Sutlej Textiles and Industries Limited (SUTLEJTEX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sutlej Textiles and Industries Limited Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Bipeen Valame, Whole Time Director and CFO. Thank you, and over to you, sir.

Thank you, and good evening, everyone. I welcome you all to the earnings conference call of Sutlej Textiles and Industries fourth quarter and the full year ended on March 31, 2020. I have on this call with me: Shri S.K. Khandeliaji, President and CEO; and Shri Updeep Chatrath, Deputy CEO of the company; and our investor adviser, Stellar IR, who works with our Investor Relations team. The result presentation has been uploaded on the exchanges. And I hope everyone had an opportunity to look at the presentation. I will take you through the financial performance highlights, followed by industry insight by Shri S.K. Khandeliaji and Shri Updeep Singhji. The current exogenous shock arising on account of novel coronavirus pandemic, COVID-19, has impacted economies globally including India. The economic activities came to halt amid extended lockdown from 25th of March 2020, which also largely impacted entire textile value chain, including Sutlej Textiles. During quarter ended March 2020, the company reported consolidated total income of INR 545 crore in quarter 4 2020 against INR 628 crore in quarter 4 FY '19 and INR 2,442 crore in FY '20 against INR 2,642 crore in FY '19, which is impacted largely due to lockdown of manufacturing units due to COVID-19. Gross profit margins expanded by 340 bps and 250 basis points during quarter 4 '20 and FY '20, respectively, on account of softening of raw material prices and nascent realization. Our EBITDA stood at INR 23 crore in quarter 4 FY '20 against INR 54 crore in quarter 4 FY '19 and INR 198 crore in FY '20 against INR 240 crore during the same period, previous year. The major reasons for drop in profitability during FY 2020 are as under: on account of lockdown, loss of contribution, salary and finished goods devaluation, around INR 21.25 crore; MTM losses on forward foreign contracts, which is INR 11.31 crore and as you know, this is the accounting treatment; we also took one-time provision for doubtful debt and devaluation of old inventory stores and spares amounting INR 9.44 crore. So total comes to around INR 42 crore as an impact, year-on-year basis. The company reported a loss of INR 14 crore in quarter 4 2020 against profit of INR 10 crore in quarter 4 FY '19, largely impacted due to lockdown and COVID-19 and the reasons which I mentioned above. During FY '20, various measures that management has initiated to strengthen our balance sheet. We have -- we could reduce our total debt by INR 49 crores on a net basis on year-on-year basis, led by efficient working capital management. As a result, our short-term debt has been reduced by INR 89 crore during the same period. Debt-to-equity has been reduced to 0.91x during FY '20 against 0.98x in FY '19. The debt repayment also contributes towards reduction in financial costs by 19% year-on-year basis for FY '20. We believe strong balance sheet will aid the company to withstand this challenging period. I would now request Shri S.K. Khandeliaji to share the business outlook and industry scenario. And then we can open the floor for question and answer. Thank you. And over to Shri Khandeliaji.

Thank you, Bipeen. Good evening to everyone, and thank you very much for joining this conference call. I hope you are all keeping safe and healthy and taking all good precautions to be well. As you say that all of you know and Bipeen has also touched upon the crisis, this pandemic, COVID-19, but I would like to say a little bit about this crisis, I can't just stop myself. So this crisis, I can measure is [indiscernible] event, which means a crisis totally unpredictable, rarest of rare, the severe consequences that has brought damage to economies and businesses. So this is the dimensions of the crisis which we don't know. We see that economies across the globe, businesses across the globe, has been impacted. And India is no exception to it. And in case of, say, now coming back to the textile industry, as you know, the Indian textile industry were not doing so well since partly as due to one reason or the other, GSP, U.S.-China trade war and so many other issues. But still, we were doing better as compared to our peers. And things were going on, on a right direction. So all of a sudden, this COVID-19 pandemic has come out. But we have to learn to live with the situation and we are doing so. The one thing which is there because of this COVID-19, there has been 70 days' complete lockdown in the country. And then it started opening but very gradually. Our factories also remained close from, say, sometime in third week of -- sometime in fourth -- third and fourth week of March, say, March 22 -- from March 24 to April 20. Thereafter, we started opening our factories gradually and the factories have started working. And gradually, we have been increasing the capacity. As of now on an average, we are working at 50% capacity. And whatever capacity we are working, it is all sold goods, though [indiscernible] are poor because domestically as well as in export markets, every precaution of lockdown, markets were not opening. So now the markets have started opening gradually. So in case of, say, I said [indiscernible], but I will divide it in 2 parts, one is exports, the other is domestic. In case of exports, there has been 77% decrease in exports -- I'm sorry, 73% decrease in exports, textiles and in clothing in April and May as compared to corresponding period last year. So there has been a big fall in export. And it was just natural and expected. In case of domestic market as for clothing [indiscernible] of India [indiscernible], [ 54% ] of demand has gone down because most of the shops, [indiscernible] were closed. And still when the shops have started opening and all the shops are rather most of the places opened, the customers are not there. Fear psychosis is much more and is damaging much more than the virus itself. If you see that the number of deaths and other things is not -- rather if you say as compared to the road accidents, it may be even lesser than that. But the fear is so strong that people are not going to market, not going to buy anything, except essentials. In case of clothing, they want to buy only things which are required to work from home, something like their undergarments. For me, there is good demand. Then there are medical, let's say, like PPE, masks and so many other things. But overall, there is no demand. As of now, there are no marriages, there are no festivals, there are no parties. But the situation is going to change going forward. But it will take some time before -- because the situation remains quite uncertain. At this point of time, nobody knows how long it is going to take, what will be the depth of the crisis. But the people always hope that things will -- worst is behind us, but -- which I think -- I also feel that the worst is behind us. Going forward, there will be some improvement, though gradual. And let us hope for the best. This is the position of the [indiscernible]. But so far, [indiscernible] as concerned. Fortunately though, we are also impacted very badly by this crisis because the demand is not there, working is only partial, only 50% working. It's very less compared to 95% who used to work, so those challenges we have. But still, since [indiscernible], the main thing that people are facing at this point of time is the liquidity crisis. Many textile units don't have the money to run the business even. They don't have the working capital because their money is held up, not coming back from the market, goods are not moving. But fortunately, due to our financial strength, we are not facing such type of problem. We have not availed any moratorium on term loan repayment. We have not taken any additional working capital. So that is helping us to tide over the crisis. Second thing is our operational and marketing strength. As you know, we have been telling in the earlier conference also that we are present across the globe. We are exporting to 70 countries. In India, we are in all the corners of the country. And we produce all types of yarn, manufactured out of synthetic or natural fiber, whether it is for knitting, weaving or it is for the industrial use, for home textile and for all types of dyed yarn, all types of silk and gray yarn. So because of our such high -- such a large product basket and such a strong marketing network and operational strength and financial strength, we hope that we should be able to withstand this crisis. And in fact, as you all know, though it is very sad, but many businesses will have to shut down their centers by the time this crisis is over because of one problem [indiscernible], because of the losses they will not be able to withstand. But after that, whosoever remains in the business will emerge much stronger. And we feel that we should be able to withstand this crisis and should emerge stronger. And we have been engaging all our stakeholders, whether it is our customers, whether it is our suppliers, whether it is our bankers, whether it is our employees. So everybody is on the board. So that way -- and we have been also optimizing our operational fixed costs and have been looking into products and process innovation in this time of lockdown. So we all have been continuously working that way, though from the remote. That has become the new normal. So that way we have tried to do many new things, which will help us going forward. So this is what I wanted to share. And the challenges are there. Situation remains uncertain. But we hope that we will be able to withstand that. Thank you.

Thank you. Shall we open the call?

Yes. My part -- I'm over now.

[Operator Instructions] We take the first question from the line of [ Zakir Abbas ], individual investor.

And I think your assessment of the situation was very helpful in understanding the direction the textile industry is getting after. But as you mentioned, Sutlej is present across various segments of the textile industry. So I guess we would be the first to recover from the unfortunate tragedy, which is still [indiscernible]. Sir, when do you think -- you said your operations are at 50% now. So do you think sometime during the second quarter, you would get back to last year's level, sir? This is my question one. And question two is what is your view on MEIS scheme? I mean is there any talk of it coming back in this kind of a situation or any other scheme for textile exporters which the government is planning?

Okay. Now taking your first question, as I mentioned, the situation is quite uncertain. Nobody knows how long this is going to be. We may come on 100% by end of second quarter. We will not be able to do so even at the end of the year or we may come back to 100% even before the end of the second quarter. So the position, they are fully there. Only thing which I can say that we are fully there. If there will be demand and if there will be -- things will be moving, we will be able to come up to 100% as soon as the market demand and anything emerges. But as of now, the situation is quite important, whether it will be by the end of second quarter or by the end of the year. So this is still quite uncertain. And nobody is able to tell this point of time, number one. Number two, regarding export incentives and other things, government is [ keen ] of the problem. They have been continuously working. And they have been coming out with the small things for the representation of the industry. But the government is [ keen ] of the problem and they are continuously looking into it. And we hope that the government will do something.

And out of our total turnover of, let's say, INR 2,500 crores in the past 2 years or each year, how much is it India-centric? How much is outside India, sir?

Normally, there will be always some fluctuation. But normally, it is 2/3, 1/3. So normally, maximum about 70% is domestic and 30% is export. But at times, depending upon the market conditions and the price realization, it can go 40%, 60%. So we are fully [indiscernible]. Save some fluctuation, normally it is around 30% export, 70% domestic.

Okay, sir. And sir, what is your view on the debt which Sutlej is carrying? During the next 2 years, would you look at reducing it even further? Because currently, we have seen that running a loaded -- I mean having a controllable debt, so as to speak, can [indiscernible]. So what is your view on the total debt? And what is the view that it will be at 2 years' end, sir?

So far, debts are concerned, it has already come down. We were -- even before the COVID, we were trying to bring it down by very strong financial controls. So you must have seen that we have never leveraged our balance sheet in the last 4, 5 years. We have been maintaining very high level of financial discipline. And that is the reason, even in this COVID-related, the payments are already over. We have suffered [indiscernible] losses. As you know, everybody has suffered lockdown losses. But still, so far, the -- naturally, there will be -- we will continue to have stringent financial control. And we hope that our debt and everything will be remained within limits. So how much it will go down, it is very difficult to predict at this point of time because everything is uncertain. But I think our financial discipline will be there and all our debts will -- are bound to -- are likely to remain under control.

And this 50% capacity [indiscernible] more robust in terms if you are able to sell 50% of whatever you need?

Yes. Whatever we are producing is all sold. The only thing is that the dispatches are slow at this point of time, that's [indiscernible] from this. But those are picking up. From June 1 to 15, once we have seen that the dispatches are picking up, particularly in exports.

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

So just wanted to understand the pricing scenario in the market with respect to raw materials, finished goods also, also branded yarn and cotton yarn, how the demand is and how is the pricing going on with respect to raw materials there.

Yes. In the case of raw materials, let me first take that cotton. As you know, the cotton prices has gone down about 15% to 20%, depending upon the variety of the cotton and, say, about INR 38,500 per candy of [indiscernible] export. Those have come down to INR 32,500. But in last 2 days, those have increased by about 3%. Even CCI has given a huge discount, and their prices are about INR 35,000, INR 36,000 per candy for 29mm cotton. And they have never given such type of discounts in the past. Because demand is -- not only in India but across the globe, demand is very, very poor because industries were under lockdown throughout the world. And in India, also the consumption has gone down. And it's still the working -- average working of the spinning industry is at 30%, 40% maximum. Though gray cotton yarn has been doing little better in terms of capacity utilization, it may not mean there's some surprise in profit. But because many people held the cotton and there were export markets, like Bangladesh, Vietnam and other things so that could do something -- gray cotton yarn could do little better capacity utilization initially. So the prices are -- cotton prices are likely to remain under pressure according to [indiscernible] international statistics. The high -- the stock at the end of this season and going forward in the next season, the stock will be the highest ever. And second thing is that sewing has been about 24%, 25% higher so far at this point of time as compared to last year because of the good support price of the cotton. So cotton prices are likely to remain under pressure. Second thing about the yarn realization in terms of cotton yarn and cotton-related products. You see then there is less demand because the spinning mills started actually sometime in last week of -- after April 20. Some started in first week of May. But the downstream industry, like knitting, weaving and garmenting, they started much later. Secondly, the spinning industry has the lever in their housing colony, so they could run better capacity. But the downstream industry don't have lever colony and people were not ready to stay outside. So there has been reverse migration. The work hasn't gone to their houses, even from the spinning also. But from these industries, most of the people have gone to Ludhiana, Tirupur, NCR, all those areas. So there are no workers even if they want to run. So without the downstream industry, demand in India is very poor. But the overseas demand, Bangladesh, Vietnam, very good demand of cotton yarn. But then Bangladesh, the expected problem was there. Because there were problems at the [indiscernible]. So now [indiscernible] has been resolved and the [indiscernible] has started. So those was another challenge. So cotton yarn will continue to sell. Realizations will end up better in my opinion. And similarly, cotton [indiscernible] will be also under pressure. But the margins will also be definitely under pressure according to me. Because the supply be more than the demand domestically as well as the export. In case of manmade fiber yarn, you see that manmade fiber yarn -- when we talk of the manmade fiber yarn, you see majority is -- there are many, many [indiscernible], whether it is a ladies' garment, whether it's a gents' garment, whether it is a functional garment, whether it is a clinical garment. So the demand is not there, whether in domestic, whether in export. But everywhere the demand is subdued, demand has started coming in. But the supplies are there, people started working initially. And since the mills are very heavy fixed charges, they need to work at least to some capacity, where the smaller [indiscernible] in India, as you know, the most of the downstream industry is unorganized. So they have much less standing charges. But still they have, but they don't have labor. So the supply pressure will be there. Realizations will be under pressure. Demand will be poor. And in case of raw materials of the fiber, those have already come down. So in terms of polyester staple fiber, that has already come down. But from this level, I don't think there will be any further downfall. And the prices are likely to remain [indiscernible] at least for the next month or so. But since the situation is totally dynamic, every day, situation is changing. And you know that we are swinging between hot and [indiscernible]. In the morning, we think that, oh, that things are going to be better. In the evening, [ we see something ] different. So the situation is totally uncertain, making any prediction, even reasonable guesses, very difficult. But one thing is very clear, that the demand will be less, realizations will be less, margins will be under pressure. So this is the situation. I hope I have answered your question.

Yes. Sir, with respect to -- with respect to cotton, you mentioned the prices have been down by 15%, 20%. What would be the decline in PSF and VSF prices?

So if I say, the PSF prices has gone down about 10%. PSF prices has gone down by about 10%. And VSF has gone a little bit. VSF has gone a little bit. But those prices are also under pressure and may go down further going forward.

Okay. Sir, next question is with respect to your recycle plant. So in this current situation, are we continuing with the CapEx plan? Or what is the status of the plant? And when do we plan to complete it?

No, no, no. We are already on the track. We have not abandoned any of our CapEx projects for your information. We are on the track. We are -- our plant is almost ready. It is to be commissioned, and we hope to commission sometime in October, November.

Okay. So the CapEx plan, what will be -- what was the CapEx for FY '20? And what will be your CapEx for FY '21?

I think that those figures really with our CFO, he will share with you. I think it will be about INR 40 crores for this year, I think.

Yes. So the total CapEx, including this, whatever we are seeing was around -- our normal CapEx was around INR 89 crores. And next year onwards, we are expecting it to the INR 35 crores. This also includes some modernization projects, which we are doing in the Ludhiana home textile.

Okay. You're increasing capacity there? Or it is modernization in Ludhiana?

No, it is actually modernization. We are essentially adding certain machinery to increase the product portfolio as per the customer requirement.

Okay.

You can call it, even the debottlenecking and diversification and something like that. We are on the track of our CapEx. We accept it. Those things we scan and are not so important this year, only those things we may not do, but we are on the track. We are not -- on the contrary, it is a -- I think, even if it takes 3 months, 6 months, 12 months, but we hope that we are getting ourselves ready when the normal demand comes up.

Okay. Sir, in general scenario you're meeting your hosiery products, would form what percentage of industry? Because right now, we're seeing good demand in the hosiery products, as you mentioned, track pants, t-shirts and stuff. So generally, what is -- how much proportion of Indian industry is actually knitted and how much would be woven? Any of that statistics available?

I think right now, I may not have the exact statistics. But I can say about that knitting, the entire clothing industry may be about 50% and the woven may be about 60%. Maybe a little bit here and there. This includes for export as well as for domestic market.

Okay. Okay. So sir, we -- how is the user segment doing apart from hosiery when you were talking to certain yarn companies, you're saying home textile demand for yarn is also building up decent. So any other user industry doing better apart from the hosiery segment?

So I don't think we -- you say every sector is on something, but it is not...

Not up to the mark. Okay.

Yes, not up to the mark. You see, when the winter wind will be approaching, people will be preparing for the winter, something like that. And in case of export uniforms, in terms of export uniforms, we'll be doing better in India. Also schools ultimately will open because as of now nobody knows when these are going to open, but the fully is military and so many people need uniforms. So uniforms certainly in other sector, something like essential. You see if somebody has to buy shoes today for going to a party, perhaps you may defer it.

We take the next question from the line of [ Ritesh Poladia ] from Girik Capital.

Sir, what is the CapEx fund for FY '21?

'21, I think our CFO was just mentioning -- Bipeen, how much is that exactly, 2021?

Yes. So 2021, we are having a CapEx plan of around INR 25 crore to INR 30 crore, normal CapEx and the CapEx for the project, which is under implementation. There will be some additional CapEx of around INR 20 crore, INR 25 crore.

So how much...

INR 45 crores, INR 50 crores total.

Yes.

Okay. And on green fiber, how much is already spent and to be spent?

So on green fiber...

INR 25 crores could be spent -- INR 25 crores, modest, could be spent. This year, we already spent I think it is around INR 200 crores, INR 190 crores, INR 200 crores.

No, we all spending for around INR 175 crores, INR 176 crores. To be spent is around INR 25 crores to INR 35 crores.

So earlier, there was a plan -- so is there any change in the CapEx plan for green fiber? Because I believe earlier it was about INR 175 crores?

No, no, no, no. It was not. So there is no change in our CapEx plan. What has happened is that, as we said, that there is a -- if you see our -- the press release also, there is some impact in terms of the commissioning. This should have happened much earlier. It is because of this pandemic and the COVID-19 and the travel restrictions that we are seeing that the project is getting time on time line basis and the cost base is slightly delayed. And so there could be some cost impact because the commissioning could not be completed -- because the engineers could not come. After this, China put the restriction after in January, February. The government of India also continued to have the restriction on travel. So the manpower could not come for the commissioning. So we are ready, we have done everything, whatever required at our end. And we are expecting them to come here, and we are working with the government closely to get the Visa done.

Assuming everything is open, how much time it will take to commission now?

No. Let me answer. Let me answer this. You see, everything is ready, only commissioning and -- so the fine-tuning is pending. You see that you -- no, even the government has not yet indicated when they're going to start the international flights, but as for the indications, as for the thinking, some time in July, they should restart the international flight, domestic, they have started. Once they start the international flight, the engineers will come and thereafter, as I mentioned to you, that commercial production of the project will start in October and November. This is what is our expectation at this point of time.

Okay. Also in the presentation, on Slide 13, you have mentioned about your next growth phase. Could you give us some more indication as what are the new segments and inorganic growth opportunities which we are seeking?

On Slide number?

13.

Bipeen, can you check and answer it?

Yes, yes. Sir, yes, I'll just take this question. So essentially, what we are talking about the [indiscernible] based on the backward integration, which is that what we are expecting in a Green Fibre project. Once it's commissioned, we will have a much better control on the recycled fiber, and we will be able to meet our own requirement -- capital consumption requirement to the extent of 65% to 75% of our own consumption requirement in all our yarn capacity. So we have much better control, consistency, price quality, and also we will see improvement in EBITDA margin because of the better raw material prices facing on the battle to conversion. That's one. Two, we are expecting that the growth in home textile going forward not because home textile, you can see that on a segment basis, there was a pressure and we have also taken some charge. But the thing is, going forward, we expect that the home textile will also should be -- it should grow, and we are now having a new SKUs and the new designs, which are getting launched. Opportunities in forward integrations, we keep on exploring new specialty yarns every day and have new customers, new territories. So we have, over a period of time now, having presence in more than 65 countries in export. We are having probably the largest diversification in terms of customers, the world over, and this segment also, and even the geographies for manufacturing. We are also working, as you can see that year-over-year we've dropped our working capital. So you can see actually the free cash flow also we could generate. And meet our -- all the requirement of financial, and we have undrawn limits in working capital as well as we have dropped the rates. So we are expecting that the margin should essentially improve going forward. Of course, as we are not expecting the event like COVID-19, but we are still hopeful once these things settle, that we will see -- because as Khandeliaji said, we are fully geared up and ready. So once the economy gets stabilized in revival, we should see -- we will be the early movers and are people who will get the maximum benefit out from that on the demand revival.

Sir, also, you have spoken on the inorganic growth opportunity. And at the same time, you are saying of the deleveraging also. So what is the optimum debt equity you would look and then you can start your inorganic opportunity?

We are actually lower than one. If you see my total debt to -- total debt-to-equity ratio, debt-equity ratio, it is much lower than one. In fact, that is what we have projected. So we are not having a specific number in our mind for any specific inorganic opportunity, but what we are saying is that we have remained very highly disciplined and very conscious of our debt. And over a period of time, we are also very aware of our interest burden. So you can see there is a continuous drop in the interest. So we have seen the debt equity is 0.91, which is lowest in the last 5 years since 2016 onwards.

Sir, one final question. What's the cost of debt for us after all the subsidies or...

Yes, 6.7%. We have mentioned the average cost of rate for all term loans after TUF is 6.7%. And our working capital has also come at that rate or slightly better than that because we are also [indiscernible].

[Operator Instructions] Next question is from the line of [ Asta Samdani ] from Shine Associates.

Sir, I have a few questions on the home textile front. Sir, I wanted to know what is the outlook on the home textile, particularly the upholstery demand for the next 2 to 3 years, if you could elaborate on that?

Yes. Would you please replay it.

So just -- I mean, elaborate on the -- based on the market-wise, basically, in the U.S., Europe, Middle East, if possible.

Updeep, are you online?

Yes, I'm here.

I think it will be difficult to give market value, I think. But anyway, you can give her that.

So on home textile front, especially if you're talking about upholstery and drapery, so post-COVID situation, it will be like this, that this is one of the last items, the specialty item. So the comeback for this segment would be -- it will take some time, but we expect that the same level, what it was in the last year, we could reach somewhere towards '21. This is just an estimate. That in that, we can do that. And most likely, it will be more towards the hygiene where we have antiviral, antibacterial used for the functional textile. And in U.S., this demand would come first because they are the first to get into these things. So I presume that the U.S. demand would come first, somewhere that, too, in the year '21 or towards the last quarter of 2021. And similarly, U.S. will be followed by Europe. Middle East, I think it will be a little depressed for a little longer time than these 2 countries. So I presume that '21, '22, we'll see a demand of pre-COVID.

Also sir, I wanted to know that have you been able to shift the job work completely to our own capacity?

Not yet because you see -- we had that plan for -- I mean this year, starting from March onwards. But due to this present situation, we are not able to do that, but we are getting better realization in job work now. So we are getting a better job work basically for the processing side. So on the home textile front, we have made some changes in our product portfolio and which has got a good precedence in the market.

Also sir, are we doing any -- currently doing any work for the U.S., U.K., Europe market yet, as you had mentioned earlier that they have better margins?

Yes. Our realization in these markets, in exports, have increased over the last year. And now also, we have the first regimens coming from U.S., even in the post-COVID. If we look at all countries, including the domestic market, the U.S. has -- I mean, we have got some good business in U.S. in the last 10 to 15 days. So U.S. is giving us good margin. And going forward, we look forward that we'll get better results there and better orders there.

And then just to follow up on -- as you had mentioned on the earlier quarters where we were planning to launch a product in the U.S. to the American Silk Mills, if I could know the status of the sale.

Yes. This was -- already, we have placed 56 placement of that product. And there was a market which scheduled in the month of May, then it was postponed to July. Now it is basically postponed in November. So if it happens, this was -- this postponement was because of COVID. So if this happens, because there is a cycle for this, so I think we'll be able to really start getting the orders somewhere in the month of November. Out of those 56 placements we have done for ASM launch.

Also, sir, if I could ask on the distribution of home textiles. How much of the sales is through brick-and-mortar and how much is to e-commerce?

I would say, as of now, over 90%, 93%, 94% comes from brick-and-mortar. And online sales is only in some couple of formats in India. So now we are increasing that. We are now getting registered, and we have now geared up with our virtual showroom to do this online sales. As of now, it was only 3% to 4% or 5%.

So sir, is this in line with the industry trend?

In upholstery, yes. In made-up, yes, in case of made-up, it is slightly more. But since we were not in made-ups in the past, so now we are getting into that. So otherwise, for upholstery, it is in the industry trends.

Sir, also on account of COVID, are we seeing a change in the consumer purchase pattern now?

Definitely, yes. There will be a couple of changes which we foresee. I mean based on what we have experienced over the last 3, 4 months. One is, as I said, we will -- the industry would go more towards the functional textiles like antiviral, antimicrobial antibacterial and all these, all these value-added things. So the consumer would go more on that even in upholstery and, to a larger extent, even in cottons. So that is a trend which we look at. Even in terms of hospitality industry because post-COVID when they make some renovation in the hotels and hospitals and others, there, they will go for more of fire-retardant and such functional textiles. So this is the trend which we envisage that there will be a change in the trend.

Have Updeep had replied to all your questions?

Yes, sir. Yes.

Next question is from the line of Shomi from -- individual investor.

Hello?

Yes, please. Yes, please.

So sir, in the past, we have seen that whenever there are challenging times, there is a lot of consolidation that happens within the industry. And we have seen smaller players without good balance sheet strength kind of falling to the wayside. So given your vast experience in the sector, what do you think is going to be the outlook as far as the Indian textile and apparel sector goes? Do you expect a similar sort of consolidation? That is my first question. If I can also ask the second question. You have forayed into a lot of products which are very relevant. As I see on your presentation, antiviral cloth and various PPE equipment also you are manufacturing. So I was just wondering what is the longevity of these. And going forward, do you expect these to contribute significantly to your product line? And how do you see that panning out as well?

Right. Regarding consolidation, I'm of the view that a lot of consolidation is going to take place because it will be difficult for the weaker players to continue. So consolidation, while happening, and I think going forward, it will happen in a much larger degree, domestically as well internationally, number one. Second thing, regarding the products, which we have started doing, I have to say that you see there are certain things which have changed forever. Like people have become more sensitive towards the environment, towards their fitness, towards their well-being, which they never thought earlier. So many things like our official, Mr. Updeep, mentioned, like antiviral. So there are many -- antimicrobial, antimicrobial is nothing but antibacterial. So many such type of things like the people safety, safety equipment, these things are going to extend and not with exactly the same price, that would have PPE in short supply. Go in India, India has done well, but definitely going forward, most of the PPE doctors, nurses and other paramedical staff who'd like to order the PPE is they have never thought of. So even the replacement demand, because the PPE can be used only for the 1 day, once you use it, once you take it off, it will be useless. So those -- so some demand is going to be there in domestic as well in export market. So that's why we have not done it for only for 2 months or something like fly-by-night or something, nothing like that. So those demands are likely to remain there, maybe in varying degree.

Right. Sir, and if I can just ask a follow-up on the consolidation bit. So are you expecting some of the larger players such as yourselves to be picking up smaller companies or assets if they're available for cheap? And is still there any strategy along those lines going forward?

So if you -- we will always keep on evaluating various options. You see, it should be a strategic fit, it should be -- it should fit in our objects. So those are the different things which we keep on evaluating, but I cannot give more particular reply of this point. But we keep on evaluating. We are always looking for opportunities. So consolidating can be a better opportunity than putting greenfield plant at this point of time, if the things are well. If it is only due to financial issues, not because of any other inefficiency or bad quality or customer relationship or something like that, bad reputation. So those are the things which we keep on evaluating, and with any good thing will come, naturally, we will be very interested going forward.

We take the next question from the line of Prerna Jhunjhunwala from B&K Securities.

Sir, just wanted to check on the cost side, how are we reducing our fixed cost in this scenario? And what steps have we taken in the last 3 months which will help us deleverage our P&L? We know you have deleveraged your balance sheet by reducing your debt and working capital. What is happening on the P&L side?

Yes. You see, and there are so many components of the fixed cost, not one cost so far in the overhead. For example, I take the traveling. You see that a lot of people used to keep on traveling in India and abroad for marketing and other purposes, for listing the factory and other things. We see normal days, everybody is working online, and this has become the new normal. So traveling costs are bound to go down because people are used to it. Earlier if I wanted someone to open you from other line and we talk on the line and discuss everything, for us, people may not have given that much interest. But now everybody rather feels happy to be online. They save a lot of time. So traveling, say one example like that. So that was a big pause for our fixed overage. Then there are so many other overage like cars and other things offices fit. Many which we don't need from many offices everywhere. We can cut down some of the offices. We can cut down some of the -- some people can continue to work even for the full year from their houses. That will save their time. They will be with their family. They will have the convenience of working. So those type of things have already started happening with us and we are continuously working on individual component. So this is how -- then there are the -- then there are the employees costs, we have not hired anybody, even because of the COVID. We always believe in utilizing our resources in a much better way. There are so many opportunities, but -- so that -- but we are definitely looking into -- to make better use of our resources. Even if the employee is anyone else. So those type of things we are doing. So perhaps in absolute number. It may not come down in some of the cases, but in terms of value proposition, it will increase.

Okay. So no definite major increase in...

There are so many. I can't outline everyone. As I mentioned...

No, I'm not asking outline and maybe 20 people can...

So we are thinking to go paperless. This is going to be seen in another [indiscernible]. There are no government that will not be required to have so many preparation in filing and filing -- everything counts money. We have so many things which we are doing like that.

Okay. Okay. And sir, one question on the consolidation front that a previous participant has also asked. How much capacity would have actually gone out of system in the last 2 to 3 years because demand was not that great? And things were not that great for the selling industry in the last 2, 3 years. So going forward...

I think about 10%. I think about it, not much number. They may be stressed. Some might have gone out, some may be on the verge of going out, which is the neighborhood now. Maybe about 8% to 10% total capacity might have gone down, may be due to partial working at that point of time, before COVID. Post-COVID how much will go down? It is very difficult to predict at this point of time.

Okay. So 8% to 10% would have definitely be just fair?

Would you mind because I guess I don't have the exact figure because some may be working partially as known to the industry. So, one has 100,000 national capacity but is operating only 60,000. So definitely it has gone down. So yes, the capacity to produce 3 shifts, but he was running only one shift. So somebody has the capacity of 10 lakhs quintal but he is operating only 2 lakhs. So something like that. Some might have closed, but actual closure might have been very little less, but it may be mainly due to the partial working. And -- but the actual impact will be coming now because they were already stressed. So it will be difficult for them to continue many of the units.

Okay. Okay. And sir, how is the demand for Milan yarn at this point in time?

Every day -- demand for every product is challenging right now. So everything there -- you see, Milan yarn has also multiple various application, domestic export, domestic consumption, garment export, so there has been a lot of liquidations outside India. Stores have been closed. They have buying houses that renegotiate with the many countries who are buying those yarns. So those challenges have been there. So for the Milan yarn, I'm sure challenges are more or less the same.

Next question is from the line of [ Sonali Thakur from Meta Investment ].

Sir, I have a question on our hedging strategy. So that company has a hedging policy or any strategy we follow, if you can throw some light on that?

Yes. Yes, we don't. We agree, the foreign exchange exposure, if the investment come from the export order, we don't take any foreign exchange exposure without underlying export contracts. So the real-time hedging is there. So today if I receive the export order, I will either sell it forward or will take PCFC. So it is 100% held all the point of time. If there is anything -- hardly, there hasn't been any cancellation of any order in our sales. If that is canceled, then it is taken straightly forward against another export contract. So this is our hedging position.

Okay, sir. And sir, if you could share what is the average realization rate of U.S. INR conversion in Q4 FY '20?

I'm sorry, I could not get your question. Can you repeat please?

Yes, sir. So I was asking if you could share the average realization, you will see an INR conversion rate in Q4 FY '20?

Okay. Bipeen, can you please reply to this question? Do we have that figure this year? Bipeen? But in general, I can say there are 2 -- I may not have the best adviser right now before me, but I have to say, February, things were going on well, and it was on the lines like it was in the third quarter. But now the realization there and the margins have gone down, as I have already mentioned. So average realization is not so important, but the important is the gap between realization and raw material. So the contribution date, which we call gross contribution, gross margin, which we can say that gross contribution. So that is more or less you can say, definitely, some of the products which have gone down, in some of the products, it is more or less same. But definitely, overall, it has gone down.

Okay, sir. Sir, also, I wanted to ask on the knitting side. That in knitting, there's a very small capacity. So do we have any plans to scale it up in near future? Can it arise as a new segment going forward?

No, no. Yes. Going forward, we have the plan, but not right now because this was only a trial capacity for specific machines for specific products. We are certain some of the manufacturers which use special lighter and high-end knitted fabrics. And that was meant for the meeting of -- in Milan yarn only, not outside yarn or any other thing. That was for the specialty yarn. So once it goes through because then there has been many challenges once we put up those capacity, those have -- still could not come up to our expectations so far. So once that happens, but future is of the knitting. And the worldwide issue will go, knitting is definitely much more than the woven products. So we have the plans to go ahead, but not right now, not right now.

[Operator Instructions] Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. S.K. Khandelia for his closing comments.

Okay. Thank you very much for all those who joined and raised their question -- very interesting questions. So the first remark, which I would like to make, is our first priority has been to see safety, ensure safety of our people. And similarly, I expect all our stakeholders, whether it's shareholders, whether suppliers, whether customers, everyone connected with us directly or indirectly, I would like them to be safe, healthy and take all precautions. This is the first thing which I would like to ask about. [Foreign Language] These things, this COVID and all other things will be over sooner or later. [Foreign Language] After every night, there is a day. So we -- sometimes night may be a little longer, say, like winter nights. In the north, winter nights are a little longer. So after night, there is bound to be sunrise, and there is no doubt about it, and we are fully confident, and that we will sign with a much better sign once this night is over. And this is going to be over. This is what I wanted to say. We are fully confident to get over it. Thank you.

Thank you. On behalf of Sutlej Textiles and Industries Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.