Nitin Spinners Limited (NITINSPIN) Q4 FY23 Earnings Concall Transcript

Nitin Spinners Limited (NSE:NITINSPIN) Q4 FY23 Earnings Concall dated May. 08, 2023.

Corporate Participants:

P Maheshwari — Chief Financial Officer

Dinesh Nolkha — Promoter, Managing Director

Analysts:

Awanish Chandra — Moderator

Chinmay — Emkay Global — Analyst

Suryanarayan — Sunidhi Securities — Analyst

Falguni Datta — Jet Age Securities Private Limited — Analyst

Pankaj — Affluent Assets — Analyst

Aman Madrecha — Augmenta Research Private Limited — Analyst

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Rahul Soni — ICICI Bank Limited — Analyst

Krishna Kumar — Lion Hill Capital Private Limited — Analyst

Vishal Ramchand Panjwani — Elara Capital — Analyst

Vikas Rajpal — VK Capital — Analyst

Anil Kumar Sharma — Individual investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Nitin Spinners Limited Q4 FY ’23 Post-Results Conference Call, hosted by SMIFS Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Awanish Chandra. Thank you and over to you of Awanish.

Awanish Chandra — Moderator

Thank you, Zico. Good evening, everyone. On behalf of SMIFS Limited, I welcome you all to Q4 FY ’23 and full year FY ’23 conference call of Nitin Spinners Limited. We are pleased to host the top management of the company. Today we have with us Mr. Dinesh Nolkha, Promoter and Managing Director of the company and Mr. P. Maheshwari, CFO of the company.

We will start the call with the initial commentary on results then we will open the floor for question-and-answer.

Now I will hand over the call to Mr. P. Maheshwari, CFO of the company. Over to you, sir.

P Maheshwari — Chief Financial Officer

Thank you, Awanish ji. Good afternoon, and warm welcome to all the participants to this Investor Call post for fourth quarter FY ’23 an full year FY ’23 results. I hope all of you must have had a chance to look at our investor presentation that is uploaded on Company’s website as well as the stock exchanges before Dinesh ji elaborate on present industry and business scenario, and giving the brief highlights for the quarter and year ended 31st March 2023.

Revenue for Q4 ’23 is INR654.380 crores, again INR537.20 crores in the same quarter last year. And last year December quarter, that is an increase of 21.9% on Q-on-Q basis. On year-on year basis, revenue declined by 15% from INR769.06 crores to 654.80 crores.

Full-year revenue for the current year is INR2,706.41 crores, against last year’s revenue of INR2,692.32 crores, that is a decline of 10.6%, mainly due to shortfall in yarn production.

Exports for the quarter are 62% against total revenues, against 52% in Q3 ’23. Exports for the full-year was 56% of revenue against last year’s 72%.

EBITDA for the quarter stood at INR70.98 crores as compared to INR60.12 crores in Q3 FY ’23 and INR167.4 crores in Q4 FY ’22. Cumulative EBITDA for the year is INR297 crores against INR652 crores in FY ’22.

EBITDA margin for the current quarter is 10.84% against Q3 margin of 11.19% and Q4 ’22 margins of 21.8%. pointed. We reported PAT of INR38.54 crores during the quarter, against INR31.58 crores in Q3 ’23 and INR85.47 crores in Q4 ’22.

Cumulative PAT for the current year is INR164.81 crores against last year PAT of INR326.14 crores. EPS for the quarter is 6.86 per share and for full year, it is 29.32 per share. Cash EPS for the quarter is 10.64 per share and for full-year it is 34.76 per share. That is all from my side. I now request Dinesh Ji to apprise about industry and business scenario.

Dinesh Nolkha — Promoter, Managing Director

Good afternoon, everyone, and thank you for joining the call. Let me just brief you about the industry and business scenario. As discussed in our earlier conference calls and discussions, financial year ’23 was a very difficult year for the Indian cotton textile industry as it faced multiple challenges during the year, like very-high price volatility, higher absolute prices of raw materials, relative price difference compared to international markets, resulting in competitive advantage for Indian spinners in the international markets, and demand slowed down due to geopolitical tensions and inflation in European and U.S. economy.

Cotton prices in domestic and international markets have stabilized, and volatility has been reduced since last four, five months, and gap between the international and domestic prices have also corrected to a large extent. Due to unprecedented volatility in cotton prices and skill disparity between international and domestic cotton, the industry remained uncompetitive and had to resort to production cuts mainly in Q2 and Q3 of last financial year.

Now the utilization in spinning industry is restored to normalcy with stable cotton prices and demand situation has also started to improve due to slight improvement in the retail side and reduced inventories in the downstream channel as well as various opportunities created by China Plus One strategy.

Coming to company’s performance during the quarter and year, I would like to highlight that average utilization of spinning was 93% in the last quarter as against 80% in the previous quarter. Due to a weak export demand, the margins continued under pressure, so the top-line growth [Indecipherable] by 22%. Further, the finished garment division continued on an optimum capacity utilization, demand from export has started to pick up. We have seen uptick in export market majorly from European countries, China and Latin-American countries, however, demand of knit fabrics and the [Indecipherable] level yarn has still to pick up to the levels we expected it to.

As regards yearly performance, the company has been able to achieve top-line of INR2,407 crores in-spite of extremely turbulent times, the decline of 10.6% in annual revenue is mainly due to planned lesser production in Q2 and Q3 to avoid heavy losses. Overall margin remained under pressure due to high volatility in raw-material prices during the year and the global challenges.

The company continues to focus and increase the share in value-added market segments and penetrating more in domestic markets. With expanded capacities the cost competitiveness will improve, and also it will help us to widen our product basket, enabling us to cater to the right product mix of existing as well as new customers.

Now an update on the capex. We have already commissioned our weaving and knitting machines and finishing plant, that is the fabric production that processes out, is expected to commission during this quarter.

As regards to spinning, erections of machines are in progress, and partial trials have been started. In our Chittorgarh unit, the erection of machine will start from July. So overall, we are on track with execution, and expect to commence the project within the timelines and envisaged during the initial period, barring a small capacity due to heavy delay in supply of electronic components from our suppliers.

This is all from my side. We are now — we can now open for questions from the participants.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Chinmay from Emkay Global. Please go ahead.

Chinmay — Emkay Global — Analyst

Yeah, thanks for the opportunity. First, I wanted to understand what has been the spread for the quarter and the year.

Dinesh Nolkha — Promoter, Managing Director

Basically, if you see. Our total yarn spread was from raw-material to the yarn is about INR100 — INR103 or INR104 for this particular quarter. And for the year, it was slightly higher at about INR112 or something like that.

Chinmay — Emkay Global — Analyst

Okay, and at the end, it looks like the inventory levels looks higher. So is it that you guys have already bought cotton for the rest of the year, and what is the average price for the same?

Dinesh Nolkha — Promoter, Managing Director

Normally we do not disclose the average prices. It is in line with the marketplaces, and, yes, definitely it is higher than the last year. The inventory level is higher than last year. We generally follow a principal of not to have too much of stocks with us at a reasonable level. Last year, because the cotton prices were very high, we did not stock too much, this year it very reasonable.

Chinmay — Emkay Global — Analyst

So how many months or something, any data on that? How many months of inventory do we have?

Dinesh Nolkha — Promoter, Managing Director

Basically, that is in normal data, which we do not want to share on the confidential reasons. You can always calculate it with the numbers which is available with you.

Chinmay — Emkay Global — Analyst

Okay. And in terms of the project that is going to be commissioned, on the spinning side, you said it will be done based on the timeline emphasized earlier, which like September ’23 right?

Dinesh Nolkha — Promoter, Managing Director

Yes.

Chinmay — Emkay Global — Analyst

So in terms of benefits, coming weaving and knitting is already done, so if you can just bifurcate 1H and 2H, some part of the benefits will come in 1H as well, right, from these two ends and spinning should give some benefit on H2, is it fair to understand?

Dinesh Nolkha — Promoter, Managing Director

Yes, definitely, definitely.

Chinmay — Emkay Global — Analyst

And so, how much has been spent as on — 950 was the total cost out of which 850 was hard cost, so let us know what is the exact money that has been spent and what is left till now?

P Maheshwari — Chief Financial Officer

As of now, we have spent nearly 600 crores.

Chinmay — Emkay Global — Analyst

Okay, so from a plant perspective, INR250 more crores need to be put right.

P Maheshwari — Chief Financial Officer

Yes.

Chinmay — Emkay Global — Analyst

Okay.

P Maheshwari — Chief Financial Officer

Basically, we have spent INR600 crores, out of which about INR560 crores is on plant and machinery and INR40 crores on the working capital and others. So this will be — so we are still left with about INR280 crores, INR290 crores for capital expenditure and another INR30 crores, INR40 crores for the working capital.

Chinmay — Emkay Global — Analyst

So based on the current cash flows, how much more debt we will be requiring, sir, for FY ’24>

Dinesh Nolkha — Promoter, Managing Director

Basically, at the end of the March ’24, you can, that is the basic idea, which is required. That is — we will be — Our total debt should be in the range of about INR1,350 crores to INR1,400 crores inclusive of our working capital requirement. Our long-term debt will be about INR810 crores, and short-term debt will be about 550 — in the range of INR500 crores to INR550 crores, depending on the inventories and others.

Chinmay — Emkay Global — Analyst

Okay sir, thanks a lot and best wishes.

Operator

Thank you. Our next question is from the line of Suryanarayan from Sunidhi Securities. Please go ahead. Mr. Suryanarayan, your line has been unmuted. Please go ahead with your question.

Suryanarayan — Sunidhi Securities — Analyst

Yeah, congratulations for good set of numbers in this challenging environment, Dinesh ji. My question is — first question is, apart from the cotton, we are also using some other fibers. So, what is the fiber mix for closing of FY ’23 cotton vis-a-vis others.

Dinesh Nolkha — Promoter, Managing Director

Yes, so basically if you see last year, our total consumption, if you see of cotton, was 90%, about 91% to be precise. We are also using some viscose, which was about 1.5% and another 7% to 7.5% on the polyester side.

Suryanarayan — Sunidhi Securities — Analyst

Okay, so, and going forward, is the cotton prices, because there are, in exports, a lot of demand from the European side, also coming from the blended ones, so will the blended ones will increase to see a reduction in the cotton mix?

Dinesh Nolkha — Promoter, Managing Director

Basically, what we are — definitely as a mix, we definitely will have a reduction in the cotton side, we will have more of polyester and other fibers going forward, but overall consumption of cotton will not come down because our capacity in the cotton side is also getting better.

Suryanarayan — Sunidhi Securities — Analyst

Okay, so, what could be FY ’24 ballpark figure for cotton versus man made.

Dinesh Nolkha — Promoter, Managing Director

To be about 85-15.

Suryanarayan — Sunidhi Securities — Analyst

85-15, and the second question is that, we have provided taxation to the extent of only 6% versus earlier guided around 9%, so considering — when we will be assessing next year, I hope we are entering into 25% taxation region. So, is the current taxation, whatever has been provided, lead to final [Indecipherable] any data regarding this?

Dinesh Nolkha — Promoter, Managing Director

So, this year, tax period is considering, revising the deferred tax liability which has provided in the region of 34%. So next steps, the tax will be 25%.

Suryanarayan — Sunidhi Securities — Analyst

Sir, these tax provisions is final regarding the tax?

Dinesh Nolkha — Promoter, Managing Director

This is final, these are audited figures.

Suryanarayan — Sunidhi Securities — Analyst

Okay, and sir, other question is that compared to the normal [Technical Issues] what is the value-added yarn we are making.

Dinesh Nolkha — Promoter, Managing Director

We are making various varieties of yarn, we are stretch yarn. We are also making slub yarn. Going forward, we are going to produce gas yarn. Also, we are making some specialized blended yarn with high tensile requirement, so that in the special category. And also we are trying to develop the products as per the various industrial end user needs also. We in different kind of parameters are desired. So we are making for different applications, for high-strength as well as different applications as well.

Suryanarayan — Sunidhi Securities — Analyst

Well, if I were to classify into the yarn from let’s say below 30 count and plus above 30 counts, I mean specialty side, up to lets say, 80 or so whatever it could be providing, and slub yarn and other yarn. So, if you can give some kind of percentage figure in terms of daily wise or weekly [Phonetic] wise.

Dinesh Nolkha — Promoter, Managing Director

That I’m sorry to say, we will not be able to share the exact data for this. We are not having it ready with us. And due to confidentially reasons, we will not be sharing this, but I can tell you we are not considering 30 count and above as a specialty yarn. For us, all the normal combed and compact yarns are considered as normal yarns only. When we do something additional over and above this, so that we have a higher Value add, we get better realization and it has a different application, then only we considered it value-added categories.

Suryanarayan — Sunidhi Securities — Analyst

Dinesh ji, value added could be around 10% to 15% higher realization compared to normal combed yarn. So, I believe you know if you can quantify the volume also, I mean in the ratio of lets say, normal combed yarn to other value-added yarn. That kind of ratio will help.

Dinesh Nolkha — Promoter, Managing Director

At the moment we are not having the data, maybe will work out and share with you.

Suryanarayan — Sunidhi Securities — Analyst

Okay, I will later, sir. Thank you.

Operator

Thank you. [Operator Instructions] Our next question is from the line of Falguni Datta from Jet Age Securities Private Limited. Please go ahead.

Falguni Datta — Jet Age Securities Private Limited — Analyst

Yeah, good afternoon, sir. You mentioned the space for Q4 to be INR104 rupees a kg, so what was the number for Q3?

Dinesh Nolkha — Promoter, Managing Director

I think for Q3, the number was about INR94 or INR95, actually we will be able to exactly tell you.

Falguni Datta — Jet Age Securities Private Limited — Analyst

Okay and sir, how would it be now as we speak?

Dinesh Nolkha — Promoter, Managing Director

More or less like a similar kind of situation is there. Cotton prices have been very, very stable for last four months. They have moved in very short-range, and accordingly, the yarn prices have also not been going up and down too much, in between they went up slightly, and again, they have come back to similar levels. Of course, they are in the January and early February. So, the range is more or less the same.

Falguni Datta — Jet Age Securities Private Limited — Analyst

And sir, what is the current price for30 count yarn?

Dinesh Nolkha — Promoter, Managing Director

Because on the kind of product we are making, for 30 compact, we think the pricing is in the range of about INR265 to INR275, depending on the quality.

Falguni Datta — Jet Age Securities Private Limited — Analyst

So, when we say 30, normally people refer to 30 compact, is it?

Dinesh Nolkha — Promoter, Managing Director

Yeah, that’s why I mentioned the bracket 30 combed, 30 compact, 30 weaving, so there are various kinds of products in the 30s also, that’s why I’ve given you a range of [Speech Overlap]

Falguni Datta — Jet Age Securities Private Limited — Analyst

30 combed would be how much?

Dinesh Nolkha — Promoter, Managing Director

Madam, we will not be able to share such information.

Falguni Datta — Jet Age Securities Private Limited — Analyst

Okay. Fine sir. Can you just give us an idea of how do you see the export market for FY ’24, if you compare them with the last year?

Dinesh Nolkha — Promoter, Managing Director

Definitely. Yeah, actually last year we have been too much of volatility. Prices were falling continuously and customers are scared to buy, and customers wanted to finish their inventory which they were carrying of higher price. So, there was a restricted buying. Considering that the prices have stabilized and normalized, we would prefer to have basically that going forward. Demand will increase. And this, we are also seeing and feeling from customers. So definitely this will be a better year then the last financial year. Of course, still we have to reach the level of FY ’22, which will not be there, because that particular year, the demand was very good.

Falguni Datta — Jet Age Securities Private Limited — Analyst

And sir, my last question. I just missed on your export percentage for the last Q4.

Dinesh Nolkha — Promoter, Managing Director

It was 56%.

Falguni Datta — Jet Age Securities Private Limited — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Mr. Pankaj from Affluent Assets. Please go ahead.

Pankaj — Affluent Assets — Analyst

Thanks for taking my question. Am I audible?

Dinesh Nolkha — Promoter, Managing Director

Yes, you are audible.

Pankaj — Affluent Assets — Analyst

Hello. Well, sir, just wanted to understand the industry scenario as compared to last quarter. I mean, Q3 and Q4 spreads are improving, if I could read right. And from the commentary of other management, I could understand that the destocking phenomenon, which was affecting the industry has been put to rest, and it is bottoming out. So just wanted to understand what is the industry scenario, global scenario and also the weakening of economies around peer economies which are surrounding us, and what would be the impact of the same on our near future?

Dinesh Nolkha — Promoter, Managing Director

Well, first of all, the industry scenario in general — in general, there was a slowdown in the textile segment all around the world. There was a fear of recession due to which a lot of retailers went into reduce their inventory. Interest costs for them were also increasing, so to balance it also, they had resorted to the inventory cut. But fortunately for the industry, the retail sales have not come down substantially. Even if the numbers which is being reflected by various economies, if you see the actual number of pieces which are being sold, has not done come down substantially. So as such demand at the customer end is reasonable, and we expect after this reduction in the prices, substantial reduction in the prices in last eight, nine months, and also a reasonable inventory levels at various retail level as well as the manufacturing level, the demand should be stable. So, going forward, we foresee that demand remaining reasonable. Yes, there are [Indecipherable] in various segments of the industry, so some of the industry segments are doing well and some of them are still to recover. So that is a natural course which will take care, which will happen over the course of next six to eight months. As far as…

Pankaj — Affluent Assets — Analyst

Sir, can you name which segments are doing well and which are not doing well, if you can, please.

Dinesh Nolkha — Promoter, Managing Director

Like, if you see last year, home textile was not doing well. Now home textile is improving. Similarly, the apparel section is also improving. Mix segment as I initiated in my commentary, that is not doing very well and also there is an impact on the denim segment. So basically ledger [Indecipherable] still there is something left in the formals and the home textiles are doing better than what it was last year. Of course, still to go to the normal level. And as you rightly commented in your question that we are seeing that it is a bottoming out process which is happening. Cotton prices all over the world are reaching its bottom level near to the cost of production, they are reaching. So, they are now — we are, we should expect them to remain at this level, the business should happen in a good manner.

Now, coming to your second part of the question, where you said that how the position of our neighbors and other computing peer countries. Fortunately, or unfortunately, our peer countries are in deeper trouble than as, I would say that, we have problems in Turkey, specifically earthquake which has dismantled their complete production chain. Pakistan and Sri Lanka and today even Bangladesh is having currency issues. In China, as we all know, people wanting to shift from China and they also had a severe COVID issue. So, opportunity wise, we are in a very good position where we have a complete supply-chain up and running, and we are also seeing that various segments of the industry are getting utilized properly. In India, spinning capacity has been utilized more than 90% at this point of time. And also, the downstream industry in weaving is getting replaced pretty well. Knitting of course is slightly less, but rest of the segments are doing very well. We expect that the demand of various countries, especially the developed ones, should come to us. Well, thanks a lot, sir. Sir, just one follow-up. With demand improving and raw-material prices subdued, do we expect double whammy playing out for us in the coming season and in coming next nine months or 12 months? We feel that not yet. Still as the economies have the fear of recession, we are still — the fear of recession is not out. So, people are playing it out very, very cautiously. People have not yet started to build up their inventories to the reasonable level, still because of high-interest rates people do not want to have higher inventory levels which could result in higher sales. So definitely still that is a way away. And these prices are like stable price, it is not subdued prices. Cotton prices not long ago were at INR40,000 a candy and $0.60, $0.65 a pound. So now they are at a reasonable level, I would say.

Pankaj — Affluent Assets — Analyst

Thank you, sir. Thank you very much.

Operator

Thank you. Our next question is from the line of Aman Madrecha from Augmenta Research Private Limited. Please go ahead.

Aman Madrecha — Augmenta Research Private Limited — Analyst

Hi sir, thanks for the opportunity. Sir, as you mentioned that the current yarn, cotton yarn spread is around INR102 to INR104 per kg. So could you provide a number wherein like if we are able to clock better margins of around 16%, 17% again, so what could be the ideal cotton yarn spends wherein we can crop this margin?

Dinesh Nolkha — Promoter, Managing Director

Actually, this percentage depend on the denominator. So, with same spread we were making 15%, 16% percent — 21. When the cotton yarn prices were averaging around INR210 or INR220 rupees. And today, with same denominator when the cotton yarn prices are at about averaging at INR290 rupees, this like looking like 11%, 12%. So. Consequently, from here, if you have to move up in the EBITA side by 4%, 5%, we will have to add another INR10, INR12 for the delta.

Aman Madrecha — Augmenta Research Private Limited — Analyst

Okay. And sir, I just wanted to confirm that [Indecipherable] which were rating that the north Indian — like they were looking to halt their operations for around one to two weeks again. So is it happening the smaller spinners or it is the natural [Indecipherable] that is again happening because previously the spinners were switching to the blended polyester and of course, but now they have enough stock for that also. So can you like — confirm this is actually happening or what is the scenario?

Dinesh Nolkha — Promoter, Managing Director

As far as I am informed, we are not, as I told just now in the previous question that the utilization level of the spending is at about 90%. And we are not seeing any stoppages weekly, monthly or something on that part. Yes, definitely there is a change in the product mix it during the COVID time and also during last year’s second half, basically first half of last year, when cotton season was ending. The non-availability of cotton has shifted many spinners to the alternate fiber. So, we had experienced those fiber and have seen that whenever there is a good demand on that site, the margins could be very reasonable. So, considering same, some people have shifted. Definitely shift is happening because of the demand of the various products which they were producing, not because of anything related with availability of cotton or sale of cotton etc. Yes, in south of India, as we have heard that some small spinners are facing financial crunch and are under pressure. So accordingly, they have stopped. That’s why the average utilization is coming to 90.

Aman Madrecha — Augmenta Research Private Limited — Analyst

And sir, could you please provide the number like what percentage of revenues from Bangladesh currently and what was it last year.

Dinesh Nolkha — Promoter, Managing Director

Pardon, what is the…?

Aman Madrecha — Augmenta Research Private Limited — Analyst

What is the percentage of revenue from Bangladesh, and what was it last year?

Dinesh Nolkha — Promoter, Managing Director

The percentage of revenue from Bangladesh last year was about 20% plus of the total revenue, and this year, it has come down to about 15%, 16%.

Aman Madrecha — Augmenta Research Private Limited — Analyst

Thank you. That’s all from my side.

Operator

Thank you. Our next question is from the line of Niraj Mansingka from White Pine Investment Management Private Limited. Please go ahead.

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Yes, thank you. I had some questions related to the industry. I know you have just said that utilization of spinners are at 90%. But there are some reports of a slowdown in the [Indecipherable] side and on the [Indecipherable] side, there were some reports on the slowdown, and utilization was happening in the South India. Can you throw more color on whether you are seeing more organized player getting more market share and on the demand-side in the market, you will see the result demand is a normal demand or do you see the slowdown happening and still on some color on the inventories, all this combination will be very useful. Thank you.

Dinesh Nolkha — Promoter, Managing Director

Basically, utilization part, I mean, we have been cautioning the various industry, I would say government as well as the various industry segments that if there is a pressure than in-between there was a lot of talk about increase in cotton prices. There was a statement coming from one of the associations that cotton prices may go up to 75,000 level, whereas the international prices are much lower. So, this was part of the reaction from the association there, that if the cotton prices go to such level, then we will have to resort to production cuts. It was sort of a warning to various industry segments. It has not has actually happened, it was just a reaction to one of the statements that was made that prices may go up so high. So, actually to happen, it is not yet — none of the association which I know and talk to has resorted yet to the production cuts. They have been discussing between various industry segments how do you balance the demand and supply. So that was one of the.

And as far as we see that a lot of players getting — the bigger players are getting bigger, the capacity is increasing and their utilization level is also very stable compared to the smaller players. So that reflects in itself that there is move towards organized players. Organized players are having better parts efficiencies, better reach in the market and also the variety to offer, whenever there is a change in the product mixes, we are able to do it. So that actually helps these organized players to do better than the smaller ones — unorganized one, that is definitely happening.

And the second part of your question, can you please repeat?

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

More on the rural demand, there are contrary reports that the rural demand in the garment side have slowed down, but here you’re talking of utilization of 90%, so was trying to achieve what might have caused this and has it picked up?

Dinesh Nolkha — Promoter, Managing Director

Basically, rural demand is like in India we — what has happened is we normally categorize — there are two or three categories of products in the finding garment. One is a low-end garment in production low-end garment value which has lower value. Middle one, generally which has been sold in urban cities, and then the luxury market, there is a high-end segment. So whenever there is a demand slowdown in the lesser type product, we assume that it is slowing down on the rural side, but it is not. Hence, we cannot categorize where our products are falling rural as well as the urban areas. Here the product categories are on the price item, and we are seeing definitely that low-cost products are selling on the lesser side, that is definitely happening. We are seeing that people are switching over to better priced products, maybe due to the quality reasons or maybe also the money power has improved, so they want a better product out of it. So that is how normally the things move in our industry segment. It is very difficult for us to judge about the rural or the urban demand.

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Got it, thank you very much.

Operator

Thank you. Our next question is from the line of Rahul Soni from ICICI Bank Limited. Please go ahead.

Rahul Soni — ICICI Bank Limited — Analyst

Yeah, hello, am I audible?

Dinesh Nolkha — Promoter, Managing Director

Yeah, you are audible. Please.

Rahul Soni — ICICI Bank Limited — Analyst

Thank you, sir, thanks for giving me the opportunity. I would like to have an idea from you, so how was the demand for quarter [Technical Issues] segments like RMG and home textile during FY ’23 and what’s the expectation for FY ’24.

Dinesh Nolkha — Promoter, Managing Director

Both the segments are improving. Home Textiles had a very rough year last year there, all of the sudden due to U.S. demand. The U.S. — when it was declared that U.S. may [Technical Issues] lot of the price destruction happened, and accordingly demand also went down. But now we are observing that the home textile players are doing reasonably well. The demand is also picking up. Apparel segment has been steady because lot of shift is happening also from, due to China Plus One, from various other end the problems which our neighboring countries have. So, a lot of apparel side garment demand is doing pretty well. We are seeing the garment utilization is also very high in our country, garment production.

Rahul Soni — ICICI Bank Limited — Analyst

Okay, so we can look assume that the growth in Home Textile, I am talking about the industry revenue growth will be positive compared to FY ’23 and FY ’24.

Dinesh Nolkha — Promoter, Managing Director

Yes. We are also expecting the same.

Rahul Soni — ICICI Bank Limited — Analyst

Okay, thank you.

Operator

Our next question is from the line of Krishna Kumar from Lion Hill Capital Private Limited. Please go ahead.

Krishna Kumar — Lion Hill Capital Private Limited — Analyst

Yeah, good evening, sir. So, a follow up on the previous questions. From a profitability perspective, right now we are on a spot where probably the raw-material prices are much better, and you also have the levers of better demand conditions and improving product mix, probably over the remaining part of the fiscal year FY ’24. So what would be your expectation in terms of margin improvements, or gross margins, if these things were to build out and cotton prices went in rather stable at around current level, such were the conditions that, how would you kind of look at gross margins because margins have collapsed for 12 months, so how do you see the slope of the improvements sir?

Dinesh Nolkha — Promoter, Managing Director

Our gross margins, definitely we have as far as the synergies are concerned, we see that the gross margins in this quarter is one of the lowest which we have seen in last so many years, and we have seen that this has bottomed out from there on, which there should be an improvement. As the new capacities are going to be added up, value addition capacity in the downstream segment also already getting added. We see that we should increase our competitiveness, cost competitiveness and of course the various products which you are adding, it will be to cater to the new customers also. So definitely look better. I don’t want to put a number to it. We have always guided it, broad guidance have always been given for the kind of product mix from our side, and we aspire to reach there. But in this volatile time, we do not want to forecast for the full year at the moment. Let’s see how the rest of the year spans out in terms of global uncertainties especially. If we do not see any uncertainties, we should be definitely at that level.

Krishna Kumar — Lion Hill Capital Private Limited — Analyst

On the cost front sir, other than cotton, if you look at other costs, specifically logistics or power etc., so how are you seeing trends there, sir? Are there any favorable trends on the other [Indecipherable] cost for us.

Dinesh Nolkha — Promoter, Managing Director

On the side of logistics side, definitely the costs have bottomed out. We are seeing a lot of [Indecipherable] the prices of the sea freight, as well as expenditures on the transportation being incurred by us during this current year is much lesser than what it was last year. So, there is definitely that costs have come down substantially in comparison, and in fact, they are reasonably near to pre-COVID levels. There, the costs are very well in control.

As far as power is concerned, we have already added some solar capacities last financial year. We are further adding up our — in this current year also, equal solar capacity. So that should help us in bringing down our overall power cost. But as far as — and there is a stable power rate in our state which has continued for last two, three years so. It should remain in the — it should be on the positive side as well.

Krishna Kumar — Lion Hill Capital Private Limited — Analyst

Sure sir. Great sir. So last question sir, after this current capex lower in the current fiscal, what would be the management’s view of further expansion in capital aside, but would you like to probably go through a couple of consolidation or would you like to look at one more expansion on the month of [Indecipherable] FY ’24, or what would be the current risk appetite of the management sir. As of now for at least one year, I would rather say one and half year from now, till September of next FY ’25, we are not envisaging any addition of brownfield capacities or greenfield capacities. We would just like to first stabilize the production, reach the optimum capacity utilization and improve our margin, that is the consolidation process which is on the go. And then we will think about the strategy and for the segment which we want to grow in, and definitely we will share with you as we come up with some ideas about this.

Dinesh Nolkha — Promoter, Managing Director

Thank you, and wish you all the best, sir.

Operator

Thank you. Our next question is from the line of Vishal Ramchand Panjwani from Elara Capital. Please go ahead.

Vishal Ramchand Panjwani — Elara Capital — Analyst

Congratulations for good set of numbers. I just wanted to know like for the current capex like when it will be commissioned and how long it will be [Indecipherable]

Dinesh Nolkha — Promoter, Managing Director

Like, to start with what we are advising is a total capacity capex of about INR950 crores, and out of this, we had downstream like weaving and knitting and finishing. So that is nearly completed. Already part of it has been already targeted, and knitting and weaving has already started. And finished goods segment is also doing, even the trial runs and going to start very shortly during this quarter. So, we are — there we have already completed. For spinning portion, we are going to partially — already trial runs have started in some of our capacity, and we are going to get commissioned in next six months on a monthly basis. Partial capacity every month, we will be adding from June onwards. So that capacity will be added, and we expect that barring some small as you see, there is some still electronic shortages, chip shortages are still there. So, some of the machines maybe — would be able to start by October or something like this. So, we expect by October, we should be in a position to start our all our production, and we should reach our optimum capacity utilization by the end of this financial year. And next financial year, we expect that the full benefits of this capacity increase will be available to the company.

Vishal Ramchand Panjwani — Elara Capital — Analyst

Okay, thank you. What will be the top-line [Indecipherable] you are estimating after this capacity addition?

Dinesh Nolkha — Promoter, Managing Director

Of course, it depends a lot on the cotton prices and accordingly the prices of yarn. But on the current run rate, we should be in the range of 2,500 plus.

Vishal Ramchand Panjwani — Elara Capital — Analyst

Okay, okay, thank you sir.

Operator

Thank you. Our next question is from the line of Suryanarayan from Sunidhi Securities. Please go ahead.

Suryanarayan — Sunidhi Securities — Analyst

Yeah, Dinesh ji, are we selling any grey products to outside market?

Dinesh Nolkha — Promoter, Managing Director

We are selling some small portion of our woven fabric, because our processing fabric was yet to be commissioned. So, we are selling some small capacity.

Suryanarayan — Sunidhi Securities — Analyst

Okay, and what percentage of our yarn is getting converted captively.

Dinesh Nolkha — Promoter, Managing Director

At the moment about 23%, last year we did about 23% of our yarn that’s getting converted.

Suryanarayan — Sunidhi Securities — Analyst

So with the expansion by FY ’24 end, what would be consuming.

Dinesh Nolkha — Promoter, Managing Director

We have added capacities in all the segments. So, the percentage will remain more or less like around 25, in between 25% to 27% of our yards will get consumed without additional added capacity.

Suryanarayan — Sunidhi Securities — Analyst

Okay, sir, another question is that we are actually observing higher realization in the weaving part, but rather than in the knitting, we are not giving a relation, of course due to the reasons you have cited earlier that [Indecipherable] is down and others. So my question is that, had those yarn which were actually put into the knitting segment, it could have gone into the weaving, then what kind of delta would have achieved. That is what I’m — what I’m saying is that in future, suppose such kind of [Indecipherable] segment will be continuing, then will it be possible to, convert, let’s say, to focus on more of a woven segment rather than knitting segment so that’s we can get more return, that is like point.

Dinesh Nolkha — Promoter, Managing Director

On the knitting side, we are very flexible. We have all that capability to switch over, reduce, increase, and knitting yarn production or shift in towards. We can be, if need arise, we can do 100% weaving yarn, and also if needed we can do 100% knitting yarn also. So that way, we are very, very flexible on that particular site. So, we did not lose anything as the demand comes and as the price point, it is better for weaving, we switch over accordingly. That is the flexibility we have. Yes, in the fabric side, both the process are completely different, and on the fabric side, we are not able to switch over from the knitted, machines are completely different and the woven machines are also completely different.

Suryanarayan — Sunidhi Securities — Analyst

Yeah, I agree, that I agree, and given for higher realization, will we devote more towards weaving than knitting? that is my point.

Dinesh Nolkha — Promoter, Managing Director

Yeah, of course, we always do that. That is always a part of our strategy, we are already doing that. In the yarn business, we definitely do that.

Suryanarayan — Sunidhi Securities — Analyst

Okay, so one kg of yarn generates around three meters of woven fabric, but what kind of scenario in our knitting segment, if you can give some idea.

Dinesh Nolkha — Promoter, Managing Director

Knitting segment is like, for one let’s say a T-shirt, you need about, in one kg of yarn, you make nearly 2 to 2.5 T-shirts, depending on the kind of products you are making, and in the shirt side also, you need, you can make about, with 1.5 meters of fabric use, about 2 shirts per kg of yarn. That is, so it is not basically there, we are not into garmenting business, so we are not — basically we are selling the fabric side only, it doesn’t matter, we can and we are using only 25%, 27% of our capacity, which is easily manageable. We can change and we can shift to whatever is required for us to do on the spinning side.

Suryanarayan — Sunidhi Securities — Analyst

And sir, in your weaving side, we have seen an instrument of realization of around 17%, so we had a big jump in FY ’22 of 14%, but it has separated down to 17%, so let’s say, and to segregate between the value and the, I mean, what is the value addition, so maybe the inflation, can it be fair to assume that we have added only 7% of the value.

Dinesh Nolkha — Promoter, Managing Director

I am not able to, for what? 7% for what?

Suryanarayan — Sunidhi Securities — Analyst

Realization in the weaving segment.

Dinesh Nolkha — Promoter, Managing Director

I’m not able to get your question, actually.

Suryanarayan — Sunidhi Securities — Analyst

In the weaving section, for meter realization is around 182, you were getting 166 last year, and 106 n FY ’21. So we had a big jump in FY ’22 around 48%. So this year, that growth has realized.

Dinesh Nolkha — Promoter, Managing Director

Last year was from 106 to 166 because in that particular year, we were not having our process are running full capacity. It was included the gray fabric also. So, increase came because of the gray fabric utilization also. Here now our capacities on the woven side and the finished side is quite balanced. 90% of our production goes into the finished fabric side. So, now, the more comparable figures are last year to this year, and that was primarily higher value add.

Suryanarayan — Sunidhi Securities — Analyst

So, going forward, how much value addition is possible, will the realization stay at these levels or any room for expansion going forward.

Dinesh Nolkha — Promoter, Managing Director

In the fabric side?

Suryanarayan — Sunidhi Securities — Analyst

Yes.

Dinesh Nolkha — Promoter, Managing Director

In the fabric side, the yarn prices are, if you see the yarn prices have reduced much more in comparison to our fabric price. Fabric prices have remained more stable or rather they have gone up. So, there we see much more stable regime and we expect that prices to remain more or less stable.

Suryanarayan — Sunidhi Securities — Analyst

So, we can assume that for FY ’24 and ’25, speaking in inflation, we will be getting that kind of growth, let’s say, maybe 5% to 7% in realization.

Dinesh Nolkha — Promoter, Managing Director

Not now, because already whatever increase of inflation you’re expecting has already happened. Cotton prices have come down, so from here we do not expect the per unit price to go up substantially.

Suryanarayan — Sunidhi Securities — Analyst

Because we have introduced certain line which were actually well [Speech Overlap]

Dinesh Nolkha — Promoter, Managing Director

That will increase the production.

Suryanarayan — Sunidhi Securities — Analyst

Okay, thank you, sir.

Operator

Thank you. Our next question is from the line of Mr. Vikas Rajpal from VK capital. Please go ahead.

Vikas Rajpal — VK Capital — Analyst

Hi sir, good evening and thanks for taking my questions. If you look at the company’s geographical spread, we would see that the domestic revenue growth has been more or less flat, but we have seen incremental growth coming from the export side. So sir, I just wanted to know which particular geography did you see good growth coming in from. That’s my first question, sir.

Dinesh Nolkha — Promoter, Managing Director

Actually, it is not that way. last year our exports were higher and this year, our exports are lesser. Last year our exports were about INR1950 crores and this year our total exports are about INR1,356 crores. So, in fact exports have come down in this particular year.

Vikas Rajpal — VK Capital — Analyst

But sir, I am asking on a sequential basis, last quarter exports were — I mean compared to last quarter, exports were better.

Dinesh Nolkha — Promoter, Managing Director

Yeah, I have already told in my commentary also that we are seeing good uptake in Europe, also we are seeing some demand coming in from Latin American country. And China was also doing better than previous quarter.

Vikas Rajpal — VK Capital — Analyst

Okay, and sir on the margin side, sir, I suppose that JSM would have been an incremental growth in margins, so January would have been the lowest margin from where we started off in December, and right now, we must have been at the higher margin compared to what on a blended level, we are reporting. So, I just wanted to get a sense of that, sir, and where we are currently.

Dinesh Nolkha — Promoter, Managing Director

Currently we are more or less at similar levels what we were in Q3 and Q4. The margins have not substantially improved. There has been a pressure on the demand from the export side. Our normal exports of the country cotton yarn used to be very, very high in ’20 — in the financial year ’20, but we have not yet reached that level. Domestic demand is better, but till the prices have not substantially increase, so you can we can consider margins are more or less flat at this point of time.

Vikas Rajpal — VK Capital — Analyst

Okay, so, sir, you just mentioned sometime back, with an additional INR10 to INR15 of delta, we might be able to achieve 14%, 15% kind of margin. So, when you say that, so do you mean that you need an incremental higher spread coming in from the export business side?

Dinesh Nolkha — Promoter, Managing Director

Basically, overall with the kind of inflation happening all around, with the increase in cost, if you see these kind of delta, I explained in that particular question also that with the same data we used to make a 15% margin maybe few years back, but today with increase in cost in every segment, we also need to increase our prices by another INR10 to INR15 to reach that level. So that is what we aspire to reach, and if you have to reach 15%, 16% margin, you need to increase our ultimate product prices as well.

Vikas Rajpal — VK Capital — Analyst

Got it, got it, so additional delta will come in only from increasing prices, and sir, lastly on the debt part. Sir, I know that we are doing capex and that’s why, I mean, the debt remains a little bit on the inflated side. So, any roadmap where — so currently if you look at debt-to-equity it’s close to one. So, any roadmap to bear, we intend to reach on the debt levels in the next couple of years.

Dinesh Nolkha — Promoter, Managing Director

Basically, this is our upper limit. We wish to maintain that equity below one as we are doing the last two, three years. And basically, all the debt which we are taking are on a concessional interest rates. So that increases our written on net-worth. Because if you reduce the debt, we are trying to keep the debts in very manageable level where they are easily able to service them, and that helps in the growth of the company. And considering that, yes, definitely debt-equity below one is our target.

Vikas Rajpal — VK Capital — Analyst

Okay, and sir, my last question is on the spread side again. So, sir, I think in one of the previous con-calls, you had mentioned that the new capacity which is going to come in that will be able to manufacture blended yarn as in, because when the cotton prices had gone up, you had seen an incremental demand coming in from the blended yarn. So, sir, I just wanted to know what could be the realizations of blended yard versus pure cotton, just wanted to understand that basically.

Dinesh Nolkha — Promoter, Managing Director

The blended yarns we are making also blended with cotton, also blended various two or three kinds of manmade fiber getting blended, and prices frankly depend on what kind of product mix you are using, and it has a very, very wide range. So, very difficult to quantify because if we have to, then we have the benchmark one of the products and then we have to work on that particular side, but definitely we have seen that the margin were very, very low in these segments earlier, now they have improved in comparison, because of the demand in domestic market as well as India becoming more competitive in the market. So, we foresee that that kind of demand will remain, and accordingly we have tried to make a product mix where we are also focusing to produce this kind of product.

Vikas Rajpal — VK Capital — Analyst

And sir, since you are saying that the industry is operating at around 90%, 95% utilization levels, so what stops us from taking price hikes? Or is there any price hike in pipeline right now.

Dinesh Nolkha — Promoter, Managing Director

Basically, what is happening is the industry reaching 90% level, but — and the domestic segment is also doing reasonably well, but the exports are not picking to the extent what we expected. That is actually if we come back to that normal export level, India as a country used to export more than 100 million kgs or yarn, of cotton yarn every month, so we are not where we were. If we reach that level, definitely prices will automatically improve as well.

Vikas Rajpal — VK Capital — Analyst

Thank you, sir, that’s it from my side, sir. Thanks.

Operator

Thank you. Our next question is from the line of Anil Kumar Sharma, Individual investor. Please go ahead.

Anil Kumar Sharma — Individual investor — Analyst

Good afternoon, sir. Thanks for good numbers. Congrats for that. Sir, my question is how much we are exporting to China right now, and what are the prospects of exporting to China in this current year? And number to, at inventory level, what is the raw material of the total and what is the finished goods.

Dinesh Nolkha — Promoter, Managing Director

First of all, for China, last year was about, we were in the range of about 57% of our total export sales, which is about 4%, 4.5% of our top-line. And going forward, last year was a year where China was closed to a great extent. In the previous years, exports to China was at a level of about 10%, so we expect that this year it will be better than — definitely better than the last financial year. As far as the inventories are concerned, normally we do not disclose about this the number of days or how much inventory we are carrying, but we are getting definitely higher than the last year, and our finished goods also in-line, very nominal [Indecipherable]. It is nothing to — the increase in the finished goods which you are seeing improving the inventory which you are seeing is majorly in the rank.

Anil Kumar Sharma — Individual investor — Analyst

Thank you, sir, my last question is that, going forward, where do you see the cotton prices? Still cotton prices are somewhat higher than the international level. Where do you think it is going to be, rather coming up.

Dinesh Nolkha — Promoter, Managing Director

We’ve seen that cotton prices should remain at this level, we had a very low production, one of the lowest cotton production, and actually the cotton production has been higher, but farmers have not been bringing the cotton into the spinning segment, and as on today also we are seeing cotton coming and getting crushed, which is normally by this time the season is over, and still we are seeing more than one lakh bale of cotton coming. So, in considering that, there is a good supply-demand supply balance happening, and accordingly we see the cotton prices remain at current levels, which is [Indecipherable] plus/minus.

Anil Kumar Sharma — Individual investor — Analyst

Thank you., so nice of you. Wish you good luck.

Operator

Thank you. Ladies and gentlemen, due to the time constraint, that was the last question for today. I would now like to hand the conference over to Mr. Awanish Chandra for closing comments. Over to you sir.

Awanish Chandra — Moderator

Just one quick thing. We have already discussed this thing in many questions and on the margins, but our sales is happening, capex is on course, but our given guidance of 16% to 20%, we are very far from that. So, some hint if you could spare from 11%, 12% to 16% we think it will happen in one year or take more time, any hint on that sir.

Dinesh Nolkha — Promoter, Managing Director

Awanish ji, we definitely aspire to be a [Indecipherable], but the current situation is not very conducive as far as the global situation is not very conducive. Domestic demand is still far better. That is domestic demand has been stable. I would not say better, but they have been stable. So once the export situation and the global situation improves, definitely the normalization will come. We are seeing many, many challenges, but still we have reasonably been able to maintain our operating margin. So once the normalization comes in, we will definitely see a [Indecipherable] in our operating margins as well and close to the targeted level, and it depends completely on the demand scenario. If it happens in next six months, you can see, even in this financial year as well.

Awanish Chandra — Moderator

Okay, sir. Okay sir, thank you very much, Dinesh sir and Maheshwari Sir for spending your valuable time and providing us this opportunity to host the call. Any final comments before closing, sir?

Dinesh Nolkha — Promoter, Managing Director

Yeah, I would like to thank everyone, all of you for taking out time for joining the call. I hope we have been able to address all your queries. I would also like to thanks SMIFS and Awanish ji for hosting the call. Any further information some of them we have not been able to give, hopefully, get in touch with our financing team or our Investor Relation Advisors. Thank you once again.

Operator

[Operator Closing Remarks]