Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vardhman Textiles Ltd (BOM:502986, Financial) reported an improvement in business performance, particularly in cost efficiency and internal cost-saving initiatives.
- The company has benefited from the China +1 strategy, with more brands looking at India as a key vendor base.
- Vardhman Textiles Ltd (BOM:502986) has made significant investments in capacity building and capability building, particularly in handling more fibers and specific cotton products.
- The company is progressing well with its expansion projects, which are expected to be completed within the financial year, enhancing cost efficiency and production flexibility.
- The demand for fabric has been stable, with the US market showing better retail sales and inventory levels, leading to higher orders.
Negative Points
- The prices of yarn have been declining due to falling New York Futures, impacting the company's realization.
- The Indian cotton prices are higher compared to the international market, posing a challenge for the overall Indian textile industry.
- The company's utilization rate remains at around 75%, with no significant improvement, affecting overall efficiency.
- The margins in the spinning business are under pressure due to higher raw material costs and lower yarn prices.
- There are concerns about the impact of the minimum support price (MSP) for cotton announced by the Government of India, which could affect the industry's margins.
Q & A Highlights
Q: Sir, my question was, like, say, the last call, you mentioned that about expansion and utilization rate of 72% to 75%. Have you seen any changes in this metric in Q2?
A: So the overall company's utilization is still at the same rate of about 75% only, and I think slowly that utilization has come down only. So there is no change in the utilization of spinning industry as such until now.
Q: Okay, sir. And sir, last quarter, you guided for INR2,000 crores of CapEx. But since then you increased to INR2.5 crores. So I just wanted to understand what is the additional INR500 crores going to be used for?
A: So out of this INR500 crore, about INR100 crores is the expansion, which we're doing in the open end. I think we are increasing that capacity, and another INR400 crores for biomass, for boilers, along with the power systems where we want to look at the green power. So the existing coal base for (inaudible) gained along with some addition for power generation.
Q: Okay, sir. And sir, last question from my side. How has the progress been in increasing our green power consumption to 25% to 30%?
A: So as I mentioned, I think we are within -- the target was taken because we have allocated almost to INR400 crores for this to be done in the next two years. We are progressing well and I'm almost confident that within next 1.5 years, we should be in a position to achieve this.
Q: Congratulations on the demand improvement scenario and good performance. Sir, I wanted to understand now that Indian cotton is expansion 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?
A: Yes. So definitely, there is a concern today because if you go by the today's cotton prices and the margins, which is based upon the international cotton prices, that's definitely a concern. So going forward, a couple of things can happen, a couple of scenarios may develop. The demand place conditions is like this. So to that extent, that will be the Indian industry will pass through relatively more disadvantage.
Q: So then achieving normalized margins of 18% to 22% as your ranges looks distant even today?
A: It is, it is. Because, again, there are two factors to this: one is a normal margin; second, the utilization of the industry. Since the time industry is utilizing 75% capacity only, the moment margin starts 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 over the margins are improving, a lot of those players who are stock today, they'll also start coming back to the system. I think we'll have to wait for some more time as of now.
Q: Understood. And what are you 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 margin because of transfer pricing? I mean, as an industry on an on-price basis? Or there also, we take issues on margin front?
A: There has been a slight improvement in margins but that would not be as, so Mukesh Bansal had also said. That is because of our diversified customer base and also diversified product market. So you can also say for margins to improve on a consistent basis, the industry dynamics should improve.
Q: Okay. So which means capacity expansion in fabric business may also not happen in near term? You're almost running full utilization in fabric business?
A: Yes, we are at a maximum capacity utilization but we are progressing well towards our expansion plans, and they are underway as we had discussed last time as well.
Q: Okay. I'm just saying in fabric, you haven't announced anything on normal -- the existing fabric business CapEx?
A: So in the normal fabric business, we are planning to expand our solid dye by around 8%, 9% and yarn dye by around 15% to 20%. This was also considered -- the solid dye was part of debottlenecking and part of product mix changes. And, right now, we saw certain segments where we wanted to enter. That would be our capacity expansion of normal fabric business.
Q: Sir, congratulations, management team on reaching 15% margin after a long, long time. And sir, my question from this only. In your earlier remarks, you talked about that China +1 has become reality. Though you have some concern over margin continuing, but it's still 15% margin look like a good margin to think about adding spend there. So you have already announced INR2,500 crores 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 as recent as beyond this [56,000].
A: No. As of now, I think most of the CapEx which is happening other than this open-end project is on the monetization, where we feel see all debottlenecking as well as the monetization of our plant and machinery will help us to reduce costs as well as enhance our flexibility to give this differentiated product.
Q: Is there any issues we have faced due to this recent Bangladesh issue? Any demand slowdown in that reason or do we have very less exposure there?
A: 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 -- because there could be a concern. But as of now, there doesn't seem to be an issue.
Q: And sir, one more thing on this PLI scheme or FTA, any developments 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?
A: Government is
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
