Vardhman Textiles Limited ($502986)

Ladies and gentlemen, good day, and welcome to the Vardhman Textiles Limited 4Q FY '26 Earnings Conference Call hosted by 360 ONE Capital. [Operator Instructions] I now hand the conference over to Ms. Aradhana Jain from 360 ONE Capital. Thank you, and over to you, ma'am.

Thank you, Shailendra. Good evening, everyone. On behalf of 360 ONE Capital, I welcome all participants and the management of Vardhman Textiles to the 4Q FY '26 con call. From the management, we have Mr. Neeraj Jain, Joint Managing Director; Mr. Sushil Jhamb, Director, Raw Materials; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, Head of Fabric Marketing; and Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we can open the floor for the Q&A session. Thank you, and over to you, sir.

Good evening, everyone. Thank you for joining the fourth quarter call. The results are available to you. This period, last 6 months have been -- there are some good and some bad news. The good news is, one, the U.S. tariffs were over. As a result of that, India became more competitive. So the kind of desperation which was there for our garment exporters of the home textile, that's over and things have started moving back to the right direction. Also, this was a period where we started looking at a new geopolitical concern, starting with the Iran and U.S. war, which created some of the disadvantages or some of the disruptions in the system, be it logistics, be it crude, which has an impact on the various businesses, including the textile business, which I'll come to a little later. Also, this was a period where the cotton prices started going up internationally. In New York future from $0.61, $0.62, $0.63 went to as high as $0.82, $0.83. And as a consequence of that, the Indian cotton also moved from INR 52,000, INR 53,000 a candy to about INR 67,000, INR 68,000 a candy. So which means the cost of raw material increased in a big way in this period. There has also been improvement in the yarn prices both on account of the raw material push as well as the better demand also, which I will come again a little later. And in between the dollar rupee also moved, so which was also beneficial as most of the textile is based on the exporting community. So some advantage came because of that also. So these have been the macro level events. Now we can look at it one by one. Clearly, the U.S. tariffs have given an advantage. I understand the export -- the utilization of exporters who were directly exporting to U.S.A. from India, the home textile or be it the garment exporter has come down to about 50% to 60% in this period. Also, they were giving heavy discounts to the U.S. brands to the extent to compensate 25% as the duty was 50%. So as a result of that, the margins were affected and many products they were losing money. As a result of that, they were shy of taking those orders. And as a result of again that there have been major issues and concerns for those exporting community. We provide the material to them, they were not doing good, there was a pressure on the back process also. So all the people who are supplying either yarn or fabric to the garment exporter, they were also under a difficult situation, either on account of lower on account of both the lower realization as well as the lower utilization. As soon as the U.S. tariffs were away, slowly the business started coming back. And I understand as of now, both home textiles and the garment exporter to the U.S.A., they are running almost 90%, 100% capacity utilization, and as a results of that from the country, the overall export is better. And also since the utilization is better, the overall demand of the yarn is also better. So there's been a favorable factor in this period to start with. The second major event was the prices of raw material. Now if you look at the last 2 years, the New York near future was continuously coming down. It came down to one of the historic low levels of $0.62, $0.63. And I think this was a level where the farmers are not actually earning a lot internationally. So there was a fear whether the cotton crop will come down or will increase. So it was all the concerns and issues which were there in our mind. In between, there was a bad weather condition, which was announced by USA through the textile areas where it is -- as of now, it is projected that 91% drought conditions are there, and it is likely the overall crop size in U.S.A. will come down. Also the Australian crop size got reduced from 55 million bales, which was expected to be about 41 million bales. The Indian crop also came down against the last year figure of about 31 million, 31.5 million bales. This year, it is projected to be about 29 million bales only. And the Brazilian also was not increasing, it was a possibility either the same or small reduction in that also. As a result of that, the overall cotton stocks, which we saw increase in the closing stocks of cotton world last 2, 3 years that got balanced or rather it was projected that we will -- the world will be reducing the closing stock of cotton maybe to the extent of 0.5 million tonnes to 1 million tonnes. And the moment it was realized, there was one of the factors where the prices of cotton started going up in the international market. Two, as the tension started in Iran and USA, the crude prices started increasing, which has a direct impact on manmade fiber, especially polyester. And the polyester prices increased in a big way. And as the cost increased because of the crude, all the synthetic fiber prices started increasing. If you look at acrylic fiber, the prices increased almost by about INR 80, INR 85 a kg in this period. Polyester fiber prices increased by INR 25, INR 30 a kg and all other prices also started increasing. So somewhere, it looks like the cotton fiber also got a sympathetic increase on account of that also since the synthetic prices were increasing, somewhere I think that was a support given which was -- which the cotton fiber and the prices were also strengthened to that extent. Third, since the deman industry has started improving, so there are 2 factors how the demand started improving. I'm talking about starting in the month of October. Two factors on the spinning side, which have happened in last some time. One, since the industry was not doing well, so we understand as per the industry estimate that total of about 11 million, 11.5 million spindles have stopped permanently into the system. I shared earlier our rated capacity in India was 53 million spindles. Normally, we add about 2 million, 2.5 million spindles every year. And if you go by the normal year, our capacity this year should have been about 59 million, 60 million spindles. Against that last 3 years, there was hardly any expansion happening. But contrary to that, 11 million, 12 million spindles permanently stopped into the system. So practically, the working capacity today in India will not be more than 41 million, 42 million spindles as per the industry estimate. There's no government data available, but this is the industry estimate, which means there was some balancing of the spinning availability or the yarn availability came into the system where the overall production came down. This was one factor where the surplus capacity was damaged. Two, we saw geopolitical tension issues concern in Bangladesh 6 months before. So because of that, I think some of the brands or some of the orders got transferred to China also. So there was local Chinese demand, there was export Chinese demand, there are some orders shifting from Bangladesh to China. And China, if you look at the Chinese cotton total, they have about 80% of their consumption internal cotton and 20% they import from outside. And out of the 80%, which is the internal production, 80% of that comes from [indiscernible] area, which is banned by the U.S.A. as of now. So it looks like either the brand suggestion or the local Chinese manufacturers, they decided rather than buying the local yarn, they started importing cotton yarn from India -- from different countries, including India. The prices were low. So they started buying big quantities of yarn from India. And suddenly, starting October, November, we found the yarn demand to be very good in the export market and the prices started going up for the yarn also. India, we normally export about 100 million kg of yarn every month. It is the average for the last 2, 3, 4 years. And out of that, China used to be about 7 or 8 million kg only. So you look at the last 4, 5 months data, China is consistently buying about 30 million kg. So practically another 20 million kg demand came to India and Indian exports started reaching or touching almost about 120 million kg plus. So this became yet another factor where the yarn prices started improving in a far better way, not only to compensate the cotton prices, but definitely beyond that and suddenly spin margins started improving into the system. So this demand of China continues even today also. And I think most of the spinners they are sold for about 2 to 3 months in forward as of now as far as the export is concerned. And to that extent, they try to cover the cotton also. Two, since on the Indian side, the Indian crop size is not likely to more than 25 million bales. And going by this increased activity of yarns, it is expected our full year consumption can be in the range about 33 million or 34 million bales. Presently, there was a realization that the cotton is not available in India. And there was the various industries associations, they started going to the government to allow the duty-free import of cotton so that by the time we finish our existing cotton, there should not be a shortage of cotton into country. The Ministry of Textile could understand and they took a total view to the industry and they wrote to the Finance Ministry and the Agriculture Ministry that there's likely to be a shortage of cotton going by the better activity and the better profitability of this sector. So the cotton should be allowed duty-free coming to India so that there's no shortage of cotton in the month of August, September, October and so on. This information also spread into the system that India is likely to open the cotton, whether full time or maybe 6 months, I do not know what government decision would be. Whether they take a decision or not, we are not sure. But definitely, the market. perceived the Indians will buy to buy more cotton internationally, so which also gave some strengthening to the New York future in this period. The third factor was as the cotton started going up, I understand the hedge money or the speculative money also started coming to this spread. And today, the last 2, 3 years where the speculators as per the data which is available in the system, they were negative or they were short on the New York future, they started going wrong on the New York future, which means the cotton, the $0.80 $0.82 level got stabilized in this period. So this got big advantage in New York future remains at $0.80, $0.82 for the Indian market. India had a peculieal situation where our cotton prices were very high because of the minimum support price, so thinking of acquiring cotton or they were buying cotton, they were selling in the market. But at the same time, there was a loss which was coming to the in this period. As soon as the cotton started going to about $0.80, $0.82 in New York future, the Indian cotton prices became aligned to the world market. And as of now, even by our MSP, our cotton is not expensive compared to the world market. Rather, it is aligned to the long-term average which we used to look at it always in the last 15, 20 years that we are New York future plus $0.05 to $0.08 cotton, which is prevailing as of now. So suddenly, all the spinners which are losing money on account of a very high cotton prices, that factor also got aligned into the system last couple of months. And as a result of that, the spinning margins were normal, which earlier was not sufficient or was not normal because we were very, very expensive on the cotton. The New York future whether it is sustained or not, I'm not very sure, but definitely, if you look at the other countries. So India today, our cotton price are $0.87, $0.88, New York future with $0.82, $0.83, $0.84. Brazilian cotton is available at $0.94, $0.95, which is aligned to it. The Pakistan cotton, which is inferior to Indian cotton, is again aligned to $0.85, $0.86, which is in line with the normal relativity. And also the Chinese cotton today are in the range of about $1.03, $1.04 which normally they are always higher than India about $0.15 or so, which is also today as of now aligning to that also. So today, there's hardly any disruption as far as the long term in the cotton prices have been in relative to international. So in this period, the cotton to Indian spinner was available at the right price. Demand was okay. The prices started improving. Just to give you an idea, the lowest prices of yarn in the month of November, December were ranging about $2.65 to $2.70 per 30-pounds. Today, the price is ranging between $3.30 to $3.35. Same way, another advantage which came to India with the rupee moving from INR 90 to about INR 94, INR 95, our cotton cost in terms of U.S. came down and also the conversion was better available to the Indian textile producers, not only spinners, to everyone who is exporting. So the operation to some extent was viable as far as spinning is concerned, which we saw after 2, 3 years. Going forward with the next upstream products, the fabric margins were very good before the increase in the yarn prices. And I think now slowly because the overall demand is good, even for the fabric also, the demand is not bad. So everyone is trying to increase the prices. There's always a resistance whenever the prices goes up to increase on the upstream products and vice versa of that, whenever the yarn prices goes down, the garment or the fabric prices doesn't go down in the same fashion. So the fabric also, they have increased the prices. So -- but there's always a lag of 2 to 3 months. And I hope going by our position today or most of the other fabric producers, both the synthetic or the woven, it looks like that we are trying to push the system and we would be in a position to get that increase, hopefully in the times to come. Same is situation with the garmenters, they are now trying to increase the prices. So one, they've got an advantage because of the dollar rupee. Also, they're trying to push the brands to increase the prices. And it's always a part of negotiation we have to see. But definitely going by the total increase, it looks like the brands have started talking to increase the prices. Brands have started giving small increases, but I think it's a time where we have to look at maybe next 1, 2 months, more clarity comes on this issue. So second, on our capacities in between, we have taken -- Vardhman has taken a very big CapEx plans. On the spinning side, it was more of a modernization. I'm happy to share almost 90% of the modernization got completed in this period. And whatever is left, I think this current financial year, next 6, 8 months will complete. And as a result of that, we are much more strong on the shop floor both in terms of flexibility, quality and also the cost factors. And I'm sure that advantage will come to us in the future times, both in terms of the cost as well as because of flexibility, better products, which we can produce and give it to the various customers. The fabric side, there are 2 major expansions we have taken. One was the performance fabric, which plant was commissioned during the last financial year. So I think normally takes about 6 to 9 months' time for the orders to come in as it's a new venture for us. So I hope next 6 to 9 months, we should be in a position to utilize it fully or better utilization will happen where -- and we hope that this will be a new line for us where the lots of expansion or major expansion can come in as there are hardly any players for 100% synthetic into India. Second factor was reserve of cotton and normal fabric production, which was also commissioned during the year. But as far as soon as we commissioned that, there was this issue of U.S. tariffs. So practically, we couldn't utilize that capacity, but slowly, we started building on that also. In terms of our volumes, we would be doing one of the highest bid, but still we have unutilized capacity, which I expect maybe next 6 to 9 months' time, we should be in a position to complete that. In addition to that, there was a huge expenditure we wanted to -- we are doing on green power, the biomass boilers, et cetera, et cetera. All those projects are likely to be commissioned in next 1 to 2 months. And after that, I think June or July onwards, we should start getting advantage of that also both in terms of green power as well as some cost reduction possibility going by the raw material as of now. So these are -- this has happened. So now I think remaining part we can cover in the Q&A session.

[Operator Instructions] Saransh Gupta from Swan Investments.

Am I audible?

Yes, you are.

Congratulations on a decent set of numbers. So I guess, had a few queries regarding the end of the business. So by this earlier on cotton pricing and cotton prices trade at a premium to US, but right now it is trading at par. So has this impacted the demand for? I know you mentioned that the demand for the yarn is better, though, it is also visible in the realization. The realization is important. Are you able to pass it on to the customers?

The yarn prices are determined by the international cotton. Whatever -- even if our cotton is expensive, we can't pass it on because that's an Indian phenomenon only. So one, yarn prices, whatever is the cotton internationally that is determined by the international market. And even if our cotton is expensive, that has to be borne by us. That's first point. Two, since the overall demand was better. So both on account of the demand as well as increase in cotton prices, that could be passed on comfortably to the customer as of now.

Okay. Understood, sir. And on the demand side, sir, how is the demand shaping up with U.S. has opened up right now?

As of now, the demand of yarn is very good. If you look at most of the U.S. brands, the first quarter number, there is an increase of the retail price increased from 4% to 10% of the various brands. The demand from U.S. is really good. And as a result of that, I think the overall textile demand as of now seems to be very good.

How is the panning right now you said that there have [indiscernible] price had increased but there is lapse, so how is the customer conversation shaping up?

Customer is [indiscernible] raw material prices have increasing, the intermediary products, they dont' have a choice, because [indiscernible] so everyone is trying to push the prices and some decisions are happening selectively are not happening but as I mentioned, there is always a large and whenever you want to do a new business, there always will be resistance for every week, every month, every order, price increase will a question to the customers.

On the spread side, are the 12% growth from tariffs on the yarn segment.

Yes, definitely has improved as I mentioned because our costs less because our cotton was not expensive, so since our cotton is to the international market, definitely good.

If you can quantify that in terms of the numbers?

So if you look at the Indian prices today, the cost of Indian prices is about $0.85 to $0.87. So I convert $0.87, it comes to about $2.35 or $2.38. With the price of order, $0.30 today, with this kind of a Rupee, I think $0.90, $95 spread is available 4 months back was only about $0.60, $0.65.

So there is a 50% jump in the trade.

From the worst to the best because it happened slowly in the times to come, but yes, 40%, 50% spread improvement is there as of now.

[indiscernible] we go ahead with this number or will there some correction in the spread if the prices of the yarn comes down?

As I mentioned, there are 2 issues which are control. One, future will come down or not, I'm not very sure. But future level, Indian MSP issue or the cotton that issue can be taken care of. But New York future could go up or not something I can't really predict. On the demand side, I mentioned the demand from China has been good in this period because they are full of orders from the various. I think to that extent, it looks like it can be sustained for some period of time.

The next question is from Cheragh Sidhwa from Bajaj AMC.

First question pertains to the industry dynamics. Sir, as you indicated, close to around 11.5 million spindles are off the market. So sir, as per your experience, let's assume that these spreads sustain for a longer period of time, how much period would it take for these capacities to come back into the market? Or is it more structural in nature, people are right now not investing and it might take a couple of years to again come back to that 50 million, 53 million spindle capacity?

There are 2 things which have changed in this time. One, as per the industry estimates, the total number of spindles in India was 53 million. At the same time, the number of mills were close to about 3,000. We understand the 11 million spindles which are off the system, almost 1,000 factories have shut down. So this means the overall indirectly some consolidation of the industry happened. So all the small spinning capacity 4,000, 6,000, 8,000 spindles, which in any case was very, very difficult to manage in today's time. I think that's one segment which is going our of the system. Two, the industry has passed through a very, very difficult time last 2, 3 years. So nobody is looking at a very big expansion to start. I think everyone is looking at more clarity on the import policy of government and what happens. And my feeling is in case these margins or this kind of cotton prices sustain for next 3 to 6 months, people will start looking at more projects to come in into the system. You go to the machinery manufacturers, which are one of the best way to measure what is happening on the industry side, especially on the expansion side. Their utilizations are improved, but more from the modernization orders rather than the expansion orders as of now. So people have started talking on the expansion side. As of now, there are not really very big projects which have started working on it. And I feel maybe 9 months' time, people will wait before they can start up or they start taking up the new projects. Industry [indiscernible] more consolidated. [indiscernible].

The next question is from Falguni Dutta from Mansarovar Financial.

I have 2 questions. The first one, our operating profits are not look as good as maybe people like Nitin Spinners or GSPL Textiles. Is it because the fabric price increase will happen with a lag and hence Q1 numbers would show more of it?

Yes, that's likely to happen.

Okay. And sir, what was the export percentage for the quarter, export as a percentage of revenue for this quarter versus Y-o-Y same time last year?

Direct export, company as a whole has always been in the range of about 44%, 45%, plus minus 1%, 2%.

Okay. So this is as a percentage of revenue, right?

Yes.

So this has been maintained. I mean there has been no issue on -- okay. So sir, then is it fair to say that we would do -- like since exports have not been impacted. So with the fabric doing better, we'll do much better in Q1. Can we say that? Meaning what I mean to say in short, our performance in Q4, was it not as much as it could have been just because of the fabric part, which takes a lag effect?

I mean going by the spread improvement, which is looking like as of now, I think most of the textile companies do far better in the first quarter.

Sir, what with the higher cotton costs which have come in, even then it should be okay. As you said, the current cost and current yarn prices, the spreads are okay. So one can assume even Q2, assuming the current status remains, even Q2, 3 could be better, assuming the current spreads remain.

That's true. So assuming the current prices of yarn, current dollar rupee and the current prices of cotton, it will be better compared to the last year. And if they have cotton available to them, which is at a cheaper price that should be additional avail.

And sir, year-end this time we are having 3 months inventory or a bit more for cotton?

Numbers, but our normal is 6 to 8 months cotton.

Okay, 6 to 8 months cotton you have at your end?

Normally, that's [Foreign Language].

[Foreign Language].

Ma'am, I'm trying to explain you that cotton in India comes in the month of October. Most of this gets vanished by March. On March numbers, we will have 6 to 7 months inventory, most of the time.

The next question is from Prashant Rishi from Capital.

I just wanted to expand on the last point that you made. Since bulk of our procurement has happened by the financial year end types. So what would be the average cost of cotton that you procure because that will be the base for the cotton for the rest of the financial year? So is it I will not...

I will not like to give the numbers at what cost have bought, but I can give you how the market has behaved in this period. If you look at today's price of CCI selling, it is INR 67,000 a tonne. And they increased this price almost by INR 5,000 in the last 1 week only. So practically the CCI price 1 month before was INR 57,000, INR 58,000, so eventually everyone who has an inventory will be definitely much lower than the current price.

Understood. And sir, any -- very speculative question, but any viewpoint on how U.S. future cotton would be considering the drought situation in the U.S.? Will it sustain at $0.82, $0.83 historically?

As I mentioned, the drought is not the only reason. I mentioned earlier also drought is one of the reasons. Also the crop in India and Australia was also lower. So the demand supply readjusted the first time after 3 years, there will be a reduction in the closing stock of cotton, so all these factors and then the synthetic other prices increasing given the possibility of some consumption change or replacement from cotton, all those factors have played into this. So it's not only the condition of US, but the many factors could have played a role where suddenly people are more optimized or more optimism is there on the New York futures.

The next question is from [indiscernible].

Congratulations management team on decent performance with gross margin expansion. My first question is related to this only. If I look at the number where gross margin was higher quarter-on-quarter 300 basis points, but due to other expenses, the margin expansion was not reflected at EBITDA level. So sir, could you just give a highlight on what led to a great increase in other and when it will get normalized if there is something one-off?

Okay. So there has been one item which has been charged to the revenue in this period in the other expenses. Whatever is the foreign exchange we have taken that gets mark-to-market on every month end. So in this period, the rupee moved sharply book, most of the time we like to cover the rupee at the same. INR 480 or so on 31st March. So whatever we have sold that was required to be making to be normalized on the mark-to-market basis and we provided a loss of about INR 57 crores, INR 58 crores in this quarter on that. But that advantage will come in the next quarter. Now our exports will be moving at INR 94.80 whatever the market rate going forward. So that onetime hit it definitely impacted our margins in the fourth quarter.

Okay. So it was roughly the number was -- the hit was exact number.

INR 57 crore, INR 58 crore is provided as mark-to-market.

So that will not be there going forward or there will be some reversal of that?

Depending upon's that what the government decisions. I can't say tomorrow it goes to INR 97, tonight [indiscernible]. So I can't speculate on that. But yes, whatever from 31st March, we've provided for that.

Okay sir. Sir, second question, you have already highlighted that March end everybody's inventory is 6-8 months. As a strategy, what would be the number at September end general number?

No, I'm not saying everyone had an inventory of 6 to 8 months. I said most of the good textile mills since it's a seasonal product, they try to cover the cotton normally 6 to 8 months, but the company, to company it could be very different. Our cotton -- new cotton will start somewhere in October. So by September, we have to exhaust most of our stock and we have to start preparing for the buying once the new arrival comes in because we can't -- the new arrival will come somewhere in the month of October. And if we have a factory inventory of 6 to 8 months' time, they'll be finishing in this period. And then eventually, they have to buy cotton in starting September, October, November.

Okay. Fair enough. And sir, one quick question on the CapEx side. You talked about increasing your garment capacity, which is still a very small part of our overall business. So are we thinking seriously to have major expansion in garment segment and broaden our product profile the way you have mentioned in your press release?

So earlier we were not really sure we want to expand the capacity or not. But definitely, the business is whatever capacity we have, we are doing good. So -- but our costs are very high because -- so the first step is let's make it a viable case. We can make money on the [indiscernible] capacity also then we look at it within the [indiscernible]. As of now, the only idea, it's a good business, there's no that we'll be looking at it in a very big way neither. [indiscernible].

And sir, what is our average realization per ballpark number?

[indiscernible] sorry, sorry, $7.50.

The next question is Yash Jhunjwala, a retail investor.

Sir, can you tell me what was the average spread earned by us in FY '26?

I can't say what was Vardhman spread, but the industry spread for the year average will not be more than $0.65.

$0.65. And the current market conditions, you were saying that the spread has increased to about $0.90, $0.95.

Correct.

Okay. And so my second question is that when the -- in the last 2 years, when cotton globally was cheaper than cotton in India because of which -- and our cotton yarn realization is linked to cotton globally. I'm sure the industry must have made representations to the ministries regarding this disadvantage that Indian spinners had. So what -- like anything structural that has happened to address this gap that disadvantage that Indian spinners had?

So most of the are going to the government, and we have only one request that you allow the duty-free import of cotton in India. That will have a balancing effect automatically. Buys all the cotton or majority of the cotton, then whatever is the -- so there are 2 ways of looking at it. One, the normal basis so that there is no disadvantage to the Indian that could be one. Two, [indiscernible] duty free cotton to happen in India. So that automatically will happen in times to come. So the industry issue is only, we are not talking of MSP. We are not talking of increasing. We are not talking of the farmers. The industry view is simple that the cotton should be allowed in India duty-free so that the price discovery happens automatically. And textile manufacturer is totally aligned to that. They have already written couple of times to the Agriculture and to the Finance, no decision has happened, but I'm sure at least our Ministry is aligned to our thoughts.

Okay. And my final question is on the -- all the FTAs that have been signed with the U.S., with U.K., with EU. Let's say that the demand from -- for this -- for all the textile industry from India improves. But because of this cost disadvantage, will we be able to compete in case cotton again, like there is duty-free access, duty-free import is not allowed of cotton and then again, you'll fall back into that same problem of high cotton prices?

There are two things we are talking to the government. One, as the demand would increase on account of the FTA definitely, we will be requiring more raw material. [indiscernible] So whatever cotton may not be sufficient for us to supply it in case the garment exports or the home textile exports increase a big way from India. So both the giving one is on the cost prices that compete and on the availability of raw material because they put the CapEx, the raw material should be available at the international competitive price. So these are both the issues can take care of if they allow the duty-free cotton to India. So let's see what happens. But one good thing in between what has happened is that the pricing policy this year has been good and they have been selling the cotton based on whatever has been the long-term alignment of Indian cotton. So to that extent, there was no disadvantage for most period of last 6 months to 9 months. That's why the industry is in a better condition. I should give credit to for that.

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

So I have one question mainly with respect to the announcement which government has made yesterday, Mission for Cotton Productivity. But what I could see in that is that it is not talking about the introduction of the new variety of seeds, but it is largely talking about all the farm improvement practices and stuff like that, high-density planting and all. Do you think that if India has to move from 450 kg per acre to, let's say, even to U.S. level of 700 kg to 800 kg levels, will this be suffice? Or what is your thoughts around this?

[Foreign Language] than whatever we are thinking. So one is look at the overall is from India, one is the seed qualty, second is and third is land holding. The land holdings are were very small in India and any kind of automation may not be possible there also. Looking at the total crop in India, it's [indiscernible] and allmost 6 million tonnes [indiscernible] whereas you go to US or to Brazil or to Australia, the numbenr is in thousands of bales, not less than that. or maybe. So eventually even so we are looking at seeds and looking at productivity where we are looking at the holding is also playing an important role in terms of the overall optimization. So going to US level of 700 or Brazilian level of 2000, I don't know, but definitely we can improve upon this from where we are but again goes to [indiscernible] and still looking at what more experimentation, definitely looking what more can be done, I mean we're [indiscernible] going by our land holding also. Having said that, we have to start somewhere. It's a good initiative which the government has taken and [indiscernible] 450 to even 550, [indiscernible] we can increase our productivity by 20% which is [indiscernible] to the overall cost as the [indiscernible] the cost to farmers plus [indiscernible]. So if the cost come down, definitely it will have an impact in better realization and better cost of the industry spread.

Understood, sir. Sir, the second question is given that now the expectation for next year overall for the industry is looking quite positive and we have already done modernization CapEx largely in the last 2, 3 years, which will bode well for us. But beyond this, are you looking for -- because you need to plan from now to utilize incremental cash generation. So from a CapEx perspective, are you planning anything?

So 2 things. I think you're right and not only us, most of the industry is waiting because the situation is a little better after a long time. So everyone is trying to look at whether it is sustainable or not. But in between [indiscernible] we are likely to restart that. Also we have taken a new piece land in [indiscernible] park in Madhya Pradesh, but the land purely to be [indiscernible] to us as per government [indiscernible] as of now by December or January of this year. So once the land is available to us, we start -- we are already on the board, we are putting up some ideas and maybe next 2, 3 months, we'll finalize those ideas also. And by that time, we look at the sustainability of the system also and not only we, for many players they are looking at because this FTA demand is [indiscernible] womewhere15 months down the line. And in that we have to prepare within next 2 to 4 months, we'll have to start looking at what is required in country and all the good players have to prepare themselves, so that those could be. Also [indiscernible] I'm sure next 2, 3 months, we will finalize our plans as well [indiscernible]. On the fabric side, has a surplus capacity. So we like to utilize in the next 6 months. And by the time we utilize it, we definitely -- there are some ideas in our mind what to do next in the next financial year or so.

Okay. But in the existing set of verticals like fabric.

Yes. As of now, we are restricting ourselves to only as of now.

The next question is from Rudraksh Gupta from Investment Trust.

Sir, I have 2 questions. One related to what you explained that India should have had a spinning capacity of 58 million, 59 million versus operational today at 41 million, 42 million. Given the environment where spreads are expanding, the cotton prices have actually aligned of India and international, which actually solves a big problem. A potential FTA with Europe and U.K., which is an incremental positive to play out like you're suggesting over 12 to 18 months. And the incremental development in terms of if the import prices or the import duties are actually dealt with correctly by the government. This is the most promising commentary, if I may say so, that I've heard in a long time, along with a very wide gap of required capacity versus available capacity at play. Would this really mean that a very large expansion of capacities can come through over the next 3, 4 years if the cycle sustains, the import duties are taken out and the FTAs actually start to bring in benefits? And I will bring in my second question after once I get this one.

So I'd like to make one correction. All the data you have given is correct, except one. When I said the capacity that 60 million, it should have been going by the tradition or the conventional increase which happens every year. Whether we require 60 million or not is a separate spinning capacity, So we were at 53 million, normally we were having [indiscernible] so we should have reached 59 million, 60 million. Again, [indiscernible]. The [indiscernible] lots of spinning capacity was very unviable [indiscernible] which is going out of the system. Having said that, the total demand in India today is 41 million, 42 million spindles are sufficient as of now for the country, and that's why our margins have become better. Now going forward as the expansion will happen by the FTAs and demand coming in, we definitely require more spinning capacity. Whether it is 60 million, 45 million or 50 million, that will depend upon how much new business we can generate with the FTAs. But definitely there is a scope for India, for the country with all the coming in the demand on the garment and home textile increasing, definite spinning will be much required in a much bigger capacity as a country. And the good part is all the smaller players have gone out of the system. So now the new expansion, hopefully, will come more in the organized hand, which means there will be a better competition compared to the very, very unorganized competition.

Sustained profitability for the industry and helps CapEx building as well. Sir, the second question is more related to this situation where geopolitics is what you referred to where some countries who are also manufacturers and exporters have been having issues. And those issues in my understanding, have worsened in the current West Asia war, if I may say so. Is that correct as an understanding? And is there a further weakening of other Asian competitors, which will give a sustained advantage to India? Is that a fair assumption or an understanding? Or that is something where we can see a comeback from them very quickly?

If we look at the spinning sector, the 4 or 5 countries are taking 90% share in the spinning China, India, Pakistan, Bangladesh and Vietnam. These are the 5 countries which are taking care of almost 80%, 85% of our spinning capacity. Let's look at it one by one. China, they started reducing the spinning capacity almost 15 years back. From a peak of 112 million spindles, are down to 84 million spindles only. They announced some CapEx in the area where there are lots of cotton. At the same time, the government of China has officially announced that we want to reduce the cotton in the area and we want to move more on the food articles as the country will be requiring more food than cotton consumption, which means the cotton will come from there also. And if you look at last 10-15 years, as I mentioned, the peak 112 million spindles has come down to 84 million, so this means they will not be expanding which means the interest could be that they will not be expanding in a big way. Second country is Pakistan. Pakistan again, if you look at their own issues and concerns, be it political, be it power availability or any other factor, I think there is a limitation. So they will also not be expanding the business in a big way to cater to the international demand. Third is Vietnam. Vietnam is small country, small population and they have done a fantastic job in textiles, starting from spinning to the garmenting. And the per capita income has started moving up. There is more interest from the people to go for the electronic and the service industry there also. So with a small population they don't see that they have [indiscernible] further on the spinning side, rather whatever is there, they can best utilize that, not likely that they will be expanding the spinning business to that extent. Fourth is Bangladesh. Bangladesh is very strong on the garmenting. After China, they are #2 player, almost $55 million, $54 million worth of export they are doing on the garmenting side. Their spinning capacity today is about 14-15 million spindles and the utilization is not more than 55%, 60% even as of now. They are very strong in garmenting. Some groups have gone back to putting a spinning capacity, but spinning is a very, very large CapEx required and they don't have cotton, [indiscernible] so eventually, it looks like the major spinning expansion may not happen in Bangladesh also. And -- but on the garmenting side, they may continue to grow. As a result of that, they'll be requiring good quality yarn as well as the fabric [indiscernible] require. So to that extent, they have to depend upon someone else. And the last of India, which is today [indiscernible] we're #2 spinning capacity in the world, even with 41 million, 42 million spindles in terms of technology, in terms of cotton availability and in terms of the overall clusters in the geopolitical I think we are definitely better placed. I can only hope that India should be in a position to take full advantage of this situation. The only caveat I have in mind is that the raw material availability at competitive prices, which we have been talking to the government. And we are hopeful that the government looking at the overall potential definitely understand and look at something like this.

The next question is from Sudhir Kedia from Value.

You have outlined lots of reasons for the tailwinds for the industry. My question is from the next season, do you think that next season quarter also gets impacted because of the [indiscernible]?

One is the physical cotton, second is the future cotton. So whatever is the weather conditions announced today, it's already captured in the future prices. And going by the situation, if things go, it can increase. If things become better or more rain, it can soften also. But cotton is one product where based upon the future events which are likely to happen, it's already capturing into the market very, very well.

So cotton prices perspective, you think that the is already captured in the cotton prices from international perspective, right?

As of now, yes. But definitely, there are -- so one is the more news coming in based upon that, whatever condition can happen. Second is the possibility for the hedge fund of the speculative funds which is not in control of any one of us.

Second question is that while the spreads have increased almost by 40%, 50% from their lows, what has been the spread at the peak in the past? And do you think that the spreads can rise further from the current levels as you move ahead to the next season?

Most of the times, if you look at last 20 years, except the year which could be very good or very bad, that the $1 spread is always considered to be good for the spinning industry.

Okay. So with rupee depreciation, that will add extra to the earnings of the spinners for the industry.

It should. It should normally our cotton is about 50%, 55% of the total finished product. So whatever the rupee happening, the cotton will align to in U.S. cotton align to U.S. very fast because anyone who is buying here will always look at the future and the branded cost in India based upon the U.S. But whatever is the value addition that advantage comes in with the weaker rupee.

And sir, my next question is -- up to what time do you expect this spread to sustain? Meaning do you think this to sustain from 2 quarter perspective or maybe 4, 5 quarter perspective? How should we look at that?

Today, things are good. It's really difficult for me to say whether the futures will remain at these prices or what will happen to China or the war, so it's very difficult. But I can say as of now, things are looking nice and there doesn't seem to be any big concern. Rest, it's very difficult for me to predict whether it can be for 5 quarters or 1 quarter or 2 quarters. But as of now, I can tell you most of the spinners from India in export market are sold for 3 months as of now.

So the reason of my question was because some of the reasons which you highlighted on the spinning capacity, these are structural reasons and they are not seasonal [indiscernible] perspective.

From that perspective, it seems to be a better place. But then the cotton prices or the demand structure or anything happening on the war side, there are so many factors today that anything can play. But yes, in Indian context, with the closer part of the capacity, it can be better. And also we have a better situation going forward because of the FTAs, next 12, 15 months, definitely, things are likely to be better only for India, even garments and [indiscernible] So to that extent, we have optimism to that extent.

Due to time constrain, we will take this as the last question. I now hand the conference over to management for the closing comments.

So I think we tried to -- based upon our judgment and our thought process, we have tried to give whatever best knowledge we have the events occurring so far, so that's impossible for anyone to understand and know the impact of that on the overall industry. But definitely, as I mentioned, after 2, 3 years, there seems to be some in the industry for the reason, as I mentioned that our raw material became more competitive and better demand and lesser capacity, we are definitely better balanced as of now. I hope the next year should be a better year for most of the textile companies, including V. in the meantime, most of the industry is very, very -- optimism based upon all the which the government has done, which could be major engine for our home textile producer textile material supplier to them. If they do well, definitely our company can also do well. So thank you very much for your confidence and your support always. Let's hope things will be better in the times to come.

Thank you, sir. On behalf of 360 ONE Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.