Vardhman Textiles Ltd
NSE:VTL
Vardhman Textiles Ltd
NSE:VTL
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Ladies and gentlemen, good day, and welcome to the Q4 and FY '25 Post Results Earnings Conference Call of Vardhman Textiles Limited, 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. Roshan Nair.
Thank you. Good evening, everyone, and welcome to 4Q FY '25 Earnings Conference Call of Vardhman Textiles Limited. On behalf of B&K Securities, I welcome all participants and the management of Vardhman Textiles Limited to the call. We have with us today Mr. Neeraj Jain, Joint Managing Director; Ms. Sagrika Jain, Executive Director; Mr. Sushil Jhamb, Director, Raw Materials; Mr. Mukesh Bansal, Head, Fabric Marketing; and Mr. Varun Malhotra, Head of Finance.
Without further ado, I would like to hand over the floor to Mr. Neeraj Jain and Mr. Sagrika Jain for their opening remarks, post which we can have Q&A session.
Good afternoon, everyone. We have declared the results. So it's a little better compared to the third quarter and the corresponding quarter. At the same time, I think the challenges continue both for the world market textile market as well as Indian textile markets. Considering the earlier concerns were only because of the 2 wars, but now considering the tariff war, which is started by U.S.A., there's definitely more uncertainty as of now for the next couple of weeks or a couple of quarters till the time there is a negotiation or there is an understanding on the tariff to be put on the various countries.
On the business front, definitely, this has been a very, very challenging period for the spinning business because our cotton in India continue to be on a very, very high basis almost in the range of about USD 0.81, USD 0.82, whereas because of the Minimum Support Price over here and there is not possibility to get the cotton imported direct duty-free in India. With the -- most of this period, cotton in the range of about USD 0.66, USD 0.67 per pound, in near future, which is -- which means the landed cost of cotton to Vietnam or to Indonesia would be in the range of about USD 0.78, USD 0.79, compared to that, the Indian cotton in this period continued to be almost at USD 0.82, USD 0.83, which means putting us at a disadvantage of USD 0.03 to USD 0.04 in addition to the quality variation differentiation because of contamination and so on and so on. So the industry in India continues to struggle.
The second aspect of the same is the quality control standard put in by the government where the import of synthetic fiber -- import of any kind -- any raw material to be sold in India or any fiber to be sold in India, manmade fiber has to be approved by the BIS. This basically has prevented the import of synthetic polyester or viscose in India. And our raw material, both polyester and viscose are almost as of now expensive by about 18% to 20% compared to the mill which is getting in it there in Vietnam or Taiwan, Thailand or China. So as a result of that, the Indian spinning industry is a little uncompetitive as of now on the manmade fibers as well. These are the 2 big concern points. Of course, on the silver lining side, definitely the brands are coming to India, that business is available. Whichever can give them the delivery in the time schedule they require use of it, then manage their lead times as well as the [ peaking ] requirements with the new products development innovation, that business is surely there, which is only [indiscernible].
So that's the direction the company has taken where we are trying to look at more of these products where you can enhance your margins. And to that extent, we are modernizing our machine [indiscernible] also so that it is -- the structure is more robust, working wholeheartedly on the margin and new products so that we could capture to these kind of businesses where the competition is relatively less and the loyalty of the customer is surely better. So that's what is happening.
The Indian crop almost it was estimated to be about 30 million bales and almost in line with the same. But considering the Minimum Support Price, this year, Cotton Corporation of India procured almost 10 million bales. Now we have started selling it. Of course, the prices in India again are higher because virtually as of now, the entire quantity is available with the CCI only unless they have to buy day-to-day, but at a much, much expensive basis.
The next year [indiscernible] is about to start. The U.S. intentions are already there, which is lower by about -- between 10% to 14% considering the weather and the low remunerative crop over there. So that's going to be one concern where the overall shortage could be there. But at the same time, if U.S.A puts in any kind of duty, that means there could be a possibility of some reduction in the consumption also over there. So to that extent, there could be a possibility of the consumption also being lower in U.S.A., which is one of the biggest consuming country in the entire world. So as of now, the atmosphere has become very, very challenging, very, very uncertain. Most of the shipments which have happened in the last 3, 4 months, the customer expectation is or the brand expectation is whatever is the 10% duty that has to be absorbed by the supply chain, including the brand. But whereas because of a very low margin it's not in a position to take that. So in any case, it is being negotiated between the brand and the [ garmenter ] as of now most cases.
I think since this facility of 10% is only available for 90 days, so there's more uncertainty how the things will happen in next -- because any order which comes in today will be delivered 3 months down the line only. So those are all uncertain periods times as of now, which are posing a big concern to most of the -- not only the textile, but I think other non-textile products as well.
Another piece of information that there has been some issue between India and Bangladesh where they have -- they are not allowing now the shipments by road to Bangladesh, which used to happen through [indiscernible] border earlier. So which means the cost may not increase, but at the same time, the lead time surely will increase from about 10 days to 3 weeks, which is again a concern for the -- as the industry is moving more and more on the value-added side. So this is definitely a most or a very uncertain period, but I'm sure it looks like there seems to be some silver lining also because if the U.S.A puts in all kind of duties, as of now, India would have one of the lowest duties. As per the previous understanding, it was 24%, whereas most other competitive countries were between 45% to 50%, which includes Vietnam, Bangladesh was also higher, China was much higher. So there could be a possibility even in the uncertain times, there could be a possibility of India getting some advantage by the relatively lower duty so that we could [ expand ] our exports to U.S.A
That's my starting comments on the yarn side. I'll request Sagrika to give her opening remarks on the fabric side as well.
Thank you, sir. As for fabric, there was good demand from the markets all around. There was good retail sales during the festive season of Christmas and New Year. As a result, import numbers in Jan and Feb were quite good for U.S., U.K. and EU markets. So we had a very good quarter 4. In fact, this has been one of the best quarters that we have ever had. We ran on full capacity, and we had a -- we also had a good financial year. Adding to what Mr. Neeraj Jain had said on U.S. tariff, some of our U.S.-based customers are referring to this situation as short-term pain for long-term gain, and we share the same optimism. So as a response, we are actively engaging with customers to understand what their evolving needs are, and we are positioning ourselves as a strategic and reliable partner. Our proactive approach, combined with India's subsequent tariff advantage places us in a strong position to not only navigate the current disruption, but also to achieve sustainable growth over the next quarters.
As far as capacity expansion goes, by the end of our current calendar year 2025, our production capacity will increase by 38%. So this expansion will enable us to shift to other products, including synthetics, so increase our product basket and also reduce the sale of gray fabrics. So we will be converting our gray fabric proportion to dyed processed fabric. We have seen strong demand from both existing and new customers, which is encouraging. While the fear of U.S. market slowdown could potentially impact short-term demand, but we're committed to utilizing this expanded capacity immediately. Our aim is to fully absorb this capacity enhancement and optimize our production by fiscal year 2028. We are confident that with strategic planning, agility and the right customer engagement, we will maximize this capacity expansion and drive growth.
[Operator Instructions] The first question is from the line of Rajesh Jain from [ R.K. Capital. ]
Can you tell me like why is there a sharp jump in other income and other expenses in this quarter?
The other income increased -- sale of some land at one of our plants, which is about INR 25 crores, INR 26 crores. Other than I think it's all normal.
Sorry, other than that?
Other than that is all normal. And the remaining is we do mark-to-market on the dollar rupee also. So whatever is the foreign exchange gain, that also gets captured into other income technically as per the accounting standard.
Okay. And why is there a sharp jump in the other expenses, what does that comprise of?
No, that's generally because we have a huge amount of modernization going on in all the factories, so that's all related with the repair, maintenance and the capability building expense.
Okay. So going forward -- I mean, this will be the trajectory of the other expenses going forward also in the next few quarters?
No, it will come down for sure. I think most of the modernization are getting completed in first quarter itself. After that, it would normalize.
Okay, sir. And sir, apart from -- so which are the countries to which you export? Can you give the country-wise bifurcation in terms of percentage of your revenue, country-wise?
That keeps changing. But most of our -- I can just give you an idea. I think as a country, whatever yarn we export, 50% goes to Bangladesh and remaining goes to all most of the Asian countries or the Central America, maybe some part of this goes to Mexico and so on and so on. And this is the trend for the country. Our trend is almost in line with the country exports. That is true even for the fabric also.
Okay. So is the Bangladesh exports seeing any continued impact because of the stand that Bangladesh has taken?
No, as of now, no, but it's only the serviceability will be a little poor because we'll have to ship it through the water route only. So maybe the number of days to reach the product will increase somewhat in some of the products. For Vardhman, let's say, 70% of products were already going by the ship. So I think 20%, 30% will have some impact on the serviceability. So cost-wise, it may not have an impact.
Okay, sir. And sir, just can you provide any update on your foray into technical fibers? How is the capacity expansion going on that front?
Sagrika, can you share?
Yes. So the progress is as planned, as anticipated, and we should be operational in quarter 3.
The next question is from the line of Awanish Chandra from SMIFS.
Congratulations management on good PAT performance. Sir, first thing, in the historical, if I look at the number of EBITDA margin and textile EBIT which you report, most of the time -- rather all the time, textile EBIT was lower than the overall EBITDA, kind of 1.5%, 2% difference. But this is the first time our EBITDA margin is 11.4%, whereas textile EBIT is 12.5%. So -- and I understand this is due to unallocated cost and all. So could you describe what is the huge unallocated cost which is there in the number, which is not related to textile business?
No, this is all -- all our business is textiles only. There is hardly anything other than that.
So sir, then in that sense, EBITDA margin should be higher than the EBIT margin, correct? If you look at your number, your textile EBIT margin is 12.5%, which is reported and reported EBITDA margin is 11.4%. And historically, the whole trend was 1.5%, 2% higher EBITDA margin than the textile EBIT. This is the first time it is reversed.
Sorry, I'll come back to your question in a little while. Let me just look at -- in the meantime can we move forward?
Sure, sir. Sir, second question, you have already talked about in detail the problem the sector is facing rather than uncertainty and everything. In a few of the other calls also many management highlighted that due to this lower international cotton prices, even for some of the spinners business is not viable. So did we reach to that situation even in India that a lot of small players are not able to manage any EBITDA margin?
Can you repeat your question?
So sir -- I mean, in the start, sir already talked about that international cotton prices is lower and that is making an issue as far as our competitiveness against other countries. So I mean, has it started impacting our EBITDA margin already, compared to the historical? Because our EBITDA margin is far lower than the historical. That's where my question is.
No, there are 2 issues. Definitely, as of now since our raw material expenses are higher, our EBITDA margin surely is lower and it is impacting all the Indian players. 2, historic EBITDA margins have always been in the range of about 17%, 18%, 19%. But if you look at the change of rates of raw material in the last 3, 4 years, the Indian cotton used to be about INR 34,000, INR 35,000 a candy 4 years back. Today, the base has become INR 55,000. So the raw material cost has increased by 70% in this period. Whatever is the raw material cost, to that extent, yarn prices have increased. But if you look at percentage of EBITDA to the sales, that's not grown by 70%, 60%. So whatever increase in the raw material prices have happened, our EBITDA per se may be same, but definitely in terms of percentage will never be comparable unless the margins improve significantly.
Sure, sir. I mean a few companies have shown some expansion in EBITDA quarter-on-quarter, year-on-year. That's what -- but when you answer the first question, maybe that will give more clarity. My last question...
Yes, on the other business adjacent to that there is acrylic fiber business also, which is added into the consolidated numbers.
Yes, yes. So I have done this math also, but acrylic is just INR 2 crores, INR 3 crore EBITDA. So that's a very small contribution. So that will not change my number from 12.5% to INR 11.4%. It's a kind of difference of INR 100 crores to match the whole number.
Let me just look at it.
Okay. Sir the last question while you do the math and you can come back during the call on that answer. The last question -- I mean, on the tariffs, you explained everything, so I'm not repeating anything. Let's say the tariff remains as it is 10% and then some more tariff comes. And if U.S. retailer keep pushing to Indian supplier to give discount, do you think it will also some bit of negative effect can come on the spinners as well when those garment manufacturer will ask us also to take some [indiscernible]?
There could be opportunity. Whenever anyone in the supply chain is being asked to share the cost, they will definitely try to come back to the spinner also. But somehow since the spinner margin is so poor as of now that spinner it looks like may not be in a position to help at all because there is hardly any margin available. So to me, that doesn't look like that the spinner will have to bear this cost. But yes, up to fabric stage for us, it can come to some extent, it can, though we are adjusting. But at the same time, I think it's a temporary period of 1 or 2 months. Let's see how things goes because if this continues, they will have to increase the price at the retail side. But since it is uncertainty and people are not sure how much family duty has to be, so brands will take a little time. And by the time once the duties are finalized, we'll take a final call how do we want to go on that.
Okay sir, so I will wait for that EBITDA and EBIT thing.
[Operator Instructions] The next question is from the line of Anil Kumar Sharma, an Individual Investor.
Good set of numbers. Congrats for that. Madam Sagrika, you have mentioned that our capacity is running at the full capacity regarding garmenting. But in the sales side, you have INR 5,15,000 you have sold in this quarter vis-a-vis it is INR 5,54,000. It has come down by almost 76%. So can you explain that?
Are you talking about garment [Technical Difficulty]
[Technical Difficulty] garment [Technical Difficulty] quarter [Technical Difficulty] volume.
[Technical Difficulty]
[Technical Difficulty] Hello. Hello.
Hello.
Madam [Technical Difficulty] fabric number, [Technical Difficulty] fabric number, it has come down by – the volume you have given day before yesterday, it has come down by [Technical Difficulty].
Okay, so it could be quarter-to-quarter basis. But what I was saying is in this -- now in FY '26, we are expanding our capacity. So the gray fabric will be converted into processed fabric.
Okay madam, that is okay. But my question is actually overall also, gray, if you combine both, even then this quarter is volume-wise is less than the last quarter, Y-o-Y quarter. Is it so? It should not be because earlier we were running at 90% capacity, now we are running at 100% capacity. So volume-wise, it should not be less than that?
It may not be the case. There's also other factors like change in the product mix. So like if the product mix changes, then the price will be different. So the revenue also is different.
The next question is from Prerna Jhunjhunwala from Elara Capital.
Congratulations, sir, on good set of numbers on improvement on margins sequentially. Sir, just wanted to understand the cotton yarn spread position today? And how do you foresee for the coming period? Though I understand that uncertainties continue, but do you think there is some strength in the yarn business now given that our margins have been improving every quarter?
So cotton yarn, if you go by the international cotton, it's almost in the range of about USD 0.85 to USD 0.90, it is still reasonably okay. But if you go by the Indian spread, it is almost a little lower than USD 0.70 in this period also. So of course, there's some improvement happened, but at the same time, it's not enough. And if you look at the capacity utilization in country as a whole, there seems definitely almost 15% to 18% capacity has stopped in this period last 2 years because of the lower margins. So of course, there has been some despite in this period because when the cotton season started at that stage, we are buying cotton at about USD 0.78, USD 0.79 in India, but this slowly has increased to USD 0.81, USD 0.82 and the near future has been coming down steadily USD 0.67, USD 0.68 only. So Indian spread it's not more than USD 0.70 as of now.
Okay. So what is leading to margin improvement for us? Is it improvement in fabric margins or is it due to…
For Vardhman the major improvement is coming from the fabric margin. Though there's an improvement in the yarn also in this quarter, but I think substantial increase is on account of the fabric.
Okay. And do we see that there is further potential of improvement in margins given the uncertainty and the challenges at the global economic level? Or given the uncertainty, we would stay away from giving any comment on that?
No, I think it's very difficult or it's anyone's guess what will happen. But as I mentioned earlier also, considering even if the duties are put in, India surely looks like would be one of the countries with the lowest duties on it. So though 1 or 2 months uncertainty would be there, but if we are at the lower end of the duty amongst other competitive countries, this will be an opportunity for the Indian [indiscernible] be it spinning, be it fabric, be it garmental.
Okay. And sir, the second question is on Bangladesh -- export to Bangladesh. Given that land route is now closed by Bangladesh, could you help us understand the impact of it in terms of the cost increase that we'll have to incur to supply the players?
So as I mentioned earlier also, in terms of cost, there's not much of a difference whether material whether material goes through the roadway or it goes through the ship. So cost is not really very expensive, but more impact is on the serviceability because it takes almost 3 weeks to send the material through ship whereas by road, it takes only about 10 days. So there is a gap of about 10 days, 12 days on the delivery side. But other than that direct cost really is not very big difference as of now.
Okay.
Rather it may be advantageous only if we send it through the ship [ as on date. ]
Okay. So cost-wise, there is no material difference as such.
Yes.
Okay. And sir, just wanted to ask you on other expenses, this quarter, other expenses have seen a huge jump. Any line item that you would like to highlight?
No, not really. So as I mentioned, there were basically 2 things happening. One, in this period, there has been increase in the ocean freights because of the various uncertainties and our export also destination-wise. So that's one increase. Two, there is also repair maintenance going on in all the factories where we are trying to modernize those factories. So since a lot of work has happened in the last 6 months, there's some increase on account of that. Other than that, I think it's all normal.
Okay. Okay. And sir, the last question is on the time line of capacity that comes in, in next 1 year, could you help us understand which quarter we can expect some capacities coming in?
So on the spinning side, there is only one expansion which was announced on open end, but we have yet to start that project. We are still waiting for the government to get the couple of approvals. And also we are evaluating the overall business circumstances. All modernization of spinning is going on as per the plan. And I expect most of the modernization will be completed by September. So it will be helping us both in terms of reduction of cost as well as some increase in the production on the existing setup only. The fabric expansion Sagrika has already given the schedule, if you want again, Sagrika can you just repeat when the fabric expansions are coming in for the various products?
Yes, sure. So our fabric capacity expansion should be operational by quarter 3. So we would be able to see an impact then.
Okay. But we had 2 capacities. One is existing product and one was synthetic fabric coming in.
Yes. So -- so this answer is for both.
Okay. For both, it will be coming in the third quarter. Okay.
Yes.
And it will be coming in full or in phases?
So the one from the expansion of the existing capacity would come in full. And as for synthetic, so we have 2 phases. So Phase 1 is 15 lakh meters per month. That would be coming now. And then basis how quickly we are able to establish our product and our brand name in this segment, we will expand according to that.
The next question is from the line of Resham Jain from DSP Asset Managers.
So I have 2-3 questions and clarification as well. So last time you mentioned you are currently incurring almost CapEx plus OpEx because modernization is also there, close to INR 3,000-odd crores. And if I'm not wrong, the yarn and fabric modernization and the yarn modernization is almost like INR 900 crores and INR 330 crores. Is that number correct? Almost INR 1,200 crores of modernization-related CapEx?
Yes, that's true.
And almost all of this INR 1,200-odd crores will be routed through P&L because you mentioned somewhile back that some of this repair and maintenance and modernization-related work is a part of other expenses.
No, no, no, sorry. So whatever is repair maintenance which is required as a building repair and those things, that goes as a P&L expense. All new machinery -- because major expenditure in this will be the machinery. So all that machinery is capitalized whereas the earlier machine will be written off or will be sold and whatever is the difference in the depreciated value of those machines or sale price that can come to P&L, be it in form of a profit or a loss. So all new machinery will be capitalized. It's only the repair, maintenance, et cetera, building repairs which go to the P&L.
So this INR 1,200 crores is the capitalization related number, the P&L-related number is separate?
No, no. The P&L – no, this includes P&L number, but the P&L will be only INR 30 crores, INR 40 crores, INR 50 crores, not more than that.
Understood. Okay. Clear, clear. So for the full year FY '25, the incremental repair and maintenance -- so if I look at your trend of repair and maintenance as a percentage of sales, this number would have gone up by what number on an average this year, FY '25 as a whole? Will it be INR 100 crores on a full year basis?
No, over and above the normal repair and maintenance, it would not be more than 0.5%.
Okay. Okay. INR 50-odd crores. Got it. And the second question is, with all these measures, like you will have renewable energy coming in, modernization happening, some of the new machineries will also -- whatever new CapEx you are doing are all automated machines. So I presume this all will lead to slightly better margins than our historical trends. And these are all internal measures which we have taken. So how much -- on an aggregate basis, how much improvement do you expect because of all the internal improvement measures you have undertaken over the next 1 or 2 years?
You see this has -- if you look at the nature of these expenditures, one is a couple of things are done to ensure the proper quality of the products, which may or may not give you any direct advantages. Two, some of the machinery we are replacing because saving in the electricity cost or saving in the number of people. Over there, there would be an advantage for sure on account of the same. So third is creating more flexibility in the system so that we can produce the differentiated products, which sometimes on the existing infrastructure may not be done. So depending upon how much those products we are in a position to sell or that kind of business is [indiscernible] into the India by us, the advantage would come in. But in any case, whatever expenditure we do, our expectation is always on the CapEx, at least 15% margin should be -- EBITDA should come -- at least 15% should come over and above the existing cost.
Understood. Okay. The second question is with respect to the technical textile business. So obviously, our project will get completed in third quarter, as I understood. But from the business development perspective, where are we? And what kind of inquiries and what kind of customers we are seeing in the technical textile business?
Sagrika, please?
Yes, I can answer that. So currently, we've received good response from our existing customers. So our existing customers in the portfolio also have the synthetic products. For example, they'll have a jacket which will be a windcheater, which will be -- which will protect against the rain. So we've gathered quite a few samples, and we are building our know-how and our other things to how to develop products. So from existing customers, the demand is decent, and we are also going to be touching -- we've already reached out to some new customers who we have -- we weren't catering to. For example, there would be mainly sports brands. So it will be a mix of both existing and new customers. That's been the progress.
Okay. And just one clarification here because in the initial comments, sir mentioned that there has been like import duties on polyester as well as viscose and several other synthetic fibers. So because these are all export-led products, the import duty will not have a bearing on our competitiveness. Is that a correct understanding?
No, no, no. So these are not the import duties. This is basically a quality control order, which has been issued where any fiber which is sold in India has to be approved by the business of BIS. So all the companies which are sitting outside, if they have to sell their fiber in India, they have to get it registered with the government for that, which most of the companies sitting outside -- Chinese, Taiwanese, they are not doing it. If they are not getting themselves registered to the Indian authorities, in that scenario that import cannot be done in India. So practically, the import of all fibers they were vanished in India. And as a result of that, the local players, they increased the prices. And our raw materials have become expensive. It's not the import duty, it is the non-tariff barrier which is put into the system.
Understood. But will it impact our Technical Textile business? Because I presume that a lot of this material will be imported only to begin with.
So polyester, we will still -- I think majority we will be relying on the domestic market as it is available and quality is also okay. Nylon, we will have to import. Now of course, our first preference would be to go to those suppliers who have BIS.
Okay, understood.
So it will depend product to product.
[Operator Instructions] The next question is from the line of [ Shivaji Mehta ], an Individual Investor. The next question is from the line of Falguni Dutta from Mansarovar Financial.
Sir, how are the cotton yarn spreads now versus Q4?
So Q4 was for the Indian belt about…