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

Ladies and gentlemen, good day, and welcome to Indo Count Industries Limited Q2 FY '21 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 guarantees of future performance and involve 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.R. 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 press release by now. I have with me Mr. Muralidharan, our CFO; and Strategic Growth Advisors, our investor relation adviser. First of all, I would like to take this opportunity to thank each and every employee at Indo Count for their continued support in navigating through these challenging times. The resilience of our team members over the years have borne fruit for us today. I would also like to thank the management, our Chairman and Vice Chairman, for their continued patience and support, and their strong vision to lead this company. In the recent words of Tim Cook, he mentioned, this is a quote. "This year, our homes have become even more important in our daily lives." We are witnessing this play out in our markets. Home is becoming the center stage with increased consumer spending due to more time spent at home due to the work from home and social distancing culture. A lot of structural factors are expected to play out going forward. Let me explain them. First of all, the China + 1 strategy. We expect China + 1 theme to reap benefits, where the brands are looking for a credible second source in order to reduce dependency on a single geography. This, along with the government support under Atmanirbhar Bharat to uplift domestic manufacturers, we believe the Indian home textile industry is in a sweet spot. And it is likely to benefit due to abundant availability of raw materials and skilled manpower, along with steady capability and capacity available for growth. Now the retail consolidation. We expect a higher demand trajectory from big-box retailers as compared to small retailers. With this consolidation, companies with focused solutions and faster go-to-market approach are gaining market share. We believe our strong relationship with large retailers and our credibility as a consistent and innovative supplier will greatly enhance our market share. Then the value addition in the value-added categories. We are witnessing demand towards value-added product categories, addressing health, hygiene and wellness. This theme will accelerate going forward to provide immense opportunities for value addition. The awareness and need for these categories is providing opportunities for further value addition. The omni-channel sales are helping to drive these categories in reaching out to new customers, thereby strengthening our customer relationship further. In a step towards aligning our product categories with the aspiring needs of the customer, I'm happy to announce that we have quickly adopted to the market dynamics on the back of our strong R&D and technological advancement. We have made and launched recent developments such as Wholistic - Whole HealthSleep Better brand, which features innovation associated with cleaner living, keeping a hygienic home and fostering better sleep. We also launched Sleep Rx, duly trademarked during the fall market in New York. This is focusing on sustainable performance. In October, just recently, we launched our new domestic brand named Layers. This is a value-driven mass brand to cater to the aspiring customers across India. We also launched Boutique Living Luxury, which is a direct-to-consumer luxury bedding brand in India. We have also partnered with global major, Archroma, for manufacturing home textiles in India for our PureEarth organic cotton brand, which will use plant-based dyes. We believe that these are strong and long-term sustainable positives for the home textile industry with a good customer base, capital adequacy. With a 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. Now let me share with you our operational and financial performance. I'm happy to announce that we have achieved highest ever quarterly sales of 22.76 million for Q2 FY '21. Our order book looks healthy for the coming quarters, and we are confident of a sustained growth. We are, therefore, pegging our FY '21 guidance for sales volume at 72 million to 75 million meters. Our total income stood at INR 724 crores for the quarter FY '21 versus INR 587 crores in Q2 FY '20, a growth of 23% on a Y-o-Y basis. For half year H1 FY '21, the revenue stood at INR 1,060 crores against INR 1,106 crores H1 FY '20. EBITDA. This is INR 127 crores in Q2 FY '21 versus INR 82 crores in Q2 FY '20, a growth of 54% on a Y-o-Y basis. Higher absorption of fixed cost on the back of increased volumes led to EBITDA margin at 17.5% in Q2 FY '21 versus 14% in Q2 FY '20, an increase of 349 bps on a Y-o-Y basis. INR 166 crores in H1 FY '21 is the EBITDA versus INR 154 crores for H1 FY '20, a growth of 8% on a Y-o-Y basis. EBITDA margin at 15.6% in H1 FY '21 versus 13.9% for H1 FY '20, an increase of 173 bps on a Y-o-Y basis. Now PBT before exceptional items. INR 111 crores in Q2 FY '21 versus INR 60 crores in Q2 FY '20, a growth of 85% on a Y-o-Y basis. INR 134 crores in H1 FY '21 versus INR 112 crores in H1 FY '20, a growth of 20% on a Y-o-Y basis. Now debt and cash. Our total long-term debt stood at INR 29 crores only as on 30th September 2020 versus INR 36 crores as on 31st March 2020. The total debt, including working capital stood at INR 290 crores as on 30th September 2020 versus INR 329 crores as on 31st March 2020. The total cash and cash equivalents at the end of 30th September 2020 stood at INR 228 crores. Our net debt-to-equity is at 0.06x. 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 Madhav Marda from Fidelity Investments.

Sir, my question was, if we take -- given that this China + 1 strategy is playing out across the world, if you can give us a little bit more detail in terms of what is happening in the key U.S. market for us? And if we take like maybe a 3-year view, can the 90 million meter capacity that we have, can it be fully sold out? Because if I just annualize the 22 million sales that we did last quarter, it seems like we're already there in terms of utilization?

Yes, this China + 1 strategy is all about playing out with the retailers as the brands would like to do away with the dependence on a single geography. It started with the tariff conflict between the U.S., the largest market, and China. And they impose certain tariffs on -- at a pre-COVID level. Now post-COVID level also, the sentiments were against China. And what we hear about from the leadership in the U.S. as well, their position against China is still on. So we feel that wherever China is dominating in whichever product category in the home textile area, there are strong possibilities in the future that their market share would get reduced. And as a company, we informed earlier as well that strategically 3 years before, we started with fashion bedding utility and institutional bedding, where China was dominating at around 85% of market share. And India was at around 7% market share. So we feel strongly that once India enters this space and make its name dominant in the market, then definitely, this market share would shift. And secondly, India is also at a very good position, along with the raw material abundancy and the skilled labor availability. And India has performed well in the last 3 decades. So we feel that in the coming year, this China + 1 strategy will definitely help India into leading to higher growth in home textile.

And in terms of the capacity, sir, like we are running at, say, 22 million meters run rate last quarter. Can I just annualize it for the next 4 quarters and say that we'll be fully booked for the next year? Or how should we think about the ramp-up of the capacity?

No, we have given a guidance of 72 million to 75 million meters. So we do have some capacity available for FY '22. And we are on our drawing boards, and the Board will take appropriate decisions regarding the capacity very soon.

Okay. Sir, there might be some expansion that might come up, right? Maybe some announcement in the next 6 months, if demand is going well, we could sort of expand capacity, maybe?

Definitely, the Board will take appropriate call, as I said. And they will consider because we are on the drawing boards, and we are also recognizing this fact that our capacity is operating at more than 85% of our installed capacity. But as I mentioned, for FY '22, we still have capacity to sell because we have a 90 million meters capacity. And in that, we can safely reach around 85 million, 87 million meters. So we can go up to that level.

Okay. and in case if you have to explain, like, will it be a brownfield expansion? Or do we need to do off a new site? Any thoughts on that.

It will be both, brownfield and maybe some greenfield as well. But as I mentioned, still we are on the drawing board, and the Board will take appropriate decision.

But do we have scope for like a brownfield at our existing sites already?

Yes, we do have.

Okay, good. And sir, just one other question from my side was on the EBITDA margins. There are a few drivers like cotton prices or ForEx that impacts our margins. How should we think about EBITDA margins for the next 6, 12 months? What would be a comfortable range you're seeing?

See, our margins for the quarter stood at 17.5%. And this was on the back of operating leverage playing up due to increased volumes and higher efficiencies and our prudent cost management. Our sustainable margin guidance for the year is around 15% to 17% on the back of good demand traction, which will lead to operating efficiencies. So these are sustainable margins we feel on the back of higher sales and higher absorption of cost.

And maybe if I can squeeze in one last question like if we compare...

Sorry to interrupt you, Mr. Marda, this is the operator. May we request that you return to the question queue for follow-up questions, sir? Mr. Marda?

I had one last question, if I can ask, or I can go back into queue? Anything is fine, sir.

Yes, you go ahead.

Yes, sir, my last question was basically, if we compare India versus China in terms of cost parameters, for the bed linen, are we at the same level or are we a little bit more expensive? How should we compare in terms of cost?

See, particularly, in sheet set, India has performed what, very well on the cotton side. And if you observe, India is already at 50% level. So definitely, India is competitive against China. As far as synthetic is concerned, the MMF price difference is in favor of China. So there, we need to rationalize the duties. And once we do that, then we feel that the Indian competitiveness in this synthetic-related product also will play out. So slowly, India is getting much better than China in other categories as well because the Chinese labor cost is -- has gone up and -- as well as the raw material cost in China for cotton and cotton-related product has gone up. So we believe that India is getting much more competitive vis-à-vis China in our categories.

The next question is from the line of Tarang Agrawal from Old Bridge Capital.

And congratulations for a strong set of results. I have a couple of questions. One, sir, if I look at your volume guidance, right, you're looking at almost 40 million meters in the next half year as compared to 30 million meters in H2 FY '20. So what is driving -- what gives you the confidence that you'll be able to get these volumes? And second, in terms of your order book visibility, how -- what is -- typically, what is the visibility that you have? That's my first question. I'll ask the following questions after this.

Yes. See, first of all, the home textile industry has witnessed a strong demand revival during the second quarter on account of high demand from big retailers. And their inventory pipeline dried up. And also the demand is shifting to value addition in health and hygiene products, as what we have mentioned in our investor deck as well. People are spending more time at home. Home is at the center stage, and home textile consumption has gone up due to that. Work from home culture has become the new norm. So we feel that home textile growth will be sustained in the future as well, and this is driving the volumes and the value both for home textile companies. The upcoming festival season also in Europe and U.S.A. is expected to see strong demand the coming quarters. And we are seeing this recovery in the U.S., which is our largest market. So in the guidance, which we have given, is backed by good order book position, and we are confident to deliver this guidance this year. And we continue to be very optimistic about the future growth as well because home, and what I have mentioned, has come to the center stage of our life and lifestyle. So the home textile consumption has gone up.

Okay. And generally, what is the order book visibility that you have, say, on 30th September, you'll have a visibility of what the next 6 months, 3 months, how does it work?

See, based on the order book position, as I mentioned, we have already given you a guidance of 70 million to 75 million. We didn't give that guidance in our last con call because we were unsure at that point of time, but now the order book position is good. So that's why we have given a guidance.

Okay. So the visibility is for the next 6 months, is it, generally?

No. The visibility and uptick in demand and the momentum is there. And what we have also mentioned that there is a month-on-month traction and a positive momentum in this home textile is there from the big-box retailer. And there is also a consolidation happening where the business from the small retailers and the small mom-and-pop stores have shifted to the big-box retailers. Since we do business with the big-box retailer, our demand has also gone up. So we feel that this will be a sustainable and continuous demand in our home textile space.

Okay. So the second thing is, I noticed your P&L rate. In the last 5 years, your job work charges have increased significantly. What has led that -- has there been a strategic shift in terms of how you're processing and manufacturing?

So since we outsource and the job work charges are related to when we outsource the material, we pay job work on the weaving side or the spinning side. So that has gone up because of the cost factors like the labor charges has gone up, the power costs have gone up for them. So normally, the peak charges it correlates to have gone up over the period of 4, 5 years. And that's the reason the job work charge is going up.

Sir, if I see that line item alone, that line item has gone up almost 2.5x, while we haven't seen a commensurate increase in your revenue. So I was just wondering if there has been some strategic decision that's been taken?

But the volume has also gone up, if you realize that. The volume has also gone up correspondingly so that the job work charges will definitely go up.

True. And sir, my final question on my side. Of the INR 2,100 crores revenue in FY '20, what is the spread between 100% cotton and synthetic?

Mostly cotton like we sell almost 80% plus cotton.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

And congratulations on a good set of earnings for the quarter. So a couple of questions. You -- in your opening remarks, you spoke about the sleep better, Sleep Rx and relationship with Archroma for plant-based dyes. Could you speak a little bit more about that? I mean what is sleep better, Sleep Rx? I mean is that a technology that you weave into your bed linen or is this -- how -- what is it?

You see these products are -- like Sleep Rx is based out of a sustainable material -- fiber, which we use from time to time. And those sustainable fibers are blended along with the cotton, so providing performance to the whole product in the marketplace. So these are innovations, which are new and created by our team, and they are branded, and they are sold as such Sleep Rx because that is the trademark, which we have registered. So based out of the performance and sustainable material, we have developed this brand. So we are focusing now because of the health and hygiene, suddenly segment has gone up and is accepted more by the customers. We are correlating our product to some of the health and hygiene segment. And that's the reason we have developed this new product. And then we have also, in our sleep theory, like Whole HealthSleep Better brand. This brand is concerning about keeping a hygienic home and fostering better sleep. So Wholistic is a brand which we launched, which correlates to this kind of product. So you see, in the marketplace, you have to connect with the customers, and you have to meet their demand. Now the customers like preferences keeps on evolving. And say sometimes they want performance-based, sometimes they want wellness-based, sometimes they want comfort-based. So say when comfort-based comes, it means that they need better sleep. So we have to correlate our product development and innovations towards that and provide them that solution. So our company's core competence is innovation. And we spend a lot of effort into developing new products and launching them in the marketplace in order to meet the aspiration of the consumers at large. And secondly, this Archroma also, they have developed plant-based dyes, which can be used into organic cotton. Earlier in organic cotton, there were chemical dyes being used. Now it is plant-based dye. So this is a patented technology developed by Archroma, which is a large global giant. So we have an exclusive arrangement with them globally for selling bed linen in that. And I am happy to say that it has found a good acknowledgment among our customers. And there will be a couple of programs, which will be launched in the U.S. in this category. So Archroma stands for this organic and PureEarth collection from plant-based dyes. So all these products, as I mentioned, is correlated to the aspiration of the customer, and we need to find solution and provide them both the brand value and the functional values.

And sir, this exclusivity that you have with Archroma, is it for certain type of customers or certain big-box retailers? Or what is -- what exclusivity?

So this exclusivity is for the bed linen and the towels, which we can sell to them -- to our retailers and customers at large. So in this product category, they have provided us -- exclusivity to us. So we can sell -- we are the only people where they have made this technology available to us.

Right. And in your opening remarks relating to sleep better and Sleep Rx, if I heard you right, there was some New York connection, you mentioned, what is that? Or did I hear something wrong?

No, that is during the fall market, like say, there are 2 markets. One is the spring market and the fall market. So fall market correlates to winter products and -- for next year -- and also spring market for next year. So in New York, we launched this brand in our showroom, Sleep Rx. And that is also finding shelf space into a couple of retailers very soon.

Okay. Sir, coming to your domestic business, where you are starting out with a luxury direct-to-consumer brand and Layers, how big is this business as of this time? And where do you think it gets to in the next 3 to 5 years?

See, we are very optimistic about the Indian market because as our Prime Minister is mentioning about a 5 trillion economy and looking at the young age in India, the -- both the Gen Z and the millennials, they are demanding better functional products, both online and off-line. So in order to meet these expectations, we had earlier launched Boutique Living a couple of years back, and we had created the necessary groundwork for it. Now since the market is slowly maturing, and there are few only brands which are available in India, maybe only a couple of them, we feel there is a large space out there for us to reach out. And hence, our company has taken steps in this direction by providing products for each segment of the class of the people. So we launched Layers, which is a mass brand. This will be catering across India, combining the style, technology and price also. We have Boutique Living, which is a brand -- aspiring brand, which we launched for the mid- to high segment. And the Boutique Living Luxury is a direct-to-consumer brand, which we have launched, and this will be further cemented in the coming few months to offer to direct-to-consumers because direct-to-consumer is also a happening channel of sales in the coming years. So we feel that we can offer a complete bedding solution to the Indian public, and we are quite optimistic about it. We have created a very good team. We have very good product. This has found the acknowledgment in the market, and we are offering value to the market, and we are quite optimistic that this should do well in the next 3 to 5 years. We have laid the seed, and now we hope that this should do well in the coming years, provided there are no uncertainties.

[Operator Instructions] The next question is from the line of Jiten Doshi from Enam AMC.

Congratulations Mr. Lalpuria for an excellent set of results. Just wanted to ask you that given the China 1 (sic) [ China + 1 ] strategy and given the way we are positioning, do you see this growth opportunity for us as a multi-year growth opportunity?

We definitely see because these are structural shift in our businesses as what we have mentioned. And since home is coming to the center stage, with the changing lifestyle and focusing on health and hygiene and all the other activities like leisure and entertainment and everything happening at home, the home textile consumption has gone up. And this is a structural shift which has happened in our space. Secondly, the China + 1 strategy started way back, 2 years back where there was a tariff conflict between the U.S. and China. So it started with that imposing higher tariffs on Chinese goods. And so the brands were compelled to move out of their dependence from China and look at other sustainable source. Now India is very well positioned in this space because India has got abundant raw material and traditional -- and skilled workforce. So India is grabbing this opportunity as what we speak. And in 3 to 5 years, you will see a structural shift into India supplying a major portion of this particular category where China is falling back. So we feel that this also should be a structural shift. And as what we had earlier mentioned also that our company also has ventured into the fashion bedding, utility bedding and the institutional bedding 3 years back. We are inching up their sales slowly, and we have come to a level of 15% of our sales in these 3 new categories. We are building up the back-end spaces and the front end. We are building the design houses and making us as a compelling player for the brand to recognize. And this is a target market of almost $10 billion, which can be addressed and where China is a dominant player today. So we believe that the Indian home textile industry stands to gain on this potential shift of these product categories and the China + 1 strategy.

So you do believe it's a multiyear growth opportunity?

See, we get -- we do believe this multiyear growth opportunity for the home textile, the home textile has been growing for India for almost 3 decades. And India is well positioned now in the home textile space and recognized as a very good supplier.

Wonderful. One more thing we have noticed, Mr. Lalpuria, that you have actually given a guidance of nearly 40-plus million meters in the second half. And if one goes by your rated capacity of 22 million to 23 million to be achieved in Q3, then first time in the history in Q4, normally, it used to be a seasonal. Now we are seeing a fantastic demand growth in Q4. Do you believe that seasonality is now behind us? And what would your new normal be in terms of going forward for every quarterly to achieve a volume, what can you define your new normal?

See, as I mentioned, there are positive structural shift in our business, which is helping our growth. We have given an annual guidance of 70 million to 75 million. We do track month-on-month traction, and it also depends on certain seasonality as well. Looking at our growth and looking at the demand, we feel that there will be a continued sustinent growth in the future years to come. And we see this strong demand and momentum to continue in our other quarters as well. So we are quite confident of delivering these kind of volumes in the future and providing proper guidance to the marketplace.

So you were hovering normally in that 14 to 17 every quarter, 14 million to 17 million, can we say that the new normal can be 20 million meters per quarter?

We are optimistic, but we -- in made-to-order business, we are dependent upon the marketplace. And we have to watch it carefully. And -- but we feel very optimistic about it, Mr. Doshi, that should we...

As we speak, you are saying that you can sustain whatever you're doing as a run rate?

Yes, please. Maybe one more, please.

Please, go ahead.

One more thing we should recognize that when we mention about 90 million meters capacity, as an organization, we have proved our run rate, both just capacity -- so there are no means to doubt this sustenance. So the company will -- is strongly positioned in the marketplace with capital adequacy, good customer base, good product base, our core competence being innovation, we are recognized of that fact. So we strongly feel that we should do well as a company going forward.

No, but actually, you have always been telling us 80 million, 85 million. But if I take your last quarter, you have actually surpassed 90 million. So it's something commendable. I mean one wonders how did you achieve this capacity? It's extraordinary. I mean what would you give an explanation for how you have achieved a run rate of 90 million?

So that is about the demand in our major markets. And as I mentioned, the home has become suddenly the space where you spend most of your time, and everything, all activities like work, leisure, entertainment, all happening at home. So we feel that this will further create a demand for home textile products. And all this -- I think the structural shift, which we mentioned about the health and hygiene category also getting added, has upticked the demand. So those are the drivers.

So because of that, seasonality actually has now shifted, and that could be a regular routine business.

We feel so. We feel so. We are optimistic, Mr. Doshi.

The next question is from the line of Kaushal Shah from Dhanki Securities.

Sir, I had just two questions. One is you mentioned about higher share in fashion and institutional bedding for Indo Count. If you can just share some more thoughts on that? And the scope for growth for us in that particular segment. The second was on the availability of cotton and the pricing because the new season has just begun. And also, how do you see the export benefits, the MEIS, there has been some [Audio Gap] by the government? So these are the questions, sir.

Yes. First of all, as I mentioned, there is a target market out there where China is dominating of almost $10 billion at retail, which we are targeting as an Indian company. And we are well positioned in that because over a period of 3 years, we have made efforts into establishing design houses across the globe, like in New York, in Manchester, in Dubai, at various large markets. So we have made attempts to penetrate that market and grab that market share, which we believe that will shift from China. So in fashion, utility and institutional category, as I mentioned, India still have a 3, 5 years tenure to go for. And we are working both in the forward and backward space in order to deliver to the customer the value proposition. So we are at, today, a level of 15%, and we intend on the increased volume. So we were earlier also at 13% on the volume, which we reported, but now we are at 15% on the higher volume. So it is the same space. So it is quite promising to see that India getting recognized as a good supplier over the last 3 decades in home textile, and now whatever efforts which we are putting on in this direction is paying off. So that is one -- that answers your first question. The second question is on the cotton side. The crop is good. The prices were subdued during the COVID level, but they have now inched up. And today, they are around at INR 41,000 a candy. Even the Cot A index in New York, that has moved up to around $0.71, $0.72. So the -- during the season, normally, the demand picks up, and during COVID level, the demand has gone down. So suddenly, because of this demand, the cotton prices have inched up. But we still feel that the Indian crop is good, and that will be able to meet the demand. Except for the exports which are happening now at a faster space (sic) [ pace ], we feel that we need to watch the situation carefully going forward, how it pans out. And -- but still, we feel that we will be able to manage this year at levels, which will be below the last year level of 44,000. So that explains to you on your cotton side.

On the MEIS or the RoSCTL benefits?

Yes. That notification has already come that it has been extended to 31st March, and the government will be coming out with RoDTEP. And for particularly, Chapter 63 in which we are shipping, the government has decided that till the RoDTEP is functional, then only they will stop our RoSCTL. So we are hopeful that this should continue till the RoDTEP new mechanism is notified. And so that's the position on the RoDTEP and RoSCTL. And MEIS has been discontinued for our product category when they bought out RoSCTL.

So sir, if we include the drawback and the RoSCTL, will the benefit be around 10%? Or it will be less or more?

Around 10% -- below 10% because the realization rate for the [ scripts ] is around 95%, 96%.

The next question is from the line of Vikram Sharma from Niveshaay.

Sir, during the quarter 2, we have added some new clients in our portfolio or major sales improvement was from our existing client only?

Both.

Sir, any proportion -- any proportions?

Like we keep on adding new customers. We are exporting to 54 countries. So definitely, we will be adding new customers. And the business, as I mentioned, has gone up for big-box retailers whom we deal with. They are doing well because they are selling essentials as well, and they were not closed during lockdown. And their market share has also gone up because the smaller retailers found difficult to sustain. So that is the situation.

So sir, we are expecting same level demand after ending of stimulus by U.S. government?

As I mentioned, this is a structural shift in our business where home has become important and plus China + 1 strategy, plus additional category of product in health and hygiene and increased demand, consolidation happening at the retail side with large retailers whom we deal with. So all these factors is helping the demand to move in the right direction for us.

[Operator Instructions] We'll take the next question from the line of Apurva Shah from PhillipCapital.

Yes, sir. And sir, congratulations for fantastic result and very encouraging volume guidance. Sir, I just need one clarification because I understood your like margin guidance in terms of percentage, it will be in the range of 15% to 17%. But on absolute terms, if we do simple math, so I just want to check what we are missing. So I think for the current quarter, the EBITDA per meter is around INR 55.80, which is, I think, highest in the history and which has moved up significantly from INR 30 per meter, maybe a couple of years back. So in absolute terms, what will be your guidance? And on the contrary, if you look at your realization per meter, that has came down. So that was hovering around INR 342, INR 345 per meter, which has came down to INR 315, INR 318. So sir, I just want to understand this divergence.

So first of all, we don't look at per meter realization because you see we ship across 54 countries. The fragmented product mix which we have has so many thread counts, so many colors and so many designs, prints, in different packaging, organic, nonorganic. So there are so many products which we cater to. So we don't look at the per meter realization. Yes, definitely, we look at the overall margin, which we gain. Because with some customers like in Europe or some mass retailers, the margin may be low. And if we ship to specialty retailers or departmental stores or club warehouse, we get a better margin. So the segmentation also help us to drive the margin. What we should look at probably is how we maintain the overall margin. And that guidance, which we have already provided so we should look at the overall because there are so many moving averages, the raw material, the ForEx, the product mix and our utilization of capacities, the labor cost, the power costs, so many things are moving. So we need to look at it in a holistic view. We cannot look at it from a per meter realization because if we are only doing a few category of products, we can then consider this argument.

Understood. And sir, when we say value-added, so in that case as well, we should not be focusing on per meter? That is factored into the guidance given of 15% to 17%? Because in value-added, we have launched new products, and our focus is also value-added which you covered in your initial remarks. So will that increase our margin either in percentage or absolute terms?

See, definitely, our endeavor is always to sell value-added material to the customer and move to the -- from higher segment to the premium segment, from the higher to the branded segment. So that is always the endeavor of the company to realize better value for its product. So that is always there through either innovation or through better selling to good customers and meeting their demand or special packaging or sustainable fiber. So there are various means through which we try to increase the value realization. So what I meant by saying that in health and hygiene, this is a new category addition as of now, just like you see buying sanitizer, mask and PPE gowns and all that. So these are all new categories which got added with the retail. Similarly, for health and hygiene, earlier, the buyer was at an option whether to keep this on the shelf or not. But now he's compelled to add that in his pallet and keep that on his shelf. So definitely, that value addition in that particular product will give us a better value than a commodity. So this value addition will certainly help the company to realize a better value. And as I mentioned, we have also chalked out the program to go after fashion bedding and utility and institutional bedding in a big way. Now this fashion -- when you add fashion to a product, definitely, you get more value. So all these attempts are there in order to realize better value. So value addition comes through those drivers, through product innovation, creativity, packaging and all the sustainable fibers, organic, nonorganic. So all this adds up to this value addition.

[Operator Instructions] We'll take the next question from the line of Manish Bohra from Param Capital.

Congratulations on very good set of numbers. So basically, most of my questions have been answered. So I have 2 questions now.

Mr. Manish Bohra, sir, please increase the volume of your phone. We are not able to hear you, sir.

So sir, basically, we were not able to execute orders worth $11 million in quarter 4 FY '20. So I just wanted to know how much of that has been executed in Q1 and Q2 FY '21? And also if you can tell us the realized ForEx gain or loss and MTM loss or gain on forward contracts during this quarter? That are the 2 questions.

First of all, we had already mentioned that the deferment of the order will happen across all the 4 quarters. Because it is from different customers across all countries where we export. So it's not only centered around the customers who we deliver currently. And as I mentioned, mostly, this is a new demand uptick, which has come across in the last 4 consecutive months. And this is especially from the big-box retailers. So definitely, we will be able to deliver them during the year. So that's my first answer to you. And as far as the ForEx listing gain is concerned, just I'll request our CFO to give you the exact number.

So in this quarter, we have gained about INR 8 crores. And there were losses of about INR 8 crores, roughly. So we are -- the MTM loss is about INR 8 crores. So roughly, we are even from the earnings side.

Okay. So realized gain is INR 8 crores and MTM loss is INR 8 crores?

Yes.

Okay. Sir, can you quantify like how much have you executed in H1 FY '21 orders, like in terms of value, if you can just let us know approximately?

As I said, we don't quantify because, see, we are in a continuous business, wherein we deliver, keep on delivering the replenishment orders to our customers. Now we cannot quantify it that this particular order, which has been deferred, is being ordered in this particular category, that we cannot quantify as such. But yes, definitely, we haven't lost any businesses, and that is what the key to the whole thing is. And this is a new demand uptick from the big-box retailers.

The next question is from the line of Nitin Shakdher from Green Capital Single Family Office.

Mr. Lalpuria, congratulations on the steady set of results. I have one question. I'd just like to know in terms of the UAE and GCC markets, specifically Dubai, Riyadh, Bahrain. What is the uptick on the volumes? I believe some new volume trends have happened from big-box retailers in terms of demand push in the home living and home center. Can you give me a snapshot of the demand from the GCC market?

See, we are supplying to the Middle East. Also, we have an office there. We are attempting to see how we can grow there further to the Middle East and the MENA countries. Specifically, we will not be able to provide you the details. But definitely, we are looking at this market once their economy also improves because the oil economy are facing headwinds so we -- but our strong relationship and product presence is there among the best of the retailers out there. And we hope that soon once the conditions improve, we'll be able to definitely do much better because we have proven ourselves in the last few years in this market with the best retailers out there.

Okay. And in terms of this market vis-à-vis the U.S. and the Europe market, do you think this market traction might pick up for the company slowly?

Yes, we feel -- because you see, we have got a complete bedding solution. So bedding buyer should not miss us out because we offer a complete bedding solution that is in fashion, utility, institutional as well as sheet set. And we cater to 54 countries. So we have a complete flexible product mix where we can cater to all segments of the market and all channels of the market. So definitely, we feel that once the economy improves in this Middle East market with the oil economy -- being an oil economy, we feel that since we are already supplying to this market with some of the retailers, we feel that we should be able to service them once the market improves.

The next question is from the line of [ Sajal Gupta ] from [ FE Securities ].

Good afternoon to everyone in the team and to the Board for achieving such fantastic numbers. I think you have surprised the market by achieving such high levels of production and sales. And as one of the gentlemen, you just talked to him about the multiyear growth opportunity is also very, very heartening to hear. First of all, I just wanted to go on my question is that if we are able to sustain these EBITDA margins. And if I do a simple math on this thing, what I see is that next year, the company should have somewhere around INR 300-odd crores cash -- excess cash next year with the kind of EBITDA levels which you have achieved this year, so you should have INR 300 crores cash next year. And on that, with the guidance what you have given, you should report an EPS of INR 14 in FY '21 and INR 17 to INR 18 next year and maybe INR 22 to INR 23 the year after. And what I foresee in the company that your ROCs should be somewhere around 35%, but if you don't utilize the cash -- my purpose of asking this question is, what is the utilization of cash, which you want to do? The ROCs will come down to 30%. So doesn't it make sense for the company that EPS moving from INR 14 to INR 18 to do a buyback or spend such money on expansion?

Well, certainly, we have been saying that we are, first of all, a growing company, and we have entered into a new phase of growth. We have a strong balance sheet, and we have never overleveraged our balance sheet at any given point of time. So from a management perspective, we would like to invest where there is a proper return on capital. This is what our values and principles and philosophy of the companies are. Then that's the reason we did not go into backward integration into spinning and weaving where our realization is less. But yes, since we are a growing company, the Board has acknowledged the fact that the company has capital in hand, which one should invest. And since we have achieved a fundamental position in the marketplace, we are looking both for organic and inorganic growth in the marketplace. But we are also looking that we should deploy funds selectively and judiciously so that the return to the stakeholders is through the best. So we will make all attempt to see that since we have entered a new phase of growth, we will -- the Board will take appropriate decision to deploy the fund properly and see that the growth expectations of the companies are being met in time to come. So I can assure you that we will be providing a proper return on capital in time to come. We were already providing that, and we will be deploying the fund judiciously.

Because if we go by the standards, in the current year also, we will have enough cash in hand to do your expansion. Because as per the production, what you're guiding, you should be sold out by the next year itself. So you would need to be on new expansion levels on...

I already mentioned that we are on the drawing board, and the Board will take appropriate decisions, and we will expand as what is expected out of us. So we also have these funds for the buffer. So you have to see that as your volumes grow, you need to have proper funds in hand in order for both for growth and for business. So in difficult times, we need these funds to support the business -- overall growth and the business. So that's what our strategy is.

Has there been any idea of doing a high payout ratio in case you don't go for this payback or buyback or this thing -- high payout ratio next year?

See, that the Board will decide. We will take -- as I mentioned, we have got a very strong and good Board. And we have got a good team in place. And we will take appropriate decisions, which is best for the company.

[Operator Instructions] We'll take the next question from the line of Nirmal Shah from Seraphic Investments.

Congratulations for good set of results. Sir, I wanted your perspective on 3 things. First was, if we look at the Chinese currency versus U.S. dollar, in last 12 months, it has appreciated close to 10% against USD, while our currency is actually depreciated to the extent of 4% to 5%. So how big the role has been played by this currency? The second question I had was about the recent sanctions by U.S. with respect to the Xinjiang, the cotton producing belt of China. Lot of forced labor and a lot of brands being told to stop the supplies. How big is that angle in our business development? And the third question is, in case if there is a change of guard in U.S. election and if at all it happens, there is some softening of stance on China. Will it result to some of the reversal of the gains what we have made? Just your perspective on these 3 developments, sir.

Yes. First of all, you see we have a very good ForEx policy in place where we hedge our position almost 60% irrespective of any derivatives -- or like we just hedge our position plain vanilla. So we hedge as per the policy and that takes care of our currency because it is an ongoing process. Whatever orders which we received, whatever contract we do, we hedge it in order to safeguard our -- both ways, like whether appreciating or depreciating. The Chinese currency, yes, of course, it has appreciated quite a bit, which we feel that it is today, say, hovering around CNY 6.70 to $1. So this has become strong. So that is in India's favor, I think so because their domestic manufacturer will face competition from India because our U.S. dollar is hovering around between INR 72 to INR 73. So we feel that the currency would play a limited role into our business, number one. The Xinjiang cotton as what we also heard is not only for textile, it is for other items as well. This is about bonded labor in that area and the U.S. customs have declared a guideline to meet that whatever is shipped, they need to provide a declaration. So still, it is being observed in trade circle, how it will pan out. So we'll be able to better report to you in time to come. As far as the U.S. election is concerned, see, we are in a need-based product, and textile is not manufactured in the U.S. U.S. is just producing cotton with the export. And 85% of the textile is being exported out of China, India, Pakistan, Bangladesh and Vietnam to the world. So -- and we being in the need-based product and we are quite competitive in order to supply, being a consumable item, I think the dependence would be there on sourcing out of India and other Asian countries. So we feel -- irrespective of the results, we feel that the business would move on because the U.S. is a large market, and it is a consuming market. They are doing well. And their economy is doing well. The interest rates are low, so they're lesser saving. So people still are consuming a lot of goods. And we feel that in time to come, as I mentioned, the home has become an important area for both life and lifestyle. So definitely, we fall under that category of home, and so we are optimistic that irrespective of any result, we should be able to sustain our growth.

The next question is from the line of Karthi Keyan from Suyash Advisors.

A couple of clarifications. One is on the 3 segments that you spoke about, utility, institutional and fashion bedding. What would be the share of man-mades within that?

See primarily, it is more man-made. And that's the reason you see China is dominant because the Indian synthetic prices are still higher than the Chinese prices by almost 20%, 25%. So if our government rationalizes the duty and levy duty on the end product rather than the raw material, then there will be possibility of developing if there is a cheaper raw material, the downstream product, and exporting worldwide. So we have made representations, and we are waiting for the government to respond. And we feel that in time to come, India also will become competitive in this area as well.

So how labor-intensive is this segment versus the traditional bed sheeting segment, sir?

It is very labor-intensive. Textile, as a whole, is a very labor-intensive industry.

I understand. But what I'm saying is versus the sheeting segment? Is it much more labor-intensive, that's what I was asking, sir?

Yes. To some extent, yes, the answer is yes, that it is more labor intensive. But it is also automated. When you compare exactly to a sheet set, it also depends on the product, which you are referring to because if there are embroideries or if there are filling or if there is a making of a comforter or a quilt. So different products have different labor component. Primarily, textile, as a whole, is labor-intensive, and that's the reason also China becoming more expensive in labor. The shift is happening to Vietnam and Bangladesh as we see because those are labor arbitrage. And India also will stand to gain because India is not at the same level of labor cost as China.

Right. Right. Right. And the last question, sir, on your India branded business, what kind of brand spends are you planning, say, over a 2-year time frame?

See, we already have a very good brand, Boutique Living, out there in the marketplace and across pan-India in almost 20 states, with 500 point of sale. We have recently launched Layers, which is a value-added mass brand, catering to the aspiring Indian community, and we hope that it will do well. And we also have launched a direct-to-consumer Boutique Living Luxury brand. So we are trying to go omni-channel in this product. And since India is a large market and a growing market with a young population and a middle class growing, we feel that there's a lot of hope and confidence that we should do well because the number of brands out there are also reduced, and there are only a couple of them. So we feel there's a large opportunity here. And we are quite optimistic about our brand promotion in the domestic market. And in the years to come also, we will keep on offering the Indian community with new brands, new products, just like how we have been successful in the overseas market and their retail. So we will keep offering our innovative products in the domestic market as well.

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

Congratulations, sir, on a very good set of numbers and reaching optimum utilization on your capacities. So very positive surprise as well as happy to see the kind of capacity utilizations you have delivered in the second quarter. I just wanted to understand the demand from -- which segments are showing this kind of strong improvement in demand like mass, premium or mid-premium categories or printed or base category. How is the demand shaping up? And is the pie actually growing with respect to the consumption? Or is it largely inventory filling that has happened due to shelves going empty due to higher consumption during the pandemic time. So some clarity of the demand in the U.S.?

We are seeing this recovery happening in the market due to home becoming the center stage, as I already explained to you. And because we are spending more time at home, work from home culture, which has become a new norm, definitely, the home textile consumption is bound to move up. And this is happening as we speak, because the big-box retailers are doing pretty well across all segments of the product, like whether it is the high-end or the mid-end or the low-end. So every product is doing well because when you stay at home, you buy more, you must have experienced this in 2008, '09 as well during the subprime when people were at home, home did very well. The home products did very well. So the home textile, particularly is doing very well across all segments of the marketplace. And that is very apparent from the product which we sell because we are positioned in mid- to high segment just for you to know. So we are seeing an uptick. So definitely, the product demand is moving in the mid- to high end as well. The pie is also growing because this is a structural shift as what we have mentioned earlier also in this call that these are structural shift, which is happening to the home textile space, and the home textile consumption is growing. So the pie is growing. And plus home textile market as a whole earlier was also correlated to new homes, good employment rate, better economy and lesser -- low interest rate. So the home consumption used to grow at 2% to 3%. Now we feel it will be higher. And lastly, you see the health and hygiene product has also got added as a compelling reason for customers to buy. Because if you do not have that at home, you are going to definitely buy a new health and hygiene product and bring home like antibacterial or anti-microbial. So definitely, that category has also added up to the other categories, which we are already selling. So we feel that the pie will grow up, and it is across all segments of the market products.

Okay. So we can definitely assume that the market can grow around 5% as compared to 2% to 3% earlier that is kind of structural shift that you were talking about around that number. Okay. Sir, my second question is on the demand in MMF category. So can you please help us understand if you've seen the uptick in that category in this quarter? Or is it yet to actually come to you over the years?

Come again. Because your voice is echoing, Prerna. I'm not able to hear.

I was just trying to understand the new segments that we were talking about in the MMF range where India has lower market share, have we seen any uptick there? And does it contribute meaningfully to our orders this quarter? Or is that opportunity yet to occur to us? So -- and since we are running at full capacity utilization, will it require additional investment or a new kind of investment in MMF category? Or can it be diverted through our current operations? So this is my last question.

See, we are seeing an uptick in the MMF category as well, particularly because this is dominantly used in the fashion bedding utility and institutional bedding. So we are seeing an uptick there. And that's why our numbers are also improving over the increased numbers. So when we were doing earlier at 7%, we improved it to 10% and then 13% and now 15% on the increased number. So that is keeping the same pace. And we need to focus on the sheet sets also along with this segment, but we are seeing an uptick in this segment in the MMF segment also going forward. And as I mentioned, once the duty is rationalized by the government and the raw material becomes cheaper, then I think we will have a better situation prevailing, and we'll be able to do much better competitively. So I think that is doing well. And we are also putting across both the back end and the front end and strengthening our supply chain in this segment, and we are finding positive results. So we feel that in time to come, there will be certainly a structural shift from China on this product to India.

Okay. Any number that you can indicate -- that you can share how much would be coming from this category currently to our revenue?

15%, as I said on an annualized basis, we are doing for these 3 categories.

Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to Mr. K.R. Lalpuria for closing comments.

Yes. We, at Indo Count, remain confident that the next level of growth through our customer relationship and product portfolio will be sustainable, brand accretive and margin positive. With this, I would like to thank everyone for joining on 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 Advisors, our investor relation adviser. We wish each and every one a very happy festive season. Stay healthy, stay safe. Thank you.

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