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

Ladies and gentlemen, good day, and welcome to the Sutlej Textiles and Industries Limited Q4 and FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bipeen Valame, Whole Time Director and CFO. Thank you, and over to you, sir.

Good afternoon, everyone, and welcome to the earnings conference call for Sutlej Textile Industries for the fourth quarter and full year FY '22. I hope all of you and your family are in good health. Joining me on the call today is Mr. Updeep Singh ji, President and CEO of Sutlej Textiles and Industries Limited and Stellar IR Advisors, our investor relationship team. We have already uploaded the investor presentation, and hope everybody had an opportunity to go through the same. Let me take you through the financial highlights. After which, I request Updeep ji, to run you through the industry and business highlights for the quarter and the full year FY '22. The year gone by saw the impact of COVID in first quarter of FY '22. Despite this, Indian economy began bouncing back from the pandemic and Indian yarn players experienced a strong demand, amid healthy export, pent-up demand in domestic market with residing impact of COVID-19. Global demand also saw renewed buoyancy and at Sutlej, backed by healthy sales growth, both in domestic and export market. With better realization and demand, capacity utilization stood at 94% to 95% during quarter 4 FY '22. Coming to the income statement, our consolidated total income for the financial year 2022 was at INR 3,112 crores, which has jumped up 63% against INR 1,915 crore for the previous financial year. In Q4 FY '22, the consolidated total income was INR 901 crores, which is 31% increase year-on-year basis. We attribute the performance in the last quarter to overall improvement in our product mix, better efficiencies, better geographical reach with positive economic sentiments as well as improving global trade, notwithstanding geopolitical situation and the challenges. We saw a significant increase in export. And for FY '20, the total export stood at around INR 1,300 crores against INR 660 crores in FY '21. For FY '22, our consolidated EBITDA stood at INR 414 crores, which is 13.31% EBITDA margin with 624 basis points higher than the previous year, where it was 7.1% with total amount of INR 135 crores. This growth of EBITDA was primarily driven by volume and higher realization and better product mix. For quarter 4 FY '22, our EBITDA was INR 133 crores, which translated into margin of 14.7%, which is 282 basis points higher than the previous year, which was at 11.9%. On profitability side, for the full year, our consolidated PAT was around INR 150 crores against loss of INR 4 crores in previous year. For the quarter, we earned net profit of INR 52 crores, which is higher by 86% year-on-year basis. The Board has declared a dividend of INR 1.85 per share, which is around 20% of PAT. As you also know, the Board has approved setting up a greenfield project of 89,184 spindles, comprising of cotton melange yarn and PC gray yarn along with dye house at Jammu Kashmir with an estimated project cost of INR 914 crores, which will be funded with a mix of internal accruals and debt and will be implemented by around Q4 FY '25. Updeep Ji, President and CEO, will update you about the project. We also got long-term credit rating of A+ by India Ratings with outlook of stable, signifying adequate degree of safety regarding timely servicing of financial obligation and short-term and bank funding of A1+ by India Ratings, signifying very strong degree of safety regarding timely payment of financial obligation. On balance sheet front, our total debt saw a marginal decrease of INR 35 crores to INR 942 crores at the end of the year. This incremental date was on account of increase in working capital, which was mainly on account of higher raw material costs attributable to purchase. The debt-to-equity ratio has continued to remain below 1 since last few years and has improved further to 0.86x in FY '22. With more than 25% headroom still left in our working capital facilities, we believe we are in a comfortable position as far as the liquidity sense. That is all from my side. Now, I would request Updeep ji to share business outlook and industry scenario. And then, we can open the floor to question and answer. Over to you Updeep ji. Thank you.

Thank you very much, Bipeen ji, and very good afternoon to all of you, and thank you for taking time off and joining this investor call for Sutlej Textiles and Industries Limited. Let me begin the call by iterating our outlook on industry. We believe that there are some very positive tailwinds for textile sector in spite of the fact that bottom is riding high. With the pandemic having altered global supply chains for textile companies and more importantly, given the current geopolitical situation in the world, we are witnessing a gradual shift from single source country and the efforts targeted at diversifying the supply chain. Since India's textile and apparel value chain has underlying strength in form of a country being a huge source of raw material, India being one of the largest producer of raw cotton, presence across value chain, quality of products, and the aforesaid phenomenon is being considered as a huge opportunity for Indian textile industry. Indian spinners and home textile players are being considered as the key beneficiaries of this favorable trend. With the second largest spindle capacity in the world, Indian spinners are seeing full utilization of their capacities, superior margins as yarn business remains strong. I'm talking basically in terms of dyed yarns, a blend of synthetic and cotton dyed yarns. The unprecedented growth and improvement in profitability over the last few quarters has been on account of China Plus One policy and U.S. ban on Chinese textile products built from Xinjiang cotton. With expansion in capacities, consolidation and export demand for Indian yarn still at reasonably good level, Indian spinning business is witnessing growth. In this, I would say that Government of India has also played a role. I mean the policies of Government of India with PLI, with the mega textile park and overall impetus to the industry. I mean this industry is bound to grow with -- at the moment, on the gray yarn, I understand there are certain pressures. And Sutlej being -- Sutlej Textiles being a trusted brand in yarn segment, has been able to capitalize on the opportunities, which is evident from the results. However, we are not present in the gray yarn -- gray product segment in a big way, which is needed to complement to dyed and melange product offering. In view of increasing demand, our plants, various brands in terms of manmade fiber and cotton polyester which goes across multiple categories of end use, there is market potential for gray blended yarns, both in domestic and export market. This has given us confidence to launch a greenfield project of almost 89,000 spindles comprising of cotton and blended melange and PC gray melange -- sorry, PC gray blended yarns, along with the dye house in Jammu and Kashmir at an estimated cost of INR 994 crores, which will be implemented around Q4 for the financial year 2025. The project will be funded through internal accruals and debt. And any more sort of questions we'll be able to take in our question-answer session. And we believe that with all these positives going for us, Sutlej Textiles is well placed to continue its strong performance and add value to stakeholders. Thank you very much.

[Operator Instructions] The first question is from the line of Yash Agarwal from JM Financial.

Yes. Congrats on a very good set of numbers. I just wanted to check how the demand situation is panning out going forward. Obviously, you reported 95%, 96% capacity utilization. What do you feel would be the capacity utilization in the first half of the current financial year? And also, we've had a very, very good quarter-on-quarter expansion in EBITDA margins. So was this led by inventory gains or it is better spreads? And are these spreads sustainable, maybe not at this current level, but at elevated levels.

Yes. So I'm sorry, I couldn't get your name.

Sir, I'm Yash Agarwal from JM Financial.

Okay. Thank you very much, Mr. Yash Agarwal for a good question on this. First, to answer your first question, that was on the demand over the quarters, in the next 6 months and the capacity utilization thereof. See, in the last quarter, we have achieved a capacity utilization of almost 95%, which has shown significant improvement over the earlier quarters, which were hit a little bit by pandemic. So in this quarter also, we should be able to achieve around the similar capacity utilization. And going forward, I think we should be hovering around 95%, which is good enough for a dye -- looking into, I mean, the aspect of being in dye segment. So where the lot sizes are getting a little smaller and we should be able to achieve 95% -- 94% to 95% utilization throughout the year.

Sir, what is this demand -- where is this demand coming from?

Yes.

Because it's more export oriented, the export share is going up, but is it sustainable at 47%, 48%?

Right. So in this -- if you look at, there was little bit of pent-up demand and mainly in the synthetic yarns, see the export market has been good, and we expect that at least for a couple of quarters, this is going to sustain very well. So we expect that our exports in terms of synthetic yarns would be good enough in the coming 2 quarters as well.

Sure. Sure. Got it. Also, how are the yarn realizations panning out? What is -- I mean, I can see that there has been some increase quarter-on-quarter on yarn realization. So are these sustainable? And coming back to the spreads question, how are the spreads currently and the outlook?

See if you look at cotton, in case of cotton melange yarn, yes. I mean, the realizations have not grown in the same percentage value if you look at the raw cotton. But we are able to recover almost 70% to 75% of the increase in the cost. Whereas in case of synthetics, I think this was a little higher -- the recovery was a little higher than the quarter. So I would say that depending on the fiber prices, we were able to recover realization to the extent of almost 92% plus.

Got it. Got it. And what has been the escalation -- the raw material escalation on the synthetic side in the last 3 to 4 months?

See, if you look at the raw material escalation of synthetic side, in the last 3 months, the polyester fiber has gone up by almost 12.8% and viscose has gone to the extent of almost 2.6% and acrylic fiber by 6.5% and recycled by almost 6.5%.

And we've been able to pass on this -- the cost associated.

Yes, yes, yes. We have been able to do that. It is not only the fiber. It is other costs in terms of dyes and chemicals as well. So dyes and chemicals input costs as well as the fuel cost. See, in the last quarter, the fuel costs are also riding high and still -- and now again, they are a little higher. So I think we were able to pass on a good part of that to the consumers because of the pent-up demand as well.

Sure. And on your EBITDA margin, so are double-digit -- low double-digit margins is something which you feel is sustainable for FY '23, given the fact that there is 95% utilization that you are targeting?

Yes. We are confident of doing that, and we have taken certain steps also so that we are able to sustain these margins.

Got it. Got it. And on your CapEx, sir, when is it coming on stream and how much will it add to the turnover for utilization?

See -- see, depending on -- there are a couple of things. One, the delivery of the machines because nowadays, the delivery of machines are little erratic. So we'll book our machines well in advance. We'll do that now since this project has been approved by the Board. So we should be able to add a turnover of almost, you can say, INR 850 crores.

Sure, sure. On annual basis.

On annual basis which has been estimated. And I mean -- with good margin as well.

Sorry to interrupt you, Mr. Agarwal. May we request that you return to the question queue?

Yes. Just a follow-up on the CapEx only add is that will this commission by -- maximum by end of FY '23 or it could spiral over to FY '24 also?

No, it will go to FY '25, depending on the size of the project and also delivery of the machines.

The next question is from the line of Prerna Jhunjhunwala from Elara Capital.

Congratulations on strong set of numbers. Sir, I just wanted to understand your improvement in profitability on a Q-on-Q basis, what really drove the margins -- gross margins as well as EBITDA margins for you from the product mix perspective and from the demand perspective?

Thank you, Prerna ji. Good question. And I would say quarter-on-quarter, we have been able to be little agile in shifting our product mix as -- I mean, answering to the market demand on an immediate basis. For example, when we increase our imports -- sorry, exports, so is the market -- particular market of export and what sort of yarn is required. May it be on the cotton melange side or on the synthetic dye side. So we were able to shift our product mix, I mean, within the least possible time, thanks to our manufacturing units that we could have that flexibility. If you recall, I think in one of my earlier calls, I had said that one of the things which we are implementing now is our flexibility to shift. Wherever we need cotton melange to dye synthetic, then within the dye synthetic, the count range. So these are the flexibilities we created and another flexibility we created was on the lot sizes because the market demands lot sizes of smaller, and we also pay the premium for that. So that is the flexibility we've created in our manufacturing units. That helped us, number two. Number three, we explored certain new market and new, I would say, market segments. One is a geography. We explored certain new geographies. And also, we explored new market segment in terms of little bit moving away from apparel. So we move towards home textiles, where we could supply yarn for different applications. So were the few reasons or major reasons that we could, I mean, get profitability quarter-on-quarter, riding on also our efficient purchase of raw materials. So that was -- I must complement my team there that we could exercise a very professional approach and very well thought market researched approach in covering our quarter and also the raw materials for that. So these are the major reasons which led us to this level of profitability quarter-on-quarter.

And how much quarter inventory now you would have? And if you can share what will be the cost for the same, which you will be using for the next 6 months or 8 months?

Prerna, these are the certain numbers. If you look at the inventory, I think we should be carrying close to about 90 days, but -- a little more even. I would say, in the extent of, say, 100, 100 plus. But the cost would be almost a little less than the permitting price, the market price of the quarter.

Okay. Okay. So in the current product mix, sir, how would you -- could you give us a bifurcation between melange yarn, PC and if at all, you have sold any gray, just to help us understand how these mixes have moved over the last 1, 2 years?

See the mix has been, say, in our -- if you look at our capacity, we have almost 55-45, sometimes 50-50. That is what I said. We have kept a flexibility of almost 10% on 50-50. So we could go either way. So I can say that as for our capacities and our product mix, we are 50-50 on cotton and 50% on synthetics with 10% buffer to go either way, depending on the market.

Okay. So flexibility of 10-odd percent is what you've created?

In terms of the product, yes.

Okay, okay. And sir, could you just help us understand the demand side on the apparel segment because you are largely catering to the apparel segment. So how is the demand panning out? Which key markets are doing well in terms of woven, knit and key export markets which are doing well? Some color on how the demand is panning out.

Yes. See, if you look at within domestic, in India, the market in terms of [indiscernible] this cluster has done well in terms of suitings. Similarly, certain corporates, I mean, there, the shooting segment has really moved on over the last quarter. In terms of exports, the biggest market in the last quarter had -- over the period of time had been Turkey. And in addition, I think the markets like Brazil has also helped us to grow in this.

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

Most of the questions were answered. But if you can comment on the benefit of this green fiber plant for us in this rising cost structure? And then, your outlook on home textiles business.

Mr. Vikram.

Yes, Vikram from PhillipCapital.

Yes. Thank you so much for this question. So first of all, I'll tell you about the green fiber project. See, this green fiber project now is on full stream. I mean, we clocked almost 97% machine utilization or the plant utilization. And most of the product goes in our spinning, our own spinning units, wherein we have got benefit after the stabilization. So it took it took about 3 to 6 months to stabilize the plant because it is a continuous process. And the quality of raw material has also little -- a little bit deteriorated. So we have to have a balance between the productivity, production utilization and the raw material yield as well. So I think now we are at the stage where we are fully utilizing the plant and also making some value reason in our product mix. So that has helped us in our spinning units, and we have not taken full benefit of this, and we can see this in terms of the quality of our yarn, based on the quality and the consistency of the raw material. So this project has really helped us to further our yarn business in the markets which are sensitive in quality and also with the consistency of the raw material, we are able to achieve a little bit better productivities.

And are we importing any raw material for this plant?

No. As of now, no, because the flakes import was open, but still the licenses have to be granted. So we have applied for that, and that would be only to the extent of 20% of the capacity of the plant, but the raw material all -- I mean, it is the bottles, which is collected in India only.

Got it. And sir, outlook on home textile, how we're seeing the demand panning out and our opportunities to grow from current level?

Yes. See, our home textile is one business where the category we are in, that is upholstery and tapestry. That has given us good opportunities this year. See, in the last couple of years, we have been making products and launching products. This being a little longer cycle -- product cycle or the order cycle, I would say, category. So now this year, we are fully -- I mean, we have already on the -- we are on the launch point or even we have launched products. We are getting good traction in the export market, especially in U.K. and U.S., which are little higher margin market as well. See, here, once you submit the sample, it takes you about 8 to 9 months to get the first 1,000-meter order. So we have crossed that stage. And I think in this year, we are going to do much better and be positive in the home textile business. In addition in domestic market, we have launched a cut service under the name of Nesterra. We have been able to clock to almost 300 stores across pan-India. And also, we have got good traction. Our 8 collections are already out with almost 1,100 SKUs, and we have been able to launch another 7 to 8 collections by July this year. So this will increase our reach within India and on the brand product as well.

Okay. Got it. And last question from my side, sir, about the way cotton prices have increased and the gray yarn prices have also increased significantly. Are we seeing some demand into blended yarn because of that or how that parity would typically was -- your view on that?

See, today, keeping the cotton prices, I mean, these are riding very high today. If you look at cotton prices have touched INR 1 lakh per candy. So people are shifting to some extent to go towards the brands more, where the percentage of cotton is being replaced by either polyester or viscose. See, it will be difficult to replace all of cotton. I mean, I can't think of that. But yes, today, if you look at on an average, I would say, 10% of the cotton in the blends have given way to viscose and increase in polyester. And most of the raw mills are trying to make blended yarns or 100% polyester yarn for particular applications. So, definitely, yes. Cotton is giving part of its blend to viscose and polyester.

[Operator Instructions] The next question is from the line of Ritesh Poladia from Girik Capital.

Sir, on greenfield expansion, what would be the debt component? And over 3 years, would you go up in hire of government's debt equity?

What is it? Ritesh ji?

What is the debt component.

That debt component would be to the extent of INR 594 crores.

65:35, that's what we do.

Yes, we'll do 65:35 ratio.

Okay, 65:35. So your debt equity on keep basis can go up from over 1x debt equity right?

Actually, Ritesh, it is moving up only in one of the years when the project is actually just getting launched and then it comes down. But actually to be very frank, in our all financial models, considering the benefit in this project, we are seeing it is [ just touching to] 1 percentile point at 1 year, but then comes down. So we -- overall, we are expecting it to remain 1 or lower.

Okay. One more question before I join to the queue. Is your production now optimum to the pre-COVID levels because during COVID there was higher demand of low margin products than higher margins. So is that production on optimum basis or still there is a room of improvement in the 95% utilization?

See, I would say that in terms of the -- I mean, during COVID, we changed our product mix. If you say the capacity utilization, yes, it is 95% plus. And in dye, we can go, say, a percentage more if at all, depending on the lot sizes. Again, I'm coming to that because the lot sizes are reducing day by day. So I think we are at the optimum level, but there is always room for improvement as far as the internal efficiencies are concerned. So I won't deny the fact.

So, sir, I get that, that 94%, 95% is this. But your product mix is optimum now?

No, this is ever changing because what sounded optimum to us 3 years ago or 2 years ago is sub-optimum now. So I won't say, but our new product development teams, they are out in the market to develop new product and new segments. So I would say, yes, today, what we can manufacture, we are doing one of the best things. But yes, going forward, we might have to change our product mix, depending on the market demand. Whether it is more on towards the home textile, more on, say, other segments, even for technical textiles. So, I would say it will be an ever-evolving product mix.

Sir, that would have a good margin or lower margin?

So it will be a good margin, of course, depending on the market. Suppose if there is something which crashes the demand, and we have to run the spindle, then margin could reduce, but more or less, I would say it will be margins up north. That is why we are developing new products.

The next question is from the line of Dhaval Shah from Svan Investments.

A great set of numbers, especially when the peers have been seeing the drop in the margins. Sir, just want to understand one thing. So from a near-term perspective, are you seeing a pressure on the spreads, A, because of the cotton prices and also pressure on your EBITDA margin because of the other cost? Sir, I mean you mentioned you'll be able to maintain margins at the lower double-digit also and so the volumes at 95% utilization. But want to get a sense that what is happening in terms of the spreads in the near term? And also, this higher demand, you said it has shifted to non-cotton, but because of the geopolitical issues, which are happening, what is your sense on the demand side?

See...

Just -- sorry to interrupt because, like, some of the research I read is mentioning about some spreads to the Indian textile mills.

Yes. That's right. See, there are 2 different segments. Number one, if we look at cotton, so the cotton, there has been a pressure on the cotton prices, especially on the gray cotton yarn prices because the spread in gray cotton yarn is now very much reduced. So that is one. And when the spread increased, the gray cotton spread increased, I mean, exponentially last year, if you all recall. Whereas, the spread in case of a dyed melange yarn did not increase to that level and that faster. So it went up slowly. So in case of dyed and cotton melange yarns. So similarly, I see now, I mean, the spread in dyed and cotton melange yarn would be impacted, but not to that extent, because these are all value-added products and the brands have to buy these. So with little bit of tweaking in the product mix, I think we do understand there will be a pressure on the spread, but not to that extent as we are witnessing in the gray yarns.

Sir, if you could elaborate in terms of the percentage terms, what sort of pressure do you see between both the categories?

See, I see little bit in terms of percentage if you look at, I see little bit more pressure on the cotton side because of the cotton prices. And we -- I mean -- in India, I mean, the polyester fiber being available or fresh as well as recycling good capacities, I think there will be less pressure. If I have to say, on a scale of 0 to 10, I see pressure on cotton to the extent of almost 30% or 40% and then on polyester to the strength of 20%, even less. So I don't see much pressure on the polyester side.

The line for the current participant has got disconnected. We'll move on to the next question from the line of Yogansh Jeswani from Mittal Analytics.

Most of the questions have been answered. Just a couple of follow-ups. So sir, the greenfield CapEx that we are planning, will the entire 89,000 spindle capacity come in a single phase or is this played into 3 phases?

See, it is a single phase project. The only thing is that depending on the machine deliveries, for example, 90,000 -- or 89,000 spindles cannot be installed in a single day. It will be spread over a period of, say, 6 to 8 months -- so -- but it is a single phase project.

Okay. And sir, we are not planning to add any fabric process to it, just the yarn as of now? Or is there a scope for adding fabrics as well?

In this particular project, we are only looking at the yarn and dye house.

Sorry?

And dye house. The dye to process for the yarn, yes.

I was just looking at the announcement that couple of other industry peers have made. So the INR 950 crores odd -- the INR 900 crores plus number that you have highlighted for 89,000 spindles seems to be a bit on the higher side compared to what others are doing. A couple of them have announced brownfield CapEx. So that is typically lower, but still, your CapEx plan seems to be on a very higher side. Any specific reason for that? Or am I missing something here?

No, no. I mean, there is a reason which I can tell you. Number one, part of this capacity is melange yarn capacity. So it is a double process. So what others might have announced is only spindlage. So for example, if you say 50,000 spindles in melange and 50,000 spindles in gray yarn, in melange, it is almost a double process. That is one reason for additional cost, number one. Number 2, here, we are also considering 40 tons dye house, a very modern 40 tons fiber dye house, so which is adding to the CapEx. So if you remove the cost of the dye house, then we are in line with the industry.

Okay. So -- and out of these 89,000, how many are we keeping for melange and how many for the other.

We are reconfiguring this, but these costs are based on almost close to 40,000 spindles of melange.

So roughly 50%, 50% we are keeping.

Yes, yes, yes.

Okay. And sir, last question from my end. A couple of participants have already asked you this, but in terms of the demand and from what we've been hearing from other players like home textile players and garment players, they are seeing a lot of pushback and a lot of friction when it comes to passing on the prices and a lot of them are seeing limited utilization going forward, at least for next 1, 2, 3 quarters. So in a situation like this, where cotton is so inflated and the demand from your end consumers is getting pushed back, are you still confident of passing on these price hikes? Or are you already seeing some pressure now or some friction from them coming in? And do you hope to maintain such margins going forward into the Q1, Q2?

See, as I said, there is a pushback, especially if you look at on the cotton side because the cotton prices are really riding high. So in case of Milan, I think the prices could be observed to the extent of 60% to 70%. There is a pushback, no doubt about it, and we are with the industry. As in synthetics, there is little bit of less of that because there is a high demand of that, especially in the export market. So, I would say there is a pushback but not to that extent in synthetics. So Q1, we expect that we should be able to get, I mean, close to the similar margin, if not almost -- if not exactly the same. So we are -- in Q1, we are not expecting anything really drastically low.

Okay. Fantastic, sir. And sir, could you share the average realization for melange yarn and gray yarn and the synthetic yarn? What are they currently and what was in previous quarter?

Yes. So there has been some increase. I can -- we can always share with you offline if you would like. So you can get in touch with our investor handling team. So they will be able to give you that.

The next question is from the line of Niraj Mansingka from White Pine Investment Management.

Just 2 questions. One, margins on the greenfield would be how much, sir, once it starts because the asset turns are less than 1.

Yes. If you look at the greenfield project, our margin on EBITDA on sales would be to the extent of almost 22%, 23%.

Almost in the double digit, about 17%, 18%. Here, actually, what we have considered is basically the state benefit. Jammu Kashmir is having a special scheme, and that's the reason we have decided to have the project there. So we see that there is a good benefit of GST and also some interest of rates. On EBITDA, we will be able to benefit in terms of the GST benefit.

So the margins, were it 22%, 23% or 17%, 18%.

So you asked in overall, because we have to take out the cost of dye house. So it will be -- on the yarn, it will be in the extent of 17% to 18%.

No, no, sir. What I'm asking is [ whatever revenue dues ] on the INR 850 crores. On that, what percentage margin would we make?

So in case on a total revenue, the percentage margin would be in the -- to the extent of almost 18.2% or 18.3% as projected by us.

Okay. Got it, sir. And sir, on the -- you said in the -- sometime back that the cotton inventory is holding at a similar price. But then, it means that you bought most of the quarter in the month of April -- March or April mostly because the prices have also spiked in the mid half of April as well. So just -- can you just clarify what -- on the holding cost of the inventory of cotton?

I think, yes, I mean, the cost of cotton has gone up by almost, say, 29% over the last 3 months. So we have been holding some inventory even before. And exact figures can be given by our investor team. I can't -- I don't have it here on the exact numbers as to what is the number we are holding and what is the price or the cost of product we are holding.

Right, sir. And on the home textiles, what was the utilization and when do you see the utilization going to higher numbers? And how do you see the margin trajectory for the home textile side?

See, home textile utilization in quarter 4 had been close to 70%. And we expect that we should be able to increase this year to the extent of about 80%, 82%. 85% is something in this business because of the various designs and all that. So I think we should be able to achieve this within this year.

Okay. And how will the margins move if the -- say, the utilization go to 85% and just some color on that as well?

Yes. So if you look at the margin because the costs are also increasing. Today, fuel cost -- I mean, the coal costs are increasing, the chemical costs are increasing. We see that we should be able to, I mean, have a good margin to the extent of EBITDA levels in exports to the extent of about 14% to 15%. And in domestic, it will -- little remain under pressure in single digit.

Okay. But -- and this would be more heavy on the export business or the...

Yes, yes, this is what we plan to, yes.

So you're talking about 14%, 15% EBITDA margin on the home textiles once the utilization picks up?

Yes.

Okay. Great. And sir, last question is on the PC yarn. I think others have also asked [indiscernible] harping on the topic. Do you see PC yarn prices have been impacted because of slowdown? Or do you see just discontinued margins for the next 6 months or 1 year?

I think PC yarn prices in the coming months may see a little bit of correction, not that much, but that has been a good segment over the last 1 quarter or so, even little more than that. So we don't see too much of pressure on that. But yes, there will be some pressure, at least.

Okay. Sir, last question, you said that there's almost 10% of cotton demand is [indiscernible] polyester and viscos. If that would be the case, then you would continue to see higher utilization for the PC yarn side, sir. Is that the right assumption?

Yes.

The next question is from the line of [ Saket Kapoor ] from [ Kapoor & Company ].

Sir, firstly, sir, if we take the cyclical nature of the business, sir, where are we, sir, in midst of the cyclicality that needs to be factored with the yarn prices, with cotton and the other components? And how are we insulated from the vagaries of the cyclicality affecting adversely on the business environment.

See, you mean a cyclical?

Yes, sir. Yes.

So textile business is really cyclical worldwide. So as far as we are concerned, we are looking into this based on couple of things. One, our product mix. That is why if you'll see, we have a product mix both in cotton and good waste and higher waste even in synthetics. So this is one, I would say, mitigation in terms of cyclical nature because sometimes -- I mean, it's not that always both the product lines would go down. So this is our assumption, and this is what we have seen even in pandemic. That is number one in terms of the fiber substrate. And now in terms of the product, yarn, that is, in case, for example, we have been earlier mostly concentrated towards VV. Pandemic taught us to go a little bit more towards on the knitting side as well. So today, we have balanced our product mix of yarn in terms of raw material, both for knitting and weaving. And we have created a capacity in terms of what we call the flexibility in terms of interchanging the 2 product mix. So that is another way of mitigating this risk. Third, also in terms of export and domestic market. See, earlier, we were almost, I think, over the years, we have been at about 30% or a little less of exports. Now pandemic and thereafter, where today, our export percentage has increased. And there, we have fixed the capacities with the flexibility that this much of capacities are for domestic and this much for export and the balance, we have given the flexibility to our teams to work on. So this is the third flexibility we have created in terms of the market, domestic and export. The fourth one is the market outside India. That is rather which continents, which countries we are serving and with what product mix. So these are a few flexibilities we have created within the company so that we are insulated to the extent possible on the cyclical nature of this business.

Right, right. And just currently taking into account the high cotton prices, sir, they are bound to correct going forward. So that will have a rippling effect also on the yarn prices and the spreading and then the destocking nature as the cycle plays on the downward. So sir, what would be our take, sir, on how are we going to manage the down trend that may come in a quarter -- in a quarter or 2x going forward, sir?

Yes, that's a good question. In the sense that, as I said before, when the prices go up, so dyed yarn prices, they follow a steady path. Same would be the case in case when the prices come down because as -- I mean, as being different from gray because gray is something which happens immediate. In case of dyed, there are long-term orders, and there are commitments even to the brand and of the brand. So in that case, the impact would be there, but it won't be that step. So it takes time to bring it down. So for that, we are prepared to -- I mean, both in terms of our raw materials as well as in terms of our market, but it's a little different than gray yarns.

Right, sir. One more point, if I may ask. Sir, what has been the amount of growth care benefits, which we have -- the benefit from the governments which we have factored for this year and how much is still receivable? Are we holding on to any credits on that?

Okay. So just to give you an answer that if you remember RoDTEP, the government added cotton in the RoDTEP which was earlier not there. And in synthetic, the government dropped the RoDTEP benefit. So overall, in operating income, we must be factoring around INR 15 crores -- maybe INR 20 crores, INR 25 crores on account of RoDTEP benefit. Now RoDTEP is 100% converted into the scrips. So, we have done -- actually, we all started selling the scrips and there was a demand also, but there was always a discount part on RoDTEP. So the discount was earlier rolling at around 18% which got reduced to around 14% to 15%, which has been already factored in the number. So as we get the scrips, we are actually -- now it is a simulate process online on the quarters, so as we are realizing these scrips, we are selling the scrips.

Mr. Kapoor may we request that you return to the question queue. Follow-up your questions. The next question is from the line of Samarth Singh from TPF Capital.

I just had one question. Do you have any commentary on the effect of the economic prices in Sri Lanka on the Indian textile industry and...

So the crisis in Sri Lanka because Sri Lanka is one of the big customers from Indian textile industry for the apparel business, so we see, yes, there would be some impact. But I think that won't be too large to impact the whole industry itself. So basically, maybe some sectors which are catering definitely to the apparels because that is more of on the apparel side with 2 giants present in Sri Lanka for the apparel business. There could be some impact, but not to that large extent. And that -- I think that would be tied over very soon. I don't expect too much of impact of that on our industry, on our company as well.

Would there be any benefit on the apparel side for Indian apparels?

See, for Indian apparel, yes, there could be benefit, but then we have to, I mean, scale up on our garment team. Basically, Sri Lanka is the garmenter. So we need to scale up our capacities and efficiencies on the garmenting to get all the benefits, what we can achieve from this situation in Sri Lanka. And I don't know what could be the time lag in case of garmenting to ramp up these capacities.

The next question is from the line of [ Amit Agarwal ], Individual Investor.

My question is regarding the Nesterra brand. Sir, if I'm right, this is catering to the consumers to the store owners. So how is this brand shaping up and is there any expansion in the margins because of creating your own brand? And who are we competing with in this particular segment?

So on this, I would say that, yes, Nesterra is a cut service brand where we are catering to the retailers. We are not directly going to the consumers. So it is kind of the retail point. So today, we have reached a retail points of almost 300 retailers. And we are slowly progressing because here you need a lot many of collections and SKUs. So we have ramped up that. And over the last 6 months, we have added almost 150 retailers in our fold. So we see that this brand today, we have reached a service of almost, say, 300 -- I would say, 400 to 500 meters a day. So we expect this to ramp up to plus 1,000 in the very near future with adding up more what we call SKUs and the collections.

Do you think there is an expansion -- scope of expansion of margins because of creating your own brand?

Yes, there is. But then at the same time, there's a cost involved. So we are going a little cautious on that. But definitely, yes, there is an expansion of what we call the profitability based on the brand. But that would come a little later because we can't expect the brand to perform well within a 1 year or 2 years of surveys.

Sir, the consumer doesn't know the brand. Consumer is just buying the cloth, whereas, it's the store owners that are asking for the Nesterra brand? Am I right?

No. Here that -- see, that is what I'm saying. To create current consumer awareness, we need to invest in brand in terms of advertising as well. So today, we have done that in a little limited way. But as it picks up, we'll be going aggressive in the market. So it is a consumer -- there has to be a pool of brand. When you go to a store, I must ask if there is an Nesterra. So I would say, as of now, 30% to 40% is that and 60% is what retailer sells as Nesterra.

And are there any other plans in the market right now because...

There are many. So here, we are -- see, we have, I mean, positioned ourselves in one of the higher-end brands. Otherwise, if you go to market, this market is more on the unorganized sector. So here, we have a couple of good brands whom we are competing with.

And my second question is regarding the cotton prices and the yarn industry. Sir, I've been reading the articles where it's being mentioned that the yarn industry is shutting down because of high cotton prices in last 2, 3 months, but your conference is saying there is hardly any impact. Could you go through the exact reason or we are supposed to find the pinch in the coming months, if not right now?

No, I'll tell you. The industry is saying shutting down the spindles where they are gray spindles basically, number one. These are small mills because if you see the cotton prices today require a higher level of working capital as well. So these are the small mills on gray. And now on gray, the spreads have really come down. So I would say, in our case, being dyed, it will take a little more time because when it went up, if you recall last year, last year cotton -- gray cotton yarn people earned EBITDA to the level of, I mean, more than 20%, right? So -- because they went very steep. Now, it has come down also very steeply. So there is a little bit of lag between the dyed and the gray. And because dyed goes basically to the brands and brands have a continuity of business and they are long-term business, long-term orders. So I think, at least for this quarter, we don't see too much of downside on our cotton melange sales.

But in the future, it can happen. It can -- it will have an...

This is a cyclical industry. I mean these cotton prices, nobody could predict. I wish we could.

And my last question is regarding the pet bottles. Sir, 2, 3 conferences back, you said the pet bottles were running very high prices of pet bottles. Have they come down? And what is the future of this particular segment as people are shifting more from pet bottles to the glass bottles?

See -- a good question on this. I'll tell you. The pet bottles today are hovering in the range of INR 55 to INR 56 a kilogram. See, they have not come down too much, as was the earlier expectation. The highest, I think, pet bottles have touched, I think, in the low-70s, INR 65 to INR 72, I think. Today, we are ranging between INR 55. So I think this is some sort of a stabilized rate as far as I see in next 1 or 2 months. As regards to your question on the availability of pet bottles, yes, definitely, there is little bit decrease. But on the other hand, the good thing is, number one, the collection rate in India is quite good. If you compare it to some other countries, our collection rate is good so that we are able to collect more bottles, even if there is less percentage of -- I mean there is a reduced demand, reduced usage of pet bottles. The collection being good, we are able to maintain the deliveries, number one. Number two, government of India has taken a good step that they have allowed 20% of the capacity as import for individual manufacturers for imported [ flakes -- washed flakes ]. So that would help us to contain these prices and to sustain these productions.

Sir, is this a one-off project? Or are you looking at expansion in the near future because -- and how is this industry going in the rest of the world?

See, in the rest of the world, I would say, to answer your question -- first, I'll answer your second question. The rest of the world, if you look at, except India and China, I mean, this part of Asia, rest of the world, there is a premium on the product. If you go to U.S., the recycled fiber sells almost $0.10 more than the fresh fiber. Whereas in India and China, there is another way around. So I think it will take some time as the sustainability this -- I mean, the awareness of sustainability and the demand of sustainable product, a little bit of value addition increases, I think we will also arrive there, but it will take us some time. It won't happen immediately. So there will be a difference between a recycled product and a fresh product with recycle being a little higher, but not immediately. I don't expect this to happen in the near future. As regards to the expansion of this project is concerned, today, we don't envisage anything because this is catering to our own requirement. So our requirement is almost a similar thing. So, I don't think we see any expansion in this in the very near future.

The next question is from the line of [ Saket Kapoor ] from [ Kapoor & Company ].

Sir, for the RoDTEP part, which you were answering, INR 25 crores was our receivables, and we have received certificate of INR 25 crores for the same. And now they are renewing at a discount of 15%. This is what...

No. Okay, let me just repeat it. See, it's not like this. What happens is, in case of us, we are having a significant export so we keep on getting RoDTEP scrips, okay, as you know and everybody knows now. As I mentioned to you, if you ask me the last quarter or last year, whatever RoDTEP we have recognized, which is around INR 20 crores, okay? Next question I answer is that the rate for the cotton and the synthetic. So there is a cap on which we can actually go on a higher margin basis also. There is a limit to which we can go up through RoDTEP. Then I just give you a second situation when we are getting the scrips and when we try to sell the scrips because we need to encash those scrips, if we won't have any other import and we don't have any import to utilize those scrips. There, we see a discount and then the discount gets accounted for. Is it clear, sir?

Okay, sir. No, sir, the discount part only I missed the link from...

Okay, okay. So discount part is what happens that whenever you try to sell the scrips, considering the market demand-supply situation, there is a -- see, remember RoDTEP came suddenly in the month of September, then it started coming in December and March. So the demand was lower and the supply was higher. The demand/supply anomaly created the discount. If you remember in EMEA, this EMEA has got resumed -- consumed in 2 RoDTEP. So EMEA is also we used to get a discount of 4% to 5%. So in RoDTEP, that discount got expanded. So I say that we consider the receivable after considering the discount.

And what is the maturity period of the certificate if you allow them to work...

You can immediately sell them. For us, it is immediately sell, and I think the maturity period of utilization would be 6 months to 1 year.

No, hold to maturity?

Buyer has to utilize it.

Sir, no, no, I was just trying to understand, hold to maturity period is how much? Suppose we don't have -- need the requirement to redeem.

We don't keep it with us. We resell in the market.

That is correct, sir. But if we held it to maturity, what is the maturity period? For how long...

No, no, no. Okay. So there is no end to maturity because what happens is that as we start getting the export, we keep on getting -- generating the scraps. The moment we a generate a scrip, if we don't have a requirement, we sell them.

Okay.

Why will we hold it because that's a cash. We encash the cash, right?

Yes, sir. I was just trying to understand who is benefiting from the 15% arbitrage.

No, no, no. Okay, the beneficiary in that arbitrage is the importer of the machinery or somebody who wants to import and use the RoDTEP [indiscernible].

Whoever are doing CapEx?

Yes. You're right.

Okay, sir. And sir, if you come to the working capital requirement, which you are mentioning just a previous -- to the answer to the previous question, that the working capital requirement has gone up significantly. So...

No, not right. No, no, no. It has not gone significantly. What I said is that it has not gone significantly if you have got that. So what actually happened is that last year, if you see overall our turnover was also less. In current year, actually, the utilization has gone up, our revenue has gone up, right, substantially. So working capital -- I said that working capital, we still have the margin, we have a headroom of more than 25%. So our -- within our sanction. So working capital utilization on an average increased on account of the cotton purchase. So even if I hold number of days same, because the cotton prices went up, the utilization has gone up. Does this answer your question, sir?

Yes. The net debt level, sir, if you could give us and [indiscernible].

Around INR 900 crores. Okay, the term loan plus working capital together is around INR 920 crores to INR 930 crores -- INR 940 crores, all together, term loan plus working capital.

For FY '23, what is the guidance? How much it will be when the CapEx comes up?

No, that CapEx -- okay. So FY '23 also, it will remain the same loan because we also have the repayments. I also have the lined up repayment of INR 130 crores. Thank you so much. So I can conclude now. Thank you very much, ladies and gentlemen, for taking this time off and also asking very pertinent questions. I really appreciate each of your questions, and I hope that my team and myself have been able to answer all the questions. With this, I wish you a great -- the rest of the -- rest of the almost 3 quarters ahead for this year and wish you all the best and your families good health. Thank you very much for joining us today.

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