SP Apparels Ltd (SPAL) Q4 FY23 Earnings Concall Transcript

SP Apparels Ltd (NSE:SPAL) Q4 FY23 Earnings Concall dated May. 18, 2023.

Corporate Participants:

P. Sundararajan — Chairman and Managing Director

V. Balaji — Chief Financial Officer

S. Latha — Executive Director

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

Analysts:

Prerna Jhunjhunwala — Elara Securities Private Limited — Analyst

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Aman Agarwal — Carnelian Capital — Analyst

Resham Jain — DSP Investment Managers — Analyst

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Bajrang Bafna — Sunidhi Securities and Finance Limited — Analyst

Akshay Kothari — Envision Capital Services Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the SP Apparels to discuss Fourth Quarter FY ’23 Result and Business Update Conference Call, hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma’am.

Prerna Jhunjhunwala — Elara Securities Private Limited — Analyst

Hello?

Operator

Yes. Go ahead, ma’am.

Prerna Jhunjhunwala — Elara Securities Private Limited — Analyst

Thank you, Zico. Good afternoon, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q4 and full-year FY ’23 post result conference call with business update of SP Apparel limited. Today we have with us the senior management of the Company, including Mr. P. Sundararajan, Chairman and Managing Director; Ms. S. Shantha, Joint Managing Director; Mr. S. Chenduran, Joint Managing Director; Mrs. S. Latha, Executive Director; Mrs. P.V. Jeeva, Chief Executive Officer and Mr. V. Balaji, Chief Financial Officer of the company. I would now like to hand over the call to Mr. P. Sundararajan for opening remarks. Thank you and over to your sir.

P. Sundararajan — Chairman and Managing Director

Thank you very much. Good afternoon, everyone, and a very warm greetings to all of you present on the concall, to discuss our quarter four FY ’23 performance. I hope and wish that everyone and their loved ones are hale and healthy and safe.

I’d like to highlight something on the industry as the textile and apparel industry is, generally, the textile and apparel industry has started doing well. And especially the American customer as well as European customers, and the retailers are interesting to — I mean, they are very serious about transferring as much business as possible from China to India, and they see lot of potential in India. First thing that anti-China feeling is very, very strong, and we are able to see those — we are able to experience them. And next, this free trade agreement, which is the finished stocks are still going on and according to the inside information from the Association is that hopefully by end of July, it should be through with the U.K. and Canada.

In the meantime, yesterday, we got a news also that EU is also pushing quickly from Brussels, so this is one interesting subject, and hopefully it should be clear in the next two months’ time, it will be very much in favor of our country.

With regards to the forex situation, again, it is in our favor in the sense that the euro, pound and dollar are very much in our favor. This is helping us in being competitive to other competitor countries. Lastly, the raw material situation, the prices of cotton has started slightly declining to the normalcy from the inflated one. Of late, we have been seeing about in the last few months — in the last two to three months, the prices of cotton has come down roughly 5% per candy, which is good gain for us. This will help the yarn spinners to make — come out of the losses, which is again a good news for us.

And then moving over to the dividends, the dividends for FY ’22 and ’23 will be taken up as per the policy by the Board during the August meeting before the AGM. Regarding garment division, the financial performance of our garment division revenue for this quarter stood at INR232 crores versus INR219 crores for the Q4 FY ’22, which is 6% growth year-on-year, and total exported quantity stood at INR14.42 million. Our adjusted EBITDA of the garment division stood at INR41 crores for the current quarter at 17.8% of EBITDA margin versus adjusted EBITDA of 20.2% year-on-year.

Our current order book stands at INR365 crores. Capacity utilization as of today is around 70% and we expect it to increase by around 10% to 15% going forward. There have been lot of inquiries coming from new customers, both from U.S. as well as EU, and we are looking at scrutinizing the suitable ones.

On the FTA, as I mentioned that FTA should be through soon, and we will see lot of traction into India, because of the FTA. Last month, we have consolidated our factories by closing down some of our small factories and we have moved the employees to bigger factories which has given us the better efficiency in running the factories. As seen from the earlier, our new factory proposed at Sivakasi is under process of starting the construction in July ’23, and hopefully in 12 months’ time it will be up and running.

With regard to the spinning, spinning mills are not making margins due to less demand in the yarn in the market as well as no considerable decrease in the cotton price so far. Now, the things have started changing now. The cotton prices have now stabilized, and I do not foresee more fluctuations in the cotton prices. I am confident that our spinning unit will overcome the challenges and will contribute to the margin from the current quarter onwards.

The fabric processing division, in-spite of the input cost increase, our processing division was able to perform well with good utilization levels and contributing to the margins successfully.

With regard to the U.K. business. SPUK has seen lot of disruption in supply-chain majorly due to the COVID impact. The recent changes that happened in the SPUK team and shifting of location to London, which now has been settled down. The young new team will take things forward in the coming year. They are already on the job.

Revenues for the quarter stood at the GBP1.4 million as against GBP2.2 million year-on-year. SPUK has made EBITDA breakeven as against 5.5% year-on year. The current order book value is GBP3.4 million. I am confident that SPUK will be back and will be able to work closely with the customers, and will be able to do well going forward.

With regard to S.P. Retail Ventures Limited, currently we have 40 COCO stores and 70 FOFO stores under all brands. We have opened one new store for Angel & Rocket in Hyderabad and it is doing well. We have also closed a non-performing store. S.P. Retail Ventures made a revenue of INR25 crores and made EBITDA loss of INR3.37 crores for the current quarter.

Crocodile has been making profits, and however, the new brands that we have added and their fixed overheads are pulling down the margin. We firmly believe that the other brands that we have added will perform well, and we are confident that with the brands like Crocodile, Head and Angel & Rocket will do well in the future.

Current liquidity, our liquidity position is very strong and we have service all the debt up-to-date. Thank you and over to Balaji, our CFO.

V. Balaji — Chief Financial Officer

Thank you, sir. Good afternoon, everybody. I’ll just run through the financial performance of the company. For the quarter, we have done INR276 crores of adjusted revenue, as against INR258 crores year-on-year.

We have done an EBITDA of INR40.48 crores on a consolidated basis for the current quarter as against INR45 crores year-on year. Our PBT for the current quarter stood at INR25 crores, as against INR36 crores year-on year. Our PAT for the current quarter stood at INR20 crores as against INR35 crores year-on-year.

On the financial performance of FY ’23, we have done INR1,098 crores which is the highest as per the history of SP Apparels, as against INR867 crores year-on-year.

On the EBITDA front, adjusted EBITDA stood at INR173 crores, as against INR153 crores of last year. Our EBITDA margin for the whole year on a consolidated basis stood at 15.7% as against 17.6% year-over-year.

Our PBT for the current financial year stood at INR110 crores as against INR114 crores year-over-year. Our PAT stood at INR82 crores as against INR84 crores year-on-year. On the financial performance, Garment division has done INR960 crores of revenue as against INR742 crores year-on-year. And operational revenue of SPUK stood at INR58 crores as against INR72 crores. And Retail has done INR80 crores of topline, as against INR48 crores year-on-year.

Our EBITDA margins for Garment division stood at 17.8% for the current financial year — current quarter as against 20.2% year-on-year. For the whole year, Garment division has done 18.7% in terms of EBITDA margins as against 20.9% year-on-year. Our EBITDA margins for the financial year of SPUK is almost 1.2% as against 3.5% year-on-year. For SPUK — sorry, for S.P. Retail Ventures, we have done an EBITDA of INR7.5 crores negative as against INR5.1 crores on the previous year. On our debt front, our long-term debt stood at INR13 crores and our short-term working capital borrowing on a stand-alone basis stood at INR148 crores. Gross debt being INR161 crores on a stand-alone basis, and cash and cash equivalent is INR121 crores.

As per the balance sheet, given by the auditors, certain investments have been grouped under current investment by the auditors, which is also cash equivalent, but they don’t agree to it, but for us, it is cash equivalent. So our net debt as on 31 March, is INR40 crores on a stand-alone basis. On the balance sheet front, we have an inventory of INR296 crores and a receivable of INR104 crores. We have a cash and cash equivalent of INR62 crores and other current assets of INR72 crores. The rest is available in the presentation. We hope that we have covered all the areas.

So over to the team for any queries.

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 Resham Jain from DSP Asset Managers. Please go ahead. [Operator Instructions].

As there is no response from the participant, may I request the management that we’ll move to the next participant?

P. Sundararajan — Chairman and Managing Director

Sure.

Operator

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

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Thank you. I had just one question about your factory you have closed. So can you share some more details on how many factories you’re running, how many you’re planning to close or you’ve closed? And which factories new locations we see as the core locations and how many people will be working in those?

S. Latha — Executive Director

Sir, actually, we had 18 factories. We have closed four factories. Now we have 14 factories running. Yes, so we are only sewing factories we are talking about. The reason for closing these factories are actually these factories are very small factories of 100 machines. So we want to consolidate the machines for better efficiency and better working, so we’ll have better control on, if we have less number of machines.

Well, for the transfer of workers, about 50% of the — we had 400 machines for 400 workers, but we could transfer the 200 to 250 workers in the other factories. And around 100 to 150 workers, they moved to other factories because they cannot transfer to other factories because of long distance, sir, from their home. So to make up those 150 machines, we are trying to increase the capacity in the existing machines — existing factory.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay. Any more factories left to be converted or closed down or these are done?

S. Latha — Executive Director

No. It’s almost done. We are not closing any more factories. In fact, we are going to increase capacity with our own machines, with the — actually with larger capacities.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay. And how many workers are you right now having at the end of the quarter, at the end of the year?

S. Latha — Executive Director

12,500.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

But the number was similar a year — a quarter back. So you have hired back already 150 workers or how is it?

V. Balaji — Chief Financial Officer

Niraj, your question was not clear. Can we.

Operator

Mr. Niraj Mansingka may we request you to use the handset, please?

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay. My question is that you had 12,500 employees a quarter back. Again, a new 150 workers employed had left, so you hired them back or you have added — so I have maybe some bad math, so how many employees you might hired net in the quarter?

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

Your voice is not clear. See, you are asking about.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

I will come back to the queue.

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

Can you come again, please?

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

I’ll come back to the queue, in the meanwhile.

Operator

Thank you. Our next question is from the line of Aman from Carnelian Capital. Please go ahead.

Aman Agarwal — Carnelian Capital — Analyst

Sir, thank you for the opportunity, and congrats on a good set of numbers. My first question was on the order book. Like can you share how much orders you have right now like at the end of this quarter?

V. Balaji — Chief Financial Officer

Order book size is INR365 crores.

Aman Agarwal — Carnelian Capital — Analyst

Okay. Sir, my next question was on working capital. Like if I see our working capital has come down materially, like we have generated good cash flows and a part of this is due to reduction in inventory and receivables. So is it mainly due to lower prices of cotton compared to last year? Or have we seen some reduction in working capital cycle? And how we see that going forward, like if you can touch upon it, sir?

V. Balaji — Chief Financial Officer

See, in terms of the movement of working capital, yes, two things have happened. One, a reduction in the cotton cost. So, if there is an increase in the cotton costs, the whole supply chain is carrying the cotton, which is, like say, INR1 lakh per bail [Phonetic] cost.

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

Per candy.

V. Balaji — Chief Financial Officer

Per candy cost. And now the candy cost has come down to INR65,000. So what can — there is a reduction in 40% in terms of the carrying cost. And two, on the cotton policy also because the March — during March, we had the carrying of cotton was only for 45 days. Last year, we had a cotton carrying for 95 days or something. So there is a reduction in cotton storage also, and also cotton carrying cost also has come down. So that has resulted in significant decrease in the inventory. [Technical Issue]. And we have also planned for just-in-time working so that there is no — a number of days is getting reduced.

Aman Agarwal — Carnelian Capital — Analyst

Great, sir. That’s interesting to hear. Sir, on the cotton side, right, currently, we have 45 days of inventory. So given the current prices of cotton, how you are seeing ramp-up of cotton like do you intend to increase inventory? Or are we waiting for some price correction more in the cotton side?

P. Sundararajan — Chairman and Managing Director

No. See, everything depends on the availability and the fluctuations of the market of cotton. But now it’s more or less availability is not an issue and the price is gradually coming down. So we have — religiously, we have planned for 45 days to 60 days of stock, but we used to have 90 to even 100 days because there was uncertainty and better quality availability. And availability itself was a problem because Vimal used to hold the stock and not releasing. So — but now that’s not the case now. So we are planning for 45 to 60 days of stock.

Aman Agarwal — Carnelian Capital — Analyst

Great, sir. So like since the cotton prices have come down from INR100,000 per candy — almost INR100,000 per candy to somewhere around INR65,000 per candy now, so like our realization of fees, which stood at somewhere around INR140 for last year, like do we see some correction like INR15, INR20 kind of correction due to pass on of cotton prices going forward?

P. Sundararajan — Chairman and Managing Director

On the yarn price, you mean?

Aman Agarwal — Carnelian Capital — Analyst

Sir, realization for a piece of garment.

P. Sundararajan — Chairman and Managing Director

See it is — see, always in the last about more than one year of time, there was a complete mismatch between the raw material cost of cotton and the yarn price realization costs completely irrelevant and erratic. Cotton price was uncontrollable in increasing and yarn price was also sliding so heavily because of less yarn demand by the spinners — in the market by the consumers. So now the situation is the other way now.

Now there has been a demand for the yarn, gradually it is increasing. And there has been a cotton price coming down. So it’s the sign of coming back to the normalcy because the last one year, this very important reason why there has been a — we had struggled a lot, and we had to literally lose the huge money in the spinning division because of these problems. And I think to the tune of about — we lost nearly about INR30 crores to INR40 crores we lost in the last financial year because of this erratic situation of cotton versus yarn realization.

Aman Agarwal — Carnelian Capital — Analyst

Great, sir. Sir, like my question was realization for garment. Like last year, we have done INR140 per pieces. So like going forward, do we expect this to fall down to INR125 or INR120 given cotton has corrected from INR1 lakh to INR65,000 now, sir. So that was my question.

S. Latha — Executive Director

Yeah. Actually, current average price is around INR115 to INR120 only because of the reduction in the yarn price. It’s already happened as of now. Yeah.

Aman Agarwal — Carnelian Capital — Analyst

Understood. And just one final question on retail business. Sir, like our retail business is minus 13%, 14% kind of EBITDA during this quarter. So are we seeing any sort of improvement and like what is happening when do we see the outlook improving in that business, if you can touch upon it sir.

P. Sundararajan — Chairman and Managing Director

Chendur, can you?

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

Yeah. So Q4 has been bad and even the last year, comparatively has been difficult. But in terms of brand wise, Crocodile being a bigger contributor, which has done well. It’s made EBITDA breakeven, and it’s consistently month-wise, it’s been doing well. The thing is with the new brands, it is taking a bit of time, especially on the fixed overhead, and there is expansion happening on the Angel & Rocket brand as well.

So expansion, we’ve opened four stand-alone stores in premium locations out of which two have been doing very, very successfully. The other two are improving, so these are initial costs in the new brands, which is affecting the bottom line altogether, but positive side is Crocodile has been consistently performing well. And we expect Crocodile to be contributing even more to this financial year.

Aman Agarwal — Carnelian Capital — Analyst

Any outlook for next year, sir, like, do we expect overall level EBITDA breakeven or positive EBITDA for next year?

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

So we knew this year, there could be an EBITDA loss, but it has been slightly higher than what we thought because of the other two brands. But for next year, we’ll definitely, on a consolidated level, between among all the three brands, it will be EBITDA breakeven. Brand-wise, the other two will still not be out of it, but Crocodile would be making enough EBITDA to make up for the other two brands EBITDA losses.

Aman Agarwal — Carnelian Capital — Analyst

Great, sir. And in terms of the funding for this retail business, like how much liquidity we have in that subsidiary? And do we plan to allocate more capital to that business like in future?

P. Sundararajan — Chairman and Managing Director

Balaji?

V. Balaji — Chief Financial Officer

Currently, I think there is a cash loss of close to INR6 crores, INR7 crores that happened for the current financial year. So I presume that this should be taken up to the Board to decide how that can be supported.

Aman Agarwal — Carnelian Capital — Analyst

But sir, in past, we have envisaged that this is not a business we want to allocate more capital to. So like so, are we thinking about allocating this kind of capital going forward? Or like would we look for external investors or other kind of partnerships to basically fund this business?

V. Balaji — Chief Financial Officer

The main reason why we hired the retail division is that the allocation should be quite strict in terms of capital allocation. I think, the Board has to decide upon how the capital needs to be allocated. So I prefer that this question should be — can be answered only after the Board meeting, what they would decide upon.

Operator

Thank you. Sorry to interrupt, Mr. Aman may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. Thank you.

Our next question is from the line of Resham Jain from DSP Asset Managers.

Resham Jain — DSP Investment Managers — Analyst

Yeah. Good afternoon. Am I audible now?

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

Yeah.

P. Sundararajan — Chairman and Managing Director

Yeah, Resham.

Resham Jain — DSP Investment Managers — Analyst

Yeah, yeah. Okay. So — Sorry, I am audible, right?

P. Sundararajan — Chairman and Managing Director

Yeah, yeah.

Resham Jain — DSP Investment Managers — Analyst

Okay. So few questions. First one is on garment business itself. What kind of growth are we expecting in terms of volume in Garment division? And also I was just looking at the commentary on the Sivakasi factory. I think, this was supposed to be commissioned almost six months back or so. I was just referring to a previous call. So if you can just highlight what’s delaying the factory commissioning and also the growth expectation in the garment business?

P. Sundararajan — Chairman and Managing Director

Yeah. The garment to — the growth rate will be — so we are planning for about 14% to 15% as a growth rate for ’23-’24 and that could be easily achievable. And the Sivakasi.

V. Balaji — Chief Financial Officer

On the Sivakasi project, Resham, that’s purely because there was some delay from the government side in giving the approval.

P. Sundararajan — Chairman and Managing Director

Clearance.

V. Balaji — Chief Financial Officer

Clearances in terms of the approvals. Now we are clear with it, and we are in the process of getting the construction ready.

P. Sundararajan — Chairman and Managing Director

In July.

Resham Jain — DSP Investment Managers — Analyst

Okay. And this will 14%, 15% garment division growth is volume or value?

P. Sundararajan — Chairman and Managing Director

It should be more or less same because it’s about INR120 average price she is talking about so more or less both are same. [Speech Overlap]

Resham Jain — DSP Investment Managers — Analyst

Okay. Because of the raw material price fall, I thought the distance would be —

S. Latha — Executive Director

14%, volume-wise I think it will cross 20% to 22%.

Resham Jain — DSP Investment Managers — Analyst

20%, 25% volume growth?

S. Latha — Executive Director

22%, yeah.

Resham Jain — DSP Investment Managers — Analyst

Okay. Understood. Sir, the second question is on the retail business, the earlier participant also asked about the same thing. And we have been managing this brand business since long time. Obviously, we have added new brands as well. But I think somehow INR7 crore, INR8 crore loss on the INR80 crore business seems to be quite high. So if you can explain the nature of this loss at the EBITDA level. You explained about fixed costs, but still it looks quite on a higher side. So what are we doing? And before further allocating capital in this business, what are we doing to make sure that there is the right economics in this business because over the last many years, this business has not scaled-up to a significant level, it has remain some INR100 crore business only.

[Technical Issue]

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

In the last two, three years because of the COVID up and down on the stores, closure on Saturdays and Sundays was definitely a pulling factor, last three has been very tough for the retail industry as such. And going forward, in spite of having a COVID impact FY ’23 for Crocodile was far better comparing the previous performances.

Excellently — I mean, unfortunately, the new brands, which has come is not able to perform in terms of the large format stores, which we are present in. So we have done some initial work on closing down the non-performing stores, opening up, so those works have been completed. We’ve seen that this year, the new brands and the pre-operative expenses of all the new brands should be absorbed and should be doing well going forward.

In terms of the capital allocation, I guess, we have already spoken about enough on the capital allocation to retail, which again the Board will look into it and decide upon how to allocate capital to the Retail division.

Operator

Thank you. May I request that the management we will move to the next question as the participant is dropped.

P. Sundararajan — Chairman and Managing Director

Please.

Operator

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

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

Yeah. Am I audible, sir? Hello?

Operator

Yes sir. You’re audible. May we request you to use the handset.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

Thank you so much for giving me the opportunity, sir. Voice is cracking. Hello? Yeah, my question is that — yeah, hello. There is some voice disturbance.

P. Sundararajan — Chairman and Managing Director

Surya, you are audible. Please, sir, ask your question.

Operator

Please go ahead, sir.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

Okay, okay. So my first question is that, sir, now that you have reached nearly 70% utilization level. So what will be the capex for the core garmenting area rather than other areas. So if you can give some guidance on the capital allocation for FY ’24? So that is first.

And secondly, you have said that now in the July, the FTA will be signed with the U.K. and followed by EU also, so we have been listening in the recent past that the European customers, they are asking some kind of discounts to the tune of around 10% from the Indian and Bangladeshi traders so — I mean, manufacturers. So if looking at the advantages, the India manufacturers will be getting after the FTA, so will you not, let’s say, see that kind of discounting trends to extend for the FTA signed countries?

P. Sundararajan — Chairman and Managing Director

Yes. See, regarding this to the garment factories, we have a plan for see, every year about one big factory so that to maintain the growth and the opportunities which we really have to grab it. So more or less, see, roughly around so INR50 crores, INR60 crores will be per year for the new garment factories year-on-year, that will be allocated for the new projects. And in addition to that, we are working on because the customers are insisting on ESG, renewable energy, and we are thinking or we are working on putting up the solar energy plants, the roof mounted one, in the new factors as well as in the existing factories that will also happen every year, as we said before, one megawatt or two megawatts every year. So this is our plan.

And with regard to the FTA thing, what was the question of this FTA thing?

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

A percentage discount.

P. Sundararajan — Chairman and Managing Director

Yeah, that is okay. So the FTA, see the duty landed cost, there will be a reduction of about 9.5%, say, 10%. So definitely, that will be — cost will be — landed cost will be cheaper. So we will have to share, contribute something to them. And both the customer as well as we should be able to share because there is a cushion for — there is a room for negotiation for both.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

So how much, put together 10% — around 10% advantages, and how much will be nullified do you feel, I mean the worst case?

P. Sundararajan — Chairman and Managing Director

So 5%, roughly, we should be — we stand to gain 5%.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

Okay. Net to net 5% gain. And sir, regarding. Pardon.

P. Sundararajan — Chairman and Managing Director

[Speech Overlap] only when it comes.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

And.

P. Sundararajan — Chairman and Managing Director

We are able to compete the duty-free countries like Sri Lanka, Bangladesh and Pakistan. Despite this, we are not under the FTA, still, we are able to compete with them. So when the duty free structure comes, definitely, there is a possibility that we can gain another about up to 4% — 5%.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

So, currently what is the total number of pieces we can best — because of the capital allocation and the capex could be having some gestation period. So you per se proposed a signing up the FTA if the demand were to bounce back significantly maybe in the second half. So with the current capacity, how much we can produce a per quarter maximum?

V. Balaji — Chief Financial Officer

So we are utilizing that 70% today, and there is a headroom of 20% to be utilized from the existing capacity. And we are adding one more capacity of 20% coming up from Sivakasi. And the third point is that we are also looking at the option of the second shift, which can be used for the higher capacity requirement without any capital being employed. So we show — we are looking at all the options. And when we get good business, definitely all the options would be looked at.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

So per quarter basis, we can achieve around, let’s say, about 20 million to 22 million pieces?

P. Sundararajan — Chairman and Managing Director

No, no, that we cannot predict anything because this is — order inflow is different from workforce managing. So we cannot simply just like that say we cannot increase the workforce because we need to have availability, and then training them, and improve the efficiency.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

No, no. I’m not asking for the increase in the workforce but on the seat basis. If you see if we can increase the seat then what is possible, that is what my question?

V. Balaji — Chief Financial Officer

So maybe 22 million pieces per quarter is a number which is possible based on the utilization level. Today, my sewing machines are 5,100 and if my 5,100 machines goes beyond, say, 6,100, and I’m utilizing maybe 1,000, 1,500 factories on the — 1,000, 1,500 sewing machines on the second shift, then the number could be possible.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

Okay. And regarding, sir, the order book, current order book is around — I mean, 1.25 per quarter level. So historically, what was the case in our case, I mean order book to a per quarter, I mean it is a two quarters order book earlier, and now it has fallen to 1.25, how is it?

V. Balaji — Chief Financial Officer

See, order book and quarter revenue not matched together because order book certain orders will be given for a season. Certain orders will be given for two seasons. And certain orders will be given for two seasons in four phases.

P. Sundararajan — Chairman and Managing Director

And longer lead time numbers.

V. Balaji — Chief Financial Officer

So you cannot compare the order book and compare quarter numbers. Usually, the lead time is around 90 to 120 days. That’s how we work with.

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

And some urgent orders will also come.

Surya Narayan Nayak — Sunidhi Securities and Finance Limited — Analyst

Okay. And sir, due to the reduction in the cotton prices from the peak level, so are you facing any kind of negotiation issues from the brands from — especially from the European side?

P. Sundararajan — Chairman and Managing Director

Not really. They are now the — because they know that they have not been able to increase the yarn cost prices because of cotton price increase. So there is no such kind of scenario here with the customers.

Operator

Thank you, Mr. Surya Narayan, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. Thank you.

Our next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Yeah. Good afternoon, sir. Thanks for giving me the opportunity. Sir, our question is on the garment business. This year, the margins were down because of the higher input prices and even the volumes were lesser; but going ahead, since cotton prices are coming down and should we expect — and volumes are expected to pick up maybe in a quarter or two, should we expect margins to improve to around 20% level, what you used to be guiding for?

V. Balaji — Chief Financial Officer

See, whatever happens with respect to raw material, we are working — the management bandwidth is working towards the 18% EBITDA margins, which we have guided for. And I don’t think any change in the cotton prices, or margins would affect the EBITDA. We still see that 18% EBITDA margins can be sustained. And if there is a reduction, it will give us more cushion for — the negotiation can be better. So that’s how it works out.

P. Sundararajan — Chairman and Managing Director

See, mainly this year, we hopefully come out of this spinning losses. Even if it is a breakeven, it’s a big saving to the company. So — and it might turn to be a profitable one, which we don’t know. And there is no pressure from the customer side as of now yet to reduce the prices on the account of this cotton price coming down. So we are able to maintain 18%, for sure, which even in the last year despite the huge loss of INR30 crores from the spinning, still we have been able to maintain this on the garmenting division. So we are confident between 18% to 20% always it is possible.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

And sir, can you throw some light on the current demand environment in some of your key markets, considering the inflationary environment over there and other textile companies are facing the heat because of it, so just your perspective on the same?

P. Sundararajan — Chairman and Managing Director

You mean on the garment business side?

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Yeah, yeah.

P. Sundararajan — Chairman and Managing Director

Yes. Definitely, there has been a huge demand because, see, on one side, our customers, as I always used to say, our long-term customers who were associated with this for more than two decades are so much confident on our association. And they are consolidating more and more businesses to us. So already, we are getting more and more businesses from the existing customers. And we have another two, three customers in the pipeline. So there is a big demand in the baby’s garment, which is generally, everyone expected there would not be much demand in the Europe and the U.K., but that’s not the case. There has been a huge increase in the babies and Kids garment demand.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Okay. So INR365 crores is the order book currently. So you expect a similar kind of order book to sustain going ahead?

P. Sundararajan — Chairman and Managing Director

Yeah. You should understand one thing. So now the average price is about INR120 to INR130, but it used to be last time, it was about INR140, INR150. Despite that reduction in the average price, still we are having INR360 crores. So we should have been otherwise, say, close to INR400 crores. So — and with this, we are expecting maybe the quarter-on-quarter, there will be an increase in the order book. Always there’s going to be an increase in the order book. Again, it is not having any connection with the quarterly numbers. Some orders may be on a long-term, say for one-year order book, some may be the quick deliveries, some may be repeat orders. So this order book in hand will not give — will not throw any specific messages on the financials.

Operator

Thank you. Sorry to interrupt Mr. Kaustubh Pawaskar, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. [Operator Instructions].

Our next question is from the line of Shikha Mehta from Equitree Capital.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Hello sir. Most of my questions have been answered. I just have a couple of more. So as we have mentioned earlier on the call that we went through a loss in the spinning segment as well as on the retail side. So when we talk about this 14% to 15% growth of FY ’24 that is over and above the normalization on the spinning and retail side, right? Would that be the right way to look at?

V. Balaji — Chief Financial Officer

See, what is being contributed by spinning is purely on — we are captive consuming. So like the growth has got nothing to do on the spinning. Maybe the EBITDA margins — it could act more on the EBITDA margins.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

So sir, what I mean is that the PAT growth will be substantially more, right, is what we could hope for?

V. Balaji — Chief Financial Officer

Yeah. Correct, correct.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

So that is the right way to look at it, right?

V. Balaji — Chief Financial Officer

Correct, correct.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

And sir, I also wanted to understand, we’ve spoken about vendor consolidation earlier on our call, and we also mentioned that we were entering the men’s segment, which is slightly a lower margin business compared to the Kids segment. So if that a) how much do we expect that to increase going forward? And b) if that does increase, how do we plan to maintain our 18% to 20% margins?

S. Latha — Executive Director

Yeah. Actually, making business [Speech Overlap] we are not going to do any basic. We are going to enter in the fashion menswear. So I don’t think the margin will be reduced because of we entering into men. The margin will be at par with the Kids business what we are doing because we are doing from the design part, so right from the product development part, so we’ll — definitely, the margin will be at par with the Kids one.

P. Sundararajan — Chairman and Managing Director

Unit value realizations are much higher. So unit value realization is [Speech Overlap]

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Actually margins are comparable?

S. Latha — Executive Director

Yes, yes.

P. Sundararajan — Chairman and Managing Director

Yes.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Okay. Understood. And sir, lastly, how is summer 2023 looking for us this year?

S. Latha — Executive Director

’23-’24 you are talking about?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

This summer. Our orders must be already in place, right? For May-June-July, so how is that period looking for us?

S. Latha — Executive Director

The order book is already — we are booked until August.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

So are we expecting summer to be strong for us?

S. Latha — Executive Director

Pardon, can you repeat the question?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Are we expecting this summer to be strong for us?

S. Latha — Executive Director

Yes. Of course.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Okay. Great. I’ll come back-in the queue.

Operator

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

Bajrang Bafna — Sunidhi Securities and Finance Limited — Analyst

Sir, just the first question pertains to Bangladesh. We are hearing and you talked about in your last call also that there is some wage negotiation that is happening there from almost $75 to $200-plus. So any update on that, that how that particular thing, is it possible to happen? And what sort of impact that it will be having vis-a-vis Indian competitiveness? So that’s the first question.

And the second question is purely from a demand perspective, if you see that there are multiple media articles which are publicizing that there is a significant demand slowdown that is there in the European market and the U.K. market. And it has been cited by a lot of industry trackers that there are not enough orders for our country and especially Surat, which is surviving only on the one-month order book. So any clue on that, which can give us some sort of visibility in the immediate near-term? We know that the long-term looks good, but purely from next one or two quarters’ perspective, how are we placed to face the demand scenario, which is slightly subdued at this point of time? Thank you, sir.

P. Sundararajan — Chairman and Managing Director

Yeah. With regard to the wage inflation in Bangladesh because they were already — they were low-wage industry. So one day or other, they would had to have the corrections, which is happening now. But whereas in India, that’s not the case. Already we are at par with the requirements or the standards, so I don’t think there will be a big increase and there is going to be only as a routine increase of about 5% year-on-year. So we do not envisage any kind of wage inflation in our country. That’s for sure.

And secondly, your second question [Technical Issue] secondly, with regard to the — whatever the article you have read that’s not correct. There is definitely — because we are in the niche segment, babies and kids are definitely still very strong. And we are — definitely, we are getting more inquiries than what we could accept, so we do not see in the near future, there is a problem or any disruption in the demand of this segment. And not only that because of consolidation, I mean, apart from the garment industry in general, we S.P. Apparels is getting more and more orders even in Ladies and Men businesses because the customers want to consolidate, they want to reduce the number of vendors, globally. So, we take the biggest advantage in that scenario.

Bajrang Bafna — Sunidhi Securities and Finance Limited — Analyst

Okay. Thank you. Thank you very much, sir.

Operator

Thank you. [Operator Instructions]. Our next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital Services Private Limited — Analyst

Thanks for the opportunity. Sir, pardon me for my ignorance, but I’m a bit new to this company, but just wanted to know how are we related to Crocodile Products Private Limited? And what is this royalty we pay them for? And secondly, what is our customer concentration if you can give that?

P. Sundararajan — Chairman and Managing Director

See, Crocodile Products Private Limited is a company-owned by S.P. Apparels as a joint venture with the brand owner in Singapore, Crocodile India, CI — sorry, Crocodile International, so that is our company. The brand in India is 70% we have the right in this Indian company, and this company will be paying a royalty to the Singapore company. So it’s a joint venture, so that’s the arrangement. And what’s your next question please?

Akshay Kothari — Envision Capital Services Private Limited — Analyst

So what is the royalty we have paid in FY ’23?

P. Sundararajan — Chairman and Managing Director

The royalty is fixed — yes.

V. Balaji — Chief Financial Officer

The royalty is mostly around INR1.5 crores or INR1.6 crores. It is in terms of percentage what Retail Ventures pay to CIPL based on 4.5 percentage base CPPL base is around — paid to CIPL is around 2.5 percentage.

Operator

Thank you.

P. Sundararajan — Chairman and Managing Director

Sorry, and second question is customer compensation. So we are as we said in the even in the last we have and looking for increasing, maybe another two or three more customers in the next two — within one-year time. We are working on them because we’re not getting any room for bringing in new customers because the existing customer’s demand is more-and-more coming every year.

Operator

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

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Sorry, you are able to hear me sir, last time, I think I could not reach you properly.

P. Sundararajan — Chairman and Managing Director

Yeah. Yes, now very clear.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Yes. So basically, you basically shut down the factories of 400 machines, so you moved those entire sewing machines to the other units or it is the capacity has gone down of the sewing machine?

P. Sundararajan — Chairman and Managing Director

See, first of all, the consolidation of this factory was the need of the hour, which is really good, which we did during the last year when there was a recession, global recession so we have some lesser inflow of orders. So we made use of this opportunity to consolidate because it is very cost effective and administratively much better and easier. And third one is the customer for small-size factories, they’re very reluctant to approach those factories. So we have been thinking for a very long time that one time or the other, on a suitable time, we should consolidate as much as possible. So that’s what we did that one.

But however, with regard to the loss of capacity, as CEO mentioned before that of the 400 sewing machine operators, we could transfer about 200-plus operators to the existing nearby factories and another 150 to 200 operators could not join this company due to their mobilization issues, but we have been able to make it up by the existing factors itself. And now we are more than what we used to have before the consolidation.

Operator

Thank you. We move to the next participant. Our next question is from the line of Aman from Carnelian Capital. Please go ahead.

Aman Agarwal — Carnelian Capital — Analyst

Sir, thank you for the follow-up.Just a question on the currency rate. We have seen some depreciation in INR, compared to both USD as well as GBP, so do we expect some benefit in terms of foreign exchange gains going forward, like how the currency is moving right now?

S. Chenduran — Whole-time Director, Managing Director of S.P. Retail Brands Limited.

So in terms of currency exchanges, when I’m getting the orders, I’m 100% — 88% booked. So like any movement in terms of currency because I have already booked the exchange gains, there is no opportunity for us to book more. So there is no headroom for us to move forward in terms of booking for the appreciation, if any.

Operator

Thank you. Due to time constraint, that was the last question of our question-and-answer session. I now hand the conference over to the management for closing comments.

P. Sundararajan — Chairman and Managing Director

Thank you. I would like to thank all the shareholders, investors and whoever has been participated and whoever is listening to it, thanks for your confidence which you continue to support this organization. And as I always say, we have very, very ambitious plans and we have the roadmaps ahead for the next five years, and we are confident that we will be able to give the better results year-on-year, and I thank you all for the confidence you have in this organization and I will request you to continue to have the confidence on us. Thank you very much.

Operator

[Operator Closing Remarks]