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Vardhman Textiles Ltd
Earnings Call Analysis
Q2-2025 Analysis
Vardhman Textiles Ltd
Vardhman Textiles is navigating through turbulent waters in the textile industry, with several external pressures influencing the company's performance. The management noted that yarn prices have weakened significantly since the beginning of the quarter, driven down from a previous high of USD 0.85 to around USD 0.67 to USD 0.68. This decline is attributed to fluctuating global cotton prices and the Indian government's minimum support price (MSP) policies, which are impacting cost structures adversely.
Despite the challenging market conditions, there has been a steady demand for Vardhman’s products, especially in the fabric sector. The company is currently utilizing its capacity at nearly 100% and expects continuous orders into early next year. This rebound in demand is attributed mainly to overseas markets, particularly the U.S., recovering from inventory shortages.
Management shared ambitions to enhance operational capability through a capital expenditure (CapEx) plan totaling INR 2,500 crores across the financial year. Most of this investment is expected to be completed by mid-next year, which should significantly increase production capacity and improve turnaround times. However, specifics about projected sales volume growth remain undisclosed.
Vardhman's margins are under strain due to high raw material costs, particularly with cotton prices significantly above international norms. Currently, the company operates with EBITDA margins in the range of 13% to 14%, marking a stark contrast to the 20% margins observed a decade ago. The management hinted that unless there is a fundamental change in pricing, with cotton prices aligning more with global standards, margin improvements are unlikely.
To pivot towards higher-margin opportunities, the company is venturing into technical textiles, which could see higher profitability margins between 25% to 30%. Upscaling production through sustainable practices, including recycling old garments, is also on the table, as management eyes this as a growing sector in Western markets despite lower adoption in India.
The company is shifting focus towards building a robust brand business model. This strategy is expected to yield better profit margins, as the products will be better positioned to cater to international markets. Enhancing logistics and operational efficiencies will be essential in executing this strategy.
One recurring theme during the discussion was the disadvantage Vardhman faces with high domestic cotton prices compared to global competitors. The management expressed hopes for policy adjustments that could alleviate some of the competitive pressures and allow for a more aligned pricing structure with international cotton prices.
In summary, Vardhman Textiles is resilient, poised to recover as it leverages production capacity, enhances its product portfolio, and adapts to changing market dynamics. However, the acute pressures on margins and the competitive landscape pose ongoing challenges that the management will need to navigate carefully. Investors should remain watchful of how the upcoming CapEx and strategic shifts unfold in the ensuing quarters.
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Ladies and gentlemen, good day, and welcome to the Vardhman Textiles Limited Q2 FY '25 Post-results Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference over to Mr. Roshan Nair from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and welcome to Q2 FY '25 Earnings Conference Call of Vardhman Textiles Limited. On behalf of B&K Securities, I welcome all the participants and management of Vardhman Textiles Limited to the call.
We have with us today Mr. Neeraj Jain, our Joint Managing Director; Ms. Sagrika Jain, Executive Director; Mr. Sushil Jhamb, Director, Raw 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, sir.
[Technical Difficulty]
as we discussed earlier also. On one hand, we have a concern on the minimum support price of cotton, which is making the cotton more expensive in India.
This is the operator. Can you please start over the presentation as we lost the audio?
Am I audible now?
Yes, sir. Please go ahead.
Good afternoon, everyone. So this is -- welcome, first of all, welcome to the September end call. The period under review continues to be challenging for the company. We started the quarter, we are believing our future was much better, almost in the range of USD 0.85 plus, and slowly it came down to USD 0.67, USD 0.68 also, and today also it's having about [indiscernible]
Whenever the New York Future is higher, then it will be the international yarn prices will get adjusted to that. And accordingly, the Indian spinners will also be selling their products both internationally as well as domestically.
But the New York Future kept coming down, as a result of that, the yarn prices also came down over a period of last 3 to 4 months. And I think today are definitely much lower than we started the quarter.
The Indian spinning industry continuously passing through two difficult issues. On one hand, we have a concern -- or we have a regulation of minimum support price, by which the government of India, as to support the farmers and the CCI did big operations last year. They were selling cotton after buying it from the market, later on to the spinners.
Going by the minimum support price in today's [ weak ] prices and the realizations, et cetera, the Indian prices will not be less than USD 0.84, USD 0.85 in India. Whereas the, with the New York Future of growth USD 0.31, USD 0.32, even the American cotton, which is far better in terms of quality will be available to the Vietnam, or to the Indonesia in the range of about USD 0.84, USD 0.85 only.
So on one hand, the Indian cotton is comparable to the international cotton, which is definitely the Indian cotton is definitely because of contamination is much inferior. Second, we can't import also cotton, because there is a duty of 11% on the import of cotton. As a result of that, we got to buy it even under advanced license, the cost will be about 4.5%. And if you want to use it for the domestic consumption, it will be 11% duty. As a result of that, the import possibility is much less or it's much expensive. And MSP also is a concern in terms of the international -- in terms of the availability of cotton at international competitive prices.
So in terms of the operations, in terms of sales, I think company has done reasonably well. At the same time, I think raw material cost, since it is almost 60% of our total cost, is definitely one of the big concern for us.
The fabric side, company continued to do good, because all the changes which have happened where the more and more brands are coming in, and the company's strategy for better products for new range, et cetera, et cetera, company has done very well in this period on the fabric sales side and on the margins also.
And we are now running at almost full capacity utilization, for most of the products which include printing, which includes yarn dyed, which includes [ viscose ] et cetera, et cetera. And probably, the results which we are seeing, I think a major contribution is coming from the fabric side as of now. And as a result of that, the overall results are quite good in this period.
Coming back again to spinning to some extent, I think this has been a period because of these challenges, we understand also spinning in India has got stopped also in last 2 years time. As per the industry estimates, it is estimated almost 6 million spindles have stopped permanently, more than 6 million, and maybe another 3 million spindles are running on a job or on a marginal basis, which may or may not continue for a long period of time, unless the situation improves.
In terms of overall demand in the world, I think, by and large, the demand is okay now. Of course, still there are some issues that we haven't discussed, challenges which has started coming here is from the sustainable fibers. Most of the Western world, has started talking about some amount of recycling or reuses of the used garment. So I think to some extent, it's very difficult to estimate as of now the numbers. But it is -- it can be believed reasonably there'll be some demand, which will get reduced, because the older garments are being resold at most of the stores in Europe and U.S.A, because of the sustainability.
So to that extent, I think the growth, which was earlier coming in, may not continue as of now, till the time, the first recycling cycle gets completed.
On the expansion, modernization side, companies, whatever the plans have been taken, I think, by and large, all those plans in terms of implementation, both on the spinning as well as the fabric side, we are by and large in track. In terms of our cost optimization, lots of initiatives have been taken by the company. They're all on track. In terms of the customer, new products, value-added products, whatever we can do, there is a great efforts which are going on, and the customer definitely is improving both for -- both the business of the company.
So the next season of cotton has started. The arrival has just started as of now. The arrival pickup will happen maybe next week and so. And then we'll have to look at how does the CCI operate and what kind of challenges or what kind of difficulty you find in preparing the cotton right price. But I think it's only next 1, 1.5 months, it's going to be more difficult in terms of the strategy to be decided by CCI, the amount of procurement they do and what kind of arrival starts in the market, so that whether -- may be we will be in a position to buy cotton or they'll continue to buy hand to mouth and they will rely more on CCI.
In the next 1.5, 2 months or more critical, from that perspective, is one of the major component of our cost and it definitely determines the profitability of the business for the next couple of months. And initially -- I'll stop my debate on -- my discussions on this. I think we can start with the Q&A and then remaining queries can be addressed in Q&A.
[Operator Instructions] Our first question is from the line Falguni Dutta from Mansarovar Financials.
Sir, firstly, your voice is not very clear. I mean, it's -- maybe the audio, we are not able to distinctly distinguish between each words, one is that. And sir, I had a question, why is the consolidated numbers lower than stand-alone this quarter?
We got dividend from some of our associated companies and subsidiaries, which got knocked off while calculating the consolidated results.
Okay. And sir, if you could -- because the voice wasn't coming clear, I didn't clearly understand, how is the cotton situation when you were explaining vis-a-vis the international cotton prices?
So I'll cover that part once again. So international prices today are New York Future is about USD 0.71, USD 0.72. And generally cotton -- American cotton is available to the spindle and it is in range about 1,200 to 1,300 basis over New York Future. So that means the cotton will be available to any spinner in the world in the range of about USD 0.83, USD 0.84 per pound.
But the Indian cotton, as of now, whatever is the size available in India, is almost USD 0.84, USD 0.85 Indian cotton. Indian cotton definitely is superior to U.S. cotton in terms of contamination, et cetera. And generally, it is at a discount of USD 0.06 to USD 0.07 compared to the American cotton. Since our costs are equal with an inferior cotton, that's why we have this disadvantage of USD 0.06, USD 0.07 per pound in India.
And also since there is a 11% duty cost when we import cotton also from outside, as a result of that, our raw material cost or prices are today much higher than most parts of the world as of now.
Okay. And sir, how are the cotton yarn spread? I don't know if you covered that. Now -- let's say, now versus -- how were they in Q2 versus Q1 and how are they now? And if any outlook you can provide.
So we look at the first quarter almost the spread was in the range of about USD 0.75, USD 0.80, which now has come down to about USD 0.60.
Okay. And outlook would be difficult to give, right, given that we'll have to see how the cotton arrivals are and all?
I don't say -- I mean, there are only two silver lines available in this. One, the New York Future goes up. So that our cotton is comparable to the world market. In that scenario, the spread can increase or else government takes any decision either in terms of removing the duty or allowing the CCI to procure cotton and sell it at the normal markup over the New York Future, which has been historic prices in India. If these two things doesn't happen, then in that case, there doesn't seem to be any reason where the margins would improve as of now. Unless the yarn demand improves in a big way, which also is not looking possible as of now.
Our next question is from the line of Rajesh Jain from RK Capital.
So you used to operate -- if I look at your financials 7, 8 years ago, even 10 years ago, you used to operate at 20% margins, and the profitability that you are touching now is the same profitability that you were at 10 years ago. So while your revenue has grown over the last 10 years, but the profit -- net profit of the PAT is at the same level because of the lower margins of 13% to 14% in the last 4, 5 years. So is this the new normal, the 13% to 14% EBITDA margin? Is it the new normal margin now?
Considering the limitation which the industry has been given and that got us the two major factors of the cotton side, I think, this is going to be new normal only. Because earlier, as I mentioned, our cotton prices will -- if you look at last 20 years history, it will always be about $0.04, $0.05 over New York Future, which used to give us the right margins.
Today, we are 1,200 to 1,400 basis over New York Future. So our costs have increased big way in India, whereas the yarn rates will get adjusted, will get determined only by way of whatever Vietnam or Indonesia is selling today or [indiscernible] selling in the market today. As a result of that, the yarn business has got a big hit in this period and your observation is right till the time there is any fundamental change done by the government, I think, in this industry, will -- the margins will not improve.
And sir, can you throw some light on the Bangladesh situation? Because my understanding is that you do a lot of exports to Bangladesh. So how was the demand impacted? And for the brief time that the demand was impacted, did you get replacement demand from India yarn buyers? Can you throw some light on that?
Bangladesh is one of the biggest exporters after China as of now to the Gulf market. There has been some disruption for a small period of time. But at the same time, I mean, from our company's perspective, there was no reduction in the demand and we continue to sell in Bangladesh, almost same volume, which we were doing earlier also.
I understand situation now is far better and except for a small number of mills, everyone is running at a full capacity once again. So there is also no concern.
In between, there is this, the situation was a little disturbed, there were some orders which got diverted to the Indian garmenters. But unfortunately, India doesn't have that kind of a capacity, which Bangladesh is offering today. Bangladesh is doing almost $35 billion of exports as of now in the garmenting, where India is doing only $14 billion or $15 billion. So even if the orders are diverted to India, we'll not be in a position to take those orders for sure as of now. But in any case, I think the situation as of now looks quite normal from the spinning and fabric, which we are supplying to them, and there doesn't seem to be any major issue as of now.
Okay. So considering the cotton inventory that you have now, and you said that the yarn prices have trended down even lower now compared to the beginning of the quarter. Do you foresee, I mean, the upcoming quarters to be lower compared to this Q2?
Very difficult. It's just the starting of the quarter, very difficult for me to comment on that. But whatever inventory of cotton we have, first of all, that inventory is also exhausted and we have to start buying the new cotton or we have already started buying the new cotton. So it all depends upon -- depends upon the yarn, even if the New York future increases of 400, 500 basis points, immediately the yarn demand starts coming in at better prices also.
So this is very, very speculative as of now to say the margin will be lower or higher. But definitely, considering the yarn prices, which were there in the first quarter and even in the first part of the second quarter, the prices today are definitely lower. As I mentioned, today, the spread will not be more than USD 0.60 for the Indian sellers.
[Operator Instructions] Our next question is from the line of Anik Mitra from Finnomics.
Am I audible, sir?
Yes, please.
My question, sir, due to poor audio quality, I could not get a few points. I wanted to listen to it once again. Sir, this question is the repetitive in nature. So can you tell me what is the spread you mentioned, yarn and cotton spread at this point in time?
USD 0.60.
USD 0.60. And sir, U.S. cotton and Indian cotton spread at this point in time?
So U.S. cotton spread is -- U.S. cotton is available at about 1,200 yarn to 1,300 yarn over New York Future. Indian cotton is also available at 1,300 yarns over New York Future as of now. So the price of India cotton and U.S. cotton is almost comparable as of now.
Almost comparable. Okay. And sir, what is the yarn per kg at this point in time, if it is 30 count?
So it will be in the range of about $3 as of now.
Our next question is from the line of Awanish Chandra from SMIFS.
Congratulations, management, on good profitability numbers. Sir, my questions are already connected with what we have discussed. So first thing, sir, cotton season already has started. So I just wanted to have a complete picture. How do you see arrival happenings? And what is your view on overall this season? And what will be the expected pricing? And what amount of cotton inventory you want to create considering all the situation you have talked about?
So the season has just started a few days back. And in fact, during the Diwali period, most of the yards are stopped or closed. So it will start -- it will be starting in the next 2 to 3 days only.
The arrival is today is in the range of about 60,000 to 80,000 bales per day, and we expect it to go to 100,000 bales in the next 2, 3 days itself. So it is just the starting of the season, the overall crop seems to be in the range of about 30 million bales because there is some drop in the area and maybe there is some reduction of overall quantity because of the excessive rain, which happened towards the back end of the cotton harvesting period.
Having said that, what will be the prices or what could be the stocking policy is very, very difficult for me to say as of now. It all depends upon the commercial as well as the pricing. So we have just started buying the cotton, and it may not be possible for me to give any indication as of now. Because it all depends upon our thought, what will be the future prices and the international prices of cotton, the demand side, we'll keep taking that view. That's where I mentioned that the next 2 months are going to be very, very critical or important for us to decide.
And we are debating it on a daily basis. But I think since the season has just started, we may not be in a position to give you any indication or idea of what will be our stocking policy as of now. Maybe by the time we'll be discussing the next quarterly call, we'll be more clear on how the season is going as of now.
Sure, sir. And sir, second point, you also highlighted and most of the management so far on the conference call highlighted the Bangladesh situation has improved a lot. Things are normal. Even many management highlighted domestic demand is improving and already improved. And export data, whatever we see, garment exports numbers are good, rather they are growing for the last 3 months. Considering all those things, positive point, still you are thinking that margins will not be improved or we don't have much on the margin improvement clarity.
No, no. No, no. We are very clear on the margins as of now. It's not that we don't have clarity. I'm saying the margins will not improve till the time our raw material cost is higher than the world. In terms of demand, I also mentioned it's good, both domestic and exports. We are running full capacities in both the businesses. So our issue of margin is only because of raw material prices are higher. So -- and that will -- there is no change in that unless that the prices of every product starts going up, that's a separate situation, which is not the case as of now. But on the normal demand side, with our expensive raw material, our margins in India may not improve.
Okay, okay. Got the point. And sir, last thing, in last conference call, we have talked, before that our CapEx plan and everything in detail. So just wanted to have as a follow-up that what is the status of all the CapEx we have talked about during last two conference call.
So we announced a total CapEx of close to about INR 2,500 crores to be done in this financial year as well as the next financial year, 2 years. I think by and large, all our CapEx plans, whatever we all have planned is going as per the plan only. And I hope that this financial year, in the next financial year, we'll complete all those CapEx plans.
Okay. So everything is working on time, on schedule?
Yes.
[Operator Instructions] Our next question is from the line of Hemang Kotadia from Anvil.
Am I audible?
Yes, yes.
Sir, what is the ratio of cotton or cotton and manmade fiber yarn in last 2 years? So how we had improved sale of manmade fiber yarn in last 2 years, if you can throw some light.
India is predominantly cotton fiber consumption country. And I think the change which is happening on the -- is very slow as of now, because on the manmade side also our fiber price, both polyester and viscose are much higher than the world markets. We have a regulation in India where the import cannot happen unless it is approved by the BIS. Unfortunately, not many companies internationally got registered in that. As a result of that, the import of fiber is not happening in India.
And the prices of both polyester fiber as well as viscose fiber is much higher than the world prices as of now. As a result of that, we are not competitive on the manmade fiber also. So all our three major raw materials, which is cotton, viscose and polyester today is one of the highest. And as a result of that, the competitiveness or the market -- competitiveness [indiscernible] overall are definitely better for the downstream industry.
Okay, sir. And sir, on the Indian spinning capacity side and utilization side, if you can throw some light how things are moving up. And you rightly mentioned the 6 million spindles have been stopped working since last few quarters. So if you can throw some more light on the Indian spinning industries, that will be helpful.
These are the estimates done by the industry itself. There is no official data available where we know that these are the spindles which have been stopped or not. But going by the different surveys, different organizations keep doing, these are the estimates that more than 6 million spindles have been stopped in last 2 years' time.
And as I mentioned, we understand almost another about 2.5 million, 3 million spindles are running on the job work basis, et cetera, et cetera. And if the things do not improve, I think there can be a question mark on that also. Other than that, I mean, our rated capacity was in the range of about 54 million spindles. And if I reduce 6 million, we are today at about 47 million, 48 million. And out of that, I think the capacity utilization is not more than 80%, 85% as of now.
So as a result of that, even after that, the shortage of demand, there is no excess demand of yarn, which it still shows because of the margin pressure, spindles are not interested to run fully, because they are looking at wherever they can save money or wherever they can optimize results, they are producing that. Other than that, they have stopped, they are reducing the capacity utilization also, whether it is cotton side or manmade side. So that's on the spinning utilization.
On the fabric side, I think all or most of the organized players are doing well. So whether it's Vardhman, Arvind, Nitin or some other, they are doing pretty well. Whereas the independent processors or the smaller business, there is definitely some concerns over there, because most of the brands which are coming from outside, we are looking at more on the organized players. So there's definitely a difference in the working today of organized player as well as the unorganized player. Most of the organized players as of now are doing pretty well on the fabric side, whether that's knitted or woven.
Our next question is from the line of Surya Narayan Nayak Sunidhi Securities.
Am I audible?
Yes, sir.
Sir, just my question is on the macro side. We have been present majorly into yarn side, that is over the years is not changing, because of our focus more on the yarn rather than the fabric of garments or maybe beyond at least on garment side, we are very much falling sort of. So my call is that because we have enough surplus of yarn in India. And in fact, India gets mileage only when the Vietnam or Bangladesh or China, the cotton -- the yarn scenario improves. then we don't get mileage in the margin side.
So keeping these macro things into account, so what the management think of taking the company into an area where the -- where at least the margins will be improving overall and even the ROCE and ROE will be also improving?
Your first point may be right that historically, we are a spinning company. But if you look at last many years, there has been a greater emphasis on the fabric and our fabric continuously seeing the capacities are increasing. If you look at the top line today, it's almost 65-35 in favor of spinning and fabric. And I think in the times to come, if the situation on the spinning side doesn't improve, the expansion on the spinning side will be low, and we may continue to grow on the fabric side.
Also, there's a new initiative company has taken on the fabric side with the manmade fabrics also, which will definitely increase the share of fabric compared to the spinning side only.
On the garmenting side, there are still no plans to expand it in a big way. It's a small unit we have. We'll continue to grow it slowly. But I think there's no direct -- there's no clear plans as of now that we want to increase it in a big way. So it's still -- we are running it profitably, but I think considering the overall labor component, we are still to make up our mind whether we really want to expand it or not. So definitely, going forward, next couple of years, fabric will continue to grow, definitely both cotton side as well as manmade. And I think personally, the share of fabric in the overall top line will continue to grow from today's level as well.
Line for the participant seems to be disconnected. We'll move on to the next question. [Operator Instructions] Our next question is from the line of Sandeep Baid, who's an individual investor.
I just wanted to understand how does CCI price it cotton? What is the basis of that? And do they also sell it at loss compared to -- when you compare it with your procurement side?
So it depends upon -- first of all, it depends upon all the demand and supply. If the demand is higher, they'll continue to increase their prices or if the demand is not there, then reduce the prices.
Primarily, we understand the last year's CCI policy was whatever is the import parity of cotton, including the duty, they were trying to sell it at those prices. But since because all the -- most of the smaller spinners, they didn't have a choice to import the cotton, so they were forced to buy it from the CCI at those prices.
But when the losses started increasing, the spinners stopped buying from the CCI and CCI kept reducing their prices. So basically, what I understand they look at it that whatever is the import parity of a cotton is, based upon that, they generally decide their pricing. At the same time, the industry has been talking to them that if we have to pay the 11% duty, then how will we be competitive. But I think second part is more on the demand supply, because if you add 11% duty and the spinner is not in a position to make money, the demand will keep coming down only. And that practically or partially happened towards the last 2 to 3 months.
And if we look at the CCI still has almost about 1 million days available to them from the last stock. And if we also look at the sale for the last almost 1.5 months, will not be more than 10,000, 20,000 days or maybe not more than 20,000 days for them for the last 45 days.
So I think it's though they will try to fetch the maximum prices so that losses could be reduced. But at the same time, to that extent, they're flexible because they want to dispose of the stocks also. But the new season has started, they're still carrying a stock of 1 million bales. So I don't know what policy will they make it taking it forward and how do they price the product going forward.
So you're saying that if the demand is not good enough, they are willing to sell it at a price lower than you have procured?
Yes, yes. Sure. So last year also, I think whatever prices they procured and later on when they were selling there, it was definitely they are taking some loss also.
Right. And given that today, they already hold 1 million bales in stock, they may not be very aggressive in terms of buying from the market at domestic?
No, no, no, no. That choice is not with them, because that's a mandate given to them by the government of India that, whatever is the minimum support price the government has committed to the farmers, the CCI is obliged to buy the cotton at those prices.
I don't think that's a choice available to CCI. They will continue to buy. Now what price do they sell, I think that will separately later stage they'll have to decide, but it's not that they already are carrying 1 million bales, so they will not buy. That choice is not there with them.
Okay. And secondly, can you comment on how is the demand from the home textile players for the yarn?
Home textile players are doing reasonably well in India. So if I look at most of them are running full capacity, especially on the sheeting side is doing pretty well. Even on the towel side is doing well. So most of our customers, we supply a lot of products to home textile players, I think they are doing reasonably well.
Our next question is from the line of Keshav Garg from Counter Cyclical PMS.
Sir, I wanted to understand the garmenting part, which you basically talked about that you are not sure about scaling up the labor in that division. So sir, firstly, sir, is the government -- has a fixed-term employment already implemented in the textile industry?
Yes, yes.
So sir, then, in that case, sir, what is the apprehension about the scale up -- I mean, hiring more labor? So shouldn't that resolve the labor issue in the industry?
No, it doesn't resolve the issue. So there were two issues. One was the fixed form, which is -- one was the permanent labor, which by the fixed form, the issue got resolved. Second is the cost part. If you look at the Indian cost today, the worker availability is a big challenge in most part of the country, except UP, Bihar and West Bengal, where most of the industry is either in the down South or in the North India or Central India.
The cost of labor in India is not less than $230 to $240 per person as of now. As the Bangladesh cost is still about BDT 11,000, BDT 12,000, which is equivalent to about $120. In garmenting industry, the overall labor cost is always in the range of about 25% -- 22% to 25%. And if our cost is double, we're talking of the Bangladesh costs are in the range of about maybe 10%, 11% of garmenting, we will be at 20% plus. So we'll never be competitive even on the debt cost also, because that labor cost is going to be very, very expensive.
Either the industry starts thinking they go to UP, Bihar, where the labor availability would be there. But wherever the migrant labor is coming in, the availability and the stability of labor is a huge challenge as of now. So it's neither available, nor stable. The attrition in the industry is almost in the range of about 5%, 6% per month, even with a cost of $250 also.
I think the concern for us is the way the Indian social economic factors are moving where people do not want to come to the cities to work. They got some support under MGNREGA. They got some support under Ayushman Bharat. They got some support under different schemes. They're happy staying in their places.
So either the entire industry moves to those areas, which has its own challenges or if the labor doesn't come in, how the labor industry will work. I think this is a major challenge for next, which will be more clear in the next 1 to 2 years, how does it work on. So till the time we are clear on the availability and the cost part, there is no plan for us to expand it in a really big, big, big way.
Sir, and also for many state governments, I understand they are giving around INR 5,000 per month per head labor facility. That is the government will pay those wages on behalf of the industry. And sir, plus the central government is also, I think, giving some PF for 2 years or something like that. Sir, so all together, even after including all these basically incentives and subsidy to the industry also, it does not make sense?
It doesn't make sense, because most of the states which are billing are for the local labors. And local labor is not available, is not trained and you want to take the people from outside, you will not get the subsidy.
Two, I think more than the subsidy, you first have to look at whether that space in terms of the overall ecosystem is a workable state or not. So though many states have given these incentives, for example, now if the Gujarat is given. The local Gujarat is not ready to work in a government company. So even if there are subsidies available, what will you do with that? So I think there are different challenges. I'm not saying the opportunity is not there, the opportunity is there.
But looking at the cost and the historic rates, because wherever there are clusters, there are lots of good clusters in Tirupur, in down South. There are good cluster in North India. There's no subsidy available in these areas.
Now going to a new cluster altogether and start creating those capacities, I think it's going to take some time. I understand the good initiative of the government on the PM MITRA scheme is there. But I think still none of the part is implemented as of now. Maybe next 1 year, there are lots of development, I understand is happening on those parts and they will start allocating or allotting the land maybe next 1 year or so.
So only after that, we'll be in a position to know whether we can make any business case for this only on the basis of subsidy putting up a capacity, probably we are a little hesitant to do that.
Sir, and also, sir, what about the domestic garment market, which is constantly increasing in size? Sir, what is the import duty on garment imports? And sir, like can't we do garmenting for the domestic market in case there is a good protection available in terms of tariffs?
No, there is not enough protection available. So it's already a good amount of garmenting, which is happening in Bangladesh and lots of or most of the brands which are operating in India, they have started importing the garment also.
Okay, sir.
So both in terms of garment -- even on the fabric side also, especially if you look at fabric, I think if you look at most of the man-made-based fabric, looking at import of about 50, 70 tonnes per day about 3 years back. Today, it's more than 1,000 tonnes per day, because our raw materials are expensive, all our fibers are expensive. As a result of that, yarn will be expensive. So it's much cheaper for the fabric to get imported.
Sir, lastly, sir, you alluded to the raw material cotton polyester and viscose being expensive, more expensive in India. So can't the industry, at least for the exports under advanced authorization scheme, they can import viscose and polyester and export the end fabric or the garment. So I mean, does that not still make sense? I mean, then what's the problem in that case?
So there are two problems with that. One, even if you want to import viscose or polyester, the freight component will be there. So we are competing with, let's say, China or Vietnam or Korea. We are talking of the raw material available there and the raw which will be -- which will be available even under advanced authorization, will have a component of freight on to that, which will be one additional cost.
Two, I think for the yarn export, we can still do it. But if we have to sell the yarn to the domestic market for the fabric or for the garmenting, then the advanced authorization cannot work. Because there are different duty structures and there are different incentives available on those segments. So if I to export yarn, I can do that. But again, my cost will be higher, because my raw material will add the component of freight on to that. And if I want to sell to the domestic market for the further export of either fabric or garment does not make sense at all. That will -- can't be done under advanced authorization. So actually going by all the policies today, I think it's definitely a concern how do we export the end product.
Next is a follow-up question from line of Surya Narayan Nayak from Sunidhi Securities.
Yes. Sir, the line got disconnected. So just my basic concern is that you have been very much showing a concern towards the readymade garment area, because of the labor issues. But in the yarn side also, we see the government issues [indiscernible] in successive year, they have been raising the MSPs. And rising MSP sole doesn't rise our spread. And we are also -- that problem also that is not actually addressable. And result in it is, at least the leading garment players from the South, they're able to earn decent return ratios, returns than ours. So even the lowest margin happens to be around 11%, that is 10% to 11%, that is consistent. But in our case, that is not. So any sense you will be thinking on the garment side because we are hardly present there?
I mentioned you the reason of garmenting is that because of the nonavailability of labor and a very high cost, we haven't made up our mind as of now. Because we are basically a textile material producer and garmenting and textile are two different words. They are two different businesses. So we have to look at it on an independent basis. And I'm not saying that we have not -- we have rejected it also. So whatever small capacity we are doing, we are marginally increasing that capacity from 6,000 tonnes shirts per day to about 10,000 shirts or so. And maybe we may take another 1 or 2 years to make up our mind finally whether we should go big way into the garmenting or not.
So in the case, when we are successive years, we will be seeing at least a 5% rise in the MSP. That is basically given, because the government wish to placate the farming commodity for that matter. So in that case, we are actually not getting that kind of mileage, because we have the -- whereas the cotton happens to be an international commodity. So what is the recourse to pure yarn players like us?
So there are -- there could be two, three possibilities. One, your first point is very valid. The MSP will keep increasing 4% to 5% every year, which has been doing and which may continue to do the same. But at the same time, the industry is talking on two issues to the government.
One, you allow the import of cotton duty free. So even if our cotton is expensive, at least we can import as the rest of the world will also be doing, so we'll be competitive.
Two, the industry is also talking to the government in case you want to support the MSP, which is important because if the government doesn't agree the MSP, then the farmer will not be growing the cotton stock. So if you want to support the farmers, better the CCP procures, but their marketing strategy or the pricing should be aligned to the international market. So that's the industry's request for the obligation to the government. Let's see whether the government agrees to that or not.
[Operator Instructions] Next question is from the line of Rajesh Jain from RK Capital.
I have two, three short follow-up questions. So your blended margins are like today 13% to 14%. What would be the margins on the fabric side?
Definitely much better than this.
Sorry? Definitely...
Much better than this. We don't share the margin separately, but it's definitely much better than the average.
Okay. And I think in the last con call, you mentioned about venturing into technical textiles. So what would be the projected margins? And can you throw some light on how is the CapEx going on there?
So on the technical textile, we are going for 100% [indiscernible] fabric project. It is only on the apparel side. I request Sagrika to answer this question.
Yes. So first about the capital expenditure, it's going -- it's progressing well, and we've been ordering our machinery as planned as scheduled. So we are aiming for next year around September, October, it should be operational. The CapEx -- so we are dividing it into two phases. The first phase, we are aiming for a capacity of 15 lakh meters per month and our profitability or PBT IT to sales would be in the range of about 25%, 30%.
Sorry, just can you repeat the last sentence? Just the last sentence?
Yes, the PBT IT to sales that we are projecting are in the range of 25%, 30%.
Okay. And sir, you had mentioned in your opening remarks about the reuse of -- or the recycling of old garments, which has taken away a bit of demand. So just can you explain this trend a little bit more? Is it a big trend that is catching up? And can it significantly impact long-term demand?
So definitely, in terms of thought process, most of the Western world is looking at this. The Europe has passed the law there starting next year '25, this will be landfilling of -- landfilling through the garmenting is not possible or will not be allowed. So it has to be recycled or it has to be resold.
So most of the stores in Europe and U.S.A., they have started putting up the counter for the sale of oldest garment as well as if you look at the number of recycling lines in the entire world, they are increasing exponentially where the both post-consumer as well as the pre-consumer fabrics are getting recycled into the fiber and the demand and the yarn is again made out of that partially.
So this trend definitely in the Western world is catching up. In the Eastern world, which are the poor countries like India, China, this trend is not there at all. But both Europe and U.S.A., there is some change happen and the next generation definitely is looking at it with a more concern, because where they want to look at sustainability in a better way. So it's just a starting trend. We'll have to look at how does the demand improves. But going by all the regulations and laws, which most of the governments are considering, this can definitely be -- this will be taking definitely a part of share of the virgin fibers.
So can there be an opportunity in us? I mean, is this something that we can also explore doing, the recycling?
Yes, we are already doing so. We have one recycling line with a capacity of about 6 tonnes per day, which is running full. We have already ordered the second line of another 6 tonnes per day. And most of the time, the recycling percentage in the garment is between 20% to 30%. So if I have a 6 tonnes line, practically, I can do close to about 25 tonnes of total yarn. So we have -- and our product is well established, well accepted by lots of good brands, and we are definitely looking at this as one of the growth area for us.
Okay. And in the recycling segment, the margins would be better than the yarn manufacturing? Or it will be inferior?
Generally, a little better.
Our next question is from the line of Resham Jain from DSP Asset Managers.
So I have just two questions. First is on technical textile. I heard that margins are going to be 25% to 30%. I was actually going -- I went back and saw the quarter 4 conference call, where we actually mentioned that the margins will be similar to company average. Has there been any change in the initial plan versus now?
No, there is no change in that plan. So what we are saying there could be two segments within that 100% man-made fabrics. One is purely on 100% polyester base where the margins could be the average. But definitely within that, there are some segments which are kind of a replacement of a technical testing, where the margins could be better.
So I think our knowledge in India today on this fabric or in this product is relatively less, and it's only slowly as we implement the project, there could be a possibility for us to improve the margins because as of now, there is a demand and whatever estimate we have done, it could be in the range of some average to a little better. And in any case, we said the average of fabric. The average of fabric in any case today also is better than the company's average.
Understood. Clear, sir. Sir, the second question is on green energy. And you can correct me if I'm wrong. I was just looking at the numbers. Our green energy contribution to the overall energy consumption is close to 5-odd percent. Is that correct?
Yes, that's correct.
Sir, when I look at some of the top five, seven companies in India, it seems that our number -- and now this is in the last 3, 4 years, the green power has become much more cheaper than the traditional power source. What -- is there any reason why we are a little slow on this front versus others? And are there like more accelerated plan to increase the green energy source?
Definitely, we are slower or we are behind most of the -- today in comparison to lots of good players. There is no doubt about it. But having said that, we have already accepted this, and we are working very aggressively on this. And your idea is correct. In next 2 years, we are trying to reach from 4%, 5% to at least 25% of the green energy in the next 2 years. And maybe there could be a possibility that we will be crossing this 25% to even 40% also. So there is definitely a very aggressive plan for next 2 to 3 years. And whatever delays happen, we are trying to catch it up as fast as we can.
And sir, what will be the benefit when you do the ROI or the overall energy costs you have in terms of rupees crores versus this change? What will be the total benefit you are envisaging in next 3 to 4 years?
Our idea is, first of all, all these thoughts which we are having is not purely from the ROCE perspective. I think most of the customers or most of the brands are talking to us for the green energy, where they do not want us to consume coal, they do not want us to use the conventional electricity, et cetera, et cetera.
So this issue is basically coming from the brands where they are forcing or they are pushing or they are suggesting us to do this. Having said that, every project will be looked at from -- in terms of the commercial. And I expect every project will give us at least 15% to 20% return on the capital employed, at least 15% to 20%, if not more or maybe most of the cases, it will be more than that.
So I think we are -- because there are different combinations where we are looking at the roofs solar, we are looking at the biomass boilers, we are looking at the project where the power to be taken both wind as well as solar from the outside. So there are many projects which are going on, and we are evaluating every one of that. I hope we should be in a position to get whatever investment we do, at least 20% return on that.
Understood, sir. And sir, last one is on fabrics. Overall, where are you seeing the higher kind of traction in the fabric business more from domestic or from export business? And the expansion which you have announced, out of that, how much is for fabric? If you can just guide on that. I think, 175 million meters to 200 million meters. Is that correct? And by when it will get completed?
Right. So on the fabric, I can talk on the capacity expansion. So our major is solid dyes. So we are expanding solid dyes by 20%. And this capacity should also be operational in the next 14 months. So that is first. In yarn dyed also, we're expanding a bit, say, around 20%. Print, as mentioned earlier, we've just added a machine of digital print. So we are okay in print as of now.
So as of now, regarding demand, definitely, there is a demand pull, especially from the export market. We would say that this is mainly driven by the drying up of inventories by major customers. So for example, U.S. has a good demand pull as of now. We are running at 100% capacity utilization. So that is first indicator.
And second indicator is also that we have visibility of good orders up to Jan, so -- and even further than that. So -- and as for domestic market is, as we know, we just passed through festive season. So we're just waiting for some customers to also give feedback on how they have performed. But as of now, it looks okay.
Next is a follow-up question from Hemang Kotadia from Anvil.
Yes, sir. My line was disconnected. I just have one bookkeeping question. What is the net cash on the balance sheet right now?
It's almost INR 2,300 crores. Debt is INR 950 crores.
And the debt is about INR 1,000 crores.
Our next question is from the line of Rajesh Jain from RK Capital.
Sir, considering that there is a good demand from Europe, which you have mentioned in various calls and that you are undertaking modernization of machinery to have faster turnaround times, because as we mentioned in the last call, the customer needs faster response and quick turnaround time. So considering that, what could be the trajectory of our sales volume growth for the next 12 months?
No. Definitely, we are moving more and more towards the brand business. So whether -- I mean, the brand business, when we say the brand business, that will not be coming directly from the Europe. The end product would go to the Europe or to the U.S.A. and the garmenting will happen in the different parts of the world, which will include -- which may include the Asian countries that the garmenting would happen.
More and more brand business can definitely give us a better margin. And for that, we require to make our shoppers more robust so that the deliveries could be given to them in a shorter period of time.
Yes. So considering that, I mean, because you will be able to cater to your customers' demand in a quicker time, do you anticipate a good sales volume growth? And also considering the CapEx -- the upcoming CapEx, like over the next 12 months, what could be the potential sales volume growth? Do you foresee -- do you have any numbers?
No, no, no. As of now, we will not be in a position to give numbers, because the demand is coming every day, is increasing every month, every day. So I think we are only expecting that we require to create that capacity so that further demand could come. Today, whatever is the capability we can give them in a shorter period of time, we have already exhausted it. Now we are further enhancing or increasing it in a big way so that, that volume could come.
So once that capacity -- okay. So in other way, like by when that capacity is coming up? And how much more firepower it would give you in terms of 100% capacity utilization, how much volume it can add?
Most of this CapEx will be completed by June next year. March to June quarter, we'll be completing most of this CapEx.
Okay. And at 100% utilization. How much would you be able to add, considering not only the CapEx, but also the faster turnaround times, which this will enable you?
Our efforts are probably same. Our efforts are on the same. And let's see how the market goes.
As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
So thank you very much for this conference call. And I think it's been a wonderful journey, though in the challenging times, the business becomes more difficult. But at the same time, I can assure you all the efforts being done by the management in terms of passing through this time successfully and with a decent margin, all efforts are on.
And as well as opportunity for us as of now since the fabric is doing pretty well, so the company doesn't have any issues in terms of the overall margin growth happening. But at the same time, as the challenges are increasing, we are agile to look at those challenges, and we are internally looking at all our cost structures very carefully and lots of initiatives the company has taken. And I'm sure by the time the good times comes in, we'll be ready to take full advantage of good times also.
Thank you very much for all the patience and your continuity of the holding with us. And I'm sure these things definitely will improve maybe in the next couple of quarters once the government takes some decision, and we'll definitely look at a much better results in the times to come. So thank you for -- to all the participants as well as B&K to hold this conference.
On behalf of Batlivala and Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.