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Vardhman Textiles Ltd
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Ladies and gentlemen, good day, and welcome to the Vardhman Textiles Limited Q FY '22 Earnings Conference Call hosted by Batlivala and 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 and Karani Securities. Thank you, and over to you, sir.
Yes. Thank you, [ Mina ]. Good evening, everyone. On behalf of B&K Securities, I would like to welcome all of you for the fourth quarter FY '22 results of Vardhman Textiles Limited.
So we have with us senior management of the company, including Mr. Neeraj Jain, Joint MD; Mr. Sushil Jhamb, Director of Raw Materials; Mr. Mukesh Bansal, EVP for Fabric Marketing; and Mr. Rajeev Thapar, who's the CFO.
And I would now like to hand over the call to Mr. Jain for opening comments. Thank you, and over to you, sir.
Thank you. Welcome, everyone, I'm sure the result would have been seen by all of you.
Excuse me, management. I'm extremely sorry to interrupt, but the audio is not clear from your line, sir. If you could just speak a little louder?
Okay. Am I audible now?
Yes, please go ahead.
So good afternoon, everyone. I'm sure the result would have been seen by all of you. As expected, the fourth quarter numbers was still complete since the market has been quite stable because the cost in the [indiscernible] are not very high in the fourth quarters. And in mind, the business are in line with the, I think, the working which was happening in that period.
[indiscernible] 1 or 2 measures we have maturing this period. So one is adding lots of about INR 60 crores. [indiscernible] by quarter and starting the results, we felt prices were too high for the project part of the new season and the [ hanging ] by then so that in case the value comes down, at least direct and that would be an advantage, that would be effective. But unfortunately, the market loss will be a different place both internationally and [indiscernible] implemented at the best of that because the mark-to-market loss of [indiscernible] in this future, which is there provided on the first March.
Other than that, I think all numbers are normal in mind. There's no division of operation in this period. Between the buy and [indiscernible] sort of [indiscernible] are our production, which would be [ anatase ] at the [indiscernible] side.
Net debt, I think there's been a concern that what is happening as of now on the cost side. The cost of prices continue to increase in this period, and we saw one of the highest [indiscernible] pricing important, whereas the price was close to [ INR 10,000 ] last year, about [ 400,000 ]. International prices also count [ INR 17.75 crore ] last year, including the range of about [ INR 245, INR 240 ] as of now. And, of course, the guidance has increased [indiscernible] depending on the market also. But we have increased a bit higher compared to international [indiscernible] because [indiscernible] estimated at year, it is about [indiscernible] in that base is now revised estimate that coming between [ INR 300 ] to [ INR 321 ] base to now.
One of the reasons that [indiscernible] growth because of the condiiton. And also in this period since we're not point liability, so on the valuing of cost, we can get on by that, so this would not be in like that because of the cost factor [indiscernible].
Comment, we like [indiscernible] up to 30th of September, but somehow by the 9 months [indiscernible] of demand. By that time, there was hardly any talk of it on the outside, and the best of that is allowed to import duty as of now. But I think the point of delimitation how much we have imported in this period. So that has [indiscernible] covenant [indiscernible] meeting at a possibility to allow the unlimited shipment up to early September, put other than the arrival in India. We have a possibility to demand about that, and the shipment could be around [indiscernible] period.
So that's a bit for today, but at the same time, the overall [indiscernible] in the next year percentage is good. But we [indiscernible] and including India, and there could be a possibility of the prices is more [indiscernible] which, as of now, is okay.
Sir, I'm really sorry to interrupt you once again. the audio is dipping from your line, sir. Participants are not able to hear you.
Yes, sir. If you could be a little louder, sir? .
I will try.
So, yes. In this period, I think the next year crop seems to be quite good as of now. The strength is increasing wherever this started happening. The monsoon as of now looks to be on time, and there could be a possibility that next year gross in India as well as the world market could be good. So there could be a certain situation next year compared to the situation this year. .
Since the top advertisers are increasing at the time, there was increase in [ antisense ] but there are definitely a resistance from the market and from the retailer by a very level 5. As the result of that, we [indiscernible] sitting under pressure, and if you go by the marginal cost, the [indiscernible] and the marginal sale of yarn that is in the picture in terms of the margin and many products, it would be -- definitely, it would not be there. It is the possibility that there's no margin available in that product as of now.
So that's the situation of Vardhman Yarns as of now, and it looks like the cost in India is too high, so lots of business start -- or they started reducing their capacity so that they can [ see ] consumption of cotton, of [indiscernible], but the new price -- the current price is too high. And that there's margin, margin a little bit, so we want to be -- to tried to optimize the operation. Some of them have some people here, but we do see that some have shifted to the tentative or under for the deposits, et cetera, so that they can come with [indiscernible] at the same time, they can reduce cost consumption also.
In terms of content, we have done good in [indiscernible] and also on the fabric side, things are better. After the markets were opening, all schools and offices are opening. So there was good demand of what is happening in this period, which was less in between for about 1.5 years because of COVID. So the bottom in our Fabric vision also was increasing or was consistent. The margin and target is becoming normalized. And I think, again, it's because of the very high prices of our products, [indiscernible] pressure from the retailer of the final brand to set up this kind of price increase, and that is [indiscernible], and entire market has been eroded as of now. The recent detection is there [indiscernible] the break also.
Mukesh, can you add something on the Fabric side?
Hello, good evening, everyone. [indiscernible]
Yes, you rightly said that during the Q4, on the Fabric side, the demand was coming back after a run of about 6 quarters. So not only the foreign markets, but the Indian market was also rebounding. As after a long time, we were seeing when all the markets are open and the consumer was coming toward [ in them ], so there was a good demand.
Of course, as far as the prices are concerned, the profitability is starting to coming back normal now. But at that time, since the cotton and yarn prices are still rising, and there is always a time lag between the yarn price increase and [indiscernible] price increase. But nevertheless, capable of adjusting to the new prices. The customers are adjusting to new prices even in Q4.
Nothing much to be added, definitely.
So I request Mr. Sushil Jhamb to add -- or if there are -- a part the question, but first, we can take up a bit of cotton. Mr. Jhamb is our Director of [indiscernible] also available. So accordingly, we can take the question on.
Good afternoon, everyone. Yes, we can start with question [indiscernible].
[Operator Instructions] We have the first question from the line of Vishal Mehta, [indiscernible].
Sorry, I just wanted to get the line out [indiscernible]. Sorry.
We go to the next question from the line of [ Padan Chora ] from ICICI Securities.
Basically, I just wanted to understand, because I have been reading reports in media that there are chances that -- or there are solutions that probably, all exports should be banned. Do you think such a thing is possible, or what is your take on that? And how it is like any move like that would impact us?
The judgment of comment ordained to what we want to do. But as of now, the imports have already come down because the prices are so high that customer out there is not willing to pay those kind of prices. And we understand as of now, the production costs have already happened by the build on the product setting. So if any is that there -- the exports are reduced or downward [indiscernible]. Probably, it will have some impact more on the prices in domestic market because -- because already, the demand is worse.
Not that demand is worse, already, prices are so high. That's why the demand is worse. So people are not willing to commit these prices. But we want to reduce the cost and exports, then we can materially deliver in the domestic market, but because of the price pressure of the negative margins. If that happens, [indiscernible] not with the business. So I don't think that domestic availability will improve, but by reducing the export. But at the same time, I think there could be more detail, which could come to the center
So sir, is it correct to understand that at this level, the margins that we might be needing are negative for exports?
No, no. Export and domestic is the same. So the domestic prices as well as the import prices are not really any different. .
But yes, go by the current cost of quarter -- current costs have gotten and the [ retainer ] prices, there would be -- I mean, lots of products, the margins will be negative as well on the base product.
Because if you look at the conversion generally, it is [ 1.3 ]. So if we will use that kind of thing, then probably the cotton price is at [ INR 330 ] levels, and then probably, if you convert [ INR 324 ], [ INR 24 ], that would be [ INR 424 ]. Whereas if you look at the prices that we are getting are around INR 380, INR 372, that kind of mathematic balance suggest to be like we would be making money on that? .
Yes, that's good.
What -- if you could share a bookkeeping question, just what was our yarn exports in FY '19 as a percentage of total turnover? And what is it currently?
So [indiscernible], the total production we do almost 35% to 40% margin is the [indiscernible], and about 30% will be [indiscernible] and another 30% is for the domestic market. So there's not really any major change 2021, but [indiscernible].
Of course, '21, '22 will be a bit lower, lower percentage in exports because [indiscernible] consume less, and we were exporting more in 2021. But if you look at the pre-pandemic situation, then probably this year is a normalized year, and our export percentage would be almost comparable to the dynamic.
Okay.
And sir, how are we based on the cotton inventory? Like, how many months inventory do we have? And at what project? If you could just give a directional idea on that?
Normally, we don't share our inventory at any time, but I think you can continue to get it from the balance sheet. The numbers would be available. So we can't share that number ever.
This is not like what we normally have as our inventory. So this year, we have not covered in our normal [indiscernible].
No. So from here on for orders, we will be buying at current levels? Is it correct?
They're partially current and partially some.
Okay. Okay. Sir, that's it from me, and I'll come up with follow-up questions.
We have the next question from the line of Abhijeet Dey from [indiscernible] Advisors.
Yes. Gentlemen.
One question from my side regarding the hedging losses which you mentioned, because cotton prices have continued to move up post [indiscernible]. I just wanted to know in terms of direction, whether we'll see more hedging losses going forward? I mean, we continue to hedge cotton even in this current quarter? And what's your strategy going forward?
Yes. So you still see the price on a very high side, so we are not taking any further hedging as of now. But as we have done, I think that this continues as of now. We have to decide at some stage when do we ride it up. But as of now, it's panning.
Okay. So you're not entering into any new hedging contracts? That's what is --
As of now.
Okay.
And secondly, sir, on the CapEx. The first phase of the expansion in the yarn side is expected to come up in September. And then also post that, you have announced a series of CapEx. So all that is basically on schedule? And is there any change in the time line?
So the first leg, which was already at the implementation, we do projects on [indiscernible] and second [ both ] project has been covered. More on Jan, they are likely to be completed by September, October this year, with some small delay in there because of the construction. Otherwise -- and on the supply of machinery. Otherwise, it's on schedule.
New expansion, we have yet to take a panel. We have applied to the government for the appeal that we -- as well as we -- and they give it to us ahead. We haven't received the approval as yet. But as of now, by the net situation also, I think we might take a review maybe after 6 months ago. As of now, we are not committing any new expenditure as of now.
Okay. So what is the capacity addition which will come up in September, October on the yarn side?
The total spinning and what is taken together, it will be about 100 and 100,000 spindles equivalent.
We have the next question from the line of Keshav Garg from CCIPL.
Just wanted to understand your view that you mentioned that you are expecting cotton prices to move down. And at these prices, there are no demand as well are setting down. So then, who is buying this cotton? And why are cotton prices trading at these levels? And if cotton prices do come down as you are predicting, then will we face some inventory loss?
So first of all, the cotton prices have increased in the entire ball. So I think it's more than physical demand and lots of plans we have taken acquisitions because of the demand quality. So they have invested into various commodities, including cotton. So that's one of the reasons the prices have been going up. Otherwise, fundamental do not deal or find any use of pricing cotton should be double compared to last year, when there is not that kind of demand that happened in a long, long time.
The [ give ] prices typically has increased in India, which is aligned to the world market. The price in India are a little higher. The increase is still higher compared to the word market only because our growth has come down, the overall crop size is much less compared to what was estimated by year.
Is there is a shortage of cotton? [indiscernible] yes, so that's why people are still buying some quantity that they are [indiscernible] we have reduced their operations to be. So everyone is trying to do 70%, 80% the best in utilization, it is still -- that's why the productivity initiatives with cotton. But I think, at the same time, going forward, if these prices continue, there could be a possibility of a cotton drop can be covered on the spending activity.
Of course, whenever prices come down, we don't know when and how much to serve every inventory available to get whatever is the inventory available to them, there will surely be a devaluation or whenever it comes down. So depends whether it happens now or it happened in September, October, November, December in the market. So most of the mills are trying to have the [indiscernible] lag as of now that [indiscernible] availability can happen, they should be in a position to reduce the loses where it's bound to come penalties [indiscernible].
Sir, so basically, sir, you are not expecting land prices to move up significantly and you are expecting basically cotton prices to go down?
Yarn prices beyond debt increase doesn't make the possible for 3 reasons. First, the prices, [indiscernible] the world prices. So even under today's cotton prices, I think the net cost of cotton in Vietnamn. Vietnam, we have been regarded the largest exporter of yarn with the pricing -- with prices as of now because there is cotton available and they are in connection with the yarn prices [indiscernible] as of now. .
Indian cotton prices are higher compared to even the -- for the cotton of the -- including the Australian or the [indiscernible], which is far better quality India. As a result of that, the Indians, they have a more distressed situation as a couch compared to someone who is using the product is much better in quality.
So price, particularly it prices are being disregarded by the normal circumstances. We have got a developer on those bases than will get adjusted. In our cost in yarn, I think to that extent, the easing will have more [indiscernible] compared to the [indiscernible].
So we don't pay more prices directly. We don't think the prices can increase on these level beyond prices. So it's like that we already have some resistance from all the brands by the budget. So it looks like whenever the contract has adjusted from the market, the store, or the cotton price is not very clear, which is advanced [indiscernible], it can have something, then probably the readjustment of yarn prices also happen.
Sir, and what would be our capacity utilization in yarn?
As of now, we are running at 100%.
Sir, and do we have enough quarters to keep 100% for at least this quarter, fourth quarter?
First quarter, yes, we have. So we are challenging also to find the market also, and we are importing it all now. I think a mix of cotton, whether in India, [indiscernible], buying both internationally and domestically, first quarter should not be a problem.
Okay, sir.
And sir, lastly, what -- there was an idea there for what would be the cost of production of cotton [indiscernible]? Because I'm trying to understand that other [indiscernible] prices have also gone up to weather farmers. Does it make sense for them to shift to cotton and so that the lag and increase in [ piston ] go down?
So the farmer is earning much higher than it cost because definitely, for example, the MSP last year is INR 6,500 normal price. So this year, as of now the price is INR 11,000. So partners is, I think, much higher than its cost as of now. There's lots of incentive for the partners to wait for the cotton crop increase.
We have the next question from the line of Hemant Gupta from Navik Data Analytics.
[indiscernible]
I'm sorry to interrupt you, but the audio is not clear from your line.
Are you able to hear me now? .
Are you on the handset, sir?
No, I have no handset. Are you able to hear me now?
Okay. If you could speak a little louder, sir.
Okay. That's right. I'll try.
My question was regarding export, sir. As I understand, we are an integrated company in the sense that we are in yarn, fabrics and then the garments as well. What part of the value chain we actually exclude for those? That is the first question I had.
[indiscernible] Do we intend to focus on exports, especially from value-added segments of the value chain, like really garments or not?
So both yarn and garment is a very small composition of our overall business, maybe less than 1%, maybe that's 1% or so. So both yarn and fabric, we are exporting almost 40% of our production directly also.
Okay.
We have the next question from the line of Ankit Mawani from Phase B.
So just a quick question on the global yarn prices. So I mean, the previous high of 2008, 2009 was close to about $150, $170. So what's -- what's the view that, given those kind of levels, can be seen and obviously converted to Indian -- multiplied by the Indian rupee and converted to the Indian price would be much higher? That is one.
And the second being that at such high prices, what are the chances of polyester increasing its share in the entire textile value chain we have gotten? So.
Yes. So the previous by 2010 for a small period of time, we got a price almost [ $2 ] buying also. So as of now, it's close to about $145, $150 as of now. But at the median prices, the previous pilot, Indian cotton price was INR 165,000 with the [indiscernible], which as of March, is at INR 1,000 plus per [ ton ].
So value on gas, the price continues to go up. Nobody has thought that the prices will go to these levels. So if it continues to go up, it can happen in some [indiscernible] better. Do let this sort of substitution happening both with the 100% volume as well as the cost also. So both the [indiscernible] are getting up well in the Indian domestic market because of its [indiscernible] and they want to get the pricing, so I think multi-fiber ones are the action.
Yes. Can you give some color on the percentage of change that's happened in the last 6 months? Maybe small, but just to get an example?
I can give you an idea. It is estimated that whatever got in the mention was happening earlier probably today, there would be a drop of at least 25%. And it will have both the best one, there will be some capacity with election, which would have come down and maybe partly 5%, 10% of the subsidies can have by way of important [indiscernible]. But as of now, the material is the company's overall front.
Do you have any more questions, Mr. [indiscernible]?
No, that's it.
We have the next question from the line of Apuva Sharma from PGIM.
I have one question regarding the underlying demand, sir. So I understand the prices of cotton has gone up and there's a sharp price increase end of yarn, there is a resistant in some of customers. But the underlying demand for yarn, I mean, even this is a starting situation, how do you see the demand in terms of -- for the event in China and so on, and things like that? So if you can just give some sense on that.
The momentum of the demand from India continues to be good. The China plus one that [indiscernible] most of these are there in [ Westenberg ] starting to see that in Congo [indiscernible]. If they can't do it, India can deliver them both yarn, fabric or the garment, whatever we can do. .
So I think on fundamentals, I don't think there is any change between now and in 3 to 4 months' time. But since our guidance and increased [indiscernible] business is coming to buy at these levels. But in terms of the process or fundamentals, I don't think there's any big question mark as of now.
Okay. So can you say, given how this is just sort of a temporary setback sort of due to cotton price increase, and once things move in line then, again -- I mean, demand is not a problem. That's what you're saying, right?
Yes. As of now, it doesn't reflect, so maybe this should be more in terms of the availability of cotton, so this price is going much higher. I think once data are normalized, obviously, situation would be normalized.
Okay. And sir, one more question. I explained very well that why cotton, yarn prices might not move further because of the resistance from the buyers. But given that fact that it go down to -- and there is a shortage of plan like demand overall is decent, don't you think that the yarn prices move up because there's some announcement [indiscernible] also, so spinning capacity going down, and there will be shortage of demand of -- shortage of yarn in the market. Don't you think that prices should -- your sense, I mean, that the yarn prices should go up in line, or?
Just a question of the viability of operations as of now, so that's why we get it as some turn after demand. The moment yarn prices go further up, the margins would start improving. So all the capacity which is shutdown today will start operating immediately monthly.
Since the [ name ] is not available in the sufficient boundary, so it will further increase the prices for all quarters and the situation will not change. So unless we have a new crop where a little bit raw materials are available. I think the bigger deal will not happen yet for next week.
Sure. And one last question, sorry for -- just one last question. You said you have seen, I mean, a increase, I mean -- what you are seeing is increase of cotton [indiscernible] this season, right? Italy and India, I mean, can you just quantify in terms of percentage what -- over last year, just -- I know it's too early, but what the general trend you are seeing versus last year? What can be the increase in cotton so across -- I mean, 30%?
So in our view, the board can increase their quantum by about 8% to 10%, whereas ED increase could be 15% to 20% because last year, our profit come down also because of the [indiscernible]. So [indiscernible] prossibly by 8% to 10%. [indiscernible] improves, the Indian growth can be at the rate of about 20% as well on the overall crop side.
Sure. And this comes to the market by October, November, right? That's when you start the --
October, it starts coming in, so the full volume will be available November onwards. But as of now, the good quantities will start coming in.
Okay. Till then, the situation -- the supplier situation remains tight, so then there is -- that would be the same scenario in Q2 at least and then Q4, Q3 should be bigger, yes?
Okay.
We have the next question from the line of Gaurav Jain from ICICI Mutual Fund.
Just a small follow-up on the hedging question. So as compared to where the contracts would have closed on 31st March, I understand we have carried forward those contracts and we have not entered into new contracts. But then as on [indiscernible] where the prices be should -- if it were to be calculated today, should we be sharing at more mark-to-market losses on the contract as we are setting forward?
Yes. So the first quarter, there will be some amount of mark-to-market. So what I mentioned earlier that we are not hedging into any of the new contracts, but yes, whatever is carried on the cash loan so first quarter will also -- may also have the mark-to-market on that.
And can you quantify it as compared to Q4, as on date, where would it be? Just to get a sense of the quarter?
No. It will be lower than that, but too early for me to say anything as of now because we got it still on, so the other is still concluded the position. So yes, as of now, should be lower than the first quarter.
Okay, okay.
Second question, sir, on the CapEx bit. The earlier thing, which I remember, we had guided for INR 3,000 crores CapEx over the next 3 years, and we were to add spindles capacity in 3 parts. So first one is a spindle line intersect is coming in October '23 as per schedule. Can you help us understand the other 2? There was action of 1.65 and 170,000?
So about 100,000 is October '22.
Yes, October '22, sorry, yes, I missed it. Yes, October '22. And --
Ending, we haven't started to talk on this. As I mentioned earlier, we have only applied to the government for their approval and incentive [ creep ], et cetera, et cetera. But considering the overall situation of this, I think we have rolled it on for a few months, and maybe we'll take a view on the after a couple of months. .
Because in any case, the cost of machine or the availability are also a ton. So this depreciation of the business is not variable so it's better to wait for 3 to 6 months' time before we start committing money. But we personally would like if it will eventually come, but there could be maybe 3 to 6 months we want to wait and let the situation normalize first.
Right. So at this point in time, will we be able to have a CapEx guidance for FY '23, '24? No, right?
As of now, no. Maybe after -- maybe the second quarter, maybe [indiscernible].
Yes, makes sense. Sir, will you be able to help us with the gross and net debt number as of March '22?
I'll ask CFO to reply to these questions.
Okay.
Both on long term and short term [indiscernible].
Sir, this is the operator. I'm sorry to interrupt. We cannot hear the current speaker.
Yes. Is this clear now?
Yes, sir. Please go ahead.
So gross debt, both including long-term and short-term, is close to INR 2,000 crores of EBITDA as of March '22.
And our net debt?
Sorry?
[indiscernible] investment of about INR 1,500 crores on our books, so that is about INR 500 crores.
We have the next question from the line of Sonal Gupta from L&T Mutual Fund.
Yes. Just wanted to understand, like, have you quantified -- sorry, I missed, I think some part of your initial remarks. So have you quantified the Q4 hedging losses?
It was already announced on the balance sheet.
I mean, in terms of P&L impact, is there anything there?
So INR 60 crore is already quantified and recorded in the books and amounts.
Got it, sir.
And just -- I mean, like -- I mean, what is your sense in terms of the demand side? Because I mean, like some of the U.S. large retailers have, I mean, like said that -- I mean, they are seeing a slowdown in discretionary consumption and inventory levels are high in the chain, it seems. So, I mean, like, what is the visibility that you have that value indicated that you can run at 100% capacity in Q1? I mean, how do you think about like your utilization levels going through the year? I mean, is there a risk that we see a demand also slowing down in second quarter onwards?
So there are 2 factors where this demand is coming to the question mark. One is the high prices of cotton, which is converting into high prices of yarn, high prices of garment, then demand is coming down.
Also, as you mentioned, probably the one fact that because of the Russian-Ukraine war, all the prices have gone up, especially the crude prices, et cetera, et cetera. So I think there is some concern to the people on overall consumption because of that also.
The third is the supply chain has started improving now. So [indiscernible] because the supply chains are taking lots of time. And as things have been improving, probably people would like to order less so that whatever they expect they had or it's the bind they have done, that can be adjusted in like 6 months' time or so.
So considering this [indiscernible] prices, et cetera, there could be possibility that there's not drive demand alone because of that. And two, the elasticity of demand, that is too high, so there would be a possibility for some property consumption thereof.
Got it, sir.
So I'm just trying to understand, do we have visibility into Q2 orders or Q2 production? Or will that only happen later?
Normally, the yarn is sold for about 56 days only at a state. So as of now, we have the visibility to that extent, normal number of days. But going forward, I think how many times get there.
Got it, sir. And last question, I don't know. I mean, could you sort of indicate, I mean, directionally, you would have seen a compression in your margins on the yarn side? I mean, other than the hedging loss that you've incurred?
Yes, surely, the margins are much there compared to what it was last year.
Okay, so not margin. What I would say is that, I mean, like on an absolute basis, would your margins in Q3 to Q4 per kg, would that -- that would have dropped?
No. So normally, let's say, what is the bill of tabulating margins, negative whatever decrease first. This spinner is getting about $1 to $1.25 as we mark up over the quarter, which as of now is [indiscernible] of maybe [indiscernible].
Got it, sir. Got it. positive.
I'm not talking of the margin, I'm talking about the margins available and it is going to be [indiscernible] cost.
Got it, sir. Yes. That's what I was trying to understand.
We have the next question from the line of Hemali [indiscernible] from Old Tree Capital.
I had a question. See, what we are hearing is even large brands want to have more cotton and acrylic mix and various other mixtures in the textile because of the increased cotton prices. What impact does it have on our business? And are we also seeing increased penetration or, let's say, what was 100% cotton moving to 90% cotton and 10%, something else? And does it really make a dent or change in our spreads in yarn manufacturing? This was the first question.
Yes. So it is true that most of them are looking at to reduce their cotton, to reduce their cotton, raw materials, cotton to [indiscernible], especially polyester and disposed. So we are really finding those kinds of blends in the market. But it doesn't take much of business to us, the existing 100% cotton we will see in all these brands. So on the study side, it doesn't make real much of a difference to us.
So we are finding those changes. And to that extent, we are the emerging partner in internal capacity also on those products. And we keep on evaluating it the person got a -- and whenever we find a margin is better in a different product. We can easily shift our capacity on that.
Okay. And are the margins are significantly different between, let's say, a cotton yarn, 100% cotton yarn or 60-40 cotton acrylic or something like that, or the polyester or whatever? Or the margins are generally similar because --
The margins are generally similar. But as of now, the cotton prices are too high, so I'd say the margin of the bond on the branded products would be lower compared to 100% cotton [indiscernible] products.
Can you repeat? I could not understand the point. .
Generally, margins are comparable. But as of now, raw material prices are too high. And of 80 products, or the marginal cost of raw material, marginal cost of yarn selling, there is a loss. Which, in case of blended yarn, is lower not as of now because there, we are using a partner of the [indiscernible], which is a much less cost compared to the cotton.
Okay. So numerically, the -- I'm not talking in terms of percentages. But numerically, the loss would be lower and even the -- let's say, profit may be higher in next year?
No. Just -- normal that polyester cotton, botanical cotton or 100% cotton to give you a comparable margin. So this situation is there as of now, but as soon as the raw material is normalized, the margins will become normalized. Because otherwise, it's just because so wherever we find a better product, better margin, we will keep our shifting capacities on that.
So this is a very, very unique or a different position, which is why this change would be coming in. Otherwise, the moment the raw material becomes normal, I think the margins generally will be comparable.
Okay. Okay. .
And how difficult is the -- if you turn from our cotton to [indiscernible]? Does it take a lot of time or -- it's not a [indiscernible]?
Stages are required in the machining part as well as the layouts, but that's not very difficult to do.
Okay. Okay. And secondly, let's say, if the price of cotton normalized in this financial year, but are we seeing the spinning capacity will also increase dramatically over next 1 year or 18 months? What is your view? And just -- so not just in India, but let's say, Bangladesh and Vietnam and all those [indiscernible] space. Are we seeing significant capacity coming from this?
I think getting the situation as of now, everyone wants to pay the workforce [indiscernible] for some time. I don't think the next [indiscernible] part, there's likely to be a huge capacity addition likely to happen into the system. But yes, if the margin that needs to be good or if the business continues to be good and deeper and we get in the [indiscernible] capacity, which could be added into Vietnam, India and maybe Indonesia, et cetera, because China indicated to be coming down.
So I think next 12 to 15 months, I don't think it's likely to be [indiscernible] to happen consisting of the situation. But yes, [indiscernible] project was started earlier, they tried to complete that. But I think people are -- everyone is trying to hold on with the capacity actions.
Okay. And one more thing. You state the one thing that people who work with imported cotton, their profitability won't get that much impacted versus people who use domestic cotton 100%. Was it -- did I get it right? Or what was the meaning of that statement? Some color there.
There are 2 biggest companies which are exporting yarn, India and Vietnam. Vietnam doesn't have their local cotton, so they are importing cotton. Whatever is there, like, it's cost of cotton, and based upon that, the price is coming down. Whereas, Indian cotton has to be -- even expenses have been reported cotton.
Okay.
Because even if the mounted both the cotton, there is going to be too much demand, and by that time, demand has to be in cotton. The window available for the duty free import of cotton today, that is the effort [indiscernible] in India. And the cost available are only per yield as well as the [indiscernible] where the shipment time is not less than 1.5 months or so. So there is hardly any shipment of [indiscernible].
So I think the likelihood of India, we have to put big quantities in this year with a hit entity and steadfast going to be the first of October to pay 7% [indiscernible], people do not take that kind of risk. So that's why people are not getting big, bold into India, and that's why the prices in India are not coming down.
Okay. And Bangladesh, improve some ways also of [indiscernible] and some of those. So how are we placed in the market for imported?
Both our specialized cottons, [indiscernible], Egyptian, there is no comparison with Indian cotton. So those are specialized cotton because customer will pay the price in the cotton in the yarn or the fabric, or the garment is also a cotton, so there's no issue to that.
Issue is the normal product, which is comparable or tangible with Indian cotton with normal imported cotton. That's where the issue is coming in.
And how much of our revenues would be from that imported cotton because the realization would be also higher? You see raw material this year.
Normally, we do almost 92%, 93% cotton, Indian cotton.
97% to 98%.
We have the next question from the line of Marshall Lewis from Swastika Investment. Mr. Marshal Lewis, please proceed with your question, your line has been unmuted.
As there no response from the line, we will move to the next question. The next question is from the line of Nikhil Agrawal from BP Capital.
Sir, I just wanted to understand, like, for the production in quarter 4, what part -- what percentage of the raw materials of cotton that was used in quarter 4 that was not in the previous quarter? Because there has been a significant rise in prices in quarter 4, so I just wanted to understand what percentage of cotton was procured in the previous quarter, which you've used for production in quarter 4? If you can highlight on that?
It's the ongoing purchase because we start only in the month of November. Online purchase, we respond buying on a daily resident side. So it's not that we stop [indiscernible].
Okay. And --
Yes.
Yes. And sir, like -- so earlier, you used to -- you have maintained that your according procurement season is always between October to March because of the prices and the quality of cotton that you get. But just previously, you mentioned that you are just procuring cotton like -- any reason like behind that? Because cotton prices are already on an upward trend. So you -- is that -- will that have any impact on your margins or such as such? .
Both it has an impact or negative impact on the margins. Because the prices were too high, and we never wanted to have a huge amount of stock because the [ departing ] happened in a big way. So the crop was not available. Even if we wanted to buy it, we could not buy it because the material was not available and this is [indiscernible]. So we'll still find that.
Okay. So will you be continuing to buy, like, for the remainder of the season as well?
Yes.
Okay. And sir, like regarding this, like yesterday, there was this notification from South India Finance Association. The -- it was mentioning that there was drop of [indiscernible] in cotton, and they will be closing on -- closing out all the mills. So any impact of this on your business? And I believe it should be positive for you because the availability of yarn will go down in the country. So like, any other impact on this business -- of this on your business?
No. Okay.
Okay. And sir -- sorry?
Other than what we have mentioned, I think no.
Okay. And sir, just one last question. Any value growth guidance? Revenue growth guidance?
Just don't want to give any guidance as of now because I think it's an extraordinary situation. We want to understand nobody could have [indiscernible] this kind of situation. So maybe what that comprises, I think there's no point in giving any the guidance on the numbers as of now when the [indiscernible] also depends. So I think it won't be maybe after the first quarter number, we should be more clear on how the year looks like.
Okay. Okay. Perfect.
And sir, so you maintain your margins at 18% to 22%, like your margin guidance at 18% to 22% even now?
Yes, that's on our normal basis, but I don't think that is normally.
We have the next question from the line of Vishal Bagaria from Roha Asset Managers.
Sir, if you could share the average realization for yarn and [indiscernible] for 4Q until [indiscernible] 4Q?
I can only say about the industries, but we don't share our own realization in the industry. I think the average position in this period would be the rate of [ 50% ] or so.
Okay. And if you can share what is our average cotton price for the year?
This year?
Sorry, sir?
For this year?
Yes. For the year FY '22, the average quarter price for us.
No. For us, we don't share our cotton prices. I think we don't set the balance sheet with the calculation.
Okay, sir.
We have the next question from the line of [indiscernible].
The next question is from the line of Pulkit Singhal from [ Dames ] Capital Management.
A couple of questions. First, I just wanted to be clear on the previous statement. Are we saying that at the current cotton and yarn prices, if we were to do business, EBITDA margins would be negative? .
Negative or [indiscernible]?
Okay. So in that case, how long can the [indiscernible] continue to hold out? I mean, ultimately, I mean, there can be some inventory correction in the global system for 2 or 3 months, but they will have to start buying as well, right? I mean, the garments have to be still produced and sold. So is this a very temporary thing they can hold out for or that can be much longer in your experience?
No, no. They can't really hold on, to a point they will have to [indiscernible]. So everyone is looking at -- everyone is building to higher prices. Everyone one is looking at the main postponing their decision to buy so that if there is any correction happens on the raw media prices.
But [indiscernible] appointed not has the opportunity we have to buy new. They don't buy 100%, they buy 75%, 80%, that the customers wear. But it is not possible that the customer would not believe we [indiscernible] at all. So since the prices are why everyone is looking at trying to postpone it whatever they can do, depending upon their inventory situation as of now.
Okay. And what happens is the scenario in case prices remain high? And then, I mean, they kind of crash down to sort of [indiscernible], I mean, at some point? Because you said that there were traders in the system who might have kind of taken advantage of the situation and that's pushing our prices. If cotton prices crash and there's inventory loss in the system, do we see a lot more [ states ] go out of the market? Or how does this really play out? I mean, looking at the past [indiscernible].
There is one good thing I want it wrong in this period as the cotton was not available, so [indiscernible] and not have huge is available to them. So most of these peers will have in maturing that we include 2 to 3 months' time. Again, the normal inventory of about 6 to 8 months kind of a situation. So even if the correction has not had the [indiscernible] I believe, I think to that extent, the losses will be lesser compared to the normally [indiscernible] will be dominated. Because not available, nobody could buy. So everyone has a much better [indiscernible].
Okay. And if prices were to remain higher and ultimately, obviously, the buyer also has [indiscernible] for yarn. I mean, do the margins of 18% to 22% or whatever you've done in the past, does it come back to that level? Or do you settle at somewhat lower levels?
So ultimately, if the prices are passed on and the buyer is willing to buy it, then I'm sure the margins will become lower. But it's a deflation where the commodity and oil prices more than the [indiscernible] price increase, so that's why there is extortion. I'm sure either the customer will start accepting those prices or these prices will come down. Either of the two. But whether it happens in 2 months, 3 months or 4 months or 6 months, it's a time between them. So as of now, the separation is surely there.
But I'm sure either way that when the [indiscernible] comes down, the yarn starts getting accepted at a higher level, then the margin should become normalized.
Right.
Sir, lastly, I think there are a lot more garmenting capacities coming up, say, in India and Bangladesh, which I thought benefits spinners in India in some form. Does that continue to take place as a structural advantage for [indiscernible] or does that aspect come up?
That should continue because as they have been the September, all process on China plus one continues. So to that extent, I don't think there is any fundamental changes to that process. So [indiscernible] it should again be a available to us. [indiscernible] situation is normal, so the base situation is different because of our own [indiscernible] prices become much higher growth because of these.
Better crop, and there is no import could be done because of imported [indiscernible] by then, more costly than the [indiscernible]. But [indiscernible] it's almost the things the company on. So for any product, if the entire world is [ comping ], that one any cannot for a very discount.
We have the next question from the line of Sandeep Baid, an investor.
Just wanted to know when did the official season get over for cotton this year? Was it something in February or end of it?
Sorry, [indiscernible]?
Season for continental takeover? Normally, it gets over by March and over [indiscernible].
There's no official date. So our cotton season, typically, all balance sheets with open EDRs is the first October to 30th September. Most of the time by 31st March or by 30th April, we get almost 90% quarterly available because it is cotton season. And I think even today also, situation is almost like the 84%, 85% is already coming.
Okay. So you continue to -- you mentioned that you continue to purchase cotton even today. But when did you finish most of your purchase? Was it by March end or [indiscernible]?
Normally, we finished by [indiscernible].
Sorry?
Normally, we finish by 30th April.
30th April. This year will be -- this year would have been similar?
No, no, no. This year, I've already mentioned, we are still buying -- we have inventory. We are reporting. We are buying also, so it's a mixture of all these 3 things have been even.
Okay. So as for your balance sheet, your inventory is about INR 2,900 crores as of March 31. And last year, it was only about INR 800 crores. Of course, this year, the prices are much higher, and therefore, in terms of volume, the inventory will be lower as compared to last year. So last year, your inventory lasted till end October, end of November, so about, say, 7, 7.5 months. And given that this year, inventory is about INR 100 crores higher as of March 31, but the pricing also higher, would it be fair to assume that the current inventory will last, let say, August, is it?
I then calculate your number calculation but [indiscernible] I want to give a number on guidance. But yes, the inventory which you are mentioning, INR 2,800 crore, INR 2,900 crores, that includes the finish product also. And since the raw cotton prices are higher, everything is this distant that is based upon the consumption date. So in any finish waited terms of number of days could be can, but in terms of value, will be much higher since your raw material connection will be higher.
So yes, there would be definitely compared to last year, we have much less in terms of [indiscernible].
Right. And how much is the difference between international prices and domestic prices?
So the international prices are waiting between rate of about USD 0.140 to USD 0.145 per pound. They had another 20 basis points for the force to happen, so that's about USD 0.165 available in India. The Indian cost will be close to about USD 0.170, USD 0.157 to USD 0.180. But one -- but at the same time, normally, Indian cotton is that it accounts from the U.S. percent based on the quality and [indiscernible]. So we are generally, in a few cents, lower than the U.S. cotton. So this time, we will be very equal or maybe 2%, 3% [indiscernible] to report.
And third, the quality of Indian cotton is very good this year. So the realization of it will also be coming down as the overall quality is not good at all.
Right. On fabric, would you say that the margins are now at a normal level?
Sorry?
Would you say that the margins are now at a normal level?
Fabric business, our margins has come to the normal level. But again, since the yarn price is capital increasing and the investment from the end buyer to accept those prices, so there is a pressure on the cabinet of those or the entire gain. So on that hand, the farmer got lots of money available to them, so they have made money. And other hand, the entire change is trying to beat there so the big getting [indiscernible] or harvesting. Everyone has the chance to that extent has come down, because there is a finer [indiscernible] that have not been ideal to access those markets.
So pick also, as of now, our margins are under pressure only because yarn keeps increasing and it's very difficult for us to pass on those prices to the final customers.
Would it be fair to assume that when the yarn prices comes down, the fabric prices normally doesn't come down correspondingly and that margins are more sticky in the fabric present?
Historically, this has to depend and that the [indiscernible] of this year on, but yes, historically, this is [indiscernible].
And lastly, sir, you mentioned that the --
This is the operator. I'm sorry to interrupt, but we have participants in the queue.
Just the last question, yes. Sorry, I was asking at the work plase quarter yarn spread, and given a normal separate margin, would you say that the 18% to 22% of your overall margins are sustainable at what per yarn costing? Would it be $1?
$1.10 would be that. I think $18 to $ 22 will become variable.
Ladies and gentlemen, due to time constraints, we will take one last question from the line of Rena Jhunjhunwala from Elara Capital.
Just wanted to understand how much of the fabric prices increased in the last 5 to 6 months versus the yarn price increase?
Mukesh, can you please reply?
Yes. I would say, in the last 5 to 6 months, whatever yarn pricing has increased, about 73% of that has been absorbed in the yarn prices also.
Okay. And are we having any price increases -- experiencing any price increases in the last 1 or 2 months, given that yarn prices are not increasing materially?
Yes, once the yarn has stabilized, that when I'm giving a range of 7% to 8%, but that we see some increase. So from 80%, it will move down to -- move up to 90% and so on. So eventually, if the yarn prices stabilized, maybe in another 1 month or so, 100% of this yarn presence that absorbed in the side.
Okay. Okay.
And sir, any impact on our capacity utilization due to the resistance of buying from the domestic and international prices -- international customers? And how -- where do we expect our utilization for the first half?
For the first half, it will be difficult to comment at the moment. But for last 3, 4 weeks, we have some capacity utilization issues that we are running about 90%. 85% to 90%, but we expect that it starts improving in another 2 weeks or so because the demand cannot be permanently subdued, it is bound to come back. So in second quarter, it rebounds, and we are again back to 95% to 100%. And then for first half, you can assume a situation about 90% or so.
Okay. Okay.
And sir, in the fabric business, also, are we looking forward to see a mix of cotton and other fiber fabrics, or will restrict ourselves to only cotton?
No, that's -- we are there to cater to the customer demand. There is inertia because the customer doesn't take immediate action on a shorter time because changing the product mix and taking the product to the consumer, convincing the consumer of a new product in itself, that is a big risk following over.
So for a shorter period of time, then it's eye to stick to the original product range, even though at lower prices. But yes, some change has started to happen 100% quarter-to-quarter volume, which has cotton -- predominantly cotton and then some portion of [indiscernible]. And also from 100% cotton to cotton in this cost.
Are we doing -- how much percentage of our revenue would be -- capacity would shift to that side as per your risk of estimates, not holding on that?
So does it also -- or the 20%, 25% of capacity is all the blend.
Ladies and gentlemen, that's the last question. I would now like to hand the floor back to Mr. Jain for closing comments. Please go ahead.
Yes, so thank you very much. And as we are discussing, it's a very, very challenging situation for the industry. But I'm sure that [indiscernible] our advantage is also though there could be short-term plan. But the mine expansion which people start doing it may be reduced to some extent and people are start looking at more economic defense rather than go into [indiscernible] or a untraceability.
Having said that, of course, there are challenges, issues, but I'm sure internally, we are looking at it very, very previously on a daily basis is what else cases which are required to understand. How do -- how can we continue to operate better even in these prices also. So whatever is controllable, I'm sure we are -- they are looking on that, and I'm sure the results would also be good to that extent, whatever changes we have to make. I think the rates times give us an opportunity also to make changes within general and sometimes it's difficult to carry on.
So I'm sure by the time we'll be maybe next couple of months that talent continues to be there. But I think this year as a wholesale will be better than the situation today. And I will thank every investor who participated in this call. You have always been supporting the company, and I'm sure we'll pass through this time also with the comfortably. And in terms of liquidity, cash capability, I think the company is very competent, and we're still looking at our monetization [indiscernible]. So on the long-term project, the long-term hotpot is not on promise to that extent in spite of this situation, which can sure will give us an advantage whenever this [indiscernible] normal.
So thank you very much, have a good day. Bye.
Thank you, gentlemen of the management.
Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.