Operator
Ladies and gentlemen, good day and welcome to Vardaman Textiles Q2-FI27 Earnings Conference Call, hosted by 361 Capital Market. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance to link the conference call, please signal an operator by pressing star, then zero, on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Aradhana Jain. Thank you, and over to you.
Thank you, Anam. Good evening, everyone. On behalf of 361 Capital Markets, I welcome all participants and the management of Vadaman Textiles to the 2Q and 1H FY27 Concord. From the management, we have Mr. Neeraj Jain, managing director. Mr. Sagarika Veer, Executive Director, Mr. Sushir Jham, Director, Raw Materials, Mr. Rajiv Thapar, CFO, and Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the call to Neerath, sir, for his opening remarks, post which we can open the floor for the Q&A session. Thank you, and over to you, sir.
Thanks, sir, Arna. Good afternoon, everyone. Thank you for joining the investor call. I know it's a festival day nowadays, but I think because of the some limitations in the company, we had to have the board meeting these days only. The results, you will have seen the results. So, definitely, it's a better performance compared to the first quarter as well as the previous period. There are two, three things happening in this period. One, the overall yarn business showed improvement. And that, too, on account of two major reasons. One, the overall yarn demand was better last six months or so, and the prices of yarn also improved because of the good demand from the export market, and which also helped the domestic market, the domestic prices to move up. Thank you. So the price improvement happened, one, on account of the demand. Second, also on account of the increase in the raw material prices, where the cost was increasing. So the same work could be passed on to the consumers, to the customers. As we looked at that, there was an improvement. The second was on the cotton front. When we were buying cotton last year, So, we were buying both Indian cotton as well as imported cotton. Imported cotton we were buying because India was under the MSP operations those days, and also cotton was being procured by Cotton Corporation of India. So, we were not very sure how the prices will move, how the quality will be available. So, as workman, we took a position and bought lots of imported cotton. And at that stage, the feeling was we'll be buying it under advanced license, at least to the extent of our export commitment. But in the meantime, I think as we covered the cotton, so there are two things happened simultaneously. One, the future started increasing. So from a base of 64-65 US cents per pound, it increased to almost 75-80 US cents in this period. And also, the rupee devalued because of the crude increase happened. That too was a consequence of the Iran war. So, the landed cost increased and as a result of that, the Indian prices also increased on the raw cotton prices. So, eventually, the situation was that we bought the cotton where the prices were much lower, almost in the range of about 54,000-55,000 rupees a candy, both for Indian as well as imported converted. And later on, because of the New York future increase, as well as the rupee devaluation, the new prices increased to almost 64,000-65,000 rupees a candy. Generally, the yarn prices are always determined by the current prices of cotton. So, since the prices have increased, the yarn prices also improved, as I mentioned earlier also, and as a result of that, a part of dating gain came to the company in this period. To the internally operations, we were doing good operations in terms of the cost control, in terms of the production increase or in terms of the all other parameters, the product improvement, customer improvement, which is always a continuous kind of a work which keeps going. So, I think, and there were lots of modernizations which were done last year. So, all the impact of those also started appearing into the results. Lots of initiatives of the green power, those also started coming into this period. So, the net effect of that was the overall improvement company as a whole happened. But as I mentioned, the yarn showed more improvement, again, both on account of operations as well as because of the trading gains. Now, the new cotton, and also, when we were buying important cotton last year, and we were feeling that most of this cotton will be coming under advanced lesson. In between, the government allows the duty-free and coat of cotton in India for a period of a couple of months. For us, fortunately, lots of cotton was coming into that period, and as a result of that, probably we could get that cotton duty free in India, again, comparable to the Indian prices, but that also was a kind of some benefit coming to us. The new season of cotton has started. The New York future continues to be at about 80 US cents as of now per pound, and going by the two days, the landed cost will be raised over 65,000 rupees or so per candy, and almost similar is the price in the Indian market also. So, we have just started buying it, but definitely the cost of cotton this year will be much higher than compared to the last year. So, maybe a part of trading gain which has happened to the company may not be available going forward, but the overall, unless the yarn price is also increasing. So, that's what we... So, the current situation as of now, the ruling prices in India are almost about 65,000 rupees a candy, and if you look at the Norma selling as of now, which is the raw cotton, it's in the range of about 9,000 rupees or so per quinter, which is more than the MSP as of now. So, if the New York future continues to be at these prices, it looks like... The government intervention through the CCI may not happen this year, but in case the new future comes down, then there could be some possibility that the CCI again buys this product and later on sells it to the industry. So that's the situation as of now. On the uncertainty part, I think it's a global phenomenon which everyone knows what is happening in USA, and expectation is... Since now the uncertainty will be coming down, maybe the overall business worldwide could be a little more stable than the earlier period because earlier it was not very sure which country will have how much of duty. And whenever these uncertainties happen, I think people start taking the short-term decision rather than looking at long-term calls. So it looks like maybe a better stability in the overall thought process may happen. And, I mean, these are all political events, but which are definitely impacting all the businesses, all the companies, in major parts of the countries, in the various countries. So, that's what my thoughts are on the spinning side. I'll request Sagarkar to give some brief on the fabric, and then maybe we can take the clue.
Thank you, sir. I'll take you through the fabric business. The second quarter for fabric business was quite challenging. Both top line and bottom line were lower than the corresponding quarter last year and quarter one. Key factors were lower export volumes, and this has happened amid tariffs and uncertainty. Second was pricing pressure in the domestic market because as export volumes dropped, there was more pressure in the domestic market, and we had higher input costs. So as we already know from our managing director, yarn prices experienced a surge. So, for us, input costs were higher by, on average, about 20% year on year. And this, coupled with increased competition, limited our ability to pass on this increase in input cost. Additionally, we had recently commissioned our processing capacity, and we are yet to fully utilize it, which is why fixed cost absorption was also a little low. I will briefly explain the market environment. On the export front, volumes remained below last year. Largely, this is due to tariff uncertainty. Because of tariff uncertainties, a lot of developments that usually come to India were rooted elsewhere. So, we also missed the development cycle, some development cycles of customers and their subsequent bulk conversions. So, orders in some customers, most customers are not getting dropped, but there has been some delay and some postponed. So, if an order was supposed to come in July, customers have held it off by one, two months, given the uncertainty in situation. So, a lot of customers are taking a cautious approach. However, now we see that order pipeline is definitely improving, and with the recent US election results, we expect the political sentiment to be favorable for India, and we expect the tide to turn and business to revise. Globally, sourcing decisions continue to be influenced by geopolitical development. So, we hope that things will be better now. At the same time, buyers are consolidating their sourcing, and they have a strong preference for suppliers who can offer competitive prices, compliance, traceability, all the way up to fiber stage, quality and reliable delivery. So, all these factors play towards demand strength, as we are a vertically integrated manufacturer. Our priorities are clear. We have to maximize our spring-summer season bookings. We are expanding our customer base both in Europe and Australia. Of course, hopefully, U.S. will be better, but we will still continue to expand our customer base in other regions. We also continue to strengthen our product portfolio, whether it is in premium woven, in stretch, in cotton, nylon, performance fabrics, and also by improving speed of product development and customer response. Over the past year, we have expanded our processing capacity. So, in our natural business, our processed fabric capacity expanded by over 25%. So, we are currently working hard to utilize these capacities, and volumes are surely to increase as business sentiment also improves. As for our performance fabrics business, it is making steady progress following its commissioning in March. Initial months and quarter one was especially focused on sampling, getting some customer approvals, audits, and stabilization. Quarter two, also, we are focusing on sampling and development. We have successfully onboarded a few leading sportswear and outdoor customers as we extend this synthetic offering to our existing customer base also. So, we are working towards some developments in the defense segment. We will keep you posted. With conformed orders and a healthy pipeline, we expect utilization to continue improving through the second half. As volumes build, we will move towards, once we are able to utilize capacity, then we will move towards higher value-added products like coated nylon, coated polyester, and far more performance-related fabrics. We expect the synthetics business to turn operating positive in the second half of this year. And our decision to expand in synthetics will be taken once we are able to achieve stable utilization and the right targeted product mix. Now the floor is open for questions.
Operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Soham Samantha from Motilal Oswal Financial Services Ltd. Please go ahead.
Yeah, thanks. Thanks for the opportunity. Sir, my first question is related to the capex. How we are looking the yarn business going forward in FY28 and FY29? What kind of capex we are going to put in this business?
So, as of now, the announced CAPEX is only one of the open-end projects with a capacity of about 50 times per day,
which will be operational in the next six to seven months' time.
Beyond that, we haven't announced anything as of now, but definitely we have taken a big parcel of land at Madhya Pradesh in the PM Mitra Park. For development in the land over there, so likely to be, earlier it was likely to be given to us in the month of November, December this year, which is, I understand, delayed by at least eight to nine months' time. So, once they'll be handing it over, so we'll be finalizing our plans in between and then maybe once we take it to the board, we'll be announcing it. As of now, we haven't announced any major package plan on the spinning business for next two years. But yes, there are lots of ideas in our mind which are already internally we are discussing. The only thing is we have to first take it to the board and then we can announce it to all the investors.
So, there are two ways of looking at it.
One is the general modernization. Generally, we do about 400-500 rows. This will be the balancing as well as the modernization. And, you know, I can give you in a different way. Today, the minimum capacity of any new plant will be close to about 100,000 spindles for a company like Virguma. And you have to put it at 100,000 spindles. In today's cost, it will not be less than 1,000 crore or so. And if it is a greenfield project, maybe a little higher than that. So my belief, any project which is taken up in this beginning will be starting from at least 1,000 or 2,000 or 1,200 crores. Or maybe if I take at a 200,000 spindles fund, it will be 2,500 crores or so. But as of now, since there is no decision, so I am not in a position to commit anything. These are all thought processes, but I can only say a minimum capacity of 100,000 spindles will take us to more than 1,000 crore to invest.
And generally it takes at least 15 months to complete?
From the date of construction, yes, 12 to 14 months.
And last part, sir, how, what is your view on the cotton prices? I mean, obviously it's very volatile, but we all are expecting it will come down. What is your expectation when the new cotton volume supply is coming since last year? Okay, so I think we have to look at it and understand the Indian cotton is directly related with the New York futures today. Or if the New York future comes down, maybe then it can be higher, which will be governed by the minimum support price. So, let's look at the New York future, which is in range of about 80 to 82 cents as of now, 79 to 82 cents as of now. And if we look at the next six months, it's actually increasing to 84 cents. So, the March, May, June are showing an increase, and after that, there's a reduction in the month of December 27, which is close to about 78 cents. So, practically, those signals tell New York future will continue to be in between 78 to 80, 82 cents as of now. And going this rupees of 94, 95, 96 rupees, the converted costs in India comes to about 64, 65,000 rupees a candy.
So practically Indian cost, the cotton cost will not come down irrespective of the season or the non-season till the time your future is at this level.
So, it's very difficult for me to take a call on New York future because I'm not an expert. It's different factors which will be operating. But going by the cost of cultivation in the U.S. or the overall competing crops, it looks like 75 to 85 cents is a kind of a normal benchmark for the New York future. And if that remains within this range, then the Indian price will be 64,000 to 66,000 rupees a candy. Two, in Indian scenario, actually the prices can increase. The Indian crop this year is likely to be much shorter. As for the first survey of Codron Association of India, they have announced the crop to be in the range of about 28 to 29 million bears. Now, the consumption is not likely to be less than 35, 36 million bears. So, the shortfall of almost like 6 to 8 million bears in India. So, which means the prices in India can be actually tighter going forward, unless the government allows the import of cotton to decrease, then only the balancing would happen. Otherwise, actually the prices in India can actually go up compared with the world markets.
As of now, the duty fee is still December 31st, right?
Yeah, but that's critical because the government has announced it only on 31st February. So, if you look at the structure of the trade, you want to do a business today for the, you want to buy imported cotton practically, the shipment will not be available before the first week of December. And I'm talking about Brazilian or Australian. Majority is crop available as of now is Brazilian or maybe the US. The availability of shipment is not before first week, second week of December. And in case it is shipped in the first week of December, the cotton cannot come before 31st of December here. So, had the government announced this season about a month back, probably some advantage could have come. Now, people were not very sure whether they will be extended or not.
So, practically the two-month expansion.
The increase in this due to heat period. I don't think there's likely to be a major improvement or availability of cotton in India in these two months. So, for any extension, logically, it should be three months so that you get a shipment after one month, and then the shipment from Brazil will take you about anything between 35 to 50 days or so. Then only you can get a cotton in a three-month time. Two months, practically, the cotton cannot come to India. If you want to, you have booked it earlier. Nobody will do that, but if you have booked it earlier, then probably you can get it. So, practically a large chunk of cotton coming to India in least two months doesn't look possible to us. So, basically, what you are saying that looking at current scenario, young prices will going to be in that range bound only, but there is no substantial come down the price at this moment. No, no, it doesn't look like as of now. Thank you very much, sir.
Operator
Thank you. The next question is from the line of Prabhat Yadav from Navneet Education. Please go ahead.
So, thank you for the opportunity and congratulations on a good set of numbers, sir. So, my question is that since we operate across the entire value chain from yarn to garments, our reading suggests that there is underinvestment in the spinning industry. So, many big players are investing in fabric and garments, which will eventually require yarn, and given the geopolitical tensions in Bangladesh, can we say that there is a demand supply mismatch in this yarn industry? And is this yarn demand sustainable? And what kind of investment will be required to cater this demand?
So, definitely there are two things happening. One, as you have mentioned, definitely there are lots of players who have started investing into the textile products, for which they will be requiring good quality plants. So, if you recall my earlier couple of calls where I mentioned because the things were not good in India last three years, and practically about 12-13 million spenders in India have gone out of this system permanently. So, our related capacity, which used to be about 52-53 million spenders, today would not be more than 40 million spenders or so. So, that also has readjusted the demand supply, and that's one of the reasons why the price improvement has happened, because the supply side has come down. So, definitely, if India has to grow, all these FTAs which the country has done, especially with Europe, is likely to be good demand on the garmenting as well as the home textile side from India, because now we don't have the duty to set back there. And in case we have to grow, then the country will be requiring good quality of yarn also. And as I mentioned, the 1 lakh spindle today will require close to about 800 crore to 1000 crore's investment. So, I mean, I think it's a substantial investment which would be required on the young side in case the country has to grow. But the only challenge would be unless we have more clarity on the raw material side, development policies, cotton availability, unless those things happen, the investment in the sector is not coming to the extent which should come. Yeah, understood.
And my second question will be, what is our current peak revenue potential from our existing spinning capacity, sir?
It's almost completed. So we run spinning almost at 100% capacity utilization. There's hardly any unutilized capacity available to us. As not today, I think, I mean, historically, last 10, 20, 30 years, we are always running 100% capacity utilization on the spinning site.
Yeah, and are there any major KPEX plans for this spinning capacity?
I already mentioned, so one which is announced will be coming in next 6 months time, which is about 500 crores or so. Beyond that, we have lots of plans, but as of now, we haven't announced any. Oh, we understood, sir.
Thank you, sir. That's all from my side.
Operator
Thank you. A reminder to all the participants, you can press star and want to ask questions. The next question is from the line of Anil Kumar Sharma, an individual investor. Please go ahead.
Good afternoon. My question is regarding Bangladesh. There is known that many mills have closed there. And how first question is regarding how is the situation is that regarding Bangladesh, how much yarn we are, our company is exporting and as industry wise, what is the position? Is there any disturbance on the demand side? What are your views on that?
So, in Bangladesh recently, there are concerns by the laborers over there for the increase in the wages. So, this happens every two, three, four years. The last disturbance was somewhere in 2023, where their wages increased to 12,500 Taka, and where the demand was much higher. The 12,500 Taka in today's scenario with a 123 Taka to a dollar comes to about 100 US dollars only. And maybe the people feel this is not the right wages, so that's why they're concerned about. But if you look at this disturbance comes there every 2, 3, 4 years, and then eventually they get settled somewhere. Today, the demand is for 30,000 minimum wage, but I think what our customer tells us, most of them, that it will get settled somewhere maybe about 17,000, 18,000 takas or so.
So, of course, there is some disturbance, but if you look at the consumption pattern, the demand pattern, there is no change in that because
everyone over there is feeling this is a process and which should or which will get solved too. The overall India's export is about 110 million kg per month. Out of that, almost 30-35% goes to Bangladesh. And almost similar averages, percentages for us as well. So India is the largest exporter of yarn to Bangladesh. And on the overall demand side, there's absolutely no issues as of now.
Thank you, sir. Thanks. That's special. Sir, regarding this, how do you think about the fabric, which it is not doing right now? Though Madam has clarified up to some extent, but how do you see the future of our plants of this fabric side?
You know, whatever views she has given, I think all of us carry the same impression and we have the same views. We went through a tough time for two, three reasons. One, there was uncertainty because of the U.S. tariffs into the Indian first segment. What will happen to, because many times this announcement had happened, the India will have issue tariff, and whenever a customer is sitting outside, they get a little concern on the same, because it's not easy to change the supply side on the textile side on an immediate basis. And most of the camping will happen six months before, nine months before, so probably we missed one of the seasons where earlier the duty was putting and later on these uncertainties were there. Two, the business went into a little difficult time for two reasons. One, we added the new capacity which we could not utilize, so there was some cost increase. Also, as the yarn prices increased, we could not pass it on to the market because
the end pricing or the end products were not increasing. And that happens always.
This is not something very different. Whenever the yarn price goes down, the fabric or the garmenting will take a more advantage because they will not reduce the price and vice versa. So this was again a normal phenomenon that the prices of increasing yarn could not be passed on to the market, but I don't feel that there was anything really, really a big issue. Third, we're also putting up this technical textile product file, which is again taking some time for new business for us. Definitely a new business will take maybe 6 months to 1 year time to stabilize and in the meantime there will be because we are learning the business, we will be doing all the sampling, the utilization will not happen. So, there could be some small losses will be coming in the first year of operation. Having said all these three things, but if you look at our utilization's last three, four months, it started improving, and we're confident that maybe next week sometime, the utilization will be far better, and once we are in a position to utilize the capacity, I'm sure the improvement in the business will start happening. As Sagnika also mentioned, on the technical textile, lots of sampling happens. Two customers have already approved the plant. They have started giving us the orders. They have started reaching almost 35-40% capacity utilization. And once we start touching 50%, at least we will be starting the breakeven of that plant. And we are hopeful next six to eight months time, this 100% utilization of this plant should also come in. So, as management, I feel, whatever was happening globally, and with our expansion plan, those things, and the increase in the yarn prices, there were some challenges, but definitely the improvement has started happening, and I look forward that we'll be doing far better in next six to nine months' time on the fabric side as well.
Thank you, sir. Thank you very much. That's precious.
Operator
Thank you. The next question is from the line of Aradna Jail from 361 Capital. Please go ahead. Hi, sir.
Just a couple of questions. Wanted to understand a little more from a longer-term perspective that what is the sort of revenue growth that you are expecting over the next, say, three to five-year period, and what would be the growth drivers for that? And in terms of margins also, where do you see your margins to be at a steady state level once we have all the modernization related and fabric expansion in place with, you know, steady capacity utilization levels? And when can we expect the high single digit ROE, ROC profile of yours to move more towards a low to mid, you know, double digit number? That's my first question.
There's not one question around, not many of them. Anyway, I'll try to answer all of them. So, first of all, if we go by... Our historical thought process about 7-8 years back, 10 years back, our thought was that the EBITDA margin will always, I mean, we were giving the guidance that it will be between 18 to 22%. But in between, after COVID, things were very, very difficult. And the raw material prices also increased to an extent. At that stage, the cotton prices were about 34,000, 35,000 rupees a candy,
which increased to practically 65,000 rupees.
So that means if you are earning X percentage in a young business, you'll have to double it in absolute value to get the same percentage, which is another possible kind of a thing. So, practically, my thoughts today that the long-term guidance like to give maybe if we are between 16% to 20%, it should be a good number as an EBITDA percentage in case we are in a position to get there. And it should be possible with all the value addition we are doing on the fabric side and all the improvement we are doing maybe on a sustainable power, renewable power, and other kind of things.
So, our thought process would be that our long-term thoughts should
be 15% to 20% on the EBITDA number, 2. Normally, if we look at... So, any 10-year serious growth, our revenue growth will be in the range of about 6% to 7%. Of course, there are periods when we have put up a larger plan, and then next 3, 4, 5 years, we have just consolidated it, looking at the situation or the opportunities in the country and outside. So I still believe 5-6% or 5-8% kind of a CAGR could be the best case scenario, but the base of the organization has become bigger now. And with a 10,000-12,000 growth company, the 10% growth would be talking of a 1,000 growth investment on every year basis. And our capital employee turnover is practically less than 1 to 1. We're talking about almost like 1,500 crore kind of investment. And out of that, 500 crore, in any case, we are doing as a modernization, which will not give you any top-line growth, but it's necessary to maintain the quality of the product as well as to retain the customer.
So, in my view, in this case, we are in a position to
grow between 5 to 8 percent on a longer term basis. And second, if we look at our growth history, whenever we have taken a new piece of land, suddenly for the next 5-7 years, there is always a growth happening. So, there is the biggest growth for Vardaman. It was between the period 2005 to 2015, where we have taken up the two big projects, one at Bhutani, and second at Sathlapur. There was a lot of expansion happened in those 10 years' time, and then after that, we have been consolidating into that. Now, we have taken this new piece of land in Madhya Bhargava, Shampi Ndra Park, and I feel once the land is available to us, Probably once we first put up one project and once we settle down, probably the confidence improves, the culture is built up out there in that location. Probably the growth can be much bigger, but then any greenfield project with a small capacity will never be in a position to allow us to make money. So eventually the major growth as of now can come from that location only, because the other location we are full. And it's only once we get a piece of land, we put up one single project, we settle over there, and then after that, the expansion plan could be really, really fast. And it's not only the spinning and the weaving, there are other segments also we are looking at. Of course, this now didn't happen as of now, but definitely there are a few ideas in our mind where the growth could happen from that also. The third part we mentioned about the ROC. I think it's again a factor. We have a very large book of investment in our balance sheet, which is accumulated over a period of time because we were not growing in a bigger way. That was one or the other reason. But I think once we start growing in a bigger way, probably our debt actually moves to a better level. This is practically zero as of now. So, from the financial structuring, I'll say we are a little inefficient, but once we start investing and we use this cash on a productive basis. Practically, my feeling is that the ROC or the return on investment or the bad percentage will start improving.
Understood. So that is very helpful. My second question is on garmenting. While it's a very small part of our business right now, but if you could throw some light on what's the development right now and in the near term or medium term perspective, where do we see that business growing to? And the third question that I had is on the cotton inventory. If you could also highlight what is the sort of cotton inventory levels that we are maintaining right now?
Okay. So, on the government side, this business was started in 2011, and for almost 15 years, we were just maintaining the business. We were not very sure what to do with this business, whether it should grow or not, and business was really difficult for us to maintain, manage in a very small capacity. But I think last few quarters, the business has done good in terms of the overall quality of customers, the product, and those kind of things. So, again, As a large organization, I think it's a reason where we have to decide whether we should continue on this business. Or we should stop this business. So the thought process was once we have started learning this business, the business looks good and gives us an advantage in terms of a forward integration going forward once the capacity is bigger. Today, this business is close to about 7,000 shirts per day. And in terms of the top line, close to about 154 feet or so. So, the first step we have taken, the existing location, we are doubling the capacity. So, it's after 15 years, we have this confidence, the business is doing good, both in terms of the customers as well as the profitability, and as a first step, we are expanding this But this is the maximum possible in this location, and my belief, if the business does well, they are in a position to generate numbers and the competence of the management, probably we'll have to look at some different side, maybe somewhere either in the central India or maybe in the East India, where the labor availability and the cost could be levered. But those are, there's no reason as of now. So the first step we have taken, let's expand this business to the double, do some modernization, do some automation in this business, and at least from a 7-8% EBITDA, try to come to about 13-14% EBITDA on a sale, but on a capital employed will be much, much higher. So, I can only say the first baby step in a positive side is that expanding this business, doubling this capacity, and depending upon the success of the business, I'm sure we will definitely look at how do we grow this business because eventually with a 10, 12, 13, 14,000 crore company, this 100 to 100 crore business will not make sense to us.
It's now to the business to show that success, and I'm sure the growth will happen into that business. The third question you asked about the inventory. So, practically, if you look at the cotton season in India, it starts somewhere in the month of October, November. So, most companies, the inventory will not be there as of now. Yes, the import, we keep importing whole of the year, which is a kind of a cycle. We always have a two, three, four months of cotton, depending upon. So, I'm not in a position to share as of now. But generally, the imported inventory at any stage could be between three to four months' time for various organizations as far as the Indian cotton is concerned. I think it's the starting of the season, and we have just started buying, and we have to build up that inventory.
And the last question from my end, a lot of the yarn realization increase that happened over 1Q or 2Q was to do with a lot of the demand coming from China. So how are you looking at that at the moment? Has the Chinese demand, you know, reduced since the last couple of, you know, weeks or months? And going forward, do you expect that kind of demand to continue? And if you could also highlight what had led to, you know, the Chinese demand suddenly increasing from, say, last year, November, December. Yeah, so broadly, that's my question on the yarn realization. Just to understand that, as you said, you expect the yarn prices to remain a little range bound. So going forward, what possible triggers could be there for the yarn prices to again inch up?
Okay. So, the yarn prices started increasing somewhere in last year, November, December, where the demand from the Chinese spread came in. So, in my belief that the government exports from China has not come down. And practically, earlier people were talking about China plus one or whatever they were talking about, but eventually the growth or the overall exports from China has not come down. Good morning, everyone. At the same time, also, let's look at the local Chinese cotton available in China. So, one, the prices of local Chinese cotton is very high, still in the range of about $1 or so. Two, their 80% local cotton is, it comes from Zing Zang area. Now, Zing Zang cotton is banned by USA and many other countries. So, whenever the Chinese garmenter was buying the local yarn or the fabrics, Many times there are lots of DNA test fails which happened in US support where the cotton was, the local LinkedIn cotton.
So it looks like the brands would have
advised, because nobody speaks openly on these issues, but practically it looks like either the brands advised or the garment manufacturers decided that when I am in a position to get the yarn at a comparative price is from outside, maybe from India, why am I taking that risk of buying from the local Chinese market where you are still not sure? The demand from China continues as of now. And whatever they were buying, about 20 million kg, 20-25 million kg from India, that continues. So as of now, there doesn't seem to be any negative trigger that they'll not be buying. Of course, the second where the yarn prices increased was also the cost push. In case the cotton increases or reduces, that's another trigger where the prices could go up or can come down, which happened in the last three to six months' time. But practically as of now, going by the rain pound, The price of New York Future and the yarn prices, it looks like more of a stable business as of now in terms of the yarn pricing compared to the situation because earlier, a year back, it was a desperate pricing. People were not making money. They were losing money. So practically, in how long someone will lose? And as soon as we lost the capacity, as I mentioned earlier, at 10-12 million spenders, the balancing started happening. Today, we are more balanced. The reasonable profitability on our new cotton prices, if I look at the today's cotton prices, you have to say yarn prices, it will give you a conversion cost of about 70 to 90 US cents, which will be normal. We are always talking about $1 is a very, very good conversion, and about 80, 85 cents to 90 cents is a decent or a reasonable conversion. The last year, this conversion had come down 60 US cents for Indian market. That's where this desperation has come. And with the 80, 85, 90 US cents kind of a conversion, it looks like this can sustain and maintain for a longer period of time.
Understood, sir. This was really helpful. Thank you and all the best.
Operator
Thank you. The next question is from the line of Amit Kumar from Determined Industries. Please go ahead.
Thank you so much. On the yarn side, you already mentioned that capacity utilization was almost 100%. I just wanted to get a sense on the fabric side, where do we stand presently? And the second question on the fabric side itself, what is the peak level with the current capacity and utilization that we have? I mean, assuming that also inches up over a period of time. You know, what is the kind of, you know, peak revenue, you know, that we can expect there?
So, I'll take it up. So, if we currently, there is definitely an improvement in utilization. So, we are at around 80% utilization right now. And in quarter two, it was slightly less. So, maybe around 70-75%. So, we've definitely seen an improvement quarter two versus currently. And please also note that had we not expanded capacity, we would have been 100% utilized. So, this 70%, 70% in quarter two, and currently 80% utilization is with increase in capacity. So, you can expect that in a few quarters, we expect to be fully utilized. So, it will further increase from, say, 80% to 95%.
And what is the peak level of revenue that we are, you know, sort of on current capacity basis, what is the peak level of revenue that we are expecting?
So you can do the math, you can expect an increase in at least 15%. We don't openly share the different segment revenue, so ballpark.
You know, 75 going to 95, that will be about a 25% potential increase. Currently, we are at 80%. Yeah, I'm sort of using second quarter as the base, 75 to about 95, that will be sort of 25% sort of increase in terms of.
In a few quarters, not at the moment.
Yes, that's perfectly fine. My second point was, and, you know, I've sort of asked this, you know, question in the past also. I see, I mean, on a, you know, India capacity, 40 million, you know, spindles, we are at, you know, 1.25, you know, plus. So that's just about a 67% market share. So, you know, business is big in value terms, I mean, you know, billion dollar, you know, business. But when you look at it from a market share perspective, you know, we are still... You know, I mean, 10% should definitely be, you know, there on the cards, you know, at some point of time. And, you know, you're sort of saying that, you know, the MP, you know, expansion is delayed because of, you know, land issues. How are you thinking about M&A, you know, in this, you know, business? There are, you know, a couple of, you know, smaller companies on the listed side also, and I'm sure a whole bunch, you know, on the unlisted side as well. So how are you thinking of, you know, M&A, you know, in this business? You know, you can have 7% rate of market share. With all the consolidation that you're sort of saying has already happened over the last few years, many years, but the point is to be there for the taking for a company of our caliber in particular.
The point is very well taken, and it's a valid point. The only concern I have as retail today in my mind as a company, that we are still not clear on the raw material pricing by the government as a policy by the government. Now, our demand of the industry to the government is that you should allow the duty-free import in India so that if there is no raw material available, at least you should get it at right time. We must understand that on one hand, there is a 6-7% increase in MSP happening on an every year basis. If the New York future also increases, to some extent, we can mitigate it. If that doesn't happen, Indian cotton keeps increasing. It's going to be very difficult for the Indian spending industry to survive. So, practically, all this consolidation happened not because of any by choice, but it was by default that these people started losing money and they were out of this business. Now, to me, if I look at the risk or why we are not expanding that aggressively, the only question I have in mind is that what is the raw material thought process or availability at an international competitive crisis to the Indian spinning milk in the Tansuk Bank? My belief personally, if you ask me, in case the government clears it, or the duty-free code is allowed, or it's all free trade, practically I think India will start improving on the spinning capacity, and once that clarity is there, we can expand much faster than others. But the unfortunate part is, without knowing what will happen, you get a two-month window, you get a three-month window, with this kind of a scenario, whether you should really take a very big call and then tomorrow start dealing with what's happening here and there. So I think that's the only question as management which is there in our mind, but yes, opportunity is there. Especially with all these FTAs and all these opportunities which are looking like, there's a great opportunity available to my mind. So I'm only concerned on a policy level is the recommended availability, how will that be ensured? So once we are clear on that, probably we could take a much bigger call as well.
I understand that, you know, of course, I mean, last six months should not be sort of used as the benchmark, but even otherwise, if you look at, you know, our scale of operations, and I know analysts have had a few questions on that also that, you know, from a 15-20% ROE, you know, business has gone down to more like a, you know, 11-12%, you know, ROE business, but that's also still, you know, reasonably good. And, you know, compared to a small player, definitely, you know, scale advantage, the, you know, operational, you know, advantages, sourcing, etc. that we have are, you know, definitely significantly bigger. And, you know, my sort of question was more from a next 12-month perspective also that, you know, if the MP, you know, expansion, if you're saying land itself is delayed by 8-9 months, so let's say you get, you know, land in 9 months. Putting up a, you know, new large-scale, you know, thousand crore expansion is going to take a year at least. So, we are talking two years, but again, two years, you know, organically expansion is much more possible, aside from, one upgrade, which is possible. So, in the interim, do we have sort of any, you know, very clear, you know, M&A and, you know, inorganic consolidation plans, is what I was looking for.
So, first of all, the one plant which is already under construction for us, this will give us about 8% of organic growth as well. 8% in terms of. Okay, okay. So, which will be available to us in 560.
50 tons per day. On a waste of 700 tons.
So, that's one, two. We're open to these ideas, but for a very small consolidation or a small organization, it will not make sense to us, but if any option comes to us, we'll look at it carefully. Somehow, I think most of the companies which are available for sale today are in such a bad condition or the machine park or the culture park is so bad that it's very, very difficult to rebrand those kind of organizations. Recently, also, I have visited two or three smaller organizations, but the amount of effort required to pull it up looks very, very difficult because by the time you want to come to selling of the company, probably everything has been taken out of the company. So, though we keep visiting, we keep looking at, we keep understanding, and I am still open to that, but unless we get something meaningful,
only for 6-8 months, the desperation for us to
take a call will be a very difficult thing too.
From the Bhargaman's perspective, our thoughts for the last 10 years have been
India has to consolidate in terms of the size of the factories. Let's look at the Indian capacities today. We were 51, 52 million spenders, total 3,000 factories. So, the average Indian spinning industry was 17,000 spenders only. The 12 million which have gone out of the system, the 1,000 factories have gone out. So, 1,000 factories on a 12 million spindle means the average size has gone to, which has been stopped, is about 12,000 spenders. So, the remaining fact is 2,000 on a 40, 41 million spenders. There's still only about 20,000 spenders per factory, which is too less. So, most of the organization, you get it, you are getting it, there is smaller size. Or in the states where you are not operating or with a culture which is not suitable to you or one or the other reason. So practically for us, the kind of culture, the kind of thoughts we have in the long term, 10, 20, 30 years to run an organization, it looks like the organic growth is the only choice as of now. Of course, financially, it can make lots of sense in organically growth and we are open to the idea. But frankly, last five years, I couldn't find anything which was really, really worthwhile for us to look at that.
Understood. That's much appreciated. Thank you so much.
Operator
Thank you. The next question is from the line of Sandeep Garg, an individual investor. Please go ahead.
Good evening, sir. I have a couple of questions. The first is on the cotton yarn spread. How is it today without a Q2?
So, you know, the cotton yarn spread is always looked at from the current sizes of cotton. And the current prices of yarn. So, practically, there is no cap with the current prices of cotton, current prices of yarn. The spread is almost comparable to the second quarter.
Okay, this is more or less the same.
Yeah, the only difference could be that what cotton a factory is using. So, if you have a old inventory which is cheaper or expensive, that can make a difference in the profitability. But on the current prices of cotton and the current prices of yarn, both second and third quarter today is comparable.
Right. Secondly, sir, the capex that we have done on modernization as well as on the renewable energy projects, what kind of benefit are we expecting from that in terms of cost saving and therefore margin improvement, and how much of that has already come in, and how much do you expect to come in over the next one year?
So, on the modernization, it happens on two, three factors. One is the quality improvement, where practically, you will not get any financial benefit, but it is only to sustain or maintain the customer, you have to modernize. Second is maybe some utility improvement or some worker reduction or some improvement or a productivity increase happen, which is already completed. So to that extent, the entire thing has already happened and we are taking full advantage of that as of now also. On the renewal power, we are expanding or we are spending in a big way from the last two years. And already, to my mind, whatever decisions we have taken till now, almost 40-50% of that has been completed where the advantages started coming in. And most of that, the remaining 50% will be applicable or will be available in the next three to four months time.
So, can you translate that into improvement in margin? What kind of margin improvement you have already seen because of this?
So, normally when you do, so there are two major initiative or projects which most of the organizations will be taking. So, you have the solar power available to you on your rooftop where the practical cost of operation for the electricity will become zero. That was done by us much before, two years back. So, there's no more benefit on that to that extent. What the other projects are that you are going in for a third-party improvement or operation where you are putting up the solar or the wind at a distant location, and you take that power. So most of the industry is running where the advantages of power will be about 1 rupee to 1.5 rupees per unit per kWh. So whatever consumption you have, you get about 1 rupee to 1.5 rupees advantage in that. Third is we are going in for the biomass boilers where there could be definitely. So, again, it was more from the customer's perspective. We wanted to have the green power because we were losing coal, which is not liked by the many European or the American customers. So, they were suggesting us to replace that, which is happening. So, it's both in terms of the greener power as well as on the financial numbers where the advantage definitely will come in in the next four months' time. So, practically the cost of generation for us or the cost of consumption of power, there should be whatever we are doing, should be a reduction of about 1,5 Ups a unit.
Okay. Secondly, on the fabric side, as you mentioned that it takes some time for you to pass on the yarn prices to the final customer. How much of that has already happened and how much of that is still pending and what kind of time frame are you looking at in terms of passing the entire increase in yarn cost to the customer? You have to look at it in a different way.
So, if you look at any product, an existing product where a retail price is decided by a brand, that retail price will never change unless there is a dramatic improvement or reduction of the price of input materials. So, practically, a garment which is sold by a brand, In a store, the price will practically never change that. So it's only that what they will either eat the products. Or they will look at the new products where they start passing on the price increase to you. So practically on the existing businesses, it will never be increasing. But yes, so since the cost will be increasing, so most brands will start looking at instead of X quality, why don't we work on the Y quality and a new product when they launch in the store, that the pricing could be different. So, indirectly, if you ask me any price increase on an existing product line, it's practically not possible ever. It's only decreasing of product where they'll keep doing it 10-20% every year, every product. That's how this increase will happen in three to four years' time. So, wherever the new product launches are there, probably practically we're getting it. But on the existing product line, I don't think it's possible to get any increase there.
Okay. Lastly, sir, on the expansion, you mentioned that there is some delay in obtaining the land from the government. I understand that, you know, the other company that you have in your geography, they have announced a large expansion in their capacity. Is it on the same piece of land where you are also getting your land? I can't comment.
They have also taken the piece of land in the same area where we have taken. So, I'm not very sure whether all the announcements they have announced is for the MP Mithra Park or they have some existing land banks as well in the existing locations or on that location. So, I can't really comment on that.
But yes, they have taken... Question also on both Budli as well as Dhar.
Yeah, so Dhar, they and we are on the same platform. So the land development and those things, in fact, both of us are talking to the government together for the development of land. So that would be the same time as ours. But yes, if they have available land in Goodman, they can definitely do that.
Thank you. That is all for message.
Operator
Thank you. That was the last question for today. I now hand the conference over to Ms. Sagarika Ma'am for closing remarks.
Thank you. So to conclude, our quarter two reflected improved performance driven by yarn business as we saw demand surge and even cotton price hike pulled up yarn prices, which was much awaited since yarn prices had been subdued for at least two years. And now the business has picked up. With improvement in the U.S. political sentiment, we look forward to an improved demand in fabric business as well. As an organization, our focus will continue to drive operational efficiencies, customer-centric execution and approach, and premiumization of our portfolio. Thank you for joining the call and wishing you and your family a very happy Diwali.
Operator
Thank you. On behalf of 361 Capital Market, that concludes this conference. Thank you for joining us and you may now disconnect your lines.
