In conversation with Gaurav Davda, Head - Corporate Finance and Strategic Initiatives, Jindal Worldwide Ltd

Having already made significant investments in capacity enhancement for denim production and thereby catering to the increase in demand for this product, Jindal Worldwide Limited’s growth seems well-assured, says Gaurav Davda, Head - Corporate Finance and Strategic Initiatives

Jindal Worldwide reported a whopping 115 per cent and 148 per cent jump in consolidated net profit for Q4FY22 and FY22, respectively. What factors are responsible for your strong performance?

Our FY22 performance has been historically the highest owing to strong domestic and export demand as well as improved realisation across our product chain. Exports, which contributed almost nil a few years back, now contribute around 25 per cent of our revenue on the denim front. In both the markets we have seen the realisation per metre improve and this is despite the environment of cost inflation. In fact, we believe FY23 will turn out to be even better in terms of top-line and margins looking at the trend in the overall business we are witnessing since the last 12 months.

With inflation leading to a rise in input costs, what cost rationalisation measures are you implementing to safeguard profit margins?

Over the last couple of years we have worked on improving our realisation across the product value chain, be it denim or any other fabric. We call this our ‘premiumisation’ strategy. Today, the range of denim that we offer to our customers range from Rs 120 per metre to Rs 350 per metres across over 600 SKUs, which is a huge range for any denim player. We have been able to pass most of the rise in input costs to our customers. In fact, premiumisation has helped us in improving the margins despite cost inflation. We believe the cotton price hike that we have seen over the last 12-18 months is not likely to sustain and hence the we might see it either stabilising or coming down gradually that would help us in further improving our margins in the coming quarters.

What are your capex plans for FY23? How are you funding them?

Our capex is spread over the next three years. We have planned out approximately Rs 300 crore capex spread over two phases. The first phase which started in FY22-23 will be over by the end of FY23. It consists of expansion in our back-end spinning capacity. We currently have around 30 per cent of spinning capacity being met in-house while the rest is outsourced. After this expansion, we will have 55-60 per cent of spinning capacity being met in-house and the balance outsourced to ensure we have healthy balance between the two. In the second phase, we will be increasing our denim capacity from 140 million metres per annum to 160 million metres per annum. As of now, the funding is from internal accruals and support from our lenders.

What are your debt reduction plans?

We have reduced our debt by close to Rs 300 crore over the last three years. Currently our long-term debt stands at only around Rs 110 crore. Due to debt repayment, we have comfortable DE ratio of just over 1 and healthy debt and EBITDA of 2.5. Since we are into capex, this year we are not looking at debt reduction.

What are your key growth triggers?

The denim industry has undergone significant shift in the demand scenario since the outbreak of the pandemic and this is evident from the new demand emerging from office-goers who are now adopting denim as a key wardrobe element thanks to a hybrid work culture. The pandemic has also resulted in a fast fashion approach among Gen X and millennials. Gen Z again has been the key target group for denim. With people’s wardrobe changing fast post the pandemic, the demand for denim domestically and globally has seen a paradigm shift. Jindal Worldwide, on the other hand, had already invested heavily during 2016-18 which helped us leverage this demand in a better way. With operational efficiency, we were also able to improve on our margins. Quantitatively, with investments going into our spinning capacities, we expect significant cost saving there and that will grow our margins. Higher realisations per metre due to exports and premiumisation will continue to result in the growth of our top-line.

What is your earnings’ outlook for the upcoming quarters?

We are expecting FY23 to be a better year for the group as our strategy of premiumisation is paying off through increase in product range. We aim to reach the mid-teen EBITDA margins in the next couple of years and we are happy to share that we are in that direction which is evident from the FY22 numbers. Despite headwinds and cost inflationary environment, our margin and top-line have grown. With back-end spinning capacity kick-starting Q3FY23 onwards and cotton price expected to be stabilise, we expect to touch double-digit margin this fiscal year itself. On the top-line front, we expect to maintain growth which has been showcased over the past many years.