Arvind Limited (ARVIND) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Arvind Limited Q2FY27 Earnings Conference Call. As a reminder, all participants' line 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 during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sathya Prakash Mishra. Thank you and over to you, Mr. Mishra.

Thank you. Good afternoon, everyone. A very warm welcome to Arvind Limited's earning call for the quarter and half-year ended September 2026. The financial results and investor presentation have been uploaded on our website, and I hope you had a chance to go through them. Before we begin, let me introduce the management team today. With me, Mr. Puneet Lalbhai, the Vice Chairman, Mr. Jayesh Shah, Full-Time Director and Group CFO, Mr. Nigam Shah, Executive Director and CFO of Irwin Limited. I will start with a quick overview for the quarter, how the operating environment shaped up, our operational and financial performance, and the outlook for the near term. After that, Puneet will share his perspective on the broader environment and our strategic priorities, and then we will open the floor for questions. Let me begin by saying that this has been a record quarter for Arvind, and it has come in what has clearly been another year of disruption. The conflict in Middle East and Europe has continued, and its effects have gone well beyond the first quarter. We have seen it in energy prices, in fried fruits, and in cost of crude and petrochemical-based inputs, including its punitive impact on the currency. A significant part of our cost continued to reflect high-priced cotton and petrochemical inputs procured earlier part of the year, while supply chain disruption added further pressure. Despite these challenges, we remained focused on execution and took a proactive approach to cost management, sourcing, and operational efficiencies. Against this backdrop, our performance once again underscores the resilience of Irwin's business model. While we continue to grow volume and strengthen customer relationship, we have also demonstrated the ability to navigate difficult market conditions through disciplined execution. Our integrated textile value chain remained a key strength, while the growing contribution from advanced material business continues to diversify our earnings portfolio and create new growth avenues. Coming to the operations part, we saw healthy volume across our core textile businesses, supported by strong execution, higher vertical integration, and portfolio addition in our advanced material business. In denim, volume crossed 18 million meters during the quarter. This is the highest in 17 quarters, a growth of 19% on a year-on-year basis. This is on the back of higher demand. In oven business, volume stood at 34 million meters. In garmenting, we crossed 11 million pieces for the second quarter in a row. On the strategic side, two developments are worth highlighting to you in this call. First, last quarter, we spoke to you about our design gallery in London. This quarter, we have taken the next step in Europe with a denim design and marketing hub in Amsterdam, which is a global center for denim innovation and fashion. This brings us closure to our customers and strengthens our representative network in key overseas markets like Europe. Second important one is we commissioned our phase one of the Greenfield Garmenting Facility in Varanasi. I am sure all of you have heard of it and seen it in your social media posts. Phase 1 of this has a potential of giving a revenue of 250 crores, which has been done with a capex of 75 crores, which also includes the cost of land. This takes us forward. This takes us our forward integration strategy in textile business further and strengthens our ability to serve global customers in the knitted and essential segment. Advanced Material has had a dream run again this quarter with a high double-digit volume growth and mostly in human protection and composite segments. Both of these businesses are seeing high demand from Tier 1 customers as well as Defence and Mobility segments. We also have a few important order bills during the quarter, including prestigious ones from Indian Defence. Overall, the pipeline looks robust for the future as well. Now, coming to the financial performance during the quarter. Consolidated revenue stood at 2,919 crore, a growth of 23%. EBITDA was at 331 crore, up 27%. Both these key figures are all-time high quarterly numbers for Arvin Limited. Importantly, we held our EBITDA margin at 11.4% in a quarter where raw material prices had higher impact compared to quarter 1. This reflects a better business mix, operating leverage, and disciplined execution, and most importantly, the bludgeoning of cost aspect under our watch, which will also have lasting impact in quarters ahead. Coming to the segments, textile business reported a revenue of 1,999 crores, up 11% with an EBITDA of 190 crores. Margin would have been a little higher, but for rising input cost, which had an impact of 75 basis points in textile margins. Garmenting reported a revenue of 577 crores, which is a growth of 9%. This is on account of better product mix and higher realization. Moving on to advanced material, this business reported a record revenue of 805 crores, up 81%. This includes numbers for Dalko GFT for a full quarter of three months. The India business also grew at a strong 23% to 550 crores. This is the fifth quarter in a row of strong growth led by high volume growth in human protection and composites. Dalko GFT, in its first full quarter with us, reported a revenue of 256 crores. This was supported by robust demand in U.S., stable volumes, and margins, though it was affected by high raw material costs as well, including sharp rise in fuel prices. What is encouraging is that AMB India's EBITDA growth has been 29%, which is higher than the revenue growth, which is on account of better product mix and operating leverage. Overall, the advanced material business EBITDA margin stood at 14.8% during the quarter. Consolidated net profit after tax stood at 123 crores, which is a growth of 16%. Consolidated net debt position decreased by nearly 95 crores to 2063 crores. This is in spite of a temporary increase in working capital, which will normalize by March 2027. Coming to capital allocation, during the first half of FY27, we have invested roughly about 372 crores across our CAPEX programs, across various businesses, and this is in line with the plan that we have laid out for the full year. I am also happy to share that Arvind's credit rating has been upgraded by one notch from AA- to AA with a stable outlook by care rating agency. We see this as a recognition of our stronger financial profile. Looking ahead, we remain cautiously optimistic about the operating environment. The recently implemented India-UK trade agreement and India's relatively favorable tariff position in the US compared to the competing sourcing countries are expected to support order flows from the second half of the year, while the proposed India-EU-FTA free trade agreement provide an additional long-term growth runway. In advanced material, demand continues to be supported by strong momentum in defense, aerospace, renewable energy, infrastructure, and speciality industrial applications. In particular, the continued scale-up of our defense business and allied programs supported by higher capital spending and localization of initiatives provide confidence in delivering 18% plus growth in quarter 3 of 527. At the same time, the raw material availability, elevated input costs continue to exert pressure on margins. Through focus, sourcing, and productivity and pricing initiatives, we remain confident that the margin will be maintained in future. All growth capex projects remain on track, and we expect to invest more than 500 crore during FI27. To sum up, while the operating environment continues to evolve, we enter the second half on a strong footing. New trade agreements, a growing advanced material franchisee, and our integrated fiber-to-garment model provide multiple levers of growth. Coupled with long-standing customer relationship and stronger balance sheet, we believe we are well positioned to navigate near-term challenges and deliver sustainable, profitable growth. I will now hand over the call to Puneet for his opening remarks.

Good morning, everyone. Pleasure to be here. Satya has given a very comprehensive sort of rundown of what happened during the quarter and also a glimpse into the future. So I keep my comments really brief before we go into question-answers. The factor that has been most encouraging through this period is that demand has held up quite well. Both in textiles and advanced materials, we are looking at a reasonably robust demand environment, giving us confidence that we should be able to deliver good numbers going forward as well. However, on the flip side, the global conflicts have led to cost escalations, mostly in raw materials, which are rising so sharply that even a reasonable amount of cost pass-on is still lagging. There is no let-up on the horizon. We will have to still navigate the complex environment, but with the experience that our team has, especially with delivering a couple of reasonably strong quarters, in this very environment, we feel that we should be able to manage. So, with that, cautiously optimistic.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone 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 Aradhana Jain from 361 Capital. Please go ahead.

Hi, thank you for the opportunity and congratulations to the management on the good set of numbers. Couple of questions from my end. First, sir, I wanted to understand a little more on the garmenting segment. While there's been a growth of 9%, but volumes continue to be a little on the lower side. So, we delivered like a 4% volume growth this quarter. What exactly would you say is leading to, you know, the volume growth not being on the higher side? Is it demand? Is it capacity availability? Or, you know, are we facing any other issue on the governmenting side? And how is the order book shaping up for you in the second half of this year from both domestic and export standpoint? And how are things shaping up from U.S. and U.K. perspectives specifically, given that there's been a lot of, you know, tailwinds on that side? And lastly, on the garmenting side, given we've done a phase one expansion in Varanasi right now, could you help us understand what is the way forward with respect to the overall garmenting expansion over the medium term, you know, from Varanasi perspective or the other geographies that we are into, and how much would we expect the capacities to overall increase over, say, the next three to four year period in the garmenting side? That's my first question.

Sure. So, the governmenting should be able to catch up. We have been increasing capacity steadily, and we've always been guiding that that capacity increase sort of should lead to, you know, mid-teen kind of overall growth, and give or take, you know, percentage here or there. So, I think we should still be on track to deliver that by the year-end. So, we are expecting a much more growth-oriented second half compared to the first half, which is normally the sort of seasonality that the business with our set of customers experiences. That said, H1 was a little soft on demand in a couple of categories, but particularly the export market for NITs, a couple of our customers did see volumes that were lower than expected. So maybe we've lost, I mean, we had a little bit of extra capacity that we didn't utilize in the first half of the year on the knit side, but denim has been performing well, shirts has been performing reasonably well, essentials has been doing extremely well. So broadly, we are all going in the right direction. The capacities are coming on stream broadly as per expectation, and we should be in that mid-teens level of growth. And I would guide everyone to sort of switch over their thought process to revenue rather than number of pieces because now our product mix is getting fairly complex and number of pieces don't accurately reflect, you know, how that growth is going to come. So, a simpler way to think of it is what should be the revenue growth and revenue growth will always be a mix of, the product mix towards the second half of the year is a lot richer and therefore we feel confident of catching up on growth. Varanasi, of course, is the green field that we have kicked off this year, but we continue to also do brownfield investments to make our existing locations more productive, and that is happening.

Of the 500, over 500 odd crores of capex that we plan to do for this financial year, of which more than 370 we've already done in the first half, how much is attributable towards garments, and what are the other avenues where we are putting up the capex?

So, maybe about 200-ish to advanced materials, maybe about 120, between 120 to 150 for garments, and the rest will be in fabric and maintenance.

And so, what sort of products are we going to manufacture in Varanasi, and what sort of margins can we expect from that particular facility over a steady period?

So, Varanasi is going to manufacture mostly essentials, which is actually our most profitable segment, and that product, essentials and knitted goods, and it will, of course, take the next, will sort of be focused on ramp-up, but Varanasi should deliver a double-digit EBITDA, And on the

denim side, sir, we've been doing exceptionally well, at least in the last couple of quarters, the growth has been really good. What exactly is driving this acceleration? And my understanding was that denim is typically a very cyclical segment of yours. So, from a longer-term perspective, do you expect this growth momentum to sustain, or how should we assess the kind of work we should build in for your denim business?

So, it used to be a cyclical business, especially when we had much larger capacities and were indexed on, you know, more commoditized type of business. Now our business is more focused, and therefore the cyclical nature is going out. You would have seen steady improvement quarter on quarter over the last, say, six, seven quarters. So I wouldn't worry about this being a cycle. And what is driving this improvement is a heavy investment, actually, in design, innovation. We have completely overhauled our product capabilities, and we are continuing to add more and more qualitative enhancements to maintain and even further this strong position. And just to name a couple, Satya mentioned in his opening about studios. So, our Amsterdam studio and our London studio with technical talent and being closer to customers is going to make a difference even going forward. And as we speak, a third studio is being conceptualized in the U.S. where we are enhancing our firepower to sort of innovation, design, and customer centricity. And to add to that, we are increasing our perspective of country of origin. So we are, this is like Bangladesh and Egypt, we manage, too, and Egypt.

This is the last question from my end. Ms. Jain, please rejoin.

Actually, there's a long queue. Can you please rejoin?

Sure, sure.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your question to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Tanishka Agarwal from Nivishai. Please go ahead. Since there is no response from the participant, we'll move to the next participant. The next question is from the line of Shirish Pardesi from Motilal Oswal Financial Services Limited. Please go ahead.

Hi, Puneet and Team. Thank you for the opportunity and congratulations for good set of delivery. Puneet, I've got two questions. Strategically, you mentioned that we should not be looking volume. But then 40% of our business, which is Vovan, and I'm slide 99, the overall billion meter, what number is around 34. How we should look at this number in second half? And in tandem, denim has done well. So I would understand there is some format integration, which we have talked about is materializing. But then even in garments also, the number of pieces has remained flat. So, I'm sure you have given some direction saying that second half is going to be better. But is that 11 million is significantly going to move towards 12.5, 13, or will remain in the range of about 10% growth?

So, we should leap into the mid-teens is what I mentioned. I think there will also be an uptick in volume. But the second half of the year is heavily indexed towards denim sales. And that is a higher, so the product mix is going towards higher unit, you know, sort of FOB. So that will also drive, you know, our denim capacity, you know, is coming on stream in the second half, the brownfield expansions that we did. So while number of pieces might go up less, the turnover will go up higher than the number of pieces. So, when nits comes, the number of pieces will jump more and turnover might not jump as much. So, it is very product mix dependent and depending on what capacities are coming on stream, there will be a certain patchiness to the change in the number of pieces, but you should see now a reasonable secular average of 15% growth year on year. That's why I am trying to index all of you towards top-line growth. But yes, even volume should grow, and ultimately it has to if we are to maintain the 15%. But just looking at it quarter on quarter might not give you the real picture. But yes, second half, we should see better than 11, and we should see 15 or better overall. On Wovens, we are actually adding some capacity. See, second half of the year in Wovens is always higher than the first half because first half we do a, you know, you're catering to product that sells in winter. So it is, you know, the wallet share of Wovens goes down in the first half. Second half of the year is spring, summer, and that's why the full capacity utilization Now, we are addressing that going forward by adding winter-specific, for example, we have doubled our corduroy, adding flannel capacity. So, the long-term or medium-term goal is to even out the seasonality and invest in certain product categories that allows the first half of the year to have higher volume. That's how we will grow volume next year.

To follow up here, on the slide 11, we have given the realization growth both in fabric and bourbon is about 12%. So, is it purely because of the cotton spread which has gone up, or is it something which is because of the product mix also which is changing?

The product mix is there. I think both things are there, but, you know, the primary driver of realizations is the price pass-through that we are trying to do, Working very hard to push that to the customers, we are still, you know, not able to do as much as we are getting hit by. So that is why there is a slight compression of margins. Fortunately, we feel every time that next quarter, once everything normalizes, some new escalation that is happening. So, we are sort of keeping the trend at this point, but, you know, as all things must sort of normalize.

And last question on the advanced material business. Two parts. One is India growth is 12%, so I think it is exceeding our expectations. What is working here? And in the second half, how we should look at Delco spread to move and margin guidance, if you can give?

India growth is quite robust. It is almost 23% and mostly driven by human protection and composites, where we have close to full capacity utilization and very good demand scenario. On industrials, the unfortunate bit was that because of all these international conflicts, our main investments that we made last year for our growth for this year got stuck in logistics and we lost maybe one and a half quarters of production against our budgeted, So, that now has come on stream, and therefore, the second half of the year, we should see growth returning to the industrial segment as well.

And on DALCO?

And DALCO has been, so it is on plan, they had planned to grow at that 9-10% originally, and they are at that, so demand is very robust. Also, the margin is a little compressed there, because even more than Arvind, they are more directly impacted by, you know, petrochemical escalation. Because the raw material is all petrochemical based. It's all synthetic. So there the hit on raw material cost has been the highest in our entire ecosystem. But the good news there is that the cost pass on has been the most successful there as well. So, you know, we've been able to, you know, make that, those adjustments, and we did suffer a couple of quarters, but from September onwards, our new prices have been accepted by many of our customers. The good news there is that I just personally had the privilege of meeting all the important customers firsthand, and the feedback is extremely positive about our value proposition and our importance. So, that was quite reassuring, and after having seen the business very closely for the next six months, our original investment thesis is probably as good or even better than what we had expected when we made the acquisition.

Really helpful. Thank you, Kunit, and all the best.

Thank you.

Thank you. The next question is from the line of Vishal Mehta from IIFL Capital. Please go ahead.

Thanks for the opportunity and congratulations on the good side. My first question, Puneet, is on this slide that you mentioned that we have added capacity on the composite side for carbon pultrution. So, apart from, you know, already served end industries, which will, you know, more end industries do this add and, you know, how are the thoughts of growing this particular line of business?

So carbon pultrusion and generally carbon overall, where we've also added weaving capacity and are also doing product development on molding and component manufacturing, this is seeding the medium term. This is how the business will pivot towards the really proprietary and high value segments in this industry. Which is aerospace, defense, automotive parts, etc. This business is also the most critical. So it takes a while to achieve any meaningful scale. And there is no shortcut to let it be inorganic. About this investment, and while it will lay the foundation for our transition from our current base to a more advanced product mix going forward, it will still take time for this business to form any meaningful part of the overall turnover. So, it will contribute maybe a few tens of crores in the coming couple of years, but it is a very important start to have made because four years down the line, we would like carbon to be 20-30% of our overall.

That's good to hear. My second question was on denim capacity. Our volumes have been growing quite well, but on capacity side, do we have enough capacity to continue growing at this space here, or are we looking to add more capacity on the denim fabric side?

So, we are doing some de-bottlenecking investments, and we are creating some capacity through asset light models. So, currently, we are very close to full capacity. So, till now, we were sort of, we had some headroom. That headroom is now quite limited. So, we will have to create some headroom going forward, which we are doing. So we should continue to see some growth. There might be a couple of quarters where it might not be very high, but if you look at a few quarters together, we should have enough capacity to continue growing, and we have tied up some external capacity as well for the immediate short-term needs. So we are able to service our customers.

Okay. Last question is on garmenting capacity. So, you guided to not look at volume strictly. So, if you can just lay out, you know, what's our garmenting capacity, you know, on revenue terms currently, and is there any large greenfield planned in garmenting or, you know, de-bottlenecking or downfield will take care of the 15% kind of a growth guidance for next couple of years that you have?

See, I want to first deliver, you know, very robust on, you know, this 15% growth. As we speak, we are making very ambitious plans on government greenfield investments. So, of the scale that perhaps has never been thought of at Arvind, but I do want to be careful before we, you know, sort of formalize and announce them. So I think the next three to four quarters, the objective is to maximize all the brownfield opportunities and focus on these one or two green fields that we've already sort of sparked so that that is enough to give 15 percent growth. But we are, you know, there is a 25% growth sort of model that is on the drawing board, which hopefully should be launched a few quarters down. So, our ambition is to grow much faster in realmings, but we don't want to falter on execution in trying to do that. So that is why my guidance is 15% at this point in time. I think the opportunity is much larger, and as soon as we are confident that we have achieved the right to, you know, play in that opportunity set, we will, you know, sort of change gears. That is the internal mindset at this point in time. But we are very, you know, we are excited about the opportunity. We feel that India is going to become more important going forward. And what I am very pleased about is that Arvind has demonstrated its ability to operate in multiple countries of origin, especially with the success of our Bangladesh launches, and Egypt is going quite well as well. So, you know, with all of this, we are slowly building up to that position where we can put the foot on the accelerator.

So, just clarifying, with current capacity and the pipeline of expansions, brownfield expansions that you have, brownfield and greenfield, that should take care of 15% kind of growth at least for a year or so. Yeah. Yeah, thanks. Thanks a lot. Okay. Thanks a lot. Thanks a lot.

Thank you. The next question is from the line of Omkar Rani from MK Global Financial Services. Please go ahead.

Thank you, Om. I just have a bookkeeping question. I just wanted to understand the current capacities of woven denim and garmenting, and how would it move over FY27 to FY29? Because I think we've pretty much utilized the headroom we had in denim, and going forward, how much are we going to need our cleanup?

So, in Denim, our capacity is about 70 million meters per annum, and in Ubans, it is roughly about 140 to 150 million meters per annum. These are all our in-house capacity. Like Kunit has already said, we also tie up with a lot of partners on an asset light mode to take care of demand that comes in, you know, branches. So, we'll always take advantage of that asset light mode whenever it is available and wherever it is available. And we will try to keep our investment light mode on.

Thank you. And my second question is regarding garmenting. The product mix is in garmenting. So, how do we see the mix changing going forward now that FTA opens up door for experts and we see the volume growing at 15%? Do we see any significant movement in the garmenting volume mix? Thank you.

The denim jeans will see the fastest growth initially because that's where most of our focus is right now. It's also one of our more profitable and strategically important capacities. That has the potential to drive further fabric volumes as well going forward. So, denim is the most in focus right now, and the product mix will shift more towards denim. Essentials is growing with Varanasi edition, and knicks will be the next area to grow. Shirts will grow relatively slower, because right now, for us to sell woven fabric is quite easy, and the competitive landscape there is more favorable. So, we are sort of prioritizing the segments where verticality can help grow the end-to-end vertical business a lot faster, which is denims, essentials, and needs to be.

Thanks a lot, sir. Thank you.

Thank you. The next question is from the line of Ankit Shah from Anand Rati, Share and Stock Broker. Please go ahead.

Hello. Can I ask you a question?

Yes, sir.

So, our credit rating has been upgraded. So, how will finance cost move ahead?

See, as a technical understanding, there is a 25 basis point, I would say, upward swing that should be possible with the rating. But as you know, RBI has already announced the rate increase regime in the repo, and we expect that to continue probably for next two quarters and have 50 more basis points added to the repo. So in that, that may or may not translate in the real world benefit that would have otherwise on a status quo basis come to the company. But we will definitely try to maximize that and use that as a negotiating term with all the bankers to get more favorable rates.

And what about the debt levels? Where can we see the debt levels going ahead? Like we have a good free cash flow coming in. So how will the debt levels move ahead?

I think we are able to consistently maintain the overall debt level low. So, maybe around 350 to 400 crore, the term loans will remain, and the working capital will remain within the 60 days net working capital scenario. So, accordingly, I think there is some movement. Otherwise, debt level remains the same, and I think whatever we have borrowed, so for the Delco acquisitions, we are expecting to repay that as per the scheduled timeline now in May 27th.

Okay. Thank you.

The next question is from the line of Surya Narayan Nayak from Sunidhi Securities and Finance Limited. Please go ahead.

Thank you, team. So, for advice and questions on the period of uncertainty regarding the field prices and associated costs on the commodity side, So how often we are able to pass on or let's say review the prices with the clients because in the slides it has been mentioned that some portion of the cost hike could not be passed on. So that is question number one. And second is that going for looking at your past conversation, what I understood that now we are moving towards more on the denim side and the neat side so far as verticalization is concerned. So, and also you have, at one point you told that in case of Deneem, because of our focus on the Amsterdam and London studios, so we are getting a lot of inquiries and we could be moving to more towards the Deneem. So, in that case, you said that you will be raising the capacity. Maybe you are intending to raise capacity going forward, whereas Saktia later told that you will be going asset-light. So, if you can clarify that.

We are trying to be as asset-light as possible. So where we can source fabric and new garments, we can do the garment. That would be an example of asset-light growth. But we will also add meters in terms of fabric capacity to the tune of maybe 10% additional capacity through, So, again, not very large investments, you know, a machine here, a machine there that can allow us with a marginal investment to increase. Those are the kind of, so what Satya said and what I said are not at odds with each other. It is still asset light and we are adding capacity. I think there are opportunities.

And what about the first questions of how often we are visiting the raw material prices pass through to clients?

We have more work to do. So, we are chasing the trend at this point.

Because in recent times, what we are hearing from other committals and other players that know they are visiting the pass-through, even monthly lists. So, is it possible on our part, because if it is these uncertainties extend, is it possible to look at that kind More

frequently than that, but everyone must understand that beyond a certain point, there is no demand, right? So, beyond a certain cost escalation, there is demand destruction. So, you can only pass on to what the market is able to absorb. And unfortunately, you know, the market takes time to be able to absorb more. And there will always be, you know, people who have lower capacity utilization, etc., that might be willing to sell in distress. So, there is always counter forces that don't allow you to, you know, sort of maximize the past. These that one can use to combat that. For example, we are upgrading our product. We are trying to manufacture products that environment where, you know, we have more proprietary products, more complex products, and of design and innovation in them. So those are the strategies to mission in this stuff. It is beyond anyone's control. So we are the levers available to us to make up with volume.

So the current scenario, what kind of GP level pressure we are seeing, which can be used later on, and what kind of pressure on the other expenses related to logistics is happening?

So logistics, thankfully, 18% of the customers take care of it, so it's on their account. But it does impact their, you know, sort of decision making. Having more of an indirect impact on us, you know, having to...

Okay, and in this quarter, there is significant rise in the purchase of other goods. Hello. Yeah, is it related to some kind of outsourcing arrangement for the fabric or daining side?

So, Surya, this is, I think, in line with what we have been discussing, that we have started this Bangladesh part, where we basically forward our fabric and then get the garment converted over there. So, that's the stock and trade increase. If you see quarter one and quarter two, there is not a large delta, because it's incremental. Between last year, When it was not present and current year, you see that delta. So it will incrementally be in this range what you saw in quarter two.

Okay, and what would be, Satya, what would be the exit capacity of government for FI 27 and 28?

Government capacity in India?

Yeah, overall it is from 45 to 50 or 60 it could be this year, what I believe.

Overall, it expects us to grow by 15%.

Okay, and because more neat and essential, we will be focusing on other than the denim. So, is it that now we can expect a higher ROC going forward?

ROC will be higher because we are improving our, you know, position of mature factories and, you know, getting more efficient and winning the right kind of water. Capacity increase actually has a negative impact on ROCE because newer investment is coming and the denominator in ROCE formula is going up.

Okay, and what is the utilization level at the U.S. level and what is the expected timeline of incremental lines coming there?

We are growing again. You know, we are investing in our next line. Hopefully, next year, we will see some higher growth level, and the year after next is when we will reach our target of mid-teams growth.

And current utilization, sir?

We are at very high levels of utility.

Okay, thank you.

Thank you. The next question is from the line of Prejna Junjunwala from Dam Capital. Please go ahead.

Thank you for the opportunity. Just wanted to understand, sir, the U.S. market that being a key business geography, and you mentioned in your outlook slide that it still presents mixed signals. So, how are the inquiries and order books in U.S. geography, and how are we seeing that geography growing in the second half and year to come?

So far, we are seeing reasonably okay demand signals from the US. Of course, your guess is as good as mine in how prolonged this conflict will remain. And the longer it remains prolonged, the more chances of, you know, demand sentiment shifting negative. But so far, it hasn't shifted negative. So far, things are looking okay. Our order book for quarter three is extremely strong, and quarter four is building up quite nicely. So, as of now, we're not seeing any of those concerning sort of...

Okay, and there, if you could highlight on AMD business also, like, this is for garmenting from consumer angle, and what about AMD, B2B that we do in U.S.?

In U.S., there are certain segments that are driving the demand. For example, data centers are growing very aggressively. So, that impacts our composite business very positively. The industrial growth is quite robust in the U.S., so our industrial products are also, and human protection is also okay. So, from an advanced materials perspective, the U.S. market is also showing positive trends only.

Understood. And the last question is on UK. What kind of inquiries and improvements we're seeing in that market, given that it's almost a quarter that the FTA has been implemented? Any positive signs that you can highlight should be helpful?

Yes, I think our conversation, a lot more customers are interested in tossing from India. So, everybody is traveling to India to see how they can move more business here and de-risk their exposure to some of the...

Okay, understood. And this is valid for both commenting and AMB?

No, overall, I'm just giving you an overall answer. And it will be more vertical business because vertical market, there is very little fabric nomination in...

Understood. Thank you and all the best.

Thank you. The next question is from the line of Harsh Mittal from MTA Global Financial Services. Please go ahead.

Yeah. Good evening, team. Thank you for the opportunity. I have a question. In the opening remarks, you said that we have, that Arvind has got orders from the Indian defense. So, and in the PPT also, it is written in the human protection that there are some tier one customers, some traction seems that defense and the paramilitary forces. So, I just wanted to understand, is this a new client addition, or we are trying to see, or there is more and more penetration happening in this segment? How should we see this?

So, I think defense is a large consumer of products, and many of these, especially combat uniforms and officer uniforms, are consumables. So, every cycle, it needs to be sort of reordered. So, there is a renewable sort of pipeline that exists. And I think, year on year, the intention of the armed forces is to equip and women with better and better quality of equipment. And I think that trend is where we have an opportunity to contribute through our capabilities, through our ability to innovate, to be able to give better and better solutions. We are pitching in with more and more solutions as we acquire the capabilities, localization, and we are a player in that.

Last question, it's only CAPEX. We have mentioned 500 cores, CAPEX is for this year. Is this CAPEX includes the DALCOS CAPEX that we are going to do? No, no, no. Okay.

This is just India. So, on CapEx program, which is around 5 million a year.

Sure. Understood.

Thank you.

These were my questions.

Thank you.

Thank you. The next question is from the line of Tanishka Agrawal from Neveshaya. Please go ahead. Thanks for the question. So, my first question is, like, the raw materials sizes are currently elevated. So, what is the visibility on when full cost transmission happens and is 90% per beta margins are normalized and achievable when this full transmission happens?

So, our idea was, see, we were at around 11.5%, maybe half in every year. The initiatives to allow that to happen are ongoing and going quite nicely, but, you know, the overall cost inflation environment is sort of hiding all those efforts. So we are undergoing a very large transformative exercise on digitization, where we are digitizing and automating our planning. We've just introduced a new TMS. We have automated our purchase and sourcing platforms. We are bringing shop floor level, IoT, and automatic data flow. All of this should unlock efficiency, reduce the need for non-value-added work, and should help our cost basis. We are also working very hard on value engineering in this difficult landscape. We are working hard on keeping our fixed costs. So all of those efforts will continue to deliver, you know, performance even after these inflationary trends are sort of normalized. And that's when we should start seeing the margin expansion and the impact of all these fundamental initiatives that we are. Right now, I know it's not very visible, but there is a lot of effort going on to improve margin. And then, of course, there will be economies of scale also coming in as we are top-line. Our fixed costs should not grow.

And also, the fourth line, which has 70 crore annual revenue potential, was commissioned in Q2. So, what is the ramp-up timeline for utilization, whether it is two-quarters or four-quarters timeline?

The line was fully sold before we, you know, invested it. Therefore, it was very painful that we lost a quarter and a half.

Also, on the timeline for the 500 Capex, which we have planned, so what is the timeline for the same?

So, it is a rolling timeline. So, every year we are investing, and it takes about two odd years to utilize a Capex fully. Generally, that would be the average sort of ramp-up time. Some things ramp up really quickly, like offline, and some things take time, like a garment factory. So, you know, an average. So, if I am investing 500, and I have an...

Yeah, and just one last question. So, the Varanasi phase 1 has 250 growth revenue on annual potential. So, what is the total garmenting capacity after both the phases?

So, again, see, you know, I will add almost 25 million pieces in Varanasi, but those pieces are essential. So, they are really small garments. So, again, which we don't count in this 50 million at all. So, it is better to look at turnover, as I keep saying, and contribute towards being able to grow at 15%.

Okay, thank you. Thank you. The next question is from the line of Dushar Donde from Sangvi Family Office. Please go ahead.

Thank you for the opportunity. Hi, Tim. I wanted to ask a question more on the export incentives. So, the Rothschild scheme has been extended till the December end. I just want to understand your thoughts on this. Are we kind of dependent on this scheme? And if so, then what percentage of revenue and what percentage of revenue? And how do you see the likelihood of this scheme getting extended? Okay.

So, are we dependent on export incentives to...

Possible to share any number on the current business?

Thank you. The next question is from the line of Aradhana Jain from 361 Capital. Please go ahead.

Thank you for the follow-up. Just had one bookkeeping question. We've closed the QIP during the middle of 2Q of 500-odd crores. And I believe that that 500-odd crores was to be used towards reducing our debt. So, wanted to understand where are we on that reduction of debt timeline, and once that's reduced, what are we reducing?

We have utilized that money for our internal growth purpose. So, you might have seen the working capital borrowings have not increased yet in last six months. So, that is one. And second is, I think we can expect that from next year onwards, Q1 onwards, you can expect that debt reduction will be there against the acquisition of the VFD.

So, just to give the overall philosophy, we wanted to spend on account of the acquisition where 60 million was borrowed, 40 million was borrowed on the Dalco balance sheet. It is good enough to finance both the repayment of that 40 million and its internal gross. 40 million is what will get paid back in May, which is what brought into the company. We created long-term debt, pre-Dalco long-term debt, which was around 400 crores. That will remain. We are not very initiated on our EBITDA generation potential. That's a very manageable and easy number. However, our working capital will grow with the growth of, working capital debt will grow with the growth of the business. But we want to maintain our six turns at a minimum and improve through internal efforts to the turns from. So we are not going to deteriorate below. Currently, they are because we have, you know, sort of invested in long-term stocks because of these price escalations. So now is not a great time to be sort of looking at working capital efficiency because we have to go long on some certain inventories to ensure that we get availability and fixed prices. So that's the, you know, philosophy on debt, that working capital will grow with the growth in the business at six or better turns. Our long-term debt should remain at pre-DALCO levels and not grow further. And with EBITDA growing, that will become less and less of a concern going forward. And we want to use most of our free cash flow to fund more and more aggressive growth in advanced materials and garmenting.

Understood. Thank you so much. That's all from my side. All the best. Thank you. The next question is from the line of Bimal Sampat, an individual investor. Please go ahead.

Yeah, good evening. Yeah, just, yeah, good evening. On the denim front, we had one good brand, Ruff and Off. So now that we are seeing print is doing very well with the Zoodio thing. So, since we are also into, we have an Arvind store, obviously you can sell there also, but is it not a right time to go into that market? Because that volumes will be much higher, and margins may also be good. It will be for the domestic market. And the second question is on our capex of 500 crores. Can you just give the break up, sir?

So I'll answer the second question first. It's broadly, you know, close to 200 crores for advanced materials growth. It's about maybe that brand. We are working on some very interesting just-in-time manufacturing capabilities, which are in early stage. So, maybe in the future, it might get revived, but as of now, we don't have any plans of, you know, sort of doing a B2C play on denim music. The option is always available to us, and we will keep exploring it. It's a brand that's very dear. It created a lot of excitement, mid-90s, and there is still brand...

Yeah, maybe that time it was before time, maybe.

Yes, so we will continue to evaluate it. Thank you for the suggestion.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Satya Prakash for closing comments. Over to you, sir.

Once again, thank you, everyone, for joining today's call. We trust that the discussion addressed most of your questions. Should anything remain unanswered or if any question arises going forward, please do not hesitate to reach out to me and my colleague Imansu. We are just a phone call or an email away, and we will be happy to assist. We look forward to engaging with all of you in our upcoming events. Thank you and wish you a good day ahead.

Thank you. On behalf of Arvind Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.