Himatsingka Seide hosted a conference call on Aug 16,2021. In the conference call the company was represented by Mr. Shrikant Himatsingka-Managing Director and CEO, Mr. K P Rangaraj- President, Finance and Group CFO and Mr. Dilip Panjwani- Senior Vice President and CFO - Strategic Finance.

The demand environment across the key market continues to be stable during the quarter. In Q1 FY2022, the company saw record consolidated total income of Rs 819.88 crores due to enhanced capacity utilization levels across the company's facilities. The company witnessed strong demand for soft home products and the order books for FY2022 remained robust.

The capacity utilization at the company's manufacturing facilities during the first quarter FY2022 stood at for sheeting division 80% against 76% of the previous quarter, terry towel division capacity utilization was 66% against 63% in the last quarter and spinning division touched a capacity utilization of 102% against 101% that was recorded in the previous quarter. The company expects to continue to enhance capacity utilization levels at its sheeting and terry towel plants.

In Q1FY2022, revenues from brands stood at Rs 582 cr v/s Rs 147 crore during Q1FY2021 and Rs 565 crore in Q4FY2021.The company continues to witness raw material price inflation and supply challenges. However, in Q1FY2022 the company has not undertaken any price increments, the same is expected to reflect in Q2FY2022. Also, enhanced capacity utilization across the company's plants will aid in mitigating raw material price inflation.

In Q1FY2022 consolidated income stood at Rs 819.88 crore v/s Rs 183.29 crore in Q1FY2021 and Rs 748.04 crore in Q4FY2021. The consolidated EBITDA for Q1FY2022 stood at Rs 163.15 crore against Rs 80.72 cr in Q1FY2021 and Rs 129.66 crore in Q4FY2021. EBITDA margin for the quarter stood at 19.9%. PAT for Q1FY2022 stood at Rs 57.7 crore against loss of Rs 139.8 crore in Q1FY2021 and PAT of Rs 37.57 crore in Q4FY2021.

The union cabinet has extended the benefits of RoSCTL till Mar 2024 arising on both export of apparel and made ups with the same rates. The company recognized benefits to the tune of Rs 72.01 crore during Q1FY2022, of which Rs 35.32 crore pertains to Q4FY2021.

The company had indicated the EBITDA margin band of 18-22% in the last call. EBITDA was impacted in the quarter because, one the company had to forgo approximately 3.5% of revenue on account of supply chain congestion. Because of this there is a revenue lag of 3.5% which impacted EBITDA margin by approximately 1.7-1.8% for the quarter. Two, the company has not taken any price increments and price increments will start from Q2FY2022. Third, dollar realization figures is lower by 1-1.5% as the company had stopped booking forward contracts.

Going forward, price increments, enhanced capacity utilization,better operating efficiencies and some realigning of supply chain on the sourcing side will help mitigate raw material inflation which the company witnessed in Q1FY2022. Further, the company expects EBITDA margins to get back to 20-22% range v/s the wider band which the company had stated at 18-22%. Price increments might be in the range of mid-single numbers. 20-22% margin will include benefits but only for that particular quarter.

Increase in salary cost is on account of plant ramp up and due to increment cycle kicking in. The company has also started providing for some annual bonus payout and other normal cost and ordinary cost incentive which was not active last year. There has been supply chain congestion and inflation on the freight front. Outward bound freight cost is borne by the client. There is also lot of freight inflation even on inward freight and that is borne by the company.

Gross Debt as on Jun 30,2021 stood at Rs 2566 crore against Rs 2467 crore as on march 31,2021. Long term debt stood at Rs 1694 cr and working capital debt stood at Rs 872 crore. The company had a cash balance of Rs 161 crore as on Jun 30,2021. Net debt stood at Rs 2405 cr as on June 30,2021 against Rs 2322 cr as on march 31,2021. Increase in debt is on account of higher working capital utilization on account of inflation and increased capacity utilization which is normal. Direction ally the company is focused on deleveraging its balance sheet. For the current year the company has a deleveraging target of Rs 150-200 crore.

De-bottle necking: The demand scenario is robust and the company is planning for de-bottle necking of its both sheeting plant and terry towel plant. De-bottle necking will increase the capacity of sheeting to 108 million meter pa and towels to 40,000 ton pa. The expansion will be in phases.

The company feels that there is ample headroom for growth in home sector textile solutions vertical which the company will be focusing on.

Also, there is lot of sociopolitical under recurrence that will create opportunities to crop up for Indian players going forward and companies in India should be equipped with capacity at that time to tap into such opportunities.

CAPEX: Most of the major capex is completed and the organic CAPEX will be in the range of Rs 60-80 crore which the company plans to incur.

Growth: The company is focusing on enhancing its client base, its channel mix right and brand portfolio. The company has been adding a lot of clients over the last year and continue to add clients both for bedding products portfolio and bath products portfolio.

Brand Portfolio: With respect to brand portfolio, the company has the right to design, develop, manufacture and distribute the licensed brands that it undertakes and therefore it is responsible for all sales, all distribution, all inventory management, all client-facing dialogue and so on all product development all manufacturing so it is a full suite of responsibilities that come with brand licensing and it is a know-how that the company has sort of developed over the years and so that is really how it works and the company then pays a royalty for what it sells that is traditionally how brand licensing works in most textile categories. The branding business will grow at high single digit to low double digit in the medium term.

European market is progressing well and the company is gaining market share in the European region. Further, Disney will give a fillip for both bedding and bathing products in months to come.

Management commentary: Commenting on the Company's performance, Mr. Shrikant Himatsingka, Managing Director & Group CEO said“We are pleased with our operating performance for Q1 FY22. We are confident of continuing with the growth momentum for FY22 and mitigating inflationary impacts aided by pricing, enhanced capacity utilization levels and operational efficiencies. Going forward we remain focussed on improving the capacity utilization levels across our manufacturing facilities while enhancing market share across key regions. Our impetus on deleveraging and improving capital efficiencies continue to gain traction and will be central to our operating strategy going into FY22.”