Cedaar Textile, established in 2020, operates in the space of value-added dyed and technical yarns, with a focus on fashion and protective applications. With expansion plans underway and trade policy developments like the India-UK FTA, the company aims to grow capacity, improve efficiencies, and strengthen its position in both domestic and export markets.
Sheryll D’Souza: Welcome to this very special edition of SmallCap Spotlight with me Sheryll D’Souza and today we will be talking with the management of Cedaar Textile. I’m joined by Rajesh Mittal who is the managing director of the company. Thank you so much for joining us.
Let’s actually start with your journey and if you could tell us what actually led to the founding of Cedaar Textile.
Rajesh Mittal: Okay, so let me give you my background. I started my career in 95.
I have a graduation in computers and post-graduation in international business. I started with Vardhaman Textiles Limited in Ludhiana which is like a 1 billion dollar company now. So, I have a nine-year journey with them in the different section like the planning, the domestic marketing and export marketing and 2004 I move into the you know overseas into Hong Kong and Bangladesh where we started our own yarns and fabric business in the trading firm and supplying to the government exporters across the globe.
Out of that 80% was in Bangladesh and 20% to the other countries and we are doing the sourcing for last you know 12-13 years from different Asian countries and supplying to them. So, 2018 we move into India and 2020 this Cedaar you know come into the you know the this come as an idea that we thought that let us try if we can have you know the backward integration into the manufacturing. So, one of our vendor like Kothari they are based in Calcutta.
So, they have one entity in near to Ludhiana in Punjab and they have some other entity in near to Calcutta and some other parts of the country. So, there you know the promoter have and their next generation having not much interest into that company for growth and for the you know the future. So, they decided to you know this sale this asset in near to Ludhiana.
So, that idea come up and me and my partner Mr. Goyal and Mr. Manapa we together taken a joint decision okay the it’s to be reasonable asset for us for you know for the future and we can have some venture into the and we can go forward we can you know drive this company into a bigger entity. So, that way the you know the idea of creation of SEDAR started which we taken in 2020. We bought the full like the land building and machinery full setup and from that side you know the journey for Cedaar started.
Sheryll D’Souza: I’m sure a lot of them would want to know what exactly does Cedaar manufacture and also if you tell us what makes your product so unique in the textile space in particular. O
Rajesh Mittal: Okay, Cedaar is making you know the different type of dyed and fancy and melanges which are little you know the novelty side of the yarn manufacturing. The yarn manufacturing start with the normal raw item then into the different blends and different fibers to be used in gray and mixed together and make little novelty and fancy effect.
So, yeah you know the Cedaar is making little you know boutique type of products which is like making as per the customized requirement of the garmenter that they need different type of for the fashion oriented yarn. So, we are making that yarn and apart from that we are into another high-end segment of yarn dyed which is also fashion oriented and last year we have started into the technical textile which is basically another industrial application where the you know you have to be have to be the application of protective wear where you use this type of yarns for the anti-flame retardant wear you know where they are very prone to the fire area like the aeronautical engineer in the oil companies engineers which are using again in the public place fabrics which are like in the home furnishing into the hotel and aircraft seat fabrics and the car fabric. So, this type of all application coming to the textile although it’s very high you know uses of different type of application but we are considering at this moment you know the protective wear to start with and there are different type of blends of fiber which is come originating from you know this specialized fiber from Japan with the trademark and we mix and blend as per the customer requirements and we are doing this spinning and dyeing.
So, that is the additional you know the differentiated product we are moving into and that particular thing we are you know going into the value chain and also adding the fabric business into the company started with the outsourcing or out jobber of the fabric and coming days whenever we have after the IPO proceed we will have our own expansion into the fabric dyeing and also you know the increase in capacity of the yarn dyeing which is also fashion oriented and we are getting a lot of opportunities and demand in that segment.
So, overall this you know Cedaar is basically on the high value-added side of you know this value chain in the textile.
Sheryll D’Souza: So, could you elaborate on Cedaar textile current product mix the rationale behind its focus areas?
Rajesh Mittal: The major focus in is the Cedaar is on the dyed yarns on the technical textiles and the fabrics in coming days which is like you can say our ratio is now 75-25 with the milanjis and the fancy and the other value dyed yarn but the next focus in next two years is to change the ratio from 75-25 to 50-50.
So, we are moving up into the value chain and that way the value addition will happen into the company. The rationale behind this is that the normal spinning is like you know if you if I give you an example there are 300 spinning wheels in India like 90% of the spinning wheels are making the basic yarns and other like 10% is in the different part in different you know the value added and differentiate the products.
So, our focusing on this differentiated products where there are hardly five or six suppliers in India and that cater to that segment for the local market and the export market and which is like you know our expertise in this particular segment is there because we have that last 30 years experience in the market and we understand the market and the market requirement.
So, based on that we want to be into that segment where we can have better margins and better profit for the company. So, we are just focusing on that way like you can say a boutique company which is making different product as per the buyer requirement and you know we never say no to the customer if some say even a smaller quantity order we understand we have a better margin but the other company the bigger company have limitation they cannot change or they cannot make smaller quantities and the smaller products. So, that way we have the flexibility of production lines and flexibility of change and mix of products we can make which others is very difficult to make.
Sheryll D’Souza: So, how do you see the demand trends across your core products categories particularly Mr. Mittal any plans to diversify further for your company?
Rajesh Mittal: Yeah, yeah we as I explained we are already diversifying into the fabric even after this IPO the object we have a plan to you know new expansion of 10 metric ton of fabric dyeing and we have one you know the sister company where my another two partners have the garment factory in Ranchi which is making the undergarments for jockey approximately 1 million pieces of every month. So, we have LOI that we will supply the fabric after the production to that factory which will be indirectly will supply to the for the jockey production and similarly we have LOI with another two company who are near to one is to near to Ludhiana and one is near to Indore that they also interested in buying continuously the fabric production from us. So, the foray of fabric production and the requirement of the you know in this particular area is increasing and we are hopeful the opportunities are coming more into the Indian to the Indian industry after the opening of this you know some new opportunities in the world about this like the FTA happened with the UK and then another tariff potential discussion going on with the America and also the government has pushing hard to complete this European FTA by end of this year.
So, all these things and also some setback on the Bangladesh side because we used to buy 1 billion dollar of a garment export from Bangladesh and that has been little due to lead time and other things because of the stoppage on the Benapur side by road. So, all these things will make you know the things better to the industry and competitive to the industry compared to the our nearby you know garment producing countries which is like in China, Bangladesh and Vietnam. So, India will have an edge on that and I hope the industry demand is going to increase and India will be able to increase the share which was almost you know stagnant for last few years if we see the data.
Sheryll D’Souza: So, let’s talk about your current installed capacity across your product lines. If you could help us understand what is the average utilization rate right now?
Rajesh Mittal: Our installed capacity is approximately 11,000 metric ton per annum and we are utilizing approximately 80 percent of our capacity at this moment. Right.
Sheryll D’Souza: So, which segment of your operations is operating near full capacity or maybe you could say they’re contributing the most to your top line growth?
Rajesh Mittal: The yarn dyeing is operating almost like a full capacity that’s why we have a lot of booking and orders coming in like the pipeline and the buyers are also asking that’s why and the beta margin is also good. So, we are basically that’s why we are expanding into that particular segment which is more fashion oriented and the the normal the spinning capacities are you know normally can go up to 90-92 percent on an average basis. So, there we are at this moment up to 80 percent we are achieving.
Sheryll D’Souza: So, let’s talk about the most important news aspect right. How do you expect the India-UK free trade agreement actually to benefit us at our especially in terms of export competitiveness?
Rajesh Mittal: Like you know the there was a 12 percent duty to for the India export to UK which will not be there I think after September when this FTA will be effective. The China has seen the 12 percent duty and also Vietnam has to pay the duty.
Bangladesh okay is apple to apple with us after this FTA but India still have some incentive in the form of the government has some drawback and the road tap which they give to the industry around five to six percent. So, that will be one advantage to the India and another the raw material. Bangladesh still import the cotton and other things from the outside.
India is indigenous you know all these raw materials and things. So, I think India in the long run in the coming years should be having a better competitiveness as compared to Bangladesh but the main challenge is that we need to create a big setups as in Bangladesh to give a comfort to the customer that yes India can also make you know the bigger quantities which they need for their in the supply chain. So, that is the one challenge the companies in India will have and they have to set up in that area where the availability of worker is there and should be also logistically should not be very costly for them.
So, like you have seen that the government has given in some states like Odisha, Jharkhand, MP, Chhattisgarh also coming up, Telangana. So, these different states are giving you know some good subsidies and incentives to the industry to set up in a big way so that you know it will generate the employment also and it will also create bigger capacity which is the basically the requirement of the buyer. So, if as a country we are able to create big setups like the Bangladesh and Vietnam and China have then there is no way that we cannot increase.
We have now doing approximately 1 billion dollar of export to UK. I think in next 3 to 4 years it can be achieved at least 3 to 4 billion dollar if we start expanding looking into the opportunity available to us.
Sheryll D’Souza: So, that brings me to my next question. Have you initiated any groundwork to enter or scale up the presence in the UK market post the signing of the FTA?
Rajesh Mittal: Yeah, actually as a company we are planning to go into the actually it is not part of our DRSP so I’m not mentioning it but we have a plan in future to go into the government and we once we go into the government to be then we will approach all the brands in UK also to you know supply the governments from India. That is our plan in next 6 to 9 months to come into that segment also.
Sheryll D’Souza: Right, given Bangladesh’s strong textile ecosystem do you see collaboration or competition from players there right now?
Rajesh Mittal: Yeah, of course the competition from Bangladesh will be there but we need to understand the Bangladesh is exporting 45 billion dollar of export and like Vietnam is around 50 billion and China is approximately 180 billion.
So, thing is that the Bangladesh how much business will be going to India I don’t feel it will be going very big shift to India but the China business which is having lot of duty so that segment from 180 billion this is a huge potential for India to increase. So, because you know the China you know labor cost is like 600 to 800 dollar although they have some incentive from the government but looking into this FTA agreement where they will have another 12 percent of differentiation in India. So, I am hopeful that India will able to increase our share not from the Bangladesh share I think more from the China side.
Sheryll D’Souza: And where do you see Cedaar textiles in the next five years when you talk in terms of the market share, the geography served?
Rajesh Mittal: Cedaar reason is to move into the vertical line up to the government in B2B and also to start a brand in future in any category of domestic market catering on the high or medium segment. We are planning for an athleisure brand. So, our planning is to go up to the vertical line up to the B2B into the government for supplying to the brands and also for our own brand in some particular category.
So, we are looking at five year down the line if we are able to plan as per our as per our internal strategies then we should close something around 900 to 1000 crore of turnover also because if we move into the government very fast there the capex to the turnover is one ratio nine. So, that will give you a very good organic growth and the buyers are looking for a good factories where they can rely for a continuous supply of the garments for their requirement within India and outside India because in India also they are growing in the form of stores. So, I am hopeful that if we will stick to our plans and we will have you know the things in order we will able to try to achieve that level.
Sheryll D’Souza: Can you share the details of the brownfield expansion then your capacity addition timelines and expected ROI?
Rajesh Mittal: Yeah, like our expansions will happen within three to six months of what we have you know planning as per the you know proceeds from the IPO and out of that the expansion at least 40 to 45 percent of the benefit we will able to take in 2025-26 and rest will go into 2026-27. The beauty with our factory is that we have the infrastructure ready like building and so we need to only invest into the you know the capex for the machinery and some part in the utility. So, if somebody has to put up today a new plant they have to invest like 100 crore maybe we have to invest 40-45 crore to achieve the same capacity.
So, that is basically we need to have you know the less capex and the ROI will be better. So, I am hopeful that after this all you know the utilization with the new expansion our EBITDA and margins will increase by three to four percent and that will be approximately should increase by two to two and a half percent.
Sheryll D’Souza: Right, so how is your brownfield expansion helping you? Let’s try and understand especially when you talk about optimizing your capex or for the matter of fact ramp up scale efficiently.
Rajesh Mittal: Yeah, the new machines like you know what expansion we are doing in the time like currently or whatever the machine we have that is having a ratio of like an equal ratio of one to eight like one kg of you know dyeing we have to use eight liter of water but the new machines are almost you know half of that you know the utility and the requirement and the water requirement and that accordingly will reduce the further dyes chemical and other costs required. So, obviously this is giving the efficiency and cost saving for us in the process in the operational and that itself will bring in further economies of scale and will have a you know the overall more you know operational efficiencies into the company.
Sheryll D’Souza: So, could you help share with us the impact of your capex all our NHD initiatives right especially when you talk about operational cost savings as well as margins?
Rajesh Mittal: Like currently we have two megawatts of solar and that is approximately saving 14 percent of our cost from the energy part after this IP we have another plan to add another two megawatts so they will save another 14 percent so 28 to 30 percent of our requirement at this moment you know is been set off with the solar.
So, we are saving approximately 30 percent mean it will save approximately five crore of our energy cost in a year and that much you know it will be added to your margins. So, we have a four year payback for all this you know the solar energy and the life of the solar is like 20 to 25 years so we will the company is getting into the better efficiencies with adding the solar and we’re able to add more to the margin and we reduce our cost. So, it is a good I think good thing for the company in the long run.
Sheryll D’Souza: So, does the company currently hold a surplus or strategically located land on its books?
Rajesh Mittal: Yeah we have like total 48 acre of land and we are still using only 20 acre of land 28 acre of land is still you know with us for any new expansion we don’t have to invest too much on the land acquisition or the building also we have still for new expansion everything so means that asset base will help us in you know not you know on the capex on the land and building will be only required for the expansion in the machining and utility so our capex new capex cost will be very less as compared to any other new company and which will give a better ROI to the company and the shareholders in the long term.
Sheryll D’Souza: So, let me ask you the next question are there any monetization or development plans of or related to existing land assets?
Rajesh Mittal: At this moment there is no asset plan for that to monetize on the land at this moment we are looking that how we can make more growth by adding some more different type of you know the business related to textile in that and you know utilize it.
Sheryll D’Souza: All right and then looks like we just have time for these many questions thank you so much Mr. Mittal for joining us today on this very special edition of SmallCap Spotlight where you actually put the spotlight on Cedaar Textile to help our viewers to understand more about your company.
Thank you so much.