Himatsingka Seide Limited (HIMATSEIDE) Earnings Call Transcript & Summary

Good evening, everyone. On behalf of B&K Securities, I would like to welcome you all for 3Q FY '22 Post Results Conference Call of Himatsingka Seide Limited. Today, we have with us the senior management of the company, including Mr. Shrikant Himatsingka, Managing Director and CEO; Mr. K.P. Rangaraj, President, Finance and Group CFO; Mr. Dilip Panjwani, Senior Vice President and CFO, Strategic Finance; Mr. Sachin Garg, VP, Strategic Finance. I would now like to hand over the call to the management for initial comments. Thank you, and over to you, sir.

Thank you, Prerna. Good evening, ladies and gentlemen. On behalf of Himatsingka Seide Limited, I would like to welcome you all for the Q3 FY '22 earnings call. As usual, and in accordance with the past practice, I will start this earnings call with a business update, followed by some pointers on the financials and followed by debt.. So I'll now start with the business update section. The Q3 FY '22 witnessed marginal improvement in capacity utilization levels at the Terry Towel plant. The capacity utilization level for the TT plant remained stable. We are cautious on capacity placements in light of the current inflation scenario and supply chain challenges. We consider these challenges to be short term in nature and should iron out over the next couple of quarters. The capacity utilization levels of our manufacturing facilities during the quarter stood at -- stood as follows: Terry Towel division during the quarter was 72% as compared to 71% in the previous quarter. Sheeting division recorded 81% capacity utilization which was the same in the previous quarter. And the Spinning division at 101.5% was largely in line with the last quarter. During the quarter, revenue streams from brands stood at INR 556 crores versus INR 551 crores during Q3 FY '21 and INR 574 crores during the previous quarter. Inflation on the raw material, energy and logistics funds have had an adverse impact on the operating profitability for the quarter. While we partially mitigated the impact with revenue growth and price increases, we continue to focus on price balancing to address any inflationary impacts. We expect the inflationary headwinds to continue for the next couple of quarters. We continue to be on track for debottlenecking at the Sheeting and Terry Towel plants and expect the new capacity to start commencing operations in H2 FY '23 as was informed to you all earlier. Our view on the medium-term industry outlook and India's positioning as a major global supplier continues to be optimistic. I'll now move on to the financial section. Consolidated total income for the quarter stood at INR 792.68 crores versus INR 681.66 crores during the previous year. This represents an increase of 16.3% year-on-year. During the quarter ended December '21, the company recorded a realization loss of INR 8.48 crores due to decline in realization -- realizable value of these scripts under RoSCTL and RoDTEP schemes. This impacted the total income. Consolidated EBITDA for the quarter was INR 131.76 crores versus INR 157.34 crores during the previous year. EBITDA margin for the quarter stood at 16.6%. Consolidated EBIT for the quarter stood at INR 91.57 crores versus INR 119.54 crores in Q3 FY '21. Consolidated PBT for the quarter stood at INR 43.83 crores versus INR 74.65 crores in the previous year. As per the last communication from Government of India, interest benefit for the pre- and post shipment rupee export credit under interest equalization scheme was available until September 30, '21. There has been no further notification on the same. Hence, in the current quarter, the company did not accrue any benefit under this scheme, resulting in higher interest costs. This has caused an impact of INR 5.4 crores on the consolidated PBT for the quarter. Consolidated PAT for the quarter came at INR 27.05 crores versus INR 45.07 crores in the previous year. I now move on to the consolidated financial performance for the 9-month period YTD. The consolidated total income YTD December stood at INR 2,428.76 crores versus INR 1,524.49 crores in the previous year. This represents an increase of 59.3% year-on-year. Consolidated EBITDA for the period was INR 439.45 crores versus INR 173.51 crores in the previous year. The EBITDA margin for the 9-month period ended 31st December, '21 stood at 18.1%. Consolidated EBIT for the 9-month period ended 31st December, '21 stood at INR 320.99 crores versus INR 58.49 crores in the previous year. Consolidated PBT stood at INR 189.94 crores, was a loss of INR 79.16 crores in the previous year. Consequently, the PAT for the -- for the current year was INR 132.77 crores versus a loss of INR 90.92 crores in the previous year. I now move on to the debt section. The consolidated gross debt as of 31st December '21 stood at INR 2,675 crores compared to INR 2,681 crores at the end of the previous -- last quarter. The total term debt stood at INR 1,711 crores, and total working capital debt stood at INR 964 crores. The cash and cash equivalents at the end of 31st December '21 stood at INR 163 crores. Consequently, the company's net debt outstanding as of 31st December '21 stood at INR 2,512 crores, which was marginally down compared to INR 2,527 crores as of 30th September '21. This completes the update. I would like to now pass on to the question-and-answer section to our Managing Director, Mr. Shrikant Himatsingka.

[Operator Instructions] First question is from the line of Aman Sonthalia, an individual investor.

Sir, my question is that recently, I have heard the conference call of Wellspun and Indo Count. They were expecting the demand dip in the next 2 quarters. So whether we are experiencing the same thing in our company, whether the sale will come down in the next 2 quarters?

Yes, fair question, Aman. The demand piece is a little difficult to predict because it could be a company-centric phenomenon. There is some inventory correction happening in the major markets vis-à-vis retailers. And supply chain congestions and some inventory corrections could possibly lead to some movement in demand. As far as we are concerned, at this point, if I take the next couple of quarters, it's looking broadly stable. So we are not seeing any strong uptick nor are we seeing any major negative movement. We are seeing it as stable at this point, but this is something that will play out in the months to come. At this point, this is how we are looking at it. But yes, there seems to be some correction in the inventories and consequent demand requirements in certain sections of the market.

Sir, whether it is a short-term demand destruction or is it long-term demand destruction?

Our own view is that this is short term. And specifically for Himatsingka -- from a Himatsingka standpoint because we've also commissioned new capacities and brought onstream a lot of new product to offer to clients, and we're looking at expanding client base, both in existing markets and new markets. So those efforts might partially offset some softness that are coming in certain sections of the market. So I think overall, in the short term, there could be a slight overhang on the demand piece, although we look at it currently as broadly stable. And as far as the medium to long term is concerned, I think the story and the narrative remains intact. The way we see it is India will continue to be a major global supplier of soft home products and the China Plus One strategy will play out as we have seen it at this point. And there are other sociopolitical and geopolitical factors that are playing out in India's favor, including, but not limited to, the potential FDAs that could come India's way and raw materials in jurisdictions like China that are facing some headwind on the raw material front, given The U.S. ban on certain kinds of raw materials. So all these factors combine the medium-term outlook and model as far as India's positioning is concerned, I think the way we look at it remains intact.

Sir, since January, the cotton price has shoot up, the cotton prices is at the all-time high, so whether it will impact our margin in the coming quarters?

Yes. I think the company has done a fairly good job in Q3 vis-à-vis our operating margins. But the inflation, the way it's playing out, is it's sort of a moving number and a moving sort of target. So we -- one round of price increases and price balancing is obviously not adequate to address such underlying inflationary movements. And so the company continues to be focused on pricing to be able to mitigate this moving inflation that we are all witnessing. Having said that, as far as the current quarter is concerned and your question is concerned, there could be impacts of moving inflation during the quarter, although we are trying to mitigate it to the best of our ability. But it's difficult to predict where we will come in at vis-à-vis margins. I think we should be broadly ranged down plus/minus.

Okay. And sir, as the demand situation is not looking very tight, we are going ahead with the debottlenecking. So whether we are confident [indiscernible] in the next 1 or 2 years, we will be able to use that capacity?

Yes. Because again, let me say that this demand, let's just say, softness/overhang, as I said, the way we look at it is more short term. The medium term continues to look as it did in terms of it seems to be intact. And the definition of short term, as we see it at this point, is over the next 6 months. Post that, from a medium-term standpoint, we don't think that the model will suffer a great deal. We think that the story is intact. And hence, we are broadly on course with our debottlenecking exercises at this point.

Sir, we have around 80% of our sales coming from the brands. So whether this is also helping us in overcoming this inventory problem, which other companies are facing?

It does partly -- it partially does help in mitigating these kinds of challenges. Although the nature of the challenges this time is so extreme, it's been -- it's never been witnessed before in the industry. So relatively speaking, yes, the strong intellectual property portfolio does aid in mitigating these challenges. To that degree, your observation is right, both in terms of broader stability and things of that nature. So yes, from a relative standpoint, it does aid us to some extent.

And sir, 1 last question is that, sir, how big is the fashion bedding market is the -- for India and how the company and India is going to take this market from China?

Could you repeat your question, please?

Sir, the present bedding market, I think it's quite big. And right now, China is dominating that market. So there is a huge scope for India to enter in that market and take a little bit far from the China, I think it will very big for Indian on the [indiscernible] company. So whether Indian companies or industry or your company also making effort to attract market share?

Right. So that gets covered -- that gets covered among in the China Plus One sort of movement that's playing out, that's across core bedding, fashion bedding, utility bedding and so on. It's across all the categories of products that not only us but peer companies operate. So you're right, fashion bedding is also a major segment. But it's covered in the larger market share with India [indiscernible] and it's covered in the fact that there's China Plus One sort of piece that's playing out, and it's a subset of those factors.

Sir, it's a huge market?

Yes, it's relatively large, but there are nuances to it. Maybe we can take that offline, Aman, because that would entail a detailed discussion. Otherwise, my -- if I were to summarize things for you on the fashion bedding piece, it might confuse you. But so we'll be happy to take it offline and take you through it in more granular sort of detail.

[Operator Instructions] Next question is from the line of Prerna Jhunjhunwala from B&K Securities.

Sir, I wanted -- in this demand-related issue that is cropping up, could you give some color on U.S. versus non-U.S. portion of demand and how it is shaping up and how is Disney acquisition gaining traction in current scenario? And how are you looking at it?

Yes. So it's difficult to make accurate predictions on demand, Prerna, as you can imagine. Various retailers are seeing this in different ways and are going through different experiences. So we -- there are clients who are pushing back on supply and the clients who want more of it. So it's difficult to get an accurate read in terms of what's really happening. But yes, it is true that there are certain sections of the market, as I said earlier, where some demand overhang is being witnessed, basically on account of a confluence of events, that include supply chain issues, late arrival of seasonal inventory and things of that nature. So in the next 3 to 6 months, could there be some overhang on demand from certain sections of the market? Yes, potentially speaking, that's possible. At this point, we anticipate broad stability. But as I said, it's a moving target, and we have to wait and watch. Vis-à-vis your question on U.S. versus non-U.S. There isn't much light I can specifically throw on that. Both markets seem to have a similar sort of, let's just say, symptoms that they are displaying at this point. So there isn't major differences at a macro level that we are seeing. It's retailer-specific, channel-specific, product-specific and therefore, it's difficult for me to summarize this directionally for you. I'm sorry, this is the best I can do in showing you -- giving you our opinion on the demand piece at this point because it is a little vague in the very nature of the issue.

How is the non-U.S. portion? Actually, I wanted to understand more on Disney one, so how...

So Disney is -- Disney has that new portfolios picking up well. We are still under 1 year into this portfolio. We are seeing 16% Y-o-Y growth under these conditions. We were pretty happy with that Y-o-Y number broadly speaking, which is including revenues from portfolios like Disney and so on. So yes, is it very material at this point? No. But it aids our brand portfolio from a standpoint of juvenile offerings and therefore helps us in being more complete solution providers to our clients. And we think that's been met. And we are happy with the fact that it's part of our portfolio. I think there will be more to come vis-à-vis these portfolios in the coming year. Because even in FY '22, we did lose a few months of demand on the second and third wave and so on. So I think FY '23 should have more in the offering vis-à-vis portfolios like Disney.

That's nice. Sir, one bookkeeping question on tax rate. This quarter, your tax rate was higher versus Q2. So some light on how we should go ahead on predicting your tax rate. That will be helpful?

Yes. I think what we can do on tax, Prerna, is if you could please circle back and take this offline. So you would be in a better position to grasp where we added on tax. And Ranga and his item will take you through our position in terms of where you should be predicting our tax rates at.

The next question is from the line of Vikas Jain from Equirus Securities.

Sir, a couple of questions. So firstly, on the realization loss on the value of the [ scripts ] that we hold, could you quantify what is the current amount of [ scripts ] that we hold? And is there any chance that these provisions would continue in going ahead as well?

So we hold -- so the losses that we have taken for the quarter is to the tune of INR 8.5 crores. We chose not to make it an exceptional item because we thought that it will be in the interest of investors to not show it as an exceptional item because in YTD numbers, it would anyway be subsumed into the normal P&L. So therefore, we did not show it as an exceptional item, but then the hit, as you read, is approximately INR 8.5 crores. And each scripts we hold is to the tune of approximately INR 175 crores at this point. On the losses that we have booked is essentially on the realizable value -- loss in realizable value that was foreseen for the scripts, net of what we use these scripts for vis-à-vis imports and so on. So that's where we are today. Himatsingka has chosen not to encash these scripts because the markets did go through a temporary, let's just say, supply pressure as we saw it on the scripts. And hence, the realizations on the scripts were a little volatile in the early part of it. But we've been seeing subsequent improvement week-on-week in the script realization rates, which we hope will normalize in due course.

Okay. All right. Understood. Sir, next question, I wanted your color with respect to how are we doing with respect to our performance in Europe? I do recall that last year, we did exceptionally well in terms of growth of our revenues from Europe side. We are almost 9 months of this year. We would want to qualitatively comment how has Europe performed for us in this -- in this 9 months? And how do we see this business going ahead?

Vikas, I think as far as Europe is concerned, it will remain a major area of focus for us along with other markets outside the North Americas. North America, of course, is central in terms of its largest market. But as you rightly pointed out, the company is focused on developing its market share, both in Europe and APAC regions. Europe did do well last year and continues to do reasonably well. I would have to circle back to you on more specific numbers vis-à-vis Europe and would be happy to take that offline with you.

Sure, sir. Sir, one last question. Just as you commented few -- on early participant's answers, we are seeing some [indiscernible] demand as either from channel blockage. So there's an inventory in the blockage. So do you expect we'll be able to take a further price hike if required as the current [ RM ] situation is -- will we be able to take the price hike given the demand situation is not very robust in the near term, at least?

Yes. I think round 2 and round 3 price increases have to take place. Round 1 for the industry is obviously over. And depending on the client and market, round 2 either is in progress or is over. And in some cases, round 3 of price increases are underway. This varies by client and by region. In my opinion, it is inevitable for the industry. They have to acknowledge these unprecedented levels of inflation and they have to take necessary steps to correct pricing. As I said, in some cases, it will happen earlier than later. And in some cases, it might kick in a little later than earlier, but it has to happen. And it could happen in many forms and shapes. There could be customers who would want to tweak their product, they could be customers who would absorb the price increase and not increase retail price points, and there could be customers who increase their retail price. We are seeing strategies that straddle the entire spectrum of options vis-à-vis how customers take these increases. But in our estimate, over the next 3 to 6 months, we will continue to be focused on price balancing. And this is something that the industry will inevitably have to resolve together. And why I say together, there could be some instances where price increases are short of expectation, and the absorption is inadequate. And in certain other cases, it's more than adequate. So I think on an average, the pricing piece will have to play out and it should play -- continue to play out over the next 3 to 6 months. Softness in demand necessarily will not stand as an impediment to this beyond the point. It could only delay it. But while I say this, I must also tell you that there are -- I mean, there's no certainty to what I'm saying, but there are chances of the price -- the cost inflation that once witnessing there are chances that one starts to begin to see some correction on that front as well. So ideally speaking, there should be some cost corrections vis-à-vis input prices and the continuing repricing of the products. Both these sort of things together should help the industry to get back to its normalized margin profile in the medium term. Medium term meaning hopefully 6 months out.

Sure, sure. So just to refine a little bit. Could you quantify, if at all, will we take any price hike in Q3? If yes, and how much? And if no, then is there any chance that will be -- we will be taking any price hike in the current quarter -- the ongoing quarter?

We did take in Q3, that's partly the reason why our operating margins came in pretty healthy -- at pretty healthy levels under the circumstances. But then while we took in these hikes, we continue to see raw material prices increase. So we were in discussions for the next round of hikes. And the next round of hikes, some might kick in during the quarter, in the early part, some might kick in the latter half of the quarter, some might kick in early Q1. But maybe there will be some trickle of price increases coming in, in this quarter as well.

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

My question pertains to the consolidated debt. So can you just clarify the consolidated debt number, currently it's around INR 1,335 crores?

Yes. The consolidated gross debt was $2,675 crores and the consolidated net debt is INR 2,512 crores. So the debt has corrected from last quarter marginally. It would have corrected more substantially has it's not been for the blockages that we witnessed in the realizing of scripts during the quarter. But that's something that's work in progress, as I just shared with a little earlier. And once that comes through, that piece should help in further deleveraging. As a theme, we will be focused on deleveraging. As we stated, our major CapEx cycle is over. Unfortunately, we were hit by this hyperinflation sort of cycle over the last few quarters that affected our scheduled deleveraging activities. But with the de-condition in RoSCTL and some correction in costs on the inflation front plus internal accruals in the ordinary cost, we'll continue to be focused on deleveraging and enhancing our EBITDA at the other end. So both these initiatives put together should substantially correct our leverage ratios vis-à-vis where they stand today.

So do you have any target assets like in the immediate future, sir? Maybe after 2 years, if we are looking, debt levels should come down around INR 500 crores to INR 600 crores, some target on reduction you said? And also in terms of EBITDA margins, where do you see EBITDA margins [indiscernible] frequent demand uptick there in the days coming?

Yes. So we are looking at approximately close to INR 500 crores to INR 600 crores of net debt correction over the next 2 fiscals. And obviously, an increase in EBITDA during the same period. As you know, we don't give guidance. And so I cannot give you a guidance some on EBITDA, but I can certainly -- I certainly did just share with you where we look at -- where we are looking at sort of debt, if I look at over the next 2 years in terms of corrections. So correction in net debt by INR 500 crores to INR 600 crores during the next 2 fiscals, coupled with the increase in EBITDAs with higher utilizations at our Terry Towel and Sheeting plants, along with the normalizations in margins after the repricing/cooling down of this current hyperinflation cycle, should aid us in getting to where we want to be in terms of our ratios.

Right, sir. Right. And I want to ask one -- do you have any customer acquisition in this quarter? Any -- or any possibility of new customers adding to you late -- over the next 1 or 2 quarters?

Yes. We add clients in most quarters. There are some quarters where we don't add clients, that's also true in this industry. But I would say that because we have just commissioned our Terry Towel plant 1.5 years back, we are constantly adding clients in our Home Textile portfolio overall, which we hopefully will continue to do. But as you know, in this industry, it's not like you keep adding clients endlessly. But our organic rate of plant addition is pretty healthy at this point. In fact, as Ranga read out earlier, we are a little cautious on capacity placements in the short term. We don't want to be taking major placements in capacities just to show augmented utilization levels at the cost of optimal pricing. Optimal pricing is an important piece of the puzzle at this point, and we don't want to miss our focus on that one.

The next question is from the line of Vaibhav Kulkarni from Ashmore.

I joined a bit late. Could you please highlight the reason for sharp increase in other expenses on a Q-o-Q basis?

Vaibhav, it's driven by freight and energy.

The next question is from the line of Dikshit Mittal from LIC Mutual Fund.

Sir, my first question is on top line. Because in the second quarter, you had mentioned that you had lost down 3% of the revenues because of these logistic issues. So if you take into account that the sequential fall seems slightly more exaggerated. So any issues faced this quarter as well on the logistics side?

Yes. So we -- fair question. So the overhang of 2%, 3% was not necessarily made up this quarter if overhang continues. So therefore, sequentially, the read is whatever it is, it's not more than what it is. The way you are looking at is, therefore, not -- wouldn't give you an accurate picture because the 2%, 3% that we lost in revenues the last quarter while it came in this quarter, but the same overhang continued in this quarter as well, the broad supply chain disruptions continue. So therefore, it is a like-to-like comparison. And in this business, there are seasonalities to home textiles. And I would -- the way Himatsingka always looked at it is more from a Y-o-Y standpoint than a Q-on-Q standpoint, traditionally speaking, because of the seasonality is involved. And therefore, we were pretty pleased with the 16% Y-o-Y growth that we have seen. And the close to 60% Y-o-Y growth that we have seen in the 9-month period. Of course, there's a slight exaggeration in the 9-month fees because of the lockdown that was witnessed during the last year. But corrected for that, it would still be in the region of close to 20% which we seemed to be pleased with as an organic rate of growth in light of our new capacities being finished.

Okay. So sir, in terms of full utilization of our existing capacity. So by the end of next year, can we achieve that based on the current visibility that you have?

Say that again, please, Dikshit, I lost your question?

Sir, I was asking in terms of our existing capacities. So when do we expect to reach full utilization? Maybe by the end of next year, can we hope to achieve that?

And as we said, we currently are on track to debottleneck our capacities. And so those additions will come through from our organic CapEx sort of outflows. Our major CapEx outflows are over. And I'd shared with investors that we will be looking at debottlenecking capacities largely through our organic CapEx pie over the next year. And so our current utilizations of 80% and 72%, we have some upside there plus whatever we debottleneck. And I think over the next 2 years, we should be running at relatively high levels of utilizations, including our debottleneck capacity for our Terry Towel plant. And for our Sheeting plant, to some degree, we might have some headroom post debottlenecking, but we should be up there in utilization in Sheeting as well.

Okay. And sir, secondly, on the margins, though, we have recovered on a gross margin front this quarter. But as we mentioned, because of freight and energy costs, our EBITDA margins we have [indiscernible] sequentially. So on freight cost, is it a pass-through? Like are you supplying on an FOB basis or CFR, how should we look at that?

So these are largely inland freight driven freight rates that one hit by because most of the business is not CIF in this industry, but the internal freight is also a large piece and saw tremendous inflation. Energy also saw tremendous inflation. So therefore, the total expenses went up sharply. And of course, raw materials in context to cotton continues to see unprecedented levels of pricing and disrupted availability. So it's truly been pretty challenging. And we think that, yes, these challenges are not going to be there in the medium term. But for the short term, 3 to 6 months, we continue to see some of these challenges persist.

So freight rates, you mean, the domestic freight rates, that you mean?

Yes, largely, there are some buckets where international freight rates also impact us, but it's largely driven by inland freight.

Okay. But internationally, you mentioned it's basically on FOB basis, right, whatever?

Yes. in most cases, yes.

[Operator Instructions] The next question is from the line of Niraj Mansingka from White Pine Investment Management.

I have 2 questions. One, can you share the magnitude of the impact with the cost increase because of the freight?

Sorry, Niraj...

How large was the fuel cost increase?

We can't specifically take you through our fuel cost breakup, Niraj. But what I could tell you is energy inflation is what we pretty much saw through hikes in coal prices, which were upwards of, I would say, 150%. At an index level, it was even higher than that. But with the prior contracts and weighted average is bringing it down a little, that's the kind of impact we saw on fuel, namely coal. And general energy inflation as well bought out energy. And inland freight where I was just saying that we saw, again, 3-digit hikes in inland freight rates across the board, across ports including various other indirect logistical costs of congestion, delays and things of that nature. So both of these costs are sitting in our other expense line item, which is largely driving the increase.

Got it. The other thing is -- sometime back, you've broken again on EBITDA side on Terry Towel. Can you give some color? I don't want to get the exact number or something like that, but how was the margins of the Terry Towel division? And how do you see moving it?

[indiscernible] Home Textiles business because our spinning is a captive plant, right? [indiscernible] To our home textile -- for our Sheeting yarn requirement largely and the company buys a lot of yarn over and above what it produces internally. So the entire revenue that you're currently seeing is generated from our Home Textile business. And the Home Textile business comprises of bedding and bath, right, sheeting and towels. And the combined Home Textile business has largely similar EBITDA profile the way we see it, which in a stable state is typically 20% to 22%, is where we see it coming in on a stable state basis. So therefore, that's what we have talked in the past as well, if you see our historical numbers without Terry because Terry is a new plant. But even with Terry on a stable state, our EBITDA margins should be back to that kind of level on the condition that this inflation and pricing piece correct in the short term.

Understood. So actually, I just wanted to know -- can you share some thought process on where utilization will lead to that number of 20%, 22% of Terry Towel? Because Terry Towel is a new business. That's why I was asking this question actually.

So at these levels of utilization in a normalized raw material scenario, these EBITDAs will kick in.

Okay. Got it. Last question, considering that the volume profit in The U.S. doesn't pick up because of the overhang of supply, et cetera, or the slowdown in these products. So do you see market share -- what is your thought on the market share on Sheeting and Towel? And can you share some color on how you plan to increase your volumes from higher market share increase in these markets?

Vis-à-vis Himatsingka or vis-à-vis sort of India's market share?

Vis-à-vis U.S. market share.

Yes. vis-à-vis U.S. market share vis-à-vis Himatsingka or vis-à-vis India's market share of U.S.?

Himatsingka vis-a-vis the U.S. market share.

So Himatsingka's cost strategy is the way we look at enhancing market share, is essentially capitalizing on the fact that clients today want complete solutions. They want scale-oriented players. They want product depth and breadth, which helps them cater to a broad section of their shelf from a single source. And Himatsingka, along with a couple of other peers offer this from India at this point, which makes it an attractive sourcing destination for global retailers, right? And so our strategy of -- also, in addition to offering scale product [indiscernible], which is probably industry-leading at this point. In addition to that, we also have focused on making sure that we have an integrated model, and we bring relevant intellectual property solutions to our clients, which also aids in sort of getting larger shelf space. So all these 3 strategies put together, in addition to that, we are also looking at enhancing utilizations by looking at other markets, which are non-U.S. And the entire European and APAC focus is stemming from that. So these strategies put together should help us keep the utilization clock ticking vis-à-vis market share and help us garner more market share.

The next question is from the line of Riya Mehta from Equitas Investments.

Yes. Firstly, congratulations on being sustaining these margins even through bad times.

Thank you.

And I would want to ask what are the tailwinds that we see in the near future to come. We are aware of the headwind of The U.S. inflation and the demand going slow, but what could go right that the demand can kick in? And what would be the 4 factors or 2, 3 factors which we would see as a tailwind?

Well, the tailwind, I mean, quite honestly, I don't see any specific tailwind to share with you at this point. It's one of those times where there seemed to be more challenges and tailwinds at this point. But I think one can take solace in the fact that the inflation cycle has now been on for over 12 months, it's probably time that it starts to correct. I think the government has taken notice of unreasonable levels of cotton prices as well as they have stated in the media and acknowledged in the media. So I think the tailwinds are as follows: there will be a correction in input costs, whether it happens in 2 months or 4 months or 6 months, that's not predictable just like any other commodity. But there has to be some correction at some point. So that's one. Second is the repricing of products is underway. So that's also going to be playing out. And at some point, once that is achieved, one should see relative normalcy, hopefully, coming back into margin equation. The third piece is if you look at the home textile industry in general and the way things have played out, it's a relatively stable industry in terms of pricing. So once the industry has absorbed this inflation and repricing of products, which should hopefully see stability back in its numbers. Of course, I'm talking more from Himatsingka at this point. And the other thing that's playing out from a standpoint of potential advantages is the China Plus One. It's not just a narrative, it is sort of a reality of sorts that is slowly creeping into the demand equation. It's not just China. There is -- there are -- India is a favorable sourcing destination when compared to various other jurisdictions, not just China. India has positives to show and that could play out as well. So the product repricing, there is potential cost easing as far as input costs are concerned, there's China Plus One. But I would say that other than China Plus One, there are other jurisdictions as well, which are under pressure for sociopolitical or geopolitical reasons, which make India a promising destination to source from. In addition to this, as you all are aware, the Government of India is lobbying hard to get the FDAs going vis-à-vis the European region and vis-a-vis other jurisdictions as well. That could all go well for us and for the industry in general. And in addition to all of these things, I think the stated stamps of the Government of India to push exports and reach new heights on the back of new schemes like the PLI scheme and/or the interest subvention scheme and so on, making capital more cost-effective, et cetera, which will hopefully come back into the system. These things will also help in the position India as a more attractive sourcing destination. Our fundamentals that we are the largest grower of cotton or second largest grower of cotton as the case may be and the fact that we have capacities of global scale and glance of global scale vis-à-vis our industry is a known fact. And so we are well positioned to receive these macro sort of factors. Advantages should they play out, we are well sort of positioned to receive and act on these factors as they play out. So that's broadly how I see some of the tailwinds that could potentially stop us.

That was a quite brief explanation for the same. My second question will be, in the last 2, 3 quarters, we -- for the last 1, 2 quarters, we were of a flavor that we could reach 18% to 20% EBITDA levels and targeting for 20% to 22%. So are we seeing FY '23 to the such kind of a year or we are forecasting more of headwinds to shadow?

So 20%, 22% is again our stable state numbers, which, as I earlier stated, I remain sort of -- I remain with those projections that we would be back to 20%, 22%. I think the question is when? Quite honestly, nobody envisage this inflationary sort of cycle to turn into a weekly affair and, in many cases, a daily affair of enhanced prices and costs. So that took us and the industry by surprise because there's no respite in the costs going up. So it was sort of a treadmill syndrome that we all found ourselves in where cotton prices, for example, continued to go up week after week with no easing off. So that's why the margins were not aligning with what we stated earlier because quite honestly, any forecast/predictions/estimates/projection is based on some reasonable estimates. But if the macro factors are as unreasonable as they are, then reasonable estimates really don't have much place. So at this point, we have cautioned stakeholders that in the short term, in the next 3 to 6 months, there will -- could be continued volatility as far as input prices is concerned. And the repricing of products and the cooling off of some of these input prices should hopefully take place over the next 3 to 6 months is what we currently estimate. But please note that it's an estimate, we can't predict how cycles will sort of unfold. But once this broad repricing and some cooling off of costs have happened, the EBITDA profile should go back to normal, which is the 20%, 22%. So if it eats into some part of FY '23 or if it's going to take 3 to 6 months, there could be some portion of FY '23 that's affected.

Okay. Also, my follow-up question would be that do we see the price hike sufficient to overpower the increase in the input cost pressures? Also with -- you've seen lackluster demand, do you think another price hike would be absorbed by the market?

Like I said, there are various rounds of price hikes that are underway. Round 1 is probably over for the entire industry. Round 2 is underway in some cases. And in some cases, that's concluded as well and people are even on to round 3. But I think that repricing will not be necessarily adequate to cover the enhanced cost base. So what we think is sort of ideal and should also, in normal circumstances, be seen is that there will be a substantial portion of cost that's absorbed by pricing. And there will be some amount that will be absorbed, not in the form of pricing, but in the easing of cost in itself, which we should now hopefully see in the next 3 to 6 months where some of these input pressures will ease. And coupled with the repricing, these 2 factors should help these margins come back to drop normalcy.

And for the demand perspective, was the incremental price be absorbed in the market? Or how do we see the market reacting to the increase in prices?

Well, the markets have never reacted favorably to any increase in price. It's just -- that's just a statement. I mean that's just a truism, right? If you go to any retailer in the world, they always see price hikes as negative developments. Quite honestly, that's always the sentiment. So it's not going to be easy. However, they understand that there's a new world order and costs and they have to align. Therefore, round 1 and partially round 2 are now concluded or in the advanced stages of being concluded. And it's just something that both the supply side and the buy side has to align to. However, having said that, I do agree with your statement that repricing will not be adequate to offset the cost impact. To adequately offset the cost impact in addition to repricing, one would need some of the costs to ease which is what we think will happen over the next 3 to 6 months as well. For example, in energy, while it's up Y-o-Y by a fairly substantial percentage as far as, let's say, in this case, imported coal is concerned or coal is concerned. Over the last 2, 3 months, there's also been a correction in coal, right? So it's still up Y-o-Y, but we have begun to see some corrections creep in over the next 2, 3 -- over the last 2, 3 months. So in the same way, hopefully, there would be some corrections that creep into other areas like freight and raw materials over the next 3 to 6 months in addition to the reprice.

Thank you. That was the last question. I now hand the conference over to the management for the closing comments.

So as always, it was such a pleasure to interact with all of you. I do hope that we answered most of your questions. If anything remains unanswered or if you have any further questions/queries, do reach out to us, and we will be more than happy to answer your queries to the best of our abilities. And until then do take care and looking forward to catching up with you all during our next call. Thank you very much.