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

Ladies and gentlemen, good day, and welcome to the Indo Count Industries Limited Q2 FY '22 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 involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. K. R. Lalpuria, Executive Director and CEO of Indo Count Industries Limited. Thank you, and over to you, Mr. Lalpuria.

Thank you. Good afternoon, and a very warm welcome to all of you to Indo Count Industries Q2 and H1 FY '22 Earnings Call. I hope you and your family are keeping safe and healthy. I have with me Mr. Muralidharan, our CFO; and Strategic Growth Advisors, our Investor Relation Advisors. Happy to connect with you all once again to discuss the Q2 and H1 FY '22 performance. Let me first explain the industry and business scenario in Q2 and H1 FY '22 and way forward. We continue to see momentum in our large markets, especially U.S.A. This momentum is across big-box retailers, omnichannel distribution platform and is on back of a lot of structural and sustainable changes in the marketplace witnessed over the last 18 months. The normalcy in economic activity on back of increased vaccination around the world is also increasing the confidence of retailers and the entire supply chain. What is making India gain from this? With our inherent strength in being a cotton textile manufacturer with technical skills to deliver innovative products. The China Plus One theme is further accentuating this growth and we now believe that the Government of India's efforts on various treaty and FTA agreements will help us further to move ahead and be a reliable and credible supplier to the global textile market in the world. I must mention the government's clear thrust is not only to support the textile sector, but also see its exponential growth. The government has targeted to increase textile exports 3x from present export value of USD 33 billion to USD 100 billion of textile exports over the next few years. Clearly, the government is all set to take advantage of a global market shift where China is pruning its market share. Indian home textile industry has been witnessing positive trends due to the homebody economy. The increased demand towards health, hygiene and wellness product is also seen in the market place. We believe India will continue to benefit from its position as the world's largest producer of raw cotton and a net exporter. This is also visible in OTEXA and other statistical data where India's share in U.S. as compared to China has improved. Talking about the industry challenges over the past few months, the industry has been witnessing headwinds related to increase in overall input costs, rising freight cost, unavailability of shipping containers and longer transit duration, thereby increasing the load on the working capital requirement. With humble pride, I'm happy to announce that we have been able to navigate through these challenges and deliver our highest ever half yearly revenue and EBITDA. We are confident to achieve revenue of INR 3,200 crore-plus for the year and sustain EBITDA margins 18% to 20%. Having entered the largest subsegment of fashion utility institutional bedding in 2016, we have continued to make all around efforts in terms of innovation, service, delivery and capacity to grow our brand equity in this segment. Our performance continues to remain on track for fashion utility institutional side of this business. We are making a lot of efforts on digital marketing, e-commerce, developing health and hygiene products and other innovative ways to reach out to our customers and thereby strengthening our relationship with them. We continue to remain laser-focused on increasing our share in the e-commerce and branded business, both locally and globally. On our domestic brand, Boutique Living, an aspirational brand, and Layers, our value-driven brand, are being very well accepted in the marketplace. Our focus to capture a larger pie in the growing Indian textile market looks very promising. We are focusing on brand promotion in the U.S., U.K., Middle East and India through some active brands. We believe with innovation and technological capabilities, along with licensed brands, patents, trademarks, which will further strengthen our brand offerings to our customers. Now a few updates from my side. The additional brownfield capacity of 18 million meters is on track and the sale will operationalize by Q4 FY '22. This will increase our total capacity to 108 million meters. I am happy to inform that during the quarter, Indo Count has been awarded with the prestigious Mahatma Award 2021 for doing excellent work in CSR. We are focused on creating a strong stream board for our long-term strategic priorities. Our order book continues to remain healthy, and we continue to remain optimistic with our performance and capacity in place, both at the country and company, we should achieve new milestones in the years to come. Before I go to financial performance, I would like to sum up by saying that our strategy revolves around being customer-centric in our approach, which allows us to create innovative products move up the value chain with our customers, thereby gaining market share. This is also an outcome of the past many years' efforts on improving the business mix and moving up the value chain to higher sized segments as well as product innovative-led segments. Furthermore, it is heartening to see that our customers continue to believe in our capabilities, which makes us confident of sustained growth in times to come. Now let me share with you our financial performance. Total income INR 767 crores in Q2 FY '22 versus INR 724 crores in Q2 FY 2021, a growth of 6% on a Y-o-Y basis. Total income, INR 1,476 crores in H1 FY '22 versus INR 1,060 crores in H1 FY '21, a growth of 39% on a Y-o-Y basis. Kindly note, H1 FY '22 total income excludes RoSCTL benefit of INR 49.99 crores for the period of January 1, 2021, to March 31, 2021. EBITDA. EBITDA of INR 139 crores in Q2 FY '22 versus INR 127 crores in Q2 FY '21, a growth of 10% on a Y-o-Y basis. EBITDA margin stood at 18.2% in Q2 FY '22 versus 17.5% in Q2 FY '21, an increase of 64 bps on a Y-o-Y basis. For H1 FY '22, EBITDA of INR 267 crores versus INR 166 crores in H1 FY '21, a growth of 61% on Y-o-Y basis. H1 FY '21 EBITDA margin stood at 18.1% in Q2 FY '22 versus 15.6% in H1 FY '21, an increase of 245 bps on a Y-o-Y basis. Kindly note, H1 FY '22 EBITDA margin excludes RoSCTL benefits of INR 49.99 crores for the period of January 1, 2021, to March 31, 2021. Now PAT. INR 85 crores in Q2 FY '22 versus INR 81 crores in Q2 FY '21. PAT margin at 11.1% in Q2 FY '22 versus 11.2% for Q2 FY '21. INR 202 crores in H1 FY '22 versus INR 99 crores in H1 FY '21, a growth of 105% on a Y-o-Y basis. PAT margin at 13.7% in H1 FY '22 versus 9.3% for H1 FY '21. Now this is from my side, and I open for the question-and-answers.

[Operator Instructions] The first question is from the line of [ Mihir Shah from Momentum Advisors. ]

Yes. Congratulations, sir, on a very good performance. It's good to see the revenue guidance of about INR 3,200 crores-plus and margin guidance of about 18% to 20%. Sir, I understand that we must have passed on some increase in prices to the consumers. I just wanted to understand how much of these price increases have already been passed on in the first half of this year? And going ahead, how much further price increases we can expect that will be passed on?

See, the realization overall has increased on account of -- it's a combination between the product mix as well as the price increase which we have received from the customer. So we are still engaged with our customers, and we see that there will be more price increase, which we will receive from them in the next 2 quarters and ahead of that. So definitely, we do not have a fixed number for that. But yes, we have received price increase from our customers.

Got it. So in the second half, we can expect some more increase in prices to be passed on?

Yes. We are engaged with the customer on a continuous basis because the situation is volatile as we see on various inputs. So we are continuously engaged with the customer to see how we can pass on our higher cost to them.

The next question is from the line of Jiten Doshi from ENAM AMC.

First of all, many, many congratulations that despite a very difficult environment, the company has been able to demonstrate such a good margin. And also, I think your guidance reaffirms the growth trajectory for the company. But if I now just go to your guidance and I look at the upper end of your guidance, this means that you are looking to deliver 50 million meters in the second half. And if you talk about 18% to 20% margin, and if I go to the upper end of your margin band, effectively, you need to do about close to 21% to 21.5% margin to meet the upper end of the band guidance. Is that correct?

Yes. We have given a revenue guidance already of INR 3,200 crores. We have also given a volume guidance of 85 million to 90 million meters. Of course, the challenges are there as we move ahead. But we have got a healthy order book position. We have got a very good customer base and a very strong product profile, wherein our customers are very much satisfied. We are investing into the supply chain side and product innovation continuously as a company. And we are quite optimistic and confident that we should be able to meet out our guidance going forward.

We are very enthused looking at your performance, and I think despite such a challenging environment, you have been able to report these kind of margins. If there are any drops in commodity prices, will that mean that margins can expand in the future?

Yes, definitely, like this is an evolving situation in our business and its customization. So we definitely need to work upon jointly with a business plan with our customer. So in this evolving situation, of course, we always vie to see that how our margin growth is there to better end products and how we can sell. But at the end of the day, the consumer pays the price and the market share decides upon the prices at a later stage. So I think we are also positive on this front. As we move ahead, we see that if supply chain issues and other issues are settled, India as a country, and we as a company, are very well positioned in the marketplace, and we feel that we should be able to get a better margin profile going forward as we are focusing also on various other strategies of B2C, D2C, e-commerce, the domestic brand outplay, et cetera. So our entire focus is all to see how we can add value going forward as we need to absorb the cost also. So we are quite confident on this front.

Sure. But Mr. Lalpuria, you mentioned that the Commerce Minister has set out a target to go from $33 billion to $100 billion in the exports in the next couple of years, and I'm sure that your target is to do better than industry and better than what the ministers have said. So I think that you will be looking at a capacity requirement of minimum 250 million meters. So this 108 is like a trailer. When will we see the main movie? Because we believe that you will run out of capacity in the next 1 year itself, the way the demand is going. So would you be looking at a greenfield -- are you exploring any further capacity expansion through a greenfield project in a new location now?

See, as a company, we have various plans and strategies well. As we move ahead, like if you observe that when we started with 36 million meters and today, we have grown to 108 million meters in the last 1 decade. So as a company, we have grown this business continuously with a good CAGR. And we hope that we will continue. And as I mentioned, like India is positioned strongly as a textile hub with adequate raw material, traditional labor force and a competitiveness and a performance which has proved in the near past, we feel quite confident that the government is right on deciding about and projecting a turnover of USD 100 billion in the global textile market. Just to tell you that the total global textile market is $840 billion, even a 1% shift is $8.4 billion. And today, China is 34% and India is just at 4%. So that's the gap which looks promising to fill in. So I think we have a great journey ahead as a company. We are fundamentally very well established as a key player in the home textile area. We are recognized globally in 54 countries, and we are making all efforts to see that how we can grow our business going forward and scale to new capacities and milestones.

Mr. Lalpuria, what was very pleasing was despite the shortfall of about 10% in your volumes for exports, which were on high seas, you have reported this margin, which means you have booked all the costs in the elements -- cost element has already come in the result and you have not realized the value of the sale. Is that correct?

Yes. You are correct because we have shipped the goods. It is on transit. And as we all know that the ships do not get berth and that's why we are unable to book the sale.

So you mean if this was already shipped, your results would have been far better?

Yes, to certain extent.

Okay. Wonderful. Wishing you all the very best, and wishing you a very happy Diwali and all the very best and keep continuing to make this progress. And please do think on a greenfield capacity of at least another 100 million the way your company is going.

Of course, we'll take care of that. Thank you very much, and wish you Happy Diwali as well.

The next question is from the line of Bharat Chhoda from ICICI Securities.

Sir, I had a question on our realization. So if you look at -- like it has been increased -- a lot of cost has been going up, yarn price is going up. So is there a scope for our realization to move up from here?

So as I mentioned, the realization is a combination of various factors. And as a company, we have been focusing on value addition and various other strategies to increase our footprint on the fashion bedding, domestic retail -- domestic brand outplay, et cetera. So we as a company are quite innovative into presenting the market new products wherein we get a better acknowledgment on the price level. And we play out on the mid-to-high level as well as the premium level. We have patented products and our brand outlay is very well accepted now among the retailers. So the margin increase is a combination of all these various strategies within the last 3, 4 years, as well as you see we are scaling up our distribution channels to e-commerce, to other omnichannels to see how we can service the customer very well. So I think overall, the margin, as I mentioned earlier, is a combination of the product mix and focus on the value addition as well as servicing to the customer to our level best.

Sir, my worry is from the perspective, like global retailers themselves are facing a lot of margin pressure. And like if you look at this Bed Bath & Beyond, they have revised their guidance lower because of higher import costs. So wouldn't they be telling us to curtail our margins or something? Is there some pressure from the major retailers front for us?

See, the challenges are there, of course, as you rightly said on the raw material side, on the logistics side. But we as a company are trying to navigate through it, and we are successful in presenting to our customer newness through the product, so that they can acknowledge it and have a better pricing in their marketplace. And as what you said about Bed Bath & Beyond, I think they are doing fairly well. They have the same store sale increase. They have launched various brands. They have done repositioning of themselves in the marketplace. And they are a strong retailer. They have good cash on the book side. I think so as a company, they have done pretty well. It's always like, in 1 or 2 quarters you cannot evaluate a retailer like Bed Bath & Beyond, who is a specialty retailer. And as the market is moving on the health, hygiene, wellness segment also, the company is taking strides to see how they can increase their footprint into this particular product category. So I think as we move forward, of course, the challenges are there, and we will keep you updated from time to time. But as a company, we see that we try to face them as and when it comes, and we'll tide it over.

Sir, my point is like our realization is around close to INR 375 now, and it has gone up significantly from last few quarters. So is this sustainable? And any further cost, we will be able to pass it on in the current scenario? That is what I wanted to understand, sir, because all these questions are related to that. So would we be able to pass any further price input cost side because we are already at a good realization level?

No, of course, as I mentioned, we are engaged with the customer. They know that the cotton commodity worldwide has moved up. And everybody is facing issues on the cost side on the various inputs, whether it is paper or packaging or dyes chemical or cotton. But yes, we are engaged with our customers, and we are confident that we will be able to convince them of the price rise as well as to move ahead on our guidance and what we have provided to sustain it at 18% to 20%.

The next question is from the line of Kapil [indiscernible] from Edelweiss.

Congratulations on a steady set of numbers. Sir, my first question is your realization per meter has gone up by around 25%-odd on a Y-o-Y basis. So like what would be the breakup of some price hikes done or product mix improvement? Because I just wanted to know like fashion bedding, institution and all these beddings would be contributing how much of the revenues now?

So as we have reported that these 3 segments wherein we are focusing upon is almost 16% and now annually we will provide you the number. But it is inching up. On the increased revenues, this business is also increasing for us where we are able to derive value. And as I mentioned earlier, the combination of the product mix, because whenever you have additional cost, you try to absorb in the product cost, and we try to sell a better product to the customer and the marketplace. So with the help of various tools like branding, distribution and increasing our service level, we have been able to come around with the customer to see that we get a proper price increase as well as we move up the value chain, and by providing additional service levels, we can increase our realization and maximize it. So that's where the whole focus is. So as I mentioned, it's a combination of various factors given, which is helping us derive additional revenue and additional margin.

Right, right, right. And sir, you have been providing guidance on volume and also revenue this quarter. So it would be really helpful if you can guide us through your operating margins for this particular and also for FY '23 if possible, like what margin should be built in?

So we have continued with our guidance of 85 million to 90 million meters. And the margin guidance also, we have provided that we'll be able to sustain 18% to 20%.

Okay. So for this particular and also the next year, we'll be implementing that. Okay. And sir, just last question from my side. I would like to know your thoughts on the PLI and textile parks schemes announced by the government. Like how much these announcements can help the textile industry, just your thoughts on it?

See, the whole objective of the government, as I mentioned, is focused on the textile sector and to see how they can grab this opportunity of having much better market share in the overall global textile trade. And as I mentioned that the overall global textile trade is also only at 3%. So if it is $840 billion and even as I mentioned, China is having 34% of this as a market share and India is just having 4%, there is a whole lot of big gap between these to capture. And the government sees a big opportunity there because India as a country is well positioned with raw material and it's traditionally a very good textile hub and producer. So I think that the focus of the government in this PLI scheme is to recognize in MMF sector and technical textiles, how they can scale up their presence in the world global textile trade. And to the textile part, it is offering a plug-and-play atmosphere, wherein a lot of MSME and other exporters can take advantage and participate in the overall textile growth and in our economy. So I think these are positive steps from the government side to see that how the overall textile trade can be helped, to see that there is a development and growth across all fiber categories, whether it is MMF or technical textile or cotton textiles, et cetera. So I think this is a positive step by the government.

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

Congratulations for posting such a great performance in such difficult times. Really appreciate your team effort and very commendable. Lalpuria ji, my question to you is -- rather I'll be reiterating through most of the questions which have been asked by the people. So one of the questions is, how do you see the demand outlook for the next 3 to 4 years in the business?

See, home has become the center stage, as we all know, because of the culture which has developed where work from home and the homebody economy as we all mentioned has come to the center stage of our life and lifestyle. And the home textile consumption has grown across the board. And we see the momentum continuing in the next 3 to 4 years. As people are spending more time at home, they have realized that they should upgrade their homes for a better living. And that's a way of life going forward. So we feel that this momentum will continue. And since India is well positioned in the textile hub, it should gain the maximum because there is a China Plus One strategy, as we all mentioned about, that the brands and retailers do not want to focus on a single geography and would like to derisk their supply chain. So I think going forward, the momentum will continue. We will see uptick in demand from India, as India is well positioned. So as I mentioned earlier, we as a company and as a country also, we will achieve a new milestone in this textile segment.

Okay. And tell me one thing, like the government has signed the FTAs right now. And there was a question that was just asked by one of the gentlemen that when do you see that increasing your capacity to 250 million. So don't you see that -- now let me put it this way, when can we see that the company achieving 180 million meters sales? By which year can you see yourselves achieving that number?

See, as I mentioned earlier, we started with 36 million initially. Today, we are at 108 million. So as a company, we have continuously grown. We have a steady growth of almost 15% CAGR. So that's how we look at it. We cannot see that on the increased number. Sometimes we look upon different opportunities to see that how we can grow exponentially rather than incremental. So which will come because you see India also is positioning itself to grow from $33 billion currently to $100 billion. So we'll also share the pie. And definitely, we keep aspiration of coming to that 180 million numbers, which everybody is asking. But definitely, as a company, we do aspire with that. And we have got all means and we are well positioned as a home textile manufacturer. We are in this textile field for the last 3 decades, and we started with raw material like spinning. So we have the experience, we have the expertise, we have the recognization, we have the performance and we have the competitiveness. So I think we can achieve those numbers going forward.

I agree. My own reason asking for that 180 million was only because like the FTAs once get signed with different countries, which the government is talking about 4 to 5 countries coming in the next 6, 7 months. So that will open up a new area for you, new countries for you to start exporting. So you would need your capacity expansion much before you really hit those numbers. So this [indiscernible] should be sooner than later...

The Board do recognize this fact that as a company, we are a growing company, and they do recognize the fact that we need larger capacity than we have been working upon various options and which greenfield investment is one of the options. So at proper time, the Board will take appropriate decision to see that we service our customers with all our capabilities and capacities. We have the desired funds within the company to invest in our growth, and we are quite confident that whenever we are asked for this incremental and exponential growth, the company will put its best to forward to increase the capacity to this level. Why not?

The next question is from the line of Hasmukh Gala from Finvest Advisors.

Can you hear me?

Yes. Yes, yes.

Yes, yes. I think your result came as a fresh bout of surprise -- not a surprise really, but a pleasant surprise. However, the market does not seem to have appreciated the real story behind our growth, profitability, et cetera. Sir, I just wanted to know, just some numerical information, if you can provide. We had INR 73 crore of other income in first half. So can you give a broad breakup of what does it comprise of?

See, the other income is part of our business income, as we have always been saying, because you see the Forex gains which we get on our hedging -- it was break up of our 2, 3 hedgings. So the major is -- like around INR 57.5 crores is our Forex income and the rest is our interest income.

Okay. Okay. And sir, how much of export incentives have we accrued?

See, that is around -- as I mentioned earlier, we are able to realize only around 7.5% to 8% in the overall revenues. And it varies because you see whenever you shift like different product categories, the rates are different, say, for example, pillows there is different lower rate like 5%; on fabric, it is 4%; on certain other product categories, it is lower. And when we sell the scrip also, we realize 92% of the value. So if you consider the overall, this should range anywhere between 7.5% to 8%.

Okay. Okay. And sir, another thing I have noticed and figured that our other expenses have increased substantially. So is there any particular reason?

No, I think if you look at on a Y-o-Y basis, it is on similar lines. If you see the overall increase, it might be due to some logistics and freight cost. Other than that, I don't think so there is an increase in the other expenses because if you compare on a Y-o-Y basis, you will see that it is more or less the same.

Yes. But in terms of percentage to sales, it has increased from 27% to 29%. So I was just wondering, can there be any one-off item?

See, the logistic cost, as I mentioned, has increased substantially, so that is impacting the overall other expenses. Otherwise, I think we are fine.

And sir, last question, you stated about your order book, pending order position. So can you give us a color as to how many months revenue visibility do we have?

See, order book is always like we have 5 to 6 months visibility on the business, and that's when it provides us the necessary boost to see that how we pan out our revenues going forward. And that's the reason it helped us providing you a guidance of INR 3,200 crores. So that's where we are coming from.

Correct, correct. And sir, how much CapEx we will incur in H2, second half?

See, overall CapEx like will be completed by Q4 FY '22, which is around INR 200 crores. There might be some escalation due to the cost input increase. Yet, we are on track. And as we speak, there is a work in progress on this CapEx and we should be able to give you better guidance and numbers in our third quarter, where we stand on the overall CapEx situation.

Okay. So CapEx in the first half has been INR 40 crores, 4-0. So I was just wondering that whether we will be spending remaining entire INR 160 crores in the second half?

So around INR 60 crores we have already spent and the rest is in pipeline.

Okay, okay, okay.

It would not be getting reflected in the value across, because there's some capital work in progress [indiscernible] creditors?

Okay, okay. Sir, I will not repeat all the questions which have already been asked. I wish you all the best and Happy Diwali to all at Indo Count, sir.

Thank you, Gala Sahab. Happy Diwali to you as well.

The next question is from the line of Vikram Vilas Suryavanshi from PhillipCapital.

Sir, you have talked about the supply chain issues, but just to make it slightly more clear, how much increase is there in late time compared to earlier and now? And in terms of cost also, if you can give some sense about how much impact it is in terms of product cost or whatever number you can share? And impact on the inventory level or working capital? And how long it can continue this impact on a company? And as a country, are we seeing any impact between China and India because of supply chain issues where Chinese players may be at advantageous stage in supply chain or something, if you can give your highlight, I think that would be helpful, sir?

So as I mentioned earlier, the supply chain issues still continue. And the cost factors are also evolving around it; like with some vendors, we have a contract, with some we do not have. There are various issues like not getting the containers or the containers taking longer duration or we default on the frequency of the ships. So there are various factors impacting. So we cannot just calculate on a particular cost helper that this is the impact. Yes, of course, we all know that the input cost across the board, like whether it is cotton or yarn or gray fabric or dyes chemical or packing material and even to some extent, apart from the logistic and freight cost, various other charges have gone up quite substantially. So it's an evolving situation. What you can see from our Q2 presentation is that almost 4% our gross margin has been impacted when we compare on a quarter 1 basis for FY '22. So that you may summarize as the impact so far. Going forward, as we mentioned that we are trying to navigate this with a better product mix with engaging with the customer to see that how we can pass on and get the price rise, and various other measures to see how we can make a better product and sell in a better market with a better price realization. So our entire focus into how we can take these challenges and as a company how we can adapt to these challenges and move forward. Now what you mentioned about China, yes, of course, China is having a major market share, but the cost in China has moved up. We also observe about the issue regarding Xinjiang area, where the cotton coming from this area is banned. And the China Plus One strategy in the minds of the brands and retailers to shift their sourcing from other Asian countries. And since India is well positioned as a textile raw material producer and has been a good supplier in the past and it's not just the labor arbitrage, it's like Vietnam and Bangladesh, I think we as a country stand to gain much of the market share is due to competitiveness, which China may lose. Yes, they are also trying to face similar challenges over there. So I think if it gets resolved with them, it will get resolved for us as well in time to come. So we all hope that with this like time passing by, there are various news that this supply chain issue will continue for some time. But at some point of time, they need to diminish. So with that hope, I think we will keep navigating through these challenges, and we will always try to see how we can maximize on our revenues, our margins and our volumes going forward.

Okay. Got it. And when we get order from U.S.A., our responsibility to deliver goods is till Indian ports or for majority of customers we need to deliver it to their warehouse in U.S.A. So to what extent we look at the supply chain on our own and what customers look at?

See, almost 70% of what we sell is on an FOB basis. So only 30% is on CIF and CLFC basis. So that we need to manage ourselves. But yes, since we are together in this problem with the customer, we have to see how we accommodate to complete our joint business plan and to see how we help them protect their market share and how we protect our market share going forward. So it is both ways, 2 ways planning of the business, which we are all doing. And I can tell you that the customer is also putting the best foot forward to see how they can tide over this problem because this is quite unprecedented situation in which we are. So it is one-off a situation, which we all have to face. And let's all hope that this will subside in the future. So this is what the situation is.

Okay. And last question, just, earlier how many days normally it was taking for products to reach to U.S. and how much currently it's taking time compared to earlier normal time?

See, normally, the shipping frequency to the U.S. port, East Coast was around, say, 20 days, and for clearance, et cetera, and for reaching to the customer warehouse, another 5 to 7 days. So it used to take 25 days almost to reach the customer's distribution center or the warehouse. But in today's situation, it is taking more than 45 to 60 days. So this is what is alarming, and that's the reason the goods which we have shipped haven't reached, which we have shipped some of the goods in the month of even August. So that's where the timeline is.

The next question is from the line of [indiscernible] from ENAM AMC.

Congratulations on good operating performance. Sir, couple of questions from my side. First, if I see your first half performance in terms of volumes and realization, our realizations have improved in dollar terms as well. So despite currency has been depreciating in the first half this year if one compares, still our realization on dollar and rupee has improved. So when you're guiding for, say, 90 million meters, with that kind of realization, INR 3,200 crores revenue seems to be quite a lower number for me to assume even say, in the second half also quite lower realization. Say, you have done roughly around, say, INR 400 per meter kind of realization, even if one considers 10% discount to that, still, you'll be able to cross INR 3,200 easily, assuming 90 million meters. So just wanted to understand, am I missing something in this?

No, see, we have given the guidance despite all these challenges. So there are still a lot of uncertainties around in the supply chain, in the input cost and various other factors impacting the businesses. But looking at the order book position and our business currently, what we have in hand, we have given a guidance. Of course, there is always an aspiration to do much better and increase that target by almost 5%, 10% going forward. So let's all hope -- we have hedged our position very well and with a good policy in place. And we are quite hopeful to better this, as we mentioned.

Sure. Because even if one assumes some product mix changes, ideally, the realization should sustain around, say, whatever you have done it roughly around $5 per meter in dollar realization also. Because in sequentially also your realization has improved despite currency being where it is. If one sees, there is actually currency depreciation which has happened on a half yearly basis versus last year half year. So I have considered that impact also. So that's where my question was.

No, no. You are absolutely right in making an assessment like that, but we all need to see how the market turns out. Like you have a holiday season in front of you. So how the retailers, the sales are; how their pipeline, whether it is improved or not; what is the availability on the cotton front because the cotton prices have gone up; how much absorption of prices in the marketplace are; how you oversee the logistic challenges on the availability of containers. All those various factors are there. So we have given a guidance to the best of our knowledge as of now. And maybe in the third quarter, we will have a better visibility where we can update you further.

Sure, sure. Sir, second question on the raw material front. I do understand probably we must be having lower cost inventory compared to the current prices of the cotton and probably this price hike will get reflected next year. So when you're guiding, say, 18% to 20% kind of sustainable margins, even for the -- I'm assuming next year as well, our realizations will improve to a certain extent because we will pass on some hike to our customers as well. So can one assume that even in the current raw material scenario, we will be able to maintain these margins for FY '23 as well? This band I'm talking about.

Well, we are trying. You see we have already given a margin sustainable guidance of 18% to 20%, depending upon how much we have hedged on the raw material side. And we have already mentioned about the various challenges panning out there. So we'll be able to better give you a guidance in FY '23 third quarter.

Sure. Sir, third question and the last question from my side, on the balance sheet. Our gross debt has gone up. Is it basically for the inventory and the CapEx or any other reason for the same? And where do we...

Financing the business. You see the growth is there, so we are financing the business. That's why it has gone up.

Sure. Herein, do we see this debt sustaining then. INR 745 crores is the gross debt what we have today in our balance sheet? By year-end, we'll see this debt maintaining at the same level? Or do we see further going up, even the improvement in the volumes as well?

So we as a company have taken conscious decision to see that how we can service our customers by investing into our supply chain. And there are some seasonal products which we need to maintain a stock. So in order to see that how we meat out our commitments on the business order book position going forward, we need to create that sort of inventory to see that the customer also feels confident that we will deliver in time to come. So all this will get normalized once, you see there are these challenges about the transit time, when all this normalizes, we will be back to normal businesses. And at that time, you can see our levels which you have seen in the past 3, 4 years, how we have been able to maintain our working capital cycle. So I think these are times which are in isolation. We need to see how we can keep our heads high and meet our commitments on the supply chain side. And as a company, as I mentioned, we have been investing into this, so that we can deliver to the customer what we have promised. So that's what we are seeing on the inventory side.

Sure. Sir, last from my side. If you could give us just a number for the first half export incentive? Because in the first quarter, we had said that we did something like INR 90-odd crores, out of that INR 50 crores belonged to the previous quarters -- I mean, the previous period. So for the first half, how much would be that number? So must have received INR 37 crores roughly number in Q1. So Q2, how much would have been our export incentives or even, say, first half number will be fine?

So we can give you the number offline. But what I'm trying to say, I have already answered that question that around 7.5% to 8% you see incentive which we get like not as an incentive, but a drawback, the refund of the duties and taxes, this RoSCTL, RoDTEP, and the drawback which the government provides. So roughly it is around that number. We can give you offline that number.

The next question is from the line of Aman Sonthalia from AK Securities.

Sir, we have entered into brand licensing. So whether this increases our additional turnover and additional margin compared to our normal business?

Come again, what's your question, please?

We have taken the license of a brand, so whether this will be additional turnover and additional margin compared to our normal business?

Yes. That's why we take a brand.

So how much margin, I can expect, extra margin, compared to our normal margin?

See, in the branded segment, with the normal, like, product, you make around 10% to 15% additional margin on the branded product.

Okay, sir. And sir, as the world is opening up after this coronavirus, people are coming out of their home. So is there a possibility that there may be a demand drop as people are coming out of home and work from home culture is getting down little bit?

In fact, you should look the other way. The demand would go up. As people will come out, they will shop more. It is a [indiscernible] economy everybody is talking about. So you see, when you go out, you go out for some reason, like you go to the mall or you would do a garden. So different kinds of entertainment and leisure you experience. So definitely, there will be a movement of goods. And overall, what has happened in last 18 to 24 months, people have recognized that they want to live better. And this is why it is called a homebody experience. We have become all aware about health, hygiene and wellness. And we are embedding that into our lifestyle, and we have changed our lifestyle for better. So everybody wants to upgrade their homes, upgrade their wardrobe and spend in all home consumption product range. So I think coming out will also help the economy to move ahead. That's what is happening in India also, you see. So it will be similar over there. So I think this is positive actually.

Sir, one more question, that the government, I've seen an interview of Mr. Piyush Goel and he was telling that India is going to sign FTA with U.K. and with some other countries along with I think talk is going on with European Union also. So once this agreement got signed, how big this market is for textile?

See, there are positive moves about our negotiation going on with all these countries. And there are major countries involved here, like as you mentioned, U.K., Australia, Canada, EU. So all these are important developed economies, where the consumption of textile is high. And here we are not at level-playing field. Just imagine like we are paying 17% duty in Canada. We are paying 9.6% duty in EU. We are paying 9.6% in U.K. We are paying 5% in Australia. Now if those import tariffs are removed, we will have better opportunity and level playing field against all the other competing countries like Pakistan and Bangladesh who enjoy duty-free access. So definitely, this FTA will provide us a level-playing opportunity, and we should be able to increase our market share there because currently it is hovering around 4% because of this anomaly. And as we sign this FTA, maybe in a year's time, because there are negotiations going on and it takes a little bit of longer time, I think this will be very, very positive to India and Indian textile players.

Sir, one last question...

Mr. Sonthalia, I'm so sorry to interrupt, may I please request you to rejoin the queue for your follow-up as we have people waiting for their turn. [Operator Instructions] The next question is from the line of Rushabh Shah from RS Capital.

As I understand, last 1 year, there are a lot of tailwinds enjoyed by the home textile exporters and I assume that whatever CapEx the industry is doing will be absorbed in the next 3, 4 years, and it is more demand-driven CapEx rather than doing CapEx and then pushing for sales. So in the U.S., already we have a high market share, more than 50%. So how comfortable are the U.S. retailers absorbing the incremental CapEx and relying on India as a supplier going forward? Or is it CapEx more for other countries like U.K. If you can give some color on this, sir?

See, as I mentioned, the overall home textile consumption is growing in the marketplace, like just imagine, in the U.S., the current home textile market is $28 billion at retail, so $14 billion, I'd say, cost, okay? Now if that is going to be increasing by 4%, so it is almost like more than $500 million, $600 million in a year across the home textile product. Now with the large players already having a good positioning out there, somebody needs to meet these expectations of the brands and retailers when they are shifting from China. Now China, just imagine, in fashion bedding and utility bedding and institutional bedding, even today has a market share of 75%. So why we have a country where we have reached 60%, we cannot reach 75% or 80% there in this phase. So we are expecting to go ahead with our plans in CapEx, which will be positive for all of us both as a country and company. And I think once these FTAs are signed, the other markets also will open up where we have a decent presence. And just let me tell you that only 5 countries in the world are supplying 85% of textiles to the world. And these 5 countries are China, India, Pakistan, Bangladesh, and Vietnam. Now Bangladesh and Vietnam do not have raw material. They have labor arbitrage. So the raw material is brought from other countries. Pakistan has got a limited supply of raw material. It is all the coarser varieties in cotton and a limited space in MMF. So rest is China and India, those are the 2 large players. Now China has dominated earlier, but now it is losing that dominance. So who is trying to gain? India. So I think this justifies the capacity expansion by all the players. And definitely, there is a large market and what the government also expects us to move from $33 billion to $100 billion, and even the domestic market, which will be growing quite substantially from $120 billion to $250 billion in the $5 trillion economy, because textile plays an important role in our GDP, almost 3% of GDP is textile. So I think with all these factors, capacity expansion by all the players is justified, and we see big opportunities out there once these FTAs are signed and we are presenting all the markets, so we have got reason to expand further.

So whatever CapEx is happening is mainly for the U.S. market, sir?

No, it is also for the domestic market. In the domestic market also you see, in the home textile front, there are hardly any brands out there.

Okay. Correct, sir. Got it. And sir, this RoSCTL benefit, how much do we share with the customers or it is fully absorbed by the company?

Come again.

This RoSCTL benefit, export incentives, sir, how much is it shared with the customers or is it fully absorbed by the company, sir?

No, the RoSCTL is basically refund of state levied taxes and duties. So we sell on our cost-plus basis. And we do not consider this as a benefit to us.

Okay. Okay. So that directly benefits on the bottom line. Okay. Understood.

We take the next question from the line of Bhavin Chheda from Enam Holdings.

Yes, Bhavin here, Mr. Lalpuria, excellent set of numbers. So just on your guidance thing since you have to deliver almost 50 million-odd in the second half, because there were issues on the logistics, mainly shipping and all, so are those issues sorted out now and the monthly run rate improving dramatically and you're confident of enough shipping booked out for 50 million for the second half?

See, we are confident and that's the reason we have given the guidance, both on the volume and the revenue also. And since we have tide over this problem and we have navigated through the challenges in the near past, where it was at a higher intensity. It's improving slowly. So we all hope that it will improve further. So we should be able to fare much better.

Sure, sir. And second was, I just missed out on your pending CapEx number, what it was for FY '22? And if any plans for '23 also?

Look, yes, we as a company always look for growth. And if need be, the Board will decide about the CapEx plan on '23 as well. But currently, we will be spending INR 200 crores to increase our capacity from 90 million to 108 million.

So second half will be spending INR 200 crores or this is total for the FY '22?

So as I mentioned, we have already spent INR 60 crores and the rest is in pipeline, work in progress. So by Q4, we will complete the CapEx.

Ladies and gentlemen, due to time constraint, we take that as the last question for today. I would now like to hand the conference back to the management for closing comments.

Thank you to all. We at Indo Count remain confident about the next level of growth. Our focus going forward continues towards increasing utilization level and increasing our revenue and market share. 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 Relations Advisors. We wish each and everyone a very happy festive season and a Happy Diwali to all. Stay healthy, stay safe, and thank you very much once again.

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