Nandan Deniim Limited

February 12,
1 2016

Nand
dan Denim Lim
mited Q3 FY 2016
2
Results
Earnings Conference
C
Caall
February 12, 2016

NAGEMENT: MR. GOVIN

ND SHARDA (PRESIDENT
T)
MAN

Nandan Deniim Limited

February 12,
1 2016

NaandanDenimLim
mited
Q3
3&9MFFY16RessultsConferenceCall
Februarry12,20
016
Moderator::

Good Eveningg, Ladies and Geentlemen. I am Ali, moderator for this confereence. Welcome to
the third quaarter & First 9 Months
M
FY16 Reesults Conferencce Call of Nandaan Denim Limiteed
organized by Dickenson Seaggull IR. At this moment,
m
all participants lines are in listenon
nly
me if you havee a
mode. Later we will conducct a question and answer sesssion. At that tim
1onyourtouchttonekeypad.Pleeasenotethisco
onferenceisbeing
questionpleaasepress*and1
recorded.Iwo
ouldnowliketo
ohandovertheffloortoMr.Man
ndarKapse.Oveertoyousir.

MandarKap
pse:

Hello!GoodA
Afternoon,Everyyone.OnbehalffofDickensonSSeagullIR,letmeewelcomeyou all
totheearnings callofNandaanDenimLimiteedfortheQ3&
&First 9MonthssFY16.Today,w
we
havewithusffromthemanaggementMr.GovindShardaPreesident.
de
Before we geet started I wou
uld like to remin
nd you all that our
o remarks tod
day might includ
forwardlookiing statementss and actual results might differ materially from tho
ose
contemplated
dbythesestatem
ments.Anyforw
wardlookingstattementsthatwe
emakeonthiscall
arebasedonour assumption
nsas oftodayaandweundertakenoobligation
n toupdatetheese
winformationorfutureevents.
statementsassaresultofnew
Withoutfurth
heradoIwould nowliketohan
ndoverthecallttoMr.GovindShardatomakeh
his
openingremaarks.Thankyouandovertoyousir.

GovindSharda:

AVeryWarmWelcometoEvveryonepresentherefortheEarrningsCallsforN
NandanDenimffor
heFY201516.
thethirdquarrterandthefirstt9Monthsofth
Comingtoou
urperformance forthequarter,wecontinueto
owitnessgrowth
hinrevenuesan
nd
profitability b
backed by healtthy demand in Domestic
D
Denim
m business. Ourr Domestic Denim
businessgrew
wonthebackoffhighervolumessandimproved realizations.We
econtinuetosh
hift
our product mix more in faavor of the value added products. While wee did well on the
nimfront,theexxportmarketremainsubdued,w
wealsowitnessedslightlyweakker
DomesticDen
Shirtingdemaand.
ThetotalreveenuesfortheQ
Q3ofFY16grew by3.5%yearo
onyeartoRs.2874million.High
her
gross margin coupled with efficient
e
cost co
ontrol resulted in 10.1% yearo
onyear growth in
owthinPATtoR
Rs.156million.
EBITDAtoRs.418millionand23.8%YoYgro

Nandan Deniim Limited

February 12,
1 2016

On the marggins front, EBITDA margins expanded by 100

0 bps to 16.7% and PAT marggin
expandedby96bpsto5.4%ffortheQ3.Thettotalrevenuefo
or9monthsgrew
wby5.4%YoYto
oYgrowthinEB
BITDAtoRs.1,4440
Rs.8,624milliion.Efficientcosstcontrolresulttedin12.6%Yo
millionand30%YoYgrowthinPATtoRs.4
468million.On themarginfron
nt,EBITDAmarggin
6.7% and PAT m
margin expanded by 101 bps to
t 5.4% for thee 9
expanded by 107 bps to 16
dentally,theEBITTDAmarginand
dPATmarginareeatthesameleevelinthequartter
months.Incid
and for the period
p
of 9 mon
nths. Cash profitt after tax was aat Rs.323 million for the quarteer,
16% higher as
a compared to the correspond
ding quarter prrevious year. Caash PAT for thee 9
monthsisatR
Rs.968million,u
upby18%ascom
mparedtocorreesponding9mon
nthspreviousyeear
wherethesco
orewasRs.819m
million.
Duringthequ
uarterthatistheebeginningofth
hecottoncropsseason,thepricesofCottonweere
volatile partiaally in view of the reduced crop size reported for the Indian Agriculture
A
secttor
and uncertain demand fro
om the importin
ng nations. Durring the volatiliity, it becomes a
decideabouttheCottonstockin
ngpolicyandth
hereforetheadvvantageavailed by
challengetod
thecompany intheprevious quarterwerereestrictedandhaasimpactedthe rawmaterialco
ost
ue. However, thee prices are now
w reasonably sttable or say range
as percentagee to the revenu
boundtotakeeprudentstockingdecision.
Demand for Denim
D
in the Do
omestic markett was in line witth our expectatiion; however, the
exportmarkeethadapinchan
ndthereforeoffftakesintheseggmentwereimp
pacted.Duringthe
9 months period, exports co
omprised of 13%
% of the total rrevenue in ordeer to cater to the
nim demand, a part of the Grrey Shirting cap
pacities were diverted to Denim
domestic den
manufacturin
ngthatledtoreducedofftakeo
oftheShirtingproductwhichco
omprisedof6% of
thetotalreveenuesduringthee9monthsperio
od.
Overall,sequentiallyDenimssegmentinvaluetermswasmaarginallyhigher by1.4%,whereeas
nesshaditsownchallenges.
Shirtingbusin
The Board off Directors has also recommen
nded an interim
m dividend of 8%
% for the curreent
financialyear.
q
pursuan
nt to the shareeholders approvval in the AGM
M and inprincip
ple
During the quarter,
approvalfrom
mtheBSEandN
NSEandapplicattionmoneybein
ng25%oftheto
otalconsideratio
on
has been receeivedfromPolu
usGlobalFundw
was 25 lakhsfullyconvertiblew
warrantissue.W
We
shallentertainthewarranth
holderstohave equivalentnum
mberofequitysh
hareofRs.10face
value.
beawareweareeinthemiddle ofourcapacity expansionplan
nofRs.612crorees,
Asyoumayb
whichisfund
ded by 70% debtand30%equity. Togiveyou an updateon the
t expansion,w
we
have completted installation of the Shirtinggs facility of 100 million meters. The processing

Nandan Deniim Limited

February 12,
1 2016

der erection and

d we have installed Denim man
nufacturing capaacity of 99 millio
on
facility is und
permeterandthespinningccapacitystands at70tonnespeerdayasof31sttDecember201
15.
we
The current debtequity ratio is around 1.7 but over thee period it could increase as w
heCAPEXplan.
progressonth
Goingforward
dweintendtoffurtherimproveouroperatingm
marginsaswereeapthebenefitsof
backwardinteegrationcomingginpostthecompletionofourrexpansionplan
n.Wearewello
on
trackwithourclearfocuson thevalueaddedsegment.For thenext3yearss,weplantohave
m the value add
ded segment. This
T
would furth
her
a significant part of revenuee is coming from
marginprofilesaaswellasthereeturnratioprofile.
enhanceourm
WiththisIwo
ouldnowliketohandovertotheparticipantsfo
ortheQAsession.Thankyouall.
Moderator::

Thank you veery much. Ladiees and gentlem

men, we will no
ow begin with the
t Question an
nd
Answer Sessio
on. We will takee the first questtion from the line of Abhilashaa Satale from Firrst
Global.Pleaseegoahead.

AbhilashaSSatale:

nd
Sirinthistop
plinegrowthof 4%,Iwouldlikeetoknowthat howmuchisvo
olumegrowthan
howmuchisd
driventhroughrrealizationorhaaveweseenrealizationgoingdo
ownyearonyeaar?

GovindSharda:

WhenwelookattheDenimvvolume,theDen
nimvolumehasggrownbyaround3.5%andselling
ownbyaround 8%,takingthettotalturnovero
ofDenimupby almost(+11%). In
priceshasgro
the Shirting business
b
the vo
olumes have shrrunk because we
w diverted som
me of our existing
ShirtingcapaccitytomeettheeDenimdemand
d.Goingforwarrdweareveryo
optimisticbecau
use
India is still at
a the point where the Denim demand is yet to go up. We lo
ook forward forr a
betterfuture..

AbhilashaSSatale:

Sir,howmuch
hShirtingvolum
meshavegonedo
own?

GovindSharda:

ForShirtingvvolumes,thebassenumberisprrettysmall.Soth
hereforeinthe percentageterm
ms
this will beco
ome very large number,
n
there is almost 60% reeduction, but we
w need to look at
thispointthaattheShirtingcapacitiesareneearly10million metersayear. Thebasefigureis
prettysmallaandthereforeth
hereisasignificaantshrinkagebeecausethosecaapacitieshadbeen
divertedtoDeenim.

AbhilashaSSatale:

Onceweaheead likewayforw
wardwhether you
y willcontinue to divertyourrShirtingcapacity
towards Deniim and can thatt be a reason fo
or quarteronqu
uarter margin dip, marginally h
has
thatalsoconttributedtowardssit?

GovindSharda:

Notreally.In theShirtingbu
usinessweareyyettoinstalltheeprocessingmachines.Unlessw
we
ocessingmachin
nes thevaluead
dditionin the Sh
hirtingbusiness doesnothappeen
install thepro

Nandan Deniim Limited

February 12,
1 2016

Grey Fabric is really

r
not a veery
and thereforre we are forceed to sell the Grey Fabric. G
remunerativee business, rightt now I do not have a very speecific number but
b as of now the
DenimbusineessissubsidizinggtheShirtingbusiness.Thatis to saythemargginintheShirting
businessaren
notaslucrativeastheyareinth
heDenimbusineess.Thereforeth
hemarginsaren
not
dipping;ifyou
ureallylookatttheEBITDAmarggins,ourEBITDA
Amarginshasgro
ownup.
AbhilashaSSatale:

Sirthatisyeaaronyearithassgrownupbutq
quarteronquarrterwehaveseeenamarginaldip.
So I was justt wondering wh
hether we have diverted more towards Shirtin
ng. By when yo
our
processingcapacitywillgetsttabilizedandwh
hencanweseeSShirtingbusinessspickingup?

GovindSharda:

here in June 20016 that we would be up witth our processing

I guess it could be somewh
questionabout EBITDAmargind
dipping,thisisaaperiodwhenthe
capacity.Astoansweryourq
o cotton starts and in the begginning of the crop season the prices are alwaays
crop season of
volatile.Soyo
outakecertain decisionsabouttstockingwhich
hovertheperio
odoftime, till the
marketreachtostabilizationphase,youalw
waysareinventin
nganewpricingg.So,firstquartter
not
ofthecropseeasonisgenerallyabitofchalleengefortheCotttonbasedproducers.Wearen
an exception to that particular part becausee market has sttarted with a veery steady note,, it
PA
increased,theenitstartedgoingdown,nowiithasreasonablyystabilizedand nowalltheUSP
reports which
h have been reeleased so far, they
t
also indicaate that India will
w end up with
h a
decent stock of Cotton. So we
w are pretty co
onfident now th
hat the prices are
a stable and the
hespeculativen
natureintheeveentofcottonprricesorthecotto
onmarketswou
uld
volatilityorth
bemissingno
owforthenext6
68months.

AbhilashaSSatale:

Sir, in this FYY17, how much

h can we see volume in Denim
m business and Shirting capacity
utilization?

GovindSharda:

o FY17 we expeect to have our expansion com

mpleted, so we could
c
be hitting in
Second half of
thesecondhaalfforcapacityo
of110millionm
metersfortheexxpansionthatisunderwayand by
thetimebecaausetheprocesssingcapacitiesffortheShirtingw
wouldhavealso
obeeninplace, so
theentire10 millionmeters wouldbeoperaational.Letusho
opethatgeneraallyintheweaving
ound 80%85% as
based or the processing baseed industry, thee ideal capacity utilization is aro
pacityandsinceboththebusineessesareveryw
wellunderstoodby
comparedtotheinstalledcap
us,soweshouldbeabletodobetterwhenccomparedtotheeindustryaveragges.

AbhilashaSSatale:

dhowdoyouseerampingthatggoingahead?
WhatisyourSSpinningcapacittyasofnowand

GovindSharda:

Rightnow,wearehavinginsstalledcapacity ofaround70to
onnesperday.W
Weintendtotake
4tonnesaday.W
We areataverryadvancedstaggeandweexpeect
ourspinning capacityto124
e of March aand beginning of
o April. So I think
the machine delivery to starrt towards the end
he next fiscal we
w would be add
ding significant capacities on the
during the firrst quarter of th
Spinningfront.

Nandan Deniim Limited

February 12,
1 2016

AbhilashaSSatale:

ou see your maargins stabilizingg after that? You

ur raw material cost also for th
his
Sir how do yo
seasonandon
nceyourbackwaardintegrationiisgearedup,how
wdoyouseeyo
ourmarginsat?

GovindSharda:

Currently if I really look at the financial reesults of other spinners, typicaally, they makee a
ound8%10%.O
Oncewehaveth
hebackwardinttegration,Iguesssthat8%10% all
marginofaro
around50%o
ofourrequiremeentwhichwearrerightnowouttsourcing,thatw
wouldbecaptured
withinthehouse.Sowearelookingatanapp
preciationofaro
ound4%5%whe
enitcomestoo
our
EBITDAmargiin.

AbhilashaSSatale:

About your CAPEX

C
overall, like how much have you spentt in FY16 on De
enim and Shirting
capacityramp
pupandhowmuchislikelytob
beinFY17onSpiinningandotherfacilities?

GovindSharda:

Abhilasha,yo
our question is slightlytrickyan
s
ndIcangiveyouthe overallnu
umber against the
CAPEXofRs.6
612croresthatw
wehaveplanned
d,wealreadyhaavecashoutlflow
wofRs.400crorres
sofar.I am sorryIdonot
s
haavethedataof breakupofspinningand proccessing anddenim
capacitiessep
paratelyavailablerightnowandforthebalanceeamountwehavvealreadyopened
theLetterof CreditorwehavvealreadyissueedtheBankGuaaranteesasperaagreedtermswiith
O
the machines are shipped
d it is only a maatter of time that in next say 445
the vendor. Once
months,wew
willendupspend
dingalmostRs2
200crorestowarrdsthisCAPEXp
plan.

AbhilashaSSatale:

SoisitfairtoassumethatyouwillbecapitaliizingRs.400crorresduringFY16??

GovindSharda:

der capital workkinprogress as well as the paart of the capitalization, yes, w

we
If you consid
wouldbebeccausetherewou
uldstillbemanyythingswhichw
wouldbecapitallworkinprogreess
but this FY16
6 figure of Rs.40
00 crore has nott entirely been capitalized
c
in FYY16 as part of the
CAPEXhadalrreadybeenincurredintheprevviousfiscalasweell.

AbhilashaSSatale:

Sir,thenwhattisyourgrossdeebtandhowmu
uchistermloanandworkingcap
pitalinthat?

GovindSharda:

Ason31stDeecemberwehad
dtotaldebtofcclosetoalmost Rs.450crores,o
ofwhichtheterrm
loanwascloseetoRs.320croresandbalancew
wasworkingcap
pitalloan.

AbhilashaSSatale:

Sirifyoucouldalsotellmew
whatiscostofd
debtfortermloaan?Iknowforttermloanlikeyo
ou
nefits.
havestateaswellasTUFben

GovindSharda:

base rate plus 100150

1
bps fro
om
The term loaan is available tto us from the bank at their b
differentbanksandtheworkkingcapitalloan
nsareavailablew
withthesamesspreadof100150
bpstotheirbaserate.

AbhilashaSSatale:

hat
ButsirhereyyoualsohavehiisTUFaswellassthestatebeneefitsincentives. Soexcludingth
whatwillbeyyourcost?

Nandan Deniim Limited

February 12,
1 2016

GovindSharda:

t total impactt, the subsidy available under tthe state and ceentral TUF will be
If I consider the
closeto10%.Soeffectivelyth
heborrowingco
ostpostcommissioningoftheprojectwouldbein
therange of 1%2%asfarass thenew loanssareconcerned.Fortheoldcaarryforward loans
ng borrowing co
ost
which could be repaid over the period of next 2 years tiime, the existin
ound 6%7%. Yees, on the workking capital there are no subsiidies available, so
would be aro
workingcapittalwouldbeavailabletypicallyaat12%.

AbhilashaSSatale:

Sirhowarereepaymentsched
duleifIcouldalsogetinFY16an
ndFY17?

GovindSharda:

Theannualreepaymentwould
dbeclosetoRs.5
5560crores.

Moderator::

Thank you. We
W will take thee next question
n from the line of Resha Haria from GreenEdge
WealthServicces.Pleasegoah
head.

ReshaHariaa:

Sir, what isyo

ourunderstanding onthe demandsideifyou couldgivesomecoloron how
wis
theindustryfflowingandhow
wdoyouseetheedemandpickin
ngupbecauseIunderstandthattif
you had to divert
d
your Shirtting capacity to Denim manufacturing, does th
hat imply that w
we
wereconstraiinedintermsofcapacityforDen
nimmanufacturring?

GovindSharda:

The Indian Domestic deman

nd for Denim haas been growing historically an
nywhere betweeen
mandfortheDenim.Asfaraso
our
15%18%wheenIlookatthe CAGR.Sothereeisenoughdem
decision to divert the Shirtin
ng capacity to Denim
D
is concern
ned that is basically governed by
heprocessingfaacilityrightnow at
twofactsintheShirtingbusinessbecausewedonothaveth
n remunerativve for us to deploy that capacitty. Therefore, it is
our disposal. So it is really not
he more commeercial and prud
dential sense to divert some capacities towarrds
making all th
Denim manuffacturing since we
w have the fleexibility on that particular part. Shirting busineess
hasbeensuffferingforlast6monthsorso.B
Butweconsider itasatemporaryphaseandovver
the period of
o time Shirting business will aalso bounce baack. Denim, of course, has beeen
exploding. So
o we expect Denim demand to
o continue and there
t
could be enough room ffor
future growth
h if I believe on the statistics number, typicaally India needs to double up its
manufacturin
ngcapacitiesoveertheperiodofn
next23years.

ReshaHariaa:

From FY13 to
o FY15, Nandan has grown at around
a
(+20%) o
on the top line, whereas some of
our listed plaayers they have grown at less tthan 9%. So if you could just hiighlight that wh
hat
exactly would
d you attribute to the fact thatt we were able to grow so well versus the oth
her
peers?NowiffIlookatthelaasttwoquarterss,forourlisted peerstheyhaveegrownataround
14%15% wheereasweare attaround 10%11
1%forDenim.SSo if youcouldjjusthighlightth
hat
whatisthereeasonforsuchsstupendousgrow
wthfromFY13FFY15andrightnowwearesort of
slowingdown
nversusourpeers.Soifyoucou
uldjustgivesomeinsightonthatt?

Nandan Deniim Limited

February 12,
1 2016

GovindSharda:

oufirstlyabout thenegativeob
bservationinyou
urstatement.The
Thereasonleetmeexplainyo
last two quarrters we have not grown in linee with the indusstry expectation
n is because theere
hasnotbeen anyadditioninthemanufacturingcapacity.If wedonotadd thecapacitythen
urgrowthisgoin
ngtoberestricteedtotheexistinggvolumeandyo
oucangrowinthe
definitelyyou
toplineonly bymovingupth
hevaluechainthatisbywayoffvalueaddedprroducts.Thatis an
neyandwehaveejuststartedit almostayearb
back.Soweare movingupinth
hat
endlessjourn
value chain.B
Butitwill takessome timebefo
orewecanreallyyreachasignifiicantsize.For the
samereason intheyesteryeearswehavegrownoverthein
ndustryaverage becausewehave
o product linees to any particu
ular segment. W
We
added capacity and we havee not confined our
owinginallthe segments,sow
wearenotpreseentonlyinthen
nichesegment,w
we
havebeengro
arenotpreseentonlyinthem
massmarketbuttwearecontinu
uouslyoptimizingourproductm
mix
and those op
ptimization proccess are paying their dividend by
b way of increased top line an
nd
increasedbotttomlineaswelll.

ReshaHariaa:

Forthe9mon
nthsFY16,whatwouldbeourreevenuesplitbetweenDenimsan
ndShirting?

GovindSharda:

Denim is alm
most 94%95% of
o the total top
p line and balan
nce is accounte
ed by the Shirting
business.

ReshaHariaa:

nfor9months, whatistheshaareofvalueadd
dedDenimsinth
heoverallDenim
ms
Denimsagain
revenue?

GovindSharda:

ditionisaveryttemporaryphen
nomenaandnorrmallyitisafash
hionfrontrunneer.
Thevalueadd
So a productt which is a value added segm
ment right now becomes a verry normal type of
productstwomonthsdowntthelineand6m
monthsdowntheelineitbecome
esacommoditizeed
d
capturring a share of the value addeed product is a challenge in itseelf
product. So definitely
becauseitistthesameproductwhichisbeinggsold.But,aso
ofnow,ifIhavetogiveaballpaark
numberthen Ithinkweareaabletogetaround10%ofourrrevenuepiefrom
mthevalueaddeed
products

ReshaHariaa:

oked at any sortt of brand tieups directly like if we could selll directly to theese
Have you loo
brandedretaiilcompanies?If
f incaseyoudo nothaveabran
ndtieupandifw
wemanagetogget
one, then ho
ow does that im
mpact our realiizations or our margins or ou
ur working capittal
requirementss?

GovindSharda:

Technically, itt is known as nominated

n
busin
ness from the b
brand. We are in the process of
gettingsome nomination,bu
utitisaverytim
meconsumingp
processandtypiicaltimetaken by
mthegoodbran
ndcouldbeanyw
wherebetween2
anymanufactturertogetthenominationfrom
3yearstime.Wearealreadyintheprocessaatanadvancedstagewith23b
brands.Thereforre,
ouldbe beginningonthenomiinationbusinesss very shortly.B
But
weare expecctingthat, weco

Nandan Deniim Limited

February 12,
1 2016

havetheirownstringentnorms.Soletusseeho
ow
thatisourperception,butallthesebrandsh
orkingonit.
theyprogresssbutyes,thatisanitemonouragendaandweareseriouslywo
ReshaHariaa:

Incasewedo
onotmanageto
ohavethistieu
upthenhowdoeesthataffectou
urrealizations,d
do
we see an increase in our reealizations, averrage selling price and how does that impact o
our
workingcapittalalso?

GovindSharda:

Working with
h brands actually will not impaact the workingg capital margin, but yes, it do
oes
impacttheprrofitabilitymarggin.Profitability margincanbeeenhancedbyasssociationwiththe
brandbyestaablishingacloseetieupandhavvinganominatio
onwithus.Righ
htnowwearen
not
intothatbusiness.Soitisdiffficultformetoaassignanyparticcularnumberasstohowmuchw
will
n,butgoingbyaalaymansappro
oachIthinkthe EBITDAmargincouldincrease by
bethemargin
atleast2003
300bpsbecauseofthenominationbusinessforthesegment.

ReshaHariaa:

PostthisincreeasedcapacityiinbothDenimaaswellasShirtin
ng,willweseessignificantjump in
ouremployeees?

GovindSharda:

Not really, th
here would definitely be some addition to thee manpower that we deploy but
b
becausethereeisadistinctad
dvantageavailablewithNandan,ourtechnologyisstateofth
he
artthatislateestavailableintthemarket.Sod
definitelyifIcom
mparewithany oftheoldtimers,
yes, manpow
wer deployment is significantly lower as compaared to the old timers who have
deployedthetechnology,beccause10yearsb
back,asthethingswhichweren
notthereorwhich
owtheyaretheereality.So,we aredefinitelyb
betterplaced,bu
ut,
werenoteveenthoughtof,no
yes,sincetexxtileisrelativelyymanpowerinteensivesectorforeveryaddition
nalcapacity,theere
woulddefinitelybesomeadd
ditionalmanpow
werrequirementt.

ReshaHariaa:

beyouremployeeecountason331stDecember?
Whatwouldb

GovindSharda:

Idonothavetheexactnumb
berbutIthinkitshouldbecloseto2500.

ReshaHariaa:

bethetaxratethatwecanexpeectgoingforward?
Whatwouldb

GovindSharda:

Itisgoingtob
bethenormaltaaxation.

ReshaHariaa:

Whatwouldb
bethedepreciattioncostforthenext23years?

GovindSharda:

OnSLMbasissweareexpectiingthatpostcapitalizationour depreciationwo
ouldbeanywheere
betweenRs.990to100croresperyear.

Moderator::

Thank you. W
We will take thee next question from the line o
of Gaurav Punjab
bi from East Ind
dia
Securities.Pleeasegoahead.

Nandan Deniim Limited

February 12,
1 2016

GauravPun
njabi:

mpany.SoIwou
uldliketounderstandafewbaasics.Sir,youhave
Sir,Iamfairlyynewtothecom
yarncapacityyofIthink70to
onnesperdayan
ndthisisincreasingto124tonnesperday.So in
termsofSpindles,howmanySpindlesdowehaveexactly?

GovindSharda:

uld be having I think close to 770,000 Spindles and it is close to

In terms of SSpindles we wou
7000Rotors.

GauravPun
njabi:

SoisthisacurrentSpindlecapacityoristhisanexpectedSpiindlecapacity?

GovindSharda:

Itistheexpecctedspinningcapacity.

njabi:
GauravPun

Whatwouldb
bethecurrentsp
pindlecapacity??

GovindSharda:

Currentspinn
ningcapacityisaaround3000Rottorsandcloseto
o35,000spindless.

njabi:
GauravPun

WehaveaCA
APEXplanof610
0crores.Sodow
wehaveabreaku
uponhowmuch
harewespending
oneachoftheesegmentsofth
hecompanylikeeSpindlesand??

GovindSharda:

Ithinkwewillsharewithyou
uthebroadernumber,outofRs.610odd,Rs.25
50croreswouldggo
nd
our CAPEX conssumption in Den
nim only. Aroun
towards the spinning which is meant for o
Denimcapacityccreationandaro
oundRs.100odd
dcroreswillgoffor
Rs.250croresswillgofortheD
creatingthep
processingcapaccity.

njabi:
GauravPun

So of the Cottton requiremen

nt I understand
d 70% is actuallyy I think got fro
om Gujarat. Wh
hat
abouttherem
maining30%wheeredowesourccethatfrom?

GovindSharda:

Itisanopenm
market;Icanso
ourceitfromMaaharashtra,Ican
nsourceitfromRajasthan,Punjab
orevenwecaanendupimportingbecause70
0%isanindicativenumberbecauseitisalwayssa
commercial d
decision depend
ding on the pricing parity wee keep on takin
ng a decision b
but
generallyatth
heyearweendeedwitharound7
70%ofCottonso
ourcefromGujaaratitself.

njabi:
GauravPun

SosirtheentireYarnwhichissmadeinhouseethatisusedforrDenimsordow
wesellYarninthe
openmarketaswell?

GovindSharda:

nsumption,sometimesweend upmanufacturing
Iwillsay99.99%ismeantfor thecaptivecon
someoddlots.So,yes,wehaavetosellthatYYarnbutthatisaaveryinsignificaantquantity.

GauravPun
njabi:

SodoyoubuyyanyYarnfromoutsideforyourDenimsoristh
hatfullymet?

GovindSharda:

Ourrequirem
mentofYarniscloseto140145
5tonnesadayandcurrentcapaacityisaround7
70.
So I will say as of today wee are sourcing almost
a
50% of our requiremen
nt from the oth
her
players.

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Nandan Deniim Limited

February 12,
1 2016

GauravPun
njabi:

Cottonpricesbeeingvolatileand
dIcanseeinyo
our
Inyouropeniingremarkyou saidabouttheC
Q3 numbers that the cost of raw materiaal I think that was about 66%
% and it basically
increasedby 300basispointts.SoifIseelasstinDecember 14quarterverssusDecember15
mainedinthesamerange.Sowhyhaveweseen
nthespike?
quarter,priceeshavefairlyrem

GovindSharda:

December 20
014, if you reallly look at the number
n
we werre at around 68
8% and we are at
around67%inthecurrentqu
uarter.Wehavemarginallydeclinedourrawmaaterialcost,righ
ht?
wasincontextto
otheQ2FY16nu
umberswhichw
wasfortheSepteemberquarter.So
Theremarkw
that remark was definitely not with refereence to the co
orresponding qu
uarter because as
ding quarter eveerything has im
mproved. So ideaa was basically to
compared to the correspond
hingthere,comp
panytookcertaaindecisionswh
herewecouldhaveearnedmorre,
sharesometh
but,yes,thatopportunityweecouldnotcapittalize.

GauravPun
njabi:

on
Sowhatistheinhouselikeccottonbecause itisalwaysarisk.Sodowehaaveanymitigatio
nCottonprices?
policytominiimizetheriskon

GovindSharda:

Anyspikeoraanyrallyinthep
pricesofCottonisthepassthro
oughwhenitcomestotheDenim
manufacturin
ng.Sowenormaallydonotkeep hugeinventoryyofCottonwith us,keepitabaare
minimum levvel and our locaation becomes an
a advantageous proposition because we are so
closetothem
market.Soevenifweplaceano
orderinthemorrningat8Oclocckby2Oclockw
we
can get our cotton stock in
nside the plant. So we are geo
ographically at an advantageo
ous
d
on th
he market placee. If the market is
location. We always take a prudent view depending
und23monthssinventory,but underthenorm
mal
goingtostartt,yes,wemayeendupwitharou
stableenviron
nmentwecangowitharoundo
onemonthoroneandahalfmonthinventory.

GauravPun
njabi:

Sirwhatabou
utthisChinasitu
uationthatweh
haveinourhand
d,soanyoutloo
okonthatorwh
hat
is your view
w because China has not beeen buying any Yarn, so probaably all the yaarn
manufacturerrsaredumping alotofyarnin thedomesticm
markets,soyou haveanyviewo
on
thepricesof YarnprobablyyyoucouldsourceetherawmaterialcheaperifC
Chinacontinues to
notbuyYarnfromIndia?

GovindSharda:

ouaresharingiswhateverwehaaveperceptioninthemarket,b
but
Ithinktheknowledgethatyo
dustry passes th
hrough the simillar
if you really look at the histtory of the Texttile industry, ind
erentiated from
m a
phases every fourth or fifth year and this iss the stage wheere a boy is diffe
ntakesplace.W
Wethinkthecurrrentsofteningofthepricesofthe
man,soalotofconsolidation
mpactedbecauseeofthesentimeentattachedtotheChineseexp
ports,buttheyaare
Yarnisyes,im
fairlypricedlookingatthepricesofCotton..Sowedonoteexpectanymajo
orspikeinCotto
on
w.
andtheYarnpricesasofnow

GauravPun
njabi:

ontinuetobeintthecurrentranggeorprobablyafew?
Rawmaterialpriceswouldco

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Nandan Deniim Limited

February 12,
1 2016

GovindSharda:

oday,but,yes,ggettinganyreliableinformationfromtheChineese
Thisisourperceptionasofto
donotspeculateeonthatpartan
ndnormallyweggo
marketisbyitselfamajorchallenge.Sowed
p
policy where
w
we secure our raw mateerial according to
t the order book
with a very prudent
position thatt we have. Yess, our margins may not be ccomparable on those particullar
transactionsw
withtheindustrryaverages,forttunately,alwayssithasbeenpossitiveinourfavo
or,
butwedonottspeculateonth
herawmaterialprices.

njabi:
GauravPun

Whataretheemajorthreeexxportdestination
nsforourcomp
panybecauseexxportsareanyw
way
likenotamajorpartofourto
otaloverallrevenuesbutIthinktheymakeupabout10%?

GovindSharda:

mthemajorexp
portdestinationssarethecountrieswhereyoud
donothaveahiggh
FortheDenim
levelofindustrialization,wheereTextileorthegarmentingisthemajorindusstry.Idonothave
ndustry, but last years data which I gatheered from Denim
the current data of the in
Manufacturerrs Association indicates that almost 3/4th of Indian exports of Denim are to
Bangladesh and
a balance 25%
% goes to as many as 70 coun
ntries, but looking to the curreent
trend, I thinkk apart from Ban
ngladesh, South
heast Asia and some of the Afriican countries aare
themajortarggetchoiceforDenimmanufactu
urers.

GauravPun
njabi:

IfItalkabouttourdistribution
ninExportmarkketsorDomesticcmarkets,sodo
owehavelikeany
sales,howdo
owegoabouttthat,dowehavveagentsdoing thatordoweh
haveourinhou
use
peopleacrosssdifferentcitiessellingourprod
ducts?

GovindSharda:

MostlyfortheTextilecompaaniestheentire salestakesplaccethroughtheaagentonly.Sow
we
ostofthecompaaniesacrossthe
eproductsegmeent
arenoexcepttiontothatpartticularroute.Mo
areusingonlyythatasaroute.

Moderator::

Thank you. We
W will take the next question from the line of Rahul Agarwal from VEC
Investments.Pleasegoahead
d.

RahulAgarw
wal:

he Q3 volume ffor
Sir, good to see the realizattion improvemeent, but bit disaappointed on th
oDenim,butis thereanyspecific
Denim,IundeerstandthatShiirtingvolumehaasalsoshiftedto
reasoncomesstoyourmindfo
orquarteronqu
uarterslowgrow
wthinDenimvolumesespeciallyy?

GovindSharda:

Not really, may

m be you misssed on that paarticular part, Rahul. The volum
me has grown by
around3.5% or4%whenitccomestoDenim
mandtherealizaationhasimprovvedby8%.During
nwesharedwitthyouthatcomp
panyhasastrategicthoughtpro
ocess,itismoving
ourdiscussion
upinthevalu
uechainthatisb
bywayofthoseevalueaddedseegments.When wetalkaboutthe
value added segments, it is slightly technicaal; let me try to
o share a technical knowledge o
on
otconsidermeteerastheutilizattionfactor,itistthenumberofthe
thatparticulaarpart;wedono
hefabric.Whenwemoveupinthevalueadded
dsegmentyouaare
pickswhichareinsertedinth
duce your produ
uction and theree is always a traadeoff between
n the loss that w
we
forced to red

112

Nandan Deniim Limited

February 12,
1 2016

nandthebeneffitthatyougetb
bywayofhigherrpickinsertion.So
incurduetolowerproduction
overthatpartticularpart,yes,,volumeinmeteersisnotthebeestindicatorwheenitcomestothe
demandfortheproductortheutilizationoffthebrand,but yes,numberoffpickswhichused
o 5052, now th
he average of the industry is ggetting towards 5658. So to th
hat
to be close to
extentyes,th
hevolumeinmeetershasreduceed,butofcourseeinourcasethevolumehasalso
gone up and the realization has also gone up because ass we shared witth you in the laast
donotwanttob
berecognizedassavolumeplayer,wearelooking
conferencecaallsaswell,wed
at becoming oneof the mosst profitableDen
nim playersofttheworld.Soweare targeting to
nthevalueaddedsegmentand
dweareserioussly
getalargershareofourrevenuescomingin
pursuingthisparticularobjecctive.
RahulAgarw
wal:

ms to be weak which
w
you also highlighted, but does that me
ean that increasses
Exports seem
domestic sup
pplies and that is why steady state
s
commoditty type Denim fabric
f
would have
realizationdeegrowthforthenext34month
hsbecauseofexportsbeingweaakasanindustryy?

GovindSharda:

Exports I thin
nk there are so
ome cascading effect of the sllowdown which
h is coming fro
om
different partts of the world. So there is deffinitely an impacct on the Exporrtcentric busineess
mix.Whenyo
ouhaveagrowin
ngdemandwith
hintheDomesticcmarket,wecan
nalwaystakeitas
atimebeingaadjustmentbecaausewehaveto
outilizeourcapaacities,wehavetoforcethevalue
addedproducctsintothemarket;wehavetohaveabetterm
margin.Sofranklyspeaking,justtit
isabusiness ofthecompanyytogetasizeab
blechunkofthe revenuecomingfromtheExpo
ort
ort market is not
n
market, but we cannot be married to thatt idea permaneently if the expo
S we are flexxible on that particular
p
part. We are also blessed with the
responding. So
distributionnetworkacrosstheglobe.Soitd
doesnottaketoolongatimeforustorespondto
themarketreequirement.So wearefeelingtthat,yes,exporrtsmarketmay reallynotbeveery
optimisticforranother23months.Normallyy,ifIreallylookkatthehistoricaaldata,whenevver
thereisanou
utgoingUSPresiidentElectionth
heExportmarkeetreallydoesno
otsupport,itis an
8yearcycle, incidentally,8yyearsnowforBaarackObamaan
ndbeforethatC
Clintonandbefo
ore
t
in the sto
ock
that Bush, if you really turn the papers of tthe history that has been the trend
hetrendintheindustryaswell..Iwillleaveforyoutorevalidaate
marketandthathasbeenth
nity because th
his is what I haave gathered th
hat
because you are from the financial fratern
whohavesurviveedinthechairffor
whenevereveery8yearsatleeastforthelastt3presidentsw
last8yearsth
hishasbeenthetrend.

RahulAgarw
wal:

Anyinterestb
beingcapitalized
dasofnoworevverythingisintoP&L?

GovindSharda:

Rightnowweeareintothemiddleoftheprojeects,sotheyareegettingcapitaliized.

wal:
RahulAgarw

You said Rs.4450 crores gross debt. Of thaat how much w

would we attribute to the neew
capacities?

113

Nandan Deniim Limited

February 12,
1 2016

GovindSharda:

Rs.250crores.
ItisclosetoR

wal:
RahulAgarw

Sotheninthaatcasejustwan
ntedtoclarifyon
nething,theearrlierparticipant wasalsotrying to
askthesamequestion,ifIremovethatnewdebtwhichisRss.250croresfromthisandlookat
uitehighasaco
osttobepaidon
ndebt.Isthatun
nderstandingrigght
theP&Linterestthatlooksqu
meotherwayto
olookatit?
oristheresom

GovindSharda:

MaybeRahul,Icantakethisquestionofflineewithyou?

wal:
RahulAgarw

Sure.

Moderator::

T next question is from thee line of Reshaa Haria from GreenEdge Weallth
Thank you. The
Securities.Pleeasegoahead.

ReshaHariaa:

HowmanymetersofDenimh
havewesoldinthe9months?

GovindSharda:

6.4millionmeteers.
Itisaround56

ReshaHariaa:

Withtheprevviousparticipan
ntyoujustspokeeaboutaswem
movetowardsm
morevalueaddeed,
probablyyourvolumesmayn
notgrowasmuch,right?IfIun
nderstandthatissalittletechnical,
uldjustsortofju
ustexplaintoushowwouldthisexactlywork?
butifyoucou

GovindSharda:

Thevalueadd
ditioncanhappeenintwoways oneitcouldbebyweavingan
ndoneitcould be
bywayoftheeprocessingoftthefabric.When
nitgoesbythew
weavingthenum
mberofpicksplay
and in that case
c
volume maay not grow because the weavving machine operates with prre
defined numb
bers of the RPM
M. Within that RPM whatever numbers of me
eters you want to
produceyou canproduce.Bu
utwhenitcomeestothevalueaadditionbyway oftheprocessing
perminute.Inthatcase,thevo
olumemaynot be
facilitiestheyyalwaysoperateewithameterp
impacted. So
o now dependin
ng upon what route
r
is adopteed for which paarticular SKU, the
product meteer volume may be impacted. So
S if I am takin
ng a route of creating
c
the value
addition thro
ough the weaviing route, in th
hat case the m
meter volume may
m be impacted
adversely,butwhenthevalueadditionishappeningthrough
htheprocessinggroute,themetter
notbeimpacted
d.
volumemayn

ReshaHariaa:

Soitwouldbemoredesirablletosortofdo thevalueadditiionthroughthe processingroutte,

right?

GovindSharda:

o for value add

dition through the
Yes, as a manufacturer, we would be moree inclined to go
processingroute.

114

Nandan Deniim Limited

February 12,
1 2016

ReshaHariaa:

f doingittoprocessingroutes, so
Butobviouslyytherewouldbesomeconstraintsintermsof
like if we mo
ove more towarrds value added
d, what would ssort of constrain
n us to move the
entirevalueaadditionofDenim
mthroughproceessing?

GovindSharda:

It is a youngeer generation faabric, so it is diifficult for me tto predict anyth

hing but generally
goingbytheeexperienceofth
heTextileindusttrymostofthettimesthevalue additionhappeens
onlyattheprrocessingstage. Sothereisfairllygoodchance, Iwouldsay80%
%plusprobabilitty,
isforthevalu
ueadditionthrou
ughtheprocessiingroute.

ReshaHariaa:

Howdoyoud
defineavaluead
ddedDenim?Th
hosedenims,wh
hichisthemetriic,woulditbethe
averagerealizzationinrupeespermeterorwo
oulditbesomeothermetric?

GovindSharda:

Itisadifferen
ntmetricactually.Thevalueaddedfabricisaffabricwhichisnotseenrightno
ow
invogueandwearethefrontrunnerstooffeerthatparticularrproductinthemarket.Soitmay
00meterfabricoritmaybeRs.500permeterffabricaswell.So
oifitissomething
beevenRs.10
which is bein
ng thrown as a frontrunner into
o the Fashion segment
s
then it is a value addeed
fabric. The co
ompetition will catch up with our
o construction
n, our finishing,, our designing of
thatparticularfabric.Sotwomonthsdownthelineitbecom
mesaverynormaalproduct.Aslong
on,wecanalwaays
astheproducctisvalueaddeedorithasnot beencopied byythecompetitio
commandtheepremiumonth
hatproduct.Soinsteadofdefininganythingintermsofrupeep
per
meter,wepreefertodefinewhetherwehavecompetitioninthatparticularSSKU.

Moderator::

Thankyou.W
Wewilltakethen
nextquestionfro
omthelineofRonitRameshfro
omVallumCapital.
Pleasegoaheead.

RonitRame
esh:

CanyougiveyyouroutlookforrExportsandcanyougivetheb
breakupforExpo
orts?

GovindSharda:

IfIhavetodeefinetheshortttermthenyes,eexportmarketd
doesnotseemtobeboomingthe
way it used to
t boom, though the dollar is very
v
supportive. As of now the
e Indian Export to
Bangladesh as
a far as the Deenim is concerneed they are alm
most 75%. So th
he balance 25% is
going to alm
most 70countriees and predominantly to the Southeastern Asian
A
and African
nations.

Moderator::

W will take thee next question

n from the line of Puneet Nan
ndwani who is an
Thank you. We
individualinvestor.Pleasegoahead.

PuneetNan
ndwani:

December.Whaatisyourguidance
MyquestioniiswesawalmosstaflattishquarterthistimeinD
forthelastqu
uarteroftheyeaarintermsofrevvenueandprofits?

GovindSharda:

Puneet,thisissthemostdifficcultquestiontoaanswerinanyoftheconferenceecalls.Iwillgiveea
verydiplomattreplythatwew
wanttodobetteerthanwhatwehavedone.

115

Nandan Deniim Limited

February 12,
1 2016

PuneetNan
ndwani:

ouhavebeenmaaintainingthatN
NandanDenimw
will
ButIseethatlasttimewheneeverwemet,yo
bledigitsaround
d18%20%yearonyearfornexxt34years.Do youstillmaintaain
growindoub
thatoutlook??

GovindSharda:

Inthecurrentfiscalsinceweearenotaddingganycapacity,ssoitisdifficultfforustomaintaain
Butyes,whenw
welookattheneext34yearsofh
horizonweinten
nd
thatparticulaargrowthrate.B
to.

Moderator::

urtherquestionssinthequeue,Inowhandthecconferenceoverto
Thankyou.Asstherearenofu
Mr.MandarK
Kapseforclosinggcomments.

MandarKap
pse:

Thanks,Ali.TThankyouallforrparticipatingin
nthecall.Iftherreareanyfurtherqueries,pleaase
getintouchw
withus.Ourcoo
ordinateshaveb
beenprovidedin
ntheconcallinvvite.Thankseveery
oneforparticcipatingagain.A
Andhaveagoodweekend.

Moderator::

Ladiesandgeentlementhatconcludestheco
onference.Thankyouforjoiningusandyoumay
nowdisconneectyourlines.

116