Vardhman Textiles Limited (502986) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Vardhman Textiles Limited Q1 FY '25 Conference Call hosted by Batlivala & Karani Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Roshan Nair from Batlivala & Karani Securities. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and welcome to Q1 FY '25 Earnings Conference Call of Vardhman Textiles Limited. On behalf of B&K Securities, I welcome all the participants and the management of Vardhman Textiles Limited to the call. We have with us Mr. Neeraj Jain, Joint Managing Director; Ms. Sagrika Jain, Executive Director; Mr. Sushil Jhamb, Director or Materials; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, Head, Fabric Marketing; and Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the floor to Mr. Neeraj Jain for his opening remarks, post which we can have a Q&A session. Thank you, and over to you sir.

Thank you, Roshan. Good afternoon, everyone, ladies and gentlemen. So welcome to all of you for this earning call of Vardhman Textiles. The numbers you would have seen yesterday, there has been some improvement in the business of the company, especially for the companies where being [indiscernible] was covered during the season at the right prices. The New York Future when we started the quarter was at a reasonable level of [indiscernible] and the yarn prices were also formed accordingly. But I think over the period of last 2 months or so, slowly, the New York Futures has been coming down and the prices of yarn also kept coming down. So as a result of that, though we think we have always sold sometimes for the future business for 2, 3 months, I think the realization in this period has been relatively better, which is a little down as of now on the current basis. On the raw material side, since that was that the full season was where the New York Futures was at about $0.80, $0.82 and the available of imported cotton across the world was in the range of $0.90, $0.92 or so. And whereas the season in India, the cotton was available at INR 54,000 INR 55,000, which in terms of U.S. was relatively okay and in the range of about USD 0.82, USD 0.83 or USD 0.84 The company covers most of the raw material at those prices. And as a result of that, I think and immediately after the cotton season was over, the pricing went up to almost INR 58,000, INR 59,000 from INR 55,000. So that was the traditional advantage which the company was getting or still is getting. In the meantime, the New York Futures target coming down because of a better crop estimation in U.S.A. and the better weather condition in Texas. And as the entire world looked at the New York Futures, the yarn prices are also starting coming down, which is definitely giving a confidence as of now [indiscernible] because the pricing in India definitely higher compared to the world market as of now. The second important issue for the industry is the minimum support price. The Government of India announced the support price, minimum support price of cotton also for the next year, where they enhanced it by almost 7%. And the price for the Kapas were fixed at INR 7,521 per [indiscernible] And if we look at through internet -- if you look at converted in terms of candy, it will be close to about INR 60,000 or so on the minimum support price. And I think that's definitely giving us a concern at [ INR 59,000 ] per candy. I think we will be very close to about [ INR 89, USD 90 ] and [ USD 70, USD 71 ] how the Indian industry will play in the next 3 to 6 months' time. So that's definitely a concern as of now. In terms of the overall business, we can say, I think the company has done reasonably well, both in terms of the cost efficiency, in terms of the product, in terms of the internal cost saving initiatives. We've been looking at all those ideas and working very hard on that. Two, we've been discussing last 3 years the issue of China +1 concern, and our belief is and have been repeating it in every call, I believe there seems to be a reality today where more and more brands are looking at India as one of the important vendor-based country for their product. And we are looking more and more business coming to India from those vendors. The only choice will be one. Whether we can deliver them in 2 to 3, 4 weeks' time, it's the one, two, the number of fibers are going to be much more synthetics as well as cotton. So how do we prepare ourselves for the flexibility, both in terms of the product as well as the number of days within agreed time. And in case we are in a position to do that, I think that business is improving, increasing dramatically in India. And definitely, Vardhman, being one of the large player and having all kinds of technologies, all kinds of products, we have that option available to us, where the customer wants to deal with the better companies, better organized companies, and we definitely fall into that. The only choice will be whether we can continue to deliver them all these things. And for that, what more is required to be done internally so that we can continue to grab that business, which is, which is a profitable business and it is sufficient in terms of volume as well. So those are the opportunities as well as some issues and concerns especially on the raw material side. In terms of customer, product, efficiencies, costs, I think company is doing really good. But definitely, the raw material prices are higher. That's going to give some concerns to us for the overall Indian textile industry, for which we are requesting government also to look at, and we might have to look at how the next season goes in. In the meantime, it looks like, since the international price of cotton has lowered, it may -- and though the India direct import is not there, but we can import under advanced presence where the duty incidents will be relatively lesser. It looks like India is ready to import lots of cotton this year and already that import started contracting. And it may be possible that India may import a larger volume to ensure the availability of raw materials at the right prices, which is -- and to that extent, the pressure on Indian cotton will be lower in terms of the buying or the cost, but we do not know ultimately what happen to whatever stocks are left there, either with the partners or with the PPA or the individual owners or how will it look like at the end of next cotton, cotton season. That's something we have to really watch and look at how do the entire market scenario behaves in this manner. So that's on the selling side. And also in terms of the -- or the monetization and the expansion projects, which were announced last time, I think the work has started happening on most of the projects. We are on track and we are expecting it to be completed by the schedule, which are decided internally. Most of these projects should be completed in this financial year as well as next financial year. Of course, majority in this financial year itself. We are all on track, all orders, majority of the orders have been placed, notably the construction had started and things are working well. I'm sure, once these projects are completed, it will reduce. It will give us lots of advantages, both in terms of cost as well as improvement in flexibility and some production increase as well, which will further develop the optimization to our overall operations of the company. So that's on the selling side. Relative to the many things we can discuss during the QA. And before that, I request Sagrika to give some idea. To start with Mukesh, if could give some idea on the fabric marketing and then there are Mukesh and Sagrika could take that. So over to you, Mukesh.

Yes. Thank you, Neeraj Ji, and good evening, everyone. As far as fabric is concerned, generally, the period of quarter 1 is there all holiday season period, wherein the demand for cotton textile is anyway lower than yearly averages. So that is why the Q1 is generally lower for the Indian textile companies. But this year, it was an exception due to a couple of reasons. One, of course, is the China +1 which Neeraj Jain has also elaborated. Second is due to the Red Sea condition, the transit times are longer so all the buyers wanted to pull forward their already placed orders, or they also preponed some of the orders so that they can make up for some of the lead time that in transit will be higher. So there was a flow of higher orders during this period as compared to last year same time. Third is that, in the past, we have invested into capacity building and capability building in terms of handling more number of fibers and also doing some cotton products, which are specific to the fall holiday season. And fourth reason was that, as we mentioned in the last call also, the inventories with the international retailers, especially in the U.S., they are continuously coming down to a reasonable level, which were higher 3 quarters, 4 quarters ago. And the retail scale is also better. So there is more demand coming back to us, which has led to a good quarter, last quarter, and same is continuing in this quarter as well. As far as the other markets are concerned, Europe, not as good as the U.S., but still some recovery has started happening. Some brands which could not bear the pressure of high inflation and lower sales, their business share has gone to some brands who could do better. So somebody's loss is somebody's gain. So luckily, we are well positioned with the environment, our businesses, more or less stable. I will not steady and robust but it is stable and so in the other markets. The third biggest market for us is the Indian market. Indian market in Q1, it was not very robust but not very low also. The retail sale was not as good because of very [indiscernible] decrease. And these sales channels were also disrupted because of the election and other kinds of activity. But we are hopeful that Indian market also will have a good demand in Q3 and Q4 because of these activities and also the various sales, which is the main reason for the Indian consumers to buy. So demand is coming back in Q2 from the Indian domestic market as well. That's it from my side. Neeraj Ji, you can take it from there.

So we can start with the QA session, and I think all the business queries from the yarn or cotton can be answered there only.

[Operator Instructions] Our first question is from the line of Aryan Oswal from Fininterest Capital.

Am I audible?

Yes sir.

Sir, my question was on the -- like say the last call, you mentioned that about expansion and utilization rate of 72% to 75%. Have you seen any changes in this metric in Q2?

So the overall company's utilization is still at the same rate of about 75% only, and I think slowly that utilization has come down only. So there is no change in the utilization of spinning industry as such until now.

Okay, sir. And sir, last quarter, you guided for INR 2,000 crores of CapEx. But since then you increased to INR 2.5 crores. So I just wanted to understand what is the additional INR 500 crores going to be used for?

So out of this INR 500 crore, about INR 100 crores is the expansion, which we're doing in the open end. I think we are increasing that capacity, and another INR 400 crores for biomass, for boilers, along with the power systems where we want to look at the green power. So the existing coal base for [indiscernible] gained along with some addition for power generation.

Okay, sir. And sir, last question from my side. How has the progress been in increasing our green power consumption to 25% to 30%?

So as I mentioned, I think we are within -- the target was taken because we have allocated almost to INR 400 crores for this to be done in the next 2 years. We are progressing well and I'm almost confident that within next 1.5 years, we should be in a position to achieve this.

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

Congratulations on the demand improvement scenario and good performance. Sir, I wanted to understand now that Indian cotton is expansion to international cotton as you mentioned in your opening remarks, how is the industry going to have a better margin going forward? Or how is the margin -- how are you thinking about margins right now in the spinning business?

Yes. So definitely, there is a concern today because if you go by the today's cotton prices and the margins, which is based upon the international cotton prices, that's definitely a concern. So going forward, a couple of things can happen, a couple of scenarios may develop. The demand place conditions is like this. So to that extent, that will be the Indian industry will pass through relatively more disadvantage. Two, the Indian industry will also start importing cotton in big ways. And maybe, because under advance license, the overall impact of duties only about -- the duty impact is about 3.5%. So maybe to that extent, India will import more and more cotton compared to using the domestic cotton. Third, the India, the textile appreciation at least talking to the government to look at some policy where the PPA has to decide the -- even if they procure a large quantities of cotton, what will be their sales policy. So the industry doesn't suffer. But the government is yet to respond on to that because, the third scenario. And the fourth, in the near future goes by, it goes up by $0.07, $0.08 in the next couple of months, then probably that disadvantage will be relatively much less or the Indian cotton may also be aligned to the world market. So if you go by the overall cost of the farmers internationally, I think this is a very exceptionally low cost. They're not making any money so that could be a possibility. We are hoping that the New York Future itself may go back to $0.75, $0.77. And to that extent then, that disadvantage will be looking as today may be reduced or may not be there at all. But these are all various scenarios putting our cost, let's see what happens.

So then achieving normalized margins of 18% to 22% as your ranges looks distant even today?

It is, it is. Because, again, there are two factors to this: one is a normal margin; second, the utilization of the industry. Since the time industry is utilizing 75% capacity only, the moment margin starts improving, the rest of the industry will also start coming in. So unless we look at the utilization of industry, which is north of 90%, the overall margins may not improve on a consistent basis. Whenever we look at over the margins are improving, a lot of those players who are stock today, they'll also start coming back to the system. I think we'll have to wait for some more time as of now.

Understood. And what are you saying for fabric? Have the margins for fabric also started improving largely because yarn is continuously under pressure? Maybe margins are not normalized. So is fabric able to get a little higher margin because of transfer pricing? I mean, as an industry on an on-price basis? Or there also, we take issues on margin front?

There has been a slight improvement in margins but that would not be as, so Mukesh Bansal had also said. That is because of our diversified customer base and also diversified product market. So you can also say for margins to improve on a consistent basis, the industry dynamics should improve.

Okay. So which means capacity expansion in fabric business may also not happen in near term? You're almost running full utilization in fabric business?

Yes, we are at a maximum capacity utilization but we are progressing well towards our expansion plans, and they are underway as we had discussed last time as well.

Okay. I'm just saying in fabric, you haven't announced anything on normal -- the existing fabric business CapEx?

So in the normal fabric business, we are planning to expand our solid dye by around 8%, 9% and yarn dye by around 15% to 20%. This was also considered -- the solid dye was part of debottlenecking and part of product mix changes. And, right now, we saw certain segments where we wanted to enter. That would be our capacity expansion of normal fabric business.

So this was the part of the announcement, which was made last quarter where the INR 2,000 crores included the debottlenecking and some marginal improvement also in terms of production.

Okay. So this will increase our capacity from 170 million meters to 180 million meters to how much now then?

About 200 million meters.

Our next question is from the line of Awanish Chandra from SMIFSL.

Sir, congratulations, management team on reaching 15% margin after a long, long time. And sir, my question from this only. In your earlier remarks, you talked about that China +1 has become reality. Though you have some concern over margin continuing, but it's still 15% margin look like a good margin to think about adding spend there. So you have already announced INR 2,500 crores CapEx, but very few capacity in reality we are adding on the spinning side. So your -- any thought, any change in the difference in thought towards the spinning capacity as recent as beyond this [ 56,000 ].

No. As of now, I think most of the CapEx which is happening other than this open-end project is on the monetization, where we feel see all debottlenecking as well as the monetization of our plant and machinery will help us to reduce costs as well as enhance our flexibility to give this differentiated product. So as of now, there's no plan to expand the capacity because this itself is a huge expenditure for us going by our conservatism. And I think we'd like to do this and maybe we can wait for a year or so before we start taking up the any bigger project after that.

Okay. So for the number point of view, with this capacity expansion for fabric is come 200, and yarn capacity -- capacity will be enhanced by 56,000 and this will be completed by then by FY '26 or mid of '26?

On the stock exchange, we have mentioned 2 years, which is the current financial year and the next financial year. But I hope most of these things will be applicable or implemented maximum by the September next year, so which will be about 1.5 years, on this full year, 6 months for the next financial year.

Is there any issues we have faced due to this recent Bangladesh issue? Any demand slowdown in that reason or do we have very less exposure there?

Bangladesh is the biggest customer for the yarn export as of now. So out of India, almost 25%, 30% goes to Bangladesh only. And any disruption over there will have the issues here also. But since it's a small kind of a thing, so I mean, it's not really very big. And as of now, there is no impact on the demand, but unless it is resolved or it continues for a long -- because there could be a concern. But as of now, there doesn't seem to be an issue.

Okay. And sir, one more thing on this PLI scheme or FTA, any developments you have heard? I mean, we keep reading in the media all these positive news. But in reality, anything you think that PLI something will come and it will help cotton, textile industry?

Government is announcing it. I mean, they are talking to it on every, various forums. So last couple of meetings we have attended with them, they've been only saying that the next PLI is likely to come very soon, which will include the PLI for the garmenting also. So we'll have to wait and much only when they announce it.

And sir, one very quick thing, that 15% margin, it is very far from 18% to 20%, but considering we are doing so many value addition and projects. And also can you think that at least this margin will be sustained, if not this goes towards 18%, at least we can maintain this level?

On, as for now, but I think, again, we'll have to look at the raw material prices also because if the raw material prices in India are higher compared to the world market, I think then it's going to be difficult at least on the spinning side, at the same time, fabric definitely can sustain these kind of margins. So it's going to be very challenging and frankly going by the say cotton prices in media, it may be difficult to sustain that for sure. But let's look at India's government also supports by taking some steps, then there is a possibility to sustain it in by as we complete all our modernization and expansion, definitely there will be cost reduction and increase in production, we'll definitely look at how to improve upon this. But the question, I think I'm afraid of answering that we -- if we can maintain it at these levels in the given current, current situation.

Our next question is from the line Resham Jain from DSP Asset Management.

So two, three, questions. So the first one is I think you have mentioned about China +1 strategy showing some positive traction in your business. I presume this is for fabric business?

Both spinning and fabric they're finding that overall sector they're finding people are interested to look at China +1.

Okay. And what kind of inquiries? If you can just share more thoughts around it, what kind of inquiries, what kind of size, because I presume this will be all large-sized customers. So what are their expectations? And you have explained some of those aspects, but how can Vardhman as a company can leverage out of it?

So their expectations are very clear. The prices have to be competitive compared to the Chinese and the delivery has to be within 3 to 4 weeks for the spinning and maybe about 6 weeks for the fabric. So both these things are given the quality is given the prices are given and it's only the fabric which can make a difference. And there, too, you have to manage their entire fetching the immediate orders as well as their smaller orders. Any company, any country which can do that, I think there's enough business eligible.

Understood. And are this more profitable business than, let's say, your average kind of margins currently and the margin...

Once we are running the basic products like printing, cascade, I think compared to that, all these businesses, which are relatively lower in volume but more in flexibility and fashion, definitely, the margin there would be better, provided we can produce it at the right cost. In case because of the smaller or very discontinued kind of a product will give the cost increase, then probably you don't take advantage of that. But the entire game will be whether we can produce these products as keeping the costs in control, then definitely it's better margin products.

Understood. Sir, my second question is with respect to the profitability between spinning and fabric. If you can help with the rough cut, what would be the profitability coming from the fabric business, including processing? Out of your total, let's say, profit during Q1, 60-70, whatever rough cut, if you can help, that would be helpful.

Very difficult because, Resham, they have never given the separate numbers for these two businesses, so I can only say generally. I mean, the spinning margin, you can calculate it 70%, 75% and conversion cost or would the margin and then we have to do that math yourself. From company's perspective, we definitely do not share these numbers.

Okay. Because 7, 8 years like you used to give separate margins, you have discontinued that. But given that the current spinning situation is not good, is it fair to assume that 75% -- 70%, 75% profitability must be coming from fabric?

Not really.

Okay.

Things will be better than higher, definitely better, I would say.

Okay, understood. And sir, my last question is with respect to the overall business model. Last 3, 4 years, we have seen spinning facing more challenges than the fabric business overall. And you have more of an integrated business. But a lot of companies have built business model whereby they can buy yarn from outside as well, some kind of yarn, so that they can scale up the fabric business much faster. Are you thinking on those lines or that's something which is farfetched?

So one, whether we are not expanding the business of fabric because of any constraint or financial, that's not an issue or a concern. So whatever are the opportunities we have in the fabric business, we are expanding it without looking at where the yarn comes from. So it's not that there is any constraint on the resources that you don't expand the spinning capacity and you expand the fabric business. Both the businesses are independently running and looking at their own opportunities where both the business want to expand with time. So on the fabric side, we're very clear that whatever are the opportunities, we are actually looking at that, and we are expanding into that business. So there is no financial constraint or a change that the fabric is not being expanded because that money is being utilized by the spinning. More businesses are looking at their own options, own opportunities and both businesses are growing. Two, in any state, whether it's an outsourcing of the yarn or with the company the fabric is now gets the yarn as the market prices only. Margins are less or higher, that's a separate issue. In any case, once there are some advantages of internal spending also in terms of quality, in terms of flexibility, in terms of the overall consolidation and vertical integrations. A lot of customers are common where they want to buy both yarn as well as fabric, those are the different advantages and disadvantages. But I can only assure you that the fabric growth is not less because, because there are not resources available, whatever are the options, opportunities available, we are doing that.

Our next question is from the line of Nikhil Agarwal from Kotak AMC.

Sir, you had mentioned that you have purchased cotton at INR 54,000, INR 55,000 per candy. So for how -- like have you covered -- are you covered for the entire year or is it just for a few months?

No, it's only for the season because most of the -- the Indian cotton season will start from the month of October or so. So generally entire bottom buying happens only up to the season. The next season we will have to buy it again.

Okay. So this year, you -- I believe last year also you had procured for the whole year, I mean, in October, right?

No, not October. October, we start buying and I think buying continue until February or March. So by the end of March, we generally have the stock for about 7, 8 months. And that's our general, generally thesis what we do unless we find different ways in terms or we have a budget goes in terms of the pricing going forward. So most of the time, our endeavor is to buy the cotton in the season so that we can secure the right quality of cotton as well.

Understood. So the reason why the margins went up this quarter, we can attribute it to the lower price we bought cotton too, like that can be the sole reason for that, right?

No, no, no. That's not the sole reason. In between because the New York Futures was also form, so the price of yarn but also better. So our cotton, for the second quarter, the cost is going to be the same, but the margins may or may not be the same depending about the yarn prices, which are today depressed because of today's New York Futures.

Understood. Can you help me with the yarn prices that were there in Q4 FY '24, Q1 FY '25 and currently?

So the prices in the last year was in the range of about $3, I'm talking about that is counter China was $3, came from s***** clients and in between it went by year $3.25 to $3.30 also. And today, it will again to that to $3.10 or so.

All right, understood. And lastly, sir, about the U.K. FTA. So is the industry still hoping for it or it's a thing of the past?

Sorry, come again?

The U.K. FTA.

Yes, yes, yes. So why not. So the U.K. government is talking, they have been announcing it and any FTA which happens, definitely is going to be an advantage to India . So we are hopeful and anything which happens in favor of the industry, we can expose the government and ensure it will be an overall advantage for the entire textile industry.

Our next question is from the line of from Aman from Augmenta Research Private Limited.

Sir, first of all, if you can help me, like for example, and as compared to FY '23, you have increased your inventory significantly by approximately 75 percentage. So out of this inventory, what percentage of that would be raw material? Why I'm asking this question is because given that we have increased our inventory substantially to INR 4,000 crores to INR 4,500 crores as of FY '24. And given that, the international cost prices are around 10% to 15% lower from the current level. So as a company, will we be at a disadvantage as compared to a company which has not secured cotton inventory? Just wanted to move on that thing.

I'm sorry, I couldn't understand your question.

Sir, as compared to FY '23, you have increased our inventory on books by approximately 75 percentage. If you look at the numbers that you have reported, the inventory will be staying around INR 4,000.

Compared to what?

Compared to FY '23 last year. So out of that, first of all, I wanted to understand what percentage of that would be the raw material portion? Because given that you procure your inventory, the cotton season start from October, so I believe that you would have 7 to 8 months of cotton inventory. And now given that the international cotton prices are 10% to 15% lower, so as a company, will we be at a disadvantage or not? Just wanted to understand on that.

No, no, no. So one, whatever the inventory deal, that's primarily on account of cotton only. That's for sure, compared to the last year quarter 1. Two, India can take advantage is still not there because the Indian prices are still higher than that. So the international prices have come down, which has given disadvantage in terms of the lower yarn prices. But when it comes to the India, our pricing because of the MSP or bigger inventory held by cotton operation in India. Indian prices of cotton are still much higher than the price at which we have bought the cotton.

Okay. So now, sir, for example, as we compare to, let's say, if there's another standing company who was not procure cotton and if they are importing cotton. So as compared to them, will be as compared to a peer or someone, will we be at a disadvantage because they will be getting a cheaper cotton as compared to us?

No, no, no. No, no. So whenever you import cotton because the cotton prices have come down only in about last 1 month only. And at the moment, you want to contract any cotton it will be available to us, the shipment will happen after 1 month even 1 to 3 months and then another 2 months for the delivery of those cotton also. So you can't -- you will see imported cotton if the New York Futures goes down today, you can't start using it from tomorrow itself. So there is a minimum time lag of 3 to 4 months' time where we have to plan and import the cotton and it's only after that you can use that cotton. So most of the Indian in spite of a new lower New York Futures, they are relying only and only on the Indian cotton because the import will take its own time.

And also, sir, given that we have increased our inventory substantially, and I'm talking as of March '24 as compared to March '23, sir, what was the strategy behind the same because their operations were at the same levels, we didn't expand the capacity, and we have increased our inventory by approximately INR 1,600 crores to INR 1,700 crores. So what is the reason for the same? Like how are we looking at the scenario? And what is the strategy going forward?

So there are two things happened together. One, this year was a normal period where we wanted to cover our full season and we covered the cotton for the full season by 31st March. So because we were expecting the prices to go up because the MSP prices are still higher and PPA and CPI and the other traders were buying in a big way and the export cost also happening in the season. So our expectation that the cotton prices will start going up in India, which actually happened. So to that extent, we've got the advantage and our strategy both for the quality as well as the cost were definitely well in placement this year. While the quantity is increase or the price or the volume has increased, last year, the prices of cotton was very high so we did not stop it in the normal way. So it's not only that this year, we have done something exceptional. Last few years has been exceptional that the prices were so high, given the reason that we decided not to store the inventory for the full year. So this year, whatever it happens that was a normal behavior, if you look at our CPS balance sheet of the company, most or 80% of the time, which is the bare which we have shown in this year. Last year was an exception because of high prices, we did not cover the cotton on a full year basis.

Okay, okay. So given that -- does the inventory also will last until October only, you are trying to say that, right, over the next 6, 7 months only, and from October, we'll start again procuring them next season?

Yes, yes, yes. Yes, that is, when the season start, we'll have to start buying it.

[Operator Instructions] Our next question is from the line of Riddhesh Gandhi from Discovery Capital.

Sir, I just wanted to understand from you, how do you expect this given discrepancy between the Indian and international prices to ultimately actually play out, given sort of MSPs are high, given global prices are low? I mean, how does this get resolved?

No. Again, we have to look at the MSP is one where the government wants to support the partner. But that doesn't mean they'll give the same prices to the industry. There could be a possibility which we definitely want even if they want to support department, which is a good thing. So the disadvantage should not be read to the industry and eventually the cost, if there is any has to be taken by the government. That's one proposition. The second, I think going by the cost of farmers internationally also the price of $0.69, $0.70, $0.71 is unthinkable. And eventually, it can't be remained at cheap level because we understand because outside India also $0.75 $0.76, $0.77 is the lowest cost, lowest bare minimum cost for the farmer there. So in case the prices do not go up. Next year, we'll probably come down in a big way and then the prices will start shooting up in a big, big, big way. So I think eventually we saw in demand and supply, the equilibrium there, the international prices day goes to $0.85 then there is no problem on the international, and India also. And $0.69, $0.70 definitely seems to be an exception today where in spite of -- because the crop size certainly is very, very good, demand is as of now, relatively lower. So prices have gone down. But eventually, these prices remain. I'm not very sure how much area will come down in the world next year, and next two year. And to that extent, the price will again start to rise.

Sir, you have given we have sort of revised our CapEx slightly higher. Is that an indication of how we are seeing the overall industry pan out towards the next kind of couple of years or so?

Definitely, we are looking at all the options and opportunities to us going by the overall business sentiment and scenarios that margins could be lower, but definitely opportunity looks to be very sad for India as well as for Vardhman as of now. So we are in advancing our CapEx. and I'm sure if this continues, this trend continues and we continue to get better service, better products, we will not hesitate to expand further in the business. With the one bold step we have taken, where in spite of the business conditions, we are so confident about the overall business scenario for Vardhman or for all these opportunities, which are mentioned earlier, so we are expanding our business. And then sort if there's opportunities out there in future also we'll keep looking at that.

Got it. And lastly, are there any potential inorganic opportunities given smaller players may not be able to...

We keep looking at it. But I think as Vardhman size become so big that for any small unit will not make a sense, small size will not make any sense to us. So theoretically, yes, we are open to the idea, but practically, it looks very, very difficult that we'll be in a position to find some alternate to this.

Our next question is from the line of Monish Ghodke from HDFC Mutual Funds.

Sir, do we plan to import cotton under advanced authorization, given prices are so low? Even if we receive delivery after, say, 3, 4 months, I think we will still be getting cheaper cotton, right?

Yes. So most of the good spinning mills in India are looking at that option. So Vardhman definitely is one of them.

Okay. And sir, last time, you had announced INR 2,000 crore CapEx in that, around INR 400 crores, you had said was for green power. And now I think for boiler, we are setting -- we are spending another INR 400 crores. So would this INR 800 crores be sufficient to increase our green mix to 25%?

No. Because again, in this, whenever we are creating an SPV for the green power. That SPV will be taking their own loans as well as we will be participating a part of nearly 26% also in the equity. So from our CapEx bids, INR 400 crores or plus INR 400 crores should be sufficient. But for 25%, it may not be sufficient because that has SPV or whosoever is the partner for that, they will also be investing into this.

Okay. And sir, one question on strategy side. So our debt is quite low, I mean, our debt-to-equity ratio is quite comfortable. And many state governments offer interest subvention scheme if you are setting up spending capacities. So are we exploring that opportunity? I mean after subvention, the interest cost would be pretty low.

Our process is always the business model has to be there if we want to expand the company or the business. Is there opportunity there? Anything over and above in terms of subsidy, it should be nice to have, but it should not be a compulsion that because the subsidy we are expanding the business. So whenever we find or the teams, there's a business case for expanding the business, we will definitely do that and look at whatever are the something is available, we take advantage of them. But as of now, we have never expand into capacity only because of the incentives.

Our next question is from the line of Resham Jain from DSP Asset Manager.

Just one bookkeeping question. What is the gross debt and the cash at level the consolidated level?

As of June, it is around INR 1,150 crores so also around INR 900 crores of long-term debt and remaining is the working capital.

And cash, sir?

Cash book is also as of June [indiscernible] is close to INR 1,800 crores.

Including long-term investments and everything is included?

Everything is included, yes.

Understood, sir. And sir, what is the cost of debt for us and what is the yield on cash for us, average?

That's why if you see that the rates are different for short term and long term because clearly the EPC subvention was able to us which we are using in the month of June. So 2% subvention was there, which has gone now for us. And long-term debt, of course, the rate is around, let's say, 8% around 8% or so on floating rate.

I'm just asking what is the average cost of debt and what is the average yield on investment?

Yield, as of what we see the cost of our investment from a short-term basis on or liquid fund, then they've taken that disadvantage which was there earlier. So it could be opening around 8% in this quarter and last quarter also.

Our next question is from the line of Apurva, an individual investor.

Yes. This is Apurva from BugleRock Capital. Just last time we spoke about technical textile. I just wanted some more color on that, and where are we on that? I think, 15 lakh meters capacity that we have some moves.

Yes. So we are -- the work is progressing well. We are currently in the process of ordering machinery. We've ordered some machinery, and we expect to close this process by another 4 to 5 weeks. We are also waiting for rains to subside and then we will officially start civil construction. I'm happy to share that we've gotten all our legal compliances out of the way. And we are confident that in by next year, September, this project should be up and running.

Okay. And maybe you had answered it last time, but just on customers and any tie-ups are we looking at? Or is it too early to -- or how...

Yes. Right now, we're open to opportunities and if something comes up, we will be sure to let you know.

And this also is, as you had mentioned, this was a varied sector, right? So any particular sector that you would want to concentrate given the opportunity for China +1, if at all?

So the opportunity is there for multiple segments. So the most obvious for us is obviously activewear, sportswear. Because there are some brands which we are already doing business with. Apart from that, there is also big fans and industrial. They would be more complex, so perhaps we would be taking them up once we are more confident and once we've established ourselves in the relatively basic products.

[Operator Instructions] Our next question is from the line of [ Falguni Dutta from Hansorover Financials ].

I just have a basic question on yarn, domestic yarn prices. Do they always match import parity? Or I mean, I just wanted to know how are yarn prices? Directionally, obviously, they'll follow U.S., but otherwise. I mean, are they...

India is a net exporter of yarn. We are not importer of yarn, so the domestic prices and the export prices generally could be matching plus/minus INR 1 or INR 2 most of the time.

Domestic and export prices would be matching, but now if suppose the international prices come off, then obviously, we'll have to...

Then the domestic prices will also come down.

Okay. Fine, sir. To the same extent?

Yes, yes, yes.

Our next question is from the line of Manish, an individual investor.

Sir, would you be comfortable with giving guidance on the sales side? Would you be able to achieve INR 10,000 mark for this financial year?

Yes, going by the volume and the, so I mean, we feel there could be a possibility to go up to INR 10,000 crores.

So it is like a conservative mark or like the higher side?

No, because there is no capacity expansion happening in this particular year, so it has to be only through the value addition or better utilization only. So our first quarter is close to about INR 2,300 crores. So if I extrapolate it, it becomes INR 9,200, so to that extent, it's an optimistic number only.

Okay. And you just mentioned that 15% margin would be like challenging to sustain. So even if we sustain or even if we improve, so that would be predominantly due to volume growth or price change?

So the -- whatever is happening today, any volume increase happens, definitely, there will be an improvement in the margin because most of the costs are already covered by the company. So more and more volume in case, we can do. On a spinning we're running already running at the full capacity, fabric is running at a full capacity. So it's only addition of margins by better products or within that if we do some debottlenecking and we can increase the production that's going to give us the advantage on.

[Operator Instructions]

So I think there are no more questions.

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Yes. Thank you, Roshan. So really, thanks very all the investors to be with the part of -- be a part of the company and attending these calls. I'm sure as I mentioned earlier also in terms of the various opportunities both in terms of customer or the cost optimization, the company is looking at it very, very rigorously, and is open to all the new ideas. And I think our management is -- all of us are working very hard to achieve to that as well. The raw material prices or the global phenomenon, we have to leave it there, but I'm sure we are on the right track in terms of cost or in terms of the efficiencies, those opportunities will also be available to us from time to time. And in the meantime, the advantage to the company today is even though the cotton prices are higher or the spinning margins are lower, but to that extent, I think enough fabric is going to do too. So the overall company that is still the margins are okay. I'm sure as the time passes as the business becomes more and more normal, things will be better only from these levels in the times to come. Two, also with all these modernization, debottlenecking and expansion, which we are doing, it will definitely reduce our cost in big way, which will be available to us partially in the next financial year. I'm sure about 6-month advantage would come in the next year and the full advantage in the next year after that. It will definitely give us a huge advantage compared to the rest of the players in the country. So I'm sure, I'm sure whatever our thought process, we've been sharing it very, very transparently, even the times are good, bad, or whatever we feel we have said it. Let's wait and watch how the things go and what kind of raw material changes happen, what kind of yarn changes or the fabric, both in terms of the prices and demand changes. But then sure, whatever happens, we're looking at it, watching it very carefully, very, very diligently, and wherever, whenever there's any opportunity and catching out to that. So thank you very much, once again, to all of you. Good day.

On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.