Vardhman Textiles Ltd
NSE:VTL
Earnings Call Analysis
Q3-2024 Analysis
Vardhman Textiles Ltd
The company begins by acknowledging an improvement in results but continues to struggle with the challenges within the textile industry. Although there is a noted upswing on the demand side, global capacity utilization in textile spinning remains low, with India operating at an estimated 75% to 80%, which is below the norm of over 90%. However, the fabric sector seems more promising, with better capacity utilization rates leading to some overall improvement for the company.
Exports from India are holding steady at typical levels, but domestic demand is not meeting expectations. Margins face pressure, yet they have improved slightly due to better capacity utilization of value-added products and a decrease in raw material prices, particularly cotton. Despite the margin increase is not due to price rises in cotton yarn and PC products, it derives from cost optimization. It's worth noting that the company has observed steady raw material prices and begun utilizing lower-cost cotton, aiding margin improvements modestly. Furthermore, the company has optimized production by moving away from loss-making products to focus on more profitable ones.
The company shared plans for expansion through increased capacity in its Punjab plant, centered around cotton-related products, attracted by the prospect of good margins with a capital outlay of about INR 200 crore. This is seen as the first major expansion in the last 18 months, sparking the possibility for further project revisions or new ventures in the near future. Additionally, there is an announcement of INR 350 crore allocated for modernization and maintenance in FY '24, separate from the expansion budget, signaling a commitment to enhance and maintain production capabilities.
The conditions for the fabric business look encouraging, particularly in the second half of the year, with a resurgence in demand from the U.S. and Japan. Inventory levels among high-ticket brands in the U.S. have declined from a high to more normal levels, signaling that demand is rebounding and asking for early delivery times. Similarly, Japan's demand is picking up as inventory pressures ease, and restrictions related to COVID-19 are lifted. The anticipation is set for better demand in the forthcoming quarters.
The company is navigating challenges in freight costs, exacerbated by geopolitical tensions. Freight negotiations are carried out on a short-term, contract-to-contract basis, without long-term commitments to shipping companies. Increasing transit times to certain regions like Europe and Egypt are noted, but have yet to significantly impact business. The geographical distribution for the yarn side is predominantly focused on Asian countries, where further garment manufacturing takes place, often leading to the final export to Western markets.
The company notes an improvement in EBITDA margins to about 14%. Management communicates that further margin normalization is heavily dependent on the improvement of demand and prices, particularly in the yarn segment. Fabric segments are running at full capacity with satisfactory margins, leaving little room for significant improvement. However, the spinning segment, which is a larger portion of the business, could see expansion only if yarn prices begin to rise. This leaves the company in a state of cautious optimism as they operate with near 100% capacity utilization across all segments.
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Ladies and gentlemen, good day, and welcome to the Vardhman Textiles 3Q FY '21 Post Results Earnings Conference Call, hosted by Batlivala Karani Securities of India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi from Batilivalal & Karani Securities India Private Limited. Thank you, and over to you, sir.
Thank you. Good evening, and welcome to all participants on the 3Q FY '20 earnings conference call of Vardhman Textiles. I welcome you all on the half of the Indian Securities. We thank the management for the opportunity to host this call. We have with us today from the management, Mr. Neeraj Jain; Vice Managing Director, Mr. Sushil Jhamb; Director of our raw materials, Sir Rajeev Thapar; Chief Financial Officer; Mr. Mukesh Bansal, Head of Fabric Marketing; Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the call to Mr. Neeraj Jain, Joint Financing Director of Vardhman Textile for his opening remarks, post which we can have around for a question-and-answer session. Over to you, sir. Thank you.
Thank you, Archit. Good afternoon, everyone. The results are already announced. There is some improvement in the results, which we can discuss in a couple of minutes. But primarily, the challenge of textile continues to be there. Of course, there is some improvement happening in demand -- on the demand side. But at the same time, the overall demand is still much less the capacity utilization across the globe is much less on the spinning side. And even in India, even as of now, the estimated capacity utilization on the spinning side is only around 75% to 80% against the normal utilization of 90% plus. The second business -- on the woven fabric side, things are better. And as of now, the capacity utilization not only for us, but for the other also is definitely far better compared to what it used to be. And that's the reason there is some improvement happened on the overall -- on the fabric side, which is helping the overall improvement of the company side as well.
In this period, on the demand side, I think the export continues to be from India, almost about 100 and 105 million kg per month, which is the normal exports from India. The domestic demand seems to be still not to be marked, which is required or beat. As a result of that, the overall pressure is still there on the margin side. The improvement on the wells have happened, but not because of the price increases happen on the spinning side, but basically for the 2 reasons. One, some improvement on the capacity utilization of value added products like melanges or [Indiscernible], et cetera. Two, the reduction on the raw material prices. So on the basic products, cotton yarn and PC, I don't think there's an improvement on the [Indiscernible] happen and whatever improvement we have seen is only on account of the reduction in the raw material price. Starting with the cotton prices. The cotton prices this year -- I mean, we started the new season starting somewhere in the month of October, and the prices started coming low. And as of now, the prices are ending almost about INR 55,000 of candy in India, which is equivalent to USD 0.84 per pound. The newer future as of now is almost close to about $0.85, which was about $0.80 a week back. So even if you look at a $0.80 mark, which was there for a long period of time. The American cotton availability in India would be on a 1,500 basis points, which in close to about $0.95. And against that, the Indian cotton is $0.84, $0.85 as of now. So definitely, the disadvantage of prices of Indian cotton, which happened continuation for the last 2 years is not there as of now, rather it's a favorable, and it is one of the lost cost cotton as of now in the world. The season started and we have also started buying. And since we started utilizing the lower cost cotton definitely, there was some despite on the raw material costs, which has helped us to improve a little bit on the margin side. As I mentioned, the cognnium prices continues to be in the range of about $3 as of now and no increase at all in these prices, the domestic prices, which is almost a competitor equilibrium is almost about INR 250 of kg. And again, since the export prices have not increased the prices in the domestic market also does not increase. The other products, definitely, as we added or as we started utilizing the capacity inflation on some value-added products. So we came out of loss-making products like 100% viscose or maybe 100% poly, which we were making earlier to run the capacity. And to that stand there definitely an improvement happen on the margins. The gross margins on a 30 point basis continues to be almost in the range of about USD 0.50, USD 0.55 only, and the normalized margin is always in the range of at least USD 0.85 to USD 0.90. So the delta available as of now to the scenes not more than USD 0.50, USD 0.55 as of now. And I think this is a range we are seeing almost for the last now 1 year, where no improvement on the delta is happening. And I think on the demand side, if you look at all the 4 segments, as I mentioned last time also, the home textile was the first one to improve, there running almost full capacity utilization and the utilization over there are better as of that, all the home textile companies margins and the overall work is quite good. The second segment, which started improving was the Woven segment. And if you look at last couple of months is an [Indiscernible] inflation, we are running almost 100 utilization and because the demand was better and the company also worked with the all the brands, all the customers very aggressively to send the products. And as a result of that, the margins are better because of the full capacity utilization started happening. The third segment, which is the demand. I think the rest is aware in the denim also and the capacity utilization, which had come down to about 50% of which was 50% 3-, 4-months back today, I think, would be in the range of about 70% in India. So to some extent, they are also, I think, divest is over and both the dining demand for India as well as outside, it is improved. Knitting is still somewhat under pressure, but I think definitely on the knitting side also, the things are improving and the utilization on the knitting parts also has improved in this period. We are sure the way things are moving, if this demand continues, probably we'll start looking at the better times very soon, hopefully as the segment by segment, the demand is improving. And once we are -- we see a little more demand on any of these segments, especially if it happens on the denim or on the knitting side, I'm sure whatever capacity -- extra capacity the spinning has that will get consumed and the normalized margins will start to happen. Before we talk on the expansion. In the meantime, we have also announced the extension of Milan business. So we have a plant in Punjab, where we are producing the 100% cotton, the [Indiscernible] and the polyester cotton in the [Indiscernible]. So we are adding some capacity over there. So total capital outlays in the range of about INR 200-plus crores, which will take -- which will give us additional production of 8, 9 tons per day. And this is one business which is clearly related with the passion and most of our customers are the direct brands, where I think the business is good. Margins are good. So we are expanding this business as well. So this is the first expansion we have announced in the last 1.5 years after the prices started happening. And I'm hopeful if these things continue to improve, we might look at revising that the earlier projects or taking us something new, but I think it's too early for me to announce it as of now. So before we move on to the other things, I'll request Mukesh to give a brief on the fabric side. So then after that, we can discuss on the remaining part of the...
Thank you, Neeraj ji, and good afternoon, everyone. As far as fabric business is concerned, Q3 and Q4 for Indian textiles in any way better than Q1 and Q2 because we have a lot of demand for the spring summer season, which predominantly is cotton-based rating. That is how it has behaved this year as well? And to some extent, this quarter, this time, this season was better than the corresponding one on account of better demand from especially U.S. and the Japan market. In the U.S. market and that so in the Japan and also the Europe, people were struggling with the higher inventories and inflation and fear of recession. We -- as we shared in the last call also, the inventory level with the brands have started coming down to normal level. If we track the numbers of some high-ticket brands in the U.S., their inventory had gone up in the range of from 70 days to 90 days, which is now coming down to the range of 50 to 60 days, which seems to be a normal level for them. So that is why the demand has started coming back from the time because many a they need closing for the Indian fashion cycle. And second phenomena that we are seeing now because of disturbance in the sales [Indiscernible] India, the target time have become longer. Now the brands are asking for early delivery for all the order gap they have placed before. They're asking for 2 weeks early labor. So it is kind of the total amount of order remains the same, but it is a little pull forward for the order base they have already paid. So that has helped Indian move on to external segment to a great extent. And as Neeraj ji mentioned that it changed that from as far as demand is concerned, that seems to be over, and we are likely to see better demand in the coming quarters. Similarly, Japan was -- demand from Japan -- similarly, Japan was -- demand from Japan last quite a long time. after the COVID. The restrictions were longer. And anyway, there were -- even though the government had the placed restriction, but people themselves were very cautious about going to the malls, going to the shops. That has -- so the brands were buying less. They were -- may be selling, but the buying was lower than what they were selling. So there also the impact of inventory inventory has reduced, and they are coming back with the demand. Similar to the, as I mentioned before, the U.S. also, if you see that the American import of textiles is 15% to 17% lower, but if you look at [Indiscernible] data, their retail sales as compared to corresponding period is 5% to 6% higher. So that shows that they have been reducing the inventory, and they have the curtailing the demand, which is now coming back. That's all from my side, Neeraj ji.
Yes, we can start the Q&A. The remaining thing we can discuss along.
[Operator Instructions] The first question is from the line of Awanish Chandra from SMIFS.
Congratulation management team on improved performance Sir, you did announce some bit of CapEx for next year. But sir, it is too small. So can we expect a few other announcements during FY '25 because the addition of 22,000 [Indiscernible] is very low as compared to our overall capacity.
Yes, I agree with you. It's very small. So with my purpose of announcing it was only that at least it looks like we are coming back to the normalization, and we have started announcing the CapEx. And so because it's all a factor of the profitability and the right margins. And I'm sure as the things improve, definitely, we have a couple of plants on the drawing board. And as we start finding either a good demand or a good profitability, we'll definitely start looking at it and start implementing that.
Okay. And sir, just for clarity purpose, you did announce that INR 350 crore CapEx would be there in FY '24, which was modernization plus maintenance. So that INR 350 crore is separate than this INR 200 crore announcement?
Yes. That's true.
Okay. And this INR 200 crores will come next year?
No, we will be completing it within, I think, calendar year '24.
Okay. And sir, this maintenance CapEx of like INR 350 crores what we are having in FY '24, that will be continued even in the next year.
That's true, that's ture. Because the maintenance CapEx was whenever we are producing things, I think there is always some debottlenecking, which keeps coming both on the spending side on the fabric side. So to enhance the production or enhance the capability to produce some specialized products, we have to keep adding some of the technologies. So this INR 350 crores when we say the maintenance CapEx, it includes the debottlenecking as well.
So that will be continued over an new capacity extension.
Correct, that's ture. And sir, you did highlight some bit of factors which will lead to normalization of margins. So today, if you can have some guess maybe 2, 3 quarters onward, can we reach the 14%, 15%. No. So the quarterly numbers, which we have shown, I think the EBITDA margin has already improved to about 14%.
Correct.
It then depends upon when demand prices start improving because normally, whenever the downtime comes, I've seen historically, it was almost 2, 3, 4 months and then this thing starts improving. The first time probably we're finding it's more than a year, things have not started improving. So it's very difficult for me to say when the yarn prices will start going up because Fabric is running at the full capacity and the margins are also okay. So I don't think that's really any major possibility for that to improve significantly higher than what we are earning as of now. But spinning, which is, again, another larger business of the company, it can improve only once the yarn price starts improving. Very difficult for me to comment when that will happen.
Okay. And sir, one last question before I stop. Sir, our capacity utilized in all the segment is now near 100%, correct?
Yes.
The next question is from the line of [ Riya ] from [ Equitising ] Investments.
Sir I wanted to ask what are the -- how does the sale agent like are we hiring the freight cost? And what kind of incremental freight costs are you looking at?
So the all trade negotiations happen on a contract to contract on a month-to-month basis. So there are no long-term contracts with any shipping companies. So I mean whatever is -- when we are quoting a business at that time, whatever the trade, we generally take that into the costing, but the actual negotiation happens on a contract to contract on a month-to-month basis only.
Okay. So basically, part of the entire freight cost to our customers, is it right?
No, not really. So the existing business, which is already done. Is the freight cost increase or decrease that has to be borne by the company only.
And what kind of incremental freight are you looking at currently because of the geopolitical tension.
So it's only, I think, a couple of markets like Europe for Egypt, where the freight has increased. As of now, the other markets remains almost at the same price. But because the transit time has increased for Egypt and for Europe as of now. Going forward, if the things do not improve and because of the Red Sea, the overall time taken is much higher, the overall availability of the shipping come down, then there would be a definite increase happening across the globe, which has not happened as of now. So our part of business to Europe and Egypt is manipular as of now. So it's not really significant as on today.
So for us -- and exports, how much will be U.S.? And could you give us geographical distribution?
On the yarn side, there's hardly anything which goes to the U.S. or to the Europe directly, but these are all incentive. Most of the yarn and [Indiscernible] would go to the Asian countries where the government would happen and their friendly government would go to the [Indiscernible] Europe.
And for Fabric?
Fabric also, I think wherever the government will go, the fabric will go to that side. In U.S. and Europe, they don't do the [Indiscernible]. They don't do this action.
Got it. And in terms of what would be your current export growth in last quarter?
For company or for us?
For us, for us.
So we generally do almost 30%, 35% of our manufacturing. We do the exports, and that continues for us. Whatever is our capacity utilization, almost 1/3 goes for the export, both fabric and [Indiscernible].
Do we see this increasing going forward since domestic demand is little bit sluggish?
No. Again, you -- one is the demand is sluggish or second is the whatever the customer -- because when I'm saying the export, it is a direct export then whatever we are selling to the domestic market, again, a major part of that goes to the export as by the government or by the value-added products from India. So it's not really that the demand rates we can export more. Wherever we get the opportunity, we keep doing the same. So it's not any strategy that we have to increase the exports, depending upon the opportunity at the right prices, we take adjustment.
And what would be the yarn -- cotton yarn [Indiscernible] as of now?
$0.55, $0.60.
$0.55 to $0.60. I think in the peak, it went up 110 or so. What was your breakeven spread.
So generally, we posses for a right margin, you've always said that about $1 should be a good spread. The date would even would happen in most of the cases in the range of about $0.75 or so.
$0.75, got it. And for cotton, what is your outlook on the commodity as like what is the output like so reading output of like 7% to 8% higher this year. So do we see the prior raw material prices going down further in the premium as compared to the U.S. cotton going down?
So the great to predict what will happen to the New York future and what will be -- can be happening there? I can't really comment on that. So assuming this is a price, $0.85 per price in U.S. and we have to look at what would be the Indian prices. Indian prices will get determined by 2 things. One that how much should be the discount from the American cotton, which normally been range of USD 0.07 to USD 0.08 per pound. So as of now, that discount is higher. So as of now, the discount is almost like USD 0.13, USD 0.14. So what is the -- in India, we are also driven by the minimum support price. So that if the [Indiscernible] prices goes below INR 7,000, then the government is committed to buy the crop from the partner through the Cotton Corporation of India. So CCI already doing those operations. So possibility of prices going below these prices in India is not possible at all -- by the entire cotton. So practically, whatever is the price rolling in India today that should be the kind of lower prices.
So currently, [Indiscernible] fix prices is at INR 55,000, if I'm not wrong.
Correct. Correct.
And you think that this would be a fair enough consolidated or sustainable level. It cannot go lower than this?
It can't go lower than that. It can increase depending on -- as I mentioned, because the Indian cotton is a discount today, it can be, but the possibility of going it below this doesn't seem to be there.
[Operator Instructions] Next question is from the line of Anik Mitra from Phenomic Solution Private Limited.
Am I audible?
Yes, yes.
Congratulations, sir. Good set of numbers, sir. Sir, the yarn price, as you said, it is hovering around INR 250 per kg. And sir, cotton spread, you mentioned Indian cotton and yarn spread in the domestic market is around INR 60. Is it the current right information?
Yes.
And sir, in the international -- yes sir, in the international market, Indian cotton and yarn spread is $0.55 to $0.60. Am I correct?
No, no, no. Even India also, this is almost USD 0.60 equivalent only.
$0.60, okay. So that is in the domestic market as well as in the international market.
Both in Indian market, the prices of yarn are almost in equilibrium. There's always a gap of only INR 1 or INR 2 here and there.
Okay. Okay. And sir, what is the spread of U.S. cotton and yarn at this point of time?
That's also same because normally, whatever is the yarn made out of the U.S. cotton that gets at a premium of USD 0.15, USD 0.20 on the yarn side. So the spread for cotton below is sufficient. Because in India we have to pay duty. So I'm talking about a U.S. cotton someone using outside idea, maybe, let's say, from [Indiscernible] in Indonesia. So there will also be in the same spread. India, it is less because we are today at 10%, 11% duty on imported cotton.
Okay. So in the international market, U.S. cotton and yearn spread and Indian cotton and yen played the same?
Correct.
Okay. Great. And sir, what is your EBITDA margin guidance?
So as on not at the position for the last couple of quarters, we are not in the position to give any guidance on these numbers because you've seen all these kind of disruptions where the productive utilizations are not improving and the price of cotton has really, really varied too much. So for the last couple of quarters, in the time, we are not in a position to give any guidance because it could be really, really different for me to predict what will happen next quarter.
Okay. Sir, your EBITDA margin -- EBITDA has improved up to 13 this quarter. So what has actually factored of -- like there was some improvement in the gross margin also, this quarter. So sir, like is there any other expenses? Like what is the -- like what made this improvement?
Basically, the 2 biggest advantages which have come where this has improved. One, the full capacity utilization on the fabric side where definitely the margins all costs are already absorbed. The prices of cotton have come down. So once we are losing the cotton, which is much lesser, which is at the right price today, so the margins have improved.
Okay. And sir, any plan for capacity increase in capacity for the facilities, which are running at 100% utilization at this point in time?
I think as of now of course, we are working on various ideas, but we have announced a small INR 200 crores trading...
INR 200 crores, okay.
For the remaining, we are still evaluating.
The next question is from the line of net Abhineet Anand from 3P Investments.
First, I just wanted to understand this EBITDA margin, 14% that you're talking about, is it includes the other income rate?
Yes.
So what part of other income is a bit operational in nature out of the INR 80 crore, INR 90 crore that we are on.
It's having 2, 3 components. One is that investment income is there, then ForEx gains are there. So these are the main components out of this. And dividend also includes the dividend from group companies which is being received in this quarter.
Okay. Okay. Secondly, this INR 200 crore CapEx that we talked about, what is the revenue potential for that, sir?
Generally, in the spending side, I think it's only about 1 is to 1 capital output ratio.
Okay. So INR 200-odd crores, can we add 90%, 100% utilization. So one of the other things that we have been investing in our debottlenecking and maintenance, et cetera, over years and annually, we see INR 200 crore, INR 300 crore investment. Just trying to understand, while we have been investing and we are at global standards. If you can talk on -- from an industry perspective, while we keep talking that India has a large spinning base, is the industry also putting a similar type of money on CapEx. And then otherwise, the number of 50 million spindle that we talk about is actually just number number. rather than the output being there, right?
So if you look at the Indian spinning industry, the total supply of standards in India in a normal year is in the range of about 2.5 million spindles per year. And out of that, it's generally about 30% or 40% will be the new expansion and -- 50% will be a new expansion, 50% will be the replacement happening. So practically, I think the overall modernization in India will not be happening more than 1, 1.25 million spindles a year. 200 [Indiscernible] last 7, 8, 9 years only. So we try to estimate the overall machine [Indiscernible] of India as a large number of mills, which are very small in size and having an average spindles of about 20,000, 25,000 spindles only, and it's a pretty large number. I don't think there really major monetization has happened in those machines -- in those factories. So maybe the larger growth on the organized player demand [Indiscernible].
Sir, I believe that was from the line of the current questioner, Mr. Abhineet Anand. I have to mute his line. So we'll as of now remove him from the question queue, and we'll ask him to join back in case if he has a question. The next question is from the line of Mr. Varun Gajaria from Omkara Capital.
So just had a question on how is the demand faring in China and Bangladesh market, it seems like there was a rate hike, inflation hike and plus demand was in the [Indiscernible] Bangladesh in last 2 months. How are things looking there? Consequently, there's been a slow...
The China demand is [Indiscernible] [Indiscernible] from the normalized level. The Bangladesh has been up and on, though some months good, some months are back. But the overall demand from the Bangladesh is okay. There's no issue at all. China, definitely, the demand is much lower.
Okay. So the fact is when everything -- it should have been sought in outright in Bangladesh?
Sorry.
Okay. Okay. All duration [Indiscernible]. Sir, due to that and due to the wage hike and everything, has there has been any impact on the demand or probably on realization.
:
[Foreign Language]. Yes, so the wage increase issue is settled between the credit union and the manufacturers and that got settled about 3 to 4 months back. And the good part is that the many customers in the U.S. and Europe, which are the major markets for them. those customers are taking cognizance of the increased wage cost and it leads to about 2% to 3% increase in the price of the finished product, which customers are accommodating. So that issue more or less settles.
Okay. So more or less the hike has been passed down right to the customers -- the customers seem comfortable then in this case.
Yes. So we are not directly battered by that, but this is the information that we see from our customers.
[Operator Instructions] The next question is from the line of Janat Kumar from Value Research.
This is Sannat Kumar, can you hear me?
Yes, sir. But your voice is sounding a bit echoing, could you please use the handset in case?
Yes. Can you hear me now?
Yes.
So my name is an Sannat, not Janat Kumar.
I'm sorry for that. I'll make the changes, sir.
Last time in the con call, I asked about the aspect of -- that the business at this moment is growing if the cotton prices go down and if they go up, the volumes go down or the margins and the margins go down. So what are the plans of the company to have market penetration or market development or product development or any kind of diversification strategy that Vardhman is looking at to expand the existing business.
So there are 2 ways we have to look at it. One is a diversification on the customer side. Second is the diversification on the product side. And we are working on both the ideas. So more and more customers are joining us, more and more brands, we are working with them, so that our overall diversification on the customer side improve. At the same time, there are different sectors within the spinning as well as within the fabric region, which are working on the various new ideas, new fab-based new brands. And that's a regular process where we are developing those products, showing it to the customers, showing their designers and in collaboration with them, the new products are being developed on a regular basis. It's an ongoing process for years together.
Okay. But there is no announcement as such about you entering a new market or.
No, no, no. Since we're all part and parcel of the existing business is only because sometimes this customer we buy sometimes not, sometimes a product will put some time the products. So I don't think that's really that has so significant at any stage that it has to be announced. It's an ongoing process for the will continue for years.
Okay. And the last question is related to technical textiles. So do you see any traction for the company to enter it on a larger scale?
I mean as of now, frankly, no.
[Operator Instructions] The question is from the line of Naman Jain, who is Individual investor.
[Indiscernible]
Sir, may we request you to use the handset mode in case if you're using the speaker mode, please?
Is it better now?
Yes.
Okay, okay. Great. Okay, first of all, yes, congrats for the good results. And we're all aware that no doubt the company has done quite well in last 60 years and 4 generation is going on now. But I look for the macro factors, like I remember in earlier discussions we used to discuss China plus 1 thing or competition from Bangladesh or Vietnam. What's the situation now? I mean, is it a risk? Because specifically China, which is on a big term slowdown and the metros are quite bad these days. So it's still opportunity or a risk for the company? And number two, are we looking for -- I mean on the singular line, are we looking for extra -- exporting if it's another opportunity for us?
So this definitely it looks like an opportunity only if the China plus continues because if they slow down, they are very strong on the spinning side. They're very strong on the other products also. If the China doesn't do the garmenting, this garmenting would go to some different countries, maybe Vietnam, maybe Sri Lanka, maybe Bangladesh or maybe India and so and so on. So as we as a textile product manufacture -- as a textile market of products of both spinning and fabric, we have the opportunity or we have the possibility to sell to those markets. And in case the garmenting happens in India, in any case, it's a great opportunity for all the textile mills in India to supply that material to the Indian garmenters. So there is definitely an opportunity here.
[Operator Instructions] The next question is from the line of Ankit, who is -- from Investor.
Hello?
Yes, sir. You line is audible.
I want to understand the value chain of experiments. So much cotton you required to manufacture yarn, and how much yarn is required to manufacture fabrics, just broad understanding about the value chain.
So generally, the realization for cotton yarn, it's about 70%. So you have to use 1.4 kg of cotton to produce 1 kg of yarn.
Okay.
And from the yarn to fabric, the wastage is in the range of about 7%, 8% only.
Okay. If you can give an example of how much is required to manufacture fabric from 1 kg of yarn.
For the -- I mean, generally, the fabric 3 meters is equivalent to 1 kg. So to produce 3-meter fabric, you require 1.1 kg of yarn.
Okay. And actually in your opening remarks, so what is the CapEx we this share plant?
We have announced INR 220 crores of CapEx, specifically for an expansion. In addition to that, our normal or maintenance CapEx is always in the range of about INR 300 crores, INR 350 crores a year.
So how much single capacity that will be...
Adding about 15,000 stumbles.
Okay. And what is the current realization for gray and process traffic?
Mukesh?
What do you want?
What is the realization current realizing for gray and process traffic?
Realizing means, price realization?
Yes, price realization.
Yes, we largely sell we finished fabric, and finished fabric is about INR 180, INR 185 per meter. So our gray selling is very low, and that depends upon what is the product mix at that time. But still, if you want to take an average for the same fabric that we signed as finished, the grade should be in the range of about 100, 110, 115.
Okay. And how much is [Indiscernible] consume or yarn is [Indiscernible] to consume for fabric?
It's about 1/3 of the yarn [Indiscernible] in-house.
Okay. 1/3 of yarn, okay. I understand that.
Or little lower, yes.
Little lower, okay. I understand.
The next question is from the line of Nikhil Agarwal from VT Capital.
So my question was on the exports on the export side. You said that there aren't any issues currently because of the Red Sea crisis because we primarily export to Southeast Asian countries and Bangladesh. But they ultimately export to the U.S. and European countries. So because of the Red Sea crisis, it might be [Indiscernible] currently taking a new slowdown in orders, which is ticking down to us as well.
Mukesh, can you answer?
Yes. So you want to know that this Red Sea issue, how is that impacting business?
Yes.
So actually, what has happened is that -- because the transit time is now increased, the customers in U.S. and Europe, they are wanting to x [Indiscernible] goods, 2 weeks in advance.
Sorry? I think it's my headphone.
So if the -- let us say, the original planned date for the goods to be shipped was, say, end of February, now they are asking the suppliers to [Indiscernible] goods by 15th of February. So they are wanting 2 weeks advanced delivery.
Okay.
Number one. Number two, for the garden shipments, whether it is from India or Bangladesh, Normally, the freight cost is borne by the buyer only. So no impact on the exporters as much as far as the garments are concerned.
Okay. So ultimately, there's no impact on the business for us at all.
No, no, no.
The next follow-up question is from the line of Abhineet Anand from 3P Investments.
Just 2 data points. I think the employee expense seems to be earlier used to be INR 190 crores, crores, INR 200 crores, that is like INR 225 crores. So is this the new normal, or is there some extraordinary there?
It's almost been normal. I think if I look at on a 9 months to 9 days a month later, increases around 10% only normal one.
Okay. And other expense had some hedging gains, right?
Yes. So there is some commodity derivatives notes, which we had provided in the first 6 months, so that the part [Indiscernible] of that.
Okay. And last one, this Bangladesh had its revision in the labor cost or something. I mean, is there any material change in the competitiveness of that country with us or it's irrelevant for the system.
With the new agreement they have done, they continues to be lower than us. Their cost has increased, but at the same time, there's still better compared to us on the overall labor cost.
The next question is from the line of Amit Kumar from Bitumen Investments.
Just 1 question almost 1.5 years, 1 year, 1.5 years back, we had the UAE and Australia. So any sort of impact that we're starting to see from these geographies and our business special Australia, we can need to understand imports majority of their yarn and fabric in the government for that matter. Any sort of correction coming in from these markets?
There is no government [Indiscernible] except Australia. So they only buy the government only. So frankly, from our business perspective, there is no direct impact because we cannot -- we don't explore the yarn, or we don't expose the fabric in a big way to that company. So there doesn't any -- there's no garmenting happens in that country. Only the -- all these advantages comes to a company only in an indirect way, they start buying more governments or home textile or those kind of things from India or from the other countries, where we supply our material. But directly, there is no impact on us at all.
Okay. And anything on the UAE side? Is supposed to be a gateway to middle east, so to speak, I don't know.
No, no, no. Again, for us, we are only material manufacturer. So wherever the garmenting is happening, we'll be selling only to those countries.
The next question is from the line of Resham Jain from DSP Asset Managers.
Yes. So just a broader question on the overall the capacity which we have and how much incremental revenue can come from that. So it's an assumed cycle to improve, let's say, with a 10% kind of price increase across yarn and fabric, should one assume that your revenue should also overall increase by 10%, given that your capacity utilization is closer to 85%, 90%, or do you have spare capacity to sell more?
No, no, no. So I think it will only be price improvements, which can improve the top line. Otherwise, I don't think in terms of capacity utilization...
So the Q3 run rate, is that whatever almost peak utilization?
Correct.
Okay. Sir, the second question is from the overall strategy perspective, if I look at, let's say, next year, given your initial commentary and your colleagues also mentioned about it that we are seeing some green shoots in terms of demand improvement, Destocking related stuff also is gradually coming down. So let's assume that next year's cycle is going to improve and you decide to set up a capacity now, how much time will you take to set up capacity, whether it is in spinning or whether it is in fabric?
So from planning to the commercial production, either on a fabric side or in time, it's generally in the risk of about 12 months.
So the question, sir, is that, obviously, whenever scenario is not that good. It may not look like one should do CapEx. But given that there is always cycles and cycle, if it is going to improve, let's say, next 3 months, 6 months, whatever no one knows. And we already have a decent amount of cash generation from the existing business itself. I'm not including the cash which we are holding. Then how should we think about growth? Because as a company, we are the curtailing our growth because t again, there will cycle a year after 2 years later. So whenever cycle comes back, we will not be there with our capacity. So how should one think about the overall strategy from the growth perspective?
Resham, your first assumption is correct. And I also agree with you that whenever we are in a position to utilize full capacity, we should start looking at even if the business is not good because it's all cyclical business, one or the other that will get corrected. So there's no issue to that extent. I think this year, this particular time, our major concern comes from the policy in terms of the possibility of import of cotton or not. Because in case we do not -- last year has been a very bad year, where the the nothing happened by most of the farmers and they could bring the crop in a way where they are getting the prices based upon the landed price of cotton, which was including the beauty. This year, there's a reversal of that and these kind of holdings have not happened. So area where you are not there because if the local prices increases, and you can't import or even a crore. I mean those kind of things, then there's a concern. So I think more related with the thought process on the raw material availability at the right prices, unless that ensure I think it could be actually not prudent to going for a very, very big execution. That's our view as of now.
So sir, let's say, now given that cash is not a problem with you and if you see because we have not done any acquisitions in the past. Is there any acquisition opportunity to use to utilize cash? Because anyways, you are not doing buybacks and giving large dividends you are just keeping cash. And you explained that in the last call about it, that you will -- this is a safety capital, which is needed, but there is no definition of how much is that safety capital amount being. So how should one think about -- because ultimately, growth is suffering. I understand there are growth that there are policy-related challenges and which are important things, so how are you thinking about the same?
So we are very clear that this is an anomaly which has happened, which has to get corrected. So sooner it happens, it will be better for the entire industry. So I -- we are hopeful that the government will be looking at it pristinely. And definitely, there should be or could be some policy vision to remove this anomaly. But unless that happens, then I think a bigger capacity would be a bigger issue or a bigger concern going forward. At the same time, I think lately, I mean, this is purely on the spending side. But when it comes to the fabric, the risk of cotton prices to the proportion of cotton prices to the final product is much less and the impact is also much less. So definitely, we are looking at some potential possibilities of improving or increasing that business where because the utilized part of the cash eventually improved our market penetration as well as the capacity. So there are ideas both understanding on the fabric side, where the [Indiscernible] it very actively. Maybe it's a matter of time when we start implementing it, start announcing it.
Okay. Sir, just a couple of bookkeeping questions. If you can help with the consolidated gross debt and consolidated gross cash. not stand-alone consolidated.
As of now, we are having long-term debt of about INR 1,100 crores on our books. And short term in the range of [Indiscernible]. Investment side caring investment of about INR 1,100 crores [Indiscernible].
INR 1,100 crores, you mentioned, sir?
Okay. Sorry, I couldn't hear, but I'll maybe talk separately.
The next follow-up question is from the line of Anik Mitra from Phenomic Solutions Private Limited
Sir, what is the average life of spindle. Hello? Am I audible? Hello?
Yes, please.
What is the average life of spindle?
Spindle?
Yes, sir.
So the spindle [Indiscernible] can this [Indiscernible] about idea.
Excuse me, there has been a bit of disturbance coming on the management side from the line of [Indiscernible].
Is it okay now?
It is okay, but whenever you're about to speak, the disturbance comes.
[Indiscernible]
Sir, you are not audible.
Your voice is breaking.
Your voice is breaking. Hello?
Hello?
Yes.
Am I audible?
Yes, now it's better.
It's fine now?
It's better now. Okay. So I was asking life of a spindle, sir, can you please [Indiscernible]
Spindle age is almost 25 years.
5 years?
25, 2-5.
25, years. Okay, okay. And sir, in the home textile division, like volumes, which was shifting from Pakistan to India during crop loss in Pakistan, so what is the current situation? Like is it -- like does it sustain to India now, or like it again went back to Pakistan?
No, I understand they are running full capacity utilization, home textiles [Indiscernible] continued in India as well now.
Okay. Again, like there is a disturbance.
Sir, what I'll do is, I'll disconnect and I'll reconnect you back [Indiscernible].
Mr. Mitra, you can repeat your question.
Sir, if you can repeat the Home Textile volume-related question. So the [Indiscernible]
So the [Indiscernible]. Now we are in a position to sustain and all the onsets [Indiscernible]...
Hello. Hello?
Yes.
Sir, you are not audible at all.
Hello, can you hear me?
Yes, yes. Now it's better.
So was your question an answer that the home textile people as of North India, they are looking for -- so we can reasonably assume that the business is here only.
Sir, another one question like I will take it from the transcript. It was not audible. There's one another question regarding the employee cost. As you mentioned, you've been going up employee costs from of the top line, a year back to 10% of the top line at -- in the recent quarter. So you were saying it is a -- question is when another INR 200 crores of CapEx done, what would be [Indiscernible] cost addition we can see. Like it will be in the sale range or any further addition in percentage [Indiscernible] be witnessed.
No, no. It will be capacity [Indiscernible] these are all [Indiscernible] existing location. So the -- for the any existing locations, the further -- the marginal employee cost will always be lower.
It will be in the same range in percent system. Percentage of the top line term.
No, it will be [Indiscernible].
Okay. Fine, sir. It's a severe problem in the audio. So I will get the answer hopefully from the transcript.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing remarks.
Yes. So thank you very much all for the joining this call. And as we have mentioned that there are industry-related challenges because of the demand and other concerns. But definitely, internally, whatever we can do as management in terms of making best use of this situation and looking at cost optimization or maybe the further possibility to sell products or maybe the customer diversification, the new products, et cetera. There are lots of work going on in the company and both businesses. And I'm sure the result of the same, whatever we are showing the margins, I think is a part in that. And in the times to come, it will keep improve -- it should keep improving only. So as management, whatever transparently we can do, we can share, we are always there to share our thoughts on the industry side as well as the company side. And definitely, it looks like as of now, the overall, it looks like the worst is over, and maybe we could look at a better time in the times to come. And as the demand has slowly -- started slowly improving, of course, as I mentioned earlier, also seen lots of protective on utilized the entire load. But I'm sure the things are improving, and we hope to see definitely a far better next year. So let's hope for the best. And thank you very much for your [Indiscernible] and all the -- and your commitment to our company, and we are definitely very, very thankful to all the investing community for this.
Thank you. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.