BANSWRASNSEQ4 FY22May 5, 2022

Banswara Syntex Limited

8,296words

122turns

9analyst exchanges

2executives

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Management on call

Ravi Toshniwal

MANAGING DIRECTOR, BANSWARA SYNTEX LIMITED

Pankaj Gharat

CHIEF FINANCIAL OFFICER, BANSWARA SYNTEX LIMITED

Key numbers — 40 extracted

rs,

fiber to garment. We specialize in production of yarn, fabric and readymade garments. Over the years, we have forayed into many markets in over 50 countries, including the developed markets of the US,

21.2%

a strong financial performance this quarter. The total income for the quarter 4 FY22 increased by 21.2% quarter-on-quarter and 42% year-on-year to Rs. 373 crores for quarter 4. Total income for FY22 st

42%

e this quarter. The total income for the quarter 4 FY22 increased by 21.2% quarter-on-quarter and 42% year-on-year to Rs. 373 crores for quarter 4. Total income for FY22 stood at Rs. 1206.7 crores, a

Rs. 373 crore

total income for the quarter 4 FY22 increased by 21.2% quarter-on-quarter and 42% year-on-year to Rs. 373 crores for quarter 4. Total income for FY22 stood at Rs. 1206.7 crores, an increase of 50.3% on a year-

Rs. 1206.7 crore

r-on-quarter and 42% year-on-year to Rs. 373 crores for quarter 4. Total income for FY22 stood at Rs. 1206.7 crores, an increase of 50.3% on a year-on-year basis. The proportion of our high margin value added bus

50.3%

to Rs. 373 crores for quarter 4. Total income for FY22 stood at Rs. 1206.7 crores, an increase of 50.3% on a year-on-year basis. The proportion of our high margin value added business, which includes f

56%

tion of our high margin value added business, which includes fabric and garments has increased to 56% of the total sales in quarter 4 FY22 as compared to 49% in quarter 3 FY22, that is an improvement

49%

udes fabric and garments has increased to 56% of the total sales in quarter 4 FY22 as compared to 49% in quarter 3 FY22, that is an improvement of 7% in our garment and fabric business as a proportio

the total sales in quarter 4 FY22 as compared to 49% in quarter 3 FY22, that is an improvement of 7% in our garment and fabric business as a proportion of the turnover. Value added businesses stood

50%

our garment and fabric business as a proportion of the turnover. Value added businesses stood at 50% for the entire year financial ‘22 as compared to 52% in FY21. So, we still have some ways to go i

52%

he turnover. Value added businesses stood at 50% for the entire year financial ‘22 as compared to 52% in FY21. So, we still have some ways to go in improving our overall value addition. Export sales

45%

some ways to go in improving our overall value addition. Export sales for FY22 rose to 45% of total sales as against 41% in FY21, with fabric seeing the highest growth within the sales mix

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Guidance — 20 items

Ravi Toshniwal

opening

“Power and fuel: While the power and fuel cost going forward is still uncertain as the State Electricity Board costs continue to rise, we did manage in quarter 4 FY22 to reduce the cost as compared to the last quarter.”

Ravi Toshniwal

opening

“But in general, we see that right now with power shortages across the country, we are forced to run our power plant and the differential costs between State Electricity Board and our power plant has actually reduced, so we do expect that this will help in further helping to reduce our total energy costs.”

Yash Agarwal

“So, do you expect this trend to continue in the first half of the new financial year that we've seen in the last quarter of the last financial year?”

Yash Agarwal

“So, what is the target EBITDA margin for FY23?”

Yash Agarwal

“Is that a fair sort of target or a number that we should work with?”

Ravi Toshniwal

“But next year's target is to get around Rs.”

Prerna Jhunjhunwala

“350 crores will be from existing capacity or there'll be some addition in the capacity?”

Prerna Jhunjhunwala

“Sir, so when you've given your FY25-FY26 targets in your presentation, for that 25% revenue from garmenting, how much capacity would you have to add and what would be the CapEx for it?”

Ravi Toshniwal

“As organically and as fast as we can ramp up garment capacity will be a benefit to us.”

Prerna Jhunjhunwala

“So, then your FY25 target of 25% garment revenue is quite conservative, because Rs.”

Risks & concerns — 13 flagged

Power and fuel: While the power and fuel cost going forward is still uncertain as the State Electricity Board costs continue to rise, we did manage in quarter 4 FY22 to reduce the cost as compared to the last quarter.

— Ravi Toshniwal

And we don't see a challenge in this only because a lot of the other customers, suppliers are not able to provide the volume customers are asking.

— Ravi Toshniwal

At the same time, right now, the labor shortage was the main challenge in increasing the capacity utilization, not the order book.

— Ravi Toshniwal

Any challenges that you see that this might become difficult, maybe increased power cost or nonavailability of labor, this can get challenged or everything remains well under control?

— Prerna Jhunjhunwala

This still remains a challenge for India.

— Ravi Toshniwal

The challenge we feel is that the segment we are in has always been one of more formal clothing and smart casual, and we are seeing a tendency for the word to turn more, let's say casual, and go down to dress down.

— Ravi Toshniwal

And the big challenge for India is to make sure that we can deliver garments out of India to the volume required or the finished product from India to the volume required by the rest of the world.

— Ravi Toshniwal

So, what are the things which cause this decline?

— Manish Sahni

So, because of that now, it's becoming increasingly difficult for them to increase the yarn prices, so the spreads have started coming down.

— Sagar Parekh

My question was, sir, that the cotton spinners are seeing a decline in their spreads in the last maybe a couple of months.

— Sagar Parekh

Their commentary states that there is some demand destruction from the European customers, because maybe of the war or just general slowdown.

— Sagar Parekh

So, in the garment industry in Gujarat, we're expressing no concern at all.

— Ravi Toshniwal

So, the power cut is definitely a concern, in terms of the overall cost of power going up.

— Ravi Toshniwal

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Q&A — 9 exchanges

A few questions. So, you've seen a very good pickup in utilization on the fabric and garment side. So, just wanted to ask you, from where is the demand pickup coming? And how sustainable is this demand pickup given the current order book that you're having? So, do you expect this trend to continue in the first half of the new financial year that we've seen in the last quarter of the last financial year?

Ravi Toshniwal

So, I just want to say that, in general, what we are seeing as a trend is that there is a greater focus on giving orders in garments to companies that are vertical and the reason is supply chains are disrupted, and we are facing a bigger advantage compared to other companies because we have yarn capacity in surplus, we have integrated weaving facilities and knitting facilities, as well as then we are able to integrate into our garments and give them a lead time that is significantly lower than other supply people and who also face logistic challenges. So, on-time delivery, and even before time

Sir, I had a few questions on the garment business. You mentioned that you are going to increase the capacity of the garment business. So, how much are you planning on the next 2 to 3 years is what I was trying to understand. And at current 88% utilization, whether this garment utilization can go to 100% and we can reach Rs. 250 crores, Rs. 270 crores of top line on a run rate basis in existing business or it can be higher because of increase in the realizations? So, one on existing and one on the upcoming CapEx.

Ravi Toshniwal

So, definitely CapEx can go up to 90%, 95% even in the garment. We're trying to get larger run orders. At the same time, right now, the labor shortage was the main challenge in increasing the capacity utilization, not the order book. And the labor has been trained, we lost a lot of the labor and they had to be recruited, a lot of people had to be recruited back and trained in the labor force to be able to get the capacity utilization up which is happening now. So, what we're seeing in terms of the garment business is that there is definitely a potential to ramp up capacity. We've ordered the m

Since you have given a lot of optimism on the synthetic textile side and garment side because of various reasons that you have mentioned. But if you look at your guidance of 2025 of 1600cr turnover from Rs. 1,200 crore to Rs. 1,600 crore, it is just less than 12% or almost 12% CAGR. So, why you are so pessimistic about next 3 years guidance when the scenario of the synthetic textile as well as garments are looking much brighter than what it was in the last 10 to 15 years.

Ravi Toshniwal

So, we've been conservative at the moment. And if we revise our conservatism to be more, let's say, optimistic, we will do something. The challenge we feel is that the segment we are in has always been one of more formal clothing and smart casual, and we are seeing a tendency for the word to turn more, let's say casual, and go down to dress down. And we've never been strong at that. So, we don't want to invest too much in the dress up clothing segment, when we are seeing some possibilities that this trend may not endure as much. So, we have to change our DNA to be more in the mix and athleisur

Sir, my question is related to industry perspective, that how things are emerging for Indian textile industry, as government has come with PLI scheme for MMS. You were selling textile imported from China and recent FTAs with UK and in talks with Europe for the same. So, how these things are going to turn around things for Indian textile industry? And what are the opportunities for your company in this revolution?

Ravi Toshniwal

So, you know, on a macro level, like we all have all spoken, there's a lot of optimism. And the big challenge for India is to make sure that we can deliver garments out of India to the volume required or the finished product from India to the volume required by the rest of the world. If we are not able to meet these expectations and ramp up the demand, like they say in a supply chain, the weakest link is as strong as you are. And our weakest link at this moment is the garment industry. If this grows, and now there is a lot of expansion happening within India, we will have an opportunity to be

Actually, I'm kind of new to the company, so pardon me for my ignorance. I just wanted to check on the yarn side. So, you all make only synthetic yarn, is it? Or you all also are into cotton yarn?

Ravi Toshniwal

No, we don't make cotton yarn at all. So, my question was actually because the cotton yarn spreads right now in the last 2, 3 months have kind of decreased, right, from Rs. 120 approximately to about Rs. 90, Rs. 95. So, will there be like a similar kind of effect on the synthetic yarn as well going forward? Because I think what the players are talking about on the cotton side is that there is some demand destruction on the European side, from European customers. So, because of that now, it's becoming increasingly difficult for them to increase the yarn prices, so the spreads have started comin

Sir, there are industrial power cuts going on in various states due to shortage of coal. Are also facing in such power cuts in Gujrat right now which can impact our production?

Ravi Toshniwal

So, we are primarily in Rajasthan for our spinning and weaving and fabric part of the business where we consume most of the power. In Gujarat, we are there for the garment part. So, in the garment industry in Gujarat, we're expressing no concern at all. In Rajasthan, there is a power cut, but we have our own generation. And so this is not impacting us right now. We are fine. So, the power cut is definitely a concern, in terms of the overall cost of power going up. But we have been able to absorb that all already. And we have factored in the fact that the power cost is going to be more and been

Sir, I just wanted clarification on the CapEx that you had mentioned, Rs. 140 crore, Rs. 150 crore in spinning and other amounts in Rs. 100 crore in weaving. Sir, like around total CapEx would be Rs. 260 crores. Is this in for FY23 or over the next 2 years.

Ravi Toshniwal

Over the next 2 years. It's for both ‘23 and ‘24. Because machineries are only not available. For deliveries on machines are only 2 years. The implementation of any new CapEx will take a minimum period of 2 years. And the debt that you've mentioned again, so for Rs. 260 crore, around Rs. 125 crores in debt for the next 2 years, right? Increase. We have increase of generation of maybe about Rs. 125 crore and we may have an increase in Rs. 125 crore. So, that's what we are saying.

My first question is last year, there have been significant increases in the prices of pretty much all commodities, including polyester, viscose, and everything. So, what is the volume versus price increase that we have seen in last year?

Ravi Toshniwal

When you're looking at cotton, we've seen that the prices in cotton have almost gone double of what they were in the last 2 years or so. Whereas in synthetics, the increase is more to the tune of 20% to 25% in terms of yarn prices, I'm talking, right? So, the proportionate increase in man- mades as compared to cotton is much lower. And this is why we are seeing the switch happening globally. In the manmade there has been really not that much impact because the price increases relative to cotton is lower. Therefore, the demand has not gone down. A company in the sense that our sales increase th

I just want to thank everybody for their interest in our company and look forward to keep meeting you regularly on the earnings calls, as well as any other occasions when we have the opportunity to be able to interact with you all. Look forward to the new financial year. And we hope that we can give you a performance which is better than what we've done in this year. Thank you very much, everyone, and good afternoon.

Management

Speaking time

Ravi Toshniwal

Prerna Jhunjhunwala

Anand Jain

Moderator

Sagar Parekh

Sudhir Bheda

Yash Agarwal

Gunjan Kabra

Manish Sahni

Akhil Hazari

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Opening remarks

Ravi Toshniwal

Thank you, Margaret. Good afternoon, everyone. This is Ravi Toshniwal, and I welcome everyone to our quarter 4 and financial year FY22 Earnings Conference Call. I hope each and every one of you and your families continue to remain safe and healthy. I'm joined on this call by our new CFO, Mr. Pankaj Gharat who has come in after Mr. J.K. Jain, and SGA, our Investor Relations advisors. I hope all of you have had the chance to go through our updated investor presentation that we uploaded on the exchanges and on our company website. For the benefit of the audiences who are joining the earnings call for the first time, I'll give you a quick overview of the company followed by a review of the financial performance during the last quarter and the current financial year. Banswara Syntex, as you know is a vertically integrated textile company going all the way from fiber to garment. We specialize in production of yarn, fabric and readymade garments. Over the years, we have forayed into many mark

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