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00:00 We have with us the management of Arvind Limited to talk to us about the numbers.
00:05 You're watching NDTV Profit. I'm Harsh Saita. We have with us Mr. Puneet Lalbhai,
00:10 who's the vice chairman at Arvind Limited to talk to us about the Q4 numbers as well as what
00:14 one can expect from Q1 as well as FY25 full year. Welcome to NDTV Profit, sir.
00:20 Pleasure to be here. Hi. So, sir, first off, let me try and
00:27 break down this quarter. What's exactly transpiring with regard to margins and where can one see
00:34 numbers start to stack up for FY25? What's the expectation like?
00:38 So, I think it was a very strong quarter. We had revenue growth up to about above 10%,
00:45 which is the first quarter in many quarters where we've seen such growth. The growth was fueled by
00:52 both our volume growth in garments and our very good performance in the advanced materials
00:58 division. I feel that the year was a story of two halves. The first half of the year was
01:07 very low demand, brands being saddled by inventories. We worked through all of that
01:14 and towards the second half of the year, demand started reviving. I believe that going into the
01:19 next year, that better demand scenario is likely to continue. AMD continues to remain strong. So,
01:27 we should see some growth over last year overall next year, with it being driven by the same two
01:35 factors, growth in volumes, especially on the garments front, on the conventional textiles
01:41 business and growth in AMD continuing to be strong. Right, sir. And with regard to raw material,
01:50 how's the raw material cost evolution playing out? If you can talk to us about that
01:54 and set us the context for FY25, how has of course, April already been, but how do you
02:00 anticipate the numbers shape up in terms of FY25? Will raw material prices remain benign? Is that
02:07 the expectation? So, what we saw last year was dramatic raw material deflation and that led to
02:17 the top line on the entire financial year being slightly negative. I think most of the raw
02:24 material deflation is behind us now and prices are going to remain range bound and hopefully
02:32 reasonably stable. That is our view at the moment. So, we don't see any raw material link impact
02:40 on top line going into the new year. Understood. And therefore, margins should continue to get
02:50 better for you from here. Is that how one can look at it? How do you look at the evolution of margins
02:56 and what are those levers outside of RM, which you feel will impact margins? If you look at the last
03:04 six to eight quarters, we've been working very hard on improving margin and we've shown margin
03:09 improvement quarter on quarter. I feel that there is still headroom for margins to improve further.
03:17 However, now it will have to be very, it will sort of be harder and harder to improve margins.
03:25 If you look at the return on capital employed profile, that should improve significantly. As
03:30 the government portfolio grows, as AMD grows, these are inherently higher return on capital
03:38 employed businesses. And so, I would like to look at that metric as the return, the primary return
03:46 metric that will sort of improve significantly going forward. Understood. And so, what would
03:54 the composition be in terms of the mix of these businesses versus your traditional business?
04:00 What would that mix be like and where would it evolve maybe in the next two to three years?
04:06 Where do you see it going? If you look at the advanced materials division,
04:11 today it is about 18% of the overall turnover of the company. It is growing at a much faster clip
04:20 than the traditional textile business. So, say two to three years down the line,
04:25 we should be in that 25-30% of overall business compared to this 18% now.
04:31 Okay. And with regard to just top line, what would the guidance be for FY25?
04:38 So, we should try and push for that double digit growth. It will be in the very early double digits,
04:46 but that from such a base would be a good achievement if we are able to achieve.
04:51 So, that is our target. Hopefully, we will succeed.
04:55 Understood. So, your guidance was to bring down debt to 400 crore.
05:01 How has that evolved and where does it go in FY25?
05:06 So, we had guided to bring down long-term debt to 400 crores. I think we have done better than
05:15 that. So, we reduced about 250 crores of long-term debt last year. And we are now very comfortable
05:24 with where debt is. So, we are now not very focused on further debt reduction. As the
05:30 business grows, more working capital will be required. And so, the short-term debt might
05:36 actually increase. But we are very clear that we do not want to lever the company in any way.
05:43 So, we are growing mostly through internal accruals. And now the free cash flow that
05:48 the business generates, we would like to deploy towards growth rather than bearing down debt.
05:54 We feel that debt is now in a very safe direction.
05:56 Got it. And so, understood. So, you will go back towards reinvesting in growth. So,
06:04 what are the growth plans? What have you done in FY24 in terms of fresh capex? And
06:11 do you see more significant capex come through? You have guided for 600 crore odd of capex over
06:16 the next two years or so, if I'm not wrong. How much of that is already done? Could you give us
06:20 some color on that and how much yet to go? So, out of the 600 crores, we did around 260-270
06:27 last year. We should complete the 600 this year and perhaps even exceed it slightly because we
06:35 are seeing a few opportunities. And all of this capex will be done by cash flow that comes from
06:41 internal accruals. Understood. I just want to coax you a little bit more on that double digit
06:47 growth number that you are expecting to clock. Possible to be mid-teens maybe in FY25,
06:55 just to try and get around that 9000 crore kind of top line number?
07:00 So, we should try and approach 9000 crore, but it will be closer to 10 than 15. And I think 10%
07:07 growth in this market is a good achievement. Fair point. So, you will have relatively a
07:15 decent amount of cash flow if you achieve the 9000 crore kind of mark because your margins at roughly
07:22 11%, even if those don't go up, should give you pretty much ample cushion to fund this
07:28 600 crore of capex. Is that how one can look at it? Correct. And there will be a capex plan for
07:35 next year also for which we will deploy whatever balance we will have left. So, understood.
07:40 And most of the capex is going towards growth in garments. So, verticalization of our business
07:48 and towards AMD. These are the two areas where we are investing.
07:53 Yeah. So, faster growth. And where does it take your capacity utilization in these pockets?
08:01 Do you start to immediately make efficient your capacity utilization as soon as this
08:09 capex comes on stream? So, different businesses have a different sort of rate of capacity
08:16 utilization. In garments, it takes time to ramp up. Utilization is high, but then efficiency ramps
08:22 up. So, all the machines are almost utilized from day one, but then you start at a low efficiency
08:28 and go to a higher efficiency. So, productivity ramps up slower. Whereas in AMD, you have a much
08:35 faster ramp up of efficiency, but it takes slightly longer to achieve 100% utilization of the asset.
08:42 So, we would say that currently we are at high utilization across the board.
08:47 Perhaps there is a 10, 12% improvement in the garments currently, which we should achieve during
08:55 the current year. And the capex that we are deploying this year should come under utilization
09:02 and come under revenue generation next year. Got it. Just with regard to how volume momentum
09:10 is playing out, as well as how demand is really playing out in the market, could you give us
09:15 a flavor of how demand is currently and where do you forecast FY25 to be? It's an extremely
09:23 volatile environment overall, at least. And with all the elections across the globe,
09:31 which are coming to the fore, how do you see demand and how do you forecast demand?
09:36 So, demand is cautiously optimistic. See, we went through a very difficult phase where there was a
09:45 huge amount of inventory correction required. So, instead of buying, our customers were talking
09:52 about cleaning out inventory. That conversation has now pivoted towards some small growth.
10:00 So, comparatively, the situation is better. However, it is, as you rightly mentioned,
10:06 a very uncertain environment. So, it is not a very gung-ho situation,
10:10 but compared to the past, it's a better situation. To add a little more nuance,
10:16 the geographical sourcing strategy of brands is undergoing change. They have to decouple from
10:24 China in a big way. The first beneficiaries of that decoupling were Vietnam and Bangladesh.
10:30 However, now they are fully saturated. So, brands, global brands are looking at India
10:36 as a sourcing location. It is up to the Indian industry to build enough government capacity
10:42 to be able to take that demand. So, from that perspective, demand is interesting to robust
10:48 because of the need of brands to index on newer sourcing geographies. So, that should
10:55 help us fuel growth and that's where we are deploying capital as well.
10:59 Understood.
11:00 And advanced materials is not so linked to because it focuses on core and essential sectors like
11:09 defense, like infrastructure, like mobility. The global ups and downs are not so heavy
11:20 on that business. So, there also, because a lot of development is to happen in India,
11:28 and because we have a very competitive position for the export market, we expect to grow there.
11:34 So, for both the segments where we are investing, we have good reasons why we should be able to.
11:40 Sure. And with regard to volume versus pricing, both on textiles as well as advanced materials,
11:48 how is that shaping up the double-digit growth largely coming from volume?
11:53 It should largely come from volume because the raw material is now stable and we don't expect
12:02 any dramatic shifts there during the course of this year. So, most of the growth should
12:07 come through higher volumes or a slightly better product mix.
12:11 I know I'm really pushing my time here. Just last quick one, the return on capital
12:18 around mid-teens, would that be optimistic or would that be realistic?
12:22 So, we achieved close to mid-teens this quarter. We would like to see if we can achieve
12:28 somewhere close to that for the year. Of course, second half of the year is always better in our
12:35 case than the first half of the year. So, we are driving towards that number, perhaps slightly less
12:41 than mid-teens, but significantly better from where it is now.
12:45 Point taken. Thank you so much, sir, for speaking with us, taking out time.
12:50 Really a pleasure talking to you. It's been a good interaction.