Indo Count Industries Limited (NSE: ICIL) Q2 2025 Earnings Call dated Nov. 08, 2024
Corporate Participants:
Kailash R. Lalpuria — Executive Director & Chief Executive Officer
Analysts:
Jatin Damania — Analyst
Palash Kawale — Analyst
Gunjan Kabra — Analyst
Deepesh Agarwal — Analyst
Prerna Jhunjhunwala — Analyst
Analyst
SimranJeet Bhatia — Analyst
Surya Narayan Nayak — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Q2 and H1 FY ’25 Earnings Conference Call of Indo Count Industries Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. K.R. Lalpuria, Executive Director and CEO of Indo Count Industries Limited. Thank you, and over to you, Mr. Lalpuria.
Kailash R. Lalpuria — Executive Director & Chief Executive Officer
Thank you. Good afternoon, and a very warm welcome to all of you joining us for Indo Count Industries Limited Q2 and H1 FY ’25 Earnings Call. I am joined by our CFO, Mr. Muralidharan, and our Investor Relations adviser. We hope you had the chance to review the financial results and investor presentation available on the stock exchanges and our company’s website. Also, I would like to greet everybody a Sal Mubarak.
Let me first take you through the industry dynamics that are going on currently. The U.S. retail market has shown a positive shift, with retail sales picking up in September after a slower pace in the previous months. While the sector has faced some challenges due to ongoing supply chain and logistic issues, we remain encouraged by the resilience of the market, especially and particularly with the holiday season approaching. Notably, imports of bed linen from India to the U.S. continue to rise, signaling sustained demand from retailers and omni-channel platform despite these temporary obstacles.
Looking to India, the government’s continued focus on enhancing international trade and the Indian economy is positioning the country for a long-term growth in the textile sector. Free trade agreements with key markets such as Australia and the UAE, along with the growing China Plus One sourcing strategy are strengthening India’s appeal as a major manufacturing hub. With the ongoing new cotton crop season, we expect stable domestic cotton prices, which will support our operations and help manage input cost effectively.
Overall, we are optimistic about the demand of our products, and these favorable industry trends create a solid foundation for Indo Count as we continue executing our growth strategy. Beginning of Version 2.0 for Indo Count positioning for future growth; I am pleased to share that Indo Count is embarking on a transformative phase of Version 2.0 in our journey. This new phase marks the next chapter in our evolution, focused on our strategic foundation and positioning the company for sustainable long-term growth.
We are building on our leadership position by investing in a diversified product portfolio targeting premium and branded segment and enhancing our omni-channel capabilities. The emphasis of this phase is on scaling up in high-potential segments such as utility, fashion and institutional. All of which are expected to drive growth in the coming years. By making this targeted investment, Indo Count aims to accelerate its revenue growth while expanding its market share presence in premium product categories.
We expect the contribution from this brand to add almost $100 million to our top line annually over the next three years, solidifying our position in the premium segment, and this will create further opportunities for more value generation, strategic acquisition, building the foundation for long-term growth. We are also significantly expanding our footprint in the utility bedding segment. This is demonstrated by our recent acquisition of Fluvitex USA Inc. and Modern Home Textiles, both key players in the U.S. quilt and pillow market.
These acquisitions establish our manufacturing footprint in U.S. to 13 million pillows 1.5 million quilts, with a combined annual revenue potential of $85 million at full capacity. These acquisitions not only strengthen our presence across critical U.S. regions, including the Midwest and West Coast, they also expand our customer base that’s overlapping [Technical Issues]. This positions us to capture new growth opportunities and further enhance our return on investment.
Our vision is to continue building this business whether through organic or inorganic expansion as we see substantial growth potential in the U.S. utility bedding market [Technical Issues] investment in our growth. In line with our growth strategy, we are continuing to invest in our business [Technical Issues] INR165 crores. However, due to the additional strategic acquisitions and investments, we have revised
Operator
Your voice is breaking.
Kailash R. Lalpuria — Executive Director & Chief Executive Officer
So we have revised this [Technical Issues] ’25 to INR413 crores. This is [Technical Issues] through internal accruals and debt equally. The Solar energy projects and zero-liquid discharge system will be taken up for implementation in FY ’26. Awards and recognition; I am pleased to share that Indo Count has recently been honored with several prestigious awards, recognizing our commitment to excellence and sustainability. Vastra Ratna Award, Global Achiever.
Mr. Anil Kumar Jain, our Executive Chairman, was conferred with esteemed award for his outstanding contribution to the Indian cotton textile sector at the TEXPROCIL 70th Jubilee Celebration in October 2024. This award was presented by his Excellency, the Governor of Maharashtra. Home Excellence Awards; in September 2024, we were recognized for demonstrating excellence in expanding our business as well as our ongoing investment in sustainability and corporate social responsibility by HFPA, New York, U.S.A., the apex association for home textiles in the U.S.
This award was given to our Executive Chairman, Mr. Anil Kumar Jain and Mr. Mohit Jain, our Vice Chairman. CSR Appreciation Awards; in July 2024, Indo Count received this honor from the CSR One Decade Celebration Council in recognition of our decade-long commitment to impactful CSR initiatives, Best Wastewater Treatment Initiative Award and Best Environment-friendly Initiative Award. At the Global CSR and ESG Awards in June 2024, we were recognized for our industry-leading efforts in environmental, sustainability and wastewater management.
Financial performance, impact of strategic investments, volumes; sales volume for Q2 FY ’25 stood at 27.8 million meters and H1 FY ’25 stood at 53.1 million meters. Total income; in Q2 FY ’25, our total income stood at INR1,045 crores. For H1 FY ’25, our total income rose by 12% to INR1,995 crores, up from INR1,780 crores in H1 FY ’24. The sales volume and revenue dropped on a Y-o-Y basis on account of supply chain issues. This is also the reason why the inventories have increased in the last 6 months.
As the supply chain situation normalizes over the next couple of quarters, we expect better uptick and normalization of inventory levels. EBITDA. Our EBITDA for Q2 FY ’25 is INR166 crores with an EBITDA margin of 15.9%. Similarly, EBITDA for H1 FY ’25 stood at INR320 crores with a margin of 16.03%. On account of upfront cost and additional expense related to resources, brand promotion and creation of necessary infrastructure for new utility bedding business. There has been an impact of 150 bps on our overall EBITDA.
PAT; our PAT is INR82 crores for Q2 FY ’25 against INR114 crores in Q2 FY ’24. Similarly, PAT for H1 FY ’25 stood at INR159 crores compared to INR188 crores in H1 FY ’24. EPS; our EPS for Q2 FY ’25 is INR4.12 and H1 FY ’25, it is INR8.05. As of September 30, 2024, our net debt stood at INR1,045 crores with a net debt-to-equity ratio of 0.48 times. The debt levels have increased to the funding secured for recent acquisitions, in addition to funding the higher working capital requirements of the business. We expect to see the working capital base normalize by the year-end.
Now I open the floor for the question and answer.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Jatin Damania from SVAN Investments. Please go ahead.
Jatin Damania
Good afternoon, sir, and thank you for the opportunity. Just want to understand, as you alluded in your opening remarks that our volume declined because of our supply chain issues and which resulted into increase in the overall inventory. So can you quantify the — in terms of the million meters, how much inventory has been increased? And is there any deferment of the order or the shipment into the next quarter?
Kailash R. Lalpuria
So that is the whole reason you see because of the additional shipments, which were supposed to happen and the inventory levels coming down, which you can observe in our inventory levels from the increased levels on the P&L, you can very well see that this inventory levels, which have increased for deferment due to the supply chain issue, will get liquidated in the coming quarters.
Jatin Damania
But can you be able to quantify in terms of the million meters, I mean, the shipments which got delayed in terms of the million meters.
Kailash R. Lalpuria
There were two accounts of the additional [Technical Issues] which were supposed to happen which could not happen due to plastic issue, it was close to around 2.5 million meters.
Jatin Damania
2.5 million meters. So 27.8 million meters could have been almost around 50 million meters.
Kailash R. Lalpuria
Sorry. Come again.
Jatin Damania
27.8 million meters, that’s the volume we did, will be — which will be around 30 million meters because 2.5 million meters has been deferred for us in the month of October.
Kailash R. Lalpuria
Correct. Correct.
Jatin Damania
And secondly, now, sir, we have given a guidance of 110 million to 115 million meters in our last call. Now if you look at the first half volume, so to achieve our lower end of the guidance, we normally will be requiring 20% volume growth in the second half. And if you look at the last two years number, third quarter is generally a weak quarter despite the holiday season. So how much confident are we in terms of achieving the guidance?
Kailash R. Lalpuria
See, as I mentioned earlier too, we are on track. So as we progress, we should be able to better guide you. And I think we are on track at the moment for the guidance, which may result into achieving the lower end of the guidance.
Jatin Damania
Okay. And in terms of the margin, I mean you have already lowered your guidance to 15%, 16%. So for the second half or for the next year, how shall one look at the other expenses because your brand acquisition will probably add $185 million in the next three years. So going ahead, how shall one look at the overall other expenses and the employee base for the full — for the company?
Kailash R. Lalpuria
So you see these are additional expenditures which we are investing into towards human resources and infrastructure and other things, which will continue because we have acquired two companies and we would like to also build the branded segment. So this will continue at the same pace, and that’s why we have given a revised margin guidance of 15% to 16% because we were impacted in this current H1 to the extent of 150 bps.
This will continue, and that prompted us to give you the revised margin guidance. So this investment will start paying off in the next year. And as we grow our business, which we have acquired and the branded business, which we are promoting, there will be an uptick on the margin side as well. So we will be able to better provide you by the year-end a margin guidance for the next year.
Jatin Damania
Sure, sure. That’s all from my side. I’ll come back in the queue again. Thank you and all the best.
Operator
Thank you very much. The next question is from the line of Palash Kawale from Nuvama Wealth. Please go ahead.
Palash Kawale
Yeah, good afternoon, sir. Thank you for the opportunity. Sir, my question is related to the acquisition.
Operator
Mr. Kawale, my I request you to please speak loudly because your voice is coming out as muffled.
Palash Kawale
Is it clear now?
Kailash R. Lalpuria
Yeah, yeah, that’s better.
Palash Kawale
Yeah, yeah, okay. So sir, what kind of margins can we expect from the new acquisitions? And again, if you could just explain what kind of capital requirements would be there for the new acquisitions since the facilities are based out of Europe. Would it be a leaner capital? And again, one more question is, what was the basis of the valuation for the acquisition? If you could explain that, that would be really helpful. Thank you.
Kailash R. Lalpuria
So as far as first question is concerned, the margins are similar to what we are earning today. So it will be in the range of around 16% for the acquisition as well. And as we spread the asset, we should be able to draw in better results as we move forward and add more value to the overall operation as well as the product range. So this answers your first question.
The second question, the valuation has been done with respect to both its assets and the business and the customer base. So it is taken on the basis of how much business which we are adding on, what is the current EBITDA level as well as what is the customer base. So it is a combined call. And that you can see as a goodwill in our balance sheet also.
Palash Kawale
Okay, sir. Thank you for that. And sir, will — would these new facilities to be used for the Wamsutta brand?
Kailash R. Lalpuria
To some extent, yes, in the future as we are studying the Wamsutta brand with a longer-term strategy. And we have given this to an agency to see how the brand recall value will help us promote this brand to the retailers. One of the parts would be to promote this into Wamsutta brand in the future as well.
Palash Kawale
And sir, I think you said that $100 million annually can be expected from the private brands. So is it fair to assume that the rest of the revenue you can generate from your existing brands or you’ll be continuing to acquire new brands? And any more acquisitions in terms of facility or anything planned in the near future? Is management still looking for the new acquisitions?
Kailash R. Lalpuria
So as far as the branded business, we are clear, this will be an additional revenue in the next three years to the extent of $100 million over and above the core businesses we are having. So that answers your first question. As far as acquisitions, we, as a company, are a growing company, and we look for opportunity.
And [Technical Issues] that we acquired these two businesses because the utility business was up for grabs. And that’s why we invested into it. And we look forward that — and we need to invest into the business, which makes proper sense and proper capital allocation with a proper rate of return on investment. We will do — take appropriate call as and when the proposal comes to the company. So we are in the growing mode.
Palash Kawale
Okay, sir. And sir is it possible to quantify the pillow and quilt capacity at the Indian facility currently?
Kailash R. Lalpuria
The pillow and quilt facility and what we have acquired, we have stated that 13 million pillows together can be produced in the U.S. and 1.5 million quilts can be produced additionally to the pillows. So this we have already defined and we have also defined that the peak revenue from both this facility would be around 85 million. And as we move ahead, we will sweat this asset because there are opportunities available in the utility bedding business.
Palash Kawale
Sir, I asked about the Indian facility. So is it possible to quantify the capacity at our current facility in India? How many pillows cases or quilts do we produce right now?
Kailash R. Lalpuria
We are already producing for our sheet set, these pillows in India. So there is no problem producing in India as well. And we have the desired capabilities and capacity to produce as much pillows as we can in the Indian capacity. We do — there are two pillows for every sheet set which we supply. So we are already producing pillows and supplying. So we can always add that. I hope I answered your question.
Palash Kawale
Yes, yes, yes. Thank you. Thank you very much, sir. I’ll come back in the queue. Thank you for your answers.
Operator
Thank you very much. [Operator Instructions] The next question is from the line of Surya Narayan Nayak from Sunidhi Securities. Please go ahead. [Technical Issues] Mr. Surya, your voice is breaking. We request you to use the handset mode. Mr. Surya, we are unable to hear your question. [Operator Instructions] We will take the next question, which is from the line of Gunjan Kabra from Niveshaay. Please go ahead.
Gunjan Kabra
Hi Lalpuriaji. Thank you so much for the opportunity. I have two questions. Firstly, sir, what is the thought process behind acquiring a manufacturing facility in the U.S.? So because the cotton production in India would be much lesser in terms of home textiles than the U.S. So earlier, we acquired some brands that was very good. But what’s the thought process behind acquiring the manufacturing facility in terms of Modern Home or Fluvitex? Second, I wanted to understand — if you can answer this one first.
Operator
Please can you hold your handset a little distant?
Kailash R. Lalpuria
Yeah, Gunjan, thank you for that question, a good question. See, the utility bedding business, in particular, the pillows are light in weight, and they are fluffier and full of fiber, and they occupy a large volume in a container. So the logistic cost, if you supply from India will be much, much higher per unit cost whereas if we produce in the U.S. to the retailer distribution center, it will be less. And the duty factor and the logistic cost will get compensated by the additional labor costs. Plus, this is a business of distribution, and that is the reason, say, in the U.S., [Technical Issues] utility is scattered around the major areas like the East, West, the Central part, the South and the Midwest.
So they put on plants who are there in order to distribute the goods effectively to the customers. The retailers also would not like to carry that on shelf for a longer period. So they cannot wait for a gestation period of 45 days for goods getting shipped from here. And the logistics costs are prohibitive. So that’s the reason they are fielding there and distributed. That’s the way the business is being carried out there.
The current utility business is in the hands of the private equity. And the private equity is focusing upon we are financial rather than on the business strategy. So particular section of the business is up for grabs. And that’s the reason because India can supply the shelf and fill it there, it’s a large opportunity for us to capture.
And that is the reason we, and in the peer group also, people are seeing this as an opportunity and investment with the biggest footprint. And secondly, the manufacturing in the U.S. is also helping into addressing the geopolitical issues because there is so much volatility into supplying products — utility products who are there.
So that is the reason we have invested into the U.S. manufacturing base to supply these POs. And the customer also at the end prefer into buying from factories who are closer in the U.S., who are onshore in the U.S. So that is the way the business is transacted.
Gunjan Kabra
Okay, got it. Sir, how much — so you’re saying that the margins will continue to remain the same. It’s not that because of the high labor cost there. It will get offset by the logistics cost, and it will not impact a lot in terms of margins per se.
Kailash R. Lalpuria
Yes, of course, because you see it’s like the margin will continue to be similar to what we earn today. And our expectation is how we can add more value through the branded approach to see that how we can further strengthen our margin, both operationally as well as through our marketing techniques.
Gunjan Kabra
Okay. And also wanted to understand, what’s the revenue that these companies are doing right now? And how much can — like what capacity utilization are they operating at right now? And how much time we will be able to ramp it up in terms of when Indo Count takes it over?
Kailash R. Lalpuria
So as far as Fluvitex is concerned, it is operating at 50% capacity. And as far as Modern Home is concerned, because it started this year only, it is operating at 35% capacity. So this we should be able to ramp up to 75% in FY ’26.
Gunjan Kabra
Okay, thank you so much. All the best.
Operator
Thank you very much. The next question is from the line of Deepesh Agarwal from UTI AMC. Please go ahead.
Deepesh Agarwal
Yeah, good afternoon, sir. My first question is, if I look at the additional cost which is coming in due to the branded business acquisition, that seems to be INR15 crores per quarter since last two quarters, which takes up the total amount to roughly INR60 crores of annual cost increase. How much of this would be an upfront cost and how much of this could be a recurring cost?
Kailash R. Lalpuria
No. As I mentioned, you see the inventory levels which have gone up. Those are the additional costs which we are incurring through interest on the working capital and the additional cost which we have maintained. So the recurring cost will be more or less similar to what we are investing into the expenses, which we are incurring except for some logistic costs, which might be reduced.
Deepesh Agarwal
Okay. No, my question is with respect to branded business, we will be making some investments, right? There could be some upfront costs and some would be the recurring cost as you spend on the marketing on the employee cost. So if you can tell us what is the quantum of upfront cost, which would be nonrecurring?
Kailash R. Lalpuria
No. See, the manpower and the logistic cost and the brand promotional expenses will continue. Now we cannot quantify because the brand promotion will depend upon how and which customer we promote the brand. The manpower, of course, will continue.
Deepesh Agarwal
Okay. Sure. Sir, the other thing is, if I look at inventory, the jump seems to be quite sharp. I mean if I look at on a Y-o-Y basis versus last year September quarter, that’s up almost 50% plus and even versus March quarter, 25%. Even if I account for 2.1 million shipment delay, that will, I think, reconcile the increase of such a sharp amount. Can you help us understand what happened more on the inventory side?
Kailash R. Lalpuria
So there are two things happening on the inventory front. One is the transit time is increasing to the U.S. because of the Red Sea issue. Second is the availability of the container at the right moment. The third is because of the volatility and geopolitical uncertainties we are also trying to prepone some of the shipments, which we are doing to the customer in order to secure their supply chain. So there is an investment into the inventory on the various accounts, plus we have been carrying the cotton till the year — till the season end.
The season has just started and we also import a lot of cotton, which are branded. So all this adds up to — you see the inventory levels and plus the increased activity. Because the volume and the value, the revenues are going up because of the increased activity also. There is additional working capital and additional inventory level to be carried upon. So those are the investments which we are doing. And as I mentioned, once they get normalized, we will come back to the normalized level as what we had projected at the beginning of the year.
Deepesh Agarwal
Sure. Sure. So basically, we account for our sales only when they reached to the customer warehouses and the transit period sitting in our inventory. Is that understanding correct?
Kailash R. Lalpuria
Yes, to some extent. Whatever we deliver to the U.S. company and you see when we are, like the incoterms, the DDP and the shipments we do on those terms where they — when they get delivered, the sales are being booked.
Deepesh Agarwal
Okay. Understood. So the effectively higher inventory also means possibly, in second half, we could have an higher sales?
Kailash R. Lalpuria
Yes. To some extent, yes. But whatever inventory, which I mentioned in my opening remarks, are going to get liquidated because of the additional transit goods as well as some goods which were in the process of shipping out. So once they happen, the inventory level will normalize.
Deepesh Agarwal
Understood. And sir, lastly, if you can share the existing revenue and EBITDA numbers for Fluvitex and Modern Home, I understand you have been — you’re guiding $85 million incrementally, but what is the existing number they are doing?
Kailash R. Lalpuria
See, Fluvitex, as a company, is doing close to $25 million with an EBITDA level of 16%. And MHT has just started this year. So it is getting up to speed and as I mentioned earlier that it is operating at 35% capacity utilization. So as we move ahead and with our product portfolio and with our kind of management and plus supplying them the shells to a certain extent, we should be able to ramp up both the capacity utilization as well as some margin savings.
Deepesh Agarwal
Sure, okay, thank you and all the best.
Kailash R. Lalpuria
Thanks.
Operator
Thank you very much. The next question is from the line of Surya Narayan Nayak from Sunidhi Securities. Please go ahead. Mr. Surya, your line has been unmuted. Please proceed with your question. [Technical Issues] Since there is no response, we will move on to the next participant. The next question is from the line of Palash Kawale from Nuvama Wealth. Please go ahead.
Palash Kawale
Sir, thank you for the opportunity again. Sir, your average realizations have kind of bounced back and have remained stable for last three, four quarters. So can you expect like a 5% CAGR for the next two to three years given the cotton prices remain stable? Is it a fair assumption to make?
Kailash R. Lalpuria
See, we are working always towards improving our margins because it should come through operational means. It should come through our brand promotion. It should come through higher scale of businesses, which we are attempting on the fashion bedding and other product category. So it is fair to assume that it should improve from here. But a dramatic you see improvement has still to be seen from whatever you see, volatility and other uncertainties we see around as India is also progressing in economy.
There is inflation. And the interest cost which we were getting, interest intervention, 2% has been withdrawn by the government from July onwards. So that’s why the interest cost has gone up. The labor cost is moving up. So you see there are a lot of balances, which we need to do while we stay competitive and we try to earn a better margin.
So our endeavor always would be to see how we add value to our entire product mix and see how we help to better customers and how we can optimize our costs moving forward. So those are the endeavors which we are always attempting to do, and that’s what you would also see that we have been able to maintain our margin to 16%, in spite of the additional expenses which we have incurred into various accounts which were one-off.
So I would only say that you see whatever investments which we are currently doing into every activity will start paying off, say, in FY ’26, ’27. So we are quite optimistic about moving ahead in order to both grow our revenue as well as our margins.
Palash Kawale
And sir, you mentioned that you can get to 75% utilization for newly acquired capacity in FY ’26. So even if I take a conservative number, is it possible that you’ll reach INR350 crores to INR400 crores additional revenue from these entities next year, apart from what you are doing in India?
Kailash R. Lalpuria
Yes, that’s what it means. You have answered my question.
Palash Kawale
Thank you, thank you for your response, sir. That’s it from my side and all the best.
Kailash R. Lalpuria
Thank you Palash.
Operator
Thank you very much. The next question is from the line of Prerna Jhunjhunwala from Elara Capital. Please go ahead.
Prerna Jhunjhunwala
Thank you for the opportunity sir. Just wanted to understand how this acquisition.
Kailash R. Lalpuria
Can you speak a little bit louder Prerna?
Prerna Jhunjhunwala
Yeah, am I audible, now? Sir, just wanted to understand with these acquisitions in pillow cases that you are doing now, is it only for U.S. market or it will be used for other markets as well? And you mentioned about the cost advantage that is there by setting a facility over there. But at the same time, how will the logistics work in terms of fabric procurement on, whether it will be procured from India, your units, or it will be procured from here by destinations?
Kailash R. Lalpuria
No, you mean to say the supply chain like the shells or?
Prerna Jhunjhunwala
No, no, not the shells. Both the shell as well as the fillings?
Kailash R. Lalpuria
Yes. So you see there are options available to us. So it is economical, mostly, we will try to see how we can support the supply chain from our shell. So the endeavor would be that but if there are certain special fabrics which are much more competitive, like saying synthetic or blends, where other countries are also very competitive, so we will treat this as a separate profit center because this acquisition has been done through our Indo Count global and U.S. subsidiary.
So we are treating that as a separate profit center. And we will see to it that wherever there is competitiveness apart from cotton where India is competitive, we will outsource that from either nearby countries or from the same country because this fiber is also available in the U.S. and from other countries as well. So that answers your question, but our endeavor would be to utilize our capacity initially as it works out on the price level.
Prerna Jhunjhunwala
These acquisitions, suddenly, you and your peers, both have started doing these pillow acquisitions. So anything specific that is happening in pillow which we should know? Or is it just coincidence?
Kailash R. Lalpuria
So you see it’s a coincidence. Basically, these companies were doing well. And as we have been growing our business in fashion, utility, institutional, which I have been mentioning every quarter and every year, so we have been focusing on to see that how we develop these three segments, particularly which are correlated to the bedding segment.
So we are a focused player. And when it comes to set pillow, it is part of the bed linen segment. So once we were investing and growing the utility fashion and the institutional business there, pillows from the part. It just so happened that we went ahead with this acquisition in order to grab this opportunity and the customers we are also not overlapping. So as a business decision, we have taken this.
And as I mentioned earlier, the utility bedding business because of the logistics issues and because of supply chain and the China Plus One issue is there, where China was dominating, we saw this opportunity and we went ahead and did this acquisition. So that much I can say. Now we will focus upon this category because we are a focused company on the bed linen side. So definitely, pillows form part of this overall [Technical Issues] and we will focus upon it to see how we can scale it up.
Prerna Jhunjhunwala
Okay. And sir, the cost structure in the businesses are increasing now with respect to logistics costs like freight or containers cost or maybe also Indian cotton prices are expensive to international cotton price because of import duty and government interference. So how are we — how are the margins of the core business — apart from whatever investments we are doing is impacting our business for future growth. But how are the core margins behaving now and are looking for the future?
Kailash R. Lalpuria
That’s what I mentioned, Prerna, in my earlier answer. You see, there are challenges, of course, on the margin front because as the Indian economy is growing and the inflation in India is growing, there are challenges. We’ve been in manufacturing here. We are incurring costs, but our entire endeavor of the company is to see that how we move into the value addition segment.
Now the value addition segment, when we say, are the fashion, utility, institutional business, which we have been saying upon all these four, five years where we have strategically moved into — from our core business of sheet, which we have also demonstrated in our investor deck that we are entering into a target market of $11 billion, which China was dominating.
So you see there is a big opportunity out there in order to scale up our business in those activities where there is a better target market instead of moving into a smaller target market area in other product category. So definitely, you see — we see that — you see we need to balance out through value addition means to better customers, better product mix and see how we can operationally excel into producing more competitively as we move ahead.
So this is the balance which we have been doing on as a company, and we are investing into automation, into technology, into our talented people, teams, etc, and see that how we can market effectively in the marketplace still keeping our margins intact and grow from there. So this is what we are attempting to do.
Prerna Jhunjhunwala
Okay. Understood, sir. And last question, sir. This Indian capacity, given the current scenario and new businesses, when do we see full utilizations coming in?
Kailash R. Lalpuria
See, we have already like started this journey. And when people ask us about our GHCL acquisition that doesn’t have happened, we would not be answering this question today. So it has worked well for us. And the capacity which we have drawn is like world-class to the extent of 153 million meters. Now we already have given a guidance, and we have like see that looking at the trend and looking at the business, wherein we are walking in the future, we are confident that, say, by FY ’27, we should be able to utilize the capacity till March ’27.
Prerna Jhunjhunwala
Okay. Very helpful, sir. All the best. Thank you, sir.
Kailash R. Lalpuria
Thank you Prerna for the question.
Operator
Thank you very much. The next question is from the line of Dipen Shah [Phonetic], who is an individual investor. Please go ahead.
Analyst
Yeah, thank you very much for the opportunity. I had a couple of macro questions. You mentioned in the opening remarks that the situation in the export market is improving. If you could just give us some more insights into whether the destocking is completely over and when do you expect the restocking to start, especially with relating to the season which comes after the festive season, that is after the Christmas.
So would we have some more visibility into how the first half of the next calendar is panning out for you? That is the first question. And the second question is, there were some news reports, though unconfirmed, that the Red Sea issue is getting solved over the last two to three days. Would you have some insights on that, maybe some ground realities, if you could help us on that? Thank you so much.
Kailash R. Lalpuria
So second question, I was not able to pick up, Dipenji.
Analyst
Yeah, there was some unconfirmed reports that the Houthis have declared a ceasefire and the situation in the Red Sea could improve from here on. So is that something which you are also seeing because that is a very important part of our cost, which has impacted us over the past few quarters.
Kailash R. Lalpuria
So to answer your second question, we haven’t heard about that as a confirmed report yet from both shipping companies as well as informed resources at our end. But if you have that information, you can share with us. But I would here submit that the freight costs, in general, have pulled down a little bit. But still the supply chain transit time is still there due to the Red Sea issue, which has impacted everybody’s working capital to the expense of almost 25 days more. So we feel that.
As far as the demand is concerned, as I mentioned in my opening remarks, there are positive steps taken up by the U.S. in form of reduction in the interest rate, which is putting a positive tone in the overall market. And it has helped companies to redeem their confidence that the federal government is inclined to take positive steps to make the business happen.
Then now we have the elections also over. So we will see to it that these are behind us. And proper policy formulation, which are forward-looking, should help the business to improve from here because once the administration starts working in the form of improving the economy, which they would. This is what our belief is and definitely, it will include the overall situation and environment of the market. Now whatever which we are seeing from my customers, the destocking is over. So there is no question of any stocks being carried over and that’s the reason you see we had given an indication of an improved guidance on the volume side, which is also happening for our results also which you can see that [Technical Issues].
And if we would have been able to normalize our inventory level, it would have been further up. So to answer your question, the demand is improving. I can only say that if the Red Sea improves, it will be a big relief for all of us as exporters. It should be helping us in the positive direction. Definitely, the cost will come down and the requirement of the situation would improve, providing us more opportunities to export to different countries and to different markets.
Analyst
Sure. Right, sir. Got it. Thank you so much and all the very best to you.
Kailash R. Lalpuria
Thank you Dipen.
Operator
Thank you very much. The next question is from the line of SimranJeet Bhatia from Almondz Financial. Please go ahead.
SimranJeet Bhatia
Yeah. Thank you for giving the opportunity. Sir, I have three sets of questions. Can you guide us when we are going to see the peak level of debt — total debt in the company in upcoming years? And because currency gross debt is close to around INR400 crores, so when you are going to see the peak level of debt? I think can you give some guidance when we can fully absorb the expenses, which we have incurred for the acquisition in upcoming quarters?
And third, as you know, we are hearing a lot of things on the U.S. economy with Trump elected as President that the way we are going to go for the tax cuts and government borrowing is bound to increase. And there is some deportation of the people from the U.S. So as per the report, this will lead to increase in the inflation in the U.S. economy. Are you seeing that in 2025? Will the increase in inflation in the U.S. economy impact your business to some extent? These are the three questions.
Kailash R. Lalpuria
So I’ll answer you the third question which you asked. So it will be appropriate to mention here that let Mr. Trump take office by end of January 2025, then we will start formulating the policies. I can only say that with the current President, India enjoys a good relationship and there is a positive outlook, which we hear in the entire media that India has got a better relationship and which India always enjoyed with the U.S., whichever government was there. But this will be better off, that’s what people anticipate, and we also anticipate the same.
As far as duty is concerned, I already answered that. Once he takes office, we will be better off into saying that how the policies will be worked out towards addressing the overall economy. But I think futuristic he’s a forward-looking President, strong in economical order and should definitely help the businesses to grow. So that’s what is his agenda, which he has spelled out during his election campaign. So this is your answer to the third question.
As far as the expenses are concerned, we have already mentioned that these are initial expenses, wherein we are trying to promote our brands, which we have acquired and which we have licensed for. Our attempt is to see how we can sell our product mix into the branded segment, wherein we have elevated to the premium and branded segment regarding the positioning of these brands in the marketplace. So once we start getting results, which we would for FY ’26 onwards, we have already indicated that our branded sales would start coming in from Q4 onwards to a certain extent, and it will ramp up in the FY ’26.
And plus the assets where we have invested in, we had hired human resources to handle the U.S. manufacturing and the marketing as well, wherein these revenues also from the acquisition will start coming in FY ’26, which I already mentioned, this will be to the extent of 75% of our capacity utilization. So this will also help in to pull in certain expenses. So the expenses will start reducing by, say, FY ’27, it will be coming into full absorption. So as far as the expenses are concerned, I’ll answer your second question.
The first question is about the debt — the overall debt. So as I mentioned in my earlier statement also, the inventory level has moved up. So the working capital has moved up because of increased activity and because of certain spillover due to the supply chain issue. I’ve also mentioned that this will normalize by — towards the end of the year to a certain extent. [Technical Issues] certain investment into working capital which still remains. And if you can very well observe that there are so many uncertainties and volatilities in the world. Just now certain question was there about Red Sea, the Houthi agreement happened.
And there is then this container issue is there, the freight issues are there, the transit time issues are there. So we are addressing as we move ahead, all these activities in the normal business core. And once they normalize to a certain extent, which we all hope so it will help us into reducing our overall debt. And as I mentioned earlier too, we are a growing company. And as I mentioned, we are walking through the Version 2.0 of Indo Count where there is a transformation happening that we are entering into new product categories, new businesses and new manufacturing setup.
So this all will help us into drawing further revenue in FY ’26 and ’27. And as we indicated, in FY ’24, that we will double the revenue. We still are on track towards that. So I can only say to that, that once we start drawing in revenues through our assets and the sweating of this asset will help us not only reducing the expenses and the debt, but the overall situation and improving our margin profile.
SimranJeet Bhatia
Done sir. Thank you for answering in that way. Thank you sir and all the best to the Indo Count team. Thank you, sir. Thank you.
Operator
Thank you very much. The next question is from the line of Surya Narayan Nayak from Sunidhi Securities. Please go ahead.
Surya Narayan Nayak
Hello, sir. Am I audible?
Kailash R. Lalpuria
Yeah, now you are audible, loud and clear.
Surya Narayan Nayak
Okay. So most of the questions have been answered. So one question is that how the branded for the segments of estimates of around to 20 million to 22 million meters of linen sheets that you are planning to add off or ramp up in next three years? If you can throw some light on that.
Kailash R. Lalpuria
What we have mentioned, Mr. Narayan, is that we will be able to draw in revenues to the extent of $100 million in the next three years. And this will start from say this Q4 of this year FY ’25 and will ramp up in FY ’26 and ’27. Now the question of utilizing our capacity is concerned as we had earlier also conveyed when these are across product categories in the brand which we are promoting.
So it is not only bedsheet, but bedsheets are part of this overall metric. We are also supplying in the brands like bath, curtains, windows, rugs and other accessories. So it will formulate. It will be to see how much we utilize our capacity from here in India. So once we ramp up this sales in FY ’26, we’ll be better off to tell you how much capacity utilization will be handled — will be through our branded sales. So we’ll be better off than, Mr. Narayan, to tell you that.
But our endeavor, as I mentioned to the earlier question are also will be to see that how we utilize our capacity from the branded sales over here in India. Wherever there is a cotton outplay, we should be able to do that because India is competitive in cotton. Wherever there is synthetic material, India is 38% expensive to China. So this is where I’m coming from.
Surya Narayan Nayak
So my understanding is that it’s around the current price level, we will be getting volume of around 20 million to 22 million meters. So just if you can — if we can assume some percentage, maybe 10, 30, 60 ratios, so that kind of possible for next three years. Because the current — another point is that current utilization is hovering around 73%. So we could be heading towards 70% utilization this year. So because brands could be asking for a different set of patents and designs, so will it affect the overall utilization anyway?
Kailash R. Lalpuria
It will definitely. As I mentioned, wherever there is a cotton and wherever our product, which will be consumed by the brand, definitely, it will add on to capacity utilization, but we cannot mention in million meters as of now because this will ramp up later.
Surya Narayan Nayak
Okay. And sir, given your capex program of around INR413 crores and you have migrated some of the like agility and solar projects to FY ’23, so what could be the date levels we can think of to repay because some of the debts are related to the acquisition has come. So are you thinking of repaying any debts on the longer side — long-term side?
Kailash R. Lalpuria
Yes, of course because as we draw in internal accruals, definitely our endeavor will be to reduce our overall debt because the interest rate has normalized now to almost like 7.5%. It is costing us due to withdrawal of the interest securitization scheme by the government. So the company would always see to it that how from an internal accrual, it can invest into growth wherever there are opportunities and also, at the same time, manage the inventory and the working capital efficiently. And third is to reduce the debt.
Surya Narayan Nayak
Okay. And sir, in the working capital side, I agree that to some extent, due to supply chain issues, the inventory level has spiked maybe around 15 to 17 days. And overall, it is around 27 days gross basis, gross working capital. So what can we — what can you see that due to the crisis, getting result near term as the media reports are suggesting to pan out for FY ’25 and ’26 and the rest of it, part of FY ’25 and FY ’26?
Kailash R. Lalpuria
So you see there are two issues here. One is the increased activity on the overall business. So that is increasing our inventory level on an absolute term. Number one. Number two, because of the volatility and the supply chain issue, you see, it is adding on to goods. And process also of supplying through our U.S. offices will also increase the transit time.
And that is the reason it is hurting on the number of working capital days in the overall inventory level because we can only book sales when it is delivered over there in the U.S. And that itself has increased by almost 20 days. So what we anticipate in the future going forward is if the logistic issue is normalizing, we definitely will be able to reduce, as I mentioned earlier, and normalize the inventory level by the end of the year.
Surya Narayan Nayak
Okay. Okay. And sir, regarding the certain expenses that has come in as legal expense and other things. So I — you — in the opening remarks, you said some expenses will be still built in. So as an exceptional item, so how much we can attribute to the initial expenses of the acquisition?
Kailash R. Lalpuria
So it will be hard to say because you see those are not very large and substantial, but the overall expenses towards human resources, towards the infrastructure creation of the brand like the showrooms, etc, then investing into initial pre-operating expenses to acquire the asset. So all these are summed up together, and that’s why you see we reported that immediately.
And I answered that question also that apart from logistics, the other will be recurring to in the nature like the human resources and brand promotional expenses because our endeavor is to promote the brand and to promote the new acquisition, which we have done, their product mix. So it will continue to a certain extent. But the good thing is that once the revenue stream starts, we will be able to absorb these expenses.
Surya Narayan Nayak
Okay. Okay and sir.
Kailash R. Lalpuria
Because the revenue has not started, it is straight away eating up our EBITDA.
Surya Narayan Nayak
Yeah. Yeah. And sir, regarding the peak revenue of the acquired assets are roughly around INR700 crores to INR800 crores of revenue that is onshore. So how much differential in the logistic cost from Indian operations is going there? And vis-a-vis the — also on operations supplying to the U.S. market.
Kailash R. Lalpuria
So that’s a difficult question to answer because you see there are many kinds of pillows and quilts which are offered into different wage structures. So we cannot calculate what would be the freight difference if we supply INR700 crores and INR800 crores from here. It will be quite substantial because if you see that in a container, you can just tuck 2,500 kilos and it costs you almost like $6,000. So how you justify that?
You cannot sustain that. So you see we need to relook at the overall business model, which is being pursued by the existing player out there, where this is a game for distribution and manufacturing in the U.S.A., and this is a preference by the customers that they need the manufacturing closer up to the distribution base. And that’s what we have to venture into. And that’s what we did. So it should be looked from that angle.
Surya Narayan Nayak
And regarding capex, sir, regarding the acquisition drives that have been made since last couple of quarters. So shall we mean that it is, at the moment, a pause mode or still something is growing? I mean that is from my conviction.
Kailash R. Lalpuria
So you see, we are studying the utility bedding business overall because now we have acquired two facilities, which is one on the Midwest, second is on the West Coast. So we are seeing how it will pan out. And as a company, you see the Board will take appropriate call that as if the opportunities arise, we will go into both organic and inorganic means of investing into the business because the business opportunity is there and that we need to capitalize properly.
Surya Narayan Nayak
Okay. Okay, sir. Just last question is that what would be the threshold utilization level of Indian operation you see before you kind of plan to set up or expand the brownfield operations maybe in Bhilad?
Kailash R. Lalpuria
So I already mentioned that by FY ’27, we are anticipating to utilize our current capacity, and the Board will take appropriate call. Once we have completed FY ’26, there will be visibility of what expansion we should do and where.
Surya Narayan Nayak
The threshold utilization level, I’m asking.
Kailash R. Lalpuria
It should be in the range of around INR145 million in textile, you can’t reach INR153 million. So it should be in the range of, say, INR144 million, INR145 million, should be considered in my view, depending upon, again, the product mix. So 90% or 95% of the capacity utilization, once it reaches, the Board will take appropriate step.
Surya Narayan Nayak
And sir, the yarn side, do you see any softening going forward? Because when we see certain other countries like Turkey and Vietnam, some kind of slowdown happening. So do you think those things would be favorable to — favorable for us going forward?
Kailash R. Lalpuria
I already mentioned that you see India is considered as a manufacturing hub now both post-COVID and post all these logistics and geopolitical issues. And we all mentioned about China Plus One, which is happening. We can all realize through the FX data that where market share has reduced dramatically in various spots. And plus the overall environment to deal with China.
Chinese supply chain is getting more and more difficult, so which is favoring countries which are producing textile. And in my previous call also, I mentioned that there are five major countries producing textile, China, India, Pakistan, Bangladesh, Vietnam, where Bangladesh and Vietnam are labor arbitrage. Pakistan has got a saturated supplier of textile and they do not have more investment coming in, modernization coming into textile because of their economical condition.
China, everybody is speaking about their market share in pretty large. So the only market share, which will fall into the lap of countries like India because India has got a complete value chain to support the supply chain. And securing the supply chain if the future. It’s becoming much and much important to the retailers because they do not want to lose out on their shelf, the material so that they lose the customer at the end.
So India promises vendor supply chain as well as India has performed in the past in home textile by grabbing the market share to the extent of 60% in sheet and 45% in towel. This proves that our competitiveness is intact. And going forward, India is investing into textile more and more with the government support. It should help us to ramp up our competitiveness more and grab more market share from the other countries. So definitely, it’s a positive thing.
Surya Narayan Nayak
Okay, sir. Thank you sir.
Kailash R. Lalpuria
Thank you.
Operator
Thank you very much. Due to time constraints, this was the last question. I would now like to hand the conference over to the management for closing comments.
Kailash R. Lalpuria
Thank you. I would like to reiterate that Indo Count is positioned in its next phase of growth Version 2.0. Our strategic investment in utility beddings and premium brands are driving our expansion. While these investments are temporarily impacting our margins, we are confident they will create a more diversified and robust business over time. We continue to focus on generating strong shareholder value through our ongoing investments and efforts to improve operational efficiencies, sustainability and market share. Thank you.
Operator
[Operator Closing Remarks]