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Vardhman Textiles hosted a conference call on May 26, 2021. In the conference call the company was represented Neeraj Jain Managing Director, Rajeev Thappar CFO, Mukesh bansal senior VP and Akshay Jain head of finance.
Key takeaways of the call
In Q4FY21 overall demand was good in both international and domestic markets which led to sharp improvement in the margins.
Fabric business improved in terms of capacity utilization, it touched 80-85% of overall capacity in Q4FY21.
Second wave of covid 19 in April and May 2021 hampereddomestic demand.However exports for that period were still good, and company diverted its domestic capacity to exports especiallyto the US.
Due to the lockdowns in most parts of the country during April and May 2021, fabricsbusiness was impacted more than yarns.
Company expects domestic demand to pick up soon, as graph of covid 19 is on downwards trend now.
Breakdown of revenue from yarns business is- 30% for exports and 70% is from India geography.
One of the key challenge company facedduring second wave of covid 19 was shortage of labour, as they migrated to their villages. So overall capacity utilization came down to 20-25% in May 2021.
Management expects capex for FY22 to be approximately Rs 1000 crore, out of which Rs 750 Crore will be spend on expansion plans in spinning business and Rs 250 Crore will be spend on debottlenecking and improving quality.
Roughly Rs 450 Crore of capex will be funded through debt. Debt used to fund capex will be raised in range of 5-6% for 6-7 years period. Net debt will not be increasing significantly in coming year.
Company believes long term sustainable margins range is 18-22%.
Because of robust demand in US, company is able to pass on the price increases to the consumers.
Other expense rose sharply in Q4FY21 compared to quarter ending March 2020 is due to machinery repair and building repair work.
Company expects yarn exports to improve sharply as things move out of china.
European and domestic market for woven fabrics are not doing well as of now, but company expects them to perform better in coming months as more lockdown restrictions open up.
Company believes creating more capacities will help larger brands come to India, as of now India is a small player in garments business.
Inventory as of 31st march 2021 is around Rs 2500 crore which includes raw material of around Rs 1800 crore, finished goods of Rs 450 crore remaining are small items like stores and spares.
Receivablesas of 31st March 2021stands at Rs1000 crore, which is an increase of Rs 200 crore compared to march 2020.This rise in receivables is because of increase in exports as payback period is 90-120 days in exports compared to 35-40 days in domestic sales.
Yarn prices started coming down in April 2021 when lockdown started happening, but as things are stabilizing now prices have started rising to the levels they were at end of March 2021.
Knitting garment is doing extremely well because of work from home situation.
Inventory policy of the companyis same as last year, which is to keep about 6-8 months of cotton in books from year end date of 31st March.
Outlook on global cotton prices- in next year Company expectstotal production of cotton to remain same as last year, but consumption to go up. This could lead to increase in cotton price.
Other Highlights
The Board of Directors has recommended a dividend of Rs 17.50 per share on fully paid up equity shares of the Company.
During the year ended March 31, 2021, the Company has issued 43,900 equity shares under Employee Stock Options Scheme at Rs 815 per share. As a result of above, the paid up equity share capital of the Company has increased from Rs 56.52 crore to Rs 56.56 crore.
Yarn production in Q4FY2021 stands at 57,256 metric tons as compared to 51,416 is quarter ending March 2020.
Processed fabric production in Q4FY2021 stands at 357 metric tons as compared to 340 is quarter ending March 2020.
Grey Fabric production in Q4FY2021 stands at 547 metric tons as compared to 496 is quarter ending march 2020.
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