Ladies and gentlemen, good day and welcome to the Arvind Limited Q1 FY 2027 earnings conference call. 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 this conference call, please signal an operator by pressing star then zero on your touchtone 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 morning, everyone. A very warm welcome to Arvind Limited earnings call for the quarter ended June 2026. The financial results and investor presentations have been uploaded to our website, and I hope you have had enough time and opportunity to review them. Before we begin, let me introduce the leadership team. Joining me today, Mr. Punit Lalbhai, the Vice Chairman, Mr. Jayesh Shah, Whole-time Director and Group CFO, Mr. Nigam Shah, Executive Director and CFO of Arvind Limited, Mr. Gurpreet Singh Bhatia, CEO and President of Advanced Materials business, Mr. Karan Ojha, CEO of Wovens business. The first quarter of the year was an action-packed one for the company. We began FY 2027 with encouraging momentum supported by robust demand across our key businesses.
During the quarter, the business environment was influenced by evolving geo-economic developments, realignment of global trade flows, and elevated input costs across several raw material categories in our businesses. Notwithstanding these external headwinds, demand across all our core businesses remained very healthy, reflecting strong customer partnerships and sustained market engagement. Coming to the operational performance during the quarter. The quarter witnessed healthy volume momentum across our core textile businesses, supported by robust demand conditions, higher vertical integration, and higher investment in product innovation. Denim fabric volume reached 17.5 million meters, the highest level in 16 quarters, registering a growth of 34%. Woven fabric volume stood at 31.2 million meters, up 7% despite the seasonally weaker quarter. While garmenting volume crossed 11 million pieces for the first time, recording a growth of 13%, supported by a healthy demand and higher verticalization.
On the strategic front, we have strengthened our global footprint by establishing a physical presence in the U.K. through a design gallery cum marketing office in London, supported by a dedicated on-ground representative to enable deeper and more consistent customer engagement throughout the year. We have also partnered with a garmenting manufacturing unit in Bangladesh and Egypt to diversify our manufacturing base and enhance supply chain resilience. Together, these initiatives will deepen customer proximity, broaden our global capabilities, and further strengthen our international presence. Advanced Materials business also delivered a strong quarter, with India business reporting a robust growth of 40%, supported by a broad-based growth across key segments. The human protective gear segment benefited from normalization in defense procurement activity in India and easing off of tariff related pressure in U.S. to help increase demand from that geography, resulting in a strong growth during the quarter.
The composite business continued its positive momentum, supported by increased demand from renewable energy and mobility and mass transport applications. The mobility segment in particular, witnessed strong traction driven by new customer additions. The industrial segment experienced relatively lower growth during the quarter due to higher capacity utilization. Higher capacity utilization is on account of some of our incoming CapEx programs has not come online yet. This is expected to go better in coming quarters. The underlying demand environment, though, remains very healthy, and we continue to see encouraging opportunities across the segment. Overall, the Advanced Materials business maintained a healthy growth trajectory, supported by operating leverage and improved business mix and broad-based demand across key markets. Now, coming to the financial performance for the quarter.
Consolidated revenue stood at INR 2,501 crore, with EBITDA of INR 258 crore, representing a growth of 25% and 39% respectively. Excluding the contribution from Dalco-GFT, revenue and EBITDA stood at INR 2,344 crore and INR 234 crore respectively, reflecting a very healthy growth of 17% and 26%. EBITDA margin during this quarter improved by 104 basis points to reach 10.3%, supported by operating leverage and improved business mix and continued execution discipline. At the segment level, the textile division reported a revenue of INR 1,735 crore, with a growth of 13% with an EBITDA of INR 139 crore.
The garmenting division reported a revenue of INR 497 crore, supported by 13% volume growth, and revenue growth was moderated by a higher contribution from value segment products during the quarter. The Advanced Materials business reported its highest ever quarterly revenue and EBITDA of INR 650 crore and INR 97 crore respectively, maintaining an EBITDA margin of 15%. The India business delivered revenue of INR 493 crore and EBITDA of INR 74 crore, reflecting robust growth across key segments. With respect to Dalco-GFT, the business contributed revenue of INR 157 crore and EBITDA of INR 24 crore during the quarter, representing approximately 1.8 months of operation post-acquisition. EBITDA margin stood at 15.1%, impacted by elevated raw material costs during the period. Full quarter Dalco-GFT delivered a revenue of INR 244 crore and EBITDA of INR 40 crore, translating into an EBITDA margin of 16.3%.
Profit after tax for the company stood at INR 80 crore, registering growth of 47% during the year. In terms of capital allocation and balance sheet, we continue to maintain a disciplined and prudent approach over the past several years. The company has materially strengthened its balance sheet through focused capital allocation, a rationalized debt profile, and efficient capital structure, and consistent free cash flow generation. During the quarter, we have invested roughly about INR 98 crore across various growth-oriented capital expenditure programs, in line with our long-term strategic priorities and future growth plans. Very happy to inform you all that we have successfully completed our maiden QIP of INR 500 crore, which witnessed strong investor interest and was oversubscribed multiple times. The issue saw participation from several marquee institutional investors, further strengthening company shareholder base and reflecting confidence in our long-term strategy and value creation potential.
The proceeds from the QIP are being primarily utilized towards debt reduction and balance sheet strengthening, which will further enhance financial flexibility and support future growth initiatives. Looking ahead, the implementation of U.K. FTA and the gradual improvement in domestic demand are expected to create incremental growth opportunities for the textiles sector. Demand remains resilient across both textile as well as advanced materials, supported by healthy order book and sustained customer engagement despite the prevailing uncertainties in the operating environment. Within advanced materials, the defense allied segments continue to gain traction, and we maintain focus on expanding our presence in high-value customer programs and differentiated applications. At the same time, elevated raw material costs and supply side challenges continue to exert pressure on profitability. We are actively pursuing mitigation initiatives, including strategic sourcing and customer-led pricing intervention, to maintain margin resilience.
To conclude, we are pleased with a strong start to FY 2027, marked by broad-based growth across our businesses, continued momentum in advanced materials, and successful acquisition of Dalco-GFT, which further strengthens our technical textile platform. While the operating environment remains very dynamic, our diversified portfolio, strong customer relationships, and disciplined execution positions us well to capitalize on growth opportunities and create long-term value for stakeholders. I will now hand over the call to Mr. Punit Lalbhai to give his opening remarks.
Good morning, everyone. It is a pleasure to be here and interact with all of you. Satya has mentioned all the events that happened in quarter one in great detail, so I will not dwell on the same. I would like to say that this quarter, from a qualitative lens, was extremely challenging and action-packed at the same time. I think the team has done fantastically well to deliver the kind of volumes that we have delivered, both on the fabric side and the advanced material side. We have historic high levels of production, which took some very strong execution to deliver. Only for that reason are we in such a great position because if you look at the war impact this time, it has been quite significant and almost INR 100 crores worth of inflation in input cost happened in a very short period of time.
About INR 100 crores in H1 would be the overall impact in just cotton and yarn. On top of that, there would be impact of all the petrochemical-related chemical costs. Therefore, it was essential to do a high ramp volume to keep our absolute EBITDAs where we are very close to our budgeted range. I think the teams have done a fantastic job in ensuring this happens. Of course, we are extremely excited with Dalco-GFT becoming a part of the advanced materials business. The more we learn about that business, the more we are excited about its future and the more opportunities we see to cross-pollinate and make the overall business a lot stronger with that U.S. base now within the business. I think that is enough for the general commentary as of now.
I'd like to throw open the floor for questions, and we can answer them to the best of our ability. Thank you.
We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Aradhana Jain with 360 ONE Capital. Please go ahead.
Hi. Thank you for the opportunity, and congratulations on the good set of numbers. First, I wanted to understand on the textile side. The textile revenue grew 21%, but we saw margins declining to around 7.5%. Could you help us understand the margin bridge, why there was a decline in the margins, and quantify how much was due to the higher raw material cost versus the product mix or, say, other factors? More importantly, how should we think about the textile margin over the next two to three quarters as the raw material pass-through catches up? That's my first question.
I think the first thing to understand is Q1 is always a lower margin quarter. Compared to Q4, the margin will always look. Last year, we were at an 8.4% EBITDA margin. This year it's an 8% EBITDA margin across the textile vertical. It could have been close to double digits, but for the sort of raw material escalations that happened within a short period of time. You see, our order books fill up three, four months in advance of the business and the pricing gets fixed. It is then very difficult to change that, and we wouldn't want to let market share go down, especially when we are on the growth trajectory. We traded growth for margin, you could say, and I think this is a temporary phenomenon.
As the year progresses, we have passed on, and are in the process of passing on some of the price escalations. That said, of course, it is an uncertain environment and the world is still not conflict-free and till that happens, absolute certainty on the future is very difficult to predict. But all else being equal, as we progress towards the future, we should be able to improve these margins as the market catches up to the raw material escalation, our product prices catch up to the escalation and things normalize. I would say we are about one and a half basis points off because of the overall war impact, and there is nothing more than that. The order book is extremely healthy. The demand scenario is holding up quite well. The teams have executed excellently.
I wouldn't read too much negativity into the set of textile margins that you see reported in this quarter.
And sir, in the garmenting side, our margins have been in the high single digits, and we are aspiring to move towards low double digits. By when can we expect that margins to move towards the low double digits number?
I think that will still be a journey of, say, 18 - 24 months because we are constantly adding capacity at the same time. While the older plants are scaling nicely and some of the plants are already at double-digit margins, whereas there are more plants moving from low single digit to high single digits. There will be plants that are coming in that will be at negative margins also. Because we are expanding rapidly, the margins will take, say, 18 - 24 months to cross into double digits.
Understood. My second question is on the denim side. Your denim volumes have significantly increased this quarter. How much of this reflects an improvement in the underlying industry demand, versus how much could be because of, say, the market share gains or verticalization that we are doing? Can we expect this current run rate to sustain over the next couple of quarters? Where exactly is our capacity utilization in denims?
In denim, we are also sort of creating some new capacity through an asset-light model where we are tying up with sort of non-functional assets that are available in the market and running them ourselves. In fact, demand we see robust going forward. I think the current trajectory looks quite positive. At least till the end of the year, we don't see any pressure on volumes. The opportunity is to utilize. Our assets base is already at 100%, and we are also working on increasing our sort of leased assets where we will take over management of a few assets and run them as if they are our own assets. Currently, not much of that has happened, but in the future, we are also exploring those options as well.
It's a good demand cycle, and we are trying our best to take advantage of it, and so far, we are proving to be reasonably successful.
Understood. Just last question from my side. On the AMD India business, two things that caught my eye was one was your human protection growth and the second was composite growth. If you could just help us understand what led to that kind of growth. While I understand that there was some defense orders that normalized and easing of U.S. tariff pressures also helped us to get to that 39% kind of growth that we delivered in human protection. But if you could help us understand how the order book pipeline looking like and what sort of growth should we expect for the rest of the year and similarly for composites also. How much of the 76% growth came in because of the Q4 shipment spillover that happened, and how much is a sustainable rate that we can expect in the composite side as well? Yeah. That's it.
Hi, morning. This is Gurpreet. The way to look at it is, last year, our quarter one amidst all the tariff uncertainty was the softest quarter in the last five quarters. If you normalize that softness, we are in the ballpark 25%, 30% kind of a growth. Coming to your specific question on the accelerated high growth on human protection and composites. Last year for six months, we had very high softness because of the external environment on defense in India, which started to normalize in quarter three onwards. We started investing efforts to broad base our customer base in defense and paramilitary during that period last year, and we are seeing that benefit accruing to us as commercial and business benefit in this quarter. Our customer base across all defense services and paramilitary services has expanded and we are on that path.
Some of the investments we made on defense to upgrade our portfolio to superior products are also going to see commercial realization in the coming quarters. Third area on defense as a focus area is global defense. We started to look at that business quite seriously. That would be another development over the next 12- 18 months. Composites again had a very soft last year quarter one. Due to the uncertainty in Middle East, because Middle East is one of our focus markets for infrastructure development. We had delayed execution of some quarter four orders. I would say that number is about 10% of the revenue for the quarter, which got implemented in quarter one. We still have some pending orders to execute, which we are hoping to execute in quarter two.
Overall normalized, I would say on revenue, high teens to 20% thereabouts, for the full year is what we will look like. However, on margins, EBITDA margins, we will deliver a growth higher than the 18%- 20% on revenue because of all the operational efficiency programs that we've implemented over the last three, four quarters. In summary, I would say that the growth rate is a result of hard work. I think it is sort of very high in quarter one because the comparative quarter last year was lower than normal. I think the way we should think about this performance is that things are moving in the right direction and we are on track to achieving that 18% - 20% medium term sort of growth target that we've been constantly guiding towards. We can say that our efforts are paying dividends in that direction.
Understood. Just one last bookkeeping question, if I may. Your net debt has increased this quarter to around INR 2,100 crore following the acquisition. After applying the INR 500 crore of QIP proceeds, a part of it towards your debt reduction, where should we expect the net debt to settle for the full year? If you could just highlight on that.
It will settle exactly INR 500 crores below where it is today. But the way to think about it is that the INR 450 odd crores that we have taken in the U.S. will get serviced by the U.S. entity. The India business will come very close to the debt levels before the Dalco acquisition. This INR 500 crores essentially cancels out the additional debt that we have taken on the India entity to finance the acquisition. Broadly, our debt levels are back to historic levels, and Dalco has a healthy cash flow generation in the U.S., which will be able to more than service its debt and its higher growth ambitions, and CapEx, for that purpose. I would say we are very comfortable on debt, especially after the fundraise.
Understood. I will join back the queue for follow-ups. Thank you so much.
Participants in the interest of time and fairness to others, please restrict yourselves to two questions. For any more questions, you may rejoin the queue. The next question comes from the line of Soham Samanta with Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Sir, just wanted to check our garmenting target because we are expecting 15% growth in FY 2027, but obviously this quarter we couldn't do that. So I just wanted to check on a full year number, how we are looking the garmenting growth for FY 2027.
We should come close to that. If not 15, it will be close to that. It should be close to that. The first quarter was a quarter that was heavily indexed towards a niche product. So though we did a high number of pieces, the ASP was small and denim, which is our highest ASP product, a lot of those dispatches sort of shifted to Q2. So I think rather than looking quarter to quarter, we should sort of look at the yearly journey. So you are asking the right question, and we should be close to the number where we want to be on current visibility. So I wouldn't read too much into this quarter. It's just-
And sir one follow-up in this garmenting. So when we are talking this 7.5% margin this quarter, so assuming the raw material is where is it right now. So if we take the raw material right now and if we take next three quarters, so is it fair to assume that high single digit or maybe low double-digit margin will exist by Q4?
I think it will take one more year to get into double digits. Or at least one and a half years from today to get into. So middle of next year is where you should start looking for that double digit in garments. Our focus more is to ensure that our growth hits where it needs to hit, our execution is on point, customers are happy, and our new factories are coming on stream at the speed at which they need to. So I think that's the heavy lifting that needs to be done in garmenting, and I'm happy to report that the trend line is positive. We are doing better than last year in terms of margin as well. Slightly, but it is better than last year. And our plans are going according to how we have budgeted internally.
And sir, last question on AMD business. So when you're expecting 18%-20% kind of growth. So this is the India business, I'm assuming. So what is the Dalco number we are looking and overall margin, if I compare AMD plus Dalco, what are the margin we are looking, in the range of 15%-17%? That is the number we are looking for FY 2027?
It will land there, right? Dalco will be slightly lower growth, especially this year, since our first order of business is to integrate the business. We will have to start up the higher CapEx cycle. We are taking those decisions now. This year should be in that 9%-10% growth, but next year, we are trying to push it into the teens with higher CapEx. I think Dalco will start going towards that mid-teens level sometime next year because we are doing those CapExes now, and there is some lead time for that to come on stream.
And sir, combined margin for this AMD plus Dalco?
It will be similar, right? I mean, Dalco is in that 16%-17%, which has come down slightly because of the petrochemical-linked raw material, similar problem as our textile business. It should come back to that 16%+ as our pricing to our customers catch up to the levels required. Right now, we had rapid raw material increase and already fixed pricing. That normally takes a couple of quarters to catch up once the escalation is through and the new cycle of orders come in at the higher prices.
Okay, sir. Thank you so much.
The next question comes from the line of Surya Nayak with Sunidhi Securities. Please go ahead.
Yeah. Thank you for your opportunity and congrats on the numbers. So for that, just a couple of questions. One is that, as we discussed last time, there were some lines to be added in the Dalco site. So if you can give some status as to what set of lines we are currently operating and what set of CapEx lined up under Dalco site this year, and maybe terminally, we have the terminal period could be ending these lines. You said the—
Not clear.
I am sorry to interrupt, Surya. Your voice is not audible. Are you using a hands-free device?
Just hold on. Now clear?
A little better. You may go ahead. We can hear you.
Okay. Thank you. My question was, we discussed last time that we are actually about to increase certain lines in the Dalco, and if you can quantify the kind of CapEx we are actually going to implement in Dalco site. Secondly, what is the utilization level there at the moment and what level? My understanding is that with the current running rate, you will be hitting around close to INR 900 crores of revenue there. So, whether we will be increasing to what level going forward? You just indicated that we are increasing the CapEx line, CapEx from below.
You are still not audible, Surya. I would request you to change your location.
Hello.
Management, were you able to get his question?
Let me answer it.
Okay.
The question is what is the capacity at Dalco, and we were planning to increase that capacity and how that capacity increase is going to happen. We are already functioning at high levels of capacity utilization. There might be some capacity that can come on stream through good work on efficiency improvement, which the team is doing. There are two things that are happening. We have already invested in the upgradation of two of our seven lines. Those CapExes should come on stream within the next three to four months. That will give us a little bit of capacity starting towards quarter four. Then the bigger decision is firing line eight, which is under evaluation right now, and we are positively viewing it. That decision will be taken in the next month or two. That will add significant capacity.
That will increase the capacity by almost 7%-8% overall.
So overall, what kind of peak revenue we can expect from FY 2027?
FY 2027 will be between $100 million and $110 million, somewhere we should land.
Okay. Regarding the debt repayment study there, whether because we can pay within three years, three to four years as last time said. Are we on track to reduce the debt of Dalco there? Or it will be doing—
We will repay the debt in five years. There is enough cash flow to service interest, repay debt in five years and do the CapExes that we want to. We do not want to reduce our CapEx because that is very important for growth. So we will pay the term loan back in the term that it is required to pay back.
The next question comes from the line of Prerna Jhunjhunwala from Elara Securities. Please go ahead.
Thank you for the opportunity. Congratulations on strong AMD performance. I had a question on this partnership model that you are pursuing in the garmenting business. How should we look at it in terms of capacity addition, balance sheet investment, and revenue and margin opportunity that it would unfold for us?
It will require some investment, but it will require only a fraction of what it would require for a whole plant, because we will be making only strategic investments to improve the functioning of those plants. Right now it is quite early days, so you can say that it is an exciting opportunity. I think this year we will sort of go conservative to ensure that we are able to execute before we try and scale it up to a very large level. It is important to establish it well, and I think the important thing is that our first efforts have been quite successful. I am optimistic about this becoming a model that we will use, and sometimes we may also strategically invest something in these factories. It will be a fraction of the overall balance sheet impact that a new plant would have.
This gives us capacity from multiple regions of the world, which is globally optimized. Each country has its strengths. We would like to leverage that. Plus, our customers appreciate that we do not have all our eggs in one basket, so this ticks many boxes. However, the important thing is to do it right so that we do not make mistakes and all the benefits that we think we will get through this actually accrue and are not spoiled by execution-related failures. We are going in a conservative yet optimistic way on this model, and I think as we go forward, more and more clarity will emerge on exactly how much of this will be. It can easily, in my mind, be 20% of the overall business in the medium term. I do not want to give a fixed timeline by when it will reach that.
But that's the kind of scale we are thinking overall. Maybe 30% if we are very successful. That's how you should think about it, and I'll keep giving an update on how we are doing here forward.
Actually, I was not looking at what kind of scale you will be achieving through this model. I just wanted to understand how should we look at it against the investment that you're doing in your own capacity. So what kind of return ratios you can make, and what kind of margin should we look at it? Because it will not be similar to what you make in your own factory because it is shared or leased.
Our factories, but it is coming at marginal fixed cost, right? There is much smaller fixed cost associated. So the return metrics will be very high on this sort of model because capital employed is very low. So return on capital employed will be high. Maybe margin will be 2, 3 percentage points lower because two people's margins have to be accounted for. But it gives the customer de-risking, and it gives us the advantages of a new geography. As I mentioned, each geography has its own strengths and own product signature, which we can also benefit from. So overall return metrics, it will actually improve from a return on capital employed perspective. EBITDA margin will be slightly lower. And it can be in that high single-digit type level if all goes well.
Okay. The second question on denim. You are already at 17.5 million meters, and you mentioned you're running at almost full utilization. So is it ideal to assume that your capacity is improved to 70 million meters currently from 60 million earlier, or is there a disconnect?
In some way or form, we are doing some de-bottlenecking type CapEx's that will help us do that. Karan, you want to give a perspective on the overall market and demand scenario and where do you see denim orders being now and in the medium term?
Sure. Thank you for that, Punit. Let me talk a little bit about the denim business first. As we all see, the denim business is at its all-time high in last so many quarters. The main reason for that is, first of all, geographical expansion that we have done. Verticalization that has played into the denim space, that has been extremely important. Third is we going into multiple geographies through differential routes. Giving customers the country of origin that they want. So we are going more closer to the customers. That gives them flexibility, that gives us flexibility of offering different kind of products from different geographies. Third is we are able to capitalize on the scale of the region.
Fourth is that we have started to open up design hubs globally, which connects us better to the customer, and in real time, we are able to service the customers and close our development process, which is extremely important. So these design hubs coming up in multiple geographies. We are strengthening our design hub in the U.S. We have added in U.K. We are also looking at one or two locations in the Europe, looking at the EU FTA coming in place. So you put all of these together, your verticalization happening, your product developments happening. We have gotten Japanese consultants and designers on board, so the product has become a little premium. With our design hubs coming in, verticalization strengthening, I think all of this gives us very positive momentum for the next couple of quarters, I would say.
Till the year-end, we have very good visibility on our denim business. Likewise, on the wovens business also, this is typically a lower quarter one. But if you see, we have clocked the highest ever numbers in quarter one, which are typically seen in H2. So the volume has been extremely good. We have been taken a little bit on the lower side because of the sudden spike in raw materials. But that also is pretty much the strategy in place, how we'll be back to our numbers in the medium term, but it will take some long-term time to get back to where we were. But yes, we see a very strong order pipeline, so that gives us sufficient enough confidence.
This is helpful. Just to follow up on this. Wanted to understand what is the role of Bangladesh over here, because Bangladesh is also facing issues with respect to powers and other issues. Is that also helping our denim business procurement as their capacities run below normal utilization levels? What is our export share to Bangladesh currently?
In denim, it is quite high. Maybe 50% of our denim goes to Bangladesh. Bangladesh is doing quite well. We have entered a reasonably stable period. Our virtual sort of partnerships are also, there is one of them is in Bangladesh. The advantage that Bangladesh has is the garmenting capacity and the ability to scale that up a lot faster because of readily available labor. That is the strength of Bangladesh, and we have been able to use that to our advantage. Bangladesh will be important now and in the future. Of course, a lot of brands want to de-risk Bangladesh because their sourcing footprint is very high in Bangladesh.
Because we will be multi-country, brands are willing to give us a higher ranking in terms of priority of what business they want to do through Bangladesh, because we give them Bangladesh plus India, plus maybe Egypt. Having that three-country kind of go-to-market, it puts you out of the quota system in a way because it helps the customer reduce risk.
Understood. Thank you. I will come back to the question queue for follow-ups. Thanks so much for your answers.
The next question comes from the line of Rajat Baldewa with Kizuna Wealth. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. My first question on the demand side of the AMD business in India versus in Dalco, and what are the management thought process regarding to increase the market share of the Dalco, given that currently it's 4%? How are thought process going on the Dalco side, and what the demand outlook in the U.S. in mobility and in the filtration business?
If I understand, your line wasn't very clear, but if I paraphrase your question, you are asking about demand in India and U.S., especially on Dalco.
Yeah.
What is our growth plan there? I'll answer the Dalco question first. Our plan is to maintain our leadership in automotive—
Correct.
And bring new growth through the new capacity that is coming, needs to come through the geotextiles business, where there is a lot of potential growth that will happen in the U.S. market because the infrastructure bill has been signed, and there is good amount of development happening on roads and products where geotextiles are consumed. The growth will come through geotextiles, and we have to maintain leadership in auto, and we have to start the process of taking our filtration business, which is India-centric today, and use the Dalco base to increase that business in the U.S. These would be the strategic priorities. India demand remains robust for advanced materials. India continues to develop as a strong Every quarter, the legislation is getting stronger, the government procurement is increasing, and there will come a time when India will be a very large market for these products.
We are well-positioned to take advantage of that because we already have a strong base across two continents.
Okay. And sir, my second question is that what was our export mix from the Europe?
Exports to Europe is quite small today. It will be at that 8%-10% margin across the group, both in textile. In garmenting, it is slightly higher, but our fabric would be about 8%, 9%, and advanced material also, we are at that 8%, 9%, 10% range. The FTA will help a lot, I think, going forward, but it will take maybe 18 - 20 months to actually convert the initial promising conversations to any significant business. But as you mentioned, currently, we are investing. We started the U.K. studio on the textile business side. We are looking at one or two other locations in Europe to open design studios, have a larger sales and marketing presence.
For our human protection business in Advanced Materials, we have sort of done some hiring to have a local presence in the U.K., and we are currently looking at Europe there also. We are strengthening our base in Europe so that it can become a larger percentage of our business going forward, and we can take full advantage of the free trade agreement going forward.
Sir, is it fair to assume that our realization in the garment business, it will be in a moderate range because in Europe the realization is quite lower as compared to the U.S.?
No, I don't think that is true. I think it depends more on customer than region. I don't think there will be any change in realization, and the way to think about our garmenting business is that it'll be a medium teens growth, and we have to get to double-digit EBITDA. Whether it's coming from the U.S. or Europe, there will not be much difference in realization and margin. But we want Europe to be an overall larger percentage of our portfolio because it is an important region into which we are currently under-penetrated.
Okay, sir. Great. Thank you very much, sir, and best wishes for the future.
Thank you.
The next question comes from the line of Vishal Mehta with IIFL Capital. Please go ahead.
Yeah. Thank you for the opportunity, and congratulations on a strong set. My questions are more on the AMD side of business. If you could give, so while we get from the presentation that the end use applications of defense and renewables in composites, and mobility have done well. But if you could give more color on what sort of products are we doing in each of these segments and what sort of products are having such a high demand that we are serving. And second part to this question would be, out of the three sub-segments, probably industrial seem to be one where we probably don't have exposure to these high-growing end use applications as such.
Would it be fair to assume that industrials probably would grow at a stable growth rate of 8%-10%, and the other two sub-segments, HP and composites, which have the tailwinds of defense, mobility, and renewables, continue the higher growth trajectory? Yeah.
Thanks for the question. I wouldn't agree with that statement. The lower growth in industrial is purely a function of challenges on getting the CapEx off the ground in quarter one. We had shipping delays, we had execution delays, we had even flooding. We are one quarter late in our capacity expansion in industrial, and we have not invested in the last year significantly in industrial. The investments are going in this year. This year, you may be right that the growth will be slightly lower compared to HP and composites, but I don't see any challenge to the medium-term growth and why industrial cannot grow at 20%. As I've consistently mentioned that we are in an execution-constrained environment rather than a market-constrained environment. There are enough opportunities to grow in industrial, and in the medium term, it will catch up as our CapExes are catching up.
Referring to your question around composite business and which are the segments to which our products go, you kind of answered it yourself. The mobility, renewable energy, and infrastructure, those would be the three big areas. We have our extrusion business that makes profiles for building and construction industry and infrastructure industry. We have our roll good reinforcement business, which mainly goes to where renewable energy is a big end user market, among other industrial uses as well. Then we have the molding business for mobility. Those would be the current volume drivers. The future, of course, is aerospace defense and a carbon-led future, which of course, is in its very nascent stages, and it may take some years before it becomes a large part of the business. But we are putting in efforts to scale that business up.
That's where we are in terms of products and where our composite products go. As far as industrial is concerned, it's a filtration business mainly, and that is a very large market and a very profitable market. On a run rate basis, our growth will be okay in the medium term, and we have ample opportunity, and we are investing significantly. This year, there's a disproportionate allocation of investment towards industrial. Also, one other thing happened, there is some common infrastructure between industrial and human protection, especially our yarn creation capacities. A lot of them got diverted towards the human protection business because there was a sudden spike in orders there. To that extent, we couldn't support the industrial business to some extent. Many reasons why the industrial growth is not there, but none of them are market driven.
It is more our internal capacity driven reason, and we are correcting that quickly, so growth rate will catch up there.
And if I may just add on the industrial, with the strengthening of emission norms, we are well prepared with the portfolio to lead and deliver solutions for high temperature solutions and reduce emissions for the next three, four years. That's a portfolio we've been working on over the last 12 months, which will get our portfolio from mid-tier to top-tier products. India strengthening its norms is another great opportunity that the team has been working on to expand. The last is the verticalization from felt to bags. We are enhancing our end user complete solution for installation, especially in the NN context. Very bullish on both profitability and growth once the CapEx comes on stream in this quarter. We should see mid-teens to high teens growth in Q4 onwards once the utilization of new CapEx scales up.
Sure. Thanks for that. Just a follow-up on this, if you can also help with some color on what product types and defense, especially on the Indian defense side that we are catering to. Another one on the composites. I was probably reading somewhere that there seems to be some application of glass-based composite material in semiconductors and wafers. Is that an opportunity that we are participating in, or do we have the capability of?
Let me answer the defense question first. Our whole philosophy is around co-creating solutions for our customers. When we look at the defense segment, there are three set of bodies that we work on. One is the product development, which are the agencies like DIPAS, DRDOs, and the research agencies.
Second is the users themselves, which is the forces and the paramilitary, the Indian Navy, Air Force, and the Ministry of Home Affairs service. Third is us as a partner for us. We start our development journey right at the basic requirement stage that our forces need. We have been doing that work now for offering solutions from innovative fabrics and designs for uniforms to higher requirements of FR or fire-resistant coveralls and products for the Indian Air Force and Indian Navy, moving upwards to extreme cold weather clothing and NBC suits type of clothing. So virtually everything that we do is built on this platform of working quite closely for the requirements of our troops. The second philosophy we work on is offering solutions which can be substituting for imports for our defense services.
That's the broad-based portfolio that we are working on, and we are continuously looking to enhance the solutions that we provide to the forces. On the glass fabric side, on the composite side, our focus is on solutions for renewables, building and construction, and mobility. I do not think we have anything to offer on the semiconductors. You are right that semiconductors do use composites, but currently in our Indian context, the customer base is quite limited there, and the technology platforms required for that are very different from the ones we have currently invested in. Electronics and composites is a good space to look at, and I think if we have to enter it, the first place we will enter it is in the reinforcement side, where currently we do a lot of roving-based reinforcement fabrics that go into, say, wind energy.
There are yarn-based reinforcements that go into printed circuit boards, et cetera, which could be the first place where we start to experiment. But as of now, it is not a very large segment for us. We are focused on the three, four segments that I mentioned earlier.
Sure. Very detailed and helpful. Just last question from my side on the garmenting piece. The capacities that we currently have and what sort of expansions are we planning outside of the partnership model that we are seeking? That would be my last question.
I do not want to give a very detailed answer on the partnership model till I am fully confident that we are on firm ground. I think I will wait a couple of quarters before finalizing that medium-term view on the partnership model. As far as our own capacities are concerned, we are getting a factory started in Varanasi, next month in fact, and we are debottlenecking two or three of our brownfield factories through automation and starting of second shift. Capacity addition is on pace with our long-term objective to grow 15%. I think number of pieces and all, as you saw this quarter, number of pieces went up, but revenue did not go up much. I think focusing on number of pieces may not be the right way to look at this business.
Are we achieving a mid-teens kind of growth in the medium term is what we should look at, and we are on track with the capacities to read that going forward.
Sure. Fair enough. Thanks for those.
The next question comes from the line of Mithun Aswath with Kivah Advisors. Please go ahead.
I just want to understand on the Advanced Materials Division. Now you have made this acquisition as well, and the business is scaling up quite well. Would there be some point where you would want to de-merge this business and grow it individually, or do you remain as a division of the business because there are some benefits also that you accrue because of being one entity? Just wanted your thoughts on that.
We have housed the Advanced Materials business as a separate entity, as a wholly owned subsidiary of the parent. That is with a view of doing some sort of capital action in the future. What nature that is not yet decided upon. Whether it remains to be under the parent entity or separately, we will think about that at the right time. Right now, our focus is on growing the business at close to 20% and achieving the kind of return profile that we have sort of set ourselves to achieve. The focus right now is on building the business, and I think in the next couple of years, we will figure out if and when some capital action is required. But I do not think anything is in the offing for the next couple of years.
We will have to have our head down and just focus on growth and winning in the market.
Thank you.
The next question comes from the line of Shirish Pardeshi with Motilal Oswal Financial Services. Please go ahead.
Hi, team. Good afternoon. Thanks for the opportunity and a really impressive performance. Congratulations for that. I am reading slide 15, where we have given the capital employed in the AMD business. AMD India is INR 853 crore, Dalco is INR 326 crore. I am a little curious if the business growth is executed well, how this number should look like for next one year?
I think both businesses are at very high return on capital employed business, and yes, there is always some headroom to improve. So, it can go up by a few percentage points in terms of ROCE. If we are very efficient, we can maybe squeeze out INR 30 crores, INR 40 crores of capital employed. But right now, we are doing actually the opposite because of the uncertain raw material environment and price fluctuations happening. We are actually going longer than normal on raw material just so that we can protect our customer commitments. Availability and price both become an issue in such a geopolitically uncertain, and shipping availability cost. To be able to service the business well, we have actually sacrificed some working capital efficiency, and focused on having high reliability and performance for our customers' expectations.
That is helpful. I just wanted to double sure. Is it this optimum level or this can go up more substantially?
We are at around between 90 and 100 days of working capital in the advanced materials business. Dalco is slightly less. Dalco would be around 60 days. I think Dalco is more like closer to 50 than 60.
Yeah.
Right. 40.
We feel that overall the business can improve by one turn if we are very efficient, but right now is not the time to focus on that efficiency. Right now, the time is to focus on taking. Going from six turns to seven is not the focus. Having 95%+ OTIF on time and in full, that will keep the business growing at the levels that we want them.
Okay. That's helpful. My last question, on the same slide, there is a goodwill and intangible setting of INR 853. How this number we should think about for next 15- 18 months, two years?
That number will be there for the next four, five years at least. The way to think about it is that we don't have to pay tax because of it.
Okay. Thank you and all the best.
The next question comes from the line of Bimal Sampat, an Individual Investor. Please go ahead.
Yeah. Good afternoon. Just a broad question. Seeing this, we are turning more and more into a product company having tie-ups like asset-light, raw material sourcing, and asset-light manufacturing. Going down four, five years down the line, we will be like a multinational and more of products rather than fabrics. Is my judgment correct? We will be more of a product company than a—
Right now, our asset-light model is tiny. We are still primarily a manufacturer, and I think manufacturing will remain a core strength because this is a capability that this group has acquired over 100 years in the space of textiles. I don't think we will, at least on current visibility, I don't see a manufacturing free kind of go-to-market strategy that we adopt. Manufacturing will remain a very important part of what we do. But yes, we are in the process of globalization, and particularly because there are country risks and all those kind of considerations to think about, and also limited pool of capital needing to go as far as it can go. We are exploring more and more asset-light models going forward. So asset light as a strategy will go up as a part of the portfolio, but we will still remain a manufacturing-heavy company.
The nature of our manufacturing is also different, and evolving as we go forward. We are focusing on digital transformation. We are adding a lot of automation. We are bringing in more and more innovations in terms of technology. We are bringing in a more multi-product sort of go to market where we are adding MMF capabilities. We are adding newer lines of business in advanced materials. Our material diversity is going to increase. Our manufacturing platforms are going to be more diversified. Our footprint is going to be more global, and asset-light is going to become a higher proportion of the overall business. We are still going to be predominantly a manufacturing company.
Our size, I think, will be in about five years, at least double of what we are now in terms of turnover.
You can think of on a INR 10,000 crore base, if advanced materials grows at close to 20%, if garments grows at mid-teens and if fabric grows at high single digits, overall company will grow in the teens, early teens. Plus, there might be one or two inorganic along the way, which we cannot predict sitting at this point in time. I would say, you're not very far off from our desired trajectory would be something similar to what you're saying.
Okay. Thank you, sir.
The next question comes from the line of Roshan with Antique Stock Broking. Please go ahead.
Yeah. Thanks for the opportunity. You emphasized on the fact that you have been focusing on verticalization to improve economics across the segments. Now going forward, how should we look at it? The next phase of growth will be dependent more on capacity addition or extracting value from the existing integrated model? Your comments would be helpful on that front.
Can you repeat the question? I am not sure I understood it clearly. Sorry.
I am saying, you have been emphasizing on verticalization across the segments. How should we look at the next phase of growth, would be more capacity addition driven or extracting value from the existing integrated model? Your comments would be helpful.
No. For the model to get integrated better, we need to increase the capacity. The two are linked, right? You cannot integrate if you don't have the garmenting. Right now our garmenting is operating at 100% capacity utilization. We will need to have more garmenting capacity, and hence we are adding factories, we are adding automation, we are doing this kind of partnership model. All of that is there to be able to verticalize our very large We make more than 300 million meters of fabric, and with our current garment capacity is only 15% to maximum 20% of it can be vertical with the existing capacity. Capacity has to go up to be more vertical. It will be both. We will try and leverage more value through verticalization, but to do that, we will have to add capacity. Both will happen.
Understood. That's helpful. Next, you alluded to the fact that the textile EBITDA margin has improved despite a INR 19 crore impact on higher raw material costs. How much of this pressure can realistically be kind of recovered through pricing, product mix, and sourcing, and how much could remain structural?
I would like to correct you, the margin hasn't improved. It has gone down quarter one to quarter one . It has gone down significantly from quarter four to quarter one, but that is reflective of quarter one, quarter four regular dynamics. Normally quarter four is a higher margin quarter than quarter one. If you compare quarter one to quarter one, we have reduced by half percentage points on the overall textile margin. That should be gradually recovered as See, imports are still high as we speak because they had started going down, then the whole Middle East thing flared up again. Again, there is still a reasonably high level of stress on raw material prices. It's a constant effort to pass on as much as we can to customers and do our best there.
It's going to be a gradual process to creep back to the old margins. The timeline cannot be predicted because the conflict is still ongoing.
Understood. That is helpful, and wish you all the best for the coming quarters.
Thank you. Thank you very much.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Satya Prakash Mishra for the closing remarks.
Once again, thank you everyone for joining today's call. We trust that the discussion addressed most of your questions. Should anything remain unanswered or if any questions arise going forward, please do not hesitate to reach out to us. We are just a phone call or an email away, and we will be happy to assist. We look forward to engaging with you at an upcoming conference. Thank you, and wish you a good day ahead.
Thank you, sir. Ladies and gentlemen, on behalf of Arvind Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your line.