Key Highlights

Of the total sales, around 43% of total sales came from Yarn, 27% from garments, 21% from fabrics and rest 9% from sugar. Of the total sales, exports accounted for around 36% of total sales which was largely cotton yarn and some garments while rest was from domestic market.

Cotton prices were lower by around 17% in FY'16 on YoY basis. Yarn prices were lower by around 19% in FY'16 YoY. So there was a negative delta for the company at yarn level in FY'16.

The prices of Yarn have already started upwards and this time it's better than the increase in cotton prices. Further the company has moved up the value chain in Yarn and will produce more value added yarn in FY'17 than in FY'16. Hence management expects the margins at yarn level to improve by around 200 bps in FY'17.

As per the management, looking at the inventory levels of cotton both domestic and international market, the prices of cotton and yarn are expected to remain steady in FY'17 with an upward bias.

The company has doubled its garment manufacturing capacity from around 47 M pieces to around 95 M pieces in FY'16. In FY'17, the ramping up of the capacity will happen. Management expects the overall capacity utilization to be around 30% higher in FY'17 on YoY basis. The company should get economies of scale benefits in garments business.

In line with the capex in garmenting, the processing capacity is also being planned to double from around 2500 kg/day to around 5000 kg/day. This would require a total capex of around Rs 120 crore which would be incurred in FY'17.

There was a onetime expenditure of around Rs 27 crore incurred in Mar'16 quarter to ensure the capacity of cotton yarn to be shifted to higher value added cotton yarn. This was not a capex and was expenditure in nature and hence not capitalized as this has not led to any increase in capacity, but will generate higher value added yarn compared to normal yarn.

In FY'16 the company has reduced debt by around Rs 200 crore and total term loan standing as on Mar'16 is around Rs 275 crore. Debt equity ratio stands at 0.26.

In FY'17 another repayment of around Rs 100 crore is there and a capex plan of around Rs 120 crore will mostly be from internal accruals and some term loans. There is a regular capex planned of around Rs 50 crore in FY'17 over an above capex on processing unit. Interest costs thus are expected to remain lower going forward as well.

On Sugar business, the current prices are hovering around Rs 33 per kg as against average price of around Rs 24-25 for the entire FY'16. The company is holding inventory of around 2 months and is gradually releasing in the market. The international sugar prices are still higher than domestic prices, thus management expects the sugar prices to remain firm for rest of FY'17.

Overall, margins are expected to improve in FY'17 on YoY basis due to better realizations on Yarn, Garments and sugar.