Arvind Limited (500101) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call for analysts and investors for post results discussion for quarter 4 of financial year 2020 and '21, Arvind Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Samir Agrawal, Chief Strategy Officer. Thank you, and over to you, sir.

Thank you, Faizan, and good afternoon, and thank you all for participating in this call to discuss the fourth quarter and full year financial results for the year FY 2021 of Arvind Limited. Joining me today is Mr. Jayesh Shah, our Executive Director and Group CFO. Before I begin sharing the financial results and the business highlights, I would like to acknowledge the tremendous support and resilience shown by our colleagues across the company, including our plants and offices, in dealing with the situation caused by pandemic. Over the course of this financial year, we had our share of challenges, including human loss and suffering, facilities closures and supply chain disruptions. On behalf of Arvind leadership, I admire and thank our teams for their commitments during trying times. Now I turn my attention to the results. The fourth quarter was one of the strongest quarters we have seen in the past few years. During this quarter, our business continued the momentum that we had shared during our last quarterly call when we shared with you all the third quarter results. The core textile business saw sequential growth in volume as both domestic and export demand stayed strong. EBITDA margins also have returned to pre-COVID levels despite significant increases in input raw material and logistics costs. In terms of specific numbers, the Q4 revenue stood at INR 1,655 crores, 1-6-5-5 crores overall, which was 9% higher on a sequential basis compared to the previous quarter, and 1% more than the Q4 of previous year, which is FY 2020. EBITDA for the quarter stood at INR 208 crores, excluding other income of INR 21 crores. Overall EBITDA margins improved to 12.6% for the quarter. Due to improved earnings and reduced capital employed, the company achieved over 12% return on the capital employed. The ROCE was north of 12%. On a full year basis, the overall revenue stood at INR 5,073 crores, 5-0-7-3 crores, and EBITDA, including other income, was INR 514 crores. In the textile segment, the Q4 volumes were 113% of the previous year volume for Denim, so we surpassed what we did last year and by 13%; and 112% for Woven. The domestic market has recovered to 74% for Denim and 81% for Woven in terms of fabric volume. While exports remained strong in Q3, the domestic demand showed a strong recovery as life returned to near normal. And this was just before the second wave of pandemic hit us in late March, early April. Garmenting volumes in Q3 increased to 92% of the previous year volumes. Across the board, athleisure, casual wear, essentials and loungewear have been seeing strong market traction in both domestic and export segments. Input cost increases that started during Q3 continued to stay firm or further inch up during Q4. As you all know, the cotton prices have been increasing, and in fact, over the course of last 12 months, have gone up by 40%, approximately. Domestic cotton prices are expected to [indiscernible] MSP as well. Other input costs, including dyes, chemicals, energy, packing and transportation have also gone up significantly. We have responded proactively through a combination of price increases, tight cost management, and a continuing discipline on our working capital. As a result, we had strong EBITDA margins in textile, which stood at 12.6% for Q4. Our Advanced Materials business continues to be robust and delivered Q4 revenues of INR 198 crores, which was 11% higher than the previous year same quarter. EBITDA margins in the AMD business stood at 13.8%. We continue to see strong market demand for our AMD products. During this fourth quarter, the net borrowings for us reduced by INR 132 crores. For the whole year, we were lower by INR 421 crores. And the closing number for us on the net borrowing was INR 1,951 crores. So again, as a recap, this INR 1,951 crores was INR 421 crores lesser compared to 31st March last year and INR 132 crores lesser compared to the December end quarter. So over a 2-year period, we have managed to reduce 25% of our debt. Looking ahead, we expect the export demand to be buoyant across most markets. Specifically, U.S. is expected to stay very strong as the country is fast returning to the pre-COVID lifestyle following a very effective vaccination program. Also, it's expected that as the back-to-school season unfolds July, August onwards, there will be a significant pickup in demand as most schools and colleges are doing in-person classes in fall. Domestic markets have been adversely impacted for us because of the second wave, and we believe it will start looking up by July, August, assuming the pandemic situation does not worsen. So there is a bit of an uncertainty there. If situation improves, we expect the festival season and subsequent demand to be very strong as our retail pipelines are much lighter or empty as compared to last year when the channel was stuffed. We also expect the input cost pressures to continue at least in the near future. And we will be looking out to the government to announce the RoDTEP rates, which have been kind of not known for some time now, and any other relevant policy measures in this industry as well. For us, the lower capital expenditure and tight working capital management will further help reduce debt during the year, although debt for Q1 will temporarily go up as domestic sales will be slowed up and the sales will go up. We are also expecting an inflow of around INR 150 crores during the year based on the land monetization projects which we are doing since last year. So that's our broad trends, which we are looking forward to. We will come back with more specific commentary as the year progresses and some of these uncertainties linked to COVID are resolved or reduced. So that brings to the end of my opening remarks. And I now invite you to ask questions which you may have. Thank you.

[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.

Congratulations, Jayesh bhai and team on the good performance. I had a couple of questions. First, there have been various factors that play in the fourth quarter, especially in terms of freight costs and also in terms of raw materials. So if it's possible just to give a sense of what has been the approximate increase in each of these and how have we mitigated the same via price increases and cost reduction, a combination of which has helped us see an improvement in margin? That would be my first question. Then I'll come to the next one after.

So as you know, the cost increases started sometime in Q4, and for us, whatever cost increases were there for the period, which is the Q4 period, we were able to pass it on through 2 things. One, of course, we absorbed a little bit of cost increase through improving efficiencies as well as there were price increases that we got in both in our 2 main line products, which is Denim and Woven. So the cost increase going forward also, there are going to be further cost increases. And as we sign new contracts with our key customers, we are able to kind of pass on the cost increases. However, it is more in terms of contributions that we earn in absolute terms and not necessarily in percentage. So there may be a little bit of margin in a percentage drop, not necessarily in absolute sense. So therefore, we believe that we should be able to maintain or improve our overall profit, not necessarily margin. In terms of -- there is also an uncertainty of this RoDTEP percentage, which is a significant contribution comes from getting the refund of the duties that we have already paid. And that is still not announced. We are hoping that it will get announced in this quarter.

Sure, Jayesh bhai. What was the impact of not recognizing RoDTEP or RoSCTL either way, in the last quarter, or Q4?

So well, I don't know what rates to multiply, honestly. But if I were to look at -- so if I were to look at -- there was no -- even in Q3, there was no RoDTEP, but there was that MEIS scheme and all. So if I were to look at, say, at about 2%, which is the minimum, minimum that someone should have -- someone could get, it would be around INR 12 crores in a quarter.

Sure. That's helpful. Last question on this line is that approximately, you mentioned that in Denim and Woven, you've taken a price hike. Is it possible just to quantify approximately what is the kind of price hike we've taken?

So it has been -- the price hike has been about between 3% and 4%. And the product mix change also is giving you some kind of price improvements because there is a lot of change in the product mix that we have been doing, which is helping us to keep our cost lower to maintain our margin. So we may not necessarily see a price increase, but we may see cost -- variable cost reduction because of certain programs that we have undertaken to save cost. So a combination thereof, we have been able to maintain absolute gross margin in Quarter 4, and as a result, EBITDA margins have improved because of the operating leverage.

Sure. That's helpful. Last question from my side, [ that by that docs ], if I look at the data for India, overall on the export of garments, that has been encouraging. So just checking that for us, we've seen a contraction, I would assume that Q4 is also a bit of a lower base because of the disruption that happened last year. So is it that it was certain customer-specific issue or anything you want...

No, no, no. In fact, we had certain delays that happen actually, if you are asking for Q4...

Yes, for Q4.

We had certain delays that happened in shipments because of cargo, I mean container nonavailability in the month of -- particularly in the month of March, where our overall sales actually did not rise. So in fact, we would have budgeted at least another 4% to 5% sales more than what we did, but we could not ship the goods out because of certain reasons. But that -- if I were to look at how the business can move, I mean we were hoping that business will -- if the COVID had not hit, we would have planned for 48 million, 50 million garments for this financial year had the COVID not hit us.

Sure. And then would that be the number we are targeting for next year? Or it will be more than that?

It is now -- it is fluid. And I think I would like to wait for situation to become a little more certain before I make any commitment on the guidance because we don't know how -- maybe the run rate for H2 may be like that, hopefully. One doesn't know whether the wave 3 is coming or not. So it is a little uncertain for me to be able to put any number on volumes or sales guidance for now. I think important thing is that the market is there. Demand is very strong, as my colleague just mentioned. We have, in fact, orders more than what we can service. So it is just the supply side challenges that one has to overcome, and that is really uncertain today to be able to put any number to any volume or a sales target.

The next question is from the line of Deep Master from One-Up Financial.

Jayesh bhai and team, congratulations on a great performance. So my first question was on the demand outlook for exports in your discussions with customers, is a lot of this obviously restocking maybe like a large component, but are you seeing any structural shift? I know we've been talking about this for a while. But are you seeing the intent of the client to kind of reorient supply chains? And are you being able to see early signs of more sustainable demand from our export markets?

So there are -- to answer in short, yes. Let me try and elaborate a little bit, giving you some nuances of how things are shaping up. So there are certain customers who were not buying from us and possibly not buying from India who have started buying from us in the last 3 to 4 months. So that is one indication that there are new customers, and they are all -- I'm talking about large customers, global large customers. So they are first-time buying, and buying reasonably large quantities. And based on the -- currently one of the indications of how our business will move is how we are getting requests for new designs and samples from us. It gives us an indication of how it can move forward. So that's a fairly strong from the old and the new customer. That is one indication. The second is the several customers who are our existing customers who are buying certain types of products only from -- or rather they were not buying from India and not buying from us. And we have now started any reasonable quantities of those new or different products, not new, but products that we were not servicing them since ever in the past. We have started servicing them since the last 6 months. So that's another indication that newer products and newer customers are being serviced by India. Now, so based on that, answer would be that apart from the, what you call, pent-up demand, where things are -- orders are strong, is that other indications that the markets are looking reasonably good for India.

Right. And that's very encouraging. My second question was on Advanced Materials. So obviously, we had an impact of COVID this year, but our performance over the last many years has been great. So would you like to share any guidance on how the next, say, 12 months or 18 months would look? And are there any -- again, some structural changes there that could make the business stronger in the coming years?

Yes. So Deep, let's skip out the impact of COVID and that uncertainty. But keeping that aside, I think it's a business which it is at a run rate of INR 800 crores , INR 850 crores when we closed the quarter 4. And we believe that it will grow by 25% at least for coming few years, if not little more. I think in terms of a few -- and Samir, maybe you want to take this question. My colleague, Samir, our Head of Strategy, he is also core team member of our AMD business. So let him address that. Yes. Samir, go ahead.

No, absolutely. So Jayesh bhai, your -- I agree with you. So Deep, we have been building this business steadily for last about 7, 8 years. And there are -- it's a large business with multiple components. We are -- the point like Jayesh bhai said that we feel confident that this is growing, and it will clock strong double digits growth. And the reason we say this is that we are seeing over the last 3 or 4 years for most businesses, we have a core set of customers from whom we are getting fairly repeated businesses. And hence, we feel that we have a solid base. And as we add more customers and gradually kind of evolve products so we are not adding more products, but we are trying to evolve products to more higher and higher-value products in each of the segments we play in. So with those 2 sort of levers, we definitely feel confident that we will be seeing a healthy double-digit growth for next several quarters to come.

Sure. And my last question was just on the CapEx. I know that we've been curtailing CapEx. And we've done a phenomenal job on reducing working capital and debt. But is there some -- as we get towards the end of the year, is there any thought of sort of doing more CapEx? So how -- what do you kind of -- how do you look at this for the next 2, 3 years?

Yes. So one is the short-term during the year and then towards the end of the year and something which is in the medium term. So let me -- I think in terms of growth that we would want to do, I think we have enough headroom both in Advanced Materials as well as in our core textile business to grow business by 8% to 10% for next, at least, 12 to 18 months. I would say more like 18 than 12. On an annual basis, 8% to 10% we can grow without any significant CapEx. So we have enough headroom right now for us to grow. Now what we want to do in this interim period is to further use the cash to bring down the asking rate or the debt as much as we can. As far as further CapEx and the growth is concerned in the medium term, to answer your question, yes, we will have to invest in building capabilities to increase sales over next, well, I mean I would say, 18 to 36 months. And in that period, our focus will be to do the last mile, to do specialty products. So like, for example, a year ago, we -- 1.5 years ago, we invested in activewear fabrics. We invested in knitted indigo. And we, of course, invested in AMD. And all of them in the quarter 4 reached almost 90% of its capacity, and we are further augmenting those capacity for this year as well. So we will be doing select investments to increase our top line or growth, to bring our growth, but we will definitely not do in things which we can outsource. So we will continue to build our base on outsourcing. Where we can get someone else to do things and we don't need to invest or operate those assets, we will continue to outsource, but balance, we will start investing. One area where we will invest even in this financial year is in Advanced Materials.

The next question is from the line of Sagar Parekh from One-Up Financial.

Yes, Jayesh bhai, congratulations on a good set of numbers. First question, on this landfill, what is the total amount of -- so INR 150 crores is what we have sold, but I believe we were looking to sell more, I mean in terms of value, right? In the last quarterly call, we had mentioned about INR 300 crores, INR 350 crores expected from non-core asset sales. So could you highlight a little bit on that, please?

Sure. So Sagar, we have put up -- there are 2 types of land parcels that are getting sold. One is where we have been able to sell some land on an outright basis, which is likely to give us about INR 80 crores to INR 90 crores during this financial year. And there is another land where we have given this land to our sister company to do development and sale on a management contract basis. And that land is a -- that is about INR 250-odd crores of collections that we are expecting over a period of time. About INR 50-odd crore collection came last year. We expect similar or slightly more amount coming this year. And that's the total of INR 150 crores that I talked about this year, but we will continue to get about INR 100 crores for a couple of more years from that land sale in the coming years as well.

Sure. Understood. So INR 90 crores we are expecting on outright basis, and then another INR 100 crores we are expecting, at least for the next couple of years...

Yes. Yes. And INR 60 crores, INR 70 crores from that development also we are expecting this year. So that's what we said, INR 150 crores for the year. Yes. And a couple hundred crores should come on a INR 100 crore a year basis for next 2 years.

Okay. So INR 150 crores this year and next year INR 100 crores and then the year after that also INR 100 crores?

That's correct. That's correct. That's roughly the amount that we should be getting.

Okay, okay. Understood. And second question would be on the margin. So now with the cotton price increase further, what would -- what -- how should we look at the margins for the full-year FY '22?

So first is that the margin will also depend upon what level of capacity utilization we do. And that itself is uncertain. So it will be very difficult to say what would be the margin for the year or what is the guidance for the margin or EBITDA for the year. I would keep that for the next quarterly call. I'm not now. I'll let some clarity emerge. On a steady-state basis, as I mentioned to -- in earlier question, that we have so far been able to maintain margin by passing on the cost or absorbing some of the costs through the operating efficiency improvement. And we have been able to, as a result, keep the margin as a percentage -- so gross margin as a percentage also constant. But going forward, as the cost increase continue or there -- we will be able to -- or we are hoping to manage our contributions in absolute sense to say that may impact margin in a percentage term to be lower, a little bit lower, but not in absolute range. Not in rupees per unit, yes.

Understood. Okay. But any color on any further cuts in terms of expenses? Over last year, we had mentioned significant fixed cost reduction. So that will stay? Or there should be likely some kind of...

No. So you are right. So if I look at last year, for example, in a whole year, we saved about INR 420 crores of fixed cost. But when I -- if I divide that into 2 parts, which is H1, which was the period where there were closures of large scale, that fixed cost got saved because we were not operating. And as a result, there were a lot of costs which were not getting incurred at all. But if I look at only H2, which were reasonably high level of production which was going on, we saved about 15% of fixed cost, which was about, in absolute sense, INR 100 crores for H2. Now -- which we believe is the kind of cost between 12% and 15% is the kind of cost which is a structural savings which we believe should continue.

Right. So INR 100 crores for H2 means, if I annualize that, INR 200 crores saving is possible for the year?

No. So I'd say between 12% and 15%. So it will be like, more like, I would say, INR 150 crores , INR 160 crores, to around that number.

Okay, okay. Understood. My last question in terms of volumes for Wovens and Denims, if I go back 2 years, we were at Wovens we were doing about 34 million, 35 million meters kind of number, and Denims also, we were at about 24 million, 25 million meters kind of, for quarterly. So assuming that now the demand is coming back and we, across all the 3 segments, Garments, Denims and Wovens, we are seeing customers increasing a share of business to India. So can we -- now, going forward, can we see that quarterly volumes coming back? Or do you think...

So, again, yes. So let me, again, because of uncertainty, I'm not able to give you a clear-cut answer, but if I were to differently answer that question, I'm saying that when we prepare our business plans in the month of early February rather, without considering the pandemic impact of wave 2, we have hoped to sell 90 billion (sic) [ million ] plus Denim and about 127 million, 128 million meters of woven fabrics for this financial year. So now whether how much of that we will be able to sell will depend upon market conditions, but that's what we were hoping to do in a normal year.

Understood. So 90 million and 128 million. And 50 million meters for Garments is the normalized...

We were looking at 48 million, 50 million meters Garments, yes.

Yes, yes. Fair enough. Our capacity is 60 million, right? In Garments?

Yes. It's slightly less now because we rationalized some capacity. But yes, around that, and it's easily scalable capacity also, by a few millions so.

The next question is from the line of [ K.P. Jain ] from Sundaram Mutual Fund.

What could be our current level of exports business in the current level of mixer?

I'm sorry?

In the current quarter or maybe current quarter, how much would be exports size roughly deemed export, sir, in the current situation?

So direct export for Q4 was 54% of the total. And I guess about another 10% would be an indirect export in terms of selling fabrics to garment factories who would in turn make garments and export.

Okay, okay. Sir, secondly, our debt has come down significantly, but our finance cost is still not down much sir. Anything one-off there in the finance cost line item?

I will -- so last year, we had our finance cost was INR 235-odd crores in FY '20, which is now at INR 225 crore, so it has come down. However, in INR 225 crores, we have written off INR 10 crores of TUF interest subsidies which we have not received for a long time. So our auditors asked us to make the provision. So we have written off. So effectively, for the year, if I ignore that, our finance cost for the year was INR 215 crore. For the quarter was INR 45 crores without any of these write-offs.

So we should expect furthermore rundown in this finance cost item, sir?

Depends on the -- so yes, we want to further reduce the debt in this financial year depending upon how pandemic situation unfolds. But we directionally would go towards lower debt and -- as there is a lower interest cost.

Okay. Sir, any update on PLI, sir, like any update which has come from the government that when they will be doing in our areas of manmade or the technical fibers?

I am told that so for textile, they have not announced it. They have asked for feedback from the industry, and we have given the feedback last week. So we believe that it should come in this quarter.

Okay. Sir, my last question, the tax rate, like what do you expect the tax rate to be going forward sir, roughly?

I think our tax rate would continue to be full at 30% -- I mean around 32%, 33%. Cash flow, in terms of cash outgo, it will be only 17.5% because that's a minimum alternate tax we have to pay. But in provision -- in terms of provision in the books because we'll be utilizing the past net credits every year, we utilize that. So in cash flow terms, it is 17.5%. In accounting terms, it is about 33%.

The next question is from the line of Prerna Jhunjhunwala from B&K Securities.

Congratulations on a strong set of numbers. The healthy surprise on 12.5% EBITDA margin for the quarter. And it's come up for many quarters now. So I just wanted to understand how sustainable these numbers are for next 1 year. I mean I'm not talking about 1 quarter 2 quarter, but at least if this number is sustainable for FY '22, given that you have fixed cost savings and right now, in the quarter, you also experienced price hikes -- prices that can be passed on to the customers?

So Prerna, this -- I mean in some ways, this question came a few times before. Let me again try and explain that. We are currently -- so first is that we don't really know -- there would be some hiccups for sure in H1 on utilization of capacity. So that will definitely bring some kind of impact on the margins. And in fact, like June, parts of May and some part of June, a lot of our Karnataka plants -- all of our Karnataka plants shut, as you know. And those things will impact sales, and as a result of fixed cost being there, the margins will get impacted. But that's the pandemic period. Now if I were to look at H2, a combination of price increases, product mix change and cost savings would help us to maintain margin in 11.75%, 12% range is what we believe, in percentage terms. In rupee terms, we don't think there will be any deterioration in unit contribution.

Okay, okay. And so, at current level of operations, I mean almost -- not for this quarter, but in last quarter Q4 level of operations, how is the profitability in the garments business? And what can improve it further? I'm not asking for specific numbers but are you operating full estimated margin things?

Yes, yes, 2 things. So profitability in garment was suboptimal because we sold less than our capacity. We couldn't sell fully because of some container-related issues that we faced in the month of March. But more importantly, we did not make any provision for RoDTEP. So in a way, if I -- if not that as well. And this margins were quite healthy. And I think going forward, we believe that margins will even improve further as we scale up our utilization. But I think that will happen only in H2.

Okay, okay. And sir, one bookkeeping question. We've been seeing textile EBITDA margins in our presentation around 12% for the last 2 quarters. But at this time, we are seeing EBIT margin also being very healthy. So could you please help us understand what -- how has the depreciation or other income impacted textile margins this quarter?

No, that income has not impacted. I think there are 2 impacts, I think, on a -- if you look at as a company whether the ROCE or EBIT, if you are looking at. There are a few things: a, textile margins have been around that plus/minus 0.5%. But every quarter, there has been a debt reduction, and every debt reduction improves the -- or reduces the capital employed. The other thing is that every quarter, we are depreciating by INR 75 crores. The depreciation is around INR 70 crores, INR 75 crores. On the other hand, fixed asset investment is not even INR 10 crores, INR 15 crores in a quarter. So that further reduces the capital employed. So cumulatively, when you look at for the year, there is almost like INR 400 crores reduction in the capital employed, and that helps to improve EBIT -- or return on capital employed, not EBIT. Second is that there were non-textile businesses, which are like our water business or our other smaller businesses, which did not give any kind of profit contribution in the first, I think, almost 8, 10 months. And a lot of it got booked in this quarter. And that is also, as a result, adding to profits, and as a result, adding to overall EBIT.

Okay, okay. Understood. So then, okay, fine. There is a volatility in your other business, so okay. So my last question is on your debt reduction target for the year. So you are raising also through NCD, so can you just help us what this money will be used for? And will there be a net debt reduction even after raising the INR 200 crores?

Yes. So this -- the -- under the company law, any NCD, if you want to raise any time during the year, you need shareholders' approval. And that expires every financial year. So every time you need to take an approval. Now -- so this is more of an enabling resolution to -- in case we wanted to raise funds during the year. Since we'll be calling a general meeting, we want to take this approval so that we don't have to call another meeting should there be a need to raise the funds. As things stand, we are not looking at adding -- in fact, we are looking at reducing the debt, so there is no question about adding the debt. So there could be debt additions and debt reductions. That we keep doing it either to change the repayment schedules or to save on interest cost, but they are all more of taking advantage of the cost arbitrage or whatever, but nothing to do with the pure debt. Debt increase or reduction -- I mean debt reduction is pure a function of what free cash flow we generate. And that, we believe, should be there subject to COVID conditions because we do not have any significant CapEx program, and we have certain cash flows coming from landfill.

Okay. So which mean this is just provisional in nature. So it is not for any further cash flow requirement of yours? That answers it. And so one more question, if I can just fit in, on the China plus one demand structure, we were talking about realigning our product mix as per the export market in the Garments business. And also the demand in the -- in woven fabrics, if you could just help us in understanding the demand supply, as you explained in the Denim side last quarter call. So that would help us in understanding what is happening on the Woven side as well.

I'm sorry, I'm not able to understand. Can you please repeat, Prerna, I'm sorry?

No problem, sir. First question is on -- first part of it is on woven fabrics. Could you just help us understand the demand supply dynamics in the woven fabric business? And second part was on the demand -- the realignment of our capacities as per the demand shift that can happen from China plus one strategy, where are we on that end? Do we see China plus one actually playing out in the garment business for India?

So if you look at the data on last few years, I think China has good amount of market share. I think if I -- Samir, was it 8% or something? However, the -- most of the benefits have gone to Bangladesh and Vietnam. And I think in India, India has grown. India's market share has also grown both in U.S. and Europe. And that was, I think, but it was significant as a percentage to the total number we have. But it was absolute -- in absolute sense, it was about 1% growth. I think it has something to do with the way I think our capacities, our Indian manufacturers capacities are and the way our, I think, cost competitiveness is, which also significantly is constrained by the government's policy on what actual duties that we are paying and whether they are all being refunded. So I think those are some of the challenges why I think India is not able to take a full advantage of shift. As far as Arvind is concerned, Arvind is getting more orders for sure. And we are -- we have consolidated our position with some of our key customers. And I think we continue to grow both in fabrics and garments. And as we said, that we have a plan to grow to almost full utilization in the near future as soon as the COVID conditions become normal. Woven demand is fairly strong right now. And I think as I said in earlier call that some of the products that were not being bought by our customers from us, but they were buying from China and just started buying from us, one of the highest demand we are seeing is in Woven.

Yes, Jayesh bhai, sorry, I was on mute when you asked me question. So Prerna, in terms of data, the biggest erosion of market share for China has happened for the supplies to the U.S., where if you see the data between '19 and '20, those 2 years, it did lose about 6 percentage points. And like Jayesh bhai said, majority of that got split between Bangladesh and Vietnam. For the other markets, the market share movements have been relatively narrow and stable.

I think India got some benefit, which is, I think, about 1 percentage or so.

Yes, 1 percentage point, we got as well.

[Operator Instructions] The next question is from the line of Saurabh from HDFC.

Sir, just to continue to the previous response, which you were -- where you mentioned that the garmenting -- the China has lost share, but the gain has been more towards Vietnam and Indonesia, and maybe Bangladesh. So -- but can India be an indirect beneficiary of the same because we have -- well, we may not have a very large garmenting capacity compared to Vietnam and Bangladesh, but we do have a large fabric capacity and maybe spinning capacity. That was question 1.

So on a -- for the country, the demand for spinning, as you know, is very strong right now. It is, for various reasons, including some capacities going out and more importantly, the cotton -- the yarn cotton not getting used. And as a result, a lot of Indian yarns being sold in international market. Also, there is -- as I said, there is a very strong demand for fabrics across all product categories for Indian manufacturers for export market right now. And it's a combination of both -- generally the demand being strong as well as some replacement demand also coming our way. So to answer your question on fabrics, yes, we are benefiting. On Garments, because of the -- our own capacities being limited, policies not being very clear, there are those -- we are not getting a very large sizable benefit out of that.

All right. So, in essence, this can be a structural positive in terms of fabric capacity for us for a medium, longer term?

It is true. So for a country like -- pre-COVID, what we were hearing from machinery suppliers, there was very large-scale textile investment which was being considered by various companies in India for increasing fabric capacities. We don't know how much of that will now actually come because of the impact that we all are facing. Some of it may go away. But to answer your question, there is -- India is looking -- textile is looking fairly in a good shape for some years to come.

Yes, sir. The second question which I wanted to ask, there was a -- it would be a combination of a few questions which you already answered in the past. So as you mentioned that in the beginning comments that we are currently -- the current challenge is more of supply side and not of -- and less of a demand side. So assuming the supply side challenges are not there, how better we would have done over FY '21 revenues, broadly...

There, we would have -- FY '21, so that is a INR 5,000-odd crore revenue, right?

Yes, yes.

So -- but if I were to look at, let me give a different thing because FY '21 was a very different kind of revenue. But if I look at, say, Q4...

Maybe FY '20 or FY '19, whichever you think is the right number to be seen.

Yes. But if I were to look at quarter 4, which was INR 1,650 crores revenue, which is a run rate of INR 6,800 crores as opposed to top line of INR 5,000 crores which we got in the FY '21. The quarter 4 run rate was about INR 6,600 crores or INR 6,800 crores. We would have grown by at least 10% over that, had there not been a COVID.

Assuming everything is normalized in FY '23, we assume that COVID is behind us till that time, so can we do a turnover close to INR 8,000 crores, which we were very close to in FY '20?

It is possible. It is possible with the capacities that we have, the plans that we have even in Advanced Material division. It is possible for us to aim at that level of sales without too much of the...

Understood. And the second part of my question is like so you also mentioned that in H2, you expect the margins around like 11%, 12%, assuming I've heard it right. But in current quarter, we did around 12.5% and that too, excluding...

11.75% to 12%. The reason I said in the -- so it was in the context of cost, so if the cost push is there, was the cost goes up by INR 10 a unit, we may be able to get INR 10 and not 10-plus 12% thereon. So as a result, in a percentage term, you may lose a little bit to -- certain maybe 40, 50 basis points, not in absolute trend, yes.

Okay. And so also on the time lag, you -- so there will be some time lag between -- you would have on both sides as when you would be buying some bit of yarn. You would get that, since the yarn spreads are now higher. So maybe the current pricing what we are getting, is there any -- they would increase? But at the same time, the fabric which you are selling, they would also -- would be some time line where the price increase will be there. So won't this need to get negative over time?

It is -- every time there is a significant cost push, you tend to lose for some months because your sales is already committed and our buying cycle of commodities is much shorter. So as a result, you buy near the production time, but your sales might be for a longer period of time. Also, with certain customers, we do a reasonably long-term -- long-term as in 6 to 9 months of capacity planning for them because they are very large and big customers of ours. So it has a time lag impact and which we have to factor in, but it gets adjusted over 4, 5 months.

Ladies and gentlemen, we will take the last question from the line of Resham Jain from DSP Mutual Fund.

Congratulations on the good set of numbers and recovery. So my first question is on the labor shortage. Lot of textile companies are talking about this because of disruption in terms of factory operations and all. Along with various inflationary pressure which you talked about, is labor also one factor? And how comfortable are we and as an industry, people are on this side?

So Resham the large -- as you know, largest part of our sales come from plants in Ahmedabad. And in both the large locations of ours, which is Santej and Naroda, practically, 90% of the labor is from in and around the plant. They're coming from in and around plant. They are not migrant labor for us. So for us and for -- and in that area, like in Santej or in Naroda, most of the other textile mills are which were existing in the recent past also have shut. So like there was a VVM factory in Kadi area, in Santej area, which also got shut. So availability of labor for textile for our plants in Ahmedabad, because they are not dependent on migrant labor, is not a problem. Also cost is not a problem for us because there is a trade union agreement on which we are able to work on, and there is no significant cost change that we are seeing. The issue that one is facing, and that is, I think, very temporary and most particularly for quarter 1, is that because of the large-scale COVID spreading in the -- in and around Ahmedabad, there is a higher absenteeism, and as a result, though plant is working, less people come into the plant. And that happened on a very large scale between April 15 and May 15. It has now since receded. And now more and more people, as you know, COVID cases are also lower. Now absenteeism has started to get back to normal. And as a result, we are getting it. But on a medium-term basis, that issue does not -- we are not seeing that as an issue. As far as garment factories in Karnataka are concerned, again, they are mostly workers coming from Bangalore and nearby Tamil Nadu villages and not migrant from other states like UP or those kind of places. So availability is a big challenge or a cost is a big challenge.

Okay. And, sir, my second question is on backward integration. So from yarn perspective, now how much backward integrated we are in terms of our overall fabric requirement? Or like for fabric division, how much yarn is internally integrated?

About 60% on the company level in Denim, which is where the yarn spreads are maximum. We are about 80% integrated. In Wovens, we are at about 45% to 50% integrated.

Okay, okay. And this would have been a little challenging in the last 6 months or so because of lack of integration to some extent. Otherwise...

Not really. I mean so -- I mean our margins in last 6 months have been quite okay, so.

Yes, I mean I was saying relatively, it could have been even better because of very high yarn spreads which companies are enjoying.

Correct. No, that is true. That is true. We don't have yarn investment, so. It's always -- there was INR 1.60 yarn spread 1 year ago, so.

Thank you. Ladies and gentlemen, due to time constraint, we will take that as the last question. I now hand the conference over to Mr. Samir Agrawal for closing comments.

But if any one's questions are left, we'll be happy to offline take them. So...

Yes. That brings us to the close of this call. We will again meet in 3 months. Thank you very much. Have a good evening.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Arvind Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.