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Edited Transcript of VTL.NSE earnings conference call or presentation 11-Nov-19 9:30am GMT

Q2 2020 Vardhman Textiles Ltd Earnings Call

Ludhiana Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Vardhman Textiles Ltd earnings conference call or presentation Monday, November 11, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Akshay Jain;Head of Finance

* Mukesh Bansal

Vardhman Textiles Limited - SVP of Fabric Marketing

* Neeraj Jain

Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director

* Sushil Kumar Jhamb

Vardhman Textiles Limited - Director of Raw Materials

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Conference Call Participants

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* Amit Doshi;Care PMS; Analyst

* Avi Mehta

IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary

* Chetan Thacker

ASK Investment Managers Limited - Senior Research Analyst

* Gagan Thareja;Kotak Investment Advisors Limited;Analyst

* Keshav Garg;Counter Cyclical Investments;Analyst

* Nagraj Chandrasekar

Laburnum Capital Advisors Private Limited - VP

* Nihal Mahesh Jham

Edelweiss Securities Ltd., Research Division - Research Analyst

* Prerna Jhunjhunwala

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon, everyone. On behalf of IIFL, I would like to welcome all of you to the 2Q FY '20 Conference Call for Vardhman Textiles. From the company, we have with us the key senior management, including Mr. Neeraj Jain, Joint Managing Director; Mr. Sushil Jhamb, Director, Raw Materials; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, Senior Vice President, Fabric Marketing; and Akshay Jain, Finance Head.

I would now like to hand over the call to the management for their comments. Over to you, sir.

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Akshay Jain;Head of Finance, [2]

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So I'll just go through the numbers before we hand over for management commentary. So on a sequential basis, we had a flattish quarter. Top line went up -- was flat, up about 14 basis points. EBITDA, slightly better -- came in slightly better, up about 8% sequentially. This is -- and PAT, up sequentially about 15%. But from a year-on-year perspective, we are still slightly behind where we were last -- similar to last year, with PAT dropping around 40%. This is in line with the commentary that we have been sharing with our investors about this being a slightly tougher year than the one we experienced last year.

Other -- and to take you through how this year is shaping up, I will hand over call now to Mr. Neeraj Jain.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [3]

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Hi, good afternoon, everyone. This has been a very different year where we saw lots of rough road in the last couple of months. The basic difficulty started when there was a trouble between trade war between U.S.A. and China that got lots of uncertainty in the world market, and because of that, the raw material prices started coming down. So the New York Future from $0.77, $0.78 came down to as low as $0.60 -- $0.59, $0.60 as well. So that's been -- on one hand, where the prices dropped for the raw material and the yarn also got readjusted because of the raw material prices, so that was one factor. Second factor was on the demand and supply. Since China was a little uncertain on the trade between them and U.S.A., so they dropped their internal productions. As a result of that, they lowered their total imports of yarn into the country, and that had a direct impact and a hit on Indian spinners.

Just to give you some numbers, India exports -- I mean India's first 6 months exports last year of yarn was 102 million kg average per month. Within this first 6 months came down to 74 million kg, so a drop of almost 27%, 28%. The largest import of yarn from India is China. So the last year of first 6 months, they imported almost 40 million kg per month from India, which in this year came down to 20 million kg. So out of the 27 million, 28 million kg reduction per month, 20 million was only on account of China.

The Indian yarn production total is close to about 350 million kg per month. Out of that, 100 million kg we export; 250 million kg -- 240 million kg, 250 million kg is the domestic consumption. When the export dropped, then all that material was dumped to the Indian market, and Indian market couldn't also absorb the same. As a result, there was a glut -- there was a price drop in the Indian market as well, which eroded the margins. So looking at a couple of factors. One is less demand from China, which caused lots of concerns. The capacity became -- it became a overcapacity situation, all that dumped into the Indian market. Indian market prices came down. On the other hand, because of lower New York Future, the expectation of the customer was the lower yarn prices, which also gave impact on the yarn prices, internationally. So the prices of yarn kept on coming down.

The only challenge -- the bigger challenge for the Indian spinner was a little different. Though the international cotton came down, the international prices also came down, domestic prices came down in line with the international priority, yarn, but the cotton was a different scenario for Indian situation. Since we were short on the capacity on the crop last year, our comp was much lesser and we exported a lot in the initial couple of months. So there was a shortage of crop in the period -- in this period. As a result, our cotton prices are much higher. So we looked at a situation where the New York Future cost as low as $0.60, whereas the Indian cotton was as high as $0.80, $0.75, $0.77, $0.78 or $0.80, even going up to $0.83, $0.84 also. So this was a unique situation where our cotton prices were higher, yarn got readjusted to the new prices. As a result, these spinners started losing money -- the Indian spinner started losing money in this period, which has caused a big issue to the Indian spinning market.

It had couple of effects: one, the capacity utilization in India started coming down. So there's no authentic data available how many spindles are stopped or running, but there are -- most of the mills started, stopping -- I mean, they stopped one shift or partial spindles or one holiday in a week and so on and so on. So as per the industry estimate, almost close to about 20%, 22% capacity is shut down in this period of last 2, 3, 4 months. As you can imagine, these margins are -- or these numbers are after so much of capacity shut down. Had it been running fully, so the situation could have been even worse than this. So this was another issue which is related with Indian spinning mills.

Third was a very tight liquidity position into the country. Because of various reasons, there were couple of banks, especially nationalized banks, which went into a PC arrangement. They couldn't lend. And since the textile was not doing good, so I think there were lots of money which couldn't be delivered to the textile mills -- textile companies. As a result of that, the liquidity kept on shrinking a lot into this system and people couldn't do the normal business also. As a result, the buying power kept on coming down, which further aggravated the situation and the overall textile business was not very good. This was the third reason.

Fourth was some uncertainty in between -- because of other companies or other industries where, I think, in the times of uncertainty, people have tendency to shift the -- to postpone their requirements, especially textiles and all, because it's not that you require to consume it on a daily basis, but I think that also gives some impact. And if the shifting happens, a postponement happens, that further reduce the demand. So this could have been the cause, in my view, is the fourth reason.

Having said that, there was another worry in the mind of people was on the minimum support price because the minimum support price was announced by the government, INR 5,500 for the narma, and it was expected that, in case, international prices are subdued then what kind of situation will emerge into the Indian scenario, which, fortunately, as of now, is not that big a concern, which I'll explain to you a little later. I'll request Mr. Sushil Jhamb to explain that phenomena a little later.

So coming back from this situation where most of the spinning mills were covered on the cotton last year, as most of them are covered by -- up to October and November at a much higher prices. And I hope I'm audible?

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Operator [4]

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Yes, sir, you are.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [5]

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Most of the spinning mills were covered end of October -- middle of November. A much higher cotton price is almost in the range of about INR 42,000 to INR 44,000 a candy. So since the prices of yarn came down, so I think most of -- lots of them started losing money on the cotton, which was available to them. As a result, the margin eroded. The new crop has started. We just started getting the arrivals, which is close to about 100,000 bales as of now, because most of the states start somewhere in the first week of -- the arrival starts in the first week of October. And we started getting close to about 100,000 bales, and I'm sure this is likely to pick up soon, go to about 2 lakh base and so. But the prices as of now are comparable to the international prices. So I think that's the parity of spinning mills, definitely a little better compared to what it used to be.

We'll talk on the next year's prices expectation, our view, or the MSP issues a little later. Before that, I will request Mukesh Bansal to give some brief on the -- but before that, I think, though, I mentioned, almost 20%, 22% capacity estimation is there, which is not under utilization as of now. At Vardhman, we have been running our full spinning capacity, so the margins could be lower or sometimes not there. But in terms of the selling, I think, thanks to all the customer base and the product portfolio, we never had any issue any day. So we have done our full capacities and all our internal efficiencies, et cetera, there is absolutely no issues and concerns.

We completed our expansions also in this period. So all 3 units were fully commissioned, which was Vardhman Yarn unit #6, 52,000, 53,000 spindles; Vardhman Fabric, Budhni, 27,000, 28,0000 spindles; and the Vardhman Yarn 7, which is the vortex unit, all those units got operationally -- fully operational in this period. Of course, Vardhman Yarn 6 was commissioned on 1st of September, so I think the full capacity utilization will come in this quarter. So all those capacity utilizations or all those products were -- we could also sell, which -- where the production increased though it is linked back-to-back with our fabric division, but fabric generated a little more time because it's all make-to-order. So in the meantime, we started selling yarn to the market and as the fabric capacity utilization will improve, probably they'll be consuming a little more of yarn. So to that extent, our marketing of yarn will get readjusted.

So I'll request Mukesh to give some brief on the fabric what's happening over there, and then we'll come back to the cotton and the future scenario. Over to you, Mukesh.

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Mukesh Bansal, Vardhman Textiles Limited - SVP of Fabric Marketing [6]

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So thank you, Neeraj Ji. Very good afternoon to all of you.

On the fabric side, the Q1 and Q2 is the period where you have larger demand from the Indian vested market because we have a sizable presence in the Indian domestic market. But then this year, we have seen a lot of liquidity issues in the Indian market. As a result, there were kind of stockpiles and the payments not really coming on time. So -- and the order -- new order booking was also little bit slower. So as a result, we had a tough period as compared to what we would have at the sales otherwise. And Q3 and Q4 are relatively good figures for the fabric business because during this time, we have the bookings from export segments -- larger booking from the export segments for this premier summer season. So -- and there is no exception this year, also, we are expecting a better Q3 as compared to the Q2 that we recently had. But during this time because of the yarn prices went sluggish, so that helped us continue our sales, and thanks to the customer base that we have, we could also broaden the customer base as well, so we could maintain our operations as per the guidance that we would have earlier given.

Last call, we had given guidance that the new expansions that they have come up, so we will have better capacity utilization during the second half of current fiscal. So we are maintaining that guidance, and we will continue to do that. And our -- on our products, the new expansion that we had, on the shirting side--yarn, threads and prints--so those have been absorbed very well. We are explaining to our existing customers the full basket as well as we could also pick up some new customers on the new product segmentation. So there we have received a good feedback as well as support from all our customers to whomsoever we've supplied, and we are seeing good Q3 and Q4 that is coming up.

Thank you very much. That is on from my side on the fabric market.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [7]

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Yes. Now I request Mr. Sushil Jhamb. He has joined us in the raw material department as a Director, Raw Material. He's a old -- he's worked earlier also in Vardhman. He's an old employee of Vardhman. Then in between, he started his own business, was out for a couple of years, but he's been with the group for the last couple of years. So he's been the company's CFO, also, historically, in, I think, maybe early '90s or so. So I'll request him to introduce himself as well as to give you some idea on the quarter.

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Sushil Kumar Jhamb, Vardhman Textiles Limited - Director of Raw Materials [8]

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Good afternoon. I'm Sushil Jhamb. I started my career with Vardhman in 1978, and I have spent most of the time with Vardhman only. Earlier, I was working in their finance department and have recently taken over their raw material department.

As far as total scenario is concerned, last year, our total production in India was 335 lakh bales. And this year, we are expecting bumper crop, probably the highest ever in India. It would be around 370 lakh bales, as per our estimate. Even the Cotton Association of India, they released their numbers day before yesterday. They have also given the similar numbers. World over also the production is -- the production of cotton is going to be higher. U.S. has, in the recent -- last week, U.S. has reduced their production of the current year, but even after a reduction of tax, they're going to have the highest production in the -- of the decade. And as Mr. Neeraj Jain explained earlier that because of trade war between India -- or U.S. and China, that demand is not picking up. In view of that, the prices of cotton have -- had come down, and we expect that those prices would not go up in near future also. As for agreement, still the demand of cotton may not go up because China has already covered their cotton from Brazil, and they may not immediately require U.S. cotton. Therefore, we don't expect that prices would go up. At the moment, the price of cotton is almost 10% to 12% less than last year, and we expect the same to continue.

As far as MSP is concerned -- yes, MSP is there, but Cotton Corporation of India, maybe that -- yes, they will come in and -- but education of farmer happens, they may come into the market, but we don't think that they will be able to cover the excess cotton, which we are going to have. Last -- this year, we are going to have a stock of around 65 lakh bales at the end of the year. And yesterday, we had some contract where, CMD of Cotton Corporation of India, she was also not very optimistic about covering the full cotton. Whenever people were asking her a question that how much cotton are you going to cover. She was just saying that we'll cover quality cotton, and we have infrastructure. Therefore, even if CCI comes in the market, still the prices would remain lower than last year. At the moment our -- the Indian prices are comparable with the world market. They are a little lower than the world market.

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Akshay Jain;Head of Finance, [9]

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So I think as management commentary, we're concluded the same. I'll request for the question-and-answer session and the QA whatever are the other questions or other issues, we can reply at that stage.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from the line of Nagraj Chandrasekar from Laburnum Capital.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [2]

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Couple of questions. One is, could you give us some volumes on yarn, gray fabric and processed fabric? Secondly, if we had to look at the pause you expect to -- that the market will take to spread normalization? How much of it do you expect from the fall in cotton prices versus the rise in yarn prices? And finally, any -- the industry has obviously been in dialogue with the government asking for a number of policy changes. India is, at least, right now looks like we are not signing the RCEP agreement, which is one thing the industry had been advocating. But are there any tangible changes that we can expect from a policy environment in the next 6 to 12 months that might make things better for the industry?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [3]

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Okay. First of all, in terms of the volume separately for fabric and spinning, I'm sorry, we don't share those numbers. We can share...

So the production numbers are already shared on the stock exchange. If you want, we can repeat the same. Two...

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [4]

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Okay. That's fine.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [5]

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Okay. On the margins around the raw material versus the finished product rates, as of now, our cotton prices are close to about USD 0.69, USD 0.70 per pound, and we have to compare and relate it with international prices, so with the New York Future as of now, it's close to about $0.64, $0.65. And the physical market, which is determined or which is -- looked at by the Cotlook, that's close to about $0.74, $0.75. So with $0.69, $0.70, we are $0.04 to $0.05 lower than the international market. And historically, in the season, we can be lower by anything between $0.05 to about $0.08, $0.09. So which means the Indian cotton is competitive as of now at this stage. To -- the yarn prices may not really improve in a big way unless the demand/supply gets readjusted. Unless our exports can go to about 100 million kg, which last month also was only 72 million, 73 million or 74 million kg, I don't foresee the normalization on the yarn prices. So the yarn prices may not really improve in a big way.

But even then with this cotton prices and the current cotton -- current yarn prices, the parity definitely will be far better as Mr. Jhamb mentioned. Last year, our cotton prices were as high as almost about INR 43,000, INR 44,000 a pound -- a candy, which as of now is close to about INR 39,000. So you can imagine the kind of difference we are talking of. And to that extent because last -- in this period, there were lots of products which were being sold in losses. At least to that extent, there will be relief in the system. Two, I think another important factor was -- there are 3, 4 factors, how the U.S. cotton will behave to whether the government comes for buying under the MSP; third, what happens to all the spinning capacity, which is closed as of now.

So there could be out of these 20%, if we are talking about the total industry level closure, maybe some percentage can come back to the production if the margins improve and maybe some would have lost permanently. So it's very difficult to estimate it as of now. But assuming even 50%, 50%, so there could be another 8%, 10% capacity, which can come back to the system, provided the demand is there. But if the demand is not there, then even if these guys come in, they'll not be in a position to sell. So I think this is the current margins, but considering the existing yarn and existing cotton prices, situation is definitely better than what it was a month or 2 months before. Third question, please.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [6]

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So you're saying the safest way to look at it going forward, assuming nothing major changes on the macro in yarn or cotton is, spreads are last year due to normalization of cotton prices. And then beyond that, we shouldn't -- if things stay the way they are, there probably won't be a lot of new capacity or rather -- the much of the shattered capacity coming back. So we should hope for your ability to push through the existing capacity based on your own credibility with individual customers and gaining a little bit of share. So can I assume a spread normalized relative to last year's levels because of cotton price fall and then some ramp-up in production and ability to place with customers? Is that a fair summary?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [7]

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That's a reasonable assumption to take it. Also, the advantage of these kind of difficult times and these kind of tightness in the system, there is hardly any new expansion coming in. India has been expanding a lot on the spinning capacity. Maybe there was a business case or not because we had lots of subsidies available to us in India, especially Gujarat. So lots of spinning capacity has come into that system. But as of now, since neither there are not many subsidies nor there is any business scenario -- good business scenarios, where, as a result, the new expansions are not coming in. If a partial capacity slows down or close down, demand will definitely improve over a period of next 1 to 2 years. The normalization of business, the normalization of margin will surely happen.

Your third question was whether we are expecting something from the government. So our biggest issue with the government has been, we have been requesting to them for the refund of all the duties which we are paying. So all the state levies and duties, which we've been paying, so we have been requesting them to refund the same for the spinning and fabric also. They've already refunded the same to the home textiles as well as the garmenting. So the fabric and the spinning industry has been requesting for the same that whatever are the levies or the duties or the indirect costs, which we are incurring in the system, that must be refunded to us. In case they agree to that, then that will definitely improve the overall situation because ultimately, we are competing in the world market and any amount of tax is not getting exported, that's becoming a part of our cost. So other than that, I don't think there's any major dialogue or discussion with the government to give any big incentive as of now. So our only request is the refund of the taxes, which we are paying in the system should be given to us.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [8]

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And any programming -- we've seen the Finance Minister and the Prime Minister make a lot of statements in this respect. So far, have we seen anything change on the ground in that respect or no?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [9]

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No, the discussions are on. I'll not say anything good or bad. So I think the industry is making all their efforts to convince the government.

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Operator [10]

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(Operator Instructions)

We have next question from the line of Amit Doshi from Care PMS.

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Amit Doshi;Care PMS; Analyst, [11]

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Congratulations for a good set of numbers despite the challenging scenarios.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [12]

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We rarely listen to these kind of comments nowadays. Thanks anyway.

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Amit Doshi;Care PMS; Analyst, [13]

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No, no, I think it was required. I've just got -- in this -- I mean, you mentioned that 20%, 22% of the industry has kind of cut their production or shut their production. How easy it is for them to come back? You mentioned that there is a possibility that 8% to 10% would come back. And think that we have operated at full capacity or best utilization of capacity that we have, what is the portion that we have gained from there, if you can throw some light on that?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [14]

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So let's look at it, there are a couple of difficulties these companies will have: one, the financial position in this period would have become even worst from what it was; two, the working capital erosion would have already happened; third -- and without the money, it's going to be very, very difficult for them to restart the operation for all of them. Now there are 2 kind of capacities available in the country. One is, which is relatively good in terms of the modernization or in terms of the utilizations of productivity, et cetera. So if any capacity is stocked out of that, it may start back.

But there are lots of spinning capacity, which are relatively older into the country, having much lesser productivities or the utility cost would be higher. The quality can be a concern. So even if those guys start, I think it's going to be very, very difficult for them to sell the product at a right pricing. So even if the start becomes, big marginal players still keep on losing money. So permanent -- I think, permanently for them to run efficiently will be very, very big job, and then it's going to be very difficult for them to get funding organized from the bank. So for their capacity to modernize will also -- modernize themselves will also not be there. So my fair belief is, even if 7%, 8%, 10% capacity is not working, I think they'll get some relief, though it's not good from the industry's perspective to stop so much of capacity.

But I think if some consolidation happens by way of some capacity getting out of the system, which virtues -- because virtue of this situation is happening, so -- and demand will keep on increasing in India, also the outside also will normalize. So I'm sure the things could be or would be better than what it is today. The only factor which is still uncertain, no clarity that what happens between U.S. and China, any truce happening over there will have certainly a big impact in terms of the overall business sentiments getting changed.

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Amit Doshi;Care PMS; Analyst, [15]

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Okay. Sir, my extension of the question was that what is our share in the recent that -- out of 20%, 22% of reduction, what we gain out of those...?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [16]

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So we have -- whatever is -- there are 2 kind of gains. One, we were running full capacity earlier also. In between, there's been some small expansions which have come in for us. So we have been utilizing that capacity also on a full year basis. So it's not that out of those 22%, I would have taken something. But my customer base, my product mix is definitely better. So to that extent, we had no issues in at least selling the products. The margins could be a question because our cotton was much higher prices in India compared to the other players. But in terms of selling the products, we didn't have any difficulty. So thanks to all these product market, quality and the customer profile we have.

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Amit Doshi;Care PMS; Analyst, [17]

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Okay, okay, okay. And sir, of course, Indian spinning industry had its own tough time because of the higher cotton prices and lower yarn prices. How are other textile countries fairing, considering this U.S.-China trade war, Bangladesh or Vietnam and other countries who are good, who are kind of competitors to India, per se?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [18]

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India, there are only 2 competitors to India in the spinning at a bigger way: one is the Pakistan, second is the Vietnam now. So Vietnam's exports are even increasing compared to us. So Vietnam, they buy all the cotton from outside only. For them, it was almost similar situation, little better because they could import the U.S.A. cotton also at a cheaper prices, whereas the Pakistan was also passing through a very, very difficult time. Their cotton prices, there -- even today's cotton prices are higher than India. So if you look at the international trade of cotton yarn, India and Pakistan share close to about 40%, 45% of the total trade. So both these countries had a tough time. So as a result, I think most spinning companies they were losing money. Indonesia also a bigger player. Vietnam is a bigger player, but they are more on the polyester cotton and the synthetics as well. So they didn't have so much of direct 100% cotton yarn, which India and Pakistan are the biggest players. So both the countries have lost in this period.

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Amit Doshi;Care PMS; Analyst, [19]

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Okay, okay, okay. So in terms of inventory of the cotton that we hold, we generally hold around 6 months -- 3 to 6 months of inventory, depending on situation to situation. So if we also have a lower cotton inventory and the current crop season that is coming up is, as Mr. Jhamb mentioned, that is one of the bumper crop India will witness. So that would see a further decline? Or how do you see for you, Vardhman, as in particular?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [20]

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See, we were also covered on the cotton till almost middle of November. So now the new crop has started coming in. We have started buying. So as I mentioned earlier, with our cotton prices, with our costs coming down, and if yarn prices can be stable, definitely, the margins are likely to improve compared to the losses or compared to the lower margins in the previous period. So the new season of cotton will be till March or April, where we have to cover ourselves for the next couple of months. And it's just the starting of the season, so this is the -- as on today's situation, I do not know what happens in next couple of weeks, couple of months. So I think if this situation continues, our prices are lower than the international prices, definitely the industry will do better than what they've done.

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Amit Doshi;Care PMS; Analyst, [21]

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Okay, okay. And one thing you mentioned with the government refund of taxes is one of the concern or the area that you've been discussing. So in case that comes up, what portion or what kind of relief you are likely to see?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [22]

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The home textile or the government people, they've got close to about 8% as the refund of the duties and taxes, which has been paid in the system. So I think it could be anything between 5% to 6% in my view, which would be the duties we are paying directly, indirectly to the system, which is not ratable or not getting refunded. So in case the government agrees to that, of course, they have to calculate it finally. The industry keeps on giving their own estimates, but finally government has to look at. So the only authentic data today available is that they have given almost 8% to the home textile at the government.

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Amit Doshi;Care PMS; Analyst, [23]

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Okay, okay. So that -- if that comes through for even textile spinning industry, then that 5%, 6%, whatever estimate that you have would directly improve the margin to that extent.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [24]

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Yes, that's true. But I mean, we've been talking to the government for last almost 1, 1.5 years. So I'm not very sure what their view finally would be.

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Amit Doshi;Care PMS; Analyst, [25]

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Okay, okay, okay. So they're not -- I mean, we don't sure what would happen. And there's no time line for that, basically?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [26]

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No, no, no. Government has to take a view on that.

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Operator [27]

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Next question from the line of Chetan Thacker from ASK Investor Managers.

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Chetan Thacker, ASK Investment Managers Limited - Senior Research Analyst [28]

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Sir, I just wanted to check on the net debt figure. Where do we expect that to end at FY '20 end?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [29]

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So our net debt number is -- should be around INR 2,200 crore to INR 1,400 crore figure by FY '20. This includes both long-term and short-term debt.

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Chetan Thacker, ASK Investment Managers Limited - Senior Research Analyst [30]

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And going forward for '21, we just have maintenance CapEx, right? No other CapEx. No other for company CapEx.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [31]

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As of now, no other CapEx is planned. So if the maintenance CapEx happen, assuming we get a EBITDA of INR 1,000 crores or so, so practically, we are talking about '21 -- FY '21 and there will be...

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Unidentified Company Representative, [32]

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Should be in the range of INR 500-odd crores.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [33]

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INR 500-odd crores.

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Chetan Thacker, ASK Investment Managers Limited - Senior Research Analyst [34]

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Of maintenance CapEx?

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Unidentified Company Representative, [35]

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No, net debt.

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Chetan Thacker, ASK Investment Managers Limited - Senior Research Analyst [36]

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Of net debt. Okay. So maintenance CapEx is generally how much in a year?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [37]

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INR 300 crores to INR 350 crores.

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Operator [38]

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We have next question from the line of Nihal Jham from Edelweiss Financial Services.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [39]

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Sir, my first question was on the industry situation that you mentioned at the start of the call, where our exports to China specifically have fallen by more than 30% since the start of the financial year. However, if you look at the data for import of yarn into China, that has more or less remained flat. So actually, India, as a whole, has been facing a market share loss. So just wanted your comments on -- because there have been certain articles which have put the reason to the new FDA they would have signed with Vietnam and other countries increasing share. So first, wanted your thoughts on this.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [40]

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Yes. So the Vietnam has the biggest advantage where they can supply to the goods to China by road, which is very near to them. So there are 2 advantages -- 2 countries are Vietnam and Pakistan. Both these country have the advantage of an FDA -- so they get their yarn imported into China duty-free, which is almost 3.5%. So to the number of days from Vietnam to China is the minimum compared to any other country, which includes Pakistan and India. So the Vietnam has that advantage. Third, Pakistan is on a courser count, so like 20s, 21. So they do lots of that weaving yarns or the netting yarn on a courser side.

So Pakistan is definitely better compared to us. Whereas the China, their own spinning mills started producing the final count, which is 30s, 32s and 40s, which are the bigger basket for India. Since their own capacity utilizations have been coming down, so they reduce their courser count from earlier. So they produce lots of 30s and 40s, which they earlier used to import from India. So to that extent, the Indian imports came down. So definitely, both in terms of number of days and in terms of the duty-free advantage, these countries -- of course, number of days Pakistan, India a bit similar, but Vietnam has an advantage. And in terms of duty, both Vietnam and Pakistan has an advantage. So that's why they could still maintain their exports to China.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [41]

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Sure. But if we look at our export data, it's specifically suddenly since March this year that exports have started falling off, so anything specifically which happened...?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [42]

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No, that's only their trade war -- their trade concern between U.S.A. and them, that's all. Otherwise, nothing wrong was from Indian side.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [43]

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Okay. But in this situation, then maybe...

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [44]

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The consumptions came down because of this uncertainty. So their import of yarn came down.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [45]

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Sure. But if this is a situation, then I think the current kind of volumes which you're doing of 74 million, 75 million kgs per month, will be the kind of run rate or the new normal going forward also?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [46]

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No, ultimately, U.S.A. has to buy the government. So as of now, since this uncertainty was there, the entire pipeline was getting thinner and thinner. So starting from brands to the manufacturers, the pipeline has been coming down only. Number two, finally, once the decision happens, what happens to their final arrangement, U.S.A. versus China, if there is no truce between U.S.A. and China, then the garmenting will start coming up in some different countries. As of now, no new country will be taking up these capacities because if the truce happens, then what happens to the new capacity which others will be creating. So I think this uncertain period is causing more concerns. One -- once the decision happens that whether the concern is there or not -- whether this duties will be levied or not, based upon that, the new capacities will start coming up, if not in China, somewhere else. And I think to that extent, the yarn demand will start happening once again. So this is the period where -- because of this uncertainty, the entire pipeline has been becoming more and more thin, and that's the also reason why the demand was much lower.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [47]

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Sir, the second question was, what is the current cotton yarn spread that we had for this quarter? And how does it compare to last year?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [48]

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The current cotton yarn prices are in the range of about $2.80 to a kg for 30s courser. And last year, in the same period, it was close to about $3.10. So we are lower by close to about $0.30 as of now. Of course, part of that, I think on the -- part of that will get covered maybe by the dollar, rupee. But I think in terms of the -- in terms of rate per kg, we are lower almost by $0.30 as of now.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [49]

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Absolutely. And with our expectation that the current cotton prices are, say, 10% lower at INR 29,000 a candy, do you think that the cotton yarn spreads could improve or the yarn prices will correct to keep the cotton yarn...?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [50]

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No, yarn prices may not get corrected because yarn prices already got corrected because of the international prices of cotton. So it was only -- our cotton in India was much expensive. That is why this concern was there, but going by the $0.64, $0.65 New York Future, I think the yarn price may not -- in my view, may not correct further. And to that extent, the Indian spinners, which were losing in this period may start having a better situation.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [51]

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So then the spread could go above $3 starting next quarter, if that's the fair way to look at it?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [52]

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May or may not be. But yes, your question was whether the yarn prices can get corrected further, to me, may not be.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [53]

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Absolutely. Just one last question, sir. On the processed fabric side, I was checking the volume data, the 6% growth that we've shown for the quarter even for H1 is being pretty reasonable and better than what was contributed. So is it that this is being driven by exports? Or we managed to get more customers on the domestic side?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [54]

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I think -- Mukesh, can you answer that?

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Mukesh Bansal, Vardhman Textiles Limited - SVP of Fabric Marketing [55]

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Yes, it is primarily driven from exports. So it could be direct exports, fabric exported out of India or even to the garment exporters in India. The final Indian domestic consumption, the demand has been sluggish.

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Operator [56]

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We have next question from the line of Prerna Jhunjhunwala from B&K Securities.

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Prerna Jhunjhunwala, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [57]

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I would like to understand the current scenario in the supply chain of domestic market. How is the supply chain right now? And what is the cotton price start increasing because of the current trends that are happening? Do we see any increased demand coming into secure cotton yarn from the domestic market?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [58]

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Domestic is always -- in terms of prices, domestic is always offshore of the international prices of yarns. As I mentioned, since the international prices are close to about $2.80, the equivalent prices in India are close to about INR 195, INR 196 a kg. And the Indian prices are always generally plus/minus INR 1, INR 2 from the international prices. So Indian market prices are also in line with the international prices. To the demand in domestic market cannot improve than what it is already there. So I think if a momentum has to come, that has to come only from the export because the Indian demand is normal. So it's not reduced in a bigger way. So we have been consuming 230 million, 240 million kg per month in India as spinning -- as yarn, which continues in my view. So I think there has not been any reduction of yarn in the domestic market. So any momentum or any increased demand comes in, they'll come only from the export and then only the margin or the overall situation could improve. I think that's your question?

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Prerna Jhunjhunwala, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [59]

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Yes, yes. And sir, just a small clarity on that, how is the supply chain in terms of the middlemen? Because of tight liquidity situation, they might be holding only hand-to-mouth kind of a...?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [60]

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So the supply chain in India is really one of the thinnest and both -- because of 2 factors: one is the very tight liquidity position; second is since the prices have been coming down, so nobody was ready to have a bigger risk in terms of holding on to the inventory. So everyone is working practically on a hand-to-mouth basis. So I think the liquidity position, in my view, may not improve significantly in a very short period of time. But at the same time if the business sentiments improve, definitely supply chain would improve from what it is today. It is one of the thinnest as of now.

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Prerna Jhunjhunwala, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [61]

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And in fabric business, sir, when can we achieve full utilization, like FY '21 and/or FY '22, is something that I was trying to understand?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [62]

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Mukesh.

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Mukesh Bansal, Vardhman Textiles Limited - SVP of Fabric Marketing [63]

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Yes. In FY 2021, we will reach a optimal level. If it is, say, 94%, 95%, we call it full capacity utilization. So FY 2021, we will reach that level.

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Operator [64]

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We have next question from the line of Keshav Garg from Counter Cyclical Investments.

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Keshav Garg;Counter Cyclical Investments;Analyst, [65]

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Sir, my question is to Mr. Neeraj Jain. Sir, we are merging our listed subsidiary Vardhman Acrylics as a valuation of around INR 290 crore, whereas the cash in the balance sheet is over INR 300 crore, and company does INR 30 to INR 50 crore operating profit every year. Sir, so by going ahead with this, not only will you lose your reputation but the valuation of Vardhman Textiles itself will permanently come down. Sir, because if the corporate governance issue is there with the company, the same set of promoters, if they can cheat one set of shareholders in Vardhman Acrylics, then the same can be expected in Vardhman Textile also in a future date. So what do you have to say on this?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [66]

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Yes. I think we'll have to appreciate the process of the entire merger, which is very, very transparent. So there's been a valuer who has -- based upon the -- I mean, it's not they will do a valuation what I want the valuation to happen. So they have their own procedure and the processes of doing a fair valuation, which they have done. Also, you are looking at only the cash or the intrinsic value of Vardhman Acrylics. There are lots of assets where the intrinsic value of even Vardhman Textiles is much higher as this company is much older. So based upon the market prices, based upon the earning potential and based on the competitor's analysis, I think they have taken all these approaches. And the valuation has been done by KPMG, which has been further validated by a merchant banker.

And to that extent, I don't think there is any intention of the Vardhman Textiles promoter or the Vardhman Acrylics promoter that this should be the valuation or this is what you're talking about. So they're simply talking of making the business simple. So to that extent, we want to have a merger. We appointed a merchant banker, and based upon their own judgment, they have done this valuation. It has nothing to do with Vardhman Textile that is good or bad, so it's neither in my hand. Based upon all the principles of valuation, they have done that. And it's primarily, I think, we'll appreciate both the market prices. And the earning potential will decide what kind of valuation should be there. And please bear in mind, Vardhman Textiles being a 54 years old company, the intrinsic value of the asset could be much, much, much better compared to what it is being looked into the books of accounts.

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Operator [67]

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(Operator Instructions)

We have a next question from the line of Nagraj Chandrasekar from Laburnum Capital.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [68]

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I had just a quick follow-up. I wanted to ask whether we would take advantage of the tax rate reduction dispensation. And what our effective tax rate should be going forward?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [69]

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We are evaluating the same because there are some tax-free zones we have. So we are taking a final view whether we should move into this or not. So our effective rate as of now is 27%, 28%. So I think our taxation team is working on them. I hope by the end of the next quarter or in the results of the third quarter, the Board will be in a position to take a final view on that. But yes, we are surely examining it. And whatever decision happen, we'll have to -- we'll be taking maybe in the next or the next quarter after that.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [70]

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And just any thoughts on capital allocation after the current financial year, now that we're done with this INR 800 crores, remaining portion of our CapEx programs?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [71]

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See, the situation as of now is really, really -- was a very tough time last couple of months. So we haven't drawn up any major plan for expansion as of now. So the only thing we are looking at whether we can enhance or increase the pace of monetization if the opportunities are there. So I think there are lots of ideas in mind. But as of now, no firm plan that this is a capital allocation for the next year. But I think once the situation becomes a little normal, probably we'll start thinking on that also because in this kind of tough time, it was better to hold on to the cash and pass through this difficult time in a better or in a good way.

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Operator [72]

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We have a next question from the line of Avi Mehta from IIFL Securities Limited.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [73]

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Sir, I just wanted to understand, this realization, if you could just help explain the MSP part? I'm not very clear on that. Why would you -- why do you believe that the MSP is not kind of -- suggest that cotton prices will not see further -- I mean, if you could help explain that? I'm not -- I wasn't very clear on that part, sir.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [74]

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The MSP is always announced for the raw cotton, which is called narma. And this has 2 components: one is the lint, which is basically the material to be used by the spinning company; and second is the seed, which goes in for the oil or for the -- as a food alternatives for the animals. Now the prices of cotton will depend upon all these 3 factors that what is the prices for the raw cotton, which is narma, what is the prevailing prices of seed and what kind of -- finally, what is the derived prices of -- minimum support price for the lint to be used for the cotton spinning industry.

Going by the today's calculations, I think the MSP comes to close to about INR 40,000, INR 41,000 or so. And the -- since there are some limitations, there are some challenges for the MSP because the -- there are some conditions that the payment will be given to the farmer after 15 days, 20 days, there are some system procedures. Where farmer feels better to sell directly to the market at a little lower prices. So I don't think there's any big difference between the MSP and the market prices as of now. But yes, if tomorrow the seed prices comes down in a bigger way, then the MSP could be much higher. So as of now, it's comparable. As of now, it's workable. So I don't think there's a big issue. But yes, if the difference comes in, at that stage, the government may decide to intervene and they may buy some of the material to give that kind of support to the farmer.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [75]

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And the second bit, sir, there is recently the unseasonal rains in parts of India. Is that likely to impact cotton availability and in turn be a -- inflate cotton prices, sir?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [76]

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Not really. So when we are talking of crop size of 37 million, 37.5 million bales, this is already taken into account. Some industry estimates, there still people are talking about 38 million, 39 million bales also. So I don't think with -- because this impact was only 0.5 million bale or so. So as of now, there is no concern. And the crop quality, size looks quite good as of now. So there could be even a possibility that it may go beyond 38 million as well. So some of the industry people are even estimating that also. But I think 37 million, 37.5 million bales are a very, very safe kind of crop estimation as of now.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [77]

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Okay. And sir, so in terms of realizations, would it be fair to argue that yarn realization is currently at the bottom -- probably remain at current levels? And hence, the negative realization that we saw in this quarter would probably continue in next half. Is that a fair understanding?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [78]

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Yes. As of now, yes. Again, it's a business, so you do not know what part of the business happens, what where happens. So as of now, it's a fair estimation. Going by the today's position, I think the -- I can only say, as on date, the worst is over.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [79]

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In that case, sir, would percentage margin be the right metric or would the margin per kg be relatively okay? Or -- because you said spreads will move up?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [80]

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Both, if margin per kg improves, percentage will also improve. And also our utilization on the fabric side has started improving in last 2, 3 months. And I'm sure if they are in a position to utilize it better, the overall margin as a percentage to sales will keep on improving only.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [81]

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Sir, in this year, you had indicated it will be -- FY '20 was likely to be lower than 18%, 18% to 22% range that we have in a steady state. Is it what would you like to...?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [82]

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We are only about 1% short of 18% as of now. And maybe if the things goes well, there could be a possibility even to recoup that part as well.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [83]

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Okay. So you -- okay. So you will still be in that range is what we are kind of probably -- that's how we should see it?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [84]

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It could be a possibility.

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Operator [85]

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We have next question from the line of Keshav Garg from Counter Cyclical Investments.

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Keshav Garg;Counter Cyclical Investments;Analyst, [86]

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Sir, again, on this Vardhman Acrylics question. Sir, first of all, Vardhman Textiles is not getting delisted. Vardhman Textiles will continue to be listed. So where is the question of valuing Vardhman Textile. Maybe its assets are undervalued. Sir, but Vardhman Acrylics is being merged. Vardhman Acrylics will no longer be in independent existence. So you should just value Vardhman Acrylics and allot the number of shares of Vardhman Textiles at the prevailing market price?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [87]

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So -- no, why prevailing? So we cannot look at it that. On one hand, we take the market price of Vardhman Textiles, and on the other hand, we look at the cash and the valuation. So we could look at it both ways, either we look at the market value of both assets or we look at the intrinsic value or the asset value of both the assets. This cannot happen that -- I mean, in my view, what the KPMG would have taken or has taken that they take either a market price of both assets or they took -- they look at the intrinsic value or they look at the earning potential of both the companies, and that's how this ratio is decided.

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Keshav Garg;Counter Cyclical Investments;Analyst, [88]

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Sir, now since anyway Vardhman Textiles owns 3/4 of the company, and sir, now -- so whatever merger ratio you decide, the 3/4 as it is will get treasury stock. Sir, so please reconsider. And I don't think, sir, whatever extra Vardhman Textiles will have to pay will be less than 1% of the market capitalization. So please reconsider the merger ratio.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [89]

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Yes. Please, again, I'm saying it's not that Vardhman Textiles wants a lower or a higher ratio. It's a fair valuation. We have given an assignment to a third party. They have assigned. They have done that. And whatever issues are coming in, both the companies are ours. So we are only placing it before the shareholders that this is the right valuation -- this is the valuation they have given. And I don't have a control on the valuation, so whatever fair valuation they've given, we're going with that the same.

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Operator [90]

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(Operator Instructions)

We have a next question from the line of Gagan Thareja from Kotak Investment Advisors.

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Gagan Thareja;Kotak Investment Advisors Limited;Analyst, [91]

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Sir, you indicated that home textiles and garments have been given 8% refunds on the taxes. I presume it might improve their competitive situation, especially in exports to U.S. and you might be considerably a supplier to them. Would it be fair to presume that because of the improvement in their prospects, possibly next year, it would have some benefit for you also?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [92]

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In terms of what?

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Gagan Thareja;Kotak Investment Advisors Limited;Analyst, [93]

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In terms of you being part of the same supply chain.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [94]

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No. Again, as I mentioned, the yarn prices will be determined by the international prices only. So it's nothing...

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Gagan Thareja;Kotak Investment Advisors Limited;Analyst, [95]

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No, no, I'm talking in terms of volume, sir, not in terms of pricing. Simply in terms of the amount of sales that they could accrue, and therefore, you could accrue from supplying.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [96]

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Their consumption is miniscule as far as the total world's -- total India's consumption is concerned. So even a couple of companies doing very well, it can have an advantage to a particular company or not, but the overall yarn supply, if you look at the overall consumption, they will be consuming out of the total material produced in India, it will be miniscule. So unless the entire -- the overall demand improves, I don't think a particular company or a particular segment can offer a better price because everyone will be comparative. So the overall demand increase, not only for the home textile but for everyone will definitely can definitely push the overall demand for yarn, which can definitely improve the margins for everyone.

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Gagan Thareja;Kotak Investment Advisors Limited;Analyst, [97]

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Are we in any way a significant suppliers of yarn to Bangladesh or suppliers to Bangladesh...?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [98]

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Bangladesh is one of a big country for us in terms of export. We closed -- we export close to about 10% of our total export as Vardhman to Bangladesh. So it's significant.

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Operator [99]

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(Operator Instructions)

We have a next question from the line of [Venkatraman] from [Orient Securities].

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Unidentified Analyst, [100]

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I just wanted to know what is the status of the merger. Where do we stand?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [101]

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So we have already applied to stock exchanges. And in turn, they have applied to SEBI for the approval. And once the SEBI gives the principal approval, then we'll go to the NCLT and NCLT will call for all the shareholders meeting, creditors meetings, et cetera, et cetera. So the proposed date of merger as of now is 1st April 2020. So depending upon how the SEBI gives their consent, and after that, the NCLT process. So as of now, the application is pending with SEBI with the stock exchange, which they are sending it to SEBI maybe in the next couple of days.

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Unidentified Analyst, [102]

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And second question is, I understand that the new export quality which is in the works by the government, do we have any expectations on this?

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [103]

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From?

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Unidentified Analyst, [104]

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Central government is working out a new export policy.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [105]

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No. So our expectation, we have not -- I mean, our request to the government is only to refund us the taxes which we are paying into the system. That's all. So in case, they can do that, that will be really, really -- very, very supportive for the industry.

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Operator [106]

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Thank you, sir. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Sir, over to you.

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Neeraj Jain, Vardhman Textiles Limited - Joint MD, CEO of Yarn Business Operations & Executive Non-Independent Director [107]

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Yes. Thank you very much. So I can -- I mean, it's a very, very challenging time for us, but I can only assure to all our investors that whatever is the best possible or controllable by the management, we are taking all those steps. There are lots of initiatives in terms of the cost reduction or in terms of the -- doing something different so that the advantage of the same could be available to us in the long term as well. So as the -- as I mentioned, this period has been very difficult, very different because of the reasons which were beyond control of the company, and it was more of a national or international issues. But whatever is controllable, we are all actively working on that, and I'm sure as the overall situation improves, your company will also take a big benefit after the turnaround happens.

So from my side, thank you very much to all the investors who have been supporting us in thick and thin time. And I'm sure, as the situation becomes normalized, your company will again show much better performance. Thank you very much.

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Operator [108]

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Thank you very much, sir. Ladies and gentlemen, on...

(technical difficulty)