Vardhman Textiles (NSE:VTL) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Vardhman Textiles Q2 FY 'twenty seven Earnings Conference Call hosted by three sixty one Capital Market. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. And I hand the conference over to Ms. Vardhman. You, and over to you. Thank you, Anam. Good evening, everyone. On behalf of three sixty one Capital Markets, I welcome all participants and the management of Vardhman Textiles to the two q and one h f y twenty seven con call.

0:53 From the management, we have mister Neeraj Jain, managing director, missus Vardhika Veej, executive director, mister Sushil Jham, director, raw materials, mister Rajiv Thapar, CFO, and Mr. Vardhman Mahopra, Head of Finance. Without further ado, I would like to hand over the call to Nirabh sir for his opening remarks, post which we can open the floor for the q and a session. Thank you, and over to you, sir. Thank you, Vardhman. Good afternoon, everyone. Thank you for joining the investor call. I know it's a festival days nowadays, but I think because of the some limitations in the company, we had to have the Board meeting these days only. The results, you will have seen the results.

1:40 So definitely, it's a better performance compared to the first quarter as well as the previous period. There are two three things happening in this period. One, the overall yarn business showed improvement and there are two on account of two major reasons. One, the overall yarn demand was better last six months or so and the prices of yarn also improved because of the good demand from the export market and which also helped the domestic market, the domestic prices to move up. Two, so the price improvement happened one on account of the demand. Second, also on account of the increase in the raw material prices, the cost was increasing. So the same work could be passed on to the consumers, to the customers and we looked at that, there was an improvement. The second was on the cotton front.

2:33 When we were buying cotton last year, we were buying both the Indian cotton as well as imported cotton. In imported cotton, we were buying because India was under the MSP operations those days and also cotton was being procured by Cotton Corporation of India. So we're not very sure how the prices will be more, how the quality will be available. So as Vardhman, we took a position and bought lots of imported cotton. And at that stage, we feel involved we'll be buying it under advanced license, at least to the extent of our export commitments. But in the meantime, I think we as we cover the cotton, so there are two things that come simultaneously. One, the New York future started increasing. So from a base of US64 dollars US65 dollars per pound, it increased to almost US75 dollars US80 in this period.

3:23 And also, rupee devalued because of the crude increase happened that too as consequence of the Iran war. So the landed cost increased and as a result of that the Indian prices also increased on the raw cotton prices. So eventually the situation was that we bought the cotton where the prices are much lower almost in the range of about 54,000, 55,000 of candy both for Indian as well as imported converted. And later on because of the view of future increase as well as the rupee devaluation, the new prices increased to almost INR $6,465,000 of candy. Generally, the yarn prices are always determined by the current prices of cotton. So since the prices have increased, the yarn prices also improved as I mentioned earlier also. And as a result of that, a part of trading gain came to the company in this period.

4:18 To the internally operations where we were doing good operations in terms of the cost control, in terms of the production increase or in terms of the all other parameters, the product improvement, customer improvement, which is always a continuous kind of work which keeps going. So I think and there were lots of modernizations which were done last year. So all the impact of those also started appearing into the results. A lot of initiatives of the green power, those also started coming into this period. So the net effect of that was the overall improvement company as a whole happened. But as I mentioned, the Yaan showed more improvement, again, both on account of operation as well as because of the trading gains. Now the new cotton and also when we are buying imported cotton last year and we were feeling that most of this cotton will be coming under the balance lesson in between the government allows the duty free import of cotton in India for a period of for a couple of months.

5:18 For us, fortunately, lots of cotton was coming into that period. And as a result of that, probably we could get the cotton duty free in India, again, comparable to the Indian prices, but that also was a kind of a some gas benefit coming to us. The new season of cotton has started. The New York future continues to be at about US$1.08 as of now per pound. And going by the today's rupee, the land cost will be the range of 65,000 or so per candy and almost similar is the price in the Indian market also. So we have just started buying it, but definitely the cost of cotton this year will be much higher than compared to the last year. So maybe a part of trading gain, which has happened to the company may not be available going forward, but the overall unless the yarn price is also increasing.

6:10 So that's what the current situation as of now. The ruling prices in India are almost about INR 65,000 a candy. And if you look at the Nirma selling as of now, which is zero cotton, it's in the range of about INR 9,000 or so per printer than the MSP as of now. So if the New future continues to be at these prices, it looks like the government intervention through the CTA may not happen this year. But in case the near future comes on, then there could be some possibility that the CTA again buys this cotton and later on sell it to the industry. So that's the situation as of now. On the uncertainty part, I think the global phenomenon, which everyone knows what is happening in USA.

7:03 And expectation is since now the uncertainty will be coming down, so maybe the overall business worldwide could be a little more stable than the earlier period because earlier it was not very sure which country will have how much of duty. And whenever these uncertainties happen, I think people start taking the short term reason rather than looking at our long term calls. So it looks like maybe a better stability in the overall thought process may happen. And I mean, are all political events, but which are definitely impacting all the businesses, all the companies and major parts of the countries in the various countries. So that's what my thoughts are on the spending side.

7:50 I'll request Sagrita to give some brief on the fabric, and then maybe we can take the Q and A. Thank you, sir. I'll take you through the fabric business. The second quarter for fabric business was quite challenging. Both top line and bottom line were lower than the corresponding quarter last year and quarter one. Key factors were lower export volumes, and this has happened amid tariff uncertainty. Second was pricing pressure in the domestic market because as export volumes dropped, there was more pressure in the domestic market, and we had higher input costs. So as we already know from our managing director, prices experienced a surge. So for us, input costs were higher by, on average, about 20% year on year.

8:49 So... And this coupled with increased competition limited our to pass on this increase in input cost. Additionally, we had recently commissioned our processing capacity, and we are yet to fully utilize it. So... Which is why fixed cost absorption was also a little low. I will briefly explain the market environment. On the export side, volumes remained below last year. Largely, this is due to tariff uncertainties. Because of tariff uncertainties, some... A lot of developments that usually come to India were rooted elsewhere. So we also missed the development cycle, some development cycles of customers, and sub... Their subsequent bulk conversions.

9:41 So orders in some customers... Most customers, they're not getting dropped, but there has been some delay and some postpone. So for order was supposed to come in July, customers have held it off for... By one, two months given the uncertainty in situation. So a lot of customers are taking a cautious approach. However, now we see that order pipeline is definitely improving. And with the recent US election results, we expect the political sentiment to be favorable for India, and we expect the tide to turn and business to revise. Globally, sourcing decisions continue to be influenced by geopolitical developments.

10:26 So we have to... We hope that things will be better now. At the same time, buyers have a... Buyers are consolidating their sourcing, and they are... They have a strong preference for suppliers who can offer competitive prices, compliance, traceability, all the way up to fiber stage, quality, reliable delivery. So all these factors play to wide demand strength as we are a vertically integrated manufacturer. Our priorities are clear. We have to maximize our spring summer season bookings. We are expanding our customer base both in Europe and Australia as US... Of course, hopefully, US will be better, but we will still continue to expand our customer base in other regions.

11:18 We're also... We also continue to strengthen our product portfolio, whether it is in premium wovens, in stretch, in cotton nylon, performance fabrics, and also by improving speed of product development and customer response. Over the past year, we have expanded our processing capacity. So in our natural business, our processed fabric capacity expanded by over 25%. So we are currently working hard to utilize these capacities, and volumes are surely to increase as business sentiment also improves. As for our performance fabrics business, it is making steady progress following its commissioning in March.

12:07 Initial months and quarter one was especially focused on sampling, getting some customer approvals, audits, and stabilization. Quarter two, also, we are focusing on sampling and development. We have successfully onboarded a few leading sportswear and outdoor customers as we extend the synthetic offering to our existing customer base also. We are working towards some developments in the defense segment. We will keep you posted. With confirmed orders and a healthy pipeline, we expect utilization to continue improving through the second half. As volumes build, we will move towards... Once we are able to utilize capacity, then we will move towards higher value added products like coated nylon, coated polyester, and far more performance related fabrics.

13:04 We expect the synthetic business to turn operating positive in the second half of this year. And our decision to expand in synthetics will be taken once we are able to achieve stable utilization and the right targeted product mix. Now the floor is open for questions. 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 touch tone 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.

14:10 The first question is from the line of Soham Samantha from Motilal Oswal Financial Services Limited. Sir, my first question is related to the CapEx. How we are looking the E. ON business going forward in FY 'twenty eight and 'twenty nine? What kind of CapEx we are going to put in this business? So as of now, the announced CapEx is only one of the open end projects with a capacity of about 50 tonnes per day, which will be operational in the next six to seven months' time. Beyond that, we haven't announced anything as of now. But definitely, we have taken a big parcel of land at the Madhya Pradesh in the PM Metra Park and development in the land over there. So it's likely to be earlier it was likely to be given to us in the month of November, December this year, which is, I understand, delayed by at least eight to nine months' time.

15:11 So once they'll be handing it over, so we'll be finalizing our plans in between. And then maybe once we take it to the Board, we'll be announcing it. As of now, we haven't announced any major CapEx plan on the selling business for next two years. But yes, there are lots of ideas in our mind, which are already internally we are discussing. The only thing is we have to first take it to the Board, and then we can announce it to the stock exchanges to all the investors. Any roughly idea in a ballpark number, what could be the Yes. So there are two ways of looking at it. One is the general modernization. Generally, we do about INR 400 crores, INR 500 crores. This will be the balancing as well as the modernization. And I can give you in a different way.

15:57 Today, the minimum capacity of any new plant will be close to about 100,000 spindles for a company like Vardhman. And you have to put at INR 100,000 in today's cost, it will not be less than INR 1,000 crore or so. And if it is a greenfield project, maybe a little higher from that. So my belief, any project which is taken up in the will be starting from at least a top line or INR 200 or 1,200 crores or maybe if you take that to 200,000 crores, it will be INR 2,500 crores or so. But as of now, since there's no decision, so I'm not in a position to commit anything. These are all thought process, but I can only say minimum capacity of 100,000 will take us more than 1,000 to be finished. And generally, it takes at least fifteen months to complete?

16:46 From the date of construction, yes, twelve to fourteen months. Okay. The last part, sir, how... What is your view on the cotton prices? I mean, obviously, it's a very volatile, I mean, but we all are expecting it will come down. What is your expectation when the new cotton volume... I mean, supply is coming since last of... Yeah. Okay. So I think we have to look at it and understand the Indian cotton is directly related with the New York futures today. Or if the New York future comes down, maybe then the it can be higher, which will be then it will be governed by the minimum support price. So let's look at the New York futures, which is in the range of about $0.80 to $82 as of now, 1.79 to $0.82 as of now.

17:32 And if you look at the next six months, it's actually increasing $0.84 So the March, May, June are showing an increase. And after that, there's a reduction in the month of December 27, which is close to about $0.78 So practically, those signals tell your future will continue to be in between INR $7.08 to $800.82 as of now. And going this rupee of INR $94.95, INR 96, the converted cost in India comes to about INR $6,465,000 a candy. So practically, Indian cost, the cotton cost will not come down irrespective of the season or the nonseason till the time in your future is at this level. So it's very difficult for me to take a call on the near future because I'm not an expert. It's a different factors which would be operating.

18:20 But going by the cost of cultivation in U. S. Or the overall the competing crops, it looks like $0.75 to $0.85 is a kind of a normal benchmark for the New York future. And if that remains within this range, then the Indian price will be INR 64,000 to INR 66,000. So in Indian scenario, actually, the prices can increase. So the Indian crop this year is likely to be much shorter As for the first survey of Cotton Association of India, they have announced the crop to be in the range of about 28,000,000 to 29,000,000 base. Now the consumption is not likely to be less than 35,000,000, 36,000,000 base. So the shortfall of almost like 6,000,000 to 8,000,000 barrels in India. So which means the prices in India can be actually tighter going forward unless the government allows the importer of cotton to decrease, then only the balancing would happen. Otherwise, actually, the prices in India can actually go up compared to the world markets.

19:21 As of now, the duty free is still December 31, right? Yes, but that's correct because the government has announced it only on July 31. So if you look at the structure of the trade, you want to do a business today for the for you want to buy imported cotton, practically the shipment will not be available before the first week of December. And I'm talking of Brazilian or Brazil, majority is crop available as of now is Brazilian or maybe The U. S. The availability of shipment is not before first week, second week of December. And in case it is shipped in the first week of December, reporting cannot come before December 31 here. So has the government announced this season about a month back, probably some advantage would have come. Now people were not very sure whether they'll be extended or not. So practically the two month expansion, increase in this duty free period, I don't think there's likely to be a major improvement or availability of cotton in India in these two months. So for any extension, logically it should be three months so that you get a shipment after one month and then the shipment from Brazil will take you about anything between thirty five to fifty days or so. Then only you can get a cotton in a three months time. Two months practically the cotton cannot come to India if you want to. If you booked it earlier, nobody will do that. But if you booked it earlier, then probably you can get it.

20:49 So so practically a large chunk of cotton coming to India in these two months doesn't look possible to us. Got it. So basically, what you are saying that looking at current scenario, yen prices will going to be in that range bound only, but there is no substantial come down the price at this moment. No, no. It doesn't look like as of now. Got it. You very much, sir. Yes. Thank you. The next question is from the line of Prabhat Yadav from Navneet Education. Please go ahead. So thank you for the opportunity, and congratulations on a good set of numbers, sir.

21:36 So my question is that since you operate across the entire value chain from yarn to garments, our reading suggests that there is underinvestment in the spinning industry. So many big players are investing in fabric and garments, which will eventually require yarn and given the geopolitical tensions in Bangladesh, can we say that there is a demand supply mismatch in this yarn industry? And is this yarn demand sustainable? And what kind of investment will be required to cater this demand? So definitely, there are two things happening. One, as you have mentioned, definitely, a lot of players who have started investing in the textile products, for which they'll be requiring good quality. So if you recall my earlier couple of calls where I mentioned because the things are not good in India last three years and practically about 12,000,000, 13,000,000 spenders in India have gone out of this system permanently.

22:34 So our rigid capacity, which used to be about 52,000,000, 53,000,000 spenders today would not be more than 40,000,000 spenders or so. So that also has readjusted the demand supply and that is one of the reasons why the price improvement has happened because the supply side has come down. So definitely, if India has to grow all these FTS which the country has done, especially with Europe, there's likely to be good demand of the on the government as well as the home textile side from India because now we don't have the duty to advantage. And in case we have to grow, then the country will be required good quality of plan also. And as I mentioned, the one lakh spender today will require close to about INR800 crore to INR1000 crore investment. So I I think it's a substantial investment which would be required on the yarn side in case the country has to grow. But the only challenge would be unless we have more clarity on the raw material side, government policies, cotton availability, unless those things happen, the investment in the sector is not coming to the extent which should come.

23:42 Yes, understood. And my second question will be only the current peak revenue potential from our existing spinning capacity, sir? It's almost completed. So we are spending almost at 100% capacity utilization. There's hardly any unutilized capacity available to us. As not today, I think I mean historically last ten, twenty, thirty years, we are always running 100% capacity utilization on the spending side. Yes. And are there any major CapEx plans for this spending capacity? I already mentioned, so one which is announced will be coming in next six months' time, which is about INR 500 crores or so. Beyond that, we have lots of plans, but as of now, we haven't announced any. Okay. Understood, sir. Thank you, sir. That is all all... That's all from my side.

24:30 Thank you. Thank you. A reminder to all the participants, you can press star and 1 to ask questions. The next question is from the line of Anil Kumar Sharma, an individual investor. Please go ahead. Good afternoon. Sir, my question is regarding Bangladesh. Here, as it's known that many mills have closed there. And how... First question is regarding how is the situation is that regarding Bangladesh? How much yarn we are... Our company is exporting? And and as industry wise, what is the position? Is there any disturbance on their... That demand side? What what are your views on that, please?

25:18 So Bangladesh recently there are concerns by the labors over there for the increase in the wages. So this happens every two to four years. The last disturbance was somewhere in 2023 where their wages increased to INR 12,500 aka and where the demand was much higher. The TRY 12,500 in today's scenario with TRY 123 to $1 comes to about USD 100 only. And maybe the people feel this is not the right wages, so that's why their concerns are. But if you look at this, this comes there at least two, three, four years and then eventually they get settled somewhere today the demand is for 30,000 minimum wage. And but I think what our customer tells us, most of them, that it will get settled somewhere maybe about T17000, T18000 or so.

26:08 So of course, there is some disturbance. But if you look at the consumption pattern, the demand pattern, there's no change in that because everyone over there is feeling there's a profit and which will which should or which will get resolved too. Overall India's export is about 110,000,000 kg per month. Out of that, almost 30%, 35% goes to Bangladesh and almost similar averages percentages for us as well. So India is the largest exporter of yarn to Bangladesh. And on the overall demand side, there's absolutely no issues as of now. Thank you, sir. Thanks. That's special, Sanjay. Sir, my... Regarding this, how do you think about the fabric within us?

26:54 It is not doing right now. Although madam has clarified up to some extent, but how you see the future of that... Our plans of this fabric side? Whatever view she has given, I think all of us carry the same impression and we have the same views that we went through a tough time for two, three reasons. One, there was uncertainty because of The U. S. Tariffs into the Indian segment. What will happen to because many times this announcement that happened, India will have issued tariff. And whenever a customer is sitting outside, they get a little concern on the same because it's not easy to change the supply side on the textile side on an immediate basis. And most of the same thing will happen six months before, nine months before. So probably we missed one of the seasons where earlier the duty was put in and later on these uncertainties were there.

27:48 Two, the business went into a very difficult time for two reasons. One, we added the new capacity, which we could not utilize, so there was some cost increase. Also, as the yarn prices increased, we could not pass it on to the market because the end pricing or the end products was not increasing. And that happens always. This is not something very different. Whenever the yarn prices goes down, the fabric or the garmenting will take a more advantage because they will not reduce the price and vice versa. So this was again a normal phenomenon that the prices of increasing yarn could not be passed on to the market, but I don't feel that there was anything really, really a big issue. Third, we're also putting up this the technical textile product price, which is again taking some time for new business for us.

28:36 And definitely a new business will take maybe six months to one year time to stabilize. And in the meantime, there will be because we are learning the business, we'll be doing all the sampling, the utilization will not happen. So there could be some small losses will be coming in at the first year of operation. Having said all these three things, but if you look at our utilizations last three, four months, it started improving. And we are confident that maybe next six months time, the utilization will be far better. And once we are in a position to utilize the capacity and show the improvement in the business will start happening. As Sagittik also mentioned on the technical textiles, lots of sampling happens. Two customers have already approved the plant. They have started giving us the orders. So started reaching almost 35%, 40% capacity utilization. And once we start touching 50%, at least we will be starting the breakeven of that plant. And we are hopeful next six to eight months time, this 100% utilization from this plant should also come in. So as management, I feel whatever was happening globally and with our expansion plans, those things and the increase in the yarn prices, there were some challenges.

29:50 But definitely, the improvement has started happening, I look forward that we'll be doing far better in next six to nine months' on the fabric side as well. The next question is from the line of Aradhana Jain from three sixty one Capital. Please go ahead. Hi, sir. Just a couple of questions. Wanted to understand a little more from a longer term perspective that what is the sort of revenue growth that you are expecting over the next, say, three to five year period, and what would be the growth drivers for that? And in terms of margins also, where do you see your margins to be at a steady state level once we have all the modernization related and fabric expansion in place with steady capacity utilization levels?

30:45 And when can we expect the high single digit ROE, ROCE profile of yours to move more towards a low to mid double digit number? That's my first question. It's not one question, Aradhman, many of them. Anyway, I'll try to answer all of them. So first of all, if we go by our historical thought process about seven, eight years back, ten years back, our thought was that the EBITDA margin will always I mean, we were giving the guidance that it will be between 18% to 22%. But in between after COVID, things were very, very difficult to pretend. And the raw material prices also increased to an extent. At that stage, cotton prices were about INR34000 and INR35000 a candy, which increased to practically INR65000.

31:34 So that means if you are earning x percentage in a Yarn business, you'll have to double it absolute in absolute value to get the same percentage, which is never possible kind of a thing. So practically, my thoughts today that the long term guidance like to give maybe if we are between 16% to 20%, it should be a good number as EBITDA percentage in case we are in position to get there. And should we possible with all the value addition we are doing on the fabric side and all the improvement we are doing maybe on a sustainable power, the renewable power and other kind of things. So our thought process would be that our long term thoughts should be 16% to 20% guidance on the EBITDA number two. Normally, if you look at ten years any ten years period growth, our revenue growth will be in the range of about 6% to 7%.

32:28 Of course, there are periods when we have put up a larger plant. And then next three, four, five years, we have just consolidated it, looking at the situation or the opportunities outside in the country and outside. So I still believe 5% to 6% or 5% to 8% kind of a CAGR would be the best case scenario for us. The base of the organization has come bigger now. And with a INR 10,000 crores, 12,000 crores company at a 10% growth would mean we're talking of INR 1,000 crores investment on a every year basis. And that our capital employed is cost capital employed to turnover is practically less than one:one. So we're talking of almost like INR 1,500 crore kind of investment. And out of that INR 500 crore in any case we are doing as a modernization, which will not give you any top line growth, but it's necessary to maintain the quality of the product as well as to retain the customer.

33:25 So in my view, in case we are in a position to grow between 5% to 8% on a longer term basis. And second, if you look at our growth history, whenever we have taken a new piece of land suddenly for next five, seven years, there's always a growth happening. So the biggest growth for Vardhman was between the period two thousand and five to twenty fifteen, where we have taken up the two big projects, one at Bodhman, second at Saplapur. There's a lot of expansion happened in those 10 time. And then after that, we have just consolidated into that. Now we've taken this new piece of land in multiple years, Campi Metra Park. And I feel once the land is available to us, probably once we first put up a one project and once we have settled down, probably the confidence improves the culture is built about there in that location, probability growth can be much bigger. But then there was any greenfield project with a small capacity, we never been in a position to help us to make money. So eventually, the immediate growth as of now can come from that location only, but the other location we are full.

34:32 And it's only once we get a piece of land, we put one single project, we settle over there. And then after that, the expansions plan could be really, really fast. And it's not only the spinning in the beginning, there are other segments also we are looking at. Of course, there's no it can happen as of now. But definitely, there are a few ideas in our mind the growth could happen from that also. The third part you mentioned about the ROCE. I think it's again a factor of we have a very large book of investment in our balance sheet, which is accumulated over a period of time because we were not growing in a bigger way or one of the other reasons. But I think once we start growing bigger rate, probably our debt equity goes to a better level, which is practically zero as of now. So from the financial structuring, I'd say we are a little inefficient.

35:22 But once we start investing and we use this cash on a productive basis, practically my feeling is that the ROTE or the return on investment or the bad cost percentage will start improving. Understood, sir. That is very helpful. My second question is on government team. While it's a very small part of our business right now, but if you could throw some light on what's the development right now and in the near term or medium term perspective, perspective, where do we see that business growing to? And the third question that I had is on the cotton inventory. If you could also highlight what is the sort of cotton inventory levels that we are maintaining right now.

36:11 Okay. So on the commenting side, this business was started in 2011. And for almost fifteen years, we are just maintaining the business. We're not very sure what to do with this business, whether it should grow or not. And business was really difficult for us to maintain, manage in a very small capacity. But I think last few quarters, the business has done good in terms of the overall quality of customers, the product and those kind of things. So again, as a large organization, I think the reason where we have to decide whether we should continue in this business or we should stop this business. So the thought process was once we have started learning this business, the business looks good and gives us an advantage in terms of a forward integration going forward once the capacity is bigger.

37:00 Today this business is close to about 7,000 shares per day and in terms of the top line close to INR150 crore or so. So the first step we have taken at the existing location, are doubling the capacity. So it's after fifteen years, we have this confidence. The business has been good, both in terms of the customers as well as the profitability. And as a first step, we are expanding this business. But this is the maximum possible in this location. And my belief, if the business does well, they are in a position to generate numbers and the confidence of the management, probably we'll have to look at some different sites, maybe somewhere either in the Central India or maybe in the East India, where the labor availability and the cost would be lower. But those are there's no reason as of now. So the first step we have taken, let's expand this business to the double, do some monetization, do some automation in this business and at least from a 78% EBITDA, try to come to about 13%, 14% EBITDA on a sales, but on a capital employed will be much, much higher.

37:59 So I can only say the first baby step in a positive side is that expanding this business, doubling this capacity. And depending upon the success of the business, I'm sure we will definitely look at how do we grow this business because eventually with a 10,012 thousand 13,014 thousand crores company, this INR 100 crores, INR 200 crores business will not make sense to us. So my belief is now to the business to show that success and I'm sure the growth will happen into that business as well. The third question you asked about the inventory. So practically, if you look at cotton season in India, it starts somewhere in the month of October, November. So most companies, the inventory will not be there as of now. Yes, the import we keep on importing whole of the year, which is a kind of a cycle, they always have a two, three, four months of cotton depending upon. So I get I'm not in a position to share as of now. But generally, the imported entry inventory at any stage could be between three to four months' time for various organizations.

39:04 But as far as the Indian cotton is concerned, I think it's the starting of the season, and we have just started buying, and we have to build up that inventory. Sir, as a last question from my end, lot of the yarn realization increase that happened over 1Q or 2Q was to do with a lot of the demand coming from China. So, sir, how are you looking at that at the moment? Has the Chinese demand, you know, reduced since the last couple of, you know, weeks or months? And going forward, do you expect that kind of demand to continue? And if you could also highlight what had led to, you know, the Chinese demand suddenly increasing from, say, last year, November, December.

39:51 Yeah. So broadly, that's my question on the yarn realization. Just to understand that, as you said, you expect the yarn prices to remain a little range bound. So going forward, what possible triggers could be there for the yarn prices to again inch up? Okay. So the the yarn prices started increasing somewhere in last year, November, December, where the demand from the Chinese is continuing. So and my belief that government export from China has not come down. And practically earlier people were talking about China plus one or whatever they were talking about, but eventually the growth or the overall exports from China has not gone down. So at the same time, also let's look at the local Chinese cotton available in China. So one, the prices of local Chinese cotton is very high, still in the range of about $1 or so.

40:46 Two, there's 80% local cotton is it comes from the Zinjiang area. Zinjiang cotton is banned by USA and many other countries. So whenever the Chinese government was buying the local yarn or the fabrics, many times there are lots of DNA test fails, which happened in U. S. Support where the cotton was the local zinc and cotton. So it looks like the brands would have advised because nobody speaks openly on these issues, but I think it looks like either the brands advised or the government manufacturers decided that when I'm in a position to get the yarn at a competitive prices from outside, maybe from India, Why I'm taking that risk of buying from the local Chinese market where you're still not sure which cotton they are the designer is using in China. So they start buying yarn from India, which is where this will never be made out of the Chinese cotton probably that is come down. And in any case from the cost perspective, we were competitive.

41:50 There is the cotton price is still higher compared to India or to any other country as of now also. Two, the demand from China continues as of now. And whatever they were buying about 20,000,000 kg, 20,000,000, 25,000,000 kg from India that continues. So as of now, there doesn't seems to be any negative trigger that they'll not be buying, of course. The second where the yarn prices increased was also the cost push. In case the cotton increases or reduces, that means that's another trigger where the prices could go up or can come down, which happened in last three to six months time. But practically as of now going by the range bound price of New York future and the yarn prices, it looks like more of a stable business as of now in terms of the yarn pricing compared to the situation because earlier a year back, it was a desperate pricing.

42:45 People were not making money. They were losing money. So practically, till how long someone will lose. And as soon as we lost the capacity, as I mentioned earlier, spend 12,000,000 spenders, the balancing started happening. Today, are more balanced, the reasonable profitability on our new cotton prices. If I look at today's cotton prices, we have blue 33 gram prices, it will give you a conversion cost of about USD 70 to 90, which is pretty normal. As we always be talking about $1 is a very, very good conversion and about US$80.85 to US$9.00 is a decent or a reasonable conversion. The last year, this conversion had come down USD 60 per Indian market. That's where this aspiration has come. And with the zero eight zero, zero eight five, 0.90 kind of a conversion, it looks like this can sustain or maintain for a longer period of time.

43:43 Thank you. The next question is from the line of Amit Kumar from Determined Industries. Please go ahead. Yes. Can you hear me? Yeah. Yeah. Yes. Thank you so much. As it... On the YARN side, you already mentioned that, you know, capacity utilization was, you know, almost 100%. I just wanted to get a sense on the fabric side, you know, where do we stand, you know, presently? And terms of and the second question on the fabric side itself, I mean, what is the peak level of with the current capacity and utilization that we have? I mean, that also inches up over a period of time, So we are at around 80% utilization right now.

44:47 And in quarter two, it was slightly less, so maybe around 70, 75%. So we've definitely seen an improvement quarter two versus currently. And please also note that had we not expanded capacity, we would have been 100% utilized. So this 7070% in quarter two and currently 80% utilization is with increase in capacity. So you you can expect that in a few quarters. We expect we expect to be fully utilized. So you... It will further increase from, say, 80% to 90, 9595%. So... And what is the peak level of revenue that we are, you know, sort of...

45:35 On current capacity basis, What is the peak level of revenue that we're expecting? So you can you can do the math. You can expect an increase in at least 15%. We don't openly share the diff... The segment... Different segment revenue to ballpark. No. With the... You know, 75 going to 95, that will be about 25%, you know, potential increase in that. Right? Currently, are at 80%. Yeah. No. I'm I'm sort of using second quarter as the base of 75 to Okay. About 95, 30 or with sort of 25% sort of increase in terms of In a few quarters, not at the moment. Yes. Correct. Yes. That's that's perfectly fine. My my second point was...

46:21 And, you know, I've sort of asked this, you know, question in the past also. See, mean, none of the, you know, India capacity, 40,000,000, you know, spenders, we are at, you know, 1.25, you know, plus. So that's just about a six, 7% market share. You know, business is big in value terms and, you know, billion dollar, you know, business. But when you look at it from a market share perspective, you know, we are still... I mean, know, I mean, 10% should definitely be, you know, there on the cards, you know, at some point of time. And, you know, you're sort of saying that, you know, the MP, you know, expansion is delayed because of, you know, land issue. Mean, how are you sort of thinking about M and A, in this business? There are a couple of smaller companies on the listed side also, and I'm sure a whole bunch on the unlisted side as well. So how are you sort of thinking of M and A you know, in this business? I mean, it's gonna have 7% kind of market share that's...

47:18 With with all the consolidation that you're sort of saying has already happened over the last, you few years, many years. But it will be there for the taking for a company of our caliber and particularly. Your point is very well taken, and it's a valid point. The only concern I have as retail today in my mind as a company that we are still not clear on the raw material pricing by the government as a policy by the government. Now our demand to the industry demand of industry to the government is that we should allow the duty free import in India, so that if there is no raw material available, at least you should get it at right pricing. We must understand that on one hand, there's a 6%, 7% increase in MSP happening on an every year basis. If the near future also increases, to some extent, we can mitigate it. But if that doesn't happen, Indian cotton keeps increasing and it's going to be very difficult for the Indian spending industry to survive.

48:12 So practically all this consolidation happened not because of any by choice, but it was by default that these people started losing money and they delivered went out of this business. Now to me, if I look at the risk or why we are not expanding that aggressively, the only question I have in mind that what is the raw material thought process or availability at international competitive prices to the Indian spinning mills in the Ganstok plant? My belief personally, if you ask me in case the government clears it or the duty free code is allowed or it's all free trade, practically, I feel that India will start improving on this premium capacity. And once that clarity is there, we can expand much faster than others.

48:58 But the unfortunate part is without knowing what will happen is you get a two months window, you get a three months window. With this kind of a scenario, whether you should really take a very big call and then tomorrow start thinking of what's happening here and there. So I think that's the only management which is there in our mind, but there's opportunities there, especially with all these FPAs and all these opportunities are looking like, there's a great opportunity available in my mind. So I'm only concerned on a policy level is the raw material availability, how will that be ensured. So once we are clear on that, probably we could take a much bigger call as Understood. That's clear. Know, of course, I mean, last six months should not be sort of used as the benchmark, but even otherwise, if you if you look at, you know, our scale of operations, and I know our analysts have had a few questions on that also that, you know, from a 15, 20% ROE, you know, business has gone down to more like a, you know, 11, 12%, you know, ROE business. So that's also still, you know, reasonably good.

50:01 And, you know, compared to a small player, definitely, you know, scale advantage, the, you know, operational, you know, advantages, sourcing, etcetera, that we have are, you know, definitely significantly bigger. And, you know, my my sort of question was more from a next twelve month perspective also that, if the MP expansion, if you're saying land itself is delayed by eight, nine months, so let's say you get land in nine months, putting up a new large scale 1,000 crore expansion is going to take a year at least. So we are talking two years organically to expansion because the other possible aside from one by one upgrade, which is possible. So in the interim, do we have sort of any very clear M and A and inorganic consolidation plans is what I was looking for.

50:51 So first of all, the one plant which is already under construction for us, this will give us about 8% organic growth as well. 8% in terms of Okay. Okay. There's available to us in 100 tons or something that you 50 tons per day on a base of 700. Yeah. Yeah. So that's one. Two, we're open to these ideas, but for a very small, I mean, consolidation or a m and a of a small organization, it will not make sense to us. But yes, any option comes to us, we'll look at it carefully somehow. I think most of the companies which are available for sale today are in such a bad condition or the machine part or the culture part is so bad that it's very, very difficult to revamp those kind of organization. Recently also I have visited two or three smaller organizations, but the amount of effort required to pull it up is, I mean, very, very difficult because by the time you want to come to selling of a company, probably everything has been taken out of the company.

51:50 So though we keep visiting, we keep looking at, we keep understanding, and I'm still open to that. But unless we get something meaningful only for a six, eight months, the desperation probably for us to take a call will be a very difficult thing too. From the Vardhman's perspective, our thoughts for the last ten years has been India has to consolidate in terms of the size of the factories. If you look at the Indian capacities today, we were 51,000,000, 52,000,000 spenders, total 3,000 factories. So the average Indian spending industry was 17,000 spenders only. The 12,000,000 which have gone out of the system, the 1,000 factories have gone out. So 1,000 factories on a 12,000,000 spindle means the average size has gone to which been stopped is about 12,000 spindles. So the remaining fact is 2,040, 41,000,000 spindles. There's still only about 20,000 spindles per factory, which is too late. So most of the organization you get it, you are getting it either a smaller size or in the states where you are not operating or with a culture which is not suitable to you or one or the other reasons.

52:54 So practically for us, we kind of culture... Kind of thoughts we have in the long term, ten, twenty, thirty years to run an organization. It looks like the organic growth is the only choice as of now. Of course, financially, it can make lots of sense in organically growth, And we are open to the idea. But frankly, last five years, I can't find anything which was really, really worthwhile for us to look at. Understood. That's much appreciated. Thank you so much. Thank you. The next question is from the line of Sandeep Garg, an individual investor. Please go ahead. Good evening, sir. I have a couple of questions. The first is on the cotton yarn spread.

53:41 How is it today vis a vis Q2? The cotton yarn spread is always looked at from the current prices of cotton and the current prices of yarn. So practically there is no cap with the current prices of cotton and prices of yarn. The spread is almost comparable to the second quarter. Okay. This is more or less the same. Yes. The only difference could be that what cotton a package is using. So if you have a old inventory, which is cheaper or expensive, that can make a difference in the profitability. But on the current prices of cotton and the current prices of yuan, both second and third quarter is comparable. Right. Secondly, sir, the CapEx that we have done on modernization as well as on the renewable energy projects, what kind of benefit are we expecting from that in terms of cost saving and therefore margin improvement?

54:38 And how much of that has already come in? And how much do you expect to come in over the next one year? So on the modernization, it happens on two, three factors. One is the quality improvement, where practically you will not get any financial benefit, but it is only to sustain or maintain the customers you have to modernize. Second is maybe some utility improvement or some worker reduction or some improvement or the productivity increase happen, which is already completed. So to that extent, the entire thing has already happened and we are taking full advantage of that as of now also. On the renewal power, we are expanding or we are spending in a big vein from the last two years. And already to my mind, decisions we have taken till now, almost 40%, 50% of that has been completed where the advantage has started coming in. And most of that, the remaining 50% will be applicable or will be available in next three to four months' time with us.

55:40 Can you translate that into improvement in margin? What kind of margin improvement you have already seen because of this? Normally when you do, so there are two major innovative projects which most of the organizations would be taking. So you have the solar power available to you on your rooftop where the practical cost of operation will for electricity will become zero. That was done by us much before two years back. So there's not no more benefit on that to that extent. What the other projects are that you are going in for a third party improvement or operation where you are putting up the solar or the wind at a distant location and you take that power. So most of the industry is running where the advantages of power will be about INR 1 to INR 1.5 per unit per KWH.

56:30 So whatever consumption you have, you will get about INR one to 1.5 advantage in that. Third is the we are going in for the biomass boilers where there could be definitely so again, it was more from the customers perspective we wanted to have the green part because we were losing coal, which is not like by the many European or the American customers. So they were suggesting us to replace that. So which is happening. So it's both in terms of the the greener power as well as on the financial numbers where the advantage definitely will come in in next four months time. So practically, the cost of generation for us or the cost of consumption of power, there should be whatever we are doing should be a reduction about 1.5 crore per unit. Okay.

57:15 Secondly, on the fabric side, as you mentioned that it takes some time for the for you to pass on the yarn prices to the final customer. How much of that has already happened? And how much of that is still pending? And what kind of time frame are you looking at in terms of passing the entire increase in yarn cost to the customer? You have to look at it in a different way. So if you look at any product on an existing product where retail price is decided by a brand, the retail price will never change unless there's a dramatic improvement or reduction of the purchase of input material. So practically garment which is sold by a brand in a store, the price will practically never change that. So it's only that what they will either eat the products or they will look at the new products that they start passing on the price increase to you. So practically on the existing businesses, it will never be increasing. But yes, so since the cost will be increasing, so most brands will start looking at instead of x quality, why don't we work on the y quality? And there's new product when they launch in the store, that the pricing could be different. So indirectly, if you ask me, any price increase on our existing product lines is a... It's practically not possible ever. It's only the tweaking of product where they'll keep doing it ten twenty percent every year, every product. That's how this increase will happen in three to four years' time. So wherever the new product launches are there, probably practically we're getting it. But on the existing product line, I don't think it's

58:46 possible to get an increase there. Lastly, sir, on the expansion, you mentioned that there is some delay in obtaining the land from the government. I understand that the other company that you have in your geography, they have announced a large expansion in their capacity. Is it on the same piece of land where you are also getting the land? I can't comment. They have also taken the piece of land in the same area where we have taken. So I'm not very sure whether the all the announcement they have announced is for the MP Mitra Park or they have some existing land banks as well in the existing locations or that's on that location. So I can't really comment on that. But yes, we have on both Bugli as well as Dhar.

59:32 Yeah. So Dhar Dhar, they and we are on the same platform. So the land development and those things are... In fact, both of us are talking to the government together for the development of land. So that would be the same times as us. But, yes, if they have available land in Woodlands, they can definitely do that. That is fine. Thank you. That is also my side. Thank you. That was the last question for today. I now hand the conference over to Ms. Sagrika, ma'am, for closing remarks. Thank you. So to conclude, our quarter two reflected improved performance driven by yarn business as we saw demand surge and even cotton price hike pulled up yarn prices, which was much awaited since yarn prices and had been subdued for for at least two years.

1:00:35 And now the business has picked up with improvement in The US political sentiment, we look forward to an improved demand in fabric business as well. As an organization, our focus will continue to drive operational efficiencies, customer centric execution and approach, and premiumization of our portfolio. Thank you for joining the call, and wishing you and your families a very happy Diwali. Thank you. On behalf of three sixty one Capital Market, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.