S.P. Apparels Limited (SPAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the SP Apparel's H1 Q2 FY '20 Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma'am.

Thank you, Rochelle. Good evening, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q2 and H1 FY '23 Post Results Conference Call of SP Apparel Limited. Today, we have with us the senior management of the company, including Mr. P. Sundararajan, Chairman and Managing Director; Mr. S. Shantha, Joint Managing Director; Mr. S. Chenduran, Joint Managing Director; Mrs. S. Latha, Executive Director; Mrs. P.V. Jiwa, Chief Executive Officer; and Mr. V. Balaji, Chief Financial Officer. I would now like to hand over the call to the management of the company for their initial remarks, post which we can start the Q&A session. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I'm Sundararajan, Chairman, Managing Director of the company, KFLited. Very warm welcome thanks to all who are presenting this con call to discuss the Q2 FY '20 performance. I hope and wish that all of you and we allowed one are healthy and safe. I would like to update you on all the buybacks. The regulatory approvals have -- sorry, I would like to update you on the buyback. The regulatory approvals have come and expecting the process to be completed within the regulatory time frame. -- advertisements on the offer has been given, and please check the information in our risk side. Also, please note that the buyback offer is open from today. This will discuss on the performance of the company divisions. Government division. Our government division revenue for this quarter stood at INR 269 crores versus INR 183 crores for Q2 FY '22, which is at a growth of 47% year-on-year. The total exported quantity stood at 16.37 million pieces. Adjusted EBITDA of the government division stood at INR 48 crores for the current quarter versus adjusted EBITDA of INR 40 crores year-on-year. Our current order book stands at INR 356 crores. Capacity utilization as of today is around 75% and is expected to increase by around 10% to 15% going forward. On the FDA front, we are looking for the FDA to be signed by end of December because of the change in the U.K. Prime Minister, we are hoping for a favorable sense now. As we informed earlier, our new factory at Seats under process and is expected to be completed by end of June 23. With regards to spending, now we have commissioned 1 megawatt of solar plant in our spinning plant as part of our sustainability strategy. And going forward, we propose to increase 1 megawatt every year, and this is expected to contribute to the margins going forward. Last 3 months, spending production was reduced due to the high cotton price and low yarn realization rate. Hence, margins from spending plans was negative at the EBITDA level during this quarter. Further, cotton prices have corrected and now we hope that cotton prices will correct steady. Spinning plant shall contribute to the margins going forward. With regards to the Processing division, in spite of coal availability issues and the raise in the input cost, our pricing division was able to perform well good utilization levels and contributing to the margins effectively. With regards to the ASP apart U.K. division, U.K. has seen a lot of disruptions in supply chain majorly due to the third wave in the U.K. and Europe. Revenue for this quarter stood at GBP 2.12 million as against GBP 1.24 million quarter-on-quarter. SP U.K. has made EBITDA margin up 2.9% as against a loss Q-on-Q. I am confident that SP U.K. will be able to come out of this crisis, and we'll be able to do well going forward. Regarding SP Retail Ventures Limited. Currently, we have 65 stores under all brands. We have opened 2 new stores for Angelin Rocket in Bangalore, and it is doing well. We have also opened a source for head, which is also doing well. SBA Retail Ventures made a revenue of INR 17 crores mean EBITDA loss of INR 2.5 crores for the current quarter. Cokemal has been making profits. And however, the new brands that we have added and their fixers are pulling down the margins. We firmly believe that the other brands that we have added will perform well, and we are confident that the brands like on health engines and also Natalia will do well and will be able to list the company separately. Currently our liquidity position is strong, and we have serviced all the debt up to date. Thank you. And now over to CFO, Mr. Balaji.

Thank you, sir. Good evening, one and all. I will just run through the numbers of S.P. Apparels.

I'm sorry to interrupt. May I request you to please move the phone closer to you, sir. Your volume is a bit low.

The revenue for the quarter stood at INR 314 crores as against INR 222 crores year-on-year. The growth rate at 41 percentage EBITDA stood at INR 44 crores for the current adjusted EBITDA stood at INR 44 crores, half against INR 44 crores last year, which is flat. PBT margin stood at INR 30 crores as against INR 31 crores quarter year-on-year. And our PAT stood at INR 23 crores half against INR 23 crores year-on-year. The revenue for the first half stood at INR 567 crores as against INR 354 crores, which is 60% growth. EBITDA for the first half stood at INR 96 crores as against INR 65 crores last year, which is a growth of 39 percentage, even though the pressure in the cotton prices have reduced the margin by 140 bps. The PAT margin stood at INR 65 crores as against INR 47 crores year-on-year, which is a growth of 12 percentage -- and our -- that margin stood at INR 48 crores has again INR 34 crores, which is a revenue of 40 percentage. The division-wise contribution for the current quarter is like 81 percentage, 82 percentage Carman division, SPUK 6.4% and retail 5.4 percentage. EBITDA margins for the government division stood at 17.9%. SP U.K. stood at 5.3 percentage and retail had a negative margin of 16 percentage. The government division grew by 47 percentage for the current quarter and Cegeleasion grew by -- we grew by 19 percentage and retail division -- sorry, U.K. degrew by 19%, and the retail it. Our current liquidity position is healthy, and we have a long-term debt of INR 46 crores and the short-term debt of INR 108 crores. Gross debt gross-based at INR 154 crores, and we have a cash and cash equivalent of INR 67 crores, which is a net debt of INR 87 crores. And the other data are available in the presentation, and we can take into the question and answers. Thank you.

[Operator Instructions] Our first question is from the line of Gunjan Kabra from Niveshaay.

Is a good top line in a very, very difficult scenario. So my first question is the growth rate in the revenue is pretty high in this very difficult scenario. So what has led to such high growth rate, any change in the fundamental factor that you're seeing when European Union and the you cannot having the great time First question is this.

See, in terms of the growth rate, if you are looking at year-on-year, last year, first quarter, we did have some disturbances because of the second wave, like June and yes, the factories were all closed because of the second wave, it was a disturbance of closely around 25 -- it is a low bottom base, which we are looking at. point number one. And point number 2, we said the current utilization level has increased comparing what we had last year. Now we have moved significantly higher. And that's why you are looking at the growth rate, which is on the optimistic side.

So as we mentioned, since we have been able to mobilize the workforce -- so that is one of the reasons why we have been able to increase the running machines and being able to book orders for that. So even if we see quarter-on-quarter, the growth has been very good. It has been around 24%, 25% of sales growth.

So wanted to understand like in this time also, are we like we increasing our valet share in the existing customers? Or we have acquired new customers or the China plus or Bangladesh is one is plant? Is it playing out favorably for us. Because I understand that you be even the baby garment and that baby garment demand is very, very good all the time. But again, like because these countries are having a very, very slow down type of a scenario. So what is leading us and will this continue? Like how does the order book look like right now with respect to this?

So I mean, please be informed that there has been an increase in the average unit price due to 2 reasons. One is the raw material cost increase. And the second one is the product mix has changed. So we are doing some high-value products also. So this both move together, there is an increase of about 10% to 12%. In addition to our additional production capacity increased due to mobilization of workmen. So these are the 2 reasons. Otherwise, we always are booked no matter well as the business is coming from China or Bangladesh or anything. Still, we make sure that we are fully booked for next 4 months all the time.

Okay. Okay. So the last quarter, our order book was around INR 400 crores. So what would the order book look like this time.

Because it's all in the pipeline. So because of this recession, the pricing is slightly getting at. So now we have INR 350 crores as against INR 400 crores of last quarter. So it's all under process. So as of now, we have booked until February completely and March partly still open. So these things will definitely be.

Okay. Okay. So in the last quarter, we had one factory with 2 lines operating and second shift. So has that number increased right now? And what's the plan every quarter we are planning to increase ratings.

So compared to last quarter, this quarter, we have increased one more line. And maybe in next 2 quarters, we'll be increasing 2 more lines. So I see it agree to that inform to you every quarter, we'll be increasing 1 or 2 lines.

I'm sorry to interrupt. May we request you to please return to the question queue. [Operator Instructions] Our next question is from the line of Riddhesh Gandhi from Discovery Capital.

I had a quick question with regards to we are hearing of some excess inventory, et cetera, in with retailers and some degree of potential slowdown in the EU and the U.K. Are we seeing any implications of that on our order book at all?

Not really because there is absolutely recession in all the retailers in the retailers. There is no doubt out there. But as we always say, we are in the niche segment for the babies and the kids, there are always the business inflow is there, not only that during this recession time, all the retailers have -- strategically, they are planning to consolidate the number of suppliers -- so this is a right time for is a good opportunity for them to do a consolidation. As we mentioned in the last com call also, we are getting into other segments like menswear, Lenis, all other things also. So that is also one of the reasons. So we are not having any issue with the inflow of orders definitely to...

So from an order book and revenue angle, we are kind of able to retain the guidance which we had provided earlier with regards to the kind of revenue growth you are expecting.

Yes, that is... That will be done surely. Sure. So...

Other question was any sort of expectation on when we expected just a pressure on the profitability to sort of go away because I think we were indicating 18% to 20% EBITDA margin, which as per our old as for our calculation at this level of revenue was also slightly core conservative, if you will. I think we could be too higher. Any idea on sort of when we can sort of get back to normalized profitability?

No. We still stick on this 18% to 20%. Definitely, now there is a lot of pressure on margins. See, because of the recession, there are many factories even within India or are not fully booked. So they are desperate for the booking their orders to fill their capacity. So there is definitely a severe competition, acute competition, which we are prepared to chase it. And then probably because of the consolidation, the preference is given to us quality is a margin, which we have to offset -- that's the early situation. Otherwise...

18% to 20%, we should be back as soon... Sorry... We think 18% to 20%, we should be back as soon.

It should not be a problem.

Our next question is from the line of Nilesh Doshi from Green Lantern Capital LLP.

Sir, my question is again on the margin front. Can you explain in detail like where the 6% loss of margin has happened? Like if you say MPM loss in foreign exchange, can you account it how much it was?

We have never said that there is an MTM loss because the adjusted margin what we have given is 17.9 percentage without the exchange. See, this time, the margin pressure came from more stilling plant, where if you have heard the Chairman's opening remarks, we have said that we had EBITDA negative margins in the spinning plant because of high cotton prices and low young realization. That's -- in fact, that is the only area where the margins have lost.

So Mr. Balaji, I mean if my understanding is correct, we buy cotton and make yarn. And does yarn we consume internally. Is that correct?

Correct.

Now typically, we have an order book of 4 months in hand. Then I'm not able to understand that where this cotton spread or yarn price decline would have impacted us because we have already booked the order 4 months in advance. And even if we would have bought cotton in between, we have already accounted for the conversion to Jan and yarn to the product, whereby our margin would have been already predecided at the time of booking of orders. So I'm not able to understand this arithmetic.

Yes, you have to understand this first because here, when we do costing for with our retailers, we work from the yarn prices, not from the corona -- and that will be the market price because Jan price is same for every manufacturer. So we work from the yarn price, which is current market price.

So when we do the government costing, we do the cost thing based on the on price of the prevailing market rate. And when we produce the on, we -- internally, we do the costing based on the market price, even if the yard pace goes down, that is going to be the marketplace. And the cotton price goes up, which is definitely offset in our entire margin.

Okay. So when you say 20% EBITDA is a target, this is always based on the market price of yarn.

Yes.

Yes. And in case we get a spread from carton to yarn, that would be additional EBITDA we can generate.

Exactly. See, this time, we have -- there is a loss of margin due to this cotton spinning division. But sometimes it can be the other was. It will boost of the margin also sometimes -- so it did -- this quarter. Yes.

So as you explained in the initial remark, from the current quarter, you are seeing the cotton to yarn is more or less now positive?

Yes, it's more or less -- more or less still it is not a very close to breakable. Close to breakeven.

So at least this can take us back to 20% margin soon. Yes. Sir, second question is, now as the rupee has appreciated versus U.K., I mean, pound and our larger exports is to U.K. Then in the new order booking, are we getting the pricing in terms of -- because we may be selling a sterling pound. So are we getting that incremental pricing for this rupee appreciation?

No. I do see that at our business is predominantly, it is international is a major. U.K. is also there. But about one customer, it is in dollar terms and one customer is on the pound. And the remaining is also is there. So there is a mix of all. Majority is, I think, dollar. Some of these is about 45% is found Yes, we will definitely get the aorta, but the customers will -- because of the recession, there is a strong negotiation, but we are able to beat them to some extent.

So how confident are we that we should be able to get back to irrespective of currency movement? I mean I don't know going forward because we are 100% hedging, if I remember correctly. So going forward, how soon we can get back to this kind of margin profile?

The margin all in terms of 18% to 20%, we have just -- it is a 10 bps reduction and which we have indicated last call itself. And this is purely because of cotton to yarn correlation and nothing to do with the exchanges. So if you look at how the costing happens is that, I take current market price in terms of cotton and sorry, on terms accessories and my wages and work on it with the current rate -- current currency rate and take ores. I don't get into the additional margin, which is -- which can come only by hedging it.

Right. And we hedge it, right, sir?

Yes, we hedge close between 80% to 90%, we are hedging it.

Okay. Sir, just the last one if you allow me is how do we see the demand going forward? Because if we are to plan for next 2 years, how do we see irrespective of this inflation slowdown in U.S., U.K., Europe everywhere? So definitely, there is a slowdown.

There is a recession for next 6 months. Everyone is expecting the research of the company for 6 months, where, again, as I said that because there is a consolidation going on in terms of the supplier base. So we stand to gain the mentum advantage from our existing customers. So we will get our order file for our capacity. That is not a opposed. But definitely, these orders will be from other small players from this country and other countries. So they will definitely suffer.

But then will that allow us to grow by 15%, 20% as we are targeting?

Yes, between 10% to 20%.

Our next question is from the line of Shikha Mehta from Equitree Capital.

Also from the actuation on a recent set of numbers during challenging times. I have a couple of questions. In your presentation, you mentioned that the realization has improved by around 17.4% in the first half. And I'm assuming some of this is due to the high raw material impact. So now as we see cotennormalizing, would we have to reverse this Tio.

See, in terms of the increase on the raw material cost, see, just now I explained to the other question that the team was based on the current yarn price, current trends and current currency price. So if there is a reduction in material costs, it needs to be taken.

Correct. So are we indicating that we might see some trimming in the top line? Or will volumes equalize that?

But simultaneously, we are increasing the capacity also quarter-on-quarter.

The increasing volume will normalize the price reduction…

There will be a reduction in the unit rail. Yes, and there is no doubt to bit. But that will be offset by the increase in our production capacities.

Right. So also, could you help me understand what happened in the retail division a bit better because last quarter seemed quite positive. We ended having positive margins. And this quarter, again, we've been -- you said in your opening remarks that some of this was due to the fixed costs attached to the new brand. But when can we expect this to normalize? And how should we look at this going forward?

Yes. So in terms of retail, the first quarter, can you hear me? Okay. So the first quarter was positive. One reason was because we hadn't launched the bank in terms of the inventory for the new brands, Agilent head. And in terms of the crocodile sales was really good for the first 3 months. And the second quarter normally include July, August, which has end-of-season sale where we might have to give discounts for some stocks. And with regard to the new brands, it was more on the gross margin level rather than the overhead because we've maintained the overhead not increased much, considering you already have a retail setup. But the concern was on the gross margin levels because of the smaller quantities for the new brands. So that's the Q2 and the Q3, we're expecting it to be much better than Q2 because of the festival. But think the difference was on the new brands in terms of gross margins. On the main... R Yes, because of the minimum qualities that...

Can we expect to break even or not yet?

I don't think I should be giving a guidance on that. I'm not sure, but Q3 has been technically good. The October month has been better, but December would still have, again, end of season sale. So it would be a mix of Q1 and Q2.

Right. Sir, another thing is, could you please help me understand post the FDA? Are we going to see a shift from countries like Sibanda, et cetera? And are we looking to earn market share. And without the FDA currently help me understand our competitiveness item?

You're talking about SPUK. Over... Talking... Yes. Yes. Can you repeat that, please?

Post the FDA, we'll be looking to gain more... In countries like Banda based. So if you could explain how that would move and also our current situation how competitive we are then?

Yes, FDA is through definitely the customers will take the benefit out of it because they would like to increase the business in India. And the big question in India should be able to manage NPL volumes because of , there will be a lot of orders coming in. So only the big players are ready to drive those businesses. But we think there could be a charm possibility that the margin could increase is slightly better than in the FDA is there because we have better negotiating power now. Okay.

And currently, how competitive are we...

Bangladesh, Sri Lanka, and Pakistan. Okay. So pricing have been more or less similar as what we did Now the landed cost of India after post FDA is at par with Bangladesh Sri Lanka and Pakistan.

Miss Mehta, I'm sorry to interrupt, but may we request you to please return to the question queue so that we can cover the other questions as well?

Yes, sure. Sir, just one follow-up on the same question. On 3 FDA currently, what would be the difference of tracks in the pricing? Sir? Right now as on this, before the FDA, how are we placed the Sabanas and Silangan?

The 9% is 9.5% is a difference. If the negotiation starts from them, it is 0, we will be minus 9.

Okay. I'll come back in the queue.

Our next question is from the line of Aman Agarwal from Carnelian Capital.

Sir, volume ramp up fromQ1 to Q2 look…

Sir, I'm very sorry to interrupt. Mr. Agarwal, can you please use your handset. Your voice is a bit muffled. We can't hear you very clearly.

Sure. Is it bit better now?

Yes, it is.

Yes. So first of all, the congrats on the volume ramp-up from Q1 to Q2, the volume ramp-up was really impressive. So my question was regarding labor additions. So how much labor would we have right now at the end of September to give...

So there has been a continuous increase in the labor. So we don't see it damages continuous process ongoing is an ongoing process. So every month, there is an increase, although there are attrition, but still, we are working to improve the retention. And we have increased the water level of the workforce trend. So we will be able to manage and continue to increase the level 4 by 10%, 15% every quarter.

Okay. But any number like how much is the number of labor right now after...

That we can just later on that number.

Okay. Sir, my second question was on finance cost, like there's an increase in finance cost Q-on-Q. We have INR 8 crores of finance cost in a console back sheet compared to a INR 5 crore finance cost in Q1. So by this increase in finance cost even when that has basically declined since March?

So the finance cost is purely an increase is purely because of the restatement of my foreign currency packing credit, where you know that the dollar has appreciated or has depreciated closely to A2 on one specific -- I mean, continuously. So the last 2, 3 months, rupee has been weakening. So PCFC, the packing credit, which has taken in foreign currency is getting restated and restated loss is close to INR 4 crores which, I guess, will be it's only a notional number.

Okay... Understood, sir. Sir, in terms of CapEx, we have done around INR 29 crores of CapEx during the first 6 months. So could you indicate like which areas have we basically spent CapEx on? And what would be our full year of CapEx basically guidance?

So this CapEx, what we have done is purely to enhance our Austin facility. And we are looking at the previous year number, I guess. So the previous year, we had a different agenda in terms of increasing the capacity at our spending plan. And this year, it's purely the hospital facilities are getting expanded. So the CapEx is purely towards that.

Got it, sir. A final question from working capital, like our working capital has slightly improved compared to March. So what has led to the improvement in working capital? And how do we see this going forward? Like do you see further improvement in working capital into...

The working capital improvement is to only because whatever inventory which we have bought during the March cotton inventory, we have consumed this during March, we used to have inventory to an extent of 95 to 100 days. And now the cotton carry is close to around 30 days. So once -- every time when the season we are coming towards the end of the season, we used to buy gotten towards 90 to 100 days. So that there is no big quality and availability issues.

Okay. And sir, final question on SP U.K. Like, do we see this margin basically continuing given Q1 was impacted, but we have recovered well in Q2. So do we expect this 5% kind of EBITDA margin will continue in the second half also?

Yes, very much, we will be able to restore this situation in Q3 and Q4. So because the things are getting better now. But unfortunately, there is a recession. But still that will not have a big impact in our U.K. restate. I'm confident that Q3 will be better than Q2 and so on, and subsequently Q4 will be normal.

[Operator Instructions] Our next question is from the line of [ Niraj Manika ] from [ White Pine Investment Management Private...]

Are you able to hear me?

Yes, we are, sir. Please proceed.

My question is, so how much was the increase in San just a broad number in quarter-on-quarter from June to September? Approximately amounts.

Sales, Roughly around 500.

Yes. Just a very good comment in conversation on that because I think that was a big gradually you're expecting these numbers to go to what number. I think in the past you have indicated around INR 3,000.

That's what our target is, yes.

Okay. And when do you see to achieve that number, which by this year or quarter?

We should reach it by June 23. That's quite good.

And sir, and about the machines, how many measures we have still 5,500...

Yes, we have not added new missions so far. It's 5,000 and our utilization is close to around INR 3,700.

Yes... Okay. So can you just get a reiteration on whatever Sandra said about the outlook for Q3 and Q4. I just like to confuse because one has said that it's only recession in the second line said you are saying that you will see movement in Q3 as well as in Q4. So can you just reset is it what you're saying that your industry as good...

If you recollect all the calls which we have already discussed about the growth, we are looking at 25 percentage year-on-year growth for FY '23 as a whole. So like when you come back Q2 and Q3, Q3 has got a lot of because of the early festival, the production days are low. And so we are looking at 25 percentage growth rate for the whole year, and we are working towards the 25 percentage year-on-year growth.

I'm just asking another question year, that on one side, you have seen the resonation in the U.K. side, but you're also saying that Q3 will be in volumes will be better than Q2. So the reason I'm asking is that because you have said about consolidation of suppliers by your buyers, -- so are you seeing confirmed in that you will see a growth and other is the industry should be not...

Q3 , there are more number of holidays -- so this number -- it cannot -- it will not be more than Q2 number. It will be a probably...

You have to look at year-on-year. Year-on-year, we will be definitely better growth rate for Q3.

Q3 '22 versus Q3 '23. Q2 -- Q3 '20 will be better than Q3 '22.

Got it. Great. As well as I think commended work in hiring people and doing a time. I think that is the problem I think you've taken care of.

Our next question is from the line of Resham Jain from DSP Investment Managers.

I have a couple of questions. So first one is, sir, on -- generally, you mentioned about FY '23, but in terms of preparation for FY '24, I think your new Shibakasi plant also will be commissioned soon. So for 24, what are your internal expectations in terms of tackling division growth?

Actually, internal expectation is like from 22% to 23%. Same, we are planning for 22 to 23 also... INR 2,320 crores.

So that is 25% growth, is it?

Yes.

So this year, you should be ending somewhere around INR 1,000-odd crores in the INR 950-odd crores profitably in the Garment division. So on that 25% growth. Is that the right understanding?

Yes, right. You got the numbers.

And sir, the second question is to Mr. Chenduran, I think if you look at the retail business numbers, we are actually below the recovered levels. We used to do around INR 20-odd crores pre-code. This quarter, we have done just INR 17-odd crores. A lot of retail and branded companies. What we have seen is that most of them have grown past the precore levels. But in your case, despite the addition of new brands, obviously, that those are at initial stages. But it seems the recovery is much lower than a lot of other -- and even on a lower base because your base is too small. -- how should one think about this business?

So the biggest thing about peak cover level is, I think we are selling in 100 brand factory stores under future growth, which contributed to almost 60% of the turnover at that point of time. So it was around INR 50 CR for the whole year. And the number which we are talking comparing like-for-like for this year, all the EBOs have grown 25% even wherever shop-in-store wholesale is gone. The biggest chunk of codes was almost INR 50 crores of business, which we don't have corrected because you know the situation of the future group. Now it's been taken over part of the stores that have been taken over by the lines of businesses. picked up. So I think we started launching in some of those stores back again from November. So 6 months of no business which used to contribute 50% at in 2019 for level. That's a lot of impact we've taken from that particular challenge. But the good news is we moved or we've grown in channels which have actually contributed most of the gross margin level in terms of properties. So that actually helps us innovate.

Okay. Understood. And on this low base now, given that you've added few more brands now, you are 3 to 5 years outlook because you talked about lifting this entity, given it's very small. What are your expirations here? How you want to grow? If you can just explain in terms of retail, in terms of EBOs and e-commerce. What is the plan here?

Okay. So in terms of the SP retail as a whole, for the next 1 year, we're trying to maintain things in terms of project organically not try to expand more geographies or more brands, more product cappings because we want to be careful about the inventory.

Yes.

Okay. Sorry. Yes. So the next 1-year plan is to be sustainable and grow organically. But from that onwards, once we sustain there in terms of inventory, we now know what sells well which got then, what's the kind of product, what geographies work. Even with the retail parts, as I said earlier, with future group, there has been a lot of concerns. So we corrected all of that and we've grown in terms of per square feet per store has all been growing. In terms of the channels, there is more scope on the EBOs. And whatever EBS' opened in the last 1 year has performed addend responsible that we can expand more PPLs, both company-owned and franchisees. So Cocoa and Hopster in the next 3 years. We want to be currently at 60 POs, but we want to be closer to 100 in the next 2 years. I'll leave next year. And after the year 1, we'd probably be trying to touch 100 EBL. That would be the biggest growth. E-commerce as a platform, we have been doing well, especially with prelaunch of the new brands. But the only downside to that is in terms of the returns and discounts, all of it. So we don't want to be identified as brands which are running discount all the time. So we are looking at doing exclusive collections for online marketplaces going forward. And distribution of wholesale is another huge area where we have been consistently improving and all the payment cycles are fine, the inventories are thereon. So that's the reason why next 1 year, the outlook is not a huge aggressive plan to make sure that we sustain ourselves for the growth. But years 2 and 3 from today. We definitely be expanding more into the EBOs and distribution.

[Operator Instructions] Our next question is from the line of Vikas from Equirus.

So my first question is with respective of saving machines capacities. -- while our current machine count remains the same. But when we say that we have added one more line in the last quarter and one more in this quarter. So how much has that added to our overall capacities in terms of manufacturing? And while we're going ahead, we do have plan to add one line every quarter. So while keeping the machine count same, how much does that overall add your overall capacity? And what is the utilization rate that we expect going ahead for the increased machine ships that working in 2 ships as well.

Yes. See, the night shift at the second shift of, say, roughly, approximately third quarter, we'll be able to add about 50 meshes to missions. -- missions, tube on the side. Every quarter, there will be 50 machines added. So gradually, over a period of time, in the next 10 years’ time, there will be about 200 admissions...

Understood. Understood. And how many machines out of the total that we have can be ticked to 2 ships.

All missions can be used, but it is only the line product...

We have to send an ichi production line. We need to train the nicest operators and things. So we just play that we cannot fill within 1 month or so. So gradually, we have to do it because we are very, very new to the niche operation and especially in government manufacturing, not many factories are doing night ships because of so many controls required.

Right. Right. And that also depends on the availability of coal facilities, right? So that's a plan. So what is our target for the hostile securities also within all our plants. What is the thought process there?

See, already, we have hotel facilities in person plants, and we are trying to expand our hospital facilities in that specific plans so that we can account it for the second shift also. And please note that a line is only 20 missions. So when CEO was talking about 2 ships -- 2 lines every quarter, we should be close on 40 to 50 emissions and of the quarter. And moreover, only when you have the capacity for hotel facility, you can expand with the second line or the second shift for production. So we are planning to -- by end of March 24, we should be having 200 missions in the second share. Same missions can be used. It will be only the supervisors, the production fee change. Other than that, the same missions will be used. It will not be a separate mission.

Understood. Understood. Right... Understood. Understood. Sir, what would be the -- you said one of the key reasons for the dip in the margins was the spreads that we got from the a -- so what is the current -- so are there like current inventory that we are currently holding, is it like aligned to the spot rates? Or is it still higher than the current market rates...

The inventory, what we are holding is only towards 25 days of inventory. It is the current market rate.

Yes, -- now as for the stock what we have inventory what we have gotten is at par with the current cotton price on price protease. Thank you.

Our next question is from the line of Bhavesh Shah, individual investor.

Sir, 2 questions. First is about the buyback, which has started today. Are we seeing a promoter participating in the buyback? Or it's like only outside stars are participating in it?

No. If you see your offer letter, I think the intention of promoter being -- participating in that is already been provided. And it's provided in the offer letter... Understood.

So promoters like partly taking the buyback. Okay. And other question is for considering U.K. economy. Do we see a sense of urgency on diversifying our geography or are comfortable with such kind of growth rate in U.K. geography itself?

See, we wanted to add new customers from the other geography also. And in the recession, this time of recession in U.S. and other areas, you can't expect the orders to come flow from new customers. The new customers -- I mean, the retailers will not look at new suppliers to be added because of the recession time. So we have to strategically look at retailers who are ready to bring more orders. So this is a tough time, in fact. The recession is higher in U.S. We wanted to penetrate into U.S. it may take some time. But definitely, we are looking at diluting our concentration in terms of U.K.

Getting the new customers, entry is not -- it's a difficult thing at the moment because they are looking at saving to their own existing suppliers. So they are not looking for any new suppliers. At the same thing, the good news is that the existing our customers are consolidating, so we are getting more difference from the existing customers. not aging any new vendors to the glass.

Right, right, right, right. Understood. And sir, the last question, how do we see a IRR of second-shift working vis-a-vis adding of new machines? Are we definitely seeing a significant advantage of having working second ship? Or is it better off adding up new lines itself?

Bhavesh, we are now in the process of setting up the second ship. And once we have a full year run of second shift, looking at IRR could be better. But for me, generally looking at the second shift is, it should definitely be far better than we -- it should definitely improve in terms of margin because the fixed up cost is getting diluted. Understood. Understood. Also, even probably the investment might one lower I'm not sure hostile facility would be add-on investment also in there.

Our last question is from the line of Anil from Smith Limited.

Good evening, sir. Congratulations for a good cash flow wise performance. Sir, just wanted to know, last time, you mentioned that supplies to some of the clients will start from Q3. So I mean, have we started something this quarter or it is getting postponed.

As we mentioned, the 2 customers we started in the last quarter.

Okay. We have already started supplying to them. And sir, any cancellation from any of the existing clients and you orders got canceled?

Approximately no.

That's a good new, sir. And sir, sir, just some bookkeeping question. If I may know what was the total volume year given export volume in the presentation. What is the total volume, sir?

We have additional $0.6 million.

Okay. And sir, if you can give me the reason why breakup of sales and currency exposure?

Anil, I think currently, I don't have the numbers -- let me share it with you. I'll send you the numbers.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Please go ahead.

Thank you. Thanks to all the participants in the con call. I'm showing interest in the -- in your company. And as I always mentioned that the stay confident stays sure that we will be keeping up all our commitments. And we have always -- always we have a plan of next 2 to 3 years, that's a kind of visibility we work. So we know what we are doing. I don't think there will be any unexpected situations where except other than the external factors. So we are going steady despite the recession, that's why the cotton price increase or whatsoever, it may be. And thanks for all your support on the confidence. Thank you.

Thank you very much. Ladies and gentlemen, with that, we conclude this conference call. On behalf of Elara Securities Private Limited. Thank you for joining us, and you may now disconnect your lines.