Indo Count Industries Limited (521016) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indo Count Industries Limited Q4 FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. K.K. Lalpuria, Executive Director of Indo Count Industries Limited. Thank you, and over to you, sir.

Hello, and good afternoon, everyone. First and foremost, I hope you are all keeping safe and healthy. I hope everyone must have got a chance to look at the presentation and our press release by now. Now first of all, let me explain the impact of COVID-19 on the economy. This is a very unusual and a very extraordinary time, where no company, no government, no individual has ever seen a crisis of this magnitude and this scale. The black swan event of COVID-19 has taken a huge toll on life, not just from health point of view, but also economically. As the world fights this situation as one, we, at Indo Count, are leaving no stones unturned to keep our associates, employees and stakeholders at the center above everything else. Since the outbreak of the pandemic, the major retail stores in our marketplace, with U.S. and Europe have predominantly closed, excluding the bigger stores, which were selling essential items. Retail stores have started opening now in a phased manner in June 2020, and we expect further visibility on the business in the next couple of months, as stores start selling their regular material and in regular operations. The textile industry did witness a slowdown given the lockdown, where companies had shut their manufacturing units. As we talk today, almost all the textile players have resumed operations. From Indo Count point of view, due to the lockdown situation in India, we had temporarily closed our manufacturing unit situated at Kolhapur from March 23, 2020, and continued till April 2020. In the ending week of April 2020, we partially resumed our operations after taking requisite government permissions. We believe the Indian home textile industry is in a sweet spot, as many brands are expected to reduce dependence on a single geography, and India is likely to benefit due to abundant availability of raw materials, skilled manpower and along with it our steady capability and capacity, which is available for growth. Now let me explain what we are doing as a company to navigate through these challenging times. During the lockdown, we have swiftly moved to work-from-home model, where we could also provide work to our employees through technological means. We also provided training to employees in multiple functions to enhance skills and improve productivity and extended our full support to the workforce, both financially and mentally. Now after the ease in lockdown, we have started offices partially with limited work force. While at operating, we have ensured to follow all the required measures to ensure the safety and security of all our employees. On the working capital side, we foresee no major risk, given the high-quality of customers and a strong balance sheet to support our operations. On the cost control measures, all cost heads are being reviewed, with increased focus on improving productivity and rationalizing and optimizing the cost. Thick monitoring of fixed cost has been implemented to improve our operating efficiencies. Now impact on Indo Count. As regards impact of COVID-19 on the company on the volume side, shutdown of operations due to COVID-19 pandemic led to volume forgo 2.5 million to 3 million meters in FY '20. Due to temporary stoppage of operations, order value approximately INR 95 crores could not be executed in Q4 FY '20, and which stands postponed to FY '21. The COVID-19 situation is evolving and it is still too early to know the true economic and earnings impact of the pandemic. Considering the fact that the situation is exceptional and is changing dynamically, the company is unable to gauge the future impact on its business prospects. However, our insistence on balance sheet strength has kept us in strong position to power through even the toughest of times. We are making a lot of efforts on e-commerce, digital marketing, developing health and hygiene products and finding out other innovative ways to reach out to our customers and strengthen our relationship with them. In the past, we have made investments in building our capabilities and the capacities, wherein we expect the benefits to flow in the next future. Now coming to the financial performance. Starting with the volumes for FY '20, volumes stood at 61.8 million meters as compared to 57.5 million meters in FY '19, a growth of 7%. We strongly believe that Indian manufacturers are gaining a stronger foothold in the global home textile markets. Brands are very keen to create a credible supply chain and de-risk themselves further from the large supply exposure coming from a single geography. With integrated manufacturing base for textiles in India, we believe we have a significant opportunity for sustainable growth in times to come. Consolidated total income. The consolidated total income for Q4 FY '20 stood at INR 425 crores as against INR 442 crores for Q4 FY '19. For FY '20, consolidated total income stood at INR 2,135 crores against INR 1,945 crores in FY '19, a growth of 10% on a Y-o-Y basis. The growth was on account of greater customer and market penetration through innovative products, modern designs and other functional products. FY '20 total income does not include the MEIS benefit earned from 1st April 2019 to 31 December, 2019, of INR 53 crores as the same was discontinued retrospectively. Consolidated EBITDA. EBITDA was -- Q4 FY '20 registered a growth of 126% and stood at INR 35 crores versus INR 16 crores for Q4 FY '19. EBITDA margin was at 8.3% in Q4 FY '20 versus 3.5% in Q4 FY '19, registering a growth of 478 bps on Y-o-Y basis. EBITDA for FY '20 registered a growth of 43% and stood at INR 238 crores versus INR 166 crores for FY '19. EBITDA margin was at 11.1% in FY '20 versus 8.5% in FY '19, registering a growth of 259 bps on Y-o-Y basis. Exceptional items. Exceptional items for FY '20 includes INR 94.27 crores provided against refund of excess export benefits of earlier year by way of MEIS as per the adjudication order issued by the Office of the Commissioner of Customs. PAT. Q4 FY '20 PAT stood at INR 8 crores as against loss of INR 5 crores in Q4 FY '19. FY '20 PAT stood at INR 73 crores as against INR 60 crores in FY '19 despite exceptional items totaling INR 98 crores, which includes INR 94.27 crores provided against refund of excess export benefits of earlier year by way of MEIS as per the adjudication order issued by Office of the Commissioner of Customs. FY '20 PAT grew by 22%. Dividend. The Board has recommended final dividend of 30% that is INR 0.60 per equity share of INR 2 each for the financial year ended 31 March, 2020. Net worth. As on 31 March, 2020, the net worth of the company stood at INR 986 crores. Debt. As on 31 March 2020, net debt stood at INR 198 crores. The net debt/equity ratio stood at 0.2x. Now that's all from my side. I now leave the floor open for the question and answers.

[Operator Instructions] The first question is from the line of H.R. Gala from Finvest Advisors.

Congratulations for a good set of results in this difficult times. Hello?

Yes, yes. I'm listening.

Yes, yes, sir. Sir, just couple of questions. One is can you help us with other income breakup of INR 54.63 crores? What does it include?

I'll ask my CFO to answer.

So the main income for quarter -- for the year is about INR 48 crores of foreign exchange in gains for that. Yes.

Okay. And the export incentives, whatever they are, that will be included in your sales numbers, is it?

That is a part of our export in revenue.

That is revenue. Okay.

And secondly, we have mentioned Mr. Gala earlier as well that the other income in which our ForEx gain is included is part of our business income because...

Yes, yes, yes, absolutely. Right. So just wanted to know the numbers? Because I believe that last year, we had a INR 31 crore ForEx loss.

Yes. But times keep changing, no? Now it is...

Yes, yes. That is the reason. Correct. Correct. Now sir, second thing is the benefit. Yes, absolutely right, sir. The second thing is this INR 32.71 crore sales, which has been reduced on account of that MEIS saying you have changed the classification, does it impact in Q4 also or you have just changed the full year numbers?

In Q4, the revenue was reduced because it never got accrued. So it was not included in Q4 as well.

Okay. So INR 32.71 crore is not included in Q4 also? So if we add back that amount...

No, no. What we are saying is...

No. I will answer in a minute. Whatever exceptional items we had, those have been adjusted only in the annual results.

Not the quarterly?

Not on quarterly.

Yes. Because otherwise, as you said that you have lost some of the sales, then it does not really match because then if I add back INR 33 crores [Technical Difficulty]

Hello?

Yes, yes, sir. Yes.

So hello?

Yes. So INR 32.71 crores has been reduced only from the annual sales?

Yes, yes, yes.

Yes, correct.

And sir, the third question is how kind of -- what is the reason for a 10% improvement in the gross margin in quarter 4? In any particular reasons, like was it product mix or what was the reason?

So basically, the finished goods were not included in the raw material and it impacted the overall raw material cost. But if you look at the overall annual numbers ...

Annual is matching. Annual is matching.

Yes, yes. So only the...

In this particular quarter, any particular reason was there that 57% material cost has reduced to 47.7%? Sir, I was just wondering.

So Murali, you would like to answer?

Yes. See, the finished goods have absorbed all the costs, actually. So all costs are loaded onto the finished goods. Had the finished goods moved out, then we would have the same percentage. Unfortunately, because of this COVID conditions, we couldn't move the finished goods, so the costs have got loaded on to the inventory changes.

Okay. Okay. And that inventory is reduced from the material cost?

Yes. Yes. Yes.

So this will correct itself in the next following quarters.

Yes.

Right. Right. Right. I understand. I understand. And sir, last question from my side. In the press release, you have mentioned that you are seeing some consumption pattern change -- buying pattern change, so can you just highlight what kind of changes are expected? And how will it order for our EBITDA per meter?

No, what we are reporting is you see the consumption -- because work-from-whom culture is being adopted now by many people, so buying online and picking in the stores. So a lot of changes are happening in the point-of-sale and consumption pattern as well. So we are being informed that you see the soft furnishing sales will be better, as people will be working from home more. So that is what we are expecting. That is what we mean by consumption pattern. And point-of-sale means because stores have to maintain the social distancing and all desired safety measure in order to sell their products. So definitely, these changes will happen at the marketplace. And we, as a company, are quickly adapting to these changes and thereby addressing them to the desired levels of our customers.

Okay. So sir, present indications are that we should be able to do more than 61.8 million meters that we did in FY '20?

See, looking at the current environment, you see the situation is evolving. And it is still too early to know the 2 economic and earnings impact of the pandemic, while the consumption pattern and point-of-sales are changing, but we, as a company, are positioned well. As you see that we are having a healthy capital adequacy and stable liquidity position, we are having good customer base, a wider geographical distribution, then we have innovative product mix, and the company is confident to deal with the challenges posed by COVID-19. So we are in a situation where we have a strong customer base where we are mutually working together to see how we build a sustainable model around it because the ecosystems are changing, so we have to address that, and we are adjusting it.

That's right. Correct. And FY '21, we can look at something similar EBITDA margin at around 11% type?

See as -- what we -- as just now mentioned, it is too early to provide any guidance on margins or volume, et cetera, because the situation is still evolving, Gala. It is too early to make a commitment because as a responsible corporate citizen, we do not want to do any guesswork. We want to -- as a philosophy, give right guidance to everybody, all our stakeholders.

Okay. Okay. Any, sir, major CapEx plan, currently?

No, it's all routine capital expense.

Normal.

Normal.

[Operator Instructions] The next question is from the line of Ayush Mittal from Mittal Analytics.

Sir, I wanted to broadly understand that as things might be -- what kind of visibility or order situation are you seeing from your customers as of now?

See, the stores are just opening up and then also being opened selectively by the retailer, whichever stores were doing well, so -- and those which were selling essentials, which were already open, so they are doing business. So as we see that the stores get opened up and they come into regular operations, we will be able to see more visibility. And this visibility of orders will be able to be given only when we see these regular operations and the situation normalizes.

And large workforce, what have we been doing about them in these lines?

No. We are operating at, say, 65% to 70% of our capacity, and we are located 20 kilometers from Karnataka border in Kolhapur, and we are located in an MIDC, where availability of the workforce is there locally as well, and whichever workers are able to come across, they are also coming. There is some issue, of course, of the migrant labor. But as a company, we are floating various schemes in order to retain them and provide the incentive and better working conditions and comfort to work again. So we are confident that we will be able to, in time to come, if nothing unfortunate happens, we will be able to tide over this problem.

So have we reduced our workforce or not, it remains the same broadly?

No, we have not reduced because we are operating at 65% to 70%. First is to come to normal operation and then only we can see on various other issues like measures like productivity, et cetera.

Okay, okay, okay. Sir, this kind of lower operation might continue even for 6 months or 1 year. Is that what you feel is a reasonable expectation, like 60%, 70% of the capacity?

No, you see the situation is evolving. And it is very fluid and uncertain. Nobody knows about it, the correct answers. So what we, as a company, are doing our best to see how we can tackle the situation by providing the workforce the safety and the comfort to work in these conditions. And we have got a good workforce, and we are confident that since the company is providing, by all means, a better atmosphere to all our workers and taking good care of them, we feel that in time to come, the production will normalize, as the situation normalizes. But regarding the COVID-19, we cannot mention anything, whether it is 6 months or 3 months or 12 months, we cannot, nobody knows about that.

Of course. Of course. Good to know, sir, that you're taking care of your employees. Sir, what are the incentives by the government in your sector as of now? Any changes in that?

No, so as far as there is no fiscal stimulus, which we have availed, provided by the government in whatever way, we have paid our loan and EMI on time, and we have not extended any loans or we have not gone for any moratorium. And any other smaller means of whatever stimulus with the government provided is not material enough, and we have not availed anything.

No. I meant the incentive on your production, on the textile, what are the incentives as of now? The duty drawback, any idea how much are the rates?

See, duty drawback is around 2.6% and 8.2% is RoSCTL.

Okay. So total around 10.5%?

Yes, 10.4%.

10.4%.

Yes, 10.8%, but it gets reduced to almost 9.5% because it depends on item to item like, say, sheets, pillow cases and all those are different. And some of the items like even comforter, we have not provided any incentive yet. So -- and the realization of the script is also less, so we have to discount it to sell it in the open market. So that also gets reduced. So finally, that gets reduced to almost 9.5%.

And any improvement in the receivables from the government of these incentives? Or are these spending like usual?

Yes, there is some improvement, but still, as the government offices are also not in a normal situation, working fully, we are finding delays in some of the receivables, which we are addressing it. The good thing is that the -- whatever we address, there is people listening to it on the government side, which is good to know. As and when the government fund comes in, they disburse it. So the good thing is that the allocation of fund is important from the government side to get the receivable back. But I think more improvement is needed on this side as well.

[Operator Instructions] The next question is from the line of Chetan Shah from Jeet Capital.

Sir, just one thing on the raw material side. Can you just give some update about the status of the raw material availability, pricing and how are we positioned ourselves because the cotton availability is quite in abundance compared to what it was, say, a couple of years back and the price is also in our favor? So how are we preparing in taking advantage of this situation despite of -- there is some kind of uncertainty on the demand side of the business? If you can give some flavor on that, that will be very helpful, please.

Yes. As you rightly said, there is abundance of cotton availability as of now because of the COVID situation as the mills are not operating fully. And secondly, it is the fag-end of the season where everybody covers the good quarter in February, March and keeps in their stock. So the mills are having cotton stock as what we also have around 3 to 4 months of cotton stock, which we had bought earlier because the cotton availability in the season, the quality is quite good. So going forward, we have to wait as the current market prices, which are around [ INR 55,000 ] are at very low. But in order to supplement this, the government has provided MSP of an increase of 5%. So as things normalizes, I think we need to wait and observe how the prices pan out. Because -- but looking at the export situation because India is a surplus cotton country, and we used to export almost 5 million, 6 million bales, but China has been a big buyer, which is currently not buying. So there will be availability and the supply side for cotton in the coming year, that's what we expect. And the prices also, we need to watch how the crop is and how this new use is. So we need to watch both in order to ascertain on what prices it will come. But I think surely, we can expect the prices at a bit lower level than last year. That much we can expect. Yes.

Okay. Right. So you very detail elaborated in terms of our potential estimate volume for the current year, and you said that it is very difficult to quantify, looking at our situation as of now. But if we assume that by, say, July or August, things turns out to be normal, do you see that -- we do somewhere between 60 million, 62 million meters of numbers, that is, as of now, a little difficult to predict, and we should wait for this quarter to get over?

See, I think, really speaking, we should wait for that because you see looking at the current environment, which is very evolving. And so it will be too early to make some sort of guess work. But as I mentioned earlier, that since the company has got a strong customer base, and it has delivered in the past. And we have a strong customer base and a good relationship, wherein we are overcommunicating and focusing on our business because we are into bed linen and a focused product. So we do not have any other product in home textile side. So as a focus company, we have a complete competitive advantage in the marketplace and are recognized as a good supplier. So that will help us, and we are keeping a close watch on the market and taking deeper insight into how the situation and the whole ecosystem is panning out. So that is helping us to adapt quickly those changes and build the product line which the consumer would expect from us, and that's what we are capable of. So supported by the capacity, capability, strong customer base and a good liquidity position, I think and we have performed in the past to the expectation of our customers worldwide. I think the position is very clear that given the situation normalizes in the future, we expect us to do more.

Correct. Sir, one last question from my side. Sir, given the situation which is there across the globe, both on terms of supply and demand side, what are you hearing from some of our competitive countries like Vietnam, China, Bangladesh and other countries? Do you have any sense in terms of how are they doing and what our customers are giving us a feedback in terms of their priority countries, which they will be comfortable with in terms of doing the business going ahead? This is purely for that 3-, 4-year time horizon because now a lot of things have changed post COVID. And how do they read and give you a feedback about things on the ground?

See, as I had mentioned earlier, you see both Bangladesh and Vietnam are labor arbitrage, basically. So these countries have their strength as labor force. And now due to this pandemic situation and social distancing, this is a very difficult thing to handle for them. And apparel, as such, is a sort of a fashion product, in which they were having predominantly the volumes and the value. So you see they have been impacted more, unlike India, so we are into home textiles, which is a need-based items. So we are not into apparel and fashion items. So first of all -- and because of their labor arbitrage, as you know, these countries, once the economy improves, definitely, their costs would go up. And then we are into a category where we are having finer count yarn within India as a supply source, where they do not have. They have to be based out of imports, just like Bangladesh is based on imports of both cotton and yarn, and Vietnam also, we feel that they are not into our category as well as such today. So competition from them, like in the next 3, 4 years, we feel is -- should not be there. That's what we assess. But we are keeping a close watch on each and every producing countries, and we feel that India being a largest cotton producer and having a good advantage of cotton as a crop, is -- we will be having an upper hand into supplying cotton textiles, and particularly, home textiles.

[Operator Instructions] The next question is from the line of Bhavin Chheda from Enam Holdings.

Sir, I was seeing your market share slide where it looks like that India is gaining market share, particularly in sheets and pillow cases, but bed spread has been more or less flat. This is a calendar year data, so I think another -- we are almost 6 months in calendar year '20 and during this period, also this COVID-related China backlash has happened. So are you seeing some more client inquiries, who are shifting from China to India in case of home textiles or there is no such trade yet?

No. As I have mentioned in my earlier call, see clearly, at that time even the sentiments of sourcing from India, the fashion bedding, utility bedding and the institutional bedding had started happening. So as a company, we have to invest both in time, effort and money into these categories, as they are quite competitive. Going forward, we feel that because of this COVID-19, again, as I mentioned earlier that the sourcing teams are now trying to be not dependent upon a single geography because Chinese share in home textile is at 39% and India share is at 11%. So we have a lot of room to grow. And like if India -- in India, our cotton availability is quite -- like -- cotton availability is there. But as far as MMF is concerned, we are still expensive [ than ] China. So whatever polyester-driven product or blend-driven product are there, which China is today predominantly supplying, India could not supply. So I think all these factors, if we consider and because of this COVID-19 situation, we believe that in time to come the -- there will be a shift of businesses of these categories as well as other categories like even bedspread to India.

And second question, you're not sharing outlook for FY '21, that's fair because the things are evolving, but we are already into quarter 1, so can we assume in quarter 1, there has been more than 50% to 60% volume fall and the demand of U.S. has fallen by that extent in quarter 1?

See, as I mentioned, the stores were closed. And if the stores are closed, there is no sales happening except for stores which were selling essential items. And now they have started opening up. And as I had mentioned earlier also on one of the questions about volume guidance, see the situation is evolving. So -- and now the stores are opening up, and everybody knows that the Q1 is under pressure, definitely. Because we hear also in Indian context also, we were locked down in April and May. So we only started our operation partially from, say, 26th and 27th of April. So things are improving. And I think we should expect improvement in the other quarters to come. Our entire focus is into how we can normalize the business once business normalize outside. So since in a need-based product, I think the consumption would withstand the pressure of the marketplace and work-from-home culture, we'll also promote more of soft furnishing. So that's what the market feelers are. And that's why we expect things to improve only. We should not look at Q1 alone. We should look at the overall year as a performance now.

Okay. And my last question, sir. I just missed the question on this MEIS, ROSL and all other government benefits of till March 20. So how much is outstanding at the year-end? And how much was received in the quarter?

I'll ask my CFO to give you the correct numbers, or we can provide you offline because what is the correct numbers, what we received during the quarter.

But any outflows from state or central government happened in quarter 4?

I did not get clearly your question. State outflow...

So in quarter 4, any -- so there are state benefits also and central benefits also. Though -- I think ROSL was refund of state levies, it has to come from state government.

No, both, like, central and state levels. ROSL is about refund of state and central taxes and levies.

So that comes, I believe, from state also and central also. So anything was received in quarter 4? Or everything is getting...

Yes. We do receive. Normally, you see how it happens when you export, you can apply online, and you get your regular RoSCTL. Only, as I mentioned earlier, when the government is short of funds, to some extent, even if you -- your RoSCTL amount is approved online on the screen, you only -- when the funds arrived, you get your amount. So that is how the government works. So I think these are all into normal situation, like -- and the company has been receiving on a regular basis whatever its claims are.

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

Sir, just wanted to understand your customer profiling in terms of essentials and department and e-commerce. That will help us in understanding the impact that could have -- that we can estimate for your company.

See, Prerna, basically -- sorry.

Before COVID times, sir. Not now, current, I don't want. Maybe for FY '20 as a whole period, what would be the share of essential stores in your total sales?

See that will be difficult to mention because you see there is always -- as I had also mentioned in earlier calls, like you see the promotion of a product line in a particular store depends upon their own retail strategy. Now in the U.S., basically, the mass merchants are larger stores just like the likes of Walmart, Target, Costco, Sam's. These are our large stores, which -- Kohl's and all other, they are the large tools, which also tend to sell essential. And there is departmental stores, then there is specialty stores like Bed Bath & Beyond and then there is clubs as well and discounters as well, like T.J. Maxx. So we sell to different retail base according to their positioning and our positioning. So we have a mix of all customers. Our top 10 customers forms 50% of our value. And -- so it is quite a good spread, which we do. And we sell around 70% to the U.S. and 30% in U.K., Europe and other countries. So the spread is not between pre-COVID and post-COVID. Because these customers are there, and they are existing and they are opening up their stores when they were selling also during this COVID times also because they were selling essential items like essential goods also. So we feel that we have a good customer base, and it will be too difficult to mention about the profiling pre and post COVID. So as I mentioned, we have a strong customer base, which is spread up between different positioning of each retailer.

Okay. Sir, have you seen more demand coming in from e-commerce channel as compared to brick-and-mortar store in this COVID period?

Yes. See, we have all seen, like the online businesses is moving ahead because people are not going to the stores. So definitely, whatever their needs are, are ordering online. So -- and secondly, the other business norm, which has developed is buying online and pick up in the stores. So the stores are also making those arrangements, how customers can pick up at the stores once they have bought their goods online. So these are the different channels, which have opened up, and we are also addressing it because we have a good spread in selling on e-commerce also with all major customers. So that is also growing. So we see it -- we do see a growth there as well.

Okay. So there is no major distinction now in online ordering because even the brick-and-mortar stores have picked up investments there and offering the same options to the customers to survive is the right way to see. Okay. And sir, with respect to price negotiations, are there any price negotiations happening because the demand is weaker at the current time and even raw material prices have corrected and rupee depreciated? So are customers asking for any benefits in terms of either price negotiations or higher credit period or any other negotiations that they are looking at?

See, currently, what we -- what the major focus with everyone, including all our customer is, how they revive their business. So at the moment, we do not see any price negotiation. But as we had mentioned earlier, the price negotiations do happen every 6 months. So in case if there is, then we will address it as it when it comes. But I don't think so today, we have that issue.

Okay. And some of the other companies in the textile sector were also talking about that customers are asking for higher credit period. Is that happening with you as well? And what is the kind of increase in number of days that is being asked for?

Yes. You are right. We are also assessing that some of the customers, who are asking extension of credit terms. But as a company, we have a good risk management policy in place. So we assess our risk to that particular customer and we secure ourselves through ECGC. So we are fully secured through ECGC on all customers where we provide them material on terms. So we do see some of the customers asking on credit terms, extension of credit terms.

That is -- okay. Okay. And sir, a financial question. We've seen your cash balance increasing humongously in this last 1 year from INR 23 crore to around INR 140 crore and investments also declining from 46 crore to INR 0 crore, current liabilities increasing. Can you just explain us what is really happening, whether -- why current liabilities have increased by around INR 120 crores on a Y-o-Y basis and investments have also declined? So is it the reason why cash balance has gone up? Or is there any other reason behind it?

I'll ask my -- request my CFO to answer this, Mr. Muralidharan?

Yes. So basically, other current liabilities, the main component which has gone up is on account of the OCA liability, which is to be accounted as the current liability. Rest of all is our accrued expenses, which, because due to closing of our offices, and -- we've not paid certain statutory liabilities at the -- which normally we used to pay, even the operational expenses, which we would have paid to the vendors. So these are normal liabilities, which has built up plus the repayment of current maturities of the term loan is about INR 20 crores. So practically, everything is normal here, except that the other current liability also includes INR 56 crores of OCA liability. That's a major component. Otherwise, everything is practically normal operational expenses -- liabilities side. As far as the -- your second question on the increase in cash balances, we had healthy operational cash flows. And before -- by the end of the year, we were facing this COVID situation, which was creating some sort of uncertainties in the business. So in order to insulate ourselves from any cash flow expenses, we thought that we would build a buffer. And mainly in the sense that since we are predominantly exporting company, banks should not come in the way of financing at that point of time. So to keep ourselves in a better financial condition, we decided to put -- created this buffer.

Okay. And this was created by reducing your investments, I mean, liquidating your investments?

Investments had come -- we had liquidated much before. Yes. Basically, this is done out of the operational cash flows. Yes.

[Operator Instructions] The next question is from the line of Chirag from Valuequest.

Yes. Sir, my [ question ] is, if you can help us understand what is the current order book visibility? As I understand, we work on a program basis with retailers? So what is the current visibility? And what are the current dialogues with the retailers? How you are seeing the next 3 to 6 months? That would be helpful.

So the -- whatever, as I mentioned, we have a strong customer base, and we haven't lost any customer. And neither of our customers have gone for bankruptcy, except for a couple of them, where we were not dealing with them in the U.S. So we are continuing with them. In our business, you see there are businesses like replenishment and promotional. And we have earlier also informed that we are into majorly supplying replenishment businesses, that is backhaul, and not into promotional businesses. So those businesses still continue for us. Now we need to see how they pan out once the store opens up. So that is what I mentioned that it will be -- like since the situation is skewed, it will be wrong on our part to give any guidance on the order book position for the next 3 to 6 months. So just we will come back to you to give better picture in our Q1 call. That will be the appropriate time when we will be able to throw some light on this on the rest of the year.

All right. But sir, on retail sales over there [ would have opened for ] now more than 1 month and -- so you would have -- you'll be having some understanding because it is made-to-order at the same time. I mean, to get order, you have 3 to 6 months visibility at least. So some color would be helpful if you can give us...

No, no. Of course, we are doing business. As we mentioned that we are operating at 65% to 70%, so definitely we must be producing something on to made-to-order basis and delivering. But to project 3- to 6-month projections will be wrong on our part. It cannot be a guesswork.

Got it, sir. Got it. Can you help us understand what will be the inventory levels in -- I mean, at your customer end or in your depots? That would be helpful.

So the details are normal, right? That we are realizing...

No, no. Inventory levels. I'm asking about inventory levels with your customers?

See, the inventory level as the stores were closed. Whatever was in their distribution center and in the stores are, they are still carrying up. But you see, as we are into replenishment business. As and when they sell, they are like 4-week stock or 6-week stock, they reorder. So once they start selling, we'll be able to get a better idea how it pans out -- the sales pans because it is not even 1 month, all stores have opened. They have opened selectively stores. Like if somebody is having 1,000 stores, they have opened 300 stores. So it will be hard for us to give any indication about what is the volume and what is the actual numbers, how it is because -- since the complete ecosystem has changed.

Right. And sir, just lastly, at what rates are forwards that have been booked currently?

See, next year, FY '21, we should be around INR 73.

INR 73.

[Operator Instructions] The next question is from the line of [ Suman Kawatra from Takesone Consultants ].

See I have two questions. One is what is your quarter's expected debt level end of next year? Secondly, I think you're supplying to big stores in U.S.A., where some of them have gone under. Do you expect some losses because of that? Are you supplying to Macy's there? And thirdly, one question. Some of the companies are planning to launch some anti-COVID textiles or something. Are you thinking on those lines?

No. First of all, we are not into -- going into any anti-COVID product line as on date. I cannot promise you of the future how the business pans out, but we do not want to follow the herd community because we are very well-positioned into supplying innovative products. We cannot go into a very basic need-based product as a company. Secondly, as far as Macy's is concerned, they are our customers, but we are not doing a larger volume with them. So it is not enough material for us. And I think Macy's are a cash-rich company, and they would sustain. That's what we hear about them from the marketplace. As far as the debt is concerned, we have earlier also mentioned that the -- whatever internal accruals are there, we try to reduce our debt. Our debt has been reduced this year also net debt from INR 304 crores to INR 198 crores. So the entire philosophy of the company is to reduce the debt and have a very under-leveraged balance sheet and a strong liquidity position. So that's what the philosophy is. So we work on those value systems.

So at the moment, you don't expect any NPAs from your big stores in U.S.A., where you might feel that they'll go under or something. You're absolutely clear on that.

See, what we hear about some of the stores, which are -- which have gone out of business, major discounters and to whom we do not supply because we are positioned into the mid-end of the market. So we are into the mid-end to the high-end and premium products. We are not into the low end. Basically, the issue is about the low-end product because their margins were less, and they could not sustain their expenses. People like Bed Bath & Beyond and people in the specialty and departmental and to some extent, the mass merchant, who were selling essential items and could sustain during this COVID time also, I think, for them, business would turn out to be usual very quickly. The only thing is that how the COVID-19 pans out there as well, like as what we have containment zones and all that, so whatever stores, which they were able to operate and which they were doing well, they have opened up selectively. So I think we all need to be like waiting and watching this how it pans out. And as a company, we are cautiously optimistic about the whole situation because we are quite equipped with the capacity, capability, liquidity and good customer base, innovative product mix, we are well-positioned. We are focused. We are having a good workforce, and we are situated in the state of Maharashtra, where all the inputs and availability of power, et cetera, everything is there. So -- and India, as a country, also has an advantage about the cotton and the whole situation under cotton towards the inputs. So I think going forward, we should wait and watch the situation, how it improves and then as a company, to answer your question, we are well-positioned to tackle all this situation.

The next question is from the line of Deepika Mehta from Axis Bank.

So my first question is because cotton prices are -- have fallen versus February or even before that, do you expect any inventory losses there? And otherwise, how is the inventory position in terms of number of months for finished goods? Raw materials, you said, I think cotton 3, 4 months of cotton you have.

Cotton, we carry basically for our spinning outfit where we do captive consumptions. And we usually have around 3 to 4 months of inventory depending upon what type of potent, whether it is a branded cotton or whether it is a regular Indian cotton. So we do have 3 to 4 months' inventory. But as we are operating at 65%, 70%, this will get extended to 5, 6 months, 5 months at least. So by end of September, I think we should be able to consume this cotton. And the market, of course, there is not a good spread between the yarn business and the cotton, so currently we are not in a good position as far as any profitability is concerned on spinning side. But definitely, as and when the season starts, we'll be able to know what prices are being offered and how the crop also comes for. So you see we have to wait and see about the pricing of the cotton in time to come. And we have to see how it pans out on our raw material cost. But as I mentioned earlier, the abundance of availability of cotton in India, as on date, seems that the prices will be lower to last year.

But then India does not have a competitive advantage from -- I mean, because of the MSP we have and our -- versus the global cotton prices, we usually tend to lose out on competition, right? So would you import more and take -- buy less of Indian cotton?

No, no. Indian cotton, we all use mostly Indian cotton. The imported cottons is basically the branded cotton, Egyptian and Supima so -- and any other organic cotton or BCI cotton. So mostly, we tend to use Indian cotton only, and India do have a very big advantage in cotton because there is surplus availability of cotton. See countries like Bangladesh, Vietnam and Cambodia and all these people, they do not have even cotton. So if you do not have raw material at your disposal, then the country cannot be competitive in exports. So we have a long-term advantage of having cotton grown out in India. And definitely, this has helped the home textile industry to garner 50% market share in the U.S. So that was one of the main reason for India achieving this growth against China and other countries.

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

Sir, just wanted to know the export incentive amount for the year.

See, so far, 2.6% is the drawback rate and 8.2% is the RoSCTL. So these are the 2 incentives which we get, and -- so it comes to almost 10.8%, but the resultant incentive get discounted because it is in script form and also on some of the shipment categories, we have lesser RoSCTL refund. So if you summarize, we tend to get around 9.5% of the out of the total.

Can you give me the absolute amount on this?

Absolute amount, we can give you offline.

Okay. And sir, also wanted to understand the cost reduction initiatives. You mentioned in your opening remarks that you are looking at all the fixed costs with a 360-degree approach and wherever you can reduce. Can you cite some examples, the major ones, which can help us understand what kind of cost reduction we can expect going forward on the cost side?

Yes. You see, every company is going through this process of optimizing its cost and better resource utilization. So our company is also not an exception. So by using more technology, more like a little bit of automations. And by reducing unwanted expenses, say, like, the traveling would be reduced; there would be more virtual presentation; then there will be lesser of subsidiary cost, [ over fees ] because they also won't travel back and forth; then the designing expenses to some expenses. So a lot of expenses are being reviewed as of now. And as the situation normalizes a little bit, we'll be able to know which expenses to cut once we fully understand the ecosystem. But as a company, we are also learning about this financial prudence, and we are taking the desired steps towards cost optimization.

I now hand the conference over to the management for closing comments.

Yes. So with good customer base and as I mentioned, capital adequacy, wider geographic distribution, extensive sectoral understanding of products and product development as well as a relatively under-leveraged balance sheet, we are all well prepared to quickly adapt to the changing customer ecosystem. With this, I would like to thank everyone for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with me or strategic growth adviser or our CFO and our Investor Relations adviser. Thank you.

Thank you.

Thank you. On behalf of Indo Count Industries, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.