Release Date: November 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vardhman Textiles Ltd (BOM:502986, Financial) reported strong performance in the fabric segment, with full capacity utilization and significant contributions to overall results.
- The company is actively expanding its fabric capacity, including a 20% increase in solid dyed fabric and additional investments in digital printing.
- Vardhman Textiles Ltd is focusing on cost optimization and new product development, which is expected to improve customer satisfaction and business growth.
- The company is making strides in sustainability by investing in recycling lines, with plans to expand capacity and cater to the growing demand for recycled materials.
- There is a positive outlook for the export market, particularly from the US, with good demand visibility up to January and beyond.
Negative Points
- The Indian spinning industry faces challenges due to high cotton prices and import duties, which impact profitability and competitiveness.
- Margins have been under pressure, with current EBITDA margins lower than historical levels due to increased raw material costs.
- The company is experiencing difficulties in the garmenting segment due to high labor costs and availability issues, limiting expansion plans.
- There is uncertainty in the cotton market, with fluctuating international prices and government policies affecting procurement strategies.
- The demand for sustainable fibers and recycled garments in Western markets may reduce the demand for virgin fibers, impacting long-term growth.
Q & A Highlights
Q: Why are the consolidated numbers lower than standalone this quarter?
A: Neeraj Jain, Joint Managing Director, explained that the consolidated figures were affected by dividends received from associated companies, which were knocked off in the consolidated calculations.
Q: How is the current cotton situation compared to international prices?
A: Neeraj Jain noted that international cotton prices are around $0.71 to $0.72, while Indian cotton is priced at $0.84 to $0.85 per pound. Indian cotton is inferior in quality compared to American cotton, and import duties make it more expensive.
Q: Is the current EBITDA margin of 13% to 14% the new normal for the company?
A: Neeraj Jain acknowledged that due to high cotton prices and competitive pressures, these margins might be the new norm unless there are significant changes in government policy or international market conditions.
Q: How has the demand from Bangladesh been affected, and has there been any replacement demand from Indian buyers?
A: Neeraj Jain stated that while there was a temporary disruption in Bangladesh, demand has normalized, and the company continues to sell at previous levels. However, India lacks the capacity to fully replace Bangladesh's demand.
Q: What is the company's strategy regarding the garmenting segment given labor challenges?
A: Neeraj Jain explained that due to high labor costs and availability issues, the company is cautious about expanding its garmenting operations. They are focusing on marginal increases in capacity while evaluating long-term strategies.
Q: What are the plans for expanding green energy usage?
A: Neeraj Jain mentioned that the company plans to increase its green energy contribution from 5% to 25% over the next two years, with potential to reach 40%, driven by both cost savings and customer demand for sustainable practices.
Q: How is the company addressing the trend of recycling old garments?
A: Neeraj Jain highlighted that the company is already involved in recycling, with a capacity of six tons per day, and plans to expand this capacity. The trend is gaining traction in Western markets, and the company sees it as a growth area.
Q: What is the status of the company's CapEx plans?
A: Neeraj Jain confirmed that the company's CapEx plans, totaling around ₹2,500 crore over two years, are on track. The focus is on expanding fabric capacity and modernizing operations to improve efficiency and meet demand.
Q: How does the company plan to handle the challenges posed by high cotton prices and international competition?
A: Neeraj Jain emphasized ongoing discussions with the government to allow duty-free cotton imports and align domestic cotton pricing with international markets. The company is also focusing on cost optimization and strategic expansion in fabric production.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.