seems to be quite good. And we hope by once the arrival picks up, at least both in terms of quality and in terms of quantity, the investment as we get -- we'll start getting some breathe maybe next couple of weeks.

The final part when this capacity utilization will improve, it's very, very difficult for me to say as of now because it's not related with India or with Vardhman. I think in the time, there are troubles, issues, difficulties in the western part of the world, it's likely to be difficult to continue to probably start the full operation by most of the industry. So maybe everyone will try because today, we lost our competitiveness because of the cotton prices, and we lost lots of exports. But I hope with the cotton prices becoming reasonably at a reasonable level in comparison to the international prices, there will be some activity which will be improving in India, even though the situation may not improve outside.

So my personal belief is that we today is at almost 40%, 45% spinning cost, it will definitely be improving in times to come, even though there could be some shortage of demand worldwide, which could be in the range of about 10% to 15%, it's anyone's guess, but we believe 10% to 15% demand overall work could be reduced. So the cotton consumption, which was estimated to about 25 million tonnes per annum for this year initially, it may come down to maybe about 23 million or a little less than that also. So the time will tell how the demand develops and how the overall situation in the Western [indiscernible].

Looking at all these uncertainties. So we've been looking at the various things what we -- internally we could do to pass through this time. So one is, of course, we have to look at whenever best possible how do we ramp up our capacity, which we are trying to work on. Also, the second was whatever the cost control measures or whatever the possible routes of continuing or maintaining the relation with the customer, I think that's one another area where I assume a lot of work is going on with us. And we hope, whenever situation starts improving, we will -- definitely -- we should be definitely one of the earliest ones to restart our all operations, and I think out of the top spinners, almost 40%, 50% spinners were likely to start within the next week or 2 weeks' time. Third, I think looking at all these uncertainties, we have also decided to defer our expansion plans as of now, to wait for the right time to come in. So I'm not seeing deferment as a very long-term deferment. We just want to look at how the situation evolves and how the overall consolidation of things happen. And to that extent, whatever were the expansion plans, we'll just put it on hold for maybe a couple of months.

And once the normalcy happens, we'll take a view only after that. We'll maintain the 2 plants, which were under implementation. One at Vardhman Yarn, which was [indiscernible] plant, close to about 35,000 spinners. That's fully operational as of now. The other plant, spinning plant, 65,000 spinners that will be, that also got delayed because of the supply chain issues and the various -- and the late coming since the machinery available come outside. But it's now under commissioning. And I hope that maybe next one month or so, we'll start operating it partially. And by 31st December, I expect the plant to be fully operational. Of course, we have to look at the Viability index. I'm not talking that from the plant readiness perspective. I think the next 1 month, we might start looking at starting the trial runs and maybe by 31st of December, we'll try to complete this project as well. So this is overall what's our thought process and what's happened in the last quarter.

Now I'll request for the question-and-answer session. And I think the remaining queries who ever has, we will keep answering in that.

Before that, Mukesh, do you want to add something which I've missed?

[Mukesh Bansal, executive]

[Foreign Language]. You have covered quite in good detail.

[Neeraj Jain, executive]

So I think this is both from a company's perspective. Now I request you to start with the question-and-answer session, so then we can take it up accordingly.

[Operator]

[Operator Instructions] The first question is from the line of Aman Madrecha from Augmenta Research Private Limited.

[Aman Madrecha, analyst]

Sir, can you help me with like what percentage of the spindle capacity you're running at currently? And number two, I would like to ask is that, as you said that the industry is operating at 40% to 50% and over the next 2, 3 weeks, as and when the cotton arrives, the industry is expected to start operating at like, not normalized capacity, but at matters of capacity utilization than the current level. But what we were reading was that like many of the spinning mills have converted benches to produce viscose or the other manmade fibers. So like can you please highlight on that?

[Neeraj Jain, executive]

I already covered this in my speech but for the benefit of you and others, I'll again repeat. So the stock grows to about 10%, 12% spinners and another 10%, 12% we converted on the alternate products like viscose or spun. So as of now, out of that stocked capacity, we have started it partially, maybe 50% of that and the remaining also, we have to look at how do we do that? We converted capacity on viscose and so we have to continue because still the cotton prices are high in India and the enough orders are not there here as on today also. Third, I only said Indian cotton prices are much higher.

So the losses are higher here. So the spinning productivity that got a bigger damage in India. And my belief is our cotton prices are almost aligned with international markets. Probably, we will be utilizing better capacity in India compared to the 40%, 50% cotton spinning, which is stocked as on today. So both, the cotton availability, and how do the market behave? How do the -- because of the 2 silver lining for India. One, whatever -- most of the brands, whatever stocks they had, they are now almost vanishing. So maybe it's a matter of another 3 to 6 weeks where the orders will start coming in because they have exhausted all their stocks.

The pipelines are already [ emptied ]; two, since our own [indiscernible] prices will be aligned, so we will not be losing higher as we will be, as I mentioned earlier, losing our [indiscernible] with the other parts of what they would be doing. So we'll be comparative to that extent. So both these factors gives me a feeling that the utilization would improve. How much, I think we'll have to wait and watch. But it looks like from that perspective, utilization perspective, the worst is over for India.

Worldwide, others are, suppose, stocked 20%, 25%. We have stocked 50%. So maybe, yes, that's continue to stock at 25% from 50%, we improve our utilization to about 70% or so. So we'll have to wait and watch. But surely from India's perspective, it looks like the worst is over.

[Aman Madrecha, analyst]

Okay. And sir, secondly, I would like to ask you that because like currently, we are witnessing that the cotton prices are coming down, and so -- you can highlight -- can you put some highlight on the spreads, like how are the spreads -- like at current cotton prices and yarn prices, are we at a breakeven? Or are we incurring losses? Like some are on the spread part, like...

[Neeraj Jain, executive]

So for most of the products, it would be breakeven, I'd say, as on today.

[Aman Madrecha, analyst]

Okay. And sir, can you highlight something from the demand from Bangladesh front? Because for us, the majority -- like is it -- like a large part of our product is exported to Bangladesh. So how is the situation over there? Because they were also facing some turmoil on the production part in the economic part.

[Neeraj Jain, executive]

The Bangladesh, biggest customer for them also is Europe only. So it's nothing to do with the intervening customers -- intermediated customers, which [indiscernible]. The ultimate demand is led from the Western world, which is Europe and U.S.A. That will impact us and so we are experiencing that. So since the orders are not there, the demand is less from Europe to Bangladesh. So the Bangladesh also is operating at a much lesser capacity today on the garmenting side. So when we are operating at the local capacity, they are also not requiring the yarns.

So it's a full change to Bangladesh. It's not an end consumer. The end consumer is Europe as for the Bangladesh...

[Operator]

[Operator Instructions] The next question is from the line of Falguni Dutta from Jet Age Securities Private Limited.

[Falguni Dutta, analyst]

Just I have 2 questions. First is what would be the -- kindly could you just quantify the current spread?

[Neeraj Jain, executive]

As I already said, the current spread is almost to a breaking even with the current cost of cotton.

[Falguni Dutta, analyst]

No. I mean could you quantify that? Because last time you had, I think, mentioned one number, so I just wanted to compare. You said its breaking even.

[Neeraj Jain, executive]

Yes. Yes, yes. So it's close to about $0.70, $0.75 as of now.

[Falguni Dutta, analyst]

Okay. And sir, just one another question is in terms of your optimism, how would it be different compared to what you said in Q1? Would you be slightly more positive than your commentary in Q1? Or at the same level or negative as regards to the yarn demand situation.

[Neeraj Jain, executive]

Yes. So one is in the medium term, what I mentioned earlier, I think that the same belief that all brands who are looking at India [indiscernible] continues. People want to look at China Plus One if that continues. So there is no fundamental change from that perspective even today right here. The first quarter, I was very clear that things are becoming difficult and challenging first because at that stage, the demand issue was not there [indiscernible] stage. But the cotton was already a concern. So after that, I think because of a very high gas prices, the lots of [indiscernible] price in Europe, which is giving a lot of concerns [indiscernible]. The only advantage we have today is that now it will shake our cotton prices [indiscernible] year prices are aligned to the international prices.

So this year, my belief is the spinning has stopped by about 40%, 50% and I personally feel, there should be some recovery only though the margins may not improve till the time our utilizations are less. But at the same time that these losses the spinners are having because of stopping the capacity, they'll start covering their cost. And slowly as improvement happens, [indiscernible] about 75%, 80% capacity utilization. I'm sure we think will start -- will be sure will be better compared to what we're thinking.

From the capacity utilization perspective, from India's perspective, it looks like the worst is over. From my end, this will improve on the possibility of further [indiscernible] stoppage.

[Falguni Dutta, analyst]

And sir, one last question is on -- we would have exhausted all our last season's crop, right? I mean would we have any cotton inventory?

[Neeraj Jain, executive]

30th September, we would have because the new started -- season start only in the month of November. So I think partially, we would have those cotton available. But yes, by this time, I think we are [indiscernible]. From 30th September, [indiscernible] I think 1.5 months or so, inventory must be there in the system for everyone as the new cotton will start only somewhere 15th November.

[Falguni Dutta, analyst]

Sir, 30th September, I missed, you said 0.5 months or 1.5 months?

[Neeraj Jain, executive]

1.5 months or so that's my belief.

[Operator]

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

[Prerna Jhunjhunwala, analyst]

Sir, I think this is a fantastic set of results that -- in current scenario. So congratulations on the same. Just wanted to understand the demand scenario a little bit in detail. You mentioned that the woven demand is still better than other segments. So could you please give us some color with respect to domestic and international, how things are panning out? And how is the order book panning for the next season?

[Neeraj Jain, executive]

Mukesh, would you like to answer this?

[Mukesh Bansal, executive]

Yes. I'll take up this question. At least if you look at the new orders placement, even in the second quarter, people are working on correcting their inventory, which they had bought in the second half of the previous financial year. So people were still sitting on higher inventory than recent because of 2 reasons: One, they bought more because of the pent-up demand; and second, because of the logistics constraints at that time. It started easing also. All of a sudden, they had inventory [indiscernible] would have any sale that we land in the U.S. [indiscernible] all of that landed simultaneously.

Third aspect is that the change of working system rather than 100% work from home, the system converted to hybrid. So people started going to the office. So they get in more formal wear than the casual wear. So these 3 accounts, thereby inventory buildup, which was the impact of that, while still prevailing up in the second quarter. Now we believe that, that may not have 100% corrected as of now. But certainly, there is a lot of correction would have happened on the inventory side.

Second aspect is that now in addition to the inventory question. So there are new issues which have cropped up, which is inflation and the fear of recession that will happen.

So there some -- couple of that, we expect that the demand in the coming quarters could be slightly better, especially from the U.S. market. But Europe is still likely to remain subdued because of the energy prices and the yarn prices.

As far as the India market is concerned, in India because of the yarn prices were very high at end of the Q1 and beginning of Q2 and the people were looking at the new cotton prices are going to be low, so people have been holding on to the new purchases. But the sales were not as low as were the purchases. So we expect that the inventory in the pipeline would have reduced by this time. So maybe November, December, when the cotton prices are also in the affordable range, cotton and yarn prices both. And also the inventory correction would have happened. So the demand may come back to a better level, may not be still normalized as we already mentioned that demand will still be 10% to 15% lower worldwide, but still it will be better than what it is today.

[Prerna Jhunjhunwala, analyst]

Okay. This gives some clarity. But international summer season orders, are they -- are they also impacted as of now because order booking for summer season would have also started. And -- one more addition to this question is with respect to deemed demand. So though there is some pressure, I understand, but China Plus One opportunity should help in both yarn and fabric to sell or export more to countries, which were earlier sourcing from China. So that opportunity still remains with India?

[Mukesh Bansal, executive]

Absolutely, Absolutely. Neeraj, we also mentioned that. One is the demand from a like-for-like perspective that the same customer and the same program. So there, we still see some decline because of the inventory correction and natural lower level of volume because of the fear of recession. But then suddenly, there are new customers who are wanting to buy from India. And during the lockdown period when there were COVID restrictions, people were not able to travel as much as they are open to travel now.

So -- but then as you make a beginning, there are some restriction periods, 3 to 6 months, when you entertain a new customer to get your facilities certified, you do some sampling and all that. So the impact of it will start flowing in maybe from the fourth quarter of the financial year.

[Prerna Jhunjhunwala, analyst]

Okay. Understood. Understood. Sir, my next question is on expansion. If we are confident on India opportunity gaining more strength going forward and capacities will take at least 12 to 14 months to come in, why this deferment in expansion plan for some time also? And what are the plans for expansion in the fabric business?

[Mukesh Bansal, executive]

Neeraj sir? So the question is if you are seeing an opportunity in the medium to long term, why are we deferring our expansion plan?

[Neeraj Jain, executive]

No, no, it's not a question of deferring for a very long period of time. I think, as I mentioned in the last call also, even today, if you look at the deliveries of machine, most of the people are still talking about 2, 2.5 years because the supply chain has just started getting -- being adjusted, and I hope things will be better; two, because of the cost factors, still everyone is talking about a much higher cost. So my belief is, even if we delay it by 3 to 6 months' time, I'm sure the end time could still be achieved with a much lesser cost, with a better -- with better prices also.

So it's not going to give us any major disadvantage even by deferring that. The only thing is, I think, let the things get stabilized, and I still feel that the perspective of 3 years expansion, which we have taken can still be achieved even if we delay it by 3 to 6 months' time. So not really a big issue, I got in mind.

[Prerna Jhunjhunwala, analyst]

Okay. 3 to 6 months, okay. That is understandable.

[Neeraj Jain, executive]

So I think if the things will do, we'll definitely take a view immediately after that.

[Prerna Jhunjhunwala, analyst]

Okay. And sir, any plans on the fabric side or any other product extension that you're looking forward to taking into consideration that India has a much larger opportunity?

[Neeraj Jain, executive]

In terms of our apparel fabric whatever we can do, we are continuing to do that. The only -- in our view, I think the one major change which is likely to happen in the times to come is the more of our synthetic-based products. So definitely, we are gearing up ourselves in terms of creating better capabilities for the synthetic processing, especially but it's cotton, et cetera. So those are some of the ideas which we are already doing. And hence, it looks like that product sales can go better. I think that we are just trying to prepare ourselves and trying to invest both the soft knowledge and the asset for debt.

[Prerna Jhunjhunwala, analyst]

Okay, okay. Sir, my last question as of now is do -- how much inventory -- old inventory would you still have in the system? Because I could see that there was no major hedge gain that you got in this quarter?

[Neeraj Jain, executive]

So as I mentioned earlier, normally, the new cotton season in India, the full cotton arrival starts somewhere in the month of November only. So since it was a period where there was no cotton available, everyone within the system, we saw what they are running because we would also be, I think, the inventory of about 1.5 months or so on a reduced production base because otherwise, we're continuing it on a full basis. Probably, we will be back in a shortage of cotton and it would have been difficult to run the operations whatever we are carrying. So to that extent, we readjusted it. And based upon the reduced consumption that would be -- I think the overall inventory of about 1.5 months or so, which is getting readjusted and we will slowly start buying the new crop. And I hope, maybe in next couple of days, we'll start getting the new crop in the full-fledged way.

[Operator]

The next question is from the line of Roshan from B&K Securities.

[Roshan Nagpal, analyst]

Sir, just wanted to understand what is the risk of inventory loss in 3Q?

[Neeraj Jain, executive]

There will be [indiscernible] whatever cotton is available, the prices of yarn is already readjusted to the need of future. So to that extent, I think there will be definitely a reevaluation happening; two, the -- in the books of accounts, every factory, they look at the cotton cost of consumption. And on the top of that, they had the cost of conversion. [indiscernible]. So once our cotton prices come to [indiscernible] the new crop, which will be much cheaper, probably there would be a valuation hit also, which will be coming in, in third quarter as a onetime cost. So it's difficult for me to quantify or to share it as of now. But yes, that's surely likely to happen in third quarter.

[Roshan Nagpal, analyst]

Okay. And if you can share the average cost of cotton that you have?

[Neeraj Jain, executive]

For everyone, it will be in the range of -- I think the entire industry, it will be in the range of anything between INR 85,000 to INR 95,000.

[Operator]

[Operator Instructions] The next question is from the line of Awanish Chandra from SMIFS.

[Awanish Chandra, analyst]

Thank you very much for this opportunity and congratulations, sir, on a great set of number in a challenging demand environment. The first thing, a bookkeeping question. Sir, when we say our total spindle capacity as an annual report, FY '22, 11.3. Does this include 35,000 that you are commencing.

[Neeraj Jain, executive]

No, no, no. That's after that.

[Awanish Chandra, analyst]

Okay. So currently, it is 11.6%...

[Neeraj Jain, executive]

Yes. So whatever because the installed capacity, which is actually installed in the factory and anything which is coming after that is over and above that.

[Awanish Chandra, analyst]

Okay. So -- and you are adding INR 65,000 that will get commissioned hopefully by December? So total will be then [ 12.2 ]?

[Neeraj Jain, executive]

Total 12 lakh spindles.

[Awanish Chandra, analyst]

Okay, okay. So putting all together when everything gets commissioned, it will be 12 lakh [indiscernible]. Okay. And sir, we have seen all kinds of margin in the last 3, 4 quarters, good, bad, normal. So any color you can give in an enormous demand environment and get the cotton settled around INR 65,000, INR 70,000 per candy? What one can expect in terms of margin?

[Neeraj Jain, executive]

No, no, it's nothing to do with the Indian cotton prices. One has to look at the New York Future where -- what is the yarn market is? And based upon that, the yarn prices will get readjusted based upon that. The Indian cotton is only a regular figure where we should be aligned to the international prices. So if New York Future today is at $0.72, theoretically, our cotton should be in the range of about $0.75 to maybe $0.80, whereas actually, our cotton is still at $0.92, $0.93. So still expenses by $0.10, $0.12 per pound, which we hope -- it's again because of the shortage as of now today in India because the arrivals are still not picked up. That's why this gap is there. So this gap has been coming down compared to the international prices, but I think still the gap is there. And we hope next week, 10 days' time, this gap will readjust to quite -- should readjust to quite an extent.

[Awanish Chandra, analyst]

Okay. And sir, my last...

[Neeraj Jain, executive]

INR 65,000, INR 70,000 has no sense, no issues, no concerns. It's only whatever the New York Future, are we aligned to that or not? That's more important.

[Awanish Chandra, analyst]

Okay. And sir, my last question, what would be our strategy of inventory acquisition where we used to have 6, 7, 8 months of cotton inventory. So are we going to change in this current cycle or what would be strategy?

[Neeraj Jain, executive]

So it depends upon 3 factors. One is what is the kind of quality we are talking of; two, what is the kind of commercial future prices we are talking about; and third, the international demand prices compared to the Indian situation. That whether our cotton is at discount or is at premium?

So we haven't decided as on today, anything that what is we are going to do. But I think once the season start in, we'll have to decide those policies. But definitely, I think some stock it will have to have because otherwise, they will not be able to quality at a later stage. So I can't say whether it will be 6 months, 7 month, 8 months or lesser. It all depends upon the quality deterioration as well as our price -- our judgment on the prices going forward.

So it's too early to say as of now because in any case today, going by the Indian cotton is still expensive and the world market, nobody is talking about anything big -- adding anything into stocks. So currently everyone is just started buying on day-to-day basis. Once our prices are aligned and then looking at a future outlook, we'll have to take a view. And I think it will take -- nearly take us another 1.5, 2 months to start making up our mind on the stocking policy.

[Operator]

[Operator Instructions] The next question is from the line of [ Surya Narayan ] from Sunidhi Securities.

[Unknown Analyst]

Just to understand the waited, what's more of the industry and sustain -- continuously for the second quarter and the third quarter, we are actually seeing definitely, the industry is waiting for alignment of international prices, the local prices are not aligning. So just to understand the situation, that as for the USD reports World Trade is projected nearly for 1 million bales lower and the offtake of China and Pakistan is lower. So the overseas countries like [indiscernible] and Bangladesh, they have around 40% to 50% [indiscernible] to us.

So if that alignment doesn't materialize by December or so? So what is the comfort zone the industry is looking at because we are still 50% higher than the long-term average of around 20,000 bales that kind of scenario. So where the industry will get comfort to start initial buying or because if you see the recent -- including your numbers, the recent balance sheet positioning is that it the companies are simply paying off the current working capital debts and they are sitting in a lean position. So just to understand, when the activity is expected to start?

[Neeraj Jain, executive]

There are 2 factors...

[Operator]

[Operator Instructions].

[Neeraj Jain, executive]

Yes. So one is the demand of yarn where if the demand yarn is there, then probably we'll start looking at people -- will do convert already calculate their prices of raw material, it makes sense, then they will start time. So it depends upon how the yarn behaves -- how the demand behaves and that's one comfort. But I think from India's perspective, more important is that our historic difference from New York Future is in the range of about $0.05 to $0.10 over and above the New York Future.

So today, if the New York Future is at $0.72, that means our cotton should be in the range of about $0.80, $0.82, worst case scenario. Whereas today, it is close to about $0.92. And $0.10 per pound is too expensive. So that's where this comfort is not there. So nobody is talking about INR 20,000, INR 30,000, INR 40,000 is a good or a bad price. The only thing is that international prices or international cotton whatever prices there, our Indian cotton, we should be having a same -- some discount compared to the landed cost of imported cotton because of the quality -- because the imported cotton quality is relatively better in terms of contamination, et cetera.

So normally, Indian cotton on a landed cost basis to all -- to any spinning country, Indian cotton should be 3x to 5x lower than that. So that situation is not there as of now. And I'm really hoping that within the next 2, 3, 4 weeks, that situation should come in. In the time that situation doesn't come in, nobody is going to add any stock. So people will be only buying day-to-day basis to run the existing capacities which we are doing.

More I'm expecting any bigger spinning activity to improve unless the cotton price comes to the level which I've mentioned.

[Unknown Analyst]

Okay. My second question is that if, let's say, for the countries like Bangladesh or China, which are actually the target market primarily for Europe rather than ours, majorly U.S. So in that case, if we continuously the EU market will be weaker due to the military situations there. So if that transfers for a longer period, then obviously, the -- some inquiries may come from the Bangladesh side for the U.S. market and our kind of target zones because they are also serving to market clients. So what is that these emerging from -- or these could emerge for either Bangladesh or maybe Vietnam would be getting, let's say, cheaper cotton from U.S. and other areas because the Indian cotton prices are not aligning to international prices?

[Neeraj Jain, executive]

It's not like this. It's very difficult to convert on the garmenting from one country -- one supplier to the other. It's not very easy. But it is easy to replace the spinner. So what was happening in this period since our cotton prices are higher, we were not in a position to supply to the world markets because our costs were higher so the business got shifted from India to Vietnam or to other parts. So the overall demand was less for Vietnam but still continues to support us [indiscernible]. And to support Bangladesh, we were not in a position to supply as costs were higher in Bangladesh. The Vietnam has been supplying to them.

So when it comes to the end product of the garmenting or the woven segment, I don't think that changes very fast in a big way. But yes, the spinning suppliers would be changed relatively easily. So it's nothing to do if the Europe is not good, probably the Bangladesh starts looking at the U.S. orders and so and so on. It's not really that we're going to see that.

Number two, when it comes to the spinning because our major business is spinning. So -- and we're all export based and primarily direct or indirect, including our [indiscernible] we are 70%, 60%, 70%, 80% is the export direct, indirect.

So it's really not a bigger issue for us, whether USA does good or Europe is not doing good. So eventually, wherever the demand is there because we are supplying material to Bangladesh, which is supplying to Europe. We are playing in India, which is supplying to U.S. and we're supplying to the other country, which may be supplying to Middle East or other parts.

So in the time the overall demand is good, things are better for the entire industry. If the overall things are not good. Wherever the reduction is there, the spinning will take a hit whosoever it will be compared with the raw material prices. They'll keep supplying to those countries where ultimately garmenting or own textile will be under manufacturing.

[Unknown Analyst]

Okay. And the follow-up question is that last year, the Bangladesh did RNG export of around $40 billion to $45 billion and much above than ours to Europe and other countries. So if Bangladesh will not, let's say, take more of raw material from our side due to the higher prices. So if there are reports that Bangladesh and other countries, they are downsizing their production this year. So if that happens, so will India get some of the pie of the Bangladesh? Let's say, $10 billion or so? Is it a possibility?

[Neeraj Jain, executive]

No possibility because Bangladesh is not in a position to continue with the production because there is no demand in Europe. Bangladesh is much more competitive when it comes to the garmenting from -- compared to India. So if they are not in a position to take orders, there is no possibility that India will be in a position to take those orders if Bangladesh starts to compete because as far as the yarn prices are concerned, Bangladesh or Indian garment will get the price -- yarn price at the same prices. So there is no disadvantage to Bangladesh, if they want to import yarn. So the yarn prices is -- blended price of yarn in India or to a country outside is almost comparable.

[Unknown Analyst]

So in that case, can we see a significant reduction in the volume of overall trade in international markets compared to last year?

[Neeraj Jain, executive]

That's what we are talking. That's what I'm saying. If the spinning is overall in the world is running only about 70% or so, it's a significant volume drop which has already happened.

[Unknown Analyst]

So what kind of volume degrowth globally, we are talking of? Is it around 50%, more than 50%?

[Neeraj Jain, executive]

No, no, no. Our assumption is, as of now, because ultimately, the more impact has got up. So our assumption is the demand drop can be in the range of about 10% to 15%. I look at from the cotton consumption perspective because if you look at the cost book number, so the last year, they had estimated the consumption in the range of about 25 million tonnes. This year, their latest figures, they've given it to be 23.6 million tonnes. So they have dropped it by about 6% to 7%. And all the time is passing, I'm sure they'll keep correcting that. So our idea would be anything about 12% to 15% drop in the cotton consumption will be there.

[Operator]

The next question from the line of Roshan from B&K Securities.

[Roshan Nagpal, analyst]

Thanks for the followup. So I'm just trying to understand the risk of yarn imports from China. And the risks attached with the imported Chinese yarn eating into the market share of Indian players?

[Neeraj Jain, executive]

Let's look at we are the net exporter of yarn to China. And this only happened because we were competitive as a country. Now this year, as I mentioned earlier also, our raw material prices were much higher, whereas the prices in China were much less. So they could be -- they could export the yarn to India. But once our costs are like -- once our raw material is normalized, I'm sure once we'll be competitive, there is no issue or a concern or a chance of the Chinese take and dump yarn in India, I don't have those risks in my mind.

[Operator]

[Operator Instructions] The next question is from the line of [ Surya Narayan ] from Sunidhi Securities.

[Unknown Analyst]

Okay. Can you give any bulk figure in the cotton ecosystem? How much could be going towards the home textile, denim and the woven fabrics and knitted fabrics?

[Neeraj Jain, executive]

[indiscernible] bifurcation of figures won't be available.

[Unknown Analyst]

Okay. So any ballpark figure will suffice?

[Neeraj Jain, executive]

Not really, not possible because it's very difficult to estimate that. We have only estimation of how much do we do with cotton spinning, how much do we do for the other fibers. But within those segments, there's no estimation available anywhere.

[Unknown Analyst]

Okay. In your sample, when you target your clients, so you could be knowing what they are producing, right? So if you are...

[Neeraj Jain, executive]

Yes, yes. So from my perspective, we do close to about 30% for our internal fabric region. And the -- out of that remaining 70%, our share is almost 70% in favor of knitting and about 30% in favor of weaving.

[Operator]

[Operator Instructions] There are no further questions. I now will hand the conference over to Mr. Abhishek Nigam for his closing comments.

[Abhishek Nigam, analyst]

Thanks, [ Nigam ]. Thank you, everyone, for joining us, and many thanks to the management for taking our time to this call. Thank you, and have a great evening.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.

[Neeraj Jain, executive]

Thank you very much, everyone.