RSWM Limited (500350) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the RSWM Limited Q4 and FY '23 Earnings Conference Call. We have with us today from the management, Mr. Avinash Bhargava, Chief Financial Officer; Mr. Surender Gupta, VP, Legal and Company Secretary. [Operator Instructions] Before we proceed with this call, I would like to take this opportunity to remind everyone about the disclaimer related to this conference call. Today's’ discussion maybe forward-looking in nature based on management's’ current beliefs and expectations. It must be viewed in conjunction with the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what maybe expressed or implied by such forward-looking statements. I now hand the conference over to Mr. Avinash Bhargava for opening remarks. Thank you, and over to you, sir.

Can I start now?

Yes, sir. Please go ahead.

Good afternoon, ladies and gentlemen, and thank you all for joining us today for the RSWM Limited Q4 and FY ’'23 Earnings Conference Call. We appreciate your presence and are grateful for your time. We kindly request that you take a moment to familiarize yourself with our investor's presentation which can be accessed conveniently on our official website as well as through stock exchanges. Throughout our conversation during the call, we may refer to this presentation, so we encourage you to review the accompanying safe harbor statement included within it. First, we would talk about textile sector outlook. Allow me to provide you with a brief overview of the current state of the Indian cotton market. The Indian cotton market has demonstrated resilience in the face of lower global cotton prices, maintaining marginally higher prices in the fourth quarter of FY ’'23. With an average price of INR 174 per kg, this can be attributed to lower arrivals and revised downward estimates of India's cotton production. In the same period, the premium of cotton over U.S. cotton reduced to INR 6 per kg compared to INR 17 per kg in the previous year, primarily due to increased arrival and correction in global cotton prices. Presently, Indian cotton is trading at premium of INR 4 per kg. As the sowing season approaches, there is an anticipated improvement in cotton arrival. However, cotton prices are expected to remain within a certain range, with a stronger inclination towards buying at lower prices. Notably, during Q4 FY ’'23, there has been a Y-o-Y decline of 20.3% in cotton prices and 18.7% in yarn prices. Additionally, the cotton-yarn spread witnessed a decline of 15.9% on Y-o-Y basis and 13.3% on Q-o-Q basis, reaching INR 105 per kg. This decline in prices is expected to have positive impact on the overall textile value chain as cotton prices gradually correct resulting in increased demand. The spinner margins are also anticipated to expand in the upcoming quarters due to the introduction of lower-cost inventory and prices nearing parity with global reach. Consequently, we can expect improved margins across various segments, including yarn, fabric, garment, and home textiles. These gains will be driven by enhanced operating leverages and sequentially improved gross margins due to increased utilization. Recently, cotton was impacted with 11% import duty from April 1, 2022. Area under cotton increased this year 124 lakh hectares to 130 lakh hectares. Cotton dropped slightly to around -- to be around 320 lakh days. Cotton prices dropped by almost 20% from the last year and 40% supply of cotton is yet to come. SIMA has appealed to Finance Minister to exempt from 11% duty on imports. This is a promising quarter going forward. During the fourth quarter, January to February, there was a significant improvement in the export of cotton yarn. While there was a Y-o-Y decrease of 47.9%, it is important to note that this was mainly attributed to factors such as weakening demand and India's cotton trading at a premium over global prices, making exports less viable. However, there was a noteworthy sequential increase of 51.3% in cotton yarn exports during Q4. The growth was primarily driven by spinners benefiting from a relatively favorable cost structure and an earthquake in Turkey. At the end of fourth quarter, India's cotton prices have become more competitive as they have softened, leading to increased arrivals. Although demand across the value chain remains subdued, these price adjustments provide opportunity for improvement. Additionally, post COVID-19 pandemic data revealed a decline in U.S. imports of cotton sheets and towels during January, February '23. Nevertheless, India's market share has shown remarkable improvement in both categories with a significant rise of 769 basis points in cotton sheets and an impressive increase of 688 basis points in cotton towel. As a result, home textile firms can anticipate higher volumes and enhanced utilization. This positive trend can be attributed to the recovery of export demand and U.S. retailers optimizing their inventory. Going forward FY '23, the Indian textile sector experienced a challenging yet promising fiscal year 2023. Despite geopolitical tensions and rising raw material costs, the industry demonstrated resilience and achieved stability. RSWM, a multiproduct company, a multi-market company remains especially optimistic and continue to pursue its strategic expansion plan. With a strong financial position, diverse product offering and a dedicated workforce, RSWM is well prepared to operate efficiently even in challenging environment. The company's commitment to adding value to all stakeholders, employees, and investors is unwavering. By prioritizing sustainable practices and maintaining a customer-centric approach, RSWM strives to deliver strong results and establish itself as a trusted partner in the textile industry. Moreover, the Indian government's initiative to position their textile hub and pursue Free Trade Agreements with major economies have instilled confidence in the industry. These efforts highlight a favorable business environment and provide opportunities for growth and expansion. Recently, we have organized Ignite 2026 paving the path to growth for RSWM Limited. RSWM Limited recently hosted Ignite 2026, a 2-day leadership program aimed at shaping our path to success. The program brought together our esteemed Chairman and Managing Director, Joint Managing Director, business head for all businesses, Chief Operating Officers of all plants, CFO, CHRO, Chief Information Officer and Marketing Head for fruitful discussion, problem solving and strategic brainstorming. We are thrilled to announce the development of a robust progress-tracking system. This system will enable us to measure and monitor our quarterly progress on agreed action plans. We have made action plan for each operational head, each business head, the Chief Financial Officer, CHRO, CIO, Marketing Head, CMD and JMD and all, ensuring that we stay on track even during challenging times like financial year '23. By leveraging the system, we are confident in our ability to optimize resources, enhance performance, and achieve our strategic objectives. With our dedicated leadership team at the helm, we are poised to growth, overcoming obstacles and propelling RSWM Limited towards a prosperous future filled with success and innovation. During this Ignite 2026, we had invited Arun Govil of Ramayan as business motivational speaker. Financial performance highlights. For RSWM, in FY '23, our global income remained stable at INR 3,789 crores despite weak demand in the later half and subdued export market. We successfully managed these challenges. Consolidated EBITDA for the year was INR 340 crores, reflecting our focus on cost management. Although down 27% from FY '22, which was amounting to INR 464 crores, we effectively mitigate the impact of higher raw material prices and lower export demand. EBITDA margin stood at 9% in FY '23, indicating our ability to sustain profitability. While lower than 12.2% achieved in FY '22, our diligent cost optimization and pricing strategy helped maintain a strong margin. In regard to the Q4 FY '23 results, on Y-o-Y basis, we achieved a consolidated total income of INR 997 crores, representing a decrease of approximately 12%. Similarly, our EBITDA stood at INR 89 crores, representing a decrease of approximately 37.5%. The EBITDA margin of Q4 FY '23 was 9.28% compared to 12.67% in the corresponding Q4 FY '22. We operated in a thriving business environment characterized by increased demand and the ability to successfully offset higher raw material prices. In terms of sequential performances, on Q-o-Q basis, Q4 FY '23 demonstrated an impressive 15.3% growth in the total income and remarkable threefold increase of approximately 3.1x in EBITDA compared to Q3 FY '23, indicating positive signs of revival. Furthermore, as part of our ongoing efforts to strengthen our balance sheet, we have maintained a strong debt equity ratio for FY '23 with a modest increase in overall debt level by INR 1,151 crores to INR 1,103 crores compared to FY '22. Alongside our operational achievements, we are thrilled to announce that Board has approved a dividend of INR 5 per share, pending shareholders' approval. In closing, I would like to highlight that Q4 FY '23 showed encouraging signs of recovery, and we are optimistic that this positive trend will continue throughout FY '24, leading to further improvement in demand. Now I'm available to answer any questions you may have. Please feel free to ask, and I will be more than happy to assist you.

[Operator Instructions] Our first question is from the line of Mr. Abhijeet Waghmare from Value Growth Advisors.

Congratulations on the decent set of numbers. Sir, I have a couple of questions. Firstly, what is our plan of action for the knits business in FY '24? And also, how is it progressing currently? My second question is, what is our plan of action for business in FY '24?

Okay. Actually, this knits business, we could not stabilize in this financial year '23, but we are targeting that we should be able to produce 400 metric ton production, which is the planned capacity of this knitting plant.

Okay, sir. My next question is, what has helped you to sell more in quarter 4 versus quarter 3? And how are you seeing this demand shaping up in the next 1 to 2 quarters?

Please repeat your question.

What has helped you to sell more in quarter 4 compared to quarter 3? And how are you seeing this demand shaping up in the next 1 to 2 quarters?

You know that last quarter always in textile remains very good. That's why all marketing persons try to reduce their stock levels to the minimum. That was the only reason. And we, as a team, tried a lot to maintain our profitability to the level of at least Q1 '22, '23. We could not, but yes, we could achieve in a big way.

Our next question is from the line of A.M. Lodha from Sanmati Consultants. Please go ahead.

[Foreign Language] I have got 3 questions. Number one question, you have got 2 divisions. One is manmade Fiber division and another is Denim division. So [Foreign Language] manmade Fiber division capacity utilization?

[Foreign Language] You know that till December, we including all textile players were not able to utilize their fullest capacity, but we are informed that from January '23, we internally decided that we will use our fullest capacity of spinning, whether denim, whether knit. We could not able to reach at the desired level of this knitting business. But in all other businesses like denim and yarn, we are running at full capacity. There is no shutdown of any plant.

I'm not talking of shutdown, sir. I'm talking of the capacity utilization, percentage of capacity utilization.

Our capacity utilization is full, 100% capacity utilization.

In March quarter, it is running -- March, it has run, and looking to the order position of the next financial year, how it looks like?

In textile, no one can run on order booking position. We run these plants approximately in 60-40 ratio, 60% is based on order booking and 40% is based on commodity.

Okay, sir. My next question is regarding expansion. Last year, we did some expansion in one of our units, and in current year, we are also doing the further expansion. So what is the position of the expansion in current year? When is it likely to be completed?

I will talk to you location-wise. Okay. First location under expansion was Kharigram plant wherein we invested for 30,000 spindles. These 30,000 spindles are running at its full capacity. Some additional 30,000 spindles are running at full capacity and we expanded in denim business. The expansion was sheet dyeing as well as spinning also. This was made operational in 2023, and these also -- these expansions also are being run at full capacity. And knitting was the third expansion. Expansion in knitting is operational but we had some initial issues. And we hope that in this H1, we will be able to run at full capacity at knitting plant. Last expansion was at Lodha plant. This was about INR 315 crores, 51,000 spindles plant. The production of this plant is yet to come.

When it is likely to be completed, sir?

Likely period must be somewhere in the month of September or you can say from October 1. That is our plan.

We have raised the -- rights issue money raised being used in this expansion. Am I right?

Not like that. We have used the money as per the [indiscernible] given for rights issue.

Sir, what is the purpose of doing the right issue? How has that money been utilized?

It is very clear in the document itself. And again, your question is valid and I will explain you. We have repaid our long-term borrowings, which has reduced our term loan interest, number one. Number two, we have taken this money for long-term working capital. And third, use it for -- the margin money for some of the expansion, not exactly for all these segments.

Okay, sir, I will be in queue. My small request, sir, Mr. Sharma, I think Managing Director is Mr. President or Managing Director is Mr. Sharma, somebody is there?

Joint Managing Director is Mr. B.M. Sharma.

Why he is not attending the con call? He should be on the con call when the company is doing all [indiscernible] and all, calling Arun Govil and all these people. Why he is afraid of? Last time he was not well. Therefore, he left -- he has not attended the con call. Normally, in case of DCM Shriram Industries and other, all other owner himself, [indiscernible] they are attending the con call and giving a reply to the question. At least MD of the company should be on the con call. This is my request. You tell the management that he should be on the con call.

There was no issue. There was no issue with -- if the JMD would have been able to join this, but there are certain -- because of that, he could not join. And if you have any question for Mr. B.M. Sharma, you can raise these questions on e-mail also. I will give you his e-mail address.

Our next question is from the line of Vinita Kapoor who is an individual investor.

Sir, I have 2 questions. There is an other income of INR 41 crores for the quarter. Is this for the full year or the quarter? And out of which INR 13 crores is insurance. So can you give me the balance amount? And my second question is on the e unallocable expenses. There is INR 42 crores -- INR 42.77 crores in the segmental P&L. So if you can give me the breakup of INR 42.77 crores?

Okay. First, I will explain you one by one. This INR 13.60 crores, I think the amount is okay. INR 13.60 crores is related to insurance claims. It is related to damage because of fire at Denim. And the book value of the asset damaged was much lesser than this amount. And therefore, the differential amount is classified or accounted for in other income. This is the differential amount of claim and WDV of the machine.

And the segmental P&L?

You can write this question because this explanation will be detailed more, and therefore, I would prefer to reply you on mail. I will give you a detailed reply for that.

Sir, one more question. So the yarn, 30,000 spindles, which was supposed to be cotton mélange yarn, so are you running all 30,000 spindles as melange yarn or gray yarn?

Okay, it's a very good question. You know that nowadays, this melange yarn business is getting like anything. Melange yarn across the country is not able to perform well, whether -- any company, you can quote any company, they are not doing well. Therefore, because of this prudently, we opted for using these 30,000 spindles initially for polyester cotton mélange and now we have decided that these 30,000 spindles will be used for cotton mélange yarn.

Sir, one last question. In the cash flow -- consolidated cash flow, there's an interest income of INR 22.48 crores. So can you please give the breakup of the same?

Yes. This interest income is from customers as well as refund of income tax. Interest on income tax refund. This is a cumulative number.

Okay. Can you give the breakup of that, sir?

You want number?

Yes, sir.

It is about 40%, 60%. 40% is related to this income tax refund and 60% is related to interest from customers.

[Operator Instructions] Our next question is from the line of Avinash Nahata from Parami Financial Services.

So my question relates to the spread. Give us a sense on the spread of a typical base grade of yarn as far as cotton and yarn spreads are considered, what was the exit quarter? What was the average for the quarter? Or March [Foreign Language] if you can give us a sense as of now in the month of April, May, what has been the spreads? And slightly historical data also. What has been the peak spreads and what has been the worst spread and what is the average spread?

Okay. You are talking about prices of yarn?

Yes, yarn and cotton spread.

We would not be able to talk about the spread. We will be able to talk about average realization of gray dyed which is...

Which is there in the presentation?

No, it is not there in the presentation, I think. It is there. That is what we can give you. It would not be okay if we would be able to give you the spread for our company.

Sir, industry [Foreign Language] when the spreads were good, what was the average spread industry enjoyed? What is the -- on an average spread, you can talk about the industry spreads?

We can talk about prices in the market of polyester spun yarn in Surat market and cotton or polyester spun yarn in Ludhiana market and export market we can discuss. But the spread, we would not be able to discuss here.

Okay. What is the reason of lower arrival of cotton? And what has been the price movement of -- I mean, we have heard that the prices have come below INR 60,000. So if you can comment on the arrivals and prices of cotton?

We also are trying to understand what is the reason, but what I could understand is these trade platforms are paying a lot.

Sorry?

These trade platforms [Foreign Language] those are financing to the internal [indiscernible] and farmers. This could be one reason. So the farmers were able to hold or you can say, mediators have hold the stocks by getting finance from the trade platforms. That could be one reason. And really, it is unpredictable. Cotton prices are unpredictable. These are -- these have come down even below INR 60,000. And if we will take the market feedback, it may go down further for INR 1,000 or INR 2,000. And then we feel that these prices should stabilize around 57,000 per candy.