In conversation with Gaurav Davda, Manager – Corporate Finance and Strategic Initiatives, Jindal Worldwide Ltd
Having already made significant investments in improving denim production capacity and thus meeting the increased demand for this product, the growth of Jindal Worldwide Limited seems well assured, says Gaurav Davda, Head – Corporate Finance and Strategic Initiatives
Jindal Worldwide reported a huge 115% and 148% jump in consolidated net profit for Q4FY22 and FY22, respectively. What are the factors responsible for your strong performance?
Our performance for FY22 was the highest on record due to strong domestic and export demand as well as better execution across our product chain. Exports, which brought next to nothing a few years ago, now contribute about 25% of our revenue on the denim front. In both markets, we saw the realization per meter improve despite the cost inflation environment. In fact, we believe that FY23 will prove to be even better in terms of revenue and margins given the trend in overall activity that we have seen over the past 12 months.
With inflation driving up input costs, what cost rationalization measures are you putting in place to preserve margins?
Over the past two years, we have worked to improve our execution across the entire product value chain, whether it is denim or any other fabric. This is what we call our “premiumization” strategy. Today, the range of denim we offer our customers ranges from Rs 120 per meter to Rs 350 per meter over 600 SKUs, which is a huge range for any denim player. We were able to pass on most of the increased input costs to our customers. In fact, premiumization has helped us improve margins despite cost inflation. We believe that the rise in cotton prices that we have seen over the past 12-18 months is not likely to last and therefore we may see it stabilize or gradually decline, which would help us improve further our margins in the coming quarters.
What are your investment plans for FY23? How do you finance them?
Our investments are spread over the next three years. We have planned around Rs 300 crore capex split over two phases. The first phase which started in FY22-23 will be completed by the end of FY23. This is the expansion of our downstream spinning capacity. We currently have around 30% of the spinning capacity in-house while the rest is outsourced. After this expansion, we will have 55-60% of the spinning capacity in-house and the rest will be outsourced to ensure a healthy balance between the two. In the second phase, we will increase our denim capacity from 140 million meters per year to 160 million meters per year. Funding currently comes from internal accruals and support from our lenders.
What are your debt reduction plans?
We have reduced our debt by nearly Rs 300 crore over the past three years. Currently, our long-term debt is only around Rs 110 crore. Due to debt repayment, we have a comfortable DE ratio of just over 1 and healthy debt and EBITDA of 2.5. Since we are in capex, this year we are not looking to reduce the debt.
What are your main growth triggers?
The denim industry has undergone a significant change in the demand scenario since the outbreak of the pandemic and this is evident from the new demand coming from office workers who are now embracing denim as a key wardrobe item thanks to a hybrid work culture. The pandemic has also resulted in an approach to fast fashion among Gen X and Millennials. Gen Z has again been the key target group for denim. With people’s wardrobe changing rapidly after the pandemic, the demand for denim domestically and globally has seen a paradigm shift. Jindal Worldwide, on the other hand, had already invested heavily in the 2016-18 period, which allowed us to better capitalize on this demand. Thanks to operational efficiency, we have also been able to improve our margins. Quantitatively, with the investments in our spinning capacities, we expect significant cost savings and this will increase our margins. Higher realizations per meter due to exports and premiumization will continue to drive our revenue growth.
What is your earnings outlook for the coming quarters?
We expect FY23 to be a better year for the group as our premiumization strategy pays off through increased product mix. We are aiming to achieve mid-teen EBITDA margins over the next two years and we are pleased to share that we are heading in that direction, which is clear from the FY22 numbers. Despite the headwinds and the cost inflation environment, our margin and revenue increased. With the start-up of downstream spinning capacity from the third quarter of FY23 and the price of cotton expected to stabilize, we expect to achieve a double-digit margin in this fiscal year itself. On the revenue side, we expect to maintain the growth that has been evident over the past few years.