Arvind (NSE:ARVIND) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Arvind Limited Q2 FY 'twenty seven 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Satya Prakash Mishra. Thank you, and over to you, Mr. Mishra. Thank you. Good afternoon, everyone. A very warm welcome to Arvind Limited's earnings 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 chance to go through them.

0:52 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 Arvind 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.

1:42 We have seen it in energy prices, in fried crudes and in cost of crude and petrochemical based inputs, including its punitive impact on the currency. A significant part of our cost base 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 remain 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 Arvind'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.

2:33 Our integrated textile value chain remained a key strength, while the growing contribution from Advanced Materials business continues to diversify our earnings portfolio and create new growth avenues. Coming to the operations part. We saw healthy volume momentum across our core textile businesses, supported by strong execution, higher vertical integration and portfolio addition in our Advanced Materials business. In denim, volume crossed 18,000,000 meters during the quarter. This is the highest in seventeen quarters, a growth of 19% on a year on year basis. This is on the back of higher demand. In woven business, volume stood at 34,000,000 meters. In garmenting, we crossed 11,000,000 pieces for the second quarter in a row.

3:22 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 the 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 I of the greenfield garmenting facility in Varanasi. I'm sure all of you have heard of it and seen it in your social media posts. Phase I of this has a potential of giving a revenue of INR $2.50 crore, which has been done with a CapEx of INR 75 crore, which also includes the cost of land.

4:12 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 Materials has had a dream run again this quarter with a high double digit volume growth and mostly in Human Protection and Composite segment. Both of these businesses are seeing high demand from Tier one customers as well as defense and mobility segments. We also have a few important order wins during the quarter, including prestigious ones from Indian defense. Overall, the pipeline looks robust for the future as well. Now coming to the financial performance during the quarter. Consolidated revenues stood at INR 2,919 crore, a growth of 23%.

5:00 EBITDA was at INR $3.31 crore, up 27%. Both these key figures are all time high quarterly numbers for Arvind Limited. Importantly, we held our EBITDA margin at 11.4% in a quarter where raw material prices had higher impact compared to quarter one. 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 segment. Textile business reported a revenue of INR $19.99 crores, up 11% with an EBITDA of INR 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.

5:51 Garmenting reported a revenue of INR $5.77 crores, which is a growth of 9%. This is on account of better product mix and higher realization. Moving on to Advanced Materials. This business reported a record revenue of INR $80.05 crore, up 81%. This includes numbers for DALCO GFT for a full quarter of three months. The India business also grew at a strong 23% to INR $5.50 crores. This is the fifth quarter in a row of strong growth led by high volume growth in human protection and composites. DALCO GFT is in its first full quarter with us reported a revenue of INR $2.56 crore. 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.

6:46 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 Materials business EBITDA margin stood at 14.8% during the quarter. Consolidated net profit after tax stood at INR 123 crores, which is a growth of 16%. Consolidated net debt position decreased by nearly INR 95 crore to INR 2,063 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 FY 'twenty seven, we have invested roughly about $3.72 crores across our CapEx program across various businesses. And this is in line with the plan that we have laid out for the full year. I'm also happy to share that Arvind's credit rating has been upgraded by one notch from AA minus to AA with a stable outlook by Care Rating Agency. We see this as a recognition of our stronger financial profile.

7:54 Looking ahead, we remain cautiously optimistic about the operating environment, the recently implemented India U. K. Trade agreement and India's relatively favorable tariff position in The U. S. 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 Materials, demand continues to be supported by strong momentum in defense, aerospace, renewable energy, infrastructure and specialty 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 three FY 'twenty seven.

8:44 At the same time, the raw material availability, elevated input costs continue to exert pressure on margins through focused 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 FY 'twenty seven. To sum up, while the operating environment continues to evolve, we enter the second half on a strong footing, new trade agreements, growing advanced material franchisee and our integrated fiber to garment model provide multiple levers of growth. Coupled with long standing customer relationships and stronger balance sheet, we believe we are well positioned to navigate near term challenges and deliver sustainable profitable growth. I'll now hand over the call to Puneet for his opening remarks.

9:37 Good afternoon, 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 and 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 and which is giving us confidence that we should be able to deliver good numbers going forward as well. However, the on the flip side, the global conflicts have led to cost escalations, mostly in raw material and logistics, which are rising so sharply that even an improving currency and reasonable amount of cost pass on is still lagging these dramatic increases.

10:47 And there is no let up on the horizon that is currently visible. So it seems like 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 environment, in this very environment, we feel that we should be able to manage. So with that cautiously optimistic note, I open up the floor to questions. Thank you very much. We will now begin with the question and answer session. Session.

11:54 The first question is from the line of Arvind from three sixty one 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 are we facing any other issue on the garmenting side?

12:42 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 US and UK perspective 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?

13:28 That's my first question. Sure. So the answer to the garmenting question is very simple that we should be able to catch up in the second half. We have been increasing capacity steadily. And we've always been guiding that, that capacity increase sort of should lead to mid teens kind of overall growth and give or take 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.

14:29 That said, H1 was a little soft on demand in a couple of categories, but particularly the export market for mix. 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.

15:14 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 how that growth is going to come. So I think the simpler way to think of it is what should be the revenue growth. And revenue growth will always be a mix of price and product mix. And we had a softer product mix in quarter in the first half of the year.

15:59 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 greenfield 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 quite satisfactory. Understood. Of the INR500 over INR500 odd crores of CapEx that we plan to do for this financial year of which more than $3.70 we've already done in the first half. How much is attributable towards governments and what are the other avenues where we are putting up the CapEx?

16:45 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 also 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 six to eight months will sort of be focused on ramp up, but Varanasi should deliver a double digit EBITDA and 20% plus return on capital employed once it is fully scaled up.

17:51 Understood. And on the tenant 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 I... 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 what... How should we assess the kind of 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 more commoditized type of business.

18:38 Now our business is more focused and therefore, the cyclical nature is going out of the business. So you must be you would have 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 heavy investment actually in design innovation. We have completely overall all that product capabilities. And we're continuing to add more and more qualitative enhancements to maintain and even further this strong position.

19:31 And just to name a couple, we as Satya mentioned in his opening about studios. So our Amsterdam studio and our London studio with top quality design and 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 up our innovation, design and customer centricity. And to add to that, we are increasing our options from the perspective of country of origin. So we are looking at places like Bangladesh and Egypt as we speak.

20:32 And we had good business through Bangladesh, garment conversion, which we manage in quarter two and Egypt should see its first deliveries for denim go out in quarter three. So having this multi country, fully vertical delivery with top end design, innovation and customer centricity, that's what's actually driving the sustainability of this strong denim performance. Understood. Sir, last question from my end. Please rejoin. Actually, there's a long queue. Can you please rejoin?

21:20 Sure. Sure. Okay. 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 Sanishka Agarwal from Navishai. 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 Shireesh Pardesi from Motilal Ocel Financial Services Limited. Puneet, I've got two questions.

22:11 Strategically, you mentioned that we should not be looking volume. But then 40% of our business, which is Bhavan and on Slide 99, the the overall million meter, what number is around 34. How we should look at this number in second half? And in tandem, then it is done well. So I would understand there is some forward integration which we have talked about is materializing. But then even in garments also, the number of pieces has remained flat. So I I I am sure you you you have given some direction saying that second half is going to be better. But is that 11,000,000 is significantly going to move towards 12.5%, 13% or will remain in the range of about 10% growth?

22:59 So we should creep 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 sort of FOB. So that will also drive the growth. So our denim capacity 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 it's always so when mix 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, this 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'm trying to index all of you towards top line growth. But yes, even volume should grow and ultimately it has to if I if we are to maintain the 15%.

24:23 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. Okay. And 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 is you're catering to product that sells in winter. So it is the wallet share of wovens goes down in the first half of the year. Second half of the year is springsummer. And that's why the full capacity utilization always happens in the second half. Now we are addressing that going forward by adding winter specific special high value product capabilities in wovens. For example, we have doubled our corduroy capacity.

25:25 We are 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. Okay. That's really helpful. Just one follow-up here. On the Slide 11, we have given the realization growth of both in fabric and woven is about 12%. So is it purely because of the cotton spread which has gone up? Or is it is it something which was because of the product mix also which is changing? The product mix is there. I think both things are there, but 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.

26:18 We are still not able to do as much as we are getting hit by. So that is why there is a slight compression of margins still. And unfortunately, we feel every time that next quarter, once everything normalizes, we'll be able to catch up. But this every quarter, there is some new escalation that is happening. So we are sort of keeping the trend at this point. But as all things must sort of normalize given enough time, there will be the other end of the trend where we should be able to sort of gain what we are losing right now. Okay. And last question on the Advanced Materials business. Two parts. One is India growth is 12%.

27:05 So I think it is it is exceeded our expectations. What is working here? And in the second half, how we should look at telco spread to move and margin guidance, if you can give? So the India growth is quite robust. It is almost 23% on the on 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 our 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 1.5 quarters of production against our sort of budgeted plan.

28:14 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 are planning 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 petrochemical escalations because the raw material is all petrochemical based.

29:05 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 we've been able 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 we just 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.

30:00 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. Okay. That's really helpful. Thank you, Puneet, and all the best. Thank you. Thank you. The next question is from the line of Vishal Mehta from IIFL Capital. Please go ahead. Yes. Thanks for the opportunity and congratulations on a good set. My first question, Puneet, is on this slide that you've mentioned that we've added capacity on the composite side for carbon protrusion.

30:47 So apart from already served end industries, which all more end industries do this add? And are the thoughts of growing this particular line of business? So carbon pertrusion and generally carbon overall, where we've also added leaving capacity and are also sort of 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 drones, aerospace, defense, automotive parts, etcetera.

31:42 This business is also the most critical. So it takes a while to achieve any meaningful scale, and there is no shortcut to quick growth unless it be inorganic. So while we are very excited 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 few tens of crores in the coming couple of years.

32:33 But it is a very important start to have made because three or four years down the line, we would like carbon to be 20%, 30 of our overall product mix. Okay. That's good to hear. My second question was capacity. Our volumes have been growing quite well. But on capacity side, are we 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 debottlenecking investments, and we are creating some capacity through asset light models.

33:21 So why 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 do 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.

34:07 Last question is on garmenting capacity. So you guided to not look at volume strictly. So if you can just lay out what's our garmenting capacity on revenue terms currently? And is there any large greenfield planned in garmenting or debottlenecking or brownfield 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 a very robust performance on this 15% growth. As we speak, we are making very ambitious plans on government greenfield investment.

34:56 So of the scale that perhaps has never been thought of at Arvind. But I do want to be careful before we 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 greenfields that we have already sort of sparked. So that is enough to give 15% growth. But we are there is a 25% growth sort of model that is on the drawing board, which hopefully should be launched a few quarters down. So we our ambition is to grow much faster in Grammics, 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.

36:00 And as soon as we are confident that we have achieved the right to play in that opportunity set. We will sort of change gears. That is the internal mindset at this point in time. But we are very we are excited about the opportunity. We feel that India is going to become more important going forward. And what I'm 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 with all of this, we are slowly building up to that position where we can put the foot on the accelerator.

36:57 Okay. 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 post that. It can be higher. Okay. Thanks a lot. Thank you. The next question is from the line of Omkar Rani from MK Global Financial Services. I just have a bookkeeping question. I just wanted to understand the current capacities of women, denim and garmenting, and how would it move over FY '27 to '29? Because I think we're pretty much utilized the headroom we had in denim. And going forward, how much are we going to leave Athena?

37:50 So in Denim, our capacity is about 70,000,000 meters per annum. And in ovens, it is roughly about 140,000,000 to 150,000,000 meters per annum. These are all our in house capacity. Like Puneet 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 tranches. 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. And my second question is regarding garmenting, the product mix within garmenting.

38:37 So how do we see the mix changing going forward now that FDA opens up door for exports and we see the volume growing at 15%? Do we see any significant movement in the volume commenting volume mix? Thank you. So 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.

39:26 Essentials is growing with Varanasi edition. And knits will be the next area to grow. Shirts will grow relatively slower because right now, for us to sell wovens fabric is quite easy, and there is 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 knits to begin with. Thanks a lot, sir. Thank you. Thank you. The next question is from the line of Ankit Shah from Anandrati, share and stockbroker.

40:15 Please go ahead. Hello, am I audible? 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 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.

41:15 Okay. And what about the debt levels? Where can we see the debt levels going ahead? Like we have a like 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 INR $3.50 crores to INR 400 crores the term loans will remain and the working capital will remain within the sixty days net working capital scenario. So accordingly, I think there is some movement. Otherwise, debt level remains same. And I think whatever we have borrowed, so for the telco acquisitions, we are expecting to repay that as per the scheduled time line now in the May 27. Okay. That's it from us.

42:04 The next question is from the line of Surya Narayanayak from Sunnidi Securities and Finance Limited. So Puneet, by some questions on the period of uncertainty regarding the fuel 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 forward looking at your past conversation, what I understood that now we are moving towards more on the denim side and the niche side so far as verticalization is concerned.

43:02 So and also you have at one point you told that in case of denim 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 Denim. So in that case, you said that you will be raising the capacity, maybe you are intending to raise capacity going forward, whereas Satya Electric called it 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 source fabrics from other approved sources and still do the garment verticalization and grow. That would be an example of asset light growth.

43:55 But we will also add meters in terms of fabric capacity to the tune of maybe 10% additional capacity through, again, not very large investments, a machine here, a machine there that can allow us with a marginal investment to increase production. So modernization of a few machines, higher RPM looms, those are the kind of so what Satya said and what I said are not at all with each other. It is still asset light and we are adding capacity. I think there are opportunities to do that. And what about the first question, so far, how often we are visiting the raw material prices pass through to clients?

44:45 Every quarter. And every quarter, we have more work to do. So we are chasing the trend that Because in recent times, what we are hearing from other metals and other players that now they are visiting the pass through even monthly list. So is it possible on our part? Because if it is... These uncertainties extend, is it possible to look at the... That's kind of scenario?... Frequently than that. But, see, everyone must understand that beyond a certain point, there is no demand. Right? So beyond a certain cost escalation, there is demand destruction. Correct. You you can only pass on to what the market is able to absorb.

45:32 Okay. And unfortunately, the market takes time to be able to absorb more. And there will always be people who have lower capacity utilization, etcetera, that might be willing to sell in distress. So there is always counter forces that don't allow you to sort of maximize the pass through. But there are strategies that one can use to combat that. For example, we are upgrading our product capabilities. We are trying to manufacture products that have better competitive environment where we have more proprietary products, more complex products, products that have a high component of design and innovation in them.

46:23 So those are the strategies to be able to get a better realization in this tough time. But the speed at which the escalations are happening because of continued uncertainty in the environment, That's something that is beyond anyone's control. So we are using all the levers available to us, trying to convince customers to increase prices, changing product mix, trying to make up with volume when we cannot make up with sort of margin. So all of those strategies are at play. And all of that combined is helping us remain reasonably on the positive trend in terms of quarter on quarter performance.

47:20 For the current scenario, what kind of GP level pressure we are seeing, which can use later on and what kind of pressure on the other expenses related to logistics is happening? So logistics, thankfully, 80% of the customers take care of it. So it's on their side. But it does impact their sort of decision making. So logistics is having more of an indirect impact on us. The direct impact is every quarter we are having to create solutions for, say, 75 to 100 basis points of gross margin erosion that we have to try and fight and win back.

48:10 Okay. And in this quarter, there is significant rise in the purchase of other goods. Hello? Yes. Is it related to some kind of outsourcing arrangement for the fabric of gaming 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 in 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.

49:00 Okay. What would be, Satya, what would be the exit of capacity of government for FY '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. So what is the expect us to grow by 15% in terms of it. Okay. And because because the more more need and essentials, we'll be focusing as other than the denim. So is it that now we can expect a higher ROCE going forward? ROCE will be higher because we are improving our position of mature factories and getting more efficient and winning the right kind of orders.

49:50 I think 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 at and what is the expected, you know, timeline of incremental lines coming there? That we are growing again. We are investing in our next line this year. So hopefully next year we will see some higher growth level and the year after next is when we will reach our target of mid teens growth level. And current utilization, sir?

50:37 We are at very high levels of utilization. Okay. Thank you. Thank you. The next question is from the line of Prejna Junjunwala from TAM 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've mentioned in your outlook slide that it still presents mixed signals. So how are the inquiries and order book 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 U. S.

51:29 Of course, your guess is as good as mine in how the how prolonged this conflict will remain. And the longer it remains prolonged, the more chances of 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 are not seeing any of those concerning sort of signals. Okay. And there... If you could highlight on AMD business also, like, this is for commenting from consumer angle.

52:15 And what about AMD b two b that we do in US? In US, 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 selling well in The U. S. And human protection is also okay. So from a garment perspective from a advanced materials perspective, The U. S. Market is also showing positive trends only. Understood. And then my last question is on U.

53:01 K. What kind of inquiries and improvements we're seeing in that market given that it's almost a quarter that the FDA has been implemented. Any positive signs that you can highlight should be helpful. Yes. I think that conversation... Lot more customers are interested in sourcing from India. So everybody is traveling to to India to sort of see how they can move more business here and derisk their exposure to some of the highly indexed geographies. So we expect this business to go up. And I think the first fruits should start getting realized maybe sometime in quarter four. And then next year, should be significantly higher U. K. Business, maybe by 10,000,000 to $12,000,000 extra.

54:01 Okay. Understood. And this is valid for both commenting and AMV? No, overall, just giving you an overall current and it will be more vertical business because UK is a vertical market. There is very little fabric nomination in UK. Customers like to buy end product in that market. So it will be more garments Understood. Thank you and all the best. Thank you. The next question is from the line of Harsh Mittal from MT Global Financial Services. Please go ahead. Yes. Good evening, team. Thank you for the opportunity. I have a question. In the opening remarks, you said that we have like Arvind has got orders from the Indian defense.

54:50 So and in the PPT also, it is written in the human protection that the from Tier one customers, some traction seems that defense and the paramilitary forces. So 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 thing? 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.

55:39 And I think year on year, the intention of the Armed Forces is to equip our brave men 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 for this strategy of the Indian defense to upgrade and equip forces better. So that's how this business happens.

56:26 And we are pitching in with more and more solutions for newer applications as we acquire the capabilities to address those acquisitions. There's a real focus on localization and sourcing domestically through Atmanir, her capabilities. And we are sort of a player in that sort of shift. Understood, sir. So my last question is on the CapEx. You have mentioned INR500 crores CapEx is for this year. So this is is this CapEx includes the DALCO's CapEx that you are going to do? No.

57:17 No. No. Okay. This is just India. So including DALCO has its own CapEx program, which is around 5,000,000 a year. Sure. Understood. Thank you. These were my questions. Thank you. Thank you. The next question is from the line of Daneshka Agrawal from Navisai. Please go ahead. Thanks for the opportunity. Am I audible? Yes. Yeah. So my first question is, like, the raw material prices are currently elevated. So what is the visibility on when full cost transmission happens? And is 9%, 10% EBITDA margins are normalized and achievable when this full transmission happens?

58:06 Well, our idea was, see, we were at around 11.5 percentage last year. And our stated objective is to improve maybe half a percentage EBITDA margin every year. The initiatives to allow that to happen are ongoing and going quite nicely. But 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 our and automating our planning. We've just introduced a new TMS. We have automated our purchase and sourcing platforms.

58:57 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 going forward. So we are also working very hard on value engineering in this difficult landscape. We are working hard on keeping our fixed costs frugal. So all of those efforts will continue to deliver 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 continuing.

59:48 So 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 grow our top line. Our fixed cost should not grow as fast. So there should be margin unlock coming just from good old fashioned economies of scale. And also the fourth line, which are INR 70 crore annual revenue potential was commissioned in Q2. So what is the ramp up time line for utilization? And whether it is two quarters or four quarters time line? Fully sold before we invested it. Therefore, it was very painful that we lost a quarter and a half of investment on of revenue on that line. So now it started generating that revenue already.

1:00:54 Okay. And also on the timeline for the 500 CapEx, which we have planned, so what is the timeline for the sale? So it is a rolling timeline. So every year we are investing and it takes about two odd years to utilize the CapEx fully. Generally, that would be the average sort of ramp up time. Some things ramp up really quickly like coastline and some things take time like a garment factory. You know, an average. So if I am investing 500 and I have an asset turnover of, say, on average two and a half to three, you should be getting one and a half in the first year and then three in the next year.

1:01:43 Okay. And just one last question. So the Ramanujan Phase one adds to 50 crores revenue annual potential. So what is the total in garmenting capacity after both the phases? So again, see, I will add almost 25,000,000 pieces in Varanasi, but those pieces are essential. So they are really small garments. So again, which we don't count in this 50,000,000 at all. So it is better to look at turnover, as I keep saying. And so it will contribute towards being able to grow at 15%. Okay.

1:02:30 Thank you. Thank you. The next question is from the line of Dushar Dundee from Sangvi Family Office. Please go ahead. Thank you for the opportunity. Hi, team. I wanted to ask a question more on the export incentives for the team has been extended till the December end. I just want to understand your thoughts on this. Are we kind of dependent on this team? And if so, is in what percentage of revenue and what percentage of EBITDA? And how do you see the likelihood of this in getting extended? So, you know, I think a business should never be dependent on export incentives to sort of support it. So while these incentives help, long term, we should have the ability to continue to improve our performance irrespective of whether it is there or not.

1:03:30 So we don't spend too much time worrying about this. We will our plans will still be realized. If it is there, yes, there might be a quarter or two of impact, but then things readjust pretty quickly once these things change and the market adjust to it. Possible to share any number on the current business? Correct. Pardon? I said I have I don't have that number on the back of my mind at the moment. I will ask the Investor Relations team to send it across.

1:04:17 Thank you. Thank you. And all the rest for the future. Thanks. Thank you. The next question is from the line of Arvind from three sixty one 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 is the peak debt that we expect to be at? And since which year should we expect the debt to start reducing?

1:05:04 So the QIP proceeds, we are going to pay because the debt schedule repayment time is in May 27. This is, I think, the ECB. So, accordingly, we have to follow the ARVIND norms. By the time 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 our debt reduction will be there against the acquisition only we have done. So just to give the overall philosophy, we wanted to see that the debt increase happened on account of the acquisition where million dollars was borrowed in India and ARV40 million was borrowed on the DALCO balance sheet. So the DALCO cash flow is good enough to finance both the repayment of that ARV40 million and its internal growth aspirations.

1:06:15 So I think we should pass that on one side. The 60,000,000 is what will get paid back in May, which is why the QIP proceeds were sort of brought into the company. So all the Dalco related debt increase has been sort of derisked from either Dalco's internal cash flow or the QIP funds. And we don't want to add any more long term debt to our original pre Dalco long term debt, which was around INR 400 crores. That will remain. We are not very bothered about it either because it's a small on our balance sheet and on our EBITDA generation potential, that's a very manageable and easy number.

1:07:05 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 fixed turns at a minimum and improve through internal efforts improve the turns from maybe six to seven over the next couple of years, right? So that's how the working capital debt will behave. So we are not concerned about debt levels. We don't want to add to our covenant bearing debt. And we don't want our terms working capital turns to deteriorate below six, which currently they are because we have 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.

1:08:09 So that's the 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. Understood. Thank you so much. That's all from my side. All the best. Thank you. The next question is from the line of, an individual investor. Please go ahead. Yes. Good evening.

1:08:57 Yes. Just on the front, we we had one good brand. So now that we are seeing trend is doing very well with the studio thing. So since we are also into... We have a 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 second question is on our CapEx of INR 500 crores. Can you just give the breakup, sir? So I'll answer the second question first. It's broadly close to INR 200 crores for Advanced Materials growth. It's about maybe INR 120 crores to 150 crores for garments. The rest is fabric and maintenance.

1:09:57 And if you and rough and tough, yes, we own that brand. It's been dormant for multiple years. 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 sort of doing a B2C play on denim using rough and tough. But that 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 when we had launched it in the mid-90s. There is still brand recall for it. So...

1:10:42 Yes, maybe that time it was before time, maybe. Yes. So we will continue to evaluate it. Thank you for the suggestion. Thank you. 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, Himanshu. We are just a phone call or an e mail away, and we'll 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.

1:11:33 Thank you. On behalf of Arvind Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.