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 3 financial year 2021, '22 of Arvind Limited. [Operator Instructions] I would now like to hand the conference over to Mr. Samir Agrawal. Thank you. And over to you, sir.

Thank you. And good afternoon to all of you. Thanks a lot for participating in this call to discuss the financial results of Arvind Limited for the third quarter of financial year 2022. Joining me today is Mr. Jayesh Shah, who's our new Finance Director, as you all know; and also Mr. Kaushal Shah, who is our investor relations officer. To get started. I'm very happy to report that, during this quarter, we crossed the 15% ROCE mark. We have discussed a few times as to we wanted to kind of get there. And we are here, so we are really pleased about that. In this quarter, we [ logged ] the highest-ever earnings for the current portfolio of Arvind Limited businesses. Similar to the second quarter, the business in this quarter was characterized by a surge in volumes across all segments and also, in tandem, the high input prices of the raw materials. Most of our businesses secure price increases to offset the cost increases. And that helped us maintain the unit operating margins, although in certain cases it may look a bit diluted. Overall, the revenues for this quarter, in the third quarter, stood at INR 2,276 crores, which was 50% higher than the previous year same quarter. EBITDA stood at [ INR 236 crore ], which was 46% higher than the INR 162 crores which we reported last year, in the same quarter. PBT stood at INR 142 crores and the net profit after tax was at [ INR 95 crores ], so we had indeed a very, very good quarter. Like I said, this was the highest ever in our history, so we are very happy about that. Talking about the segments in a bit more detail. The textile revenues were at 1-9-1-7, INR 1,917 crores, which was 57% higher than previous year. Almost 25% of this growth on top line came from the improved price realization, and the remaining was volume growth. So similar to the second quarter, like we shared with you, Denim again shipped out 25 million meters. So it continues the momentum in terms of volumes. Woven showed a very strong growth, and it shipped out 35 million meters this quarter. And this was largely driven by a very sharp increase in export volumes. Garment volumes improved to 10 million pieces. Apparel demand in general continues to stay buoyant across all segments in our markets. Most global retailers and brands have reported full recovery to the pre-COVID levels. And in some cases, the ones who are doing better are even reporting 5% to 10% growth, [ generally better than ] Q4 2019 numbers. Similarly, the top domestic fashion brands and retailers continue to deliver strong volumes. And all of this has started [ in even ] overall strong demand for our fabric and [ apparel goods ]. On the input cost side, [indiscernible] stayed strong. And cotton prices have moved to a level which is kind of historically high both internationally as well as in India. It's a combination of demand, supply; as well as speculation going on. The global demand for cotton continues to stay at 24 million (sic) [ 124 million ] bales plus. And even like we shared last time also, there has been some degree of disruption in the supply because of the weather [indiscernible]. And more importantly, while the cotton is there, with continued challenge with the global shipping and supply chain, it still continues to impact the [ local demand and supply ]. Other raw materials also continue to command high prices and partially driven by higher freight prices because [ some of these are ] imported from China and other places and the freight costs [ have been added ]. The good thing is that we have been able to pass on most of these cost increases, and as a result, the textile EBITDA was strong at 11.3%. Average price realization for Denim stood at INR 226 per meter, and Woven was at INR 185 per meter. The ROCE in this business, the textile business, stood at nearly 23%. Now talking about Advanced Materials a bit. AMD grew by 42% compared to the Q3 of last year. And its [ logged ] revenue was INR 267 crores. As I have shared in the past, AMD has 3 parts, which is human [ protection ] apparel, industrial products and composites. And all 3 segments of AMD saw -- there is a scaling-up of the key accounts, launch of some high-value products and overall good growth. EBITDA margins in AMD stood at 13%. Net borrowings came down further, as we had planned and guided, by about INR 150 crore during this quarter. And we closed at [ INR 1,723 crores ] as of December end. As a reference, just to recap: We started the financial year at INR 1,950 crores borrowing, which has increased to [ INR 2,141 crores ] during the end of first quarter and continues to come down sequentially. And looking forward, in near future, we expect that the demand-side and [ the cost-side factors growth ] will continue to play out in the way they have been for last quarter or 2. As such, we expect Q4 to deliver similar top line and profit numbers as Q3. We also intend to continue our efforts to dial down the debt through the next quarters. That concludes my opening remarks, and we'll be very happy to answer the questions. I invite [indiscernible]. Thank you.

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

Yes. And congratulation on the way you performed. 3 questions from my side. First one [ was that ] have we taken all price hikes that were required. I know we are guiding for similar margins and -- or similar revenue trajectory for Q4, so we'll assume that will be the case, but just if you could throw any highlights. Maybe something has happened towards the end of the quarter, till now which may still require some intervention from our side.

So okay, this is your first question. So the price increase [indiscernible] -- cost increase [indiscernible] is a continuous phenomenon right now, unfortunately. So regarding post the Q3, there has been -- so in November, in December, there have been price increases of cotton and some of the other inputs. So we too are changing our price with our customers. So it's a continuous process. You continue to remain -- lag behind for a few months, but just to answer your question: There may be a little bit of an increase in prices of our products even in the coming quarter.

Sure. Jayesh bhai, if I may just ask something related to this was that it is very [ heartening ] to say that we are able to take such strong price hikes, but do we have the bandwidth to keep taking those [ like things still ] happening? Or this is maybe the end of the price hike we can pass on to customers, and post this, maybe we will have to absorb the inflation.

I mean it will be difficult because, see, price increase is -- it's an issue that is affecting all the players and not only us. So to that extent, if there is an inflationary situation, then some of a price increase will have to be done. Of course, these price increases are never one sided. There has been some bit of an absorption by ourselves. So otherwise, we would have got a significant, I would say, operating leverage with this kind of [indiscernible], which you don't see. So there has been some bit -- an absorption. And through productivity gains, through efficiency improvements, through changing in product mix, you keep, as you know, adjusting and looking at customers' needs, you have to keep adjusting your contribution, your pricing, your products; and then try and optimize the situation.

Understood. Then sir, the second question was that in your commentary you do mention that the domestic segments have been very robust, the only observation here being that, both for wovens as well as for the Denim segments, volumes are still at 75% to 80% of pre COVID. So when you say robust, you are saying how it has performed versus Q2. Or are there some other parts that you're including which is giving you this...

So we are both looking at the what is -- happened and what is -- what we are seeing as an [ order book ], what we are seeing the customers' inquiry for the following periods. So in general, the -- despite the Omicron issue, the -- unlike in the past, the demand continues to remain reasonably stable. It has not collapsed the way it did in the earlier [ year or 2.] That's the reason why we said that the demand remains strong, as compared to what we have seen in the past.

[indiscernible]...

[ Jayesh, can I add to this ], on the domestic demand?

Sure, sure, sure.

Yes, just a comment. So again what's happening is, just to give you a bit more flavor, right, if you see -- there are obviously top lifestyle brands in both denim and woven categories. And then there are 2 tiers below that in terms of market. There is a [ super regional ] or a strong regional player bracket. And then there are really small ones which are almost like [indiscernible] local players. So what we are observing is that the real small local ones are the ones which are really getting [ pulled ]. In fact, a lot of the business is now being picked up by these regional and some massive players, who are becoming much stronger. So that's the dynamic playing out. And frankly, structurally that favors us because that's the segment which [indiscernible] [ a lot more readily ] as compared to the lower tiers. So that's just two cents to add there.

No, that's very helpful, Samir. That does give further clarity. Last questions from my side are on the debt part. The reduction is something that's been very significant, and congratulation on that. If you could just break up if there has been any proceeds from the land sale. And therefore and also for the year ahead, what are your expectations from land sale? And if there is any unutilized land bank which we are contemplating to monetize [indiscernible]...

So -- sure, Nihal. So there has been over 9 -- sorry. Over last 9 months, we have been able to get about 85 crores to 90 crores from land sale. And some of it has come in Q3 as well. However, in Q3, one of the reasons why you see a little higher reduction is that we -- our tax payment was much lower, as compared to what you see as a [ book tax ], which is provided on 35%, but because we have been paying advance tax and we are in [indiscernible], we don't pay 35%. But we pay [ 30%. So to that, land sale is ] 17.5%. So to that extent, the tax outflow is much lower than [ what we see as ] tax provision in the books. So that's one of the reason why we had surplus, more surplus, than what we've seen on the reported number. We did have some fixed assets, I mean, for land sales. And we will continue to sell more. I think another -- you could expect at least 100 crore to 150 crore of sales happening even in the next financial year.

The next question is from the line of Biplab Debbarma from Antique Stock Broking.

Sir, congratulations [ on the set of great results ].

Thank you.

Sir -- and first question is on the -- your capacity utilization. Sir, it looks like you're running 100% capacity utilization in Denim and Woven, if my reading is correct. If that is so and if we see the revival in demand, what will be our next steps? I remember in the previous con calls you mentioning that you would -- you are not very keen on adding capacity, so -- and you may outsource it. So if that kind of scenario arises, what will be the -- our margin in outsourcing? Because there will be some margin contraction [ in our systems ]. So that is my first question, sir.

Sure. So I think 2 related questions will be how are we going to plan for growth in the coming year across various segments and what is our thought process on the CapEx, so let me try and broaden the answer so that it addresses not only your question but some of the other related issues. So we believe that the textiles industry is seeing a tremendous growth opportunity. Both -- as we just spoke, our Indian market, particularly the organized retail, is growing at a very fast pace. And there is definitely a global shift in demand which is now real, so we will also grow in select areas such as garments, advanced materials and fabrics of manmade fibers. So we are in the process of [ putting together ] our CapEx plan. Overall it will be over 300 crores over next 18 to 24 months. We will be spending on augmenting our Woven capacity. We will be augmenting our garment capacity. And we will be augmenting our AMD capacities in different segments within AMD. And whatever is part of PLI in this, which could be -- some of the products will be part of PLI. Some of the products will not be part of PLI because they have restricted some of the [ existing quotes ] in the PLI scheme. So whatever fits within that, we will apply under PLI. And balance, we will apply or do outside the PLI. So this is our overall thought process. There will be some bit of an outsourcing. Some of the [ intermediates ], we may be buying. Even now, we do that. So that's the focus will be both on margin and return on capital employed. And with that as a barometer, we will aim to continue to grow and take advantage of the tremendous opportunity and the [ demands that ] you see in the global and Indian market.

Jayesh, if I can just add to that. There was a second part of the question, around if we outsource, there may be a margin dilution. So just...

[ No -- so that's ] what I said, that there will be some margin dilution from outsourcing. We will gain on operating leverage as well because some of the fixed costs will remain constant. Also there will be -- even though there may be a margin dilution, there may be an ROCE uptick on that. So it's a combination of all of this. It will be difficult to today give you all the concrete numbers because we are in the process of budgeting. And next time when we meet, we will have much more clarity on all of these aspects, but I am directionally telling you that this is how we are looking at growth, margins, capital employed; and also continue to look at our own focus on reducing debt year-on-year.

Okay, sir. That's great. Second question is on your AMD segments. So my understanding is that AMD segment would be primarily driving the growth part; and it has been growing significantly, [ good ] margin. Just if you could provide some insight. I know you have 3 segments. [indiscernible], as in, each segment, how much they contribute. And who are the top 5 players? How big the market, export market, is. See -- because AMD is a bit of new area. So [indiscernible] so that we can [indiscernible] or research further...

Sure, sure. So Samir, maybe you want to take up. And I'll add.

Yes, sure. Thank you, Jayesh. So if you have seen -- or like you said, AMD is made of 3 parts. To simplify it: There is what we call human protective apparel, human protection, which is a little bit more than half of the AMD top line. And then there are 2 [ further ] segments, which is the industrial belting, filters; and then composites, which are 25% each, right? So that's kind of how the top line stacks up in terms of importance, all right? Now the one thing I just wanted also to clarify is that -- because the question you have asked has been asked in the past as well. AMD is a bundle of multiple businesses and multiple products that go to different markets. So it's not like there is an AMD market like a denim market where there is a given market size, right? So it will be hard to say that, what's the market size and what's the share of market. Having said that, I think [ this is the real flavor ] of each of these businesses. So human protection really makes a lot of different kinds of workwear and protective apparel which sometimes goes to people like firefighters and [ different personnel ], right? Globally there are 2 kinds of customers which buy these products from us. Either these are brands which sell under their own brand name and they simply white label from us. Or there are laundries which provide apparel services as solutions to large corporates and other establishments. And again, for them also, we supply our white label unbranded products, which they kind of take it as an input into their business model and then go on. So this is very much an institutional B2B business. And where we are is, in last few years, we have established a core set of customers. Many cases, these customers don't want to be named, for different reasons. [ I mean ] many of them don't want to be seen as sourcing from outside local market, et cetera, but from our perspective, the important thing is that we have very stable customer base within which they are increasingly getting [ concerned about ] quality and supply-side reliability. And during this stage, we have also cleared a whole lot of certifications because many of these products require you to undergo a fairly rigorous testing and [ submission ] process. Many of them last for multiple months and multiple quarters. So that's the kind of business which human protection is. And like I said, the [ mission in that area is to ] keep scaling up, [ and we've been quite successful here ]. And that's how it will continue for next few quarters as well. In terms of the belting and filtration products. Again these are both woven as well as nonwoven products coming out of our factory. And like I said, [ they've been going to ] 2 broad applications. Either they are coated with a few different compounds and [ made into converters ], et cetera. Or they are deployed into different kinds of filtration, either a hot gas filtration or liquid filtration or some combination. And again, in terms of the customer base, largely export oriented. There are overseas distributors and overseas converters which convert these into actual filtration products. Or in many cases they have -- filtration service companies will buy these products from us. And in that sense, it's very similar to human protection. [ It's a B2B ] business. There are established accounts where they have a number of products and [ they've been released in last ] several quarters, so we are in a place where we are growing the business up as well. And the last piece is composites, which is taking our glass fiber [ established ] capacities we had [ since 2012 ]. We have gone downstream. And there's actually a website which we have put up in last couple of quarters for arvindcomposites.com. So if you click on that, you'll get all the details of the different product market, but in summary, it goes into a variety of downstream applications where composites offers an alternative material [ of construction ] to metals. It's a much better [indiscernible] and so on. And again this also is a B2B business. We supply to large cooling tower guys, telecom [ sellers ], even making parts of metro rail. And more recently, we started making some sports goods as well, which gets us into the carbon fiber [ zone ]. So the attempt here is to again try and move towards [ higher- and higher-value ] products. So what we have done is we started with a fairly basic composite material set about 4, 5 years back, but a lot of products which we used to kind of [ build this in ] like 2015, '16, we don't even produce that because we have continuously improved our [ facility and for what is the ] value chain. So that's kind of the flavor of the 3 buckets we have, and each of them competes in a different product market. So I'm going to pause here and see that, that gives you some flavor as we move [ to similar ] questions.

No, no. That's very comprehensive guide. And if I may squeeze one final question: Sir, ROCE seemed to be [ individual ]. Like textile and AMD segments ROCE seem to be high but overall also very good, but I believe it is because of the other business segment -- impact of other business [ events ]...

Let me [indiscernible]. So it is not strictly because of the other businesses. The investment in other business is relatively smaller. However, we have the -- a few things. Like we have over 100 crores of tax, which we have to [ map ] credit that is sitting there. Also we have about 450 crores to 500 crores of land which gradually is being sold. So once these [ so-called ] [indiscernible] nonproductive assets are out of our books, you will see an immediate jump. And that's why I, in the earlier question of yours, also mentioned that we would want to look at significantly growing not only our margin but also return on capital employed. So that is the reason why I told you that.

The next question is from the line of [ Kirti Jain ] from Canara HSBC. As there's no response from the current participant, we move on to the next question, from the line of Prerna Jhunjhunwala from B&K Securities.

Congratulations, sir, on strong set of numbers.

Thank you, Prerna.

Sir, I just wanted to understand your Q4 guidance on why we'll see similar top lines and there will be some price increases across products. And...

I'm sorry, Prerna. I didn't get your question. Can you please repeat for me?

Yes. I was just trying to understand your Q4 guidance on why revenues will remain at similar levels, when you will see some price hikes across products because of cost inflation. And there is room for capacity utilization improvement in Garments and AMD as well. So I just wanted to understand why it will remain similar. It can actually increase from your -- in Q4.

Sure, sure, sure. So Prerna, it -- [ so the ] quarter 3 has been one of the exceptional quarters also for Woven division. And generally, to do a 35 million [ year ] quarter-on-quarter, because of even seasonality changes, is not something which we can plan. It can happen, but we cannot bank upon it. Generally the sales will be around [ 30 million to 33 million ]. We will aim for higher, but that's what we budget right now. Similarly, in Denim, to do 25 million also is not something which we can bank on, on a quarterly basis. It can be [ 23 million, 24 million, 25 million ]. So what -- we have to budget for something which we can definitely achieve and give the guidance. On Garments, yes, capacities are there. And we will be growing. Also there are different products that we sell for different seasons. And the prices and the product mix also undergoes change as the -- every quarter. And that's why also the product mix-led price changes [ may also happen ]. You may get the higher prices for that same product. We may -- also [ average may not try to much heavy ]. Otherwise, we'll -- the price increase may show that the [indiscernible] overall average will rise. So that is why the turnover may be similar. It may be 5% lower or higher than what it is today, but we believe that it should be in the ballpark similar range.

Okay, okay, great answers. And sir, second question is on the water business. How [ has been -- in this quarter ]? And what is the general outlook on this business now?

So [indiscernible] has been quite good. In fact, demand pickup is now very good. We have been able to reach some larger [ orders ]. We -- in the past, we've done [ a single ] order which is of 100 crores. We have been doing 50 crore, 60 crore, 40 crore orders. We have just won an order which is over 100 crores. So it is moving in right direction after 2 years of COVID and where the demand of -- the new order booking was slower, and so was execution, but now it is picking up and we see a good, a robust pipeline for next financial year.

Okay, okay. Sir, what will be the size of this water business? Just to follow up on this...

[ Now ] 200-and-odd crores this financial year. It has been stagnant and in fact has gone down in last year, but it is now inching up to over 200 crores. And it should be at 20%, 25% or 30% growth next year.

Okay, okay. Sir, my next question is on these interest costs. The interest cost, sir, remains higher, around 9.5% if you calculate [indiscernible], so...

Yes, sure, sure, yes. I will explain to you. So these interest costs include certain portions of cost which is not relating to the debt alone. For example, we pay -- or we do a very large -- some -- between 200 crores and 300 crores of the factor of our export and domestic receivables. So we sell-out our receivables, and whatever is the cost, we look at in interest, so that is another cost that comes. Though it is not [indiscernible], that cost does come in the interest. Again, this quarter, we have -- compared to last quarters, we haven't taken any credit for the interest [ I've mentioned ], which otherwise was available until last quarter because the scheme has yet to be announced -- or renewal is still to be announced. We believe it will come in next 1 month or so. And if and when it comes, we'll reverse that cost, which is about [ 4.5 crores ].

Okay, which means our net interest actually is around 37-odd crores, which is around...

36 crores, 36 crores.

The next question is from the line of Bajrang Bafna from Sunidhi Securities.

Congratulations for a good set of numbers. So on the finance, broadly what I am trying to understand is that, on the working capital cycle, [ we was with ] close to [ 60 -- or 65 or 66 ] days for last 2 years. And this year, the anticipation is that, since the cotton prices are pulling extraordinarily high, building that kind of inventory which is the historical trends probably will not be possible for the sector this time. And the availability of cotton is pretty low, so how are we going to see the working capital cycle this year? And maybe some sustainable numbers going ahead purely from that side, sir.

So working capital cycle, as we speak, has remained similar to what we have seen. In fact, it has marginally improved in Q3. As you know, the cotton prices are at a historical high; and currently because of the reasons that my colleague Samir mentioned, that there is a logistic challenge. There is import duty on cotton in India. There is a very high demand on -- of textiles and leading to higher consumption of cotton. So because of this reason and a lot of money flowing into cotton from various funds because of the U.S. [ interest rates ], these reasons may or may not stay long. And as a result, we currently are hedging our cotton, [ the existing order book ] that we have for sale so that we are trying to match the -- our sale and the purchase and not take any extra [ position ] because cotton can -- while it has gone up very sharply, can also come down very sharply. And you may get caught into the [ previous ] cycle. And so rather, we will place it and only buy to the extent we have an order book for -- on the demand side. So we don't see any significant change in the working capital cycle for this financial year.

Okay, got it, sir. Sir, my next question pertains to AMD segment. This particular segment is, I will say, the most efficient return on capital employed generator for the company because, if you see the dynamics, it can generate almost 3.5 to 4x kind of asset turn; and then close to 13%, 14% kind of margins, which is far better as compared to our fabric and maybe to some extent the Garments segment also. So as you rightly pointed out, that you are augmenting fabric and to some extent Garments and the AMD, but to go from the 1,000 crore kind of annual run rate of technical textiles -- and we are seeing government is giving a lot of [ shots ] in this particular segment in terms of PLI things. So any broader CapEx, some big CapEx? Because you are guiding this 300 crores, which can give us, let's say, 1,000 crore [ or maybe 100 crore ] kind of top line, even if we believe that it completely goes into AMD segment. And you are seeing a lot of new segments which are emerging on the AMD side. So how we are going to get the bigger advantage given such a smaller CapEx that we are guiding right now. So if you could broadly guide us, from 2 to 3 years perspective, where do you see this AMD business? Because logically it looks that Arvind is the leader in this segment. And if any company that we can visualize from a technical textile perspective today in India, the -- Arvind come firsts in our mind because of the sheer size of Arvind [ as on date ]. So how do you want us -- to guide us from a broader longer-term perspective in that, sir...

We already -- Mr. Bafna, I think Samir did already answer that question, but let me repeat that we are looking at a growth of about 25%-plus in AMD year-on-year. We are not looking at a 50% annual growth or a 35% annual growth from AMD. It's not even practical. There are -- the demand evolution on the AMD side is a slow process because it's a technical product. It doesn't happen in like on fashion industry. So it will take its own time, but whatever we do will stay and be sustainable on a long-term basis, with margins continuously looking better. So I think our growth, as we already described, are for all businesses put together. Each one of them in detail, we will explain when our budgeting exercise is over, but as of today, it seems that AMD will surely grow at that level.

Okay. And sir, my last question is about tax rate. We are still -- from a reporting P&L side, we are still at far higher, close to 35%...

It will be similar percentage next year. After that, it will become 25%.

Okay, so in FY '24, we'll come back to the normal rate of 25% from a reporting perspective, okay.

Yes, [ exactly ], yes.

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

Yes. Congratulations to the team for excellent numbers. Most of my questions have been answered. Just Jayesh bhai, on this 300 crores CapEx guidance: So what kind of incremental revenue and margins can that generate broadly? Can we assume like 2 to 2.5x [ gross block to -- sales-to-gross block ] kind of number?

Yes. It could be even more because we are [ investing at the last end ], but I think, Sagar, honestly, it's still work in progress. I'm just indicating some broad top-down numbers, which we need to work on and come back to you all once our Board also looks at it sometime in mid of March. However, I think we have capacities within the company even now. Even if we invest in [ matching ], there is a possibility of growing the business at 4% to 5%. On top of it, these investments will further help. So I think, overall, guiding 8%, 10%, of course, into cost-related [indiscernible], sales may change because of the sharp up-and-down of the input costs and as a result of [ selling ] price, but assuming that remaining constant, we have headroom to grow with 10%, including these investments.

So I'm looking beyond FY '23, sir. FY '23 will obviously see growth because of the lower base of...

No. I am talking about 8%, 10% year-on-year. And this 300 crore is not the last so-called investment. We will keep investing, including in the next financial year, for the next year following, so that additional incremental investments will keep happening. Also our outsourcing engine is working extremely well. And even now, if you see -- just to give you an example: One of our divisions [ was shot ] because of some [ position-related ] PLIs that was done [indiscernible] and then some 300 units got [ shot ] and all. Of course, it has restarted, taking [indiscernible]. And it should be up and running fully in next couple of weeks, but despite that 1.5 months of closure in Q3, the sales of that division has not stopped because it was able to completely outsource what is lost in production from outside and achieve [ a pre-COVID profit ] number. So that engine is working well and we'll be able to take full advantage of that as well.

Okay, perfect, perfect. And on the deleveraging part for FY '23, can we assume about 300 crores, 400 crores deleveraging for FY '23 also?

Too early to say, but I think our drive will be to aim at bringing down the debt to -- further to [ 1,000 level -- 1,000 crore ] in next 12 to 18 months.

Sure.

I may not be 1 year, but it may be 1.5 years but around that time.

Sure. So by that time, we'll be -- probably be at debt-to-EBITDA of about 1x or even less than that.

Hopefully, Sagar.

Yes. Okay, sure. My last question is on this Advanced Materials. So during the current quarter, on a Q-on-Q basis, we saw about 10% decline in -- on the revenue front, while the margins were better off Q-on-Q. So just wanted to get...

Yes, [indiscernible]. I -- maybe, Samir, do you want to answer? Or should I take it?

Well, sure. I mean also, Sagar, I think -- see, there is -- this business is comprised of shipments going out, in many cases to meet some project needs. Or it is very lumpy, so I would not read too much into it because, especially on December, [ this has been mostly exporter ] in the business, 5 containers kind of from December, [ getting to ] January [indiscernible]. So there is no trend around that. It's just that, with logistics and things like that playing out, the numbers played out the way they did.

Okay, understood, sir. On the margin front then: So assuming that we will have done 300 crores, then our margins will have been better, right, because of the operating leverage...

That is correct.

[indiscernible].

That is correct.

Okay, so going forward, in FY '23, assuming a 20%, 25% top line growth, our EBITDA can be about 14% to 14.5% on the advanced material part, right, as we -- as the margins will improve from here.

There will be slight improvement in the margins, for sure, but as the growth happens, there will be some increase in the fixed costs as well. So you have clearly some growth, for sure.

But broadly it is on the rise. And it will rise [ 30, 40 ] basis points, plus, minus, but it is not very off from where we are targeting.

Okay, sure, sure. Sorry, sir, just last question, on this other segment where we saw this EBIT loss for the current quarter as well. As you guided for a better outlook on the water division -- so FY '23 onwards, can we -- like other division will turn profitable.

[indiscernible]. So as I explained in the last call also, that all of these will wear off by end of the year. After that, we will possibly not have this because the -- our water division will start, you're right, generating surplus a bit...

Perfect, okay. So we'll be positive EBIT from Q4 onwards itself.

Not Q4, from...

Q1.

It's from Q1, yes.

The next question is from the line of Venkat Samala from Tata Asset Management.

Sir, just one question on how do you see the structure of the orders moving forward. Obviously, in the last 12 to 18 months, especially in the fabrics, what we've seen is this skew towards exports has kind of increased, right? So is that something which is structural moving forward as well?

So I think one of the key, what do you call, internal mandate to our sales has been to have a very strong relationship with customers both globally and in India; and have that flexibility to move sales from domestic to export and, I'd say, [ West side ] to some extent so that, depending upon the demand situation, you can in a way move your sales. So if you saw, last year, we were impacted very badly in India in Q2 because of the Delta variant or wave 2. And as a result, the demand had significantly reduced both in retail as well as in the branded segment, so we kind of moved part of sales into our export market which was doing extremely well. Going forward, it could so happen that the -- some of the markets, particularly U.S. which is so strong, will soften a little bit either because some [indiscernible] money which is going into consumers may go down. Interest may -- rates may go up. So the demand in the retail segment or even the logistics may improve, which will [indiscernible]. Today, all brands are stocking up inventory [ that we've ] not stock up. So there may be [ a lull ] for a quarter in -- any of the period. I mean next [indiscernible] through the next 8, 9 months when this may happen. And that is the time one could -- because we are present across India, Europe and U.S., you could play in different markets and still fill up your capacity. So I think I would not call that there is a trend towards exports, but I think we continuously tactically remain present and put our sales into markets where we are at an advantageous situation. So it's not that it is a permanent change, but it is a good change for now. But it may reverse itself.

Right, right, right. So sir, even -- just as a follow-up to that. So say, even if it reverses, would there be a possibility that the new normal could be a little higher than what it is? Or there may be a possibility that it could go back to the [ slight ] levels also.

Normal -- I think you mean the export may be higher or not. That's what you're asking.

Yes, yes, yes, structurally higher than what it used to be or...

I think structurally it will be higher for a simple reason that the global -- the shift in demand of -- because of the China one -- China plus strategy is real. And I think we should take advantage of it, and we are taking advantage of it. So to answer your question: Yes, it will always be more than what it used to be.

Understood. And...

Let me comment on that. We talk a lot of -- see, we work with a set of customers, okay? I mean it's a B2B business where we are working with a lot of accounts over multiple, multiple years. So there are [ a few price customers like that ] in India as well, and we'll continue to serve that. [ The rest of estimations ] [indiscernible] depending on how the, let's say, sort of demand plays out [ between all the ] accounts. The actual number may change, yes...

Understood, yes, yes, yes. And now when I look at how you're kind of operating across different segments: So fabrics is running close to full capacity utilization levels. AMD also is doing well. So with respect to garment -- and when I look at how the peers are doing versus how you are doing, right? So your commentary appears to be very strong, but at the same time, you are not really running at optimal capacity utilization levels, right? So what exactly -- I mean, where exactly are you lagging? I know you are doing well, but I mean, whatever we are hearing from others, there is still room for improvement, right?

So I think, let me clarify, which I did earlier also, that for us, garment business is part of our vertical plan and not a stand-alone business. So we use garment as a service to get our stickiness with our customers and provide that extra service. So I think that's our starting point. And when -- we don't necessarily aim for a growth in garment, but we aim for overall growth in sales with a given customer. That's our starting point of our garment activities. It has always been a vertical thinking rather than a horizontal thinking of garment as a business. So I think this is one difference compared to anyone else. Secondly, our Garments volumes are growing. They are growing at a reasonably good pace as well. 2 things are happening. And 1 thing which is happening is that our Ethiopia is -- come under some political disturbance. And as a result, there is a little bit of a challenge there, and as a result, some of the capacities are underutilized today. The second thing which is happening is that some of our garment capacities, because of surge in demand in our Advanced Materials Division where they also sell garments and which are the protective garments that they sell, we had to divert some of our capacity from our existing style plants to advanced material. And that resulted into a dip in capacity. We don't report that because they are all small, relatively small, thing, as far as overall numbers are concerned, but [ a ], our thoughts on verticalization and garment continues. Our margins are improving quarter by quarter. And we will continue to grow that business.

Understood, sir, understood. That kind of helps. Sir, one last question from my side is obviously you did mention about -- is about your maybe medium-term aspiration and utilization of maybe around 300 crore CapEx, but slightly if I just look forward maybe 2, 3, 4 years, what is your aspiration to grow your top line across different segments? And by different segments, maybe you could talk about fabrics, Garments and AMD segment.

I think -- on a reasonably medium to long term, I think our fabric business will grow at between 5% and 7%. Garments will grow at around 15% to 20%, and AMD could grow at about 25% to 30%.

Understood, understood. So then would you be able to kind of get to maybe low double-digit kind of growth sustainably?

Close to that number is what we are aiming at least for the next few years.

Okay, okay, okay, understood, understood. Because once you at least have that idea as to what needs to be done, based on that, you will also allocate your CapEx, right? So that is what...

I mean that's part of our job, yes.

The next question is from the line of Deepesh Agarwal from UTI Mutual Fund.

Sir, my question is related to your land bank. I do appreciate your efforts on the monetization of land, but when I look to your FY '21 financials, almost your freehold land book value was roughly INR 1,200 crores. This is almost like a -- 40%, 45% of your company's net worth. Can you help us understand, out of this INR 1,200 crores of land bank, how much of the land is in excess of your requirement?

So [ I told you already ] that, the total land now left, you are looking at [ 21 ]. And we are going to sell about -- already done about 100 crores now. Our total [indiscernible] plan that we have identified -- there are 2 types of land. One is the land which is part of our complexes which we are currently not using but not planning to [ sell either ], all of that being considered as part of [ our ] requirement because it may be required, if not now, maybe 5 years from today. Land that we are intending to sell, the value in the book as we speak today is close to 450 crores. And we will be declaring that land as a -- investment land surplus in the March '22 balance sheet.

Okay. Any sense what will be the realizable market value of this 450 crores land bank?

It's around 650 crores to 700 crores.

650 crores to 700 crores, okay. And this will be monetized over next 3, 4 years.

That's correct. That's correct.

Understood. Sir, second question is just a bookkeeping question on particularly how many days of total inventory you keep.

There is no such, I would say, fixed number that we have in mind because commodity -- every commodity, it keeps changing based on availability, monsoon, all of those things, so we don't generally decide on number of days. I think we do one thing which we do, that to the extent we sell, we try and cover [ through ] quarter our cotton and yarn so that we don't have too much negative [indiscernible] on the -- already orders that we have booked; and try and reduce that margin gain or loss on that. Other than that, based on certain requirements which are very typical for some of our customers, which may be organic cotton, which may be the very -- super fine and speciality cotton that we may be buying from various parts of the world, there we buy [indiscernible], but those are very smaller, restricted quantity. So overall, today, if you were to ask me what is my cotton inventory, it is about 60 days.

60 days. Sir, would it be fair...

These -- it may change. I can't tell you that it will be 60 at end of the month, so...

Okay, perfect. Sir, would it be fair to say -- because you mentioned there is a lead lag in passing on the cost increase on the fabric or the Denim side. So this quarter's inventory which you keep which at the current moment is 60 days is offsetting some of these lead lags.

That is correct.

It will be at least half of this lead lag being covered [ in the year ].

I will not [ use ] that number because a lot of -- we are also buying yarn where we don't have cotton. More than 50% of our import is in form of yarn which we buy when we don't have cotton. We don't hold inventory for that material.

Understood, okay...

So that's -- so I am saying there is no such fixed thing about how much percentage will it cover or something like that. So it's a very daily dynamic thing. It will not be possible for me to quantify exactly the contribution based on inventory levels because I may have bought inventory at different points in times.

The next question is from the line of Resham Jain from DSP Mutual Fund.

I have just one -- so just one question on the garmenting division, which you have explained why it is a little lower than other segments, but if you look at pre-pandemic scenario, most of the fabric division has grown significantly higher on a quarterly basis. In garmenting, it seems [ the recov is ] -- if you exclude Ethiopia as well as maybe some AMD diversion, the recovery still looks significantly lower than we see in the quarterly numbers, let's say, 18 -- 8, 10 quarters back.

But so the way to look at it, Resham, will be that, in relation to what capacity we have, whether we are very close to the -- what we could do, it is a headroom of 5%, 7%, 10%, not [ 30% ], for example, yes.

Okay, okay. So we can -- from the existing capacity what we have, we can reach maybe 2,000-odd crores. Is that...

Yes. And we are -- I mean, as we speak, we are also expanding.

Okay, yes. Existing, whatever is there, we can do around 2,000-odd crores.

Yes, yes. And we are expanding.

The next question is from the line of Biplab Debbarma from Antique Stock Broking.

Sir, just a few questions. One is on the PLI. Sir, PLI, if my understanding is correct, the [ budget for ] acquisition is generally [ 10% ]...

That is correct. That is correct.

So by this time, you might have whatever. I mean you might have decided whatever if you have decided to invest on the PLI. That might have been decided, so you will be announcing the -- what you have or planning to do [ with ] PLI.

So [ that's the ] application [indiscernible] on 31st, which is already announced. I think -- honestly, I think you should -- and that is true for all textile companies. And they could look at investments to grow in -- whether it is through PLI or other lines based on what businesses they are in. For example, one of the largest businesses that we are in is woven shorts and woven fabrics and denim and denim jeans. So none of them are in PLI, for example, right? So our [ thrust areas ] will be to do some of the manmade fiber, some of the technical textiles where we are there, but overall we consider, with or without PLI, what we should be doing and whatever [ force in ] PLI will be applied under PLI. So -- and the balance will go in the other government schemes, which are like [ top ] schemes which are coming up again. [ As of April ], they are going to revise that entire scheme. So we'll be investing in garments or in some of the fabric capacities through the [ top ] scheme and not through PLI.

So how much will have been investment [ in all of them in ] PLI based on the...

So we will -- as soon as we apply, we will let you know.

Okay, okay. Second question is on this land parcel. I just want a little bit flavor on the land parcels that you intend to sell. So the -- a few question on that is that whether it is [indiscernible] in Q3. Can you give us -- 2 -- I mean a large chunk of 2, 3 land parcels; or whatever, small land parcel [indiscernible]. Because I'm just trying to understand. How liquid are these land parcels? And how you are [ still planning the numbers ]. Do you want to sell? Or you have. You have been [ JDA ] kind of thing.

No. We are selling, not doing [ JDA ]. And we will sell. So they are located in 2 or 3 areas, but not necessarily everything in that area is contiguous. But each one of the parcels that we have are fairly large.

And within the city limits, sir?

There are some in city limits but largely around city.

Thank you. Ladies and gentlemen, due to paucity of time, we take that as the last question for today. I would now like to call -- hand the conference over to Mr. Samir for closing comments. Over to you, sir.

Sure. Thank you. Thanks a lot, everybody, for joining us and [ for entering ] your questions. We look forward to meeting you 1 quarter down. Thank you. Bye.

Thank you, everyone. Bye-bye. Thank you...

On behalf of Arvind Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.