Vardhman Textiles Limited (502986) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Vardhman Textiles Limited Q4 FY '20 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Avi Mehta of IIFL Securities. Thank you, and over to you, sir.

Thank you, Rio. Good evening, everyone. On behalf of IIFL, I would like to welcome all of you to the 4Q FY '20 conference call for Vardhman Textiles. From the company, we have with us the key senior management, including Mr. Neeraj Jain, Joint MD; Mr. Sushil Jhamb, Director, Raw Materials; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, Senior Vice President, Fabric Marketing; and Mr. Akshay Jain, Head Finance. I would now like to hand over the call to the management for their comments. Over to you, sir.

Good afternoon, everyone. Thank you for joining the call. We've declared our results yesterday. I hope all of you have gone through the same. So to start with, I'll request Akshay to give you a brief on the numbers and then maybe we can discuss about the business situation. Over to Akshay.

Good afternoon. Starting with our quarter, we -- this quarter was mildly impacted by the COVID-19 situation that led to a nationwide lockdown starting 23rd of March. We lost roughly 10% of the quarter's production and sales, and that is clearly reflected in the numbers. Our top line contracted about 13% quarter -- over from quarter 3 and about 10% Q-on-Q. Similarly, if you look, income was down about -- sorry, the total expenditure was down to the tune of 14% to 15% quarter-on-quarter and about 9% Q4 over Q4. Even though margins expanded slightly, the total EBITDA was down about 8% quarter-over-quarter. We have -- for the full financial year, our top line is almost flat at lower -- by lower about 1%, 1.5%. The expenditure is slightly higher by about 4% and led to a slight decline in our EBITDA margin to about 16.3% for the full year FY '20. PAT though has contracted by about the same number from about INR 700 crores to about INR 545 crores. This takes into account lower taxes due to the reduction of corporate tax rates by the Government of India to 25% for large corporates. Now I would like to hand the call back to Mr. Neeraj Jain to take us through the outlook forward.

Yes. So I would [indiscernible] the situation going on in the entire world. Things are very challenging. The lockdown in the various parts of the world has disrupted the life. Business has got impacted because of the same. People are more concerned about their health. No social events, no social gatherings, no travel, which has impacted lots of investors. Two, since the businesses have not been good, so there's lots of people who have been asked to leave the jobs or salary cuts are happening across words. That's creating another uncertainty in the mind of people. Third, wherever there are discretionary demands, probably that's got more impacted. So the necessities, including eatables, probably had no impact, whereas anything else which is more of a discretionary or which is postponable, probably people have tried to look at to postpone those demands. Having said that, the initial period of lockdown for 10 days in the month of March and then practically most of the April, most -- the entire country was under lockdown. All factories were closed. There was a mandate to look at the workers, to look at the employees. The demand was not there. So whatever small LCs were there in hand, we just kept on supplying those materials. Towards the middle of April, various governments started giving approvals on a case-to-case basis for running the factory. We also got approvals from the various state governments. So though the approvals were there, but at the same time, the demand was not there. So even if the approval was there. One, it was a conditional approval, you can't run more than this percentage or you can't even run it only with the workers just saying inside the factories. Two, we couldn't run it properly initially because the order was also not there. So even if the factories were running, the orders are not there, so where do you take your material to. So slowly, the momentum took place, and we worked very aggressively to sell the products, especially in the export markets. And slowly, we could ramp up the capacities and practically as on today we are running about 80%, 85%, 90% spinning capacity of Vardhman Textiles, which we have been ramping up in last 2 months. So the figure of 85%, 90%, I'm telling you the recent figures as on date. On the fabric side, the challenges were equally shared. So they also started the factories and they're more into the formal fabric which got more impacted as of now compared to the layer or to the knitted. But at the same time, over a period of past few weeks, they've reached a capacity utilization of almost ranging between 40% to 50% as of now. This impact of business created lots of demand destruction in this period. As a result of that, people started feeling the inventories to go up, especially the raw materials. So the prices of raw materials started coming down, whether that was synthetic based or knitted fiber based. On the top of that, since the demand was not there, the prices of yarn, et cetera, they came down further. And as a result, the margins also got impacted in this period because not many companies could start the operations properly because of the lesser demand. So the situation has been very challenging on various fronts. One, the impact of COVID, the fear factor, some customers running, some not running, some areas, containment zones, initial period material movements was the concern, logistics was a concern. Two, getting money from the market was a concern of the material supplied already, honoring of contract was a concern, the credibility of the customer is a concern. So we started looking at all those aspects. Third, the prices of raw material came down drastically in India, more than 10%. All the mills who were covered in cotton, they started using money because of this trading position right or wrong, whereas the people who didn't have cotton had an advantage compared to -- with someone who has got cotton. So that was third challenge. Fourth, in this period, how to take care of the employees, their safety was another big issue for the company. And since almost -- for us, almost 15,000 people stay inside our colonies. So taking care of them, both in terms of from COVID as well as the eatables and arranging all those kind of things was a big concern. The next issue came in where the workers started going back to their villages because of either nostalgia or because of COVID or because of the various concerns, handling them because it was looking like even if the demand comes back, but if the workers are not there, then whether we can really ramp up the capacities or not. So that was a concern. Managing financials in these kind of times in terms of the debt repayments and the other obligation was a concern. Every vendor wanted a support in terms of their payment, whereas every customer also wanted a support by not paying you. So how do the people like spinners, how do they manage it? That was a concern, and so on and so on. I think the challenges were enormous. We started dealing it slowly. And as I mentioned, it's a happy situation at least on the capacity utilization side we have done a decent job, primarily, again, on the export strength because the domestic markets, malls are still not open fully. The demand is not -- there is still timidness. So we relied more upon the export markets, started exporting them. Pricing was another issue, but at least since you start getting -- the production started, to some extent your cost will get mitigated or you'll be in a position to recover the cost. Otherwise, paying demand on charges of electricity, paying all the wages and salaries, fixed costs, administrative costs itself would have been -- itself was a big issue, and it continues to be a big issue for all the companies. So that's the situation as of now. But I think at Vardhman, because of very strong support of all our customers, especially in the Export segment as I mentioned, probably we are -- it looks like the worst is over for us unless something happens big again, which may impact all the textile chain of the country, which is unknown. But at least from the period last 2 months, 3 months, it looks like the worst is over, and we are looking at how do we readjust with this situation and start improving from here. The fabric business, which is the second major business for us, also faced the similar challenges where the material which is already stuck up with the garmenter or with the retailers, they were not paying because they were not opening -- they were not opened in this period. The season got over. All the places, summer seasons' material was lying. That half of the season is over. So I'm not sure whether people will be in a position to sell the material or how the next season will start, where the money will come from and how they are going to pay to the government. So all those issues and challenges, which have started coming 2 months back, still continue to come and we have to handle and look at what could be the best possible solution to save the entire chain because only one player cannot do much about in this. So the entire chain has to survive to get a better business opportunity going forward. Lots of surveys reports have come from various textile exports, in which most of them have mentioned sales drop of anything between 30% to 40% for the financial year 2021. We've also indicated a very sharp increase for the return back maybe towards the -- someone is saying the fourth quarter of the current financial year, someone is saying maybe the next year, someone is saying 6 months from today and so on and so on. But for the year, it looks like there is a consensus where most of the players, consultants, agencies that the sales drop would be anything between 25% to 40%. Even our view is almost on the same lines. And if this kind of demand destruction happens for a year even and lots of players would be, especially the more leveraged people, there can be a concern on the overall survival depending upon how do the bank supports them, how do they manage their finances, we'll have to look at what kind of changes and challenges people operate in this kind of a time. In the meantime, we started looking at our costs. That's the only thing which are there in hand. And we've taken lots of -- several measures to reduce the cost in this period since the capacity utilizations were there and lots of other cost measures could be taken. We also relooked at our CapEx and we have scaled it down in a big way for the current financial year. So wherever we are looking at the CapEx to do unless there's a clear payback or there is a clear strategic advantage, we try to look at for the year, we should reduce it so that at least on the operations side, there is no pressure on the company. Our raw material, by and large, was covered by the time this lockdown has happened. So to that extent, that disadvantage will continue till the new season comes in, and we'll have to bear with that. So -- and that would be a disadvantage compared to someone who doesn't have raw materials as of now. So before we move on to the next things, Mukesh, do you want to add something on the fabric side?

Yes. Good evening, everyone. I think Mr. Neeraj has shared the business in detail and that pretty much covers the fabric business as well. One or 2 things that -- at the moment, we are dealing with 4 or 5 challenges simultaneously. One is, of course, the unsynchronized supply chain. Somewhere, we started our operations sometimes end of April, but many garment factories in India could not start operations at that time. And then we were also struggling that the customers' offices, customers, whether it is in India or in the U.S. or in the Europe, most of the customers were operating from home. And in fabric business, you have to deal a lot with the fabric physically. Your samples go, you have to check the hand field, you have to check the colors. So not everything can be done from home. So there was a limitation as to the business was almost on a standstill during the lockdown period. Now it has started opening up slowly. But still, if you look at in India, the key markets, which is the key consuming markets, Bombay, Delhi, they are not yet fully open. And even if some of the malls those have opened, the customers are not walking in, which could be for the 2 reasons. One is the fear of getting infected or getting a -- even if you're not directly infected, getting the contact trailing, if you come in then you are in the problem. Second, the biggest reason is there are no dressing occasions. The offices are not opening, the meetings are not happening, the seminars are not happening and the marriages functions are not happening. So there are not many dressing occasions. And we are particularly in the lifestyle wear. So -- of course, these are the challenges that we have to deal with for some time to come, but then we have a tremendous support from our customers. I take that opportunity to thank them. We could start the operations in a humble way, and we are almost at 40%, 50% of the capacity utilization. And with the more and more markets opening up, I think we will increase the scale in the coming quarters, coming months. Yes. That's it from my side Neeraj.

Thank you. So I think the other things we can cover along with the various question and answers. So whatever are the queries also. So I think we can move on to the next session of our questions and answers.

[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.

Sir, I had 2 questions. My first question was, could you give a sense of what the cotton yarn spread was for the last quarter and also more importantly, the trend ahead, especially considering that the pressure on cotton prices continues internationally and -- as you said, all expectations are also of prices to connect?

So cotton yarn spread for Jan, Feb, March averages to around $0.85 -- sorry, $0.88 over Indian cotton and per kg.

And currently, what is the...

Currently close to about $0.70 -- $0.71 as of May end. But currently, cotton spread, just monitoring the spread does not give us much information because volumes are very low. The trading volumes in both the raw material of cotton and yarn...

But I think the trend of drop of $0.15 to $0.20 per kg is what the actual figures would be.

Drop of $0.15 to $0.20?

Yes.

That's helpful. Sir, just as you just mentioned, coming on the demand side, even in the quarter that went ahead, what has been the split between domestic and exports? And as you mentioned, while domestic demand is very much muted because lockdown still continues. Is there any possible demand surge coming in from exports, especially from China for you?

For us, yes. So since we are -- our capacity utilization is improving. So I think it's more support coming from the exports market only. So China, Korea, Vietnam, Bangladesh, Sri Lanka, et cetera, et cetera. So the domestic -- I think of now, we started reaching almost close to about 50% to 60% of what we used to sell here, whereas the export we are reaching almost 100% of what we used to export. Of course, pricing is a separate issue. But in terms of volumes, at least, we have started increasing, or maybe -- I think maybe we may exceed our average exports in this period because that's the only market -- that's the only way where we can utilize the capacities today.

Sure, sir. Last question from my side. I think you had mentioned that our fixed cost run rate is around INR 70 crores per month. I just wanted to get a sense that by how much you think we'll be able to get it down for FY '21?

I don't think we are looking at only the fixed cost, but there are lots of we're talking about repair, maintenance and other costs also. So it's not that we are looking at only the fixed cost to come down. We've taken some measures internally where we are looking at the cost. I don't think any number I can give it to you as of now because we are looking at it very dynamically. But surely, this will be a big relief during this period.

The next question is from the line of Abhijeet Dey from BNP Paribas.

Just wanted to know some bookkeeping questions basically. What is the reason for the sharp drop in other income, especially in the fourth quarter?

So we have a -- we have considerable fixed income investments. And if you recall at the end of March, there was a sharp surge in prices -- in yields of fixed income securities due to some [Technical Difficulty]. So that has caused MTMs to slightly come down on our fixed income investments. And so that is the reason for the drop in the quarter 4.

Okay. And any other one-off expenses which is part of the other expenditure, which you show for the quarter. For example, in Q3, there was some bad debts, et cetera, which you mentioned during the call. Anything of that nature in Q4?

Nothing out of the ordinary.

Okay. Okay. No, no -- any ForEx related losses, related to imports or...

There would have been because again, rupee spiked, I think at the end of quarter 3 rupee was close to the INR 71, INR 72 level and it closed March close to INR 75, INR 70. So we would have taken an MTM hit on our ForEx position.

Any idea of the quantum of that, sir?

I don't think I would be able to tell that number specifically.

Okay. And finally, sir, what is the net debt level as of 31st March.

The closing net debt was around INR 1,185 crores. That was the net debt number, total. That includes short-term and long-term.

The next question is from the line of Saurabh Patwa from HDFC Mutual Funds.

I just wanted to post this COVID thing, there has been considerable change in the buying patterns of the customer. This is a large part of it, it may be a short term, but there is a movement towards work-from-home kind of scenario, both globally as well as domestic. And large part of it is actually made of synthetic kind of raw material. So your thoughts on the same, sir? And how much are we equipped if this trend becomes more sustainable? How far we are equipped to maneuver towards that kind of a situation?

Just hold on. So in terms of the spinning, I don't think there's going to be a much difference because the spinning we can produce any yarn, which is required for knit or for woven. So that's not going to really make any difference because work from home would be more layers of clothing, which includes T-shirts or jogging suits or pajamas, et cetera, et cetera, which is more of a knitted product. So as far as spinning is concerned, it's flexible to produce either for weaving or for spinning. So I don't think there's any major issue on the spinning side to that extent. But yes, the fabric, we are more on the formal wear. And if the work-from-home takes a longer position, there could be a possibility that the demand on the knitting side increases and the woven side is relatively less. But at the same time, I think our capacity in the overall context of the country is too small, but we'll have to look at how we sell the product aggressively. But I mean, going by the total countries, total capacity, there would be a challenge directly on our product. But if we are -- since this capacity is only 1%, 1.5% of India's building capacity. So I don't think that's really going to be really that big an issue to sell this kind of capacity. Some formal wear will continue and we'll have to look at the customer base or the customers where we can sell it more aggressively in this kind of scenario. But for -- as far as spinning is concerned, I don't think there's an issue to that extent.

And sir, just a slide question, listen to this. Are you seeing any change in your orders which you are having right now as in pre COVID and post COVID in terms of the kind of the yarns which you've been getting orders for or the kind of fabrics which you're getting orders for?

Not really because, in any case, the export of yarn which we are doing, that was all on the knitting side only. So really, I mean, in terms of perceptible change or a major change, no.

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

So sir, couple of questions. The first is on the cotton inventory. So obviously, you have bought for the whole season and we have lost good amount of time in the first quarter itself. So what are your plans on -- because till October or September you may have the inventory. So by what time you feel that, given the current trends, you will be able to start procuring the new cotton?

The new procurement will happen only in the new season. So typically, going by the today's condition and since some utilization were also less in this period. So for this current season, we are already fully covered. And it's only October, November, where the new buying will start happening.

So is it fair to assume that by September end -- going by the current trends, obviously, which may change, but going by the current trend by September will be over with the old inventory?

No, no, no. Our season starts somewhere in the month of November only. October mid, the season starts and you have to have a minimum inventory to continue your operations. So I think in our case, the inventory will be at least November end.

November end. Okay. Okay. Sir, my second question is on the -- overall, you mentioned about the cost reduction plans and other things. But if you can give some color or thoughts on other than the inventory loss which we may have, what kind of utilization level which we may need to have to reach, let's say, a minimum level of margins or to breakeven the overall operations, If you can give some thoughts around the same?

Yes. So on the spinning side, as I mentioned, I think there's no question of a minimum level because we're already making now 85%, 90% capacity utilization. On the fabric side, my feeling is in case we can reach about 60%, 65%, probably the breakeven of the company will start happening. That's my gut feel.

60%, 65% breakeven will happen?

No breakeven -- I mean, I'm saying the breakeven, including the interest and depreciation. Not at EBITDA.

EBITDA breakeven, you might already be having at 40%, 45%. Is that fair to assume or?

I'm looking at it my current -- on my historic cost of cotton. Had it been current cost of cotton, the breakeven would have come much earlier. So we are talking of whatever inventory we have, we have to work with that.

Okay. Understood. Understood. So -- okay. Understood. And sir, my last question is on the financial numbers. So debt level, you said INR 1,185 crores is the consolidated level or stand-alone?

Stand-alone.

What is the consol number?

Out of our consolidated entities, I think there will be an additional fee, close to INR 300 crores of cash. So around INR 885 crores.

And is it -- sir, this time, is it fair to assume that by September end, given that we'll be depleting some of our inventory by September end, obviously, we may have some losses in the first half. But net-net, our net cash position at the consolidated level should be closer to 0 or probably positive number?

It is possible -- see on a steady-state basis, if we look at FY '20, we liquidate -- we consumed close to INR 2,400 crores to INR 2,500 crores of cotton, which puts our run rate of about INR 200 crores per month. And if we are able to liquidate that number, we will be net debt positive, net debt 0 or net cash by September, if we follow that logic. But this year, initially, we will -- we have not produced it. We may have lost close to 20, 25 days of production and even then ramp-up has been taken 2, 3 months. So I don't know how much exactly cotton we will be able to liquidate by September. So we'll be very close. And we are talking maybe plus 100, minus 100. But of course, this is a temporary. Then we will start procuring in October and November and get back to maybe holding a significant chunk of inventory by March end.

Okay. Okay. And just 1 final question, sir. In the last 2, 3 months on the receivables side, have you seen out of the total receivable what kind of receivable you have seen overdue situation being there? So just if you can give some thoughts around that?

So on the export receivables, there is not really much of issue because most of the export was under letter of credit. So there are very insignificant amounts, if it is overdue. So almost 99% kind of amounts are within the due range only, 1% here and there, so which is not really significant. The domestic data side, yes, there are issues and concerns. But at the same time, the monies are coming slowly. It's not that the accounts are stuck up. Because as and when the markets are opening, the malls are opening, people are in a position to pay. So for example, April, we didn't get anything, but slowly, we are starting receiving the money. And as such, we are hopeful that the -- that by next 1 month or so, the majority part of those receivables should also be back to the company.

The next question is from the line of Siddarth Mohta from Principal India.

Sir, 2 clarifications. Sir, you said that your spinning capacity utilization is at around 85%?

Yes.

Yes. That is one. And sir, earlier in your comment, you mentioned that the spread between yarn and the Indian cotton is currently $0.71 and then you mentioned that it is a bit low by $0.15 to $0.20. So I got just confused. If you can just clarify on that front?

The $0.70 is the margin as of now spread available, which earlier used to be $0.90. So there's a drop of about $0.15 to $0.20 in the margin on the Indian cotton basis.

Okay. So currently, it is $0.70, 7-0, as of now?

Yes. Yes, yes.

And sir this is -- definitely, this is based on the current cotton price, which is little over as compared to March?

That is true, that is true.

Okay. And sir what is the difference between the landed international cotton and the Indian cotton as of now?

As of now, close to about almost $0.13 per pound.

Okay. So landed cost is expensive by around $0.13?

Yes, $0.13 per pound.

Per pound?

Yes.

Yes, yes, sir. Yes, sir. Sir, regarding one particular clarification, I don't know whether I will be able to put in the right perspective. But China, sir, cotton inventory, it was going down. So I was thinking from the long-term perspective if China, they start rebuilding the cotton, so international cotton price it will remain at a slight elevated level. And if the Indian cotton continues to be at a good production, then spread between Indian cotton and the world cotton would be in favor of India. And hence our spread can be a little better. So if you can just throw some perspective on that if it is possible?

Yes. So in fact, our feeling is also the same because the inventory in China is coming down, so they've become a big buyer over a period of time. So the U.S. cotton or the all world cottons will be higher. And since the Indian production will be higher than the consumption there, so the prices in India will keep on a lower side, which will give a better margin to the Indian spinners. That's one. Two, at the same time, in between the government's decision, we started operating on the minimum support price. If you go by the minimum support price, then the advantage which is available with the market price may not be available to the spinner in India totally. So part of that will go to the farmers indirectly because they'll be buying cotton at a much higher price. And depending upon their sales strategy of CCI, it will depend whether the margin will be available to the Indian spinners or not because they will eventually become the only supplier of cotton after the season is over. Now for example, this year, they are holding almost 12 million to 13 million barrels of Indian cotton. And once the arrival will go over next maybe 2, 3 weeks, then probably there'll be a single supplier. And it will depend upon what strategy they decide to keep the prices. So based upon that, the Indian cotton prices will be available.

Okay. Okay. So currently, sir, they have not started offloading the cotton and then what price they...

They're offloading as of now, but there is no demand as of now because their prices are higher. So I think it's a matter of time where once the market arrivals are over, then probably whosoever is to buy the only supplier will be CCI and that stage, the material will start selling. And there'll be the actual period where the pricing strategy they'll decide what kind of pricing they want to give, whether it's -- they're going to look at Indian cotton prices only or they want to link it with the landed cost of international prices. So I think we'll have to wait and watch maybe next 3 to 4 weeks to look at how do CCI come up with their pricing for us. As of now what pricing policy they have given, that's more of a theoretical. There is hardly any material getting sold in the market.

Okay, sir. Sir, your CapEx that we have started in the last 2 years, I assume that has been over. So if you can just refresh what that amount it was? What I have noted, it is around INR 1,600 crores, INR 1,700 crores. And if that number is correct, so you can also tell us that within 2 to 3 years, whether we will be able to utilize our full capacity or not? And how much revenue we can generate on the CapEx that we have done in the last 2 to 3 years?

Okay. The -- on the spinning side, we are already in a position to utilize the full capacity. There's no issue in spite of all this. So whatever, 85%, 90% I'm telling as of now utilization, this includes all the expansions of spinning which have come up in the last financial year. On the fabric side, our earlier plan was, we were looking at to utilize this capacity in 1 years' time. But I think going by this issue, it may take us maybe another 1 or 2 quarters before we can utilize it fully because otherwise we were ramping the fabric capacity very fast. And we had projected by December, January, we'll be fully utilizing that. But since we are virtually losing about 3 to 6 months' time, so it may be delayed to that extent. That's what you wanted to know?

Yes, sir. And sir, how much revenue, sir, we can generate on the CapEx that we have incurred on the spinning and on the fabric side?

The spinning primarily has been expanded to give a support to the fabric on this. So there's no intention to sell that yarn in the market. But till the time the fabric is ramping, we are utilizing that spinning to sell in the market. So typically, on a new spinning project, the capital turnover ratio is not more than 0.6 to 0.7. So out of this INR 1,500 crores expansion, INR 1,000 crores is gone for the spinning. So you can assume we'll generate maybe another INR 600 crores, INR 700 crores is on the spinning side to sell that in the market. So both the businesses together, it would have been maybe close to 1:1. But depending upon how fabric, we are in a position to utilize. So to that extent, I think the top line will be a little lower as of now.

The next question is from Amit Doshi from Care PMS.

Sir, on the -- you mentioned that exports is currently the only market, which is probably there, and therefore, you are trying to utilize the capacity. What portion do you believe on a going-forward basis you will be able to catch up lost demand of offshore export as well as domestic, considering that, I think, I believe 2/3 of sales were always on the export side?

Our portfolio was quite balanced where we were utilizing on the spinning side. We were utilizing 1/3 for our captive consumptions, 1/3 for the domestic sales and 1/3 was for the exports. So out of the domestic, we have already reached 60%, 70%, I hope, within next 2 months, 3 months, we will be in a position to reach maybe 100% of what we used to sell in the domestic market. On the fabric side, as of now, we are using about 40%. And my belief, next 2, 3 months, we may reach to about 60% or so, which means still some yarn will be available to us, which was earlier going into captive for the exports. And to that extent, we'll continue to export. So the idea is whatever is required by captive, after that whatever we can sell in domestic, the remaining everything is getting exported. And we'll continue to do the same till the time our captive or the domestic market improves.

Okay. Okay. Okay. Sir, last year, on the cotton side, because there was a fall in the cotton prices, we got some advantage and CCI sold at very high price. So keeping that in mind, and last year also, we had a peculiar situation where overseas or international cotton prices and Indian cotton, we had a very high prices going to shortage of some material. So keeping that in mind this year and with this fall in raw material which are of 10%, what will be your margin capability to result here?

This year is already over as far as the cotton is concerned because, as I mentioned, your point is valid that the differential between the international and the domestic market was too high and the differential between what the CCI cost and the market cost was also very high. So we took this position that since this difference is too big which cannot be sustained or maintained. So we got cotton keeping in view that the margins will be -- good margins could be available. Unfortunately, after that, the COVID, nobody had projected these kind of things at that stage. So the market collapsed, and we started losing money on what we have already bought. Going forward also, I think we'll have to look at the buying strategy of CCI because depending upon how do they buy, what is the international market, but had it been a normal year and the COVID and those things would not have been there, probably the differential between Indian cotton and international cotton, which is almost $0.13, $0.14 as of now would have contracted to maybe $0.03 to $0.05, which would have given a huge increase to the Indian cotton because it was available only with CCI and CCI's general policy is the -- rising the product based upon the landed cost of imported cotton. So it was a very different year where we cannot normalize it in the normal circumstances. So that's why this issue has come in. But if this kind of circumstances continues, probably those opportunities will be available even in next year also to look at to buy at the right price with the right timing with the right cost so that the trading margins could be available for us to make more money. So I think we'll have to value it next year only now.

Okay. And just last one on my side, sir. How much portion of it of our sales or exports would be on the U.S. And if you can give some idea on [Technical Difficulty] we could have seen the spread in retail and the kind of loss that everybody is seeing. So some guidance or some idea on the international apparel industry and especially what portion of ours is on the U.S. side, if you can guide on something on that side, it will be useful.

So as I mentioned, most of our products are all on the knitted side only as far as the exports is concerned. So I don't think there's really any big issue for us. And two, it's not possible to make a guess of what is going to U.S. because most of the products are going to Bangladesh and China and indirectly I think lots of products will be -- for Bangladesh, practically everything is going to Europe and to U.S.A. China has their own home consumption as well as the exports to U.S.A. So eventually, the biggest consumption center is the west only. So all these producing countries, where they buy the yarn, do the garmenting, they will ultimately go to the west. But directly linking it with our yarn that's going to the U.S.A. or to Europe, that's not possible for anyone for us to have any guess number on that.

Okay. Okay. And just last one, sorry. Just on the government support side, kind of anything that we are looking at in terms of any rebate of taxes or state levies, et cetera, anything of that sort?

We have been talking to the government and our request is pending with them to refund the unabsorbed taxes, which we have paid to the system. So government last year announced in the budget that they are looking at a scheme to look at the same. So as of now, nothing concrete has come as of now. So we are only hoping that the government will look at that. Other than that, I don't think any substantial demand is there from the industry. So we are only looking at whatever unabsorbed taxes which has been paid. The refund of those state duty, states levies or unabsorbed taxes should be -- in case the government will consider, this will definitely help the industry to be more competitive.

The next question is from the line of Deepesh Agarwal from UTI Mutual Fund.

This is Deepesh Agarwal. Sir, my first question is, if we understand Vardhman has 18% to 20% -- 22% kind of a margin company. With the share of fabric capacity in your overall mix going up, should our understanding on Vardhman, the margin profile need an upward division in a normal state of business?

It should have -- once the capacity utilization of the fabric starts improving, it should have happened. But I think at least next 1 year, things are very different. So maybe once things are normalized. And I may agree with you, as the fabric will keep on increasing their capacity utilization, one, the margin should overall improve, two, it should become more stable also. So I think -- but I mean our hopes are on that. But as of now, since at least 1 year, we have lost in the system, every one of us. So once the normalize happens, then only we have to look at how it goes.

Okay. Sir, secondly, one can understand from your comment once COVID destruction is behind us, you may start hitting a peak utilization in maybe 6 to 10 months of time. So -- and any thoughts on when we will start the next round of CapEx because by middle of FY '22 you may need more capacity to grow?

So yes, there are some plans which are there in our mind, but we have not brought anything on the drawing board as of now. But yes, we keep on looking at it, discussing what's next to be done. But I think considering this situation, I'm looking at maybe the right opportunity comes in because there could be a possibility that some of the capacities may get a really big concern whether they can continue to run it or not. So depending upon how the industry goes, how the overall NPAs happen because more and more concerned on the NPAs, I think, the margin of the industry will keep on coming down only till the time those units which are financially weak are out of the system or are reorganized. So I think next 1 to 2 years are going to be challenging. But at the same time, the silver lining is, in this kind of a period, probably no expansion will happen. So we have been discussing in India or in the world, almost 7% to 8% spinning capacity increases every year. So in case 2 years, the spinning capacity is not increasing and the demand will slowly increase. So probably better balancing may happen in the next 2 years' time, which otherwise normally would have taken 3 to 5 years. So the only silver lining I'm looking here is, once the consolidation happens, no expansion happens and system become more efficient with lots of players, which we might have to relook at how they reorganize. So I think the consolidation will happen for good, but it may take us maybe next 2 to 3 years before we start looking at a right margin because this is for sure, in these kind of times, nobody is going to expand the spinning capacity. So which itself is a huge relief to the industry that no more capacity comes in. So probably next 2 years, you'll become definitely better and efficient and your margins can be better.

Okay. And sir, lastly, with India-China relation going under strain right now, are you concerned about the sales to China because it's a meaningful proportion of your and even for the industry for yarn export. So what are your thoughts on this, sir?

The issue is, today, China is the manufacturing hub for lots of products. So it's not only a question of my product only. In case there is this kind of an issue comes in, lots of investors will have to relook at how they face those challenges. So all our dies, chemicals, pharmaceuticals, textile, there are lots of dependencies with China today, starting from filaments, to the fibers, to -- and other things. So I think it's too early or too premature to think that if the issue goes with the China, so what will happen to my industry because then it's a much larger question and the impact are still not known. And probably, it's not possible for any company or any industry to look at what kind of impacts can it happen because it's not a direct export to China. But I think the total reliance is so big on China, not only for India, but for everyone in the world today, and any major change over there, it's going to have lots of disruptions everywhere, not only for the textile or not only for the Indian market. So I think those are the questions where I'm really not looking at it that in case the China export doesn't happen for yarn, that's a very small issue. The larger issue is with such a big -- if something happens or some bigger issue happens, how this is going to be impacting the entire world. So I don't think really we have really looking at that as a big concern today for my company. So we'll have to look at how the entire thing will reshuffle if this happens. So I think to that extent, it's not possible for me to have any concrete thoughts and ideas on that.

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

Sir, just wanted to understand this capacity utilization of 85% to 90%, is it completely driven by exports because as per our interaction with various brands, larger ones, they are not consolidating at all. So domestic is almost minimal to the -- on procurement at this point in time, not even 40%, 50%. So just wanted some clarity over there. And can we assume that whatever 85%, 90% capacity utilization you've reached is entirely on orders and is sold as well?

So I'll answer the second part first. Of course, whatever we are producing, 90%, 95% of that is against order, 5%, 7%, here and there, we produce as a normal course of business also against the stock and sales service. So almost 90%, 95% is against the orders only. So we are not adding inventory in very, very good way. [Technical Difficulty] total capacity utilization, I think 50%, 55% will be going for the export as of now and the remaining 40% to 50% is between our captive as well as domestic.

Okay. Okay. And sir, on the domestic side, from where are we getting demand? From which user segment or any larger customers you can name which are seeing good traction and even continuing with the orders now, that would be helpful to understand the market?

No, it's coming from every segment, except denims and weaving as of now. Denim and weaving are still 2 sections. And primarily, this is based out of Gujarat. So that's why I think the Gujarat the COVID -- impact of COVID was, too, there. So I think they are still taking some time to revamp the capacities. But other than that, every market started operating. There's not that only 2 or 3 customers are there. So practically, I think [Technical Difficulty] is not only 1 or 2 customers which could be significant. By and large, we are pretty diversified, both on the products and on the customers, and the business is on the normal side.

Okay. And sir, what is -- can you comment same for the fabric side of the businesses as well?

Mukesh, can you give some idea on the fabric side?

Yes, sir. Yes, on the fabric side also, the demand from domestic market is pretty low. Whatever capacity utilization we are having, it is for exports. Exports means, the ultimate garment is getting exported. There could be a situation wherein we are supplying the fabric in India to the garmenters and the garments are internally getting exported. So very little production for the final domestic consumption at the moment.

Sir, next question is on tax rate. Sir, this year's annual tax rate was quite low maybe because of transition to the new corporate tax rate. What is the tax rate that we can assume for FY '21 and FY '22?

It should be normalized towards 25% only because no other deduction is available as of now.

25% only.

Yes.

The next question is from the line of Jesal Shah from JM Financial.

Sir, my question is regarding the fabric business. Like largely, almost 90%, 95% of India's market is on the unorganized front. So do we, as an organized player, see any better traction from the garment industry, like more orders or something in incoming times?

At the moment, everybody is in a standstill situation till the time the retail operations start. Of course, once the retail starts, they will be looking for fabric from the organized sector more. That is the hope that we can have, but nothing starts till the time the market opens.

And just if you can throw some light on the pricing front in incoming days, like maybe 6 months, 12 months down the line that I understand that maybe volume can come up to pre-COVID level, but will pricing also be the same? Or do you see some kind of heavy discounts and everything, both on the fabric front and the spinning front?

Yes. On the -- since the yarn prices at the moment are subdued, so the fabric on the spread, we may not have a big hit as compared to the period we used to have. But it all depends upon how the demand opens up because at the moment, since the demand is low, the pressure from competitors is high. And the retailers are also looking at that nothing is expected to be selling at the MRP. So once the retailers have to offer discount, they will definitely look at discounting on the fabric also.

Sir, but if you can throw some light on terms of like any number, like, maybe 15%, 20% or more than that?

It is difficult to say in terms of numbers at the moment because the demand itself is subdued at the moment.

The next question is from the line of Ankit Gor from Systematix group.

Sir, my question is with regards to optimum capacity utilization of about 90% in spinning, for example, what sort of cotton requirement we have on a quarterly basis or a monthly basis, that will be helpful? That's the first one.

So we will be close to about 100,000, 110,000 bales per month.

Okay. Okay. And secondly, it will be great if you can provide a breakup of our fabric capacities, in terms of weaving and knitting, so we can understand which...

No, fabric, we are only in the weaving. We don't have knitting.

Yes. So that gives me -- that brings the second question. Within in this disruption, do you really think of setting up a meeting capacity is not now, probably a 1, 2 years down the line just to diversify our product portfolio, will that be on the lines?

As of now, we haven't given any thought to that. But if this situation continues or there's a more thought process, more consumption towards the knitting, we might look at it. But as of now, we are not really looking at because ultimately, after a year or so, I think things will start normalizing in any case. So there are no thought process to go on for the knitting as of now.

In present situation, do we have any change -- are you planning to change any credit policy, anything that sort of, just to...

The only change I can look at, on a daily basis, we have to support our customers. So to that extent whatever flexibility is required we are looking at it on a case-to-case basis rather on a general policy basis.

Okay. And lastly, you also gave breakup of yarn and fabric on a yearly basis, revenue breakup. Can you have this time, FY '20, what was the broad breakup of yarn and fabric?

What was?

Yarn and fabric breakup FY '20, revenue breakup?

So we are not separately disclosing the revenues of yarn and fabric. So figure is appearing in totality so far as revenues are concerned.

I respect that. But on a yearly basis, you gave probably in the annual report or on the call, that's why I asked. No worries. I can take it off-line from you guys. Lastly, on a cash flow side, we have one item called bank balance is not considered as a cash and cash equivalent, which is of INR 61 crores in cash flow. Can you give some details about this time?

It's a classification of FDs only. So -- which is, I think, less than 3 months FD, they are appearing as a balance of cash and cash equivalents. And a period of more than 3 months, they are separately disclosed. That's why I think this is a separate item.

The next question is from the line of Siddarth Mohta from Principal India.

Yes, sir. Sir, regarding the CapEx of that INR 1,500 crores, you clearly mentioned that INR 1,000 crore was for our spinning and that would be captively used. So the remaining part is fabric. So one can assume that in fabric the asset turn would be around 1x?

On CapEx -- so 1x I'm saying on a composite basis. But within -- if you look at only fabric, it would be higher, if they start consuming yarn. So since the yarn will be going from within the company, so the overall basis I'm saying, 1 should be -- 1x should be okay, both spinning and fabric together.

Okay. So the increment revenue might be around INR 1,400 crores, INR 1,500 crores might be in 2 to 3 years.

Yes, around the capacity mills, yes, that's true.

So we have to add INR 1,500 crores to our revenue in 2 to 3 years whenever it comes?

Yes.

Sir, one -- sir, in the previous calls, so you have clearly mentioned, you don't provide a split between yarn and the fabric. So I'm just trying, might be, not now, but after 2 to 3 years, if you can just give some direction, if it is possible for you, if it is comfortable to you?

We'll start -- we'll definitely think on this.

The next question is from the line of [ Venkatraman ] from Orion Securities.

See, the last 1 year has been very tough for the spinning mills. First, we had the U.S.-China trade war and then they had COVID. I want to understand how much of this spindleage will get permanently close shut in the country, any idea?

Yes. My belief during the Chinese-U.S.A. issue, my belief 5% to 7% spinning capacity had gone out of the system or had become sick at that stage. So as of now, the spinning capacity utilization, country as a whole, will be about 40%, 45%. So it's only next 2, 3 months, we'll come to know whether -- how many spinning capacities, how much spinning capacity will be really utilized or not. But my personal gut feel is maybe 10%, 12%, 15% capacity may go out of the system for the people who could not financially handle or could not bear the losses. So I mean that's my personal guess, but the numbers, those kind of numbers are not available. It's only next 3, 4, 6 months we'll come to know which capacities are going out of the system.

Okay. And next question was bookkeeping question. Why is it that we have not declared any dividend this year both for Vardhman Textiles and Acrylics?

Yes. So we wanted to save cash because it's a very difficult situation. And still, we are still not sure in country what kind of changes will happen because the peaking are still happening on the COVID cases. So just to be conservative, we wanted to ensure that the company has got sufficient resources to fight any kind of unseen circumstances. It's more of a precautionary measure we have taken.

Okay. And third question is regarding the merger. Why is it that we have kept out Vardhman Acrylics from the merger?

Yes. Because -- so what we have done as of now, we've looked at only the 100% subsidiary of the company where we want to merge as of now because, again, there were issues and concerns which were being raised on the Vardhman Acrylics valuation and some other issues. And so we decided finally to go in for the merger of at least 100% subsidiaries, where one of them has a common business of spinning as well. So maybe we will look at it Vardhman Acrylic separately at a later stage.

The next question is from the line of Mr. Avi Mehta.

Sir, I just wanted to understand, could you quantify how the pricing environment is in terms of yarn and fabric because you said there has been drop. How -- what is the current level that contracts are being done at?

So on the spinning side, the thumb rule is 30 [indiscernible] that is one product where the pricing are generally determined there. So the prices of [indiscernible] pre-COVID was close to about $3, which as of now is in the range of about $2.40 to $2.50.

Okay. Okay. And sir, a similar decline would be there in fabric or higher?

Mukesh?

Yes, fabric will be close to the similar level to just to pass on the decrease that has happened in the yarn, not more than that.

Okay, sir. And sir, you highlighted in your commentary that the worst is over. Is this restricted to only production levels? Or are you kind of even suggesting this is the case even in pricing or spreads? I just wanted to understand.

In terms of the worse is over, I was more referring it to be our production capacities because unless there is again some issue comes in, in terms of the containment zones or the government passes some order on the lockdown, et cetera. My comment was once the markets are opening, we were not in a position to sell. So from that perspective, it looks like the worst is over, and we are improving both on the yarn and fabric side. But anything beyond our control if that happens tomorrow I'm not in a position to say, one. Number two, on the pricing side, again, it's very difficult for me to say what will be the prices. So in my hand, only where I sell or I can run my capacities or not. So the pricing depending up on the demand position, we might have to keep on competing. So whether we are -- the worst is over or not is really, really -- because there are many few players in the world market as far as the pricing is concerned. [Technical Difficulty] largely compete with market only. So really I can't really say what will happen on that.

But sir, there is no -- I mean, as of now, we are not witnessing any improvement in terms of pricing. Is that understanding the...

It's not -- the improvement is not -- the improvement may not happen as the capacity utilization will keep on increasing, but my more concern was the prices going wrong. At least that's not happening as of now.

So spreads have probably bottomed out. That is how I should -- would that be a fair assessment?

Yes, yes.

Okay, sir. And is that case similar in terms of fabric as well? Are we witnessing contraction in fabric spreads as well?

No. As Mukesh mentioned, the fabric worst-case scenario is only passing on the entire thing what they have got from the yarn reduction. So the fabric margins would, from today's level, may be either same or may improve also, but it will not be worsen unless the yarn price start improving in a bigger way.

Sir, there, I was not concerned about the spread, but more about the mix because process share would probably come under pressure. I don't know if that is a fair understanding.

Mukesh?

You mean to say the share of process fabric?

Yes, yes, sir. Gray will probably increase. Is that a possibility there or no that is not the scenario?

I don't think that will happen. Of course, our key product always remains the processed fabric. If processed fabric doesn't sell, then the gray will also not sell. So proportion between the process and gray may not change.

The next question is from the line of Manish [indiscernible] Capital.

Yes, am I audible?

Yes, sir.

And many thanks for giving a very detailed perspective to all of us and my compliments that extremely balanced view is being taken across all fronts, help is this being shared and everything. Now my questions are on 2 things. One is that there has been a mention of consolidation. Now typically, consolidation means that there could be some acquisition or a sale transactions that could happen. So is that what is being meant when the word consolidation is being used? And if so, then what is the view that VTL as an organization is taking on that?

So when I used the word consolidation, my meaning was there's lots of capacity which is a -- it's a very fragmented capacity of spinning in the country. So my meaning of consolidation was that some of the fragmented or small units, there could be some reconsolidation or consolidation happen, which may be got acquired by someone else so that the number of players or the number of unorganized players if they can come down or some of the units which are unviable, they stop working, so there some consolidation may happen on that. So that's what I meant by consolidation in my statement.

Right, right, right. So when there are some facilities that are available, so what is your opinion? Would you be participating in that as a possible buyer or something?

First of all, as an internal strategy, we are only looking at -- this is a time where we must get confidence that our financials are good enough to take care of whatever is happening. So I think as a first step -- as the first strategy Vardhman has decided, as we have always been very, very conservative, and I'm happy to share that all this conservatism which we have shown in the last couple of years is paying us well in this time. So whatever is happening in terms of our cash flows or in terms of our operations, whatever we want to do, we have absolutely no issues, no concerns on carrying on the operations. So I think first is to look at whether we should really expand at this stage? If yes, we get the right asset at the right value, we might look at. But I think before that, main concern is if this situation continues or it becomes worsen, and there are larger issues coming in, the cash is the only thing which is going to help you coming out of these kind of timing. So to that extent, we don't want to compromise on our cash liquidity which we have. So I mean that's what our thought process was, and we'll continue with that. Of course, yes, if we get a right asset at the right value, we're willing to look at the same. But during this lockdown of last 1 or 2 months, we have not discussed any of these issues because more concentration was on continuing with the operation on ramping up the capacities.

Right. My next question was, I see that the group has, over a period of time, has grown from being a spinner, then they went into gray fabric, then processed fabric. So maybe if you could share some thoughts on, maybe 5 year hence, or I mean, are you -- what kind of a value addition are you looking at? I mean, are you seeing yourself as maybe getting into garmenting in a big way or brand? Meaning, what is your long-term view? What is your long-term outlook?

Our meaning is, we always consider ourselves as a very strong manufacturer, low-cost efficient manufacturers. So I think as far as retailing branding is concerned or garmenting is concerned in a bigger way, we don't have any plans to do that. But yes, within fabric, within spinning, wherever the value addition could be done by the differential products or by expanding those businesses, we will look at that. But considering the garmenting or considering the retail or considering the branding, clearly no as of now.

The next question is from the line of Pavan Ahluwalia from Laminin Capital.

Two questions. One is, you said spreads have sort of bottomed out in the fabrics. Anyway, you'll be passing it through. At present spread levels, let's say, we just maintain this run rate and there's no upside from here, what kind of EBITDA margins could we expect to be doing this year? That's my first question. And the second is, when we look at ourselves on the global cost curve, where traditionally pretty close to the bottom of it because of the Indian sort of cotton advantage, in your discussions with CCI, the government, et cetera, are they aware of the fact that by distorting the cotton price beyond the point, they may actually claw into the advantage of Indian spinners globally? And do you have a sense of how they think about that? Is there a commitment to preserving that advantage and balancing that against what they want to pay the farmer? Any thoughts on that?

Let me take the second question first. The government is very clear they want to support the farmers. So that's why the concept of minimum support price is there. And the only mechanism they have to support the partner or a minimum support price is they are CCI to buy the raw cotton, which is called narma and then convert into the cotton and the CCI would be buying the same. So on one hand, the objective is to support the farmers and give them a minimum price. Two, CCI, after that, whatever is the cost, they want to charge or they want to sell the product based upon their cost, which might or might not happen because the market forces are different and the cotton prices can be very different in the market compared to the cost of CCI. So the various discussions have happened with the government in the various forums, where the spinning sector has been requesting government if they want to support the farmers, nobody is against that. It is in our favor only if the farmer is supported, so that they can continue to grow cotton more and more. So we've been suggesting to them to adopt a policy of maybe a direct bank transfer to the farmer where the disadvantage of a higher-priced cotton is not coming to the spinning when you want to support a farmer. Probably, the government is still considering. There's no reason as of now. So since the database required or all these electronic transactions required are huge, so I think the only simple answer today is asking CCI to buy at MSP if the prices of narma is lower than the market. I agree with you the advantage that the Indian spinners had always was only because our cost was less because at the same time, our conversion cost or our transaction costs are higher compared to the other parts of the world. So to compensate that unless the raw material is giving advantage, the spinning will not be in a position to make really a huge advantage. So to that extent, there are various discussions with the government, whether government will adopt this direct bank transfer or not. I think it's up to -- they are evaluating, but they may or may not decide for the same. Second, I think it's very, very difficult for me to give any guidance on the EBITDA margin for the year. This is an exceptionally different year. I'm still not very sure how my capacity utilizations are going to happen. I'm still not very sure what kind of pricing we will look at and what kind of areas with the containment zones they keep on coming every day and at night here and there. So I think this particular year, we will not like to give any guidance on the EBITDA margins.

No, that's why I'm saying, assume there's no containment zone issue and just assume that at current pricing you run at kind of current utilization levels.

On the current pricing, any spinner who is working on current prices -- current cotton prices would mean and a capacity utilization of 80%, 90% of the spinning side, may be making an EBITDA margin of 7% to 9% in my view, on the spinning side, 10%.

Understood. Understood. Understood. Okay. So basically, absent any kind of containment zones, lockdown or inability for people elsewhere in the country to have offtake, for this year that's what we should expect. And that obviously will normalize next year as your cotton cost goes down and maybe hopefully yarn prices [Technical Difficulty]. Just one thing on the CCI point. So it sounds like if I understand you correctly there are 2 possible paths that this could take. One is that CCI decides to be irrational and says, look, I'm just going to keep buying at higher prices because that's what the farmer needs, at which point you will find the bottom -- some percent of the industry cost curve just becoming unviable and there just won't be offtake and so price rationality has to come in that way, right? Or you're saying if the government which anyway keeps talking about DBT and all sorts of areas over the next 2, 3 years as part of doing DBT across a wide range of things, just add this to that list, over the medium term, it's pretty likely that they'll just go down DBT route because they're doing that every year.

Yes. So on the first part, I think exactly this is what was happening. Last year also CCI bought lots of cotton and they priced it based upon the international prices. So eventually, there's a lot of cotton which got imported in India, which was much more expensive and the spinners were not finding it viable and slowly the spinning capacity was reducing. And the CCI was also left with the unsold stock of last year, which they're still carrying as of now also. Yes, so it's up to them what they want to do because when they want to sell, they look at -- many a times, they look at the landed cost of imported cotton. And if I have to look at the landed cost and my transaction costs are higher in India, whether I really make money on that cotton, so the demand comes down.

So you're saying given the amount of capacity India has built out, unless CCI is willing to give you the traditional Indian cotton advantage, it won't be able to facilitate enough cotton to be able to sell everybody's capacity. So at some point, that rationality has to be that -- either they just keep piling up unsold stocks forever or they rationalize and make sure that our spinning is competitive?

Yes, that's true. That's true.

The next question is from the line of Keshav Garg from Counter Cyclical Investments.

Sir, our stock is trading around 45% down from the level that we last did a buyback at INR 1,200. And sir, like our consolidation network is INR 6,000 crores and our net debt is INR 800 crores. And sir, as far as the subsidiary Acrylic goes, sir, over there, we have INR 300 crores cash and market capitalization is less than INR 250 crores. Sir, maybe this is a good time for a share buyback. Sir, what do you think about that?

Not very sure because as I mentioned earlier also in one of the questions that this time, I think, the most important for the companies to survive is the liquidity availability to the company. So I think as of now, even if someone wants to do a buyback, really it makes sense or not, what kind of advantages would come in or keeping the cash in the balance sheet will make more sense because during the uncertainty period, I think that's going to be more helpful. So I'm not very sure because the dividend was also kept on these lines only that we require to conserve the resources. Maybe if the -- if we find the worst is over on a sustainable basis, probably Board will have to look at whether they want to look at a dividend or a buyback arrangements. But as of now, our concern is only to pass through this time successfully. So to that extent, we want to conserve the cash. With that, we raised some debt also. So directly, the debt was not required, but it was more on liquidity to be contained -- to be maintained in the company because what can happen, what more things will happen is still unknown to anyone and everyone. All these kind of times the liquidity should help you to pass through these kind of times. So that's what our thought process is as of now.

Sure, sir. Sir, but especially at the subsidiary level, sir, at least you can do something over there because over there, sir, I mean, there's INR 300 crore of cash. Sir, I mean it's not that company will make INR 300 crore of loss -- Vardhman Acrylics, I'm talking about. And sir, with reality as concern, sir, once the clarity emerges the stock price will also move to 4 digits. Sir, I'm talking about Vardhman Textiles. So then there is a trade-off, sir. I mean, when the certainty arise, the stock price also will move up. So then the buyback might not really -- so anyway, sir, so please consider at least for Vardhman Acrylic, sir, because mostly, sir, retirees are holding that stock. Sir, because there is no growth since 15 years, there's only dividend income and safety. So if over there, if you can give some interim dividend or buyback, sir, at least the investors -- sir, because there's nothing else to look forward in that company for investors.

Yes. I'll... [Technical Difficulty]

We seem to have lost the lines from the management. Please stay connected while we reconnect. We have the lines from the management reconnected. Over to you, sir.

Yes. So I'll definitely pass on these sentiments to the management and let them take a view on the same.

The next question is from the line of Jayant Mamania from Care Portfolio Managers.

Sir, recently, lot is being heard regarding antivirus fabric which is made for PPEs and masks. So I think Vardhman is also into it. How big is this opportunity?

Mukeshji?

Yes. For a moment, there was a big spur in the market for the PPE because the people had to deal with the COVID patients. We have also developed a fabric, but our fabric is for the normal -- we are trying to mix the lifestyle fabric with a little bit of the COVID protection, so that people can at least move out of the houses when you have to travel or you have to go to the office, et cetera. So you can have a protective shield which protects you from virus, but this is not really the PPE thing. We are trying to build that functionality into our normal fabrics. And we are in touch with many customers. We have launched the product, and we will see that how it responds.

Okay. How big this can be?

Difficult to say at the moment because there was a spur. By the time, if you get a vaccine and a better alternate, people may want to wear the normal fabrics. Yes, for the moment, yes, there is a demand we are seeing that. But -- and how effective it is, that is also to be seen.

Correct, correct, correct. You said that we are carrying high cotton inventory -- inventory with high cotton prices. So whether this loss in inventory is accounted in 31st March valuation?

Sorry?

We are carrying high-cost cotton inventory. Whether the loss in inventory is accounted in 31st March valuation inventory?

No, no, no. So 31st March, there was no devaluation on that particular date. So that has not been considered. So this will come in the current year only.

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investments. There seems to be no response from the line of Mr. Seth. We move to the next question. The next question is from the line of Amit Doshi from Care PMS.

Yes. Just wanted to know the figure for maintenance CapEx for this year?

I think maybe about INR 100 crores company as a whole, less than INR 100 crores.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

So thank you very much to join this call. And it's a tough time, it's a difficult time, but at the same time, we are taking all the -- we are making all the efforts to make sure that we pass through this time, this difficult time more successfully. And the things which are beyond our control, I can't do much about the same, but I can only ensure the people who have invested in us, that as management, we are fully aware of our responsibility in making all the efforts to look at what best could be done in these circumstances in terms of selling or in terms of cost or in terms of the other initiatives or in terms of the safety of our people, and all the efforts are being made for the same. So I'm sure we'll continue to have your support. And we will have the call with a much more better situation by the time we do the next call. So thank you very much once again for joining this call.

Thank you very much. On behalf of IIFL Securities, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect.

Thanks to the team of IIFL to organize this.

Thank you.