Envoy Textiles bets on recycled cotton to scale up production, cut costs

Envoy Textiles has decided to invest in resource mobilisation, through which recycled and recovered cotton will be used to produce yarn at scale. 

The implementation of the plan will improve waste management as well as expand production capacity, helping the company forgo reliance on external sourcing.

The amount to be invested is Tk 1.79 billion, aimed at doubling Envoy's open-end (rotor) yarn production capacity to 50 metric tonnes per day at its existing factory premises in Bhaluka, according to a regulatory filing on Monday.

This expansion will cut down wastage while improving cost efficiency, said Kutubuddin Ahmed, chairman of Envoy Textiles, in a telephonic conversation with The FE.

Open-end yarn is produced through rotor spinning using waste from ring spinning, mixed with virgin cotton.

The existing manufacturing unit currently requires 40-42 tonnes of open-end yarn daily but produces only a portion in-house, forcing it to purchase 16-17 tonnes from suppliers. 

"This creates challenges due to long lead times and supply shortages, especially during peak demand, which also drives up prices," said Mr Ahmed.

The new investment is expected to ensure the utilisation of waste from ring spinning and secure a more stable and cost-efficient yarn supply, he added.

The move aligns with increasing global demand for sustainable and traceable textile production. By converting production waste into usable yarn and boosting internal consumption, the company is going to improve resource efficiency while reducing environmental impact.

Open-end rotor spinning technology, which the company plans to deploy, is particularly suited for processing recycled fibres and producing consistent yarn of good quality. It also facilitates faster production compared to traditional ring spinning, making it ideal for denim manufacturing.

The expansion project will be financed through a 70:30 debt-to-equity ratio. According to company projections, the investment is financially viable and is expected to generate sufficient cash flow to service a seven-year term loan.

The company estimates a payback period of approximately 4.8 years, indicating a relatively quick recovery of invested capital. The projected internal rate of return (IRR) stands at 27.8 per cent on equity and 14.8 per cent at the project level over a 15-year lifecycle.

In addition to capacity expansion, the company's board of directors has approved the purchase of 50.37 decimals of land adjacent to its Bhaluka factory at an expense of nearly Tk 81 million.

The land will support future expansion plans, the company said in the disclosure.

In October last year, the Asian Development Bank (ADB) signed a $30 million sustainability-linked loan deal with Envoy Textiles, the first such financing in Bangladesh, underscoring the lender's push to align industrial growth with environmental targets.

So, the deal is another driving factor behind the expansion plan.

"We are waiting to receive funding from the ADB to replace some high-cost borrowing," said Mr Ahmed.

Sustainability-linked loans are performance-based instruments tied to measurable indicators, which are, in this case, rooftop solar capacity and greenhouse gas emissions reduction.

The proceeds of the loan will be used to fund the design and construction of a new spinning unit for Envoy Textiles, the first Bangladeshi exporter to receive the Leadership in Energy and Environmental Design's platinum certification in the denim category, at its manufacturing plant in Jamirdia. The fund will also be partially used to install 3.5 MWp of rooftop solar panels at the factory and refinance short-term local working capital loans.

Financial performance

Alongside presenting a forward-looking expansion plan, Envoy Textiles reported weaker financial performance in the latest quarter on Monday.

Profit fell 37 per cent year-on-year to Tk 258.4 million in the January-March quarter, primarily due to lower revenue and higher finance costs. Revenue dropped 13 per cent to Tk 4.05 billion, while finance expenses rose 28 per cent during the period.

Company secretary M Saiful Islam Chowdhury said the company had witnessed lower revenue in the third quarter due to holidays on the occasion of Eid-ul-Fitr and the national election.

"Reduced working hours due to Eid holidays and the national election contributed to the decline in revenue and profit in the March quarter."

Mr Chowdhury also mentioned that during that quarter, the company made payments against a number of UPAS LCs, which will help minimise costs in the next quarter.

He added that the company had already booked orders for the next three months and is optimistic about delivering them on time, as there are no issues regarding gas and other utility supplies.

For the nine months through March this year, the company's profit dropped slightly by 2.3 per cent to Tk 988 million, while revenue decreased 5.5 per cent to Tk 12.91 billion.

Despite short-term pressures, the latest expansion signals Envoy Textiles' confidence in long-term demand for denim and yarn in international markets.

With enhanced capacity, improved efficiency, and additional land for growth, the company appears well-positioned to capitalise on future opportunities while strengthening its value chain.

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