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The company held its conference call on 11th Nov'13 and was addressed by Mr Rajeev Thapur CFO and Mr Neeraj Jain Executive Director Yarn division
Key highlights
During Q2 FY'14, the company sold about 40424 Metric Ton of Yarn, up by 10% YoY, about 377 lac meter of Grey Fabric, up by 12% YoY and about 246 Lac Meter of Processed Fabric, up by 18% YoY.
Exports constitute about 35% of total turnover.
There has been a spurt in the margins on YoY basis largely due to favorable conditions in respect to the availability of raw material at reasonable cost and strong demand of yarn due to increase in export of yarn to China.
However, as per the management, with the increase in cotton prices on YoY basis and relative lull in demand as of now, the margins, may not continue at this elevated level.
China has played a huge role in increase in yarn prices. This is 3rd consecutive year of cotton imports done by China and Chinese government continues to maintain high cotton inventory. The cotton prices for cotton yarn manufacturers in China are high, hence they are forced to import from countries like India, Pakistan etc. Chinese policy on cotton and exports will be revealed only by Jan'14 and by that time things will be clearer.
Also on YoY basis the cotton prices are higher by around 20%. Although the season has just started and one needs to see the availability and the quality, clearer picture will be evident only by Jan'14 on cotton prices.
Vardhman Textiles had booked cotton at lower levels last year and hence the inventory benefit was gained so far in FY'14. However the stocks of low costs cotton are getting consumed and Q3 FY'14 will be a mix of low cotton inventory and new cotton arrivals at higher price. Hence the margins of H2 FY'14 will be lower than H1 FY'14, but how much is difficult to quality as it all depends upon how the season of cotton ends and also the Chinese policy.
The company had suffered some MTM losses as it had booked some forward contracts on exports at around Rs 60 to $. But for Q3 FY'14, the booking has been made at higher rates, so some forex gain is coming.
On the expansion side, during Q2 FY'14, additional 62496 spindles, 960 rotors and 120 looms became operational at various manufacturing units. The full effect of the expansion will be visible from Jan'14 onwards. With this, the company has around 900 thousand spindles operating at around 90% of capacity by Jan'14.
Of the Rs 800 crore of capex planned for FY'14, about 75% is already spent in H1 FY'14 and the rest will be done by end of Mar'14. For FY'15 there are no major plan of capex except the normal maintenance one.
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