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Vardhman Textiles Ltd
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Ladies and gentlemen, good day, and welcome to the Vardhaman Textiles 4Q FY '20 Earnings Conference Call hosted by Batlivala Karani Securities India Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Nigam from Batlivala Karani Securities India Private Limited. Thank you, and over to you, sir.
Hi, everyone. Good evening, and thank you so much for joining us today. Some moments, we are joined today by Mr. Neeraj Jain, Joint Managing Director; Mr. Sushil Jhamb, Director, Raw Materials; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, Head of Fabric Marketing; and Mr. Varun Malta, Head of Plans.And now without any further delay, I will hand over to Mr. Jain for open remarks.
Hi. Good afternoon, everyone. I'm sure I'm audible enough?
Yes, sir, you are out clear.
So this quarter has been better in the previous quarter. You would have seen the results. So in terms of utilization on the spinning business, we were better. Third quarter has been one of our first quarter because of the utilization, very high cotton prices, low demand and so and so on. Definitely, there was a little bit betterment and the spending utilization was almost full for us. Country as a whole also, I think the third quarter, we were estimating the digitalization of spending in the range of about 60%, 65%, which as of now, our feeling is will be higher than 90%. So one is the overall demand and the utilization. Second is the margin, which I'll talk a little later. So in terms of utilization, definitive things have improved for India. And in terms of coverage utilization, this period was where our utilization has been raised still not reaching the 100% level as the overall textile is an under somewhat concerns the overall scheme of things. This is a period where after seeing a very negative period of October, November, December, where everyone in the system wanted to reduce these stocks. So there was a destocking going on with every brand, whether it's a domestic or export. As a result of that, people were not demanding at all. Also, the third quarter was a period where the cotton prices, which went to as high as one agreed they were coming down. So everyone in the system wanted to wait to buy so that the inventory losses are not there. So part inactivate 4 months starting from where September, August, September part, November, December has been a very, very difficult period. From that perspective, the nation. Coming to the cotton prices, the international prices also during that period has gone to as high as $50 per pound. And most of this period since March, they have been in the range of about $0.70 to $0.85. So I mean, average could be around $0.82, $0.83 or $0.84 in this period. And commenced to that, the Indian prices also readjusted to almost INR 63, INR 62, INR 6,000 to INR 64,000 a [indiscernible], which was much, much, much higher before.So also, this was a period where the -- because of crop damage in Pakistan, their capacity utilization was much less. And Pakistan is one of the biggest supplier of cottons counts -- in the ad market, especially to the China since those are not operating fully. So there has been a part of the orders which came to India also, though margins may be there or not there, but at least in terms of utilization, definitely, it helped. This was another optimism in this period was the opening up of China. So after the COVID restrictions, which were to single there, the government of China decided to open it up. And slowly, the markets are opening and definitely, there has been more optimism for that market also. And there has been a mind of Yuan from Chinese market also, which practically -- before that 6 months was not there at all. We saw back call also, I mentioned there were 3 scenarios on the overall demand was less because of the high inflation, interest rates going up, EMI is increasing, energy prices going to a different level. So people were -- all the discretionary demands were less. And in this period, I think definitely, there has been an improvement in that and more and more people start liking it because the most of the risk, it looks like it's over. Two, most of the brands are destocking. So in the earlier period, and they have a full of the inventories where they were reducing their inventories. And as a result of that, they were not buying at all. I think definitely, it has been an improvement and brand by brand whosoever wherever the destocking was done, they started buying slowly in this period also. Third, the supply chain also improved. So earlier people were having concerned some supply chain. So they are still fueling by the time material reaches them, it will be again a devaluation of this that parasol -- so the normal ice business surely started happening in this period. And in addition to that, the optimism of China and non-availability of Yuan from Pakistan also helped the Indian spinner to do a little better in terms of utilization. The bottom rate continues to be high media in comparison to what it used to be earlier. We are talking about the U.S. sands, the cotton which is available in India over and our New Year future. So if you look at the historic prices reduced to be in the range of about $0.04 to $0.06, which in this period, most of the time was meringue.12 to $0.15. Even today also, would be close to about 12, 13. So definitely, the Indian finance margin is not a hit -- so we had 2 issues, one is sure the overall demand is less the world and still people are expecting an overall spending utilization of only about 80%. So that's one impact where the demand is less, so the prices are not really commensurate to the cost. Two, the Indian spinner margin is less because of our higher cotton prices compared to the -- compared to what we used to have earlier. And that disadvantage still continues. Of course, it's a little lower than what it used to be, but definitely that is advantage is the even as of today also. The fabric utilization, having almost in the range of about 80%, 85%. The situation remained same over there also. Overall demand has been less. People have not been buying most of the brands were destocking. So as a result of that, they were not buying. So we were in a position to utilize this much capacity and even as on today, also the situation remains in. Another silver lining in the last couple of weeks is definitely -- so we -- if you look at all these segments, we are spinning, top of meeting, using on textile, garmenting, practically 20%, 25% utilization has been lower in the last 4 months, 5 months. So the first silver lining, which we started looking at, looking like is the home textiles where definitely where capacity utilization has improved in the last couple of weeks, and they are reaching almost depending upon the company. They are reaching almost 90%, 95% utilization, which is -- which is one signal where we can say that we net demand and has started coming in, maybe the destockings are over and 2 pale started buying again. And if one segment has started working, I'm sure the others should also -- may also coming in next maybe in the near future over a period of time.So our company also the utilization at all stemming almost stunning full capacities. The margin in this period has been generally in the range of about USD 0.70 if we go by the market prices of Yuan, vis-a-vis the cotton, not more than $0.70 whereas in India, many times, it was in the range of about maybe 60 also because of the price bottom which I mentioned earlier. The fabric margin relatively whenever the yarn comes down, the fabric margins improved. So as a result of that, the integrated player like us, we had the advantage compared to the stand-alone spinners where the margins were a little better in terms of the overall EBITDA margins. So that's the situation till now. I think the many things we can we can discuss and we can explain along with the session...
Thank you very much... We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from the line of Awanish Chandra from Smith.
Opportunity congratulation to management team on improved the margin performance, though it is far from still normal margin. Sir, first, a very obvious question in your opening remarks, we mentioned that you are working with now 100% capacity utilized. I mean, standing division. So there -- and we are holding our CapEx plan for long. So any new thoughts on your CapEx plan? Anything you can guide on that?
There are 2 issues which I mentioned in the last call also, and I'm repeating that. So one is the overall demand is less in the world market because of the various uncertainties -- so I think there is a concern on that. But I think that's not really that big a concern because if the overall ultimate markets will improve, it's a matter of time. So we're really not much bothered about the same. And I think that's not really a big concern. The second is the India speak if our cotton price continues to be higher than the word markets probably then the concern could be a little longer, even if the things improve the worldwide. But if our cotton prices continues to be higher, which are as of now, then probably whether the kind of margins which are expected, whether they'll be back or not -- in next 2 to 3 years. Because ultimately what will happen if the margins are not good, expansion doesn't happen. Some of the spending plans over the weaker plant will be going will be stopping the pace. So eventually, the margins will improve. But all the questions and concerned is when does this correction of prices of cotton prices happen tenders, the normality in our under happens. And unless that happens, I think we are still working or we still want to wait maybe for next some more time before we make up a mind and we start doing the big expansion. So its better looking at the bid situation, in our view, in our management group is better to wait for some more time before the clarities there and we start expanding. And in many days, they just completed our 100,000 spindles, which we have started utilizing on a fully basis now. So I think we also like to consolidate maybe till the time we take a final view on this.
And sir, you highlighted this international and domestic cotton prices. So international is EUR 0.84 and we are at 654 -- still we are not having parity or now very close to parity overview?
No... So the way we may at the Indian cotton is always whatever is the New York future? And how much is the premium on that. So if you look at the new year future today is, let's say, 83.4%, the American cotton is available $0.15 over and above the New Year future. So the cost of medical cotton to, let's say, Vietnam is about 13, $0.15 higher than that. So it is EUR 0.83 and $0.14 0.97 [indiscernible] time will be getting the imported cotton or the American cotton. Whereas the Indian cotton today is close to about 6 -- so the yarn made out of American cotton will always have a premium of endo whatever the Vietnam financial in organs will be sold $0.15, $0.20 lower than that. But if our cotton price are same, then we cannot make money. So the way in India, people look at whatever is the new or future, $0.04, $0.05, $0.06 higher than that has been our historic cost. We never look at the near future is higher or lower because ultimately, the new poker the yard size will also right. But if cotton prices are higher in India, we alone will not be in a position to increase the prices in the good markets. That's where I'm saying the Indian prices are still higher on the basis compared to what it used to be earlier, and that's what is giving us a concern today.
Okay. Understood. And sir, on both giving things, how much cotton inventory today we have? And is there any situation of cotton arrival in Mondi improved?
So the overall arrival in India now is close to about INR 235 crores, 137 lakhs days. I mean, anything people are maybe it could be 24 million as well. The crop side, there has been a different estimates of the crop size. So the CAI which started with almost 34 million days today, it's come down to 30 million. CPC, they were at 337 lakhs, so they're still at 337 light days. and the 240s comer. The daily arrival even today also is in the range of 125,000 base to about 140,000 barrels.
So it looks like maybe -- there doesn't seem to be as much of a concern on the overall availability and the arrival of cotton.
Of course, it is unprecedented that we get this much of bottom in the month of April, May, which has never happened. But yes, it's coming regularly. And it seems -- doesn't seem to be a radio shortage of cotton. It's only the farmers are in a position to bring it slowly so that we can maintain the parity, which is a kind of a different experience the India had for the first time because we cannot import it as of now because of the duty component. So we have to be dependent upon the Indian cotton. And somehow, it looks like the farmers could understand this need and they're bringing it slowly. But otherwise, in terms of availability, et cetera, that doesn't seem to be that kind of a concern that the cotton will not be there or what happened last year? I don't think that's the situation really.
The next question is from the line of Prerna Jhunjhunwala from Elara Capital.
Sir, I would like to understand the demand from the Chinese market. Now that you're saying that the demand is in the Chinese market is better. And we are also seeing that Indian cotton prices versus Vietnam is cotton, which has imposed from America are also similar. And anyway, they command a premium $0.20 and Indian cotton will also be available at the same level? And why are we not able to make margins?
Because our cotton price is same as the Vietnam is getting the American cotton. So if my yarn is sold $0.20 lower than them, how will I make money?
I thought that Vietnam is beyond is higher. I think...
Whatever is the Jan boot of American cotton, which Vietnam is one of the big players, whatever yarn itself for the -- from the quarter made out of from the cotton, which is producing U.S.A., whatever the yarn price, our yarn price will be $0.15, $0.20 lower than that. And if my cotton price is same what we alone is getting as American cotton and I'm getting Indian pattern at that price, then to that extent, I will lose money.
I understood, sir. I understood. Sir, at current rates, what would be the industry margin?
$0.60 to $0.70 for Indian [indiscernible].
Okay. Okay. Understood. And this is gross margin or EBITDA.
Yes. Yes.
Okay. And sir, what is the hurdle in higher utilization of global fabrics because the demand for Mobile Apparel definitely is better than net apparel in the market. So what is the reason for not being able to sell utilize our capacity to the fullest?
I think if you look at all segments, whether it's being, whether it's being, whether it's netting, whether it's on said, the demand has been very, very done in this period. So that's the reason it is less. I mean, if you look at the even limiting also even the denim is still running at about 60% of the utilization. The meeting would be running at about 65%, 70%. So to that extent, Govan is in the range of about 80%, 85%. But it's not that the women is running at 100% utilization. So I'm talking about the word markets. Every year because the demand is lower, whether it's moving or its net or it's been in everything. I think there's definitely some reduction in the overall consumption.
Okay. Okay. And what should we be looking at if we want to understand that there are green shoots in improvement in demand?
So one is the home textile, which is one signal for sure.
Okay.
And two is the spinning capacity utilization because of the Chinese demand or the other demand. So definitely, we have improved. So these are the signals signed. And if you look at even the Denim also, I think 4 months back, the utilization has come down to about 40%, 45%, which is now in the range of about 65% or so. So definitely, there's an improvement in segment, but whether to be desired or to the 100% level now. But surely, it looks like we have definitely improved in every segment in the extent in last 3, 4 months.
Okay, okay. So sir, what will be your expectation for FY '24 as a year because still we are not seeing any major improvement in demand to the full and margins continue to the under...
Yes. So it looks like first 6 months and still -- I mean, on one hand, where we are saying things are better compared to what it used to be and still maintain the same. But at the same time, next couple of months, it will be a roller coaster in any case. So I don't think the next 6 months, we are likely to have any major trend or many, many major improvement in one direction. And the '23, '24 should be or could be better than '22 '23 -- but weather will really come back to the normal margins for 6 months, it doesn't look like because you look at now, we are already in the month of May. The cotton prices the next housing season will start somewhere in this month of September. So done by the arrival pace and the way cotton prices are behaving. I don't think there's likely to be any major drop in the cotton prices in the next 2 months, 3 months' time, and we will have to buy for this season. So any major improvement or hope, which is there, it will be done in September and...
Okay, okay. And sir, your cotton inventory holding this for this season? And what has been the procurement strategy? And are you going to use any hedges?
So we are -- first of all, we are not doing any hedging as of now because most of the thing we do whenever we import in a garage, this year, we are not doing any hedging, first of all. Two if I look at the overall inventory with the mill sector, our estimate is it would be in the range of about 60 days or so as of now. That's our estimate -- I mean, considering the total arrivals consumption gap on exports and imports, it would be in the range of maybe about 60 days or so. So for us, it will be -- I think we are in the range of maybe about 90 days or 90, 95 days or so. But definitely, even -- I mean, we are also very conscious because once the new arrival comes in, probably, there could be a possibility of a lower prices also. So two, we also want to look at how -- because the business is also very time to mouth on a daily basis. So we are also doing the little conservative asset now on the bottom line.
Okay. Okay. Sir, one question just in my mind. How do we look at growth then when we're not expanding over the next 2 to 3 years, are we looking at any other opportunities in the textile segment apart from spinning and Moven fabric because there, we -- mobile has taken a longer time to utilize fully and spinning margins continue to remain volatile like this, and import duty is a government call, so we cannot wait for government to change the...
So I agree with you, one area of improvement would be only the moment we start utilizing our full capacity of the giving division. So there could be some improvement on the top line or margins coming from that. Two, I think in the time, we are very sure of the future of the industry, and we are very sure of our cost factors, whether it's the concern will be whether we should look at the top line and keep growing or we should be concerned about the bottom line also and that for some more time. So today, any time we want to put up a spinning project because now the kind of thing, which are there between machinery manufacturers, that's not there today, you can get a machine in 6 months, 8 months' time. So once again, the spinning project expansion could be completed in about 12 months or so. So we haven't decided [indiscernible] want to wait for another 1 or 2 years before we start the project. I'm only saying we want to have the comfort before we look at these projects. And as of now, we are not really very comfortable going by the overall cost factory in system. So that's what we think it's better to wait for some more time. So I'm not saying 2 years, 3 years, but definitely, we'll wait for the right at an appropriate time. And there's a number we think those are consistent demand or there is any concern on our servicing to the customers? Probably that's the time we might take a do as well.
The next question is from the line of Amit Khetan from Laban Capital.
Just sir, could you share some perspective on how much your spindle capacity addition has taken place globally as well as in India. And this is in the last 2 or 3 years post COVID -- and besides India, there have most of these capacity additions taking place?
So if we look at, first, let's look at the once Indian scenario, the overall spinning expansion or the overall spender in Indian market will be close to about 2.5 million to 3 million spenders in the last 1 year. And out of that, about 70% is the expansion and about 30% growth for the modernization. So the global 5million, 3 million spenders segment, close to about 1.7 million, 1.8 million spenders that have been added into the Indian system, new tenders. And also, there's always some moves which will be stopping the production. So we estimate maybe about 0.5 million centers be going off from the system, the older system -- so this means the net-net addition to the India -- the Indian spending could be in the range of about 1.2 million, 1.3 million spenders, which is about 2%, 2.5% of our installed spending capacity. If you look at the world market, the total work market today is close to about 240 million to 145 million spenders. And the net-net additional is in the range of about 4 million, 4.5 million was total about 7 million spenders are supplied everywhere. And almost out of that again, 20% is it, we look at 30% growth for the monetization that may define the meters, which are teapots.And maybe another 1 million standard is going off from the various countries. So the net addition to be in the range of about 4 million spenders or so -- so this is a period where all the 15, 16 lakh numbers, which would have come to India. It's not that one house is. So most of these places, I think the expansions are in the range of about 40,000 spenders to maybe 1 or 2 taxes may have about 100,000 so, for example, on a 100,000 spenders equaling -- so this is a very scattered kind of expansion which has happened. And third, I think there is no greenfield project which is coming. Most of the expansions which have come in, the existing players have added some capacities to their existing locations or maybe the existing groups have taken a new location. But as such no new group has come in in a big way for adding the capacity into the system. So the earlier thought 2 years back where everyone wanted to expand on the spinning business. So obviously, that's not the scenario today...
Got it. That's very helpful. Outside of India, where have most of these capacity additions taken place?
So most of the capacity expansion other than India, Bakistan? Bangladesh, Turkey -- these are the 3 bigger players here because I see China is not adding their net net, they are reducing also only Pakistan is not adding, Indonesia is not that is not ready. So the bigger capacities are coming in and maybe some corrects coming into the Central American zone also where they have the advantage of cost side.
Got it. And lastly, given that we are not doing any kind of expansion CapEx for FY '24, what would be our normal maintenance CapEx for this year?
In the range of almost about INR 300 crores or so.
The next question is from the line of Falguni Datta from Jet Inc. Securities.
Sir, just a reputation. What is the -- normally, what is the premium at which Indian cotton got versus the New York cotton? And why is there a premium?
So American cotton is the contamination free cotton. It's all machine. So there is no contamination in that cotton. So that is why the yarn made out of American cotton sells at a premium. Indian cotton in terms of other characteristics, which is the length strength that is very, very good or may be comparable to the American cotton. But it is only one contamination where our cotton is sold at a discount.
Sir, I missed the last part. You said what did you say? why is our cotton normally at a premium to American?
No. I said in terms of length, strength, such our cotton is comparable or even better than American cotton. The only disadvantage is our cotton is all manually paid. So it is very contaminated. There are lots of contamination in Indian cotton. That's why the yarn made out of America or Australia or Brazilian cotton sells at a premium.
Okay. Understood. And sir, so that's why you said Vietnamese cotton yarn will also sell at a premium because it's made from American cotton.
Generally, they use the American or Australian. So that's why they have the advantage.
Okay. And sir, how are our -- normally -- how have our cotton prices been compared to the American cotton prices?
So as I said, the American cotton is available at $0.13, $0.16, $0.15 over year future. Our cost earn historically has been about $0.05 over the New York future. So it will always be about $0.08 to $0.10 lower than American cotton. And if you translate into the yarn, it will be almost about $0.20, $0.25 for the yarn. But in this period, our cotton is almost comparable to American cotton.
Okay. And that's the reason which is creating a problem? I mean, you said that this is what is starting you from deciding on the CapEx...
Sorry to interrupt, sir, it seems like we have lost the line of the management. [Technical Difficulty]Sir, we have Mr. Falguni in the queue…
Yes, am I audible? Yes, sir. Sir, correct me if I'm wrong. So currently, as we speak, our cotton is at par with American cotton and hence, the problem of lower margins.
Correct.
Okay. And sir, last question is on the other expenses part, -- why has it been quite a bit lower Y-o-Y?
One second. [Technical Difficulty]
For the quarter.
You're comparing it to corresponding quarter?
Yes, last year, Q4 of FY '22.
So last year, there was the extraordinary item of hedging loss on important derivatives.
The next question is from the line of Mirad Naman from White Pine Investment Private Limited.
Just one small query on the replacement cost. So can you share what is the cost of putting up a green sheet capacity in [indiscernible] line on a brown sheet capacity in the...
It doesn't make much of a difference nowadays between retail or the down fill, unless there is some cost in terms of land that legal sector is required. So today, the cost of putting up a new spending capacity is almost in the rate of about INR 80,000 or so per spenders.
And sir, please share what was the say, 5 years back or back around this summer?
So it would be 5 years that would not be more than INR 50,000 or so... 50, 55.
And sir, what has caused this cost to grow because there has been some correction in the commodities also. So do you think it is sustainable or it will come down, the cost of making buying...
A couple of factors. One is, if you look at the cost of all building material, it has gone up substantially in the last 5, 6 years. So I think every 2, 3 years, I mean, every year, there's some automation, which would be improved by the vendors also. And whenever they come up with a new model, we'll keep improving the pricing also because they will be bringing in more and more features also which are coming off whether you will really be benefited by those features significantly or not, but definitely, the cost of machine will keep increasing.I think slowly people are going for more and more automation in general also. So for example, growing transportation 5, 6 years back, it was really a kind of hardly someone would be doing. But today, all projects are completed with this only. If you look at 10 years back, people were thinking whether we should wait for a auto-docking or not. Today, it's a given situation, we'll go with the auto-docking only because there's no other way you can maintain that. So I think 2 things, technology there, which was an optional couple of years back, today has become a basic technology and the cost.
Yes. So then do you see these margins to go up and then only in the floor to adding capacity?
Definitely, I mean, we have to have the right margin because whatever margin on a $0.60, $0.70 gross margin industry cannot make money. So to make us the right money, we have to go to maybe about $0.90 to $1 kind of a market.
Okay. So which means that until the industry report average EBITDA of what they did last year?
No, no, no, no... That was much higher, but. That was also an exception -- that was also an exception. So EBITDA of 15%, 16% on the sales.
Okay.
To 18 sales, I think, generally surprised superb.
Got it. So is it why to put that number, say, INR 60 low in the yarn side...
No, no, no, 16 will be much higher. So you have to look at it. I mean, generally, the contract is about INR 9 spindle a price [indiscernible] maybe about INR 45 to INR 50...
And and the current would be how much, sir, in estates? Would be what, maybe how to do maybe on a best case scenario or many, many places that will be even almost a marginal or much less in that. Sorry, that's a basically, you are seeing crore, INR 25 or INR 25, INR 35 range Increase in EBITDA required for industry to think of adding more...
That is true. So as I mentioned, our average EBITDA today, the gross margin is $0.60, which has to go to 90%. So we look at a 0.30, INR 25 to INR 20 minimum.
[Operator Instructions]. The next question is from the line of Resham Jain from DSP Asset Managers.
Sir. So my question is, one is on the overall inventory levels. Compared to last year, the cotton prices have come down meaningfully. I'm seeing March end. And if you look at inventory, it is just INR 500 crores lower at consolidated level. So as compared to last year, are we carrying slightly higher inventory in terms of number of months?
No. No, no, no, no. Last year also, then if you look at the February, March, the prices were much lower. The prices have increased down much only April, May started going up. So if you are comparing the 31st March figure?
It's like-to-like...
Prices of cotton are in the range of INR 5,000, INR 7,000 on... 5,000 only. So it is only in the month of April, where the government gave a relaxation of the duty part, international prices went up and the Indian prices also aligned to that. So it's only April, May, where we have seen the cotton trick of cotton prices.
Understood, sir. And sir, the second question is more on the balance sheet side. The debt of close to INR 1,800-odd crores at the consolidated level. versus INR 2,700 crores of cash. Are the interest rates quite different between the 2, and that's why we have more cash and like at the same time, we have debt as well.
No, the debt is generally long-term bet. So where we have some subsidies also from the government -- the cash availability is one of the opportunities because of the we did buy enough cotton, so the price improvement was there. We do not have any working capital debt as such. So if most of the debt, which is there in the books is the long-term debt, which is debentures as well as some long-term loans from the bank. The working capital would be under the core taking credit, which is definitely at a much lower price.
So most of the debt, one can assume will be at a lower interest cost than a normal level or a normalized debt...
Or maybe for the term loan, yes, but for the debentures would be at the market price.
Okay. Understood. And sir, just one related question here is that because '24, we don't have very large CapEx as of today. And I could see almost 33% of your net worth is in cash right now. And that too, in the March, September, this will be further higher given that the inventory level may not be very large at that point of time. So how do you think because your ROEs are getting depressed significantly because of this, 1/3 of your net worth in cash, not into earning anything into from a business perspective? How do you think about this?
Two things. On the second part, I'm also an agreement with you that 1/3 of the network is not into the business. So the earning will keep depressing for sure. And -- but the concern of the question is whether we should keep investing without having a comfort on the business scenario, which I'm sure it's only -- it's not that we are not going to expand. It's only a matter of time, and we want to wait and pause for a little better time. And I think definitely, there are plans. So the expansion would happen if not in '24, maybe 25 or so. Second, our March numbers in September numbers, there's not going to be any reduction in the September numbers from this because in any case, March also, we have one of the lowest inventories. We keep normally, March inventory is much higher. But this year, our inventory is so low that the consumer or March is not going to make any much of difference to.
Because, sir, you will keep adding profitability to this number next year as well. So how would you think about -- because your CapEx -- even if you do CapEx, let's say, in the next 2 years, the amount of CapEx will not be like INR 300 crore, [indiscernible] crores, INR 5,000 crores. And your yearly cash generation itself will be like closer to more than whatever number it might be INR 1,000 to INR 10 crores, INR 1,400 crores, whatever that number might be. But will you be doing CapEx beyond that number also in future and that's why you're keeping such a high level of cash?
I mean, it all depends upon the opportunities. For example, last year, we were very comfortable with the opportunities, and we already announced almost 300,000 spindles together. So I think once the business model becomes normal or then maybe we have a comfort why not to look at whatever we have announced, we may implement it also and one go.Number two, whatever extra cash is available, the part of that cash has to be utilized for the purchase of cotton as well. Because this year, our inventories is really ready at a very, very marginal. So that's why this has shown this kind of a cash position. But if you look at our normal years, probably INR 1,000 or maybe INR 100 crores, INR 200 crores of additional government material would have been there. So the cash position would not have been that kind of a situation, which is shown today. But yes, your question is valid concern is value. We're concerned about the same. And I feel personally maybe once the situation becomes normal, there could be a little better or a little aggressive expansion mode happen in our company as...
[Operator Instructions]. The next question is from the line of Akshay Kotari from Envision Capital.
Sir, regarding the pharma thinker, I just wanted to know that yield per sector of cotton in India is very low. So what are the main reasons for it? And would there be some sort of arrangement wherein we procure seeds for farmers and then we get the output some sort of arrangement like that. So it would solve both of the problems because throughput will increase, and at the same point of time, we are also supporting the auto ecosystem.
If you look at the reason for the cotton lower yield on our farms are very, very fragmented. It's a very, very small size of the comment. I mean, just to give you an idea, if India has 34 million days, there are almost more than 6 million farmers who are doing the farming of cotton. So on an average, one farmer has only 5 days. So that's the kind of size we are talking about. Two. The -- our seed, which is available in the system is very old and the new seeds are not available in India. As a result of that, the deals are also low. Third, -- we still do not have entire irrigated area. So there are lots of areas which are still in thread. So that's also the reason where [indiscernible] is insufficient or higher the project commit. So the biggest reason would be the very small farmer side on site. As a result of that, the cultivation and the second is recede because of which we are not in a position to do that. Having said that, procuring seed and I mean, for us, our annual consumption is almost 1 lakh days as I want to look at that we want -- we see that we get a farming done. Probably, I require to work with 300,000 farmers. 3 lakh farmers, which won't be possible for any company to do that.
But that is on an average 3 lakh farmers to have come out with the figure or points
[Foreign Language]
So is there any plan for the government where they will -- they are trying to replace this old seeds or what is
They have already constituted a committee under Mr. Suresh, who is working on all these ideas. So I think those discussions, we have already have a couple of meetings with the government. But I think whenever the final goal will be taken by the textile mania, then it will go to the Ministry of Agriculture if they approve. And normally, it is said whenever a new seed is approved, they'll be doing the experimentation and it generally takes about 3 years for the commercialization of a new seed -- whenever they decide...
[Operator Instructions]. The next question is from the line of Sharat from Indian Institute of Management Cosico.
I just wanted to understand what has been a realization for Kripa for this quarter as well as on a year-on-year basis...
Sorry?
Realization per kg of Yuan for this quarter as well as on a year-on-year basis.
So in this period, the average market price as the rate of about $3.30 for 30. [Technical Difficulty] Last year was almost $4.50...
Okay, sir. Sir, do you see any improvement in the average realization over the next quarters?
Very difficult to say first, we have to continue utilizing the full capacity. Once that happens, only the margin improvement can happen only after that. And this has been a period where all the sales are starting to utilize the capacity only. And if the overall demand improves in terms of all the segments, definitely, team would also start improving. But till the time we are looking at making, as I mentioned earlier, also the netting being every segment is working only at about 70% utilization. In that scenario, it won't be possible for improve or increase in yarn prices alone.
The next question is from the line of Abidin Ana from FKB Financial Service. Mr. Li, please go ahead.
So I just wanted to understand, today, if we have to put up the capacity, what could be the lead time for that?
So normally, it is about 12 months or so.
So in between, there were issues around supply constraints, right? So all those are leased out to that, sir?
As of now, it's totally so. There's no one who is doing any new orders. So most of the SMB vendors they are just supplying the older orders are booked. But as of now, the satiety haven't got any new order in the last 6 months or so till the time since the situation has deteriorated. As of now, it's quite to...
Secondly, I mean, as you have been highlighting that the margin is not that easy to pull the plant or -- and you did that due to 2 other sentences. One was that we might go for expansion of '25 and '26. I mean, is it considering remark or something on one you read into...
I think I have been very consistent in my saying earlier also till the time we are very sure of the raw cotton prices are aligned to the world market doesn't make sense for any Indian sooner to expand on a commercial basis. The moment we are comfortable that our problem or -- and the overall demand in the cost is less, there's no issue. We are also taking it in the other also patio problems at all. But if our cotton prices are higher in India, then we can't compete. So I'd like to wait until the time the resolution happens on those things. And the moment we are comfortable that we'll expand it right? If that doesn't happen, then we are not going to expand in a big way because that will be having a basic question mark on the viability of the business.
And today, also, we think there is a 10% to 15% difference of it 10% to 15% differential with premium companies today also?
Yes, at least 10...
And once the one other question, the other contents that you used to stock was once these concerns are addressed. I mean, we might have an aggressive CapEx plan. If you can just, let's assume exalting that you this the whole teenage to just 2%, 3%, which has been earlier case. So from here, 1.3 million spinners, do you think that in the medium term, we'll add a very strong, very large number to it and talk about 3 years...
So what I mentioned, the aggressiveness would mean we have already announced 300,000 spindles expansion. You might start looking at why not to expand it in 2 years' time, all those things.
Okay. The 3 legs that you talked about, one like we have already done so, right? So...
No, another 20 of light was announced, so maybe INR 2.5 to INR 3 lakhs could be another expansion, which could be undertaken.
So when things ease out, this can be a plan that one thing...
This could be a plan in my personal view. But of course, the company has to take a view. But definitely, I feel like the opportunity is there. We are doing the right margin companies having lots of cash and the opportunities are there, why not to expand it.
The next question is from the line of Prerna Jhunjhunwala from Elara Capital.
I just wanted to understand the demand in the blended yarn. So how is the profitability in cotton versus blended yarn? And is there a long-term demand for blended being better because of cotton being volatile like this?
Surely, the blended demand is better. People are moving towards more and more polyester base or disclose these products as well. And if you look at the consumption pattern of both [indiscernible] and polyester it's increasing in India. As of now, the margins are comparable, whether its cotton blended an because the same spenders can produce anything you want to. And the moment someone would say, there's a slightly better margin in a particular segment, everyone will start producing that. And again, the margin in that segment will also be coming down. So as of now, whether it's Blended Yarn or its Cotton Yarn, the margins are comparable. But definitely, I feel or I find the overall improvement increase in terms of demand on the blended is improving.
Okay. And profitability is better in branded is what you're seeing right now?
No, no, no, no, no. As of now, I said, it's totally comparable. And even in the rest of the time, it will be comparable only because the moment people find cotton yarn is better, they start dosing order the moment they find then it is better testing more capacity on that. So in terms of profitability, there's not going to be much difference between cotton yarn and blended yarn. Same spend same capacity can produce anything you want to.
Is that when you lose?
Yes.
The next question is from the line of Falguni Datta from Jaap Securities.
Sir, another question on the same line. Why do you think that our cotton prices are not getting aligned with the international cotton prices as they should?
For the simple reason we can't import today, the farmer will start because of the import duty on cotton and the farmer is holding on to this.
But this duty, I'm not aware of that. So just pardon me for that. Is this duty a new one or it was there always the...
Duties were put in in the budget of 2021.
Okay.
So there's a 11% duty, there's 11% captain duty on import of cotton posting in 2021.
So sir, then this situation doesn't seem like to be resolving and how will it resolve itself?
The only way to resolve this comment takes it back to take... Want.
The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited.
Yes. So thank you so much for this opportunity. And also, ambiance some detailed answers that you've shared with us. So like taking the queue from one of the participants earlier so given the fact that this year, we are to go ahead on our CapEx plan, and that is also causing us to like building some higher levels of cash even after assuming the working capital situation improving by getting into higher inventory. So why can't we look at improving our balance sheet by looking at a buyback between last year 2017? So basically, I think that will make our business on a balance sheet basis are more robust. And so that improvement will be there at least for the shareholders. So what's your view on that?
I did. I'm not the right person to answer on that. Definitely, sees to the Board of Directors. But probably on the operational side, I can only answer those questions. And this question, I can discuss or I can maybe commit to the Board what was the view on this.
Right, sir. And sir, secondly, sir, like that INR 1,000-odd crores of increase cotton could have been bought. I was observing that that already -- obviously, our size has increased, but still our inventory at some 40-odd crores is not really less. So you -- but you still feel that higher inventory levels would be required.
Yes, of course, because normally for the 1st March, our inventory for about 7 months, 8 months period. So as of now, we only had, I think, about 60 days or so. So maybe another INR 1,000 crores had it been a normal year, I would have added another INR 1,000 crores of inventory.
Okay, sir. Okay. Okay. And sir, any possibility of further improvement in debtor manning system, sir? I know the number, there are days which had actually gone up earlier, but that was obviously because of the -- and other issues. So we have like further improvement, sir, any possibilities of further improvement there?
Yes. We do all the exports under letter of credit. And normally, in the spinning business, the terms of the letter of credit are 90 days to 120 days on, though it is covered by the letter of credit, but still technically, it is shown as it is still can be finally money, though we may get it discounted also. But at the same time, the accounting entry will get readjusted only once we get the final payment to our master bond.
Okay. So I was just thinking to the...
That is on the 20 days of...
I understood that. I understood that, sir. So I was thinking for that, see, given the fact that this year, the organization's focus would actually not be occupied by the expansion, which typically we do. So where else how has put the efficiencies or improvements can be brought in. So any thoughts on that, sir? Because I'm sure as you must be taking on those lines. So if something of that at could be shared with our very useful, sir.
First and foremost priority is to keep running the full capacity. Situation is not normal. Most of the value-added segments are running at about 70%. This means the pit run at about 70%, 75%. So whoever is aggressive to find customer who's ever in a position to deliver products to the customers in the right time and if we the right service with a variety of products. I think that's a key success. So this is a time where entire focus is first to run the capacities. Two is within the system, whether will be efficiency, productivity or any improvement possibilities to do that. Third is, whenever the segment markets are bad, the customer becomes very choosy. So in terms of servicing them because they want to immediate orders. Nobody gives normally most of the times, normal as, I have lots of orders, which are booked for 6 months, 8 months. Today is the time where no customer wants to place an order more than 30 days, 40 days. How do you make those tick changes and keep supplying to them? So those are very different challenges because nobody is comfortable with the business model. Nobody knows what is happening tomorrow. So everyone was just in time. I think it's a different world as of now?
Sir, last question. So I like to know when you're looking at our production and in data, you observed that are the fabric production savage lower compared to the last year. And sir, during the call, you also mentioned that the margin on the caprice side is actually higher. And anyone who can -- who give this routine selling insertion sells the traffic will make better margins. So nobody is better than our company in efficiency and in the stain. -- enter why or why was this drop in the fabric sales and production side. Hello...
Hello... Yes. So... I think this has been a period where definitely because of the lull in the market, the volumes have come down. So it's not only that we are looking at a higher margin only. So that's why the capacity utilities continue to do. The capacity utilization in any case, has been on the lower side because of the lower demand. The margins improved by default because the yarn prices kept coming down, so their margins improved in this period. If you look at the increasing yarn prices, always the fabric margins come down because the book to orders and by the time they deliver it, we are the user banner. And this is a reversal of the gate where the margin has improved better because the cotton -- because the yarn prices kept coming down, wherever they look at for 3 months, 4 months and by the time they deliver the market price of Yangon lower side.
The next question is from the line of Varun Gajaria from Systematics Group.
Actually, I wanted to want to check what is the revenue split for Yarn and fabric segment for FY '23?
Sorry, I couldn't understand your question.
Was the revenue, I just wanted to check, what is the revenue split for yarn and fabric segment for FY '23?
Sorry, we do not share that separately.
The next question is from the line of Anil Kumar Sharma, individual Investor.
Good numbers for the last quarter, better numbers. So my question is how much we are exporting to China and Bangladesh number... This is one... Second question is under test PLI scheme, we are we thinking on those lines? And what are the guidelines any light on that PLA for tax rate?
So Bangladesh, China a significant market for India. 6 months has been very, very silent, but they have started coming back again. So China, the overall volume of things is almost 25% of the Indian consumption, which, of course, in this period has been less. Bangladesh base is definitely bigger, almost 35% capacity of spending goes to the Bangladesh and. So our issues would also be aligned to that. Two, on the PLI, PLI basically for the 100% synthetic products, we are -- we haven't applied anything under this PLI. So there is no plan for us to go in for a 100% synthetic fabrics business. So we will not be having any advantage of PLI.
Technical textile also, we are not thinking all the...
We are not in the technical textile. So our fabric business is only apparel fabrics.
Yes. We are not thinking on...
We are not -- in any case, for the PLI, you have to have a separate company because you can't do it in the same company. So there are different conditions which the government is put in, we did not find it really suitable for our perspective.
Sir, my last question is, do you think that in the second half after October, though it is not clear that, but do you think that our margins will be in the range of -- we can think of this 18% or 15% to 18% margin in the second half?
My personal feeling is going by what has happened today, the demand has slowly started coming back to the birth market. As I mentioned, some segments are showing improvement. And also every segment from the bus is better. So as things will pass, I think we've been talking to whatever this overhead will also give finishing and people will start coming for tubing. Third, we let the U.S. interest rate, it's almost like -- looks like it's picked up, and now it's only the stability or the question will happen. If you look at the energy prices in Europe, it is definitely lower than the past, and close slowly, it is also readjusting to the current prices. Having said all these things, it looks like definitely once the demand starts coming in, the normal item business happens, surely, the improvement in every segment of the business would happen, which is kind of an exception in this period of last 6 months. So if you ask me personally and the one and September, October, our new bottom will also be coming in. So I hope by that time, the prices will also be readjusted. And once the demand is there, then why not the improvement happens should happen.
The next question is from the line of Anik Mitra from Sonata.
Sir, like in the question, like we are exporting englobe mainly China or Bangladesh whatever. Now the query, my question is, during this period, like when Indian cotton prices and for higher than international prices or maybe in line with the international prices and then the consular is getting better quality is or the water quality in this year, quarter year along the ideal partner, then by international consumers are procuring Indian yarn because, sir, one senior that media Indian peers are still making some money out of it. So my question is, why the ACL costs are fulfilled by international consumers...
The customer has all kind of products. There are some products where the customer doesn't want contamination at all. So the percent will be to buy the yarn made out of Australian or American cotton only because there is no contamination. And the customer generally takes a price for that based upon the international prices of New York Future and be imported or the American parter. The similar same customer has lots of products, which will be used for the dark circles products or where the contamination could be acceptable. So he's buying the Indian yarn. But at the same time, the price benchmark is lower than the contamination free yes. That's what is... So why would we pay a premium on something is where we can use the contaminated cotton to not buy the Mariano that. So for American cotton, whatever the price there will be a discount compared to that or the contaminated for the yarn made out of contaminated quarter. That's what we do.
Ladies and gentlemen, this was the last question. I now hand the conference over to the management for the closing remarks.
Yes. So I think definitely, there is a improvement in the numbers in the business compared to where we were third quarter. But as I mentioned, next 3 to 5 months could be again a role poster where all our efforts are to utilize the full capacity and see suite customer because whatever is happening today, maybe our protective are higher or lower, but it's only the temporary case. And essentially, I think the readjustment would happen. It's not today, maybe 6 months down the line or so and so on. In the same time, we can't move our customers. So we have to really ensure the long-term viability of the long-term advantages which we have created, should not be compromised it. So that's where our thought is to keep delivering or to keep having our customers with whatever product that so that we can retain them or we can continue to build up better dilution. So as I mentioned, our first access was to keep using the almost full capacity, which we are doing it as of now, and all efforts are on that. Second is also in terms of improving fabric utilization also. And third is that whatever ideas we have for improvement in the internal efficiencies and all including. So whatever one is the retaining the customer, which is a long-term kind of a thing, too, we are also not compromising anything on our modernization base because that's something which a which is advantage which the organization creates for a longer period of time. So even in the most of the times, our modernization process is continuing. And I'm sure whatever advantages we have created over the last many years, will continue to do the same. And as the business will keep improving as the things set becomes stable, I'm sure the business has also improved. So I thank every one of you for having remaining with the company, and I'm sure some -- I can ensure you from the management's perspective, we are doing that level best. And I'm sure as the situation improves, our company numbers would also be aligned or will be improving accordingly. So thank you very much, and good day to all of you.
Thank you very much -- 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.