GHCL Textiles

Tanishk_Ojha · 2024-02-13T02:36:01+01:00

Conference Call Feb 2024 GHCL acquired Sri Meenakshi Mill in the year 2001 and the business has been turned around from a loss making 65,000 spindles to a n...

Tanishk_Ojha

Conference Call Feb 2024

GHCL acquired Sri Meenakshi Mill in the year 2001 and the business has been turned around from a loss making 65,000 spindles to a new profitable business equipped with state-of-the-art manufacturing with 225,000 spindles and 62 megawatts of renewable energy assets. In the last 20 years, we have achieved a 15% CAGR revenue growth and EBITDA of 31% CAGR growth. Our average EBITDA margin for the last five years is 17%.
The spinning business has been demerged into GHCL Textiles Limited and is listed on both the National Stock Exchange and the Bombay Stock Exchange since June 12, 2023.
In the near term, our outlook as the cotton prices are more stable, we expect the demand to recover gradually, spreads should improve and downside seems to be limited.
GHCL Textiles division's vision is new investment under MOU we have signed with Tamil Nadu government with around INR 1035 crores investment. Out of that, INR 360 crores has already been invested as on 31st March 2023. This investment propels our initiative for expanding capacity, diversifying our product range, vertically integrating textile manufacturing to include knitted and woven finished fabric.
We also plan to gradually increase the spindle by around 1.5 times. Our vision is to double our revenue in the next 3-5 years and maintain an average of 18%-20% EBITDA margin.
EBITDA margin in this quarter which is Q3 is around 8.2% to be precise. And our expectation in the fourth quarter, it should range around 10%-12% kind of a number. And I think 24-25, my belief is that this number should come back to the normal of around 15%-17%.
Because now the cotton prices as I mentioned is stable and we believe that this cotton prices should be in the range bound and the market demand will improve and particularly the value added segment which we are focusing on, there also we are seeing a demand traction is happening.
We are also adding another 25,000 spindle. The work has started and that will come on screen by March 25. So, benefit of that will come in 2025-26. INR 250 crores can be incremental revenue contribution from the 25,000 spindle that will come in FY26.
Yes, basically, if you look at in terms of our export footprint, which was in the range of around 6%, moved in the 9 months, it is around 14%. And gradually, our belief is that the next year, we should be hitting a target of around 20%. So gradually, we are increasing our footprint on the export.
Generally, the working capital cycle is around 130 to 140 days in this business, generally. Okay. But depending upon some time of the market, this 10 days here and there. Again, seasonality is also very important. Because when you see in the month of December, probably the working cycle will be slightly higher because you buy the cotton, which is a very major raw material of your thing.
Depreciation of INR 265 to remain the same.

We are in the phase of studying this market and probably building of fabric capacity will happen in 2025-2026, because currently at this year 2024-2025, we will be making this 25,000 spindle investment. And based on our experience of this, 2025-2026, our aggressive plan will be more, instead of going for a spinning side, we will go for a weaving and knitting investment.
Maintenance costs, we always built into that operating profit, and we never kind of capitalized that maintenance cost.
We are definitely expecting that the spread or the margin will improve because of the improvement into the yarn prices. Because these are the rock-bottom prices, and since the cost is now more or stable, we believe that the yarn prices will improve. That will improve our margins. And quarter by quarter, the improvement will be visible. Quarter by quarter, we will find that the margins are better than last quarter.

Every spindle does not produce the same revenue because of the count which you produce. With the same 20,000 spindles, I can have a revenue of INR200 crores also, and I can have a revenue of INR100 crores also. So, depending upon what count, like take an example, if I produce from the same spindle, 100 count, my production will be much lower in terms of the value, and therefore, the revenue per spindle will go down.
- Of course, the margins will be different. So, you can't simply calculate like that, that okay,
  40,000 spindles, you have INR300 crores, so therefore, INR225, because it depends on which
  count you produce, are you producing fine count, are you producing [costal count]. Because
  same thing, if you compare with the competition, you will find that some competition with a 1
  lakh spindle, their revenue could be something around INR1,000 crores. Because their costal
  count, like Northern Mills, if you look at, they are all in the costal count, 20s, 16s, 18s, 24s, there
  the revenues per spindle are very, very high. And therefore, our first objective always is when
  we say, like I said in the earlier question also, we look at the spread, and our norm is value
  addition per ring frame, we call it a J. Our focus is always on the decision making is on the value addition per ring frame because that's the limitation factor in the entire business.