ABREL — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Good day and welcome to the Century Textiles and Industries Limited Q2 FY22 Earnings Conference Call.

As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touchtone phone.

Now, I hand the conference over to Mr. Anuj Sonpal, CEO Valorem Advisors.

Thank you and over to you sir.

Anuj Sonpal

Thank you.

Good afternoon, everybody and a very warm welcome to you all.

My name is Anuj Sonpal from Valorem Advisors, we represent the Investor Relations of Century Textiles and Industries Limited.

On behalf of the company.

I would like to thank you all for participating in

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

The first question is from the line of Venkat Samala from Tata Asset Management.

Please go ahead.

Venkat Samala

Sir, my first question is with respect to margin.

So, I understand that we have done very well across the segments when it comes to the top line.

But then we also see a Q-o-Q decline in margins of about 150 odd bps, so I'm just trying to understand if you could give a segment wise color as to what has led to this decline and how should we as investors look forward to it and given the backdrop of, I know you've been taking some price hikes, is that good enough to sort of mitigate the pressures that we are seeing across this segment?

J.C. Laddha

Okay.

So, if we talk about segment wise, in fact if we talk about Pulp and Paper business, the margins have gone up from last year same quarter the EBITDA margins were 12.6%, which is now at 16.6%.

But what you say is right, it is still lower than the normal levels, which we had pre COVID.

The main reason is basically the increased prices of raw material and other inputs, which we are passing on in the market.

But there's always a time lag, when we procure and we produce and we are able to pass it on.

So, I'm sure in the coming quarters, quarter three, quarter four, definitely these margins will go up.

Even if you see textiles, the margins are much better than in the same quarter last year, they were negative.

However, as of now in the quarter two FY22 the margins are positive, and going forward situation will further improve.

Hope this answers your question Venkat.

Venkat Samala

To understand that while we are discussing about the demand scenario improving and also with respect to paper business, the mix would gradually be shifting to the stationary paper segment where the margins that we enjoy are usually higher due to the higher realization.

So I'm just trying to understand that when will we get to that 20% odd mark at the console level, because at the top line we are already there but at the EBITDA level we still have some distance to cover.

So I'm just trying to understand.

J.C. Laddha

JP can you take over this question, please?

Snehal Shah

Venkat just to clarify, you were doing the EBITDA margin comparison on an overall basis.

Textile and paper have shown improved margins, the reason why you're saying the lower margin on an overall level, because the EBITDA of real estate has gone down from last quarter.

And which according to us is a good thing, because we have actually started spending on heightened activity.

Therefore, the EBITDA is almost zero compared to what it was in the last quarter.

Venkat Samala

In terms of standalone level, we are seeing still margin of around 13, 13.5 which we used to do +20% pre COVID level?

Snehal Shah

Yes, in terms of paper business, JP will answer this question.

JP Narain

See, your question is valid right now we are in the range of 16.5%.

And writing, printing segment has started moving we have taken, two price hike in that segment, but we have bought an order of the last month so you say the benefit will be coming, the impact will be coming in the price in mid of November or so.

So in next quarter it should touch somewhere around 19% to 20% margin.

And beyond that in Q4 it will further improve.

Venkat Samala

Okay.

So basically then we can expect by Q4, if there are no more supply side pressures in terms of RM.

At the current situation we expect the margins to normalize at the standalone level right?

JP Narain

Correct.

Venkat Samala

Okay, thanks a lot for that.

And my second question is with respect to the increase in the inventory that we are seeing on a standalone level, which actually is taking a toll on the cash flow generation which is especially the cash flow generated from operations if I look at it it's negative 60 crores and that is despite the good EBITDA that we are doing.

So, I'm just trying to understand and a large portion of that is to do with the increased inventory of around 400 odd crores so, what exactly is this?

JP Narain

Snehal can you answer this?

Snehal Shah

It comprises majorly of real estate development around whatever project we are completing now, as per IndAS, we have to do till the time we launch the project it comes in inventory only.

So, it around 250 - 260 crore is towards real estate and balance as compared to previous periods in paper and textile, little bit inventory has increased.

Venkat Samala

Okay.

So, that real estate business inventory also gets reflected in the standalone entity?

Snehal Shah

Correct.

JP Narain

Inventory in the Pulp and Paper business it's reducing very fast, it will be get through in the next month or so.

Venkat Samala

Right.

And just to understand a little bit further on this real estate inventory on the standalone, is it like a transitory thing, and then whenever the projects are completed that will move to the other Birla Estate entity, that is the way to look at it?

Snehal Shah

So Venkat you have to understand right now the two major projects that we are doing, one is the Kalyan project and the other one is the Bangalore project.

Now, particularly the Kalyan project is actually a land, which is in our parent books, so all that work that is happening is actually getting booked as inventory in the parent company.

And you're right, absolutely once everything is over, this will be squared off.

And therefore at that particular time, we'll be actually showing the EBITDA of the project itself.

Venkat Samala

Okay.

So just because we are seeing impact of that in balance sheet, so what would be the real estate related expenses, which will be coming above the EBITDA level for the real estate business on the standalone segment?

Snehal Shah

So, right now what we are showing as EBITDA is basically the RE Lease rental income that we received from our two commercial buildings and that is the only EBITDA that is booked in the, correct me if I'm wrong, it's booked in the parent company, not in the subsidiary.

Venkat Samala

Okay.

And against that, do we also book any expenses as a parent company?

Snehal Shah

Most of those expenses to run the commercial buildings, those are booked against that.

Venkat Samala

Okay.

So, largely happens in the subsidiary level itself whatever expenses are there.

Snehal Shah

Yes.

Venkat Samala

Okay, thanks for that.

And my last question is with respect to the MMF JV that we are undertaking with Grasim.

So which stage are we in currently, have we decided on a land parcel or anything of that sort and what are the timelines for that, and are we thinking of getting any benefits from the PLI scheme for this project specifically?

RK Dalmia

Venkat to your question, land it will come in our existing facility of our textile factory.

There we have a land and we will sub lease to the our JV.

Secondly the PLI scheme, we will take the benefit of the PLI scheme we are eligible for that.

And as our guideline there at the initial stage we are placing the order and the hopefully by the end of this financial year or by end of the June we will able to start the trial production it will take at least nine to 10 months to stabilize the factory, so by June next year we expect the result to start to pick up.

Venkat Samala

Okay.

So, Q1 FY23 is when we expect the commencement of that particular project.

RK Dalmia

You are right Venkat.

Venkat Samala

Okay.

And what would be the margin that we can expect from that particular segment?

RK Dalmia

20% to 25%.

Moderator · Conference Operator

Thank you.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Please go ahead.

Pritesh Chheda

Sir, I have one question on the paper, what is the NSR movement beginning September and until now, because was that reflected in quarter two obviously the average for the quarter and there is a lot of NSR movement towards the end of the quarter, correspondingly whatever is the incremental NSR movement, how much of it do you think will slow down to your profitability?

JP Narain

We have got around 10% in terms of paper and 4% in terms of Board from beginning of September.

Pritesh Chheda

So, this Rs.58 NSR which you have reported in the quarter that should go up by whatever percentage you are mentioning as of now, until October right?

JP Narain

Yes, it will overall NSR moment will be somewhere around 2%, it will go for 59.5 because writing printing segment is 46%.

And there will be a gradually increase for the entire, you can say the price is increase and impacted in earlier NSR mid of November.

Pritesh Chheda

Yes, so eventually at least eventually the NSR space there is a 10% price hike which has to flow down NSR right?

JP Narain

Yes.

Pritesh Chheda

Okay.

And what is the corresponding increase in the cost of production if any?

JP Narain

Till now from last three months the 8% manufacturing cost has gone up.

What we are anticipating is coal will not impact us so it's going to remain stable around 1% or 2% here and there.

If any chance coal is getting impacted then the manufacturing cost may jump by another 3%.

Pritesh Chheda

So, you were saying it has gone up by 8% as of now in the last quarter?

JP Narain

Yes, in the last quarter.

Pritesh Chheda

Okay, it has gone up.

But that 8% is already based in the last quarter P&L right?

JP Narain

Yes, it's already covered in the last quarter P&L.

And that has gone nullified with increase in realization prices.

So as input prices are going up same time we are taking a call to increase the prices in the margin for these products.

Moderator · Conference Operator

Thank you.

The next question is from the line of Nilanjana Roy from Ventura Securities.

Please go ahead.

Nilanjana Roy

My question is regarding the project in Magadi Road, Bangalore.

So, when is this expected to be delivered and what is the expected cost of this project?

KT Jithendran

The Magadi Road project is expected to be launched sometime in November waiting for its RERA approvals, once we obtain that we will start market activation, etc..

And then hopefully late November or early December is what you're planning to launch.

The project is expected it's two high rise towers of about 30 story so it will take about 3.5 to 4 years for us to be delivered.

Nilanjana Roy

And the expected cost?

KT Jithendran

So, it’s a project which will have a topline of about 600 crores around and we are expecting a 20% IRR there.

Nilanjana Roy

And the project into the JV in Golf Course Extension, Gurugram.

So, even this I wanted to know when is it expected to be delivered by and what is the expected cost?

KT Jithendran

So, Nilanjana this is a project which will again be built in phases large project with about 1.8 million square feet.

It’s a project of about 1.8 million square feet, 200 crores so we have just launched first phase which is about 630 crores top line, it's a 50:50 profit share and now we are getting into the next phase of the launch.

So, there will be a couple more phases so overall it should be done in about six years’ time of which one year has gone so maybe another five years.

Nilanjana Roy

And what’s the cost here?

KT Jithendran

Yes, so we are expecting about 40%, 45% of margins here.

Moderator · Conference Operator

Thank you.

The next question is from the line of Sanket B an Individual Investor.

Please go ahead.

Sanket B

So can you tell us about your JV with Grasim?

Snehal Shah

Can you be a little more specific what you want to know we had earlier answered this question.

So any additional things that you want to know?

Sanket B

Wanted to understand what this JV is about and what are the future prospects of it?

Snehal Shah

Okay.

Dalmia would you like to answer?

RK Dalmia

Yes, JV is 50%:50% with the Century Textiles and Grasim and it is for the man-made fiber to knit specialized product which at present is very less available in the country and then the mainly import from China.

So we want to develop and manufacture those products and on the quality side, so we want to develop this business further on MMF.

Sanket B

So, how big will this opportunity be for us and by when should something come in the books for the same?

RK Dalmia

Again, tell me I could not able to hear you.

Sanket B

So, how big will this opportunity be for us and when can we see revenue on it?

RK Dalmia

Revenue is around 450 to 500 crores roughly and margins will be between 20% to 25%.

Sanket B

Got it.

And can I get a little update on the Century Mills Worli project like when is it expected to launch and how many phases will it be?

KT Jithendran

Sanket so, it will be in about three phases.

The first part of the launch was the Worli East land, the first phrase will be in the range of about 8 & 8.5 lakh square feet.

We are expecting this to be launched sometime in early January.

Sanket B

Okay and going forward the other two phases by when are they expected?

KT Jithendran

Yes, so largely this totally depends on how phase one gets sold and what velocity at what speed.

So, based on that once we sell about 15%-16% of the phase one inventory we will start because we need variety for inventory we will gear up for phase two is to be another tower.

So, I'm hoping a period of a year from the first launch.

Sanket B

Got it, thanks.

And are there any other projects which are there in the pipeline which has not been mentioned on the presentation?

KT Jithendran

No, so whatever is there has been mentioned, Magadi is going to get launched, the project at Delhi it’s next phases gearing up for launch, Kalyan another phase will come up for launch soon.

So largely these are the projects which is being launched so work is going on at full swing.

Of course, there are other parcels of land available with us but that will be at future, that will be at least a couple of years ahead.

And of course we are looking at several new acquisitions/ JVs/JDs.

So, once we sign it up, then we would be happy to announce them.

Moderator · Conference Operator

Thank you.

The next question is from the line of Shrimant Didoria, an Individual Investor.

Please go ahead.

Shrimant Didoria

Just had a question and clarification in the paper segment wherein you mentioned that there has been an 8% impact on the cost and with the coal cost increasing that would be additional 3% increase in the cost and overall NSR on a blended basis would be an increase of 4%.

So, is it fair to assume that the NSR has to still interrupt to cover up the additional increase in the cost, because it looks like about 11% increase in cost and about just 4% increase in NSR?

JP Narain

See, I told that there is a 8% cost already has happened, increase had already happened, 3% we are anticipating from right now that impact is not there because with the help off coal we are covered for next one month and during that one month if there will be any adverse effect then we have to go into a market and that additional impact will be there.

But till now, we are not anticipating them because we are in talk with Coal India and we have a delivery due which is likely to get delivered after 18th.

So, this is a lower possibility if this comes then we will take a further call to increase the prices in all our three variants tissue, packing board and paper.

Shrimant Didoria

Sure.

So, with the price increases which has happened so far, most of our cost increase have been covered?

JP Narain

Yes, that has been covered.

Shrimant Didoria

Okay, secondly sir on the power generation wanted to know how much of our generation is based on black liquor or how much it is based on coal fired captive power plants?

JP Narain

We have got a 40% power related shift through renewable resources and 60% from coal.

Moderator · Conference Operator

Thank you.

The next question is from the line of Neerav Shah from GC Holdings.

Please go ahead.

Neerav Shah

Sir just a question on the Worli project, any pending approvals that we are awaiting before the launch and related question is, what is the likely rate at which we plan to intend to launch that project?

KT Jithendran

Thanks Neerav, so as I mentioned all critical approvals are in place.

So, there are a few routine sorts of approvals which are still expected from BMC, which we will be getting in the due course.

But that will not stop the construction, but just for good order sake, we are awaiting for them so that by the time we launch, all the tick mark on all approvals are there.

These are in the sense factory NOC, high rise committee clearance, etc. So all very routine, we will be applying for RERA now and then we are expecting RERA clearance in about a month's time.

And then we will start warming up the market gearing up our PR and marketing activities, which should start from next month itself.

Pricing, that's something which is still in the discovery process, I would not like to wager on that right now.

We are once closer to the launch; we do a market discovery that time I would be more comfortable talking about that.

But it should be in more or less the range in which market is in that area, in that micro market.

So maybe once we get a more stronger hold after getting the RERA we do a bit more research, then I’ll be comfortable talking about the price.

Neerav Shah

Got it and second question is, during which phase will we club the commercial part of that Worli project?

KT Jithendran

So, the first focus will be in launching the residential and collecting cash is very important, there is a huge amount of cash expect unlocking capital and cash unlocking expected from phase one, phase two launches.

Once we get comfortable on that in the process there will be a very strong launch, so maybe in two to three years we will be in a better position to launch the commercial.

Moderator · Conference Operator

Thank you.

The next question is from the line of Tarun from Sunder Ispat Limited.

Please go ahead.

Tarun Sonthalia

I had a few questions on the Worli project but quite a few questions have already been answered.

But, I really wanted to know that seeing the rising steel prices, will that have an effect on the pace of the project which you're going to take forward?

KT Jithendran

Are you talking about steel prices?

Tarun Sonthalia

Yes, the steel prices and the cement as well?

KT Jithendran

No, not at all, be rest assured.

Absolutely no impact but yes we will take care of that.

Tarun Sonthalia

Okay.

So, are there any new projects which are in the pipeline which are going to introduce, like in different cities other than Bangalore and Bombay and Delhi?

KT Jithendran

So, we are working on several proposals and options.

Hopefully before the end of Q3 and more particularly before the end of this financial year, I'm hoping that we will be able to announce a few projects, largely the markets that we are operating in at this time, we are completely focused on the stated markets, we need to consolidate in these markets but at least doing four to five projects, etc. Only then we will be looking at new cities, there is enough and more demand and activity happening in these four metro cities that we have mentioned, Bombay, NCR, Bangalore and Pune.

So our focus will remain on these markets for the medium term.

Tarun Sonthalia

Okay.

Also, one of my last questions is, will we expect any new JV announcements this year?

KT Jithendran

Sure.

We are working on several of them once we sort of do proper due diligence and sign on them then we are happy to announce them.

But till that, we are not sure there are several proposals.

So once we sign on it then we are happy to announce.

Moderator · Conference Operator

Thank you.

The next question is from the line of Saket Kapoor from Kapoor & Company.

Please go ahead.

Saket Kapoor

Sir, firstly coming to this part about this inflationary trend you mentioned that for steel and cement prices going up there is no impact.

So, could you please dwell deeper what is our annual requirement in case of the real estate activities in terms of the steel uses that goes a rough estimate and how do we hit them?

KT Jithendran

Saket, so the point I wanted to mention is that usually we have escalation process, and we supply steel at basic prices.

So, what we look at is the incremental increase and on a period of four to five years there are several cycles sometimes it comes down, sometimes it goes up for example, we had a basic price for Kalyan project around Rs.40,000 - Rs.42,000 per metric tonne when we started the project in between it came down to 36,000 - 37,000.

Now it is at 50,000.

So it keeps balancing out and we have an escalation budget we always keep so considering that, that sort of hedging is there with minimal impact.

Saket Kapoor

Okay it is the execution period that is higher, that is the reason.

KT Jithendran

Yes, so it even our period of four to five years.

For example, I can tell you in specifically as in Kalyan even if our entire requirement is about 10,000 metric tonnes or so, the balance requirement so even if prices go up another Rs.10,000 the impact is worth 50 lakhs so that's the sort of thing, it’s not going to impact so much.

Saket Kapoor

Correct sir.

Now coming to my point with respect to firstly to the paper segment, there also coal prices are rising, so even chemical prices in caustic soda in particular, the prices have risen sharply so if you could give us some estimate what are the trends in the caustic soda prices and how is that going to impact that I've been moving up off literally?

JP Narain

Yes, especially coal is not impacting us because we have FSA agreement with Coal India and we have got a tie up, we have got a regular supply from them.

So we are covered till next one month and during that month, if the scenario goes little worsen then we need to procure from the market then that impact will be there.

And during that time, we can take a price hike in all of our three segments.

In terms of chemical and other inputs, yes slight increase is there, caustic is around more than 20% price hike is there, but there is a reduction in some other chemicals also.

So, if it is overall that together of all the chemicals, there is a 5% to 6% price hike is there.

So we are taking care of that by increasing the price as and when it's required.

Saket Kapoor

And lastly on this quarter, our textile segment also there will be increase in import duty and also the cotton prices of all various varieties going up, however the margin is likely to look sir going forward?

RK Dalmia

At present the margins are under pressure because the cotton prices have gone up abnormally high both for imported as well as in domestic cotton.

And the order placed by their retailers and the customers are well in advance of six months or a year in a home textile, particularly the U.S. market.

All place order for a year and subject to revision is in very rare case or very abnormal situation.

Now since the new order if retailers are ready to absorb the prices of increase in the fiber for next time.

So we will be able to manage this increase in the cotton prices as well as the duty, because duty is already one year as far as when the duty has increased that are already has been accounted for.

Saket Kapoor

Okay.

And my last point if I may be allowed sir, how is the revenue mix and the profitability contribution from the various segments are going to look say one to three years down the line, how is this contribution, currently it is the paper that contributed to the maximum, correctly me there.

Going forward also sir depending upon the business plans and the expansion that we were taking, how is the mix likely to look and sir on the paper segment any update on the new education policy in fact, not much has been spoken about the new education policy being unveiled and how is that going to impact the demand scenario in the paper industry with printing of the new syllabus and stuff like that?

JP Narain

This year, the new policy is not getting implemented they have postponed to next year.

The reason was that the trader has given the representation to the Government of India that they are holding a lot of inventory.

So they have asked to liquidate whatever the inventory they were carrying and asked the government to postpone that for next year.

And whenever that policy will come quite obvious there will be a shortage of paper across the country.

Because all the textbook from all levels will be replaced with the new printings.

So, the requirement will be quite high and there will be a shortage for a year or so.

Saket Kapoor

And how is this our industry prepared for it.

So depending upon the capacity enhancement by you and other players especially in the printing segment and also sir with the non-availability of the reuse paper the import which used to happen from China, how are the things balanced for the paper industry as a whole and what advantage you and the other major players are in a position to enjoy going forward depending upon this mismatch in the demand supply situation?

JP Narain

Here you have asked two, three question so one in the recycle paper there is a disruption because last year there was a low you can say sale of 40% paper.

So, India is normally consuming some 22 to 24 million tonnes of paper in a year.

So, last year only 16 million tonne paper has gone into the market.

So that is getting recycled and there is a shortage.

So there is a big disruption specially sourcing of recycled paper.

And right now the cost of recycled paper is very high and it's not feasible for the recycling industry to earn business, that is one.

In terms of preparedness, in the normal scenario, there is a good amount of balance is there in the country.

But still there are times when these disruptions are not being neutralized, because we need to improve the recycled paper that will neutralize the disruption of recycled paper availability.

Then there is a disruption in coal, there is a disruption in chemical.

So, till the time these disruptions are not being utilized, there will be uncertainty in this market and this industry cannot be add further capacity because, the demand of new book phasing will be only for one year.

So, that will be gradually you can say the fulfilled by the industry manufacturing capacity and remaining year it will just stabilize.

Moderator · Conference Operator

The next question is from the line of Niraj Mansingka from White Pine Investment Management.

Please go ahead.

Niraj Mansingka

Thank you, I have few questions, one is the textile.

So, there was in the last two quarters there was an increase in the cotton prices as well as the yarn prices and companies might have taken advantage of building lower inventory cost do you see, environment where the margins sort of textile will be compressed because of resilience in the passing small increase in prices compared to what should be needed to maintain the margins?

RK Dalmia

The cotton prices are abnormally high and expected to be stabilized in the coming month, because of new crop based on in the domestic market.

As well as the imported fibers are concerned which is mainly in our case from the U.S. and Egypt, there also prices abnormally high.

Normal retailers for the new order, they are gearing up to give the increase in the prices of the end product.

So it will affected the margin in present situation also.

But I don't think in future order, it will be affected so much as far as both in domestic as well as in international business of our textile business.

Niraj Mansingka

So just one hypothetical question, how much will be the price hike emitted by the customer, by you for selling customers to maintain the margin for last year?

RK Dalmia

No, for customer that like our retailers are ready to give at least 40% to 50% in such cases 30%, this is the price increase in the cotton and other input.

As far as customers are there it depends on MRP, there price is also they will revise the MRP to meet our this cost increase.

Niraj Mansingka

Okay.

So, the reason I'm deliberating here because generally this is one of the sharpest increase in the prices in the last few years.

So wondering if your margin will compress or it will remain the same, that is deliberating on that?

RK Dalmia

This question I could not understand the question.

Niraj Mansingka

Sir, the thing is that I have not heard of any time when the retailers from other companies is going, will have increase prices from +10%, so just wondering that if that much price hike possible to pass on the higher cotton prices?

RK Dalmia

Because you see, earlier the cotton prices has not gone up to that extent.

And apart from cotton prices other input cost like chemical and coal prices have gone up.

Now, if retailers did not accept these prices, then they will not get the project.

So, they have to go for that.

They have no option because there pipeline is also divest.

So, they have to place the order on the higher prices, otherwise they won't get the end product.

Niraj Mansingka

Right.

So my question is on the paper side.

Do you see because the syllabus has been moved year later so demand for writing & printing papers will still be muted for the month?

JP Narain

No, it will not be because there is a lot of the pipeline is completely empty right now, because they are not looking at the price and people were scared about the third wave.

So they have not bought the material what they require.

So now they have started while the materials are publishing as well as for the note books so demand is good enough and it's coming back.

So, I don't see any reason for muted demand, especially for a year or so.

Niraj Mansingka

And then sir, lastly there will be the syllabus change which will have a two year of good demand is it right?

JP Narain

Very good demand yes.

Niraj Mansingka

And other thing on paper is that, considering the current cost and current prices are your margins higher compared to what it reported in last quarter, or is it same or lower from current prices.

JP Narain

It’s 1% higher, but I'm sure it will jump by further 2% by month of November.

Niraj Mansingka

Okay.

So basically, we may have to take higher prices because what I understand is that caustic prices have increased further, but there is a monthly resell that they do, the company.

So then there's a higher margin impact and the higher raw material impact which we have to incur higher prices.

Is it right to assume that?

JP Narain

Yes because that price hike we had already taken, further impact it will gradually come in our NSR.

Niraj Mansingka

Okay, got it sir.

Sir last question, the real estate side KT sir on the Worli project, what would the estimate of your spend in per square feet on average for the project.

Okay, and my last question for Mr. Laddha.

So now that the launch of the real estate is very close, and the company are a mix of a conglomerate due, do you have some thought internally how the corporate structure is all or there is a demerger possibility over the next two, three years?

J.C. Laddha

I would mention at this stage that as of now, there is no discussion on that, as and when that happens we will come back to you.

Moderator · Conference Operator

Thank you.

The next question is a follow from the line of Nilanjana Roy from Ventura Securities.

Please go ahead.

Nilanjana Roy

My one question is on a consolidated level, do you have any guidance on the CAPEX for the next few years?

J.C. Laddha

Snehal can you take that?

Snehal Shah

On the CAPEX, our major expenditure is all going to be on the real estate.

So, there is not major CAPEX planned in the textile business little which would be there would be mainly on maintenance or environment related and it would be made out of their internal cash flows of the division.

Similar case with Pulp and Paper also, most of the CAPEX that they require through a certain extent to increase their capacity as well as improve their costing, etc., efficiencies, etc. that would be met out of their internal, to be roughly around is around 100 crores per year.

Plus, we have kind of also kept in our plan the possibility of in case we get some good stress assets, etc. in small, stressed asset somewhere, we might probably attempt so, maybe we will probably spend another 200 crores on them over the next three years.

So, roughly 500 crores you can say roughly spread over three years in the Pulp and Paper business.

Coming out of their internal divisional cash flows.

And most of the other things, we expect our post all that, all our divisions to generate at least 300 crores free cash flows, which will be properly used included in real estate business.

I hope that answers your question.

Nilanjana Roy

Yes, just one question, the textile you said will be mostly maintenance CAPEX how much is that?

Snehal Shah

You can roughly say around maybe 20 crores at a higher side.

Nilanjana Roy

Okay.

And the rest will be real estate?

Snehal Shah

I'm sorry, I said real estate would be up, this is 20 crores of the textile business will be coming from their cash flows.

And once that is deducted from the cash flow the free cash flow available in of textile plus paper business would be roughly around 300 crores which we will use in the real estate business.

I hope that helps.

Nilanjana Roy

Okay.

So, this 300 crores will be over three years?

Snehal Shah

Of course, I'm just giving you kind of a ball park number, 300 also depends on what is their profitability, what EBITDA levels they achieve, etc. over the next three years, 300 can be 600 crores also.

Nilanjana Roy

Okay.

And one more question on the Worli project the flagship project, what is the estimated cost of this project, the entire project?

KT Jithendran

So, cost is an estimate.

So, we are looking at various aspects because we need to finalize costs.

So, for example construction cost that will be construction area has about 6000 to Rs.7000 per square foot on the constructed area.

Nilanjana Roy

Okay.

And this is expected to be completed by which year?

KT Jithendran

So, phase one should be in five years and overall project may take about 8 to 10 years for completion the entire Worli parcel.

Moderator · Conference Operator

Thank you.

We will take one final question from line of Saket Kapoor from Kapoor & Company.

Please go ahead.

Saket Kapoor

Sir my question was, which was pending firstly, what are the utilization levels for the paper for us and for the industry currently.

And going forward, say three to five years down the line how are the revenue mix and the profitability contribution to the company from the various segments likely to shape up?

JP Narain

Right now, the plant productivity usage is around more than 100%, the manufacturing capacity is being utilized more than 100%.

And, in terms of revenue mix Snehal can you answer?

Snehal Shah

Sorry, Sanket what was your question on the revenue mix?

Saket Kapoor

Sir, I'm looking at the revenue mix and the profitability mix going forward, say two, three years down the line when the expansion and the real estate projects will start really kicking in the estimate, how is that at that time the pie going to look for the company sir?

Snehal Shah

So, that's a good question.

Right now, the pie is, if you leave aside the 5% pie that we have on the real estate business which is essentially the leasing business, we have 70% coming from paper business and the 25% coming from textile business.

What is going to happen Sanket is that in terms of profitability, it would be very difficult for me to give you a pie on a consistent basis because the way the real estate business is that once the project is completed the entire profit of that particular project is within that particular year in which it is, in one year you suddenly have a big huge contribution from the real estate business.

And if there are a couple of projects together then maybe in the next year when the project is completed you might actually have nothing to show on that front.

So, it is very difficult to therefore tell you on a very consistent basis what the mix is going to be.

But as far as I understand at least I can give you, if you take away the real estate business on an average we will continue to maintain this what you call it 70% & 25% ratio between textiles and paper business with a slight bias that the paper business turnover might actually increase and maybe go even to 75% or 80%.

Saket Kapoor

That accountant tissue part?

Snehal Shah

Yes, including the new tissue, I'm talking about the entire paper division, tissue business.

Saket Kapoor

Right.

Sir lastly on the tissue business there is a new unit being commissioned now when is the commissioning expected to happen and what would be its contribution going forward and the ramp up will happen sir gradually or what is the process?

JP Narain

Right now, we are running on this at 70% efficiency and we were waiting the technician they had to come from Sweden they're likely to reach here by last week of this month and we are anticipating by end of Q3 the machine should run between 90% to 100%.

Saket Kapoor

Okay.

And there is at least when you say that the 70%:25% will be the ratio for paper and the textile part and 5% would be from the real estate, currently what is the dependence of this real estate on the other segment I'm talking about the cash flow and also the working capital requirements is on a standalone basis the real estate segment can look after itself or it needs cash flow from the other two segments that will take care of the same?

Snehal Shah

Sanket, right now of course this real estate business is kind of dependent not just on the cash flows of the existing business, but also on borrowings from the parent company.

But we expect the real estate business once it delivers couple of projects, say in a couple of years or so, it will be on its own and probably that is the time there was another question which was asked that would be the time when we will actually start thinking about if there is a need for any restructuring in conglomerate.

Saket Kapoor

Thank you sir.

And our concentration is mainly towards the luxury segment and it is only to the Western and the Southern part of the country or the East is also an area where we are looking to explore the real estate segment?

KT Jithendran

So, currently our focus is on four metro cities, NCR, Bombay, Bangalore and Pune.

So these four cities constitute about 80% of the residential real estate market 70% to 80% somewhere around that.

And these are the most consistent market compared to any other markets, compared to East or other parts of the country.

Therefore our focus will be on these four markets sometime to come until we stabilize and really establish ourselves very strongly in this market.

So, beyond that, there are some great opportunities come up any of the new cities, etc. we will be open to it.

As of now for the next few years it will be focused on these four markets.

Moderator · Conference Operator

Thank you.

Snehal Shah

Anuj, can you check if Venkat is there I just wanted to give you a clarification on an earlier question that he asked.

Moderator · Conference Operator

Sure sir.

Sir he is connected you may please.

Snehal Shah

Venkat, just a small clarification you had asked me about the inventory question on a standalone basis.

So actually the major increase in that standalone inventory is essentially for our Worli project where we have paid a premium of around +200 crores that is the reason why the inventory has gone up.

Moderator · Conference Operator

Sir, he was there in the call.

Thank you.

I now hand the conference over to Mr. J.C.

Laddha from Century Textiles and Industries Limited for closing comments.

Over to you sir.

J.C. Laddha

Thank you all for participating in this earnings concall.

In this quarter we have observed excellent performance and confident that coming quarters will be even better and will not get impacted by COVID-19 challenges.

I hope we have been able to answer your question satisfactorily.

And if you have any further questions or would like to know more about the company, would be happy to be of assistance.

We're very thankful to all our investors who stood by us and had the confidence in the company's growth plans.

And thank you Anuj for organizing this wonderful concall and with this, I wish everybody a great evening and great festival season particularly Happy Dussehra.

Thank you

Moderator · Conference Operator

Thank you.

Ladies and gentlemen on behalf of Century Textiles and Industries Limited.

That concludes this conference.

Thank you all for joining us and you may now disconnect your lines.