Ladies and gentlemen, good day and welcome to the conference call for announcement of acquisition of Arvind Advanced Materials Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Satya Prakash Mishra. Thank you and over to you, sir.
Good afternoon, everyone. It's a pleasure to be with you once again. We are meeting little earlier than expected, just before the results, to discuss the important corporate action of announcement of acquisition of Dalco-GFT by Arvind Advanced Materials Limited. I hope everyone has gone through the presentation and other materials we have put out and uploaded to the stock exchanges. Let me introduce the management team that I have with me. We have Mr. Punit Lalbhai, the Vice Chairman, Mr. Jayesh Shah, Whole-time Director and Group CFO, Mr. Nigam Shah, Executive Director and CFO, Mr. Gurpreet Singh Bhatia, CEO and President of Arvind Advanced Materials division, Mr. Mayank Tiwari, the Chief Strategy Officer of Arvind Limited, and Mr. Amit Pal, the CEO of our industrial composite division.
At the outset, we would like to mention that the company is in the process of announcing its annual results for FY 2026 shortly. In view of this, we will refrain from discussing detailed financial numbers or business performance during today's call, other than the matters directly related to the announcement of the transaction. We therefore request participants to kindly confine their questions to the acquisition only. Let me now briefly take you through the transaction of acquisition of AAML. Dalco is a company which got established in 1988 and has a proven track record of four decades. Dalco has two manufacturing units based out of U.S.A., South Carolina and North Carolina.
It has a capacity of 75 million pounds, it has achieved a growth rate of 10% with a margin of 17% and before acquisition, return on capital of 40%. The acquisition is expected to accelerate Arvind Advanced Materials Limited's global footprint and reduce the supply chain risk that is associated with current geopolitical situation. It gives access to a massive TAM of $2.5 billion across all segments. It is currently operating a needle-punched nonwoven technology in U.S.A., which is a technology adjacent to AAML industrial production and filtration capability. It also has existing access to customers of around 75, with exclusive access to 88% of its supplier base. This transaction is structured in a way to be beneficial to AAML.
We have acquired 61% stake in the company at a valuation of 7.75x of calendar year 2025 reported EBITDA. The transaction is valued at $136 million. We are taking 61%, like I said earlier. I'm also happy to inform all of you that the entire existing top management will be continuing with us and completely aligned with our vision of taking this company forward. The current deal at the valuation that I have just described is both margin accretive and EPS accretive at Arvind consolidated level. The current acquisition is funded through a combination of debt at both Arvind Advanced Materials Limited and debt at the target company, Dalco-GFT. This is to ensure that we take the benefit of taxation at both geographies.
The financial ratios post-acquisition of Dalco-GFT is within the covenants that we have already signed in for. We expect this to improve in 12 months' time. We are very happy to have this acquisition done and it is currently now completed. All the financing transaction has been closed, and it is now completed. With that, I conclude my opening remarks. Let me allow the operator to open the lines for questions.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. Participants are requested to use only handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Sundar S from Avendus Spark. Please go ahead.
Hey. Hi. Good afternoon. Thanks for the opportunity. My first question is with regards to volumes. What are the current volumes that this particular entity does? We understand that the capacity is about 75 million annual tons and capacity. What is the utilization? What are the current volumes?
Utilization is around 85% of the capacity.
Would that mean you would have to put in additional money for CapEx?
There is already a plan to put in approximately $5 million of CapEx every year. The company is generating very good cash flows, so it will fund those CapExes through internal accruals, plus have money left over to pay down debt.
Thank you. Just another question is that how would the balance sheet look in terms of can you break up the assets and what's the working capital that we're taking over, and how much are we patriating towards goodwill?
We couldn't hear that properly. Can you please repeat slightly slower and louder, please?
No, I just wanted to understand as to how is the balance sheet going to look in terms of what is the asset quantum that we're taking over, what is the working capital on books, and what would be the goodwill that we'll be writing on Arvind Limited books?
The working capital number, just to tell you, the first number is about 60 days, which is exactly in line with what we have in Arvind Limited, and we will continue to have that number. Let me have the goodwill number worked out for you, and I'll probably call you just in two minutes. We can probably take that as the next question.
Sure. Thank you. Thank you. All the best.
Thank you.
Thank you. Next question is from the line of Surya Narayan Nayak from Sunidhi Securities. Please proceed.
Yeah. Congratulations for the aggressive acquisition. Just to understand, what is the specialty of this company, and whether the What you say, you know, INR 5 million CapEx every year, that will be sufficient to take the growth of aspirations of 10% CAGR, or you want to, you know, you see more scope is there?
At the outset, first let me say that, you know, I am extraordinarily excited by this. This is Punit, by the way.
Yeah
Excited by this acquisition. In this space, the company operates in a technology called needle-punched nonwovens. That is the same technology we use for our filtration business in India. They use it for automotive and geotextiles. Those are the two big segments. If we had to start this from scratch in ourselves, it would take us better part of a decade to achieve any scale in this business. What this acquisition does is it gives us immediate scale and a very large addressable market in a technology that we understand very well. It is also a very tightly run operation. We are retaining the entire management team who still own 39% of the equity stake at the company. The incentives are aligned.
I spent a lot of time with Joey Duncan, who was the founder of the business, Matt Sims, who is the CEO, David, Brian, Audra. They have a fantastic team. There is a very good alignment of philosophy, strategy, thought process and chemistry. It is a very automated process, manufacturing process, so it requires not too much workforce to manage in the U.S. From many, many perspectives, us knowing the technology, great team, not unwieldy to manage, and highly profitable and performing very well with the customers. Getting this sort of asset is not at all easy to do. I am particularly happy. Your question was around CapEx and the thought process.
I think there are multiple levels of unlocks that will happen with this asset in Arvind's hands. I think the first unlock is a more aggressive growth trajectory than in the past. They were very focused because they were primarily private equity owned. They were more focused on unlocking efficiency and unlocking profitability, which they did a very good job of in the last three to four years. Now, I think we are going to shift gears in terms of growth and particularly with the infrastructure bill signed in the U.S., the opportunity to grow in geotextiles, while maintaining the sort of salience with automotive customers. I think that's the first sort of unlock that will happen in our hands.
Because we are at 85% capacity utilization, we will do a $5 million CapEx every year, we should be able to grow in the mid-teens rather than 10%. That is, you know, our ambition going forward. It is important to note that this product needs to be manufactured close to the consumption. We are going to keep the manufacturing in the places that it is already there. There is sufficient space to at least for two years to keep adding lines in the same two manufacturing locations of the company. You know, I think it is, you know, very doable to grow at the mid-teen, teen level. We will continue to remain close to the point of consumption.
The second order and third order synergies would be us bringing those technologies to India to address the Indian market as it grows, and us taking our knowledge and our product categories, because we have the same manufacturing platform both in India and the U.S., to the U.S. Taking our products to the U.S., bringing some of their products to India, and then using that sales channels to sell other products overall. I think those are the various levels of synergy that will be unlocked as we go forward. We are excited for a number of these reasons that I just mentioned. Hope I was able to answer the question.
Thank you. Thank you. I mean, just another follow-up question is that, is the company only focusing on the U.S. market? If the automotive was the case, then, you know, Mexico and Canada also could be a favorable market for the company. Are they present in those markets as well?
No, they are not. Because if I have to be present in Mexico, I have to have a line in Mexico. The radius of many of these products is not beyond five to 700 miles, because then the transportation costs start to add up. Yes, the opportunity is there that once we exhaust, you know, these facilities, we can, we can expand in other logical areas like Texas or Mexico. There are many options. We haven't given deep thought to that yet because there is still lot to do from these two facilities, and there is a lot of headroom, without thinking of branching too far beyond the current radius of operation.
What could be, sir, the gross block of that company, if you can give a figure, if you are ready with it?
We'll just get back to you on that exact number.
Okay.
It's around I think it's around INR 25 million, but let the team confirm and just get back on that.
If $25 million is that, then obviously, for $5 million it makes sense. It looks like, you know, at 85% utilization factor, we have nearly existing, I mean, we are at the upper end of the utilization factors. I mean, we should be looking at some other expansions beyond that. I mean, $5 million, it could be kind of more of a maintenance CapEx or it would be growth CapEx?
No, no. No. A $5 million is a new line.
New line.
four and a half million dollars, $5 million.
How many lines at the moment?
We have six lines.
Okay
Three of them, four of them have been just sort of upgraded. There is enough and more capacity for the next year, and we'll be filing the CapEx soon so that the year after that is taken care of. We will ensure that we have enough capacity to grow at 15%. Capacity will not be a constraint to our growth.
How much lines if the capacity, the facility can accommodate?
We can accommodate three more lines in the space that we have.
Okay. Thank you, sir.
Which is about two years CapEx.
Thank you, sir, for calling and listening. Bye.
Yeah.
Thank you. Next question is from the line of Prerna Jhunjhunwala from Elara Securities. Please go ahead.
Congratulations on this huge cap acquisition that has been done. Really impressive. Just wanted to understand the competitive landscape there, how the growth market has been growing and what is the type of customers that you're dealing with, and what is the concentration ratio whether of customers in this company?
The market is a large market. As Satya mentioned, the total addressable market is very large. It's in the billions with this technology platform. The sort of automotive segment, which is the largest segment, tends to grow at 3%-4%. Noise and vibration reduction, which is the main product category of this company, tends to grow at a slightly faster clip of 6%-7%. Balance, there is the opportunity to gain market share. They are present with the sixth largest tier ones in the country that supply all the automotive OEMs. The platforms that they are specced into are a good mix between American, Japanese and Korean players.
We've done a very thorough diligence on the quality of the platforms into which this company is specced in, and we are very happy that that sort of due diligence has come back quite positive. We don't see any challenges on the automotive side. The large opportunity is in the geotextile side with the infrastructure bill being signed. There's a lot of infrastructure that's going to be built out in the U.S., and the opportunity to grow disproportionately fast exists in this segment and some of the other segments like roofing and flooring. Where, you know, that will make up the growth beyond the natural rate of growth of automotives, which is in the high single digits for this product category. By disproportionately growing in the other segments, we will go into the mid-teens.
That's the plan to go forward. As far as customer concentration is concerned, we are quite well-balanced. We are with all the customers that are meaningful in a deep relationship. Our performance track record has been excellent. We have good customer reviews. On the customer side, you know, it's a tick in the box. In terms of competition, there is competition, but within the automotive space, for our product category, we are one of the most respected companies out there. Our performance will be top quartile in terms of delivery, price and innovation, all three. Yes. Geotextiles, we are, you know, a young sort of recently started company.
The opportunity to take market share where there are, you know, a couple of companies that are larger, you know, really there for us. And with very, you know, sort of little investment in team and people, they've done a credible job in, you know, getting spec'd into the geotextile products. Now is the time to sort of press the accelerator there, is what we feel. We'll be exploring all these options. As far as the automotive market is concerned, many of the products are, you know, sole sourced. Almost 85% of the, or maybe slightly higher than that even, are sole sourced by the customer from only the company. It's a deep relationship.
Understood. Sir, in this, the existing management has been with the company for how long? How are they, can they help us in even expanding our India business in the U.S.?
The India business will be, will have to manufacture in India, but we can definitely use the knowledge gained from the U.S. entity to create manufacturing of these products in India. As the Indian market grows, currently the Indian market is much smaller than the U.S. market. In the future, it's going to be a very large market. That at some point in time, that will definitely happen. In, in terms of the management team, the person that owns the highest stake is the founder of the company. He's been with the company as long as the company has been alive, which is, you know, since the nineties. You know, the team has been together in this form since seven to eight years. It's a very stable team.
It's a five, six decision-maker team, which has been doing a fantastic job, and I've had the pleasure to get to know them over the last three, four, five months, and I cannot recommend them more better than this. They are excellent in terms of how a close-knit, high-performing team can be.
Understood, sir. That's fantastic.
They are, they all have equity in the company. In terms of the way the deal is structured, we acquire the balance, you know, in two tranches, one at two years and the other at four years. The management team, you know, will be more towards four years and less towards two years. The residual equity from the financial invest sponsor is what will go away at two years. Basically the long-term incentives are aligned.
Oh, fantastic. Sir, just wanted to also understand the cost pressures, if there are any, like how many employees you have in this firm, to execute this $100 million sales, and whether you'll need to invest into higher number of employees to get the next leg of growth or is there any other cost factor that you will need to take care of to drive a higher growth from the past?
The manufacturing process is highly automated, so with a very marginal addition of workforce, you know, you get very high volume throughput. Headcount is not going to dramatically increase. We may want to strategically invest in creating business development and customer service teams where we want to accelerate growth, but that's a handful of people. It's not going to be like very large numbers of people required to dial up growth. It's the quality of people that will matter. This company is extremely well managed in terms of its operating efficiency. The cost per kg of output would be best in class. The reason for retaining this team is because they do such a good job, and that's the real sort of feather in their cap. Cost is not a challenge from, you know, an operating perspective.
Understood. Sir, my last question is on margins. Is there any opportunity of improving margins from here on or is it likely to be a top-line growth story in AAML?
I think for a needle-punched nonwoven company, the return metrics are excellent. You know, 17% margin in an automated or automotive-dominated company is, you know, very creditable. Also, the return metrics on capital are fantastic. The focus will be on growth. We would like to maintain margins and grow faster. Of course, you know, with growth and scale, operating leverages, et cetera, will kick in. Hopefully, there will be margin expansion, too. I think the margins are already at very good levels for this industry.
Understood, sir. All the best. Very happy to see more acquisition by textile sector in the U.S., you being one of the largest ones to acquire. Congratulations once again.
Thank you.
Thank you, Punit.
Thank you. Next question is from the line of Vishal Mehta from IIFL Capital. Please proceed.
Yeah. Congratulations team for a good acquisition, I would say. My question first would be, Punit Lalbhai, if you can, throw some color on, you know, the selling rationale for the promoter. While I understand for the financial investor, for the promoter who's been running this for four decades, why sell now?
I mean, they worked really hard for I mean, basically it was two promoters that brought their companies together, and grew this into a, from, you know, a very insignificant scale to, you know, a powerful company to reckon with. I don't blame them for, you know, wanting to.
Partially
Partially take advantage of, you know, the hard work that they've done, in terms of wealth creation for themselves. The good news is that a big chunk of the, their equity is rolling over, going forward. It is primarily the financial sponsor whose job it is to sort of build and exit, that is exiting.
So I think, you know, it is, you know, the rationale is perfectly understandable incentives are fully aligned. You know, there is a good chunk of 16%, 17% that the founder will still hold in this company, and will hold for the entire four-year period.
Hopefully even beyond, in terms of, you know, having a deep stake in this entity. When one interacts with the team, they are really passionate. They really consider this company as their baby. I think, you know, it's not the financial numbers that, you know, sort of finally convinced us to pull the trigger on this deal.
It was actually the passion, the competence, and the sort of philosophical resonance with these people that was the deciding factor. You know, I've been in this industry for a while. You don't see this, so well and so clearly, in many companies. I think we got very lucky with the quality of team that is fully incentivized, for the next value creation journey. We've just redone the entire sort of, performance-linked long-term incentives of the entire management team. Everybody is sort of raring to go and looking forward to unlocking much more value in the second wave.
Sure. Sure. That, that's fair. My second question would be, you know, these product production lines that we're talking about, is it similar for all three major types of product categories that this company is catering to? If you can probably spell out if there is, there are any-
Without getting too technical.
application differences.
Without getting too technical, the answer is yes and no. They are broadly the same, but not exactly the same.
Okay. Okay.
There is very high level of fungibility.
Okay.
Needle-punched nonwoven as a platform itself is very fungible. You can do many things with the same equipment. Of course, you have to do add-ons, bolt-ons, plus and minus to make it sort of tailor-made for the end application and, you know, do it at a better cost. You need to sort of make some modifications here and there. Broadly, it's a simple manufacturing platform that is creating a lot of innovative products. That's a rare combination.
Sure. Third question would be on the raw material side. What would be the three key raw materials here, and, where are we sourcing these RMs from, dependency built in?
It is mostly polymers and i t is basically staple fiber that goes into the line.
That staple fiber is generally, you know, some form of polyester or polypropylene or a combination thereof. About 65%-70% of the polymers are sourced locally in the U.S.
Little bit from Taiwan and maybe a little bit from-
Korea.
Sorry, a little bit from Korea and a little bit from Vietnam. It's Vietnam, Korea, and U.S., predominantly U.S.
Okay. Just wanted to extend your statement when you said that the manufacturing facility needs to be closer to the consumption center. If you can probably elaborate that, why that should be the case here?
Needle-punched nonwovens are high loft material. Basically, you're taking fiber and, you know, making a fabric by punching those fibers together. There's huge amount of air gaps in within the product by design.
Yes.
Essentially you are shipping air.
Yes. Okay. Okay. Okay. Got it. Just last clarification, consolidation starts from today?
It's done.
Yesterday, yes.
Yeah. Yes, sorry. Okay. Thank you. Thanks for answering those questions, and all the very best.
Thank you.
Thank you. Next question is from the line of Priyadarshee Dasmohapatra from FIL. Please proceed.
Hello, sir. Thank you for taking my question. I was a little bit late in joining the call. I would want to understand, you know, why a seller would like to part away with their stake at this point. What would be their motivation? Secondly, you know, whenever Indian companies have gone out and acquired outside of India, they have faced certain difficulties as well. What are the risks that we see to our growth and taking on demand, competitive pressures? Anything that can go wrong and how we can safeguard against that?
I mean, in any acquisition there are risks. I'll answer the second question first. In any acquisition or in any venture, you know, there is always risk. I'm very clear that Arvind has to be a global company. The way to create value in Advanced Materials is to have a global footprint. That was always part of the plan, we are delivering on that key aspect of the plan through this acquisition. I think the right question to ask is not why but how we are, you know, managing that risk. We are managing the risk because in multiple ways. First, this is the exact same technology platform that we've been running in India for more than a decade, we understand it in great detail. Second, we are hardly making any change. We are making no change to the operating team.
Basically, we are the wind beneath their wings. We are not the guys who are going to go there and shake things up. Basically, it is, you know, we are bringing the Arvind power to help them with their aspirations and their ability to grow well. In a way, it is a low-touch model. We'll be focused more on brainstorming strategy. We'll be focused more on, of course, putting in control systems and processes. We are going to leave the team to do its magic, the same magic they've been creating over the last three, four years, and we are going to, you know, sort of support them with resources to do more magic.
Basically, acquisitions go wrong when you go in with the, you know, sort of intention to change things, move manufacturing to India, reduce cost, try and unlock, you know, management cost synergies. Here, the management is such a lean and high-performing team that we are not going to do any of those risky moves that normally in acquisitions people try and do to unlock synergies. Our way of unlocking synergies will be, you know, using their knowledge to build in India, using our India knowledge to build, you know, newer lines of business there, and using the sales channels to sell each other's products. These are the way, you know, way These don't affect the core of the business running.
It is also two facilities that are performing at almost the same high level of productivity, and it's less than 150 employees, and less than 70, 80 blue collar. The footprint is small and manageable compared to the tens of thousands of employees we manage in India. In many ways, this ticked all the boxes in terms of low risk of integration. It is already performing at a high level. We just have to help them do more of the same without really getting in their way.
Maybe I, Punit, just to that, I'll just add a little bit. This is, this is Mayank Tiwari. I'm the Chief Strategy Officer for the group. Since you may have missed this part, but also given the high fungibility of the asset base in the segments that they play in, any time that there is a slight slowdown or downturn in the cycle of any one particular industry, the others catch up. We have done a fair amount of robust financial testing of just seeing this across different cycles.
Having the privilege of playing in three or four end markets allows you to have sort of that containment of risk within the industries. Most of the industries that they play in are also relatively protected from anything from a China perspective. Auto is a very protected market within the U.S., so participation or any market risk from outside the geographies is also fairly limited. As Punit said, it's a very veteran management team, and with who we are driving a very high alignment of incentives as well. There's a very low risk of integration here, given that it's a very strong management team that is continuing.
Mm-hmm. Understood.
Yeah.
Thanks a lot. If I may just follow up with the growth question. Like, why would growth be mid-teens in a developed market setting?
Sorry, I couldn't quite. Why would growth be? I lost you for a second.
In mid-teens, why would growth from here would be mid-teens in a developed market setting? Why would it not be single digits?
It, it will be single digits if you follow the market growth rate. We are expecting to grow much beyond the market growth rate because we are adding much more firepower to underrepresented segments. The, the market is going through a sudden expansion because of legislative changes. There are, you know, very few players that, you know, so demand is going to, for a period of time, outstrip supply. The opportunity to grow much faster than sort of the mature market growth rate is actually there. That's, you know, one of the key inputs to why we, you know, at AMD we have a 20+ % growth aspiration. We can't be doing acquisitions that have low headroom for growth.
Headroom for growth is something that we have really, you know, delved in deeply. For the reasons I mentioned, there is that opportunity that we see.
The historical track record of the company is to grow revenue in double digits as well as margin in high teens. We expect that with the combination of markets that we are in, we will continue to maintain that 10%-12% revenue growth and mid-teens margin expansion or margin growth rather. This, the business plan that we have made along with the management team is one that we are fairly confident of delivering.
All right. Thanks a lot. Congratulations on this wonderful acquisition. Okay. Also on your execution, which has been very good over the last one year or so amid all the turbulence. Thanks a lot.
Thank you. Next question is from the line of Monish Ghodke from HDFC Mutual Fund. Please go ahead.
Yeah. Thank you for the opportunity. Sir, the press release says that to fund this acquisition, INR 50 million will be raised in the U.S. entity and INR 60 million in the AAML. I believe, I mean, the cost of this acquisition will be around INR 80 million, right? I mean, $136 million and 60% stake, we are raising INR 110 million. Could you throw some light on this?
Yes, Monish. Just give us a second. We will explain how exactly it works out.
Yeah.
Okay.
Monish, it's a simple sort of Math is that the EV of the acquisition is about $136 million. There is about $16 million-$17 million of net debt in the company, and we are purchasing 70% economic interest. We are putting about $84.5 million of outlay to purchase that. The seller part of the equity portion, which let's say the total equity value of the company is about $120 million. Sellers have $35 million-$36 million of that equity, which rolls over into the new entity. The new entity, as you know, the equity value remains at $136 million. We are funding it through $50 million of debt. Total equity value now has come to $86 million, and the seller has about $35 million-$36 million of that.
The resulting ratio for AAML because of the debt that we have taken at the U.S. level is about 61%. That is how the math work.
The seller, the existing shareholders are participating in the debt as well. That's why the numbers work out that way.
That's right.
Okay.
They're selling a certain percentage today, and they will roll over whatever they are not selling exactly equal million-dollar terms into the new entity.
Sir, how much Arvind is raising in debt?
In U.S. company now, the total debt is $50 million.
Okay.
Earlier it was INR 15 million. Additionally, INR 35 million is loaded there. We have raised INR 60 million in India.
Okay. Sir, what will be the cost of this debt?
It is in US dollar terms. As of today, based on the current forward rate, it is 5.5 %.
Okay. Sir, what is the PAT of this company, Dalco?
So, uh-
Monish, the PAT of the Dalco as per reported financial of CY 2025 is around INR 100 crore.
Okay. sir, who are the key customers of Dalco in the automotive segment?
They are Tier 2s. You will not know the names. Sorry, they are Tier 1s. We are Tier 2, they are Tier 1, and then their customers will be the people we know, Toyota, Hyundai, Ford, GM, all of those. We sell to the middle layer selling to the car makers, basically.
Okay. Okay. Thank you, sir.
Thank you. Next question is from the line of Harsh Dubey from LFC Securities. Please go ahead.
Hi, sir. Congratulations on having good acquisition. Just wanted to understand, as you said that they are into automotive. The first thing that I want to understand is the product specifically into that. As you said that there will be transition of technology from the U.S. to India as well to sell that kind of product. What is the expectation from Indian market related to that? That's the first question.
We are working on that as we speak. The expectation is that some point in the next 2.5 years, we will hire that process. Till then, we will be very busy accelerating the U.S. business.
Okay. Okay. After this acquisition is done, just as we always have said that our expectation from India is approximately 18%-20%, and after addition of this, is there any revision like downward? Like, are we expecting like 16%-18% now or something like that?
I mean, the U.S. entity will grow slightly slower than the Indian entity, but we will be, I think, you know, it will not be by significantly too much less. You know, we will still want to grow in the high teens and hopefully 20% +.
Okay. Just on this as well. In the previous con call, if I'm able to recollect, we had a point where we said that, now our focus is going to be more on the depth of the product lines that we already have, human protection, industrial and composite. We said that we are not going to expand our products line. After this acquisition, even our breadth is increasing. I understand that it's a good thing. Just wanted to understand from the management perspective for human protection and the current, you know, product line that we have.
Really in our mind, not so much of a, the way, you know, this business has been built, it has been built through platforms. The sort of segmentation through product is, you know, to just make more understandable. The way to think about this is that this is a needle-punched nonwoven platform. We are doing more things with the same platform. Similarly, you know, for our weaving platform gave rise to, you know, several lines of business. The complexity, know-how, product creation potential, innovation, all happens at the platform level. The customer is, you know, there are just BD teams that manage the customer. Yes, we are creating a new BD team, but we are not really creating a very different line of business.
It is the same platform that we understand and have been operating for more than a decade.
Perfect.
I'm not seeing this as a, you know, very, very gross diversification from our original area. I still feel it is within the sort of focus. Yes, we are, you know, building newer lines of product and, customer connections. We are keeping a lot of the sort of manufacturing core, which is where the innovation and, and product creation happens, very similar to what we are doing here in India.
Perfect. Just to follow up on this, like on the valuations that we have got now, if we see at the technical textile, and at the Indian companies having valuations of EBITDA, what we have got is a really good deal in that sense. Your thought upon that as well as after four years, you have said that, you, after two years, the PE fund will be most probably selling its stake, and after four years we are expecting 100% acquisition. Will promoter sell all of their stakes or something like that?
No. I think four years is a long period of time. I'll answer the second question first. I think four years is a long period of time. There are many options. If things are going well and the management team has still got legs to, you know, want to continue, we will find a way for them to be incentivized to continue. We've done that with all our businesses, even our Indian businesses, right? We always give value creation opportunities to our key performers. That opportunity will exist to the Dalco-GFT management as well should they wish to continue beyond four years.
Currently, the way the deal is structured, the residual equity will be bought by Arvind, and then we may do something on top of that to incentivize managers, which we will have to do in any case, whether they are the same people or new people. I think thinking about the transaction, and the way it is structured is slightly separate from how we keep the management motivated. We are very good at motivating our management. We have a long track record of creating value for people who run businesses well for us. That's on the sort of equity stake of the management. The question around valuation is that I feel we've paid fair value for this company. It's a company that's doing really well. It's a company that's growing. It's a company that's well-managed.
It's a company that, you know, sort of, has the potential to unlock a lot of synergies. It's a company that gets us truly global, which has been one of our aspirations that we have already stated. It checks a lot of boxes, and from that perspective, we like the valuation at which we've, we bought the company. It was done through a competitive process, and we won out in that process. I think it's a fair value. In our hands, across four, five years, if things go well, we should feel like we've, you know, bought it at a value that then we were able to create a lot more value on top of it.
Perfect, sir. That gives lot of clarity. Just the integration of this will start to happen from mid of quarter one, FY 2027, and like from FY 2027 the revenues are 65% will start to flow into our consolidated numbers, right?
Just to clarify, because we bought the company yesterday, so from accounting perspective, nearly two months of quarter one will come in into our quarter one results of Arvind Limited. Of course, later on, all full quarters will come in.
Perfect, sir. Congratulations once again. Very good acquisitions, and all the best to you for future prospects.
Thank you.
Thank you. Next question is from the line of Kishore Kumar from Unifi Capital. Please go ahead.
Yeah. Congrats on the acquisition, sir, and getting into the new market. Sir, actually, I just wanted to confirm the numbers that you gave on the debt. INR 60 million, we are raising it in the Indian entity level and INR 50 million is being raised at the U.S. entity. Of that INR 50 million, there's a share between the existing investor and Arvind. Is that correct?
That is correct.
Got it, sir. Sir, actually, if I look at the leverage side of it, debt to EBITDA, it's on the higher side. How do we plan here? Actually, what's our thought process?
From our perspective, you know, as a Arvind Group, and you would have seen it in last three to five years, that our philosophy is to not have long-term debt on our books. Since this opportunity came to us, and it is a very attractive opportunity, as we discussed, we have funded it through immediately funded it through the debt on the books of Arvind Advanced Materials company. Our current thinking and medium-term plan is to quickly pay down the debt. We have raised a five-year loan. Our idea is, or our aim would be to almost wind this down over next couple of years, and we are working on ways and means of doing it.
Got it, sir. Got it. The second question is on the inflationary pressure in the U.S. Are you seeing any cost inflation pressure in terms of power cost or fuel? Is there any near-term impact that you see in this business?
The only impact that is inflationary is on raw material because it's petroleum linked. All polymers are petroleum linked. Polymer prices have gone up. So far it's manageable and, you know, from the U.S., and our analysis shows that so far the impact hasn't been much. You know, if the war situation goes on, then we will have to see how the situation evolves. Some amount of cost increases have been successfully passed on. It's an evolving situation, and we'll keep an eye on it. I don't see it becoming a, you know, sort of derailer type situation.
Got it, sir. Since actually like 85% of the suppliers are sole customers, I think the company possesses some kind of bargaining power over its customer, isn't it?
Always, you know, customer is king. But yes, you know, it shows that the company is well-respected and well-trusted. That's what I would take away from that metric. That is because, you know, once you are specced into a car, you are part of the entire development process. You know, you don't, then mess around with that. You know, a life of a model is six to seven years. Then, you know, whoever gets in during development stays generally unless something very bad happens with your product, you don't normally exit a platform.
Got it, sir. Understood. Thank you so much, sir, and all the best.
Thank you.
Thank you. Next question is from the line of Ronak Shah from Equirus Securities. Please go ahead.
Yeah, sir. My question is regarding the order book, and is there any seasonality in this sort of business? I do understand that considering the large distribution customer.
Sorry to interrupt, Mr. Ronak. Your voice is very low. Please use your handset.
Am I audible now?
Yes, please go ahead.
Sir, my question is regarding the order book. How the order book looks like in this sort of business? On top of that, in case of any seasonality, in case, you may highlight?
There is no obvious seasonality in the business. Because automotive is a large part of the business.
Because you are spec'd in to the platforms, you know, the production throughput remains fairly constant. Production per day at 85% utilization is fairly constant. The growth will come from additional capacity addition and a little bit of uptake through the higher effort we will do in some of the other segments to go towards that 90+ % utilization and then capacity addition. The answer is no, there is not much seasonality.
If I may add, this is Gurpreet Singh Bhatia. Normally, the customer contracts that you are spec'd in.
we have about 30% share of that part with a contractual life about five, six years, which we have tested during the due diligence process.
Okay, understood. Understood. That's it from my side.
Thank you. Next question is from the line of Dev Gulwani from Care PMS. Please go ahead.
Thank you for the opportunity. As mentioned in PPT, the synergies between Dalco and Arvind in terms of customers and technology. How will these synergies accelerate the growth in AMD segment?
We will have the opportunity to build new lines of business with this knowledge and references that the company has. I would say that is the 2nd phase of growth. I think the 1st phase of growth is to unlock the opportunity within the U.S. with the same asset base, with the underutilized space in the two factories, adding lines there and capturing that. I think we'll be busy with that for the next 1.5 , two years. In the meanwhile, we will plan how we can use Dalco-GFT's, you know, capabilities and start to build India line of business or maybe line of business in a 3rd location as well. Then of course, there is our filtration business, which is also a large market in the U.S. today, which we are underrepresented in.
Using this asset base to try and see how we can be a bigger player in the U.S. will be also another way to unlock synergy. Of course, there are sales channels where we can drive other products in the relevant market spaces that can be manufactured in India and sold there as well. We are exploring all of this, and as it will evolve, we will share more information.
Okay. Thank you.
Thank you. Next question is from the line of Yash Patel from Kotak Investments. Please go ahead.
All my question were answered. Thank you.
Thank you. Next question is from the line of Awanish Chandra from Smifs. Please go ahead.
Congratulations management team on a great acquisition, having good financial reasonable valuation and sticky business. Sir, I have a quick question. Your parallel announcement of internal restructuring, where you subscribe 100% equity in a company, U.S. company with nil revenue, with a step-down subsidiary. What is the purpose for that, sir? Are we looking at some other acquisitions, sir?
No, all of them were part of the structuring of this transaction. With all of those now have been consolidated, and now we own 61% of the company Dalco-GFT.
Okay. That is already consolidated in Dalco.
Yes. Yes.
Okay. Sir, it will be good for everyone if you can share the whole financial of Dalco, all three financial statements.
Yes. When we do the quarter one financials, at that time, the whole financials of Dalco will also get included.
Okay. sir, on quarter four result announcement, still we will not have consolidated statement after taking account this Dalco, no?
No. Required whatever information is required of that company, we'll be happy to provide. Absolutely.
Sure, sir. In this con call, people ask for goodwill and other things. At least headline numbers if you can provide, we can make our numbers accordingly.
Will do. Will do.
Sure, sir. Thank you very much, sir. All the best.
Thank you. Next question is from the line of Harsh Dubey from LFC Securities. Please go ahead.
Sir, just to follow up, as we have said that, we expect our revenue for this Dalco to grow by approximately mid-teen. As we have said in the PPT, it has grown in the previous years by approximately 10%. Any specific reason why it was low and why do we specifically think that we will be able to add extra 5% in the revenue growth? Any specific pointers on that?
They didn't, you know, focus so much on capacity addition and, you know, sort of, business development in some of the smaller segments. They were more focused on unlocking synergies and getting to, you know, a high-teen EBITDA. You know, With PE-based majority shareholders, their objective was to, you know, improve profitability and sort of divest the company at a certain point in time. I think the past reflects that objective. The change in objective is to look at more growth and to invest behind sort of chasing down those new lines of business and CapEx creating capacity at a faster pace than it was created in the past.
The INR 5 million plus that I said every year reflects that higher run rate of CapEx investment. That's how the growth will get dialed up.
Perfect. On the part of acquisition, just a number if you could share as some of the participants also asked for the goodwill, the intangible and the actual asset value that we have taken of $136 million.
Sure. That Satya will immediately send it out to all the analysts and investors, the headline number of the balance sheet of this company.
Perfect. Also, sir, just on the understanding of this business even more in detail. Just wanted to understand. When we say that this company provides the products to Tier 1 and then it is sold to the OEM there, right? When we say 88% of the sole sourcing for OEM, what exactly do we mean by 88% sole sourcing?
Honda CR-V wheel well liner, we get specced into. We provide the nonwoven. Our customer will take that nonwoven and mold it into the wheel well liner, which will go onto the car's assembly line. Now, in 88% of the cases, it's only our product for that model that will be used.
Perfect. Okay. When, just on this, when we say that since 88% of our product is going, that means there is huge amount of stickiness for our product and the quality is really high. As you said, after 2.5 years, when we are going to come for automotive industry in India, whom, like specifically, are there any competitors in this segment in India? How do you think of that in India?
There are competitors. In India, the market operates differently. Here the manufacturers generally, the biggest player in India is both Tier 2 and Tier 1. We will have to work out the details on how we want to enter India, and it would be a little premature without having, you know, all that rigor and work complete to start talking about that on this call. In the future, we will come with, you know, a detailed thought process around it. As such, that is a little time away. It's in the second horizon of synergies. The first is, you know, dialing up some of the, you know, segments that have immediate opportunity to dial up in the U.S.
Perfect. On this, sir, when we say that we are going to have CapEx of INR 5 million for each year, will that only be for like all the three lines or will it specifically go for the each line that we are going to add in the present facility?
See, when you say, when you take INR 5 million, it's never a round number like that. Sometimes you may do INR 8 million in a year and then have a pause till that INR 8 million gets fully utilized. Again, all of that is being worked on. The CapEx plan for this year should be ready in three to four months. Until then, we have headroom to start growing, in any case, with the capacity utilization figure that can go up as well. We have time to finalize that. Basically, thumb rule, INR 5 million represents one line of capacity. Depending on what product you want to make and the GSM that you want to make, the throughput will get defined.
That's a little bit too much detail to get into here.
Yeah. Just two more questions, very small. First is on the cost of debt for AAML. Since we are highly rated, the credit rating is really good. Cost of debt for AAML is what that we have taken for this acquisition?
Around six.
Okay. around 6% and 5.5% for the U.S. entity, right?
Yeah. Around that.
Yeah. When we talk about, since the acquisition is only of 60% till now, and so the revenue recognition that will happen will be only 60% of the firm, I suppose, right?
The revenue and EBITDA will get consolidated as a subsidiary of the company, and we'll remove the minority interest from the fact.
Perfect. Perfect. Perfect. Just clarified. Yeah. Thank you so much and all the best again.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Satya Prakash Mishra for closing comments.
Thank you all once again for joining this call. I would like to thank once again our sincere appreciation for our legal advisors, our financial advisors, legal counsel, auditors, bankers, regulatory authorities for their support for a timely completion of this deal. We trust that most of your questions are answered during the call. If something is still remaining, me and my colleague are happy to answer any of them at any point in time. We are just a phone call or an email away. Looking forward to joining you again in our quarterly results call. Thank you, and wish you a pleasant evening ahead.
Thank you, sir. On behalf of Arvind Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your line.