Ladies and gentlemen, good day and welcome to Vardhman Textiles Limited Q1 FY25 conference call hosted by Batlivala & Karani Securities. As a reminder, all participants 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. Roshan Nair from Batlivala & Karani Securities. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and welcome to Q1 FY25 conference call of Vardhman Textiles Limited. On behalf of B&K Securities , I welcome all the participants and the management of Vardhman Textiles Limited to the call. We have with us Mr. Neeraj Jain, Joint Managing Director, with Sagarika Jain, Executive Director, Mr. Sushil Jhamb, Director of Materials, Mr. Rajeev Thapar, CFO, Mr. Mukesh Bansal, Head of Fabric Marketing, and Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the floor to Mr. Neeraj Jain for his opening remarks, post which we can have a Q&A session. Thank you, and over to you.
Thank you, Roshan. Good afternoon, everyone, ladies and gentlemen. Welcome to all of you for this earnings call of Vardhman Textiles. The numbers you would have seen yesterday. There has been some improvement in the business of the company, especially for the companies where the raw material was covered during the season of the high crisis. The New York futures when we started the quarter was at a reasonable level of 75,000, and the yarn prices were also firmed accordingly. But I think over the period of last two months or so, slowly the New York futures has been coming down, and the prices of yarn also kept coming down.
So as a result of that, though we think we are always sold sometimes for the future business for two, three months, I think the realization in this period has been relatively better, which is a little down as of now on the current basis. On the raw material side, since at that stage when the full season was there, the New York futures was at about $0.82, and the availability of imported cotton across the world was in the range of about $0.90-$0.92 or so. Whereas in the season in India, the cotton was available at INR 54,000-INR 55,000, which in terms of US cents was relatively okay and in the range of about $0.82, $0.83, or $0.84.
The company covered most of the raw material at those prices, and as a result of that, I think immediately after the cotton season was over, the prices went up to almost INR 58,000-INR 59,000 a candy from INR 55,000. So that was the additional advantage which the company was getting or still is getting. In the meantime, the New York futures started coming down because of a better crop estimation in the USA and the better weather condition in Texas. As the entire world looked at the New York futures, the yarn prices also started coming down, which is definitely giving a concern as of now to the Indian spinners because the prices in India are definitely higher compared to the world market as of now. The second important issue for the industry is the minimum support price.
The government of India announced the support price, minimum support price of cotton also for the next year, where they announced it by almost 7%, and the price for the kapas was fixed at INR 7,521 per quintal. If you look at the conversion in terms of candy, it will be close to about INR 60,000 or so on the minimum support price. I think that's definitely giving us a confirmation at INR 59,000 per candy. I think we will be very close to about INR 8,990 and $0.70-$0.71 how the Indian industry will fare in the next three to six months' time. So that's definitely a confirmation as of now. In terms of the overall business efficiency, I think the company has done reasonably well, both in terms of the cost efficiency, in terms of the product, in terms of the internal costing initiatives.
We've been looking at all those ideas and working very hard on that. We've been discussing last three years the issue of China Plus One, and our belief is, and I've been repeating it in every call, our belief is that seems to be a reality today. More and more brands are looking at India as one of the important vendor-based countries for their products, and we are looking at more and more business coming to India from those vendors. The only choice will be one, whether we can deliver them in two, three, four weeks' time if they want to. The number of fibers are going to be much more synthetic as well as cotton. So how do we prepare ourselves for the flexibility, both in terms of the product as well as the number of days, the delivery time?
In case we are in a position to do that, I think that business is improving, increasing dramatically in India. Definitely, Vardhman being one of the large players and having all kinds of technologies, all kinds of products, we have that option available to us where the customer wants to deal with the better companies, better organized companies, and we definitely fall into that. The only choice will be whether we can continue to deliver them all these things, and for that, what more is required to be done internally so that we can continue to grab that business, which is a profitable business and is sufficient in terms of the volume as well. Those are the opportunities as well as some issues and concerns especially on the raw material side in terms of customer product efficiencies, cost.
I think the company is doing really good, but definitely if the raw material prices are higher, that's going to give some concerns to us for the overall Indian textile industry, for which we are requesting the government also to look at, and we might have to look at how the next season goes in. In the meantime, it looks like since the international price of cotton is lower, it may, and though the India direct import is not there, but we can import under advance license where the duty incidence will be relatively lesser.
It looks like India is ready to import lots of cotton this year, and already that import has started contracting, and it may be a possibility that India may import larger volume to ensure the availability of raw material at the right prices, which is, and to that extent, the pressure on Indian cotton will be lower in terms of the buying or the cost. But we do not know ultimately what happened to whatever stocks are left here, either with the farmers or with the TTA or with the mill owners. So how will it look like at the end of next cotton season? That's something we have to really watch and look at how the entire market scenario behaves in this manner. So that's on the spinning side.
Also, in terms of all the modernization and the expansion projects which were announced last time, I think the work is started happening on most of the projects. We are on track, and we are expecting it to be completed by the schedule which was decided internally, which is that most of these projects should be completed in this financial year as well as the next financial year, of course, majority in this financial year itself. We are all on track. All orders, majority of the orders have been placed. Lots of places the construction has started, and things are working well. I'm sure once these projects are completed, it will give us lots of advantages both in terms of cost as well as improvement in flexibility and some production increase as well, which will further give the optimization to our overall operations of the company.
So that's on the spinning side. Relative, the remaining things we can discuss during the Q&A, and before that, I'll request Sagarika to give some ideas. To start with, Mukesh, if you could give some idea on the fabric marketing, and then if there are Q&As, then Sagarika could take that. So over to you, Mukesh.
Yeah, thank you, Neeraj Jain, and good evening, everyone. As far as fabric is concerned, generally, the period of quarter one is a fall holiday season period wherein the demand for cotton textiles is anywhere lower than yearly average, I would say. So that is why the Q1 is generally lower for the Indian textile companies. But this year, it was an exception due to a couple of reasons. One, of course, is the China Plus One, which Neeraj Jain has also elaborated. Second is, due to the Red Sea condition, the transit times are longer. So all the buyers wanted to pull forward their already placed orders, or they also preponed some of the orders so that they can make up for some of the lead time that in the market will be higher.
So there was a flow of higher orders during this period as compared to last year's same time. Third is that in the past, we have invested into capacity building and capability building in terms of handling more number of fibers and also doing some cotton products which are specific to the fall holiday season. And the fourth reason was that, as we mentioned in the last call also, the inventory with the international retailers, especially in the U.S., they are continuously coming down to a reasonable level, which were higher three quarters, four quarters ago, and the retail sale is also better. So there is more demand coming back to us, which has led to a good quarter last year, last quarter, and same will continue in this quarter as well.
As far as the other markets are concerned, Europe not as good as the U.S., but still some recovery has started happening. Some brands which could not bear the pressure of high inflation and lower sales, their business share has gone to some brands who could do it better. So somebody's loss is somebody's gain. So luckily, we are well-positioned with these buyers and our business is more or less stable. I will not say it is robust, but it is stable. And so is the other markets. The third biggest market for us is the Indian market. Indian market in Q1, it was not very robust, but not very low also. The retail sale was not as good because of very severe heat wave, and the trade channels were also disrupted because of election and other kinds of activities.
But we are hopeful that the Indian market also will have a good demand in Q3 and Q4 because of the festivities and also the marriage season, which is the main reason for Indian consumers to buy. So demand is coming back in Q2 from the Indian domestic market as well. That's it from my side, Neeraj Jain. You can take it forward.
We can start with the Q&A session, and I think all remaining queries can be resolved or can be answered there only.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchscreen 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. Our first question is from the line of Aryan Oswal from Finterest Capital. Please go ahead.
Hello?
Yes, sir.
Yes, sir. Am I audible?
Yes, sir. Yes, sir.
Yes. Okay. So my question was on the, like say the last call you mentioned that about expansion and utilization rate of 72%-75%. Have you seen any changes in this metric in Q2?
The overall company's utilization is still in the same range of about 75% only, and I think slowly that utilization has come down only. There is no change in the utilization of the spinning industry as such till now.
Okay, sir. Sir, last quarter you guided for INR 2,000 crore of KPEX, but since then we have increased to INR 2,500 crore. So I just wanted to understand what is the additional INR 500 crore going to be used for?
Out of the INR 500 crore, about INR 100 crore is the expansion which we are doing in the open end. I think we are increasing that capacity. Another INR 400 crore for the biomass boilers along with the power systems where we want to look at the green part. The existing coal-based or ash-based boilers will be changed along with some addition for power generation.
Okay, sir. Sir, last question from my side. How has the progress been in increasing our green power consumption to 25%-30%?
As I mentioned, I think within the target was taken because we have allocated almost INR 400 crore per day to be done in the next two years. We are progressing well, and I'm confident that within the next 1.5 years, we should be in a position to achieve the same.
Okay, sir. Thank you for that. That's all from my side.
Thank you. Our next question is from the line of Prerna Jhunjhunwala from Elara Capital. Please go ahead.
Congratulations on the demand improvement scenario and good performance. Sir, I wanted to understand now that Indian cotton is expensive to international cotton, as you mentioned in your opening remarks. How is the industry going to have a better margin going forward, or how are you thinking about margins right now in the spinning business?
Yeah, so definitely there is a concern today because if you go back to today's cotton prices and the margins which is based upon the international cotton prices, there's definitely a concern. So going forward, a couple of things can happen. A couple of scenarios may be developed. One is conditions like this. So to that extent, that way the Indian industry will fall to relatively more disadvantage. Two, the Indian industry will also start importing cotton in big waves, and maybe because under advance license, the overall impact of duty is only about 3.5%. So maybe to that extent, India will import more and more cotton compared to using the domestic cotton.
Third, the textile associations have been talking to the government to look at some policy where the TTA has to decide if they procure large quantities of cotton, what will be their sale policy so that the industry doesn't suffer. So the government is yet to respond to that. This was the third scenario. And the fourth, if the New York Futures goes up by $0.07-$0.08 in the next couple of months, then probably that disadvantage will be relatively much less, or the Indian cotton may also be aligned to the world market. So if we go by the overall cost of farmers internationally, I think this is a very exceptionally low cost. They're not making any money. So there could be a possibility.
We are hoping that the New York futures itself may go back to $0.75-$0.77, and to that extent, then that disadvantage which the industry has today may be reduced or may not be there at all.
Okay.
But these are all various scenarios. Keeping our fingers crossed, let's see what happens.
Sir, then achieving normalized margins of 18%-22% as your range is, looks distant even today?
It is. It is. Because again, there are two factors to this. One is the normal margins. Second, the utilization of the industry. Till the time industry is utilizing 75% capacity only, the moment margins start improving, the rest of the industry will also start coming in. So unless we look at the utilization of industry, which is north of 90%, the overall margins may not improve on a consistent basis. Whenever we look at how the margins are improving, lots of those players who are stocked today, they'll also start coming back to the system. I think we'll have to wait for some more time as of now.
Okay. Understood. What is it saying for fabric? Have the margins for fabric also started improving largely because yarn is continuously under pressure? Maybe margins are not normalized. So is fabric able to get a little higher margins because of transfer pricing? I mean, as an industry on an arm's length basis? Or there also will be issues on the margin front?
There has been a slight improvement in margins, but that would not be as Mr. Mukesh Bansal had also said. That is because of our diversified customer base and also diversified product basket. So as Neeraj Jain also said, for margins to improve on a consistent basis, the industry dynamics will be crucial.
Okay. So which means capacity expansion in the fabric business may also not happen in the near term because we are almost running full utilization in the fabric business?
Yes, we are at maximum capacity utilization, but we are progressing well towards our expansion plan, and we are underway, as we had discussed last time as well.
Okay. looks fab, I'm just saying in fabric, we haven't announced anything on normal existing fabric business KPEX.
So in the normal fabric business, we are planning to expand our solid dyed by around 8%-9%, and yarn dyed by around 15%-20%. This was also considered. The solid dyed was part of the bottom making and part of product mix changes, and yarn dyed, we saw certain segments where we wanted to enter. That would be our capacity expansion of normal fabric business.
So this was a part of the announcement which was made last quarter where the INR 2,000 crore included the debottlenecking and some marginal improvement side also in terms of production.
Okay. This will increase our capacity from 175-180 million L to how much now then?
About 200,000,000 liters.
Okay. Understood, sir. Understood. Thank you, sir. I'll come back to the question queue.
Thank you.
Thank you. Our next question is from the line of Awanish Chandra from SMIFS. Please go ahead.
Sir, congratulations management team on reaching 15% margin after a long, long time. Sir, my question from this only, in your earlier remark, you talked about that China Plus One has become reality. Though you have shown concern over margin continuance, but still 15% margin looks like a good margin to think about adding spinners. So you have already announced INR 2,500 crore CapEx, but very few capacity in reality we are adding on the spinning side. So your any thought, any change in the difference in thought towards the spinning capacity addition beyond this 56,000 spinners?
Now, as of now, I think most of the CapEx which is happening other than these open end projects is on the modernization where we feel all the de-bottlenecking as well as the modernization of our plant and machinery will help us to reduce cost as well as enhance our flexibility to give you differentiated product. So as of now, there's no plan to expand the capacity because this itself is a huge expenditure for us going by our conservatism, and I think we'd like to do this and maybe then wait for a year or so before we start taking up any bigger project after that.
Okay. So from the number point of view, with this capacity expansion, our fabric will become 200 and yarn capacity will enhance by 56,000. This will be completed by when? By FY 2026 or mid of 2026?
On the stock, we have mentioned it two years, which is the current financial year, the next financial year, but I hope most of these things will be applicable or implemented maximum by the September next year, so which will be about 1.5 years. On this full year, six months for the next financial year.
Sir, any issue we have faced due to this recent Bangladesh issue? Any demand slowdown in that region? Or do we have very less exposure there?
Bangladesh is the biggest customer for the yarn export as of now, so out of India, almost 25%-30% goes to Bangladesh only, and any disruption over there will have the issues here also. But since it's a small kind of a thing, so I mean, it's not really very big, and as of now, there is no impact on the demand, but unless it is resolved or it continues for a long period, then there could be a concern. But as of now, there doesn't seem to be an issue.
Okay. And sir, one more thing on this PLI scheme or FTA, any development you have heard? I mean, we keep reading in the media all these positive news, but in reality, anything you think that PLI something will come and it will help cotton textile industry?
Government is announcing it. I mean, they are talking to it on various forums. So last couple of meetings we have attended with them, they've been only saying that the next PLI is likely to come very soon, which will include the PLI for the government also. So we'd like to wait and watch only when they announce this thing actually.
Sir, one very quick thing, that 15% margin, it is very far from 18%-20%, but considering we are doing so many value addition and projects and all, so can you think that at least this margin will be sustained? If not, this goes toward 18% anytime soon. At least we can maintain this level.
Our efforts are, but I think again we'll have to look at the raw material prices also. Because if the raw material prices in India are higher compared to the world market, I think then it's going to be difficult at least on the spinning side. At the same time, fabric definitely can sustain these kind of margins. So it's going to be very challenging, and frankly, going by the current prices in India, it may be difficult to sustain that for sure. But let's look at, in case government also supports by taking some steps, then there is a possibility to sustain it, and by the complete overall modernizations and expansions, definitely with the cost reduction and increase in production, we'll definitely look at how to improve upon this.
But the question, I think I'm afraid of answering that if we can maintain it at these levels in the given current situation.
Okay, sir. Thank you very much for answering my question. All the best, sir.
Thank you. Our next question is from the line of Resham Jain from DSP Asset Managers. Please go ahead.
Yeah, hi. Good evening, sir. So two, three questions. So the first one is, I think you have mentioned about China Plus One strategy showing some positive traction in your business. I presume this is for fabric business?
Both spinning and fabric, we are finding that overall textile, we are finding people are interested to look at China Plus One.
Okay. And what kind of inquiries? If you can just share more thoughts around it. What kind of inquiries? What kind of size? Because I presume this will be all large-sized customers. So what are their expectations? And you have explained some of those aspects, but how can Vardhman as a company leverage out of it?
So their expectations are very clear. The prices have to be competitive compared to the Chinese, and the delivery has to be within three to four weeks for the spinning and maybe about six weeks for the fabric. So both these things are given. The quality is given. The prices are given, and it's only the service which can make a difference. And there too, you have to manage their entire picking, the immediate orders as well as the smaller orders. Any company, any country which can do that, I think there's enough business available.
Understood. And are these more profitable business than let's say your average kind of margins currently? Are the margins better?
In case, once we are running the basic products like 20s, 30s, I think compared to that, all these businesses which are relatively lower in volume, but more in flexibility and fashion, definitely the margin there would be better provided we can produce it at the right cost. In case because of the smaller or a very discontinued kind of a product, in case the cost increases, then probably you don't take advantage of that. But the entire game will be whether we can produce these products keeping the cost in control, then definitely it's a better margin product.
Understood. Sir, my second question is with respect to the profitability between spinning and fabric. If you can help with the rough cut, what would be the profitability coming from the fabric business, including processing, out of your total, let's say, profit during Q1, 60, 70, whatever rough cut, if you can help, that would be helpful?
Very difficult because we have never given the separate numbers for these two businesses. So I can only say generally, I mean, the spinning margin, you can calculate it easily with a $0.70-$0.75 conversion cost for both of the margin, and then you have to do that math yourself. From company's perspective, we generally do not share these numbers.
Okay. Because seven to eight years back, you used to give separate margins. You have discontinued that. But given that the current spinning situation is not good, is it fair to assume that 70%-75% profitability must be coming from fabric?
Not really.
Okay.
Spinning would be better than that. Definitely better.
Okay. Understood. Sir, my last question is with respect to the overall business model. Last three to four years, we have seen spinning facing more challenges than the fabric business overall. You have more of an integrated business, but a lot of companies have built business models whereby they can buy yarn from outside as well, some kind of yarn, so that they can scale up their fabric business much faster. Are you thinking on those lines, or that's something which is far-fetched?
So one, whether we are not expanding the business of fabric because of any constraint or financial, that's not an issue or a concern. So whatever are the opportunities we have in the fabric business, we are expanding it without looking at where the yarn comes from. So it's not that there is any constraint on the resources that you don't expand the spinning capacity and you expand the fabric business. Both the business are independent running and looking at their own opportunities where both the business want to expand the side. So on the fabric side, we are very clear that whatever are the opportunities, we are actually looking at that and we are expanding into that business. So there is no financial constraint or a restraint that the fabric is not being expanded because that money is being utilized by the spinning.
Both businesses are looking at their own options, own opportunities, and both businesses are going. So in any case, whether it's outsourcing of the yarn or within the company, the fabric business gets the yarn at the market prices only. Margins are less or higher. That's a separate issue. Third, in any case, once there are some advantages of internal spinning also in terms of quality, in terms of flexibility, in terms of the overall consolidation and vertical integration, lots of customers are common where they want to buy both yarn as well as fabric. So those are the different advantages and disadvantages. But I can only assure you that the fabric growth is not less because there are not resources available. Whatever are the opportunities available, we are doing that.
Okay. Great, sir. Thank you so much and all the best.
Thank you. Our next question is from the line of Nikhil Agrawal from Kotak AMC. Please go ahead.
Good evening, sir, and thank you for the opportunity. Sir, you had mentioned that you have purchased cotton at INR 54,000-INR 55,000 per candy. So how have you covered? Are you covered for the entire year, or is it just for a few months?
No, it's only for the season because most of the Indian cotton season will start somewhere in the month of October or so. So generally, the entire cotton buying happens only up to the season. The next season, we'll have to buy it again.
Okay. So this year, I believe last year also, you had procured for the whole year, I mean, in October, right?
No, not October. October we start buying, and I think our buying continues till February or March. So by the end of March, we generally have a stock for about seven to eight months. And that's our general. Generally, this is what we do unless we find different ways in terms or we have a divergent views in terms of the pricing going forward. So most of the time, our endeavor is to buy the cotton in the season so that we can secure the right quality of cotton as well.
Understood. So the reason why the margins went up this quarter, we can attribute it to the lower price we bought cotton to. That can be the sole reason for that, right?
No, that's not the sole reason. No, no, no, no. That's not the sole reason. In between, because the New York Futures was also firm, so the price of yarn was also better. So our cotton, even for second quarter, the cost is going to be the same. But the margins may or may not be the same depending upon the yarn prices, which are today different because of today's New York Futures.
Understood. So can you help me with the yarn prices that were there in Q4, FY24, Q1, FY25, and currently?
The prices in the last year was in the range of about $3. I'm talking of 30s counter, China-based, $3.10, $15. In between, it went as high as $3.25-$0.30 also. Today, it will again be back to $3.10 also.
All right. Understood. And lastly, sir, about the UK FTA, so is the industry still hoping for it, or it's a thing of the past?
Sorry, come again?
The UK FTA.
Yeah, yeah, yeah. Why not? So the government is working. They have been announcing it. And any STA which happens definitely is going to give advantage to India. So we are hopeful, and anything which happens in favor of the industry, we can export the garments and ensure it will be an overall advantage for the entire textile industry.
All right. That's it from me. Thank you so much, sir.
Thank you. Our next question is from the line of Aman from Augmenta Research Private Limited .
Hi sir, thanks for the opportunity. So first of all, if you can help me, for example, as compared to FY23, we have increased our inventory significantly by approximately 75%. So out of this inventory, what percentage of that would be raw material? Why I'm asking this question is because given that we have increased our inventory substantially to 4,000-4,100 tons as of FY24, and given that the international coordinated prices are around 10%-15% lower from the current level. So as a company, will we be at a disadvantage as compared to a company which has not secured cotton inventory? Just wanted to know on that thing.
I'm sorry, I couldn't understand your question.
Sir, as compared to FY23, we have increased our inventory on books by approximately 75%. If you look at the numbers that you have reported, the inventory as of FY24 is around 4,000.
As compared to what?
As compared to FY23, last year.
Okay.
Out of that, first of all, I wanted to understand what percentage of that would be the raw material portion? Because given that you procure your inventory, the cotton season starts from October, so I believe that you would have seven to eight months of cotton inventory. Now, given that the international cotton prices are 10%-15% lower, so as a company, will we be at a disadvantage or what? Just wanted to understand on that.
No, no, no, no. So one, whatever the inventory is, that's primarily on account of cotton only. That's for sure compared to the last year, quarter one. Two, India's disadvantage is still not there because the Indian prices are still higher than that. So the international prices have come down, which has given disadvantage in terms of the lower yarn prices. But when it comes to India, our prices because of the MSP and bigger inventory held by the Cotton Corporation of India, Indian prices of cotton are still much higher than the prices at which we have bought the cotton.
Okay. So now, sir, for example, as we compare to, let's say, if there's another spinning company who has not procured cotton, and if they are importing cotton, so as compared to them, will we, as compared to a peer or someone, will we be at a disadvantage because they will be getting a cheaper cotton as compared to us?
No, no, no, no, no, no, no. So whenever you import cotton, because the cotton prices have come down only in about last one month only. And the moment you want to contract any cotton that will be available to us, the shipment will happen after one month, minimum one to three months, and then another two months for the delivery of those cotton also. So you can't use the imported cotton if the New York Futures goes down today, you can't start using it from tomorrow itself. So there is a minimum time lag of three to four months time where you have to plan and import the cotton, and it's only after that you can use that cotton.
Most of the Indian mills, in spite of the lower New York futures, they are relying only and only on the Indian cotton because the import will take its own time.
Also, sir, given that we have increased our inventory substantially, I'm talking as of March 2024 as compared to March 2023, so what was the strategy behind the same? Because our operations were at the same level, we didn't expand the capacity, and we have increased our inventory by approximately INR 1,600 crore-INR 1,700 crore. So what is the reason for the same? How are we looking at the scenario, and what is the strategy going forward?
So there are two things that happened together. One, this year was a normal period where we wanted to cover our full season, and we covered the cotton for the full season by 31st March. So because we were expecting the prices to go up, because the MSP prices were still higher, and the CCI and the other traders were buying in a big way, and the export was also happening in the season. So our expectation was that the cotton prices will start going up in India, which actually happened. So to that extent, we got the advantage, and our strategy, both for the quality buying as well as the cost, was definitely well in place in this year. Why the quantity is increased or the volume is increased? Last year, the prices of cotton were very high, so we did not stock it in the normal way.
So it's not only that this year we have done something exceptional. Last few years have been exceptional where the prices were so high even in the season that we decided not to store the inventory for the full year. So this year, whatever has happened, that's a normal behavior if you look at last 20 years' balance sheet of the company. Most, or 80% of the time, this is the behavior which we have shown in this year. Last year was an exception because of our higher prices. We did not cover the cotton on a full basis.
Okay, okay. So given that, does inventory also will last till October only? You are trying to say that, right, over the next six, seven months only, and from October we'll start again procuring them next season?
Yeah, yeah, yeah, yeah. Yeah, that's it. Because when the season starts, we'll have to start buying it again.
Sure, sure, sure. Thank you. Thank you so much, sir.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Our next question is from the line of Riddhesh Gandhi from Discovery Capital. Please go ahead.
Hi, sir, just wanted to understand from you, how do you expect this discrepancy between the Indian and international prices to ultimately actually play out given sort of MSPs are high, given global prices are low? I mean, how does this get resolved?
No, again, we have to look at the MSP is one where the government wants to support the farmer. But that doesn't mean they'll give us the same prices to the industry. There could be a possibility of the industry wants, even if we want to support the farmer, which is a good thing. So the disadvantage should not be to the industry, and eventually, the cost, if there is any, has to be taken by the government. That's one proposition. The second, I think going by the cost of farmers internationally also, the price of $0.69, $0.70, $0.71 is unthinkable. And eventually, it can't remain at these levels because we understand the cost outside India also, $0.75, $0.76, $0.77 is the lowest cost, lowest bare minimum cost for the farmers there.
So in case the prices do not go up, next year the crop will come down in a big way, and then the prices will start shooting up big, big, big way. So I think eventually, it's all demand and supply equilibrium where the international prices, if they go to $0.885, then there is no problem on the MSP in India also. And $0.69-$0.70 definitely seems to be an exception today where in spite of, because the crop price pattern is very, very good, demand is as of now relatively lower, the prices have gone down. But eventually, these prices remain. I'm not very sure how much area will come down in the world next time and next year. And to that extent, the prices will again start rising.
Sorry. Sir, and instead of given, we have sort of revised our CapEx slightly higher. Is that an indication of how we are seeing the overall industry pan out over the next couple of years or so? And go ahead. Hello?
Hello. So definitely, we are looking at all the options and opportunities to us going by the overall business sentiment and scenarios. The margins could be lower, but definitely, opportunity looks to be very great for India as well as Vardhman as of now, so we are enhancing our CapEx. And I'm sure if this continues, this trend continues, and we continue to get better service, better products, we will not hesitate to expand further in the business. This is one bold step we have taken where, in spite of the business condition, we are so confident about the overall business scenario for Vardhman or for all these opportunities which I mentioned earlier, so we are expanding our business. And I'm sure if those opportunities are there, in future also, we'll keep looking at that.
Right. And lastly, are there any potential inorganic opportunities given smaller players may not be able to?
We keep looking at it, but I think as Vardhman's prices become so big that for any small unit will not make sense, small site will not make any sense to us. So theoretically, yes, we are open to the idea, but practically, it looks very, very difficult that we'll be in a position to find some alternative to this.
Thank you for all of this.
Thank you. Our next question is from the line of Monish Ghodke from HDFC Mutual Fund. Please go ahead.
Hello. Thank you, sir, for the opportunity. Sir, do we plan to import cotton under Advance Authorization given prices are so low? Even if we receive delivery after, say, three, four months, I think we will still be getting cheaper cotton, right?
Yeah. So most of the good spinning mills in India are looking at that option. So Vardhman definitely is one of them.
Okay. So last time, we had announced INR 2,000 crore CapEx in that around INR 400 crore you had said was for green power. And now, I think for boiler, we are spending another INR 400 crore. So would this INR 800 crore be sufficient to increase our green mix to 25%?
Yeah, because again, in this, whenever we are creating an SPV for the green power, that SPV will be taking their own loans as well as we will be participating a part or maybe 26% or so in the equity. So from our CapEx, this INR 400 + 400 should be sufficient. But for 25%, it may not be sufficient because that SPV or whosoever is the partner for that, they will also be investing into this.
Okay. Sir, one question on strategy side. Our debt is quite low. I mean, our debt-to-equity ratio is quite comfortable, and many state governments offer interest subvention scheme if you are setting up spinning capacities. Are we exploring that opportunity? I mean, after subvention, the interest cost would be pretty low.
Our thought process is always that business model has to be there if we want to expand the company or the business. If that opportunity is there, anything over and above in terms of subsidy, it should be nice to have, but it should not be a compulsion that because of subsidy, we are expanding the business. So whenever we find or we feel there's a business case for expanding the business, we will definitely do that and look at whatever are the incentives available, we take advantage of that. But as Vardhman, we have never expanded the capacity only because of the incentives.
Okay. Right. Thank you, sir.
Thank you. Our next question is from the line of Resham Jain from DSP Asset Managers. Please go ahead.
Yeah, hi. Just one bookkeeping question. What is the gross debt and the cash level at the consolidated level?
Yeah. As of June, it is around INR 1,150 crore. So out of which around INR 900 crore is long-term debt, and remaining is the working capital debt.
Cash, sir?
Cash book is also as of June, it is close to INR 1,800 crore.
Including long-term investments and everything else? Everything put together?
Everything including, yes.
Okay. Understood, sir. Sir, what is the cost of debt for us, and what is the yield on cash for us, average?
On that side, if you see that the rates are different for short-term and long-term because actually, as the EPC subvention was available to us, we are using till the month of June. So 2% subvention was there, which is gone now for us. And long-term debt, of course, the rate is around, let's say, 8%, around 8% or so on floating debt.
I'm just asking, what is the average cost of debt, and what is the average yield on investment?
Yield, as of now, we see that because our investment on short-term basis on our liquid funds and taken the tax advantage which was there earlier. So it could be earning around 8% in this quarter and last quarter also.
Okay. Understood, sir. Thank you so much. Okay. Thank you.
Our next question is from the line of Apurva, an individual investor.
Yeah. Hello. Am I audible?
Yes. Yes.
Yeah. This is Apurva from BugleRock Capital . Just wanted, last time we spoke about technical textiles. So just wanted some more color on that, and where are we on that, I think, 15 lakh meters capacity that we have? Just some more.
Yes. Hi. So the work is progressing well. We are currently in the process of ordering machinery. We've ordered some machinery, and we expect to close this process by another four to five weeks. We're also waiting for rain to subside, and then we will officially start civil construction. I'm happy to share that we've gotten all our legal compliances out of the way, and we are confident that by next year, September, this project should be up and running.
Okay. And maybe you had answered it last time, but just on customers and any tie-ups, are we looking at, or is it too early to?
Yes. Right now, we're open to opportunities, and if something comes up, we will be sure to let you know.
This also is, as you had mentioned, this was for varied sectors, right? So any particular sector that you would want to concentrate given that opportunity for China Plus One, if at all?
So the opportunity is there for multiple segments. So the most obvious for us is obviously activewear, sportswear, because there are some brands which we are already doing business with. Apart from that, there's also defense and industrial. They would be more complex, so perhaps we would be taking them up once we are more confident and once we've established ourselves in the relatively basic products.
Okay. Okay. Yeah. Thank you.
Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Our next question is from the line of Falguni Dutta from Mansarovar Financial Services. Please go ahead.
Yeah. Good evening, sir. Sir, I just have a basic question on domestic yarn prices. Do they always match import parity or, I mean, just wanted to know how are yarn prices? Directionally, obviously, they'll follow U.S., but otherwise, I mean, are they?
India is a net exporter of yarn. We are not importer of yarn. So the domestic prices and the export prices generally would be matching INR 1 ± most of the time.
Domestic and export prices would be matching.
Yeah.
But now, if suppose the international prices come off, then obviously we'll have to.
Then the domestic prices will also come down.
Okay. Okay. Fine. Sir. To the same extent.
Yeah. Yeah. Yeah.
Okay. Thank you, sir. That's all from my side.
Thank you. Our next question is from the line of Manas, an individual investor. Please go ahead.
Good evening, sir. Thanks for the opportunity. Sir, would you be comfortable giving guidance on the sales side? Would we be able to achieve 10,000 mark for this financial year?
Yeah. Going by the volume and the prices. So I mean, we feel there could be a possibility to go up to INR 10,000 crore.
So it is like a conservative mark or the higher side?
No, because there is no capacity expansion happening in this particular year, so it has to be only through the value addition or better utilization only. So our first quarter is close to about INR 2,300 crore. So if I extrapolate, it becomes INR 9,200 crore. So to that extent, it's an optimistic number only.
Okay. And you just mentioned like 15% margin would be challenging to sustain. So even if we sustain or even if we improve, so that would be predominantly due to volume growth or price change?
No. So whatever is happening today, any volume increase happens, definitely there will be an improvement in the margin because most of the fixed costs are already covered by the company. So more and more volume increase, we can do. Spinning, we are already running at a full capacity. Fabrics, we are running at a full capacity. So it's only addition of margins by better products. Or within that, if we do some re-optimizing and we can increase the production, that's going to give us the advantage.
Okay. Understood. Thank you, sir. Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions.
Since there are no more questions.
As there are no further questions from the participants, I now end the conference over to the management for closing comments.
Yeah. Thank you, Roshan. So really, thanks to all the investors for being a part of the company and attending this call. Sir, as I mentioned earlier, also in terms of the various opportunities, both in terms of products, customer, or the cost optimization, the company is looking at it very, very rigorously and is open to all the new ideas. I think our management, all of us, are working very hard to achieve that as well. The long-term prices or the global phenomena, we have to live with that, but I'm sure we are on a right track in terms of our cost or in terms of the efficiencies. Those opportunities will also be available to us from time to time.
In the meantime, the advantage to the company today is even though the cotton prices are higher or the spinning margins are lower, but to that extent, I think our fabric business is doing too good. The overall company's basic margins are okay. Sure, as the time passes, as the business becomes more and more normal, things will be better only from this level in the times to come. Also with all this modernization, de-bottlenecking, and expansion which we are doing, it will definitely reduce our cost in a big way, which will be available to us partially in the next financial year. I'm sure about six months' advantage will come in the next year and the full advantage in the next year after that. It will definitely give us a huge advantage compared to the rest of the players in the country.
So I'm sure whatever our thought process, we've been sharing it very, very transparently. Even the times are good, bad, or whatever we feel, we have shared it. Let's wait and watch how the things go and what kind of long-term changes happen, what kind of changes or the fabric, both in terms of the prices and demand changes. But I'm sure whatever happens, we are looking at it, watching it very carefully, very vigilantly, and wherever, whenever there's any opportunity, and catching on to that. So thank you very much once again to all of you. Good day.
Thank you. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.