Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue for Q1 FY25 increased by 30% year-on-year, reaching INR803 crores.
- EBITDA for the quarter improved to INR118.80 crores, with a margin increase to 14.8%.
- Profit after tax rose by 45.7% year-on-year, reaching INR42.12 crores.
- The company is focusing on optimizing product mixes and cost efficiencies to improve margins.
- Investments in renewable energy are expected to ensure sustainable growth.
Negative Points
- International cotton prices have dropped by 10% to 12%, making imported cotton more competitive.
- Logistic concerns have impacted the ability to ship out the total quantity produced.
- The domestic cotton prices are slightly higher than international prices due to government policies.
- The company is operating at near full capacity, limiting potential revenue growth without further expansion.
- Geopolitical challenges and increased logistic costs continue to affect export markets.
Q & A Highlights
Q: Sir, in your opening remarks you indicated that the international prices have dropped by 10% to 12% and I'm just looking at the number, the current international cotton prices are almost 20% discount to the domestic prices. So how shall one look at this comparison when we compare to a domestic industry and the spreads movement in the coming quarters?
A: First of all, means we need to align ourselves with what number we are in the international cotton prices, what number we are talking about. I think you're talking about the New York future prices. Right. So New York future is just an index, which is not actually the real cost. It is just an index on which there are certain additions which is happening, depending upon the quality of the cotton and other costs involved. Then there is a benchmark called Kotlik index. So, where the similar kind of cottons are aggregated, top six cottons are aggregated. So, the better comparison would be doing at the Kotlik index, which is the landed cost for any of the mills of our competitors or anyone. So, at this point of time, if you see the landed cost of I mean, basically, let's not speak about landed cost, let's speak about the X factory, X cost of any of the countries, there is a difference of about 7% to 8%. In the US cotton or the Australian cotton or the Brazil cotton, which are the larger producers of cotton, are about 10% cheaper than our normal, this thing. So we have to consider accordingly that they are about, international cottons are about 10% cheaper. And in the case of landed cost, they are more or less at par.
Q: Now, on the revenue front, given our current capacity, we are already operating at the rated capacity, so definitely growth prospects on the revenue front is not there, but what are the levers there, levers are in place to improve the margins on the current level?
A: First of all, slightly, we can slightly grow in the revenue side as well. If you see our numbers, we have not been able to ship out the total amount of quantity what we have produced in this particular quarter due to logistic concerns. Non-availability of the pipeline as I was saying. So, right revenue improvement is definitely possible from there. So, we expect that to happen going forward. As far as margins are concerned, the major improvement in margin will come from the price improvement side. On the cost efficiency side, the margin improvement will not be that much since we are already optimizing and then keeping on optimizing basically our operations. So the major take-up will come only when there is a demand and there is a better realization. Of course, with better product, it can help, but major improvement will come from there only.
Q: Have we finalized any CAPEX guidelines for the future road drivers?
A: We have not yet finalized any CAPEX guidelines. As soon as we are ready with this, we are evaluating various avenues in this particular thing, in various segments of our business as well as outside our business segment. So, once we are ready with that, we will definitely come back to you.
Q: Can we sustain the current margin and we can further improve what is our outlook of the year?
A: Basically, at this point of time, we are looking to sustain the margins. That is our first priority. As I answered in our first question itself, that margins improvement from here will depend on the demand situation. If the downstream demand situation improves and we are able to have better realization, that will only be the major kicker for the improvement in the margins from here.
Q: In terms of solar energy, have you seen any benefit or problem that will come in the end of this financial year?
A: So already we are having solar capacity, so that is already accruing to us continuously. So it is pretty good in the summer season. You can see our energy cost in comparison to last quarter has come down only. So that is a credit to the solar energy which we are using. So additional capacity which we are going to put in, that of course will kick in by the end of this financial year.
Q: Have we seen some improvement in demand from China?
A: No, Sir. No improvement in demand from China. As it is, it is rather stable. The demand has been rather, if you compare with previous years, it is on the lower side only.
Q: Are we trying to increase our penetration in the domestic market? Because I believe our export-to-domestic ratio has increased a little further this quarter as well. So any plans to kind of focus a little more on domestic to kind of overcome these export difficulties?
A: Yeah, we can do it two ways -- spread our export business towards more countries. So that can mitigate this effect and reduce our concentration on some particular countries, and also improve increase in the domestic market. So we are focusing on both the sides. And we are also trying to see that our goods are shipped out in time as well. Because since it's an industrial product, it must reach to our customers also on time, so that his production is also not hampered.
Q: What kind of revenue could we maybe target for FY25? Would our quarterly numbers be in the steady range of 800 CR? Or would there be maybe a slight upward movement?
A: We should see slight upward movement if you see our production capabilities. Fabric division has not produced the kind of quantity which we -- Hello? Yes, sir? Yeah, I'm sorry. Have I lost the line for the management or I can't hear you? Thank you for patiently waiting. We have the management team back on call. Yes, can you hear me? Yeah, yeah, hi, hi. Sorry, so you got cut. Yeah, yeah, yeah. Yeah, so just like with regards to revenue, you were just saying that, you know, maybe we could -- A slight improvement is possible from here. Since our fabric division was not optimally running in the last quarter, so we can have the possibility to improve upon there. And also some small pileup can further aid to our revenue going forward.
Q: What is the current spread of yarn versus the cotton?
A: Basically, if the cotton to yarn spread is about INR100 a kg at this point of time, for the average of 13 cows. Okay. So they have moved up from 80, around 80 per kg level to around 100 per kg level? Last year it was, in the same quarter it was at about INR86, INR86, INR87. Now it has moved from INR86, INR87 to INR
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
