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

Ladies and gentlemen, good day, and welcome to Sutlej Textiles and Industries Limited's Q4 and FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajib, Whole-time Director and CFO. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and welcome to the earnings conference call of Sutlej Textiles and Industries for the fourth quarter and full year FY '24. I trust you are all doing well. With me on the call today is Mr. S.K. Khandelia, Adviser to Chairman; and Stellar IR Advisors, our Investor Relationship team. We have already uploaded the investor presentation, and I hope everyone has had an opportunity to go through the same. Let me start the call by giving you the financial highlights of the quarter and year gone by, after which, Khandelia-ji will fill you in with the business highlights as well as the industry highlights. For Q4 FY '24, our consolidated total income is at INR 665 crores, which was 9% higher than Q3 FY '24, which was on account of volume increase as well as marginal increase in the realization. Gross profit stood at INR 269 crores, which was sequentially higher by 13%. Gross margin for the quarter stood at 40.4%, which is higher by 167 bps on a quarter-on-quarter basis. EBITDA for the quarter was INR 13 crores as against minus INR 1 crore in Q3 FY '24. For FY '24, our consolidated total income stood at INR 2,727 crores, gross margin came in at 37%, EBITDA stood at minus INR 13 crores, and PAT came at minus INR 136 crores. As we have been updating you, our efforts at strengthening our balance sheet still continues. During the year, we have reduced our debt by INR 111 crores to INR 821 crores as against INR 932 crores as on 31st March 2023. Our current debt-to-equity ratio continues to stay below 1 and is currently standing at 0.85. Central banks are closely monitoring the inflation rates to ensure that they remain within target ranges, conducive to economic growth and stability. As we all know, the situation is slowly improving on the export front and as the rates are stable, sentiments are improving slightly, we can anticipate a marginal uptick in the coming quarters. Those were my opening remarks. I now request Khandelia-ji to please take it forward with the business and industry updates.

Good afternoon, everyone. Thank you, Rajib, and thank you all for joining us today on this conference call. I would like to repeat the comments of our Executive Chairman, Mr. Nopany in the press release on our results. This summarizes the position. The global economy remains subdued in the face of geopolitical turmoil in different regions of the world. Consumer spending continues to be need-based due to supply chain disruptions, price volatility and an uncertain outlook. The Indian textile industry, particularly with the spinning sector, has been severely impacted as it depends largely on exports. And due to lack of exports, there was a glut in the domestic market as well, and that resulted in reduction in capacity utilization and pressure on the margins. While the Indian growth story continues to gather momentum with a positive impact of government policies, we do see improvement in recent months in market sentiment and are hopeful of a turnaround in coming quarters gradually. At Sutlej, we are well equipped to weather this storm, and we have been focusing on improving our operating efficiencies and developing new products while diving deeper into our existing markets. These initiatives will help us improve our performance during FY '24-'25. I would like to add 2 things that our strategic initiative of Green Fiber, which -- where the capacity utilization is full and that will help us for producing sustainable products. And for that, the greater market is there. Another thing, the home textile, where we have started Nesterra cut service, and that is a brand in initial stages, that is also gradually coming up. As of now, we have 36 collections in the market and [Technical Difficulty].

Ladies and gentlemen, the line for the management line has been connected. Thank you for holding.

Sorry for disruption. I was mentioning to you that our strategic investment in the Green Fiber unit, and that is operating at the full capacity will help us in producing sustainable products and for which the demand is continuously increasing in the world market as well as in the domestic market by the garment exporters. Similarly, our home textile business Nesterra, which is an initial brand and on which we are focusing now, is seeing better offtake. As of now, we have 36 collections in the market and about 900 retailers are attached with us. And we hope that during this year, this business of home textile of cut service and other our export is also doing well in home textile, that should pick up this year and that should help us. The Yarn business also since last 2 months, we are seeing some improvement in margins, as the destocking by the retailers to a large extent appears to have happened and now the fresh demand should start coming on. And accordingly, we hope that in FY '25, we should see the improvement -- gradual improvement in margins quarter after quarter, and we hope to have better financial year FY '25. And we are cautiously optimistic for FY '25. Thank you. And now we can take the questions.

[Operator Instructions] The first question is from the line of Amit Aggarwal from Leeway Investments.

My question is regarding the expansion plan. So 2 years back, we came to a very exciting expansion plan. But within 2 years, when the market turned down, so we have surrendered our land. And we have -- it has costed us INR 8 crores. Sir, what was the need of surrendering the land? We could have always waited for the markets to improve and continue with that expansion plan. Because once the markets turn around then, we again have to spend the money on the land. What is the take on this?

No, that's right. There is a time limit by which you can surrender the land. As of now, we have paid only 20% fees of the surrender of the land. Had we not surrendered the land, and had we not put up the project, which was not coming up, as you know, due to bad market condition, the entire money paid would have been forfeited. So there, government has said that if you don't want to go ahead with the project right now, it is better that you surrender the land. And otherwise, the entire amount will be forfeited. And you can reapply, because the policies, I think is still many years to go. So we can always look for that land, and we can always go ahead with that. So that is the reason we have surrendered the land, and we are always believing that we will definitely put up this project or some other projects. And we are committed to the exports of the company. But as you know, the market conditions are so bad. And at this point of time, visibility is very poor, so it was thought better and it appears to be a very wise decision to surrender the land and strengthen the existing business first. And then we can always go ahead as we have been going in the past.

Sir, just to understand how much -- how about land costing. Couldn't we paid the whole amount and then waited for 6 months or 1 year to market to improve?

No, you had to complete this. We were required to complete the project in the designated time. Even if the market would have improved in 6 months' time, and this may improve or may not improve, but the project execution or project is at least 1 year to 2 years, such a huge size or even a smaller size. So that would not have been possible, and there was every possibility that the entire amount will be forfeited. So it was about INR 50 crores. So it was better that we surrendered the land. And land is available, we can always go and take it back. In the interest also by the amount which we have lost a surrender of the land will be covered by the interest itself.

And how easy is it to apply for the land again and continue with the expansion plans 6 months down the line or 1 year down the line? Or how easy is it to buy the land for?

We can always do that. That option is always available with us and we can always review the project, not necessarily that we go for the same project. There are many new products and product lines are coming up. We can review the market and other things, then not necessarily that we go for yarn. We can go for some other things related to the textile, of course, downstream or something like that, like technical textile or anything. So those options are open and we are committed for the growth.

And my second question is regarding the PET project. 3 or 4 years back when we came up with the project, it was told to us that it will help in improving the margins. But if you compare with all the other big yarn companies, I think we are still working -- our margins are still lower than those yarn companies, in spite of that we are running a PET project along with it. What could be the reason?

You see, you are not comparing our results with the stand-alone spinning mills. We have only a small portion of home textiles. The results to which we are comparing are -- had a lot of integration by way of fabric, which we don't have. So that's why I said that we are reassessing what we -- in which line we need to go further instead of investing money only on the yarn. So you are comparing with those companies, which have about 50%, 90% of the fabric capacity they are integrated textiles and something. If you will compare with the stand-alone, then there will -- they can -- I think there will not be much difference. Secondly, as you know, we have been on the value-added segment of dyed yarns. Most of our capacity was used for different types of dyed yarns, including cotton and cotton blended Milan yarn, which used to be specialty. In this downturn, maximum impact was on such type of yarn. Because in this -- this was unprecedented scenario -- market scenario and which only commodity goods were selling. And because we were forced to manufacture commodity goods, our machines and equipments and our structure and everything strength has been dyed yarns and specialty yarns, entire development setup and other things. So because it was on a depth, they are putting this period of time. But gradually, it is coming up. And again, we will have the same strength. And of course, we are looking for other projects also in non-apparel segment. So those things are going to -- that's why I said that we are going to -- we are consolidating our everything. So first of all, we have to see that our margin goes above others in the standalone spinning and then we will look for other projects also.

Sir, you just mentioned about that you might go for expansion in some other segments. Is it regarding the Fabric segment or you have to give something else now besides the 2 segments?

It can be -- not necessarily -- we are exploring various opportunities, definitely relating to textile. It may be technical textile, it might be specialty products. It may be something relating to textile, but not necessarily yarn or fabric, which is already there is a glut. It may be nonapparel Basically, it can be nonapparel because in apparel, every time challenges keeps on coming. So we are valuing like the exports where we can go. Some new type of clients we can go. We are exploring all these opportunities. Once the visibility is clear, we will look into that.

And my question is regarding Fabric segment also. So do you think that we'll continue seeing the percentage of textiles business expanding in our overall business?

Home textiles?

Yes, yes.

We hope so. We hope so. Let us see how does it work. We hope that it should improve.

And sir, cotton prices just moved up in the last 3, 4 months, does it help in improving the margins in the business right now or not?

Cotton, you see margins have improved a little bit, but still it depends upon, say, if you will compare the new units, which have set up in last 4, 5 years with the fully automatic plant and other things, where the interest point of cost will be a little more, but the productivity and quality is much better than the machines which we have for the dyed yarn consumption. So there has been improvement in cotton yarn margin, but not -- still it is not out of the woods because cotton rates has unexpectedly had come down from 101, it has come down to 75, similarly in India from 62,000 something, it has come down to 55,000, 56,000, something like that. So it was unexpected. So in cotton, when the rates go down, demand disturbs. Margins goes down. So that is the reason, but there has been improvement in cotton yarn margin, but still it is not out of the woods.

And my last question is regarding the spinning units. How much of our spinning unit is very modern and some of spindles are a bit old? What percentage of our spindle are old and some of like...

None of our spindle is more than 15 years or something like that old. And measure capacity and modernized, as I said to you, we are -- our capacity and other things all are designed for the dyed and specialty yarns, because in gray yarn, the production facilities are a little different because our long lengthening plans, automatic and other things dyed, they are different from any number of sets in specialty products, automation is different. So that is not that our unit is old. But when I say it is gray cotton yarn, you were asking specifically, in gray cotton yarn, if the unit is 15 years old and if it 3 years old, there is a difference, because there has been improvement in cotton yarn, gray cotton yarn manufacturing techniques. If you have any other questions, please free to write.

[Operator Instructions] The next question is from the line of [ Varun Gajaria ] from Boring Asset Management.

So I just wanted to understand. So considering the cycle is starting to develop from your commentary and from industry commentary, do we have any plans to undertake additional CapEx? As you must have seen, some of the incumbents have already announced undertaking of CapEx. So do you have any plans to do that right now?

Yes. We have the CapEx plan for this year of INR 100 crores because we always keep on modernizing our plant, and we never our plant to get outdated. So that CapEx plan is there. For example, there are many things, which said there are new type fabrics and other things even in the yarn like for example. So those type of demand is coming up, so complex yarn. So those type of whatever additions are required, at the same time, we always try to keep our capacity fully modernized. So this year, we have a CapEx plan of INR 100 crores.

With these brownfield projects, how much capacity would you be able to add?

We have not yet decided to add any downstream capacity. We have INR 100 crores CapEx is to take care of our existing facilities where we will have value additional things and also wherever any new products for home textile or any other -- wherever we have to add certain machines to produce those type of things, because always we believe in keeping our plants fully modernized.

Okay. And now that the market has started to revive, do you think you'll be back on profitable ways starting next quarter or next to next quarter for that matter?