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S.P.Apparels Ltd
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Ladies and gentlemen, good day, and welcome to the S.P. Apparels Q1 FY '24 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma'am.
Thank you, Lizan. Good afternoon, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q1 FY '24 Post Results Conference Call and Business Update Call of S.P. Apparels Limited.Today, we have with us the senior management of the company, including Mr. P. Sundararajan, Chairman and Managing Director; Ms. S. Shantha, Joint Managing Director; Mr. S. Chenduran, Joint Managing Director; Mrs. S. Latha, Executive Director; Mrs. P.V. Jeeva, Chief Executive Officer; and Mr. V. Balaji, Chief Financial Officer of the company.Without taking much time, I would now like to hand over the call to Mr. P. Sundararajan for opening remarks. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone. And very warm greetings to all of you who are present on the call to discuss our Q1 FY '24 performances. I hope and wish that all of you are hale and healthy.At the outset, I'm happy to share with you that the Board of Directors in the meeting has recommended a dividend of INR 3 per share and achieve 30% on the sales value of the share. With regard to Garment division, before getting into the financial performance of Garment division of Q1 FY '24, I would like to update you on the latest developments in this industry. So firstly, regarding the affiliate, this is -- the latest information is that the [ twelfth ] round of discussion has been going on now. The team has come from U.K. to India and hoping that there is a [ consensus ] that hoping that by end of August, the FTA will be signed out. That is what the information -- inside information we have received.Secondly, with regards to the demand scenario, slowly the market is picking up, although there are still recession on account of Russia-Ukraine war. But since, as I mentioned in the previous call also, there are consolidations happening from the retail side, which means that they want to reduce the number of players and consolidate the long-standing good performance to increase the businesses there. In addition to that, China Plus is working out, all the retailers are seriously working on the China Plus strategy and in addition to the China business, they would also like to have one more country, more than one country, to mitigate the risk and for gradual exit to great extents on China business. So once that comes, probably the things will be better now. So we as a company, we stand to gain distinct advantages because we have long -- our customers are long-standing customers, so the consolidation is in our favor now.Thirdly, the market volatility with regard to cotton prices and the yarn prices, still the cotton prices have -- slowly it has stabilized now. And the yarn price is slowly picking up because the orders have started coming from the customers now. The cotton yarn prices are more or less breaking even kind of a situation. So currency has been stabilized. With regards to the currency, the currency trend totally, we are seeing U.S. dollar, GBP and euro strengthening against the Indian rupee. And we are also witnessing a significant increase in interest rates in the U.S., U.K. and Europe, which is not allowing us to use our working capital effectively.An update on the Garment division is, as part of our new strategy on expansion, we are pursuing to set up a company in Sri Lanka, which will help us to expand our capacity in Sri Lanka, in addition to our existing efforts to increase the existing capacity. But this model will be an asset-light model, which will allow us to expand our capacities as much as possible in Sri Lanka.In addition, as a part of the expansion strategically, I would like to update you all that we are in the process of growing our capacities in woven garment sector, and we are on the lookout to add more capacities in this segment by looking at some woven garment factories on -- as an additional capacity.And our current order book is around INR 425 crores. Our capacity utilization has improved significantly. And our current utilization 3,900 machines and is around close to 80% utilization level. On the financial performance of the Garment division, our Garment division revenue for the quarter was INR 213 crores compared to INR 223 crores in Q1 FY '23. Total export quantities for Q1 FY '24 were 14.4 million pieces. Our adjusted EBITDA for the Garment segment in Q1 FY '24 was INR 35 crores compared to INR 48 cores in Q1 FY '23. EBITDA margin stood at 16.3%, largely on account of the pressure on the raw material prices. In spite of our current margins, we are hopeful that our margin in the -- hopefully, it will be at above 18% in the coming quarters.With regards to the Spinning division, spinning mills are not making margins due to less demand of the yarn in the market. The cotton prices have now stabilized, hope it will sustain. I'm confident that our spinning units will overcome the challenges and will contribute to the margin from the current quarter onwards.In SPUK, there's a lot of strategic changes being done. They're shifting office to London, change of the teams, which has now settled. The new team will take things forward in coming years and we expect the revenue to pick up from second half of the financial year and should do well going forward. We are planning to add 2 more new customers to SPUK business.Revenue for the quarter stood at GBP 1.4 million and EBITDA, we have made losses to the tune of GBP 50,000. I am confident that SPUK will be able to work closely with the customers, and will be able to do well during -- going forward.Now to S.P. Retail Business Limited. In general, Q1 '24 has been bad for the entire retail industry. Our top line remained flat at INR 15 crores with an EBITDA loss of INR 4.5 crores. Current liquidity, our liquidity position is strong, and we have serviced all the debt up to date.Now I will hand over to CFO for financial presentation. Thank you.
[Technical Difficulty]
Sorry to interrupt. Sir, we are unable to hear you clearly.
Is it audible now?
Yes, sir.
Our adjusted revenue stood at INR 242 crores and adjusted EBITDA stood at INR 35 crores and our PAT stood at INR 15 crores for current quarter. We made an EPS of INR 5.99 on the EPS front.And on the segmental reporting, we have, for Garment division, top line of INR 213 crores and with a 16.3 percentage on the EBITDA, which is around INR 34 crores on the EBITDA number. On SPUK, we did a INR 14.8 crores top line where we have made a EBITDA losses in SPUK. On the S.P. Retail Limited, we have done INR 15 crores of top line with INR 4.5 crores of EBITDA loss.On debt front, our gross debt stood at INR 191 crores, and our net debt is INR 120 crores for the current quarter. We have utilized our working capital purely because there is a change in the interest rates in U.K. and U.S. where the interests have gone up. So our working capital has increased. Other information is available in the presentation.And we can get to the questions and answers.
[Operator Instructions] The first question is from the line of Aman Agrawal from Carnelian Asset Management.
The first question was on the Sri Lankan subsidiary where we are incorporating a new subsidiary. So are we planning to have manufacturing operations in Sri Lanka also in the future for garment? If you can explain a bit more in that?
Manufacturing facility we are looking for, and we have started with some factory and in consultation with customers, we'll be going ahead with that. This is going to help us in straightaway getting results. We are looking at the running factories. So straightway, we'll get additional capacity, probably if everything goes well, it will be up and running from Q4 -- late part of Q4 or up and running from Q1 '25.
Got it, sir. And this will be mainly in the kids category or like are we looking to get into some other categories with this new plant?
Can you say a little louder, please?
Aman, your question needs to be louder, please.
Sorry. Just wanted to understand, will this be in the kids category which we are predominantly present and are we looking to get into any new categories with this acquisition in the Sri Lanka?
[Technical Difficulty] products, new categories, since we are already into jersey products and woven, we are going to go for woven, that we'll also add within India as well as in Sri Lanka. And in addition to that, even for the knit product, we may be going for the kids and baby. And we are not ruling out the ladies and menswear also because those factories are versatile for any kind of products.
Understood, sir. Sir, one more thing like on the capacity utilization, we have guided for 90% kind of utilization by end of this year, right? So what kind of labor addition we are looking for to achieve this kind of utilization?
Actually for 90% utilization, we used to talk about 4,500 to 4,800. It's an initiative. That's an ongoing process. We have been -- as we mentioned in the past calls, that we are mobilizing the workforce from the migrants -- other states also. And in addition to that, there is one new project is coming up in Tamil Nadu. So all put together, probably we will be able to reach 90%.
Got it, sir. Sir, one question on the exchange loss. Like this quarter, we have incurred a loss of around INR 5 crores in foreign exchange, right, realized losses? So if you can explain like why this happened and like any outlook on exchange gains or losses for the future, like further expansions in FY '24?
So, Aman, the exchange gain or loss happens because of the spot movements. Sales are booked on the spot rate. And recovering -- cover of forward contracts are taken from the date of order which we have taken. So there will be always movements in terms of positive and negative because spot keeps moving regularly. So whenever rupee is depreciating, you'll find this as negative and whenever rupee is appreciating, you will find it as positive. So this is how it works.
[Operator Instructions] The next question is from the line of Surya Narayan from Sunidhi Securities.
Yes. Am I audible, sir?
Yes.
Yes. So just to understand the Sri Lankan operation. So what is the labor arbitrage vis-a-vis Tamil Nadu?
Sorry?
What is the labor differential or the arbitrage versus -- India versus Sri Lanka?
See, In India this has been always the talent, but we are able to draw there. But in Sri Lanka, [Technical Difficulty] are less, because the factories are idle for want of orders. And this is the right time that we get into Sri Lanka manufacturers -- manufacturing centers, when the factories are already running through workforce. So we have identified some workforce because getting the workforce in Sri Lanka is not as much challengeable as in India. So we thought we will make use of this opportunity.
Okay. So any ballpark figure on the budget side, I mean, so far as a buyout is concerned and the labor size you want to deploy there?
[Technical Difficulty]
Sorry to interrupt, sir. We're unable to hear you clearly.
I think discussing on the Sri Lankan operations, it will be too early for us to discuss some numbers and capacities and other things because we have to get the customer clearances before getting into the capacity and other things. So that may take some time for us to come out with details on that. Maybe, we will let you know once there is complete data, we will let you know on that.
So internally, no budget has been fixed?
Yes. We are not -- if you look at Chairman's speech, he said that, that will be asset-light model. For the time being, we are not looking at any expansion in Sri Lanka. We are only looking for factories on a leased basis or on a contract basis as of now. Once we are comfortable with the operations, then we will look at putting up projects there.
Okay. And sir, regarding the -- your migration into -- or let's say, adoption into the woven segment. So are you facing any challenges from the knit side so that you want to mitigate the risk from the woven side?
No, this woven -- generally, now [Technical Difficulty], now there are more demand for the woven products from the customers. Since the customers are consolidating with us, most of the factories' business is coming to us, so they are expecting us to do the woven garment as well. But our existing setup cannot do those things because of the -- already we have enough orders for existing factories. So unless we look for another factory, which is well -- I mean, real typical woven factory so that we don't lose that business in addition.
So in that case, sir, our own internal knitting unit will be underutilized. Am I right, sir?
No, no. This is additional business.
Okay. So you don't see any sort of disruption in the existing demand from the knitting side, right?
Yes, we are working on that. We are already on the process. So probably in the next quarter, we'll be able to update you on this. Only then we will start taking woven orders.
And sir, regarding the retail and the SPUK, still this year will be work in progress so far as the turnaround is concerned?
Yes. See, SPUK, it is only a temporary phenomena. Post COVID effects will -- you will see the SPUK as well as the retail only after about 4 quarters to 6 quarters because that will -- that only -- immediate impact will be on the manufacturing. But otherwise, for the trading model, it will take about few quarters to have the impact on this. So now in the SPUK, we have already moved the setup, their designs department and the sales team, everything from [ Leicester ] to London now. It is all being set and is up and running now. So probably from Q3 onwards, we will be back to normal. We'll start making profits on this. Because these 2 quarters, literally, we had revamped the whole thing. So that's the reason why there have been expenses -- special expenses were there, but no real -- top line was not lower.
Okay. And sir, about the local retail?
Yes. About the local retail -- one second.
What is the question about local retail? Sorry.
My question was about the turnaround of the both units. I mean, sir has told about the SPUK. and the domestic retail, your perspective about the turnaround.
Domestic retail, among the 3 brands that we currently operate, Crocodile has been consistently profitable and it has turned around. So even Q1, Crocodile has done good numbers. But the major impact has been from the kids wear, where the gross margins are lower because of these lower volume and some marketing and operating expenses for a new standalone store. And there's been some liquidation which happened on the other brand, on the HEAD brand, which, maybe in the next 2 quarters, we'll be able to come out of that. But Crocodile has been growing. So Q3 onwards, Crocodile will support both these other 2 brands, and it will turn around.
Sir, primarily, we are a kids wear company, so is it that, we are seeing any slowdown in the kids wear segments because Crocodile is into adult segment. So what is the case currently?
Can you repeat that question? Sorry, I didn't understand.
Yes. What I'm saying is that, primarily, we are kids wear company and Crocodile is adults wear company. So is it that, slowdown is happening in the kids wear at the moment? Because kids wear is a -- should be having a secular growth, but that is not panning out, what you are saying. Or you are facing competition?
[Technical Difficulty] in the export division, retail is a separate model. So here, we have the new brand called the Angel & Rocket for the domestic purpose, which has nothing to do with our manufacturing center. So this is -- it is in the [ improvisory ] period kind of thing, so which means it will take another 2 years to start making profits, because only 3 years old now. And at that moment we had taken this business, immediately within 1 month, the lockdown came -- the pandemic came. So we lost about 2 years of that. So that we held up with the stock, sitting with a huge stock. So slowly, we are liquidating everything. So now only we start buying the new stocks and going to the market. So this, as JMD said, by end of this financial year, the overall retail will be able to turn around.
So how much additional capital allocation will be required in the retail this year?
We have guidance in place for retail. So I think they have -- they will take care of their internal requirement. [Technical Difficulty] There's no growth fund...
No need for any growth funding because we are not having a plan to have big growth in the retail.
Okay. And sir, any sale -- you have merchant sale in the cotton yarn you are doing?
Any?
Merchant sale of cotton yarn? Any external sale of cotton yarn you are doing?
What happens, whenever -- we have a captive plan, whenever there is an extra quantity that is available, we sell it in the domestic market. But it's nothing to do with what -- it doesn't happen regularly.
That is purely for captive only.
Okay. And when the realization -- you are expecting the realization to improve because, currently, the realization is below last year. So -- and currently, the cotton has again picked up from INR 55,000 to around -- it is close to around INR 60,000 per candy. So are we seeing any negotiation for -- to arrest this fall in the realization?
See, in terms of cotton prices, so we are a company where we pass on the cotton cost to the customer. So if you compare Q4 to Q1, we have come down on the realization [indiscernible]. That is purely because it is the behavior of the yarn prices, which has come down. So you should not confuse in terms of the realization of [indiscernible].
So shall we mean that the realization in the Q1, that is INR 134, so that is the bottom?
It may come down still because the orders which we have taken for the current orders, which we are having in hand is around INR 130, INR 129 only. So it all depends on the yarn -- current yarn prices.
Okay. Because my sense is that unless and until the destocking issues, that is being debated, that is improved, we can't get higher realization. Is my reading right?
Yes, you may be correct to a business model where it is purely dependent on the cotton prices. Yes.
The cotton prices have picked up now but the yarn prices, we may have INR 10, so that [Technical Difficulty] price to match the cotton price increase as against the yarn increase. So we hope that there will not be a big loss in the spinning sector.
The next question is from the line of Vikram Suryavanshi from PhillipCapital India Private Limited.
Some of the questions were already answered. Just wanted a clarity that the new facility, what we are looking at Sri Lanka, is it possible to ship existing order to new facility and vendors don't have to approve that? Or do we need to take new orders for new facility?
In terms of Sri Lanka, I think we have just updated you on the strategy.
Let me explain. See this is a strategy we have taken for offshore production, because currently this company has normal potential of getting businesses as much as we could increase the capacity from the customers, because we are one of the preferred vendors to our existing customers, and we will also have room -- we want to have room for increasing the customer base. We need to include some new customers as well. But it is not in tandem. I mean, like the order inflow versus the capacity increase are not in tandem. So what we thought, we need to inorganically plan something, either offshore production or acquisition of some factories so that we get the capacities quickly. So that was the plan we had.So finally, what we thought was, why not we think of Sri Lanka as offshore production with the existing running factories, so we just get the business from the customers, and we will get it produced from the Sri Lankan factories. This is going to be an additional business, provided the customers are giving the go-ahead for those factories, which we don't see that would be a problem. So which means, for example, in Q4, we offered them, say, x number of machines, but out of Sri Lanka, definitely, the orders for those machines will be -- additional orders will be placed. So it will be part of our total sale. So this is the plan. So once the customers give the clearance, then we'll book the orders, and we will be producing it out of Sri Lanka and ship it from Sri Lanka.
Understood. And this will be predominantly again in the kids segment or these factories are fungible for...
Those factories are very versatile factories. So it depends on customers, what products they want us to produce, then from that, we will [indiscernible].
The next question is from the line of Chirag Shah from White Pine.
I hope I'm audible?
Yes, sir.
Yes. Sir, my first question was with respect to this number of machines that you indicated, 3,900. It's a good jump from our historical range of around 3,500. So is this utilization sustainable or there is seasonality involved in this? That is the first question.
Present utilization will be sustainable because we have orders in hand for another 4 months in full. So definitely, we'll be increasing the capacity, that means this will be maintained.
And the second question was, while utilization has gone up, the number of pieces have not really gone up in that proportion. And because the ASPs have also gone down, can you just explain the -- this because partly the ASPs are lower because of the raw material prices, which you explained. So how should one look at what is the net impact on ASP, if you can -- or number of pieces, if you can explain that?
Yes. The more the number of -- I mean, more the utilization level goes up, definitely, it will help us to increase the top line as well the bottom line because our [ fixed and overheads ] will be definitely the -- turn across these capacities. This will definitely help us, but this quarter is something which is not really based on the 3,900 machines, the Q1. But currently, now we are running is around 3,800 to 4,000, around this time. So probably, effectively, Q3 will be the numbers where you will see the top line growth proportionately as well as the bottom line growth.
Sir, what was the number of machines deployed in Q1, which have -- if it's not 3,900?
76%, which is close to around 3,500.
Sir, your voice was cracking, sir, I couldn't get it.
Effective utilization for Q1 is 76 percentage, which is close to 3,500.
Okay, close 3,500. And you have now deployed -- so now you're utilizing 3,900.
Currently, utilization is close to 3,900. Yes.
Okay. And this you are reasonably confident of taking up to 4,500 by end of the year?
Yes.
And sir, the ratio is 2.25, right? Per machine, if I want to convert number of labor, number of work force, is it 2.25 is right ratio to use per machine?
That is the range towards which we are working on now, that is all in advanced stage of the coverage we are looking.
Sir, what would be the labor number -- workforce number?
Currently, it should be close to 12,000.
Okay, it's close to 12,000. So 12,000 for Q1 or 12,000 for this 3,900 machines?
See, we are backward-integrated. You have to look at the streaming, processing, the embroidery, knitting, everything put together. So the total number, what I'm saying is purely fully integrated. So that is the number which you have to look at.
Okay. Okay. And this number will go up where you -- as you reach 4,500, right? So it will be closer to something like 13,500 kind of a number?
Correct. Correct.
Okay. Sir, second question was, given that you're also adding capacity of 2,000-odd machines in the new capacity in India. Again going back, why Sri Lanka is an option? You could have chosen to do this kind of work at your new factory also, right, sir?
We are planning inorganically. See, we are putting up new process, new factories, already the work started. And we are also looking for increasing the -- any possibility of adding a new factory, whichever is running for woven garments. So that is also within India. And the third option is -- third possibility is offshore production. We are trying to manage all the 3, we are trying to take all the 3 options, that is, one is new project, another one is any acquisition possibilities of the woven garment factories, third one is offshore production. So this is why we have enough capacities and the customers are willing to place more orders. So we cannot simply try to grow 10%, 15%. And this is the right time with the right opportunity to make an attempt on all the things because [indiscernible] is ahead. So there will be lot of order inflows will be expected and China Plus strategy is also there. And the customers are consolidating. So considering all these things, we are just thinking why we should not suddenly increase the capacity, make a big jump in the capacity so that we don't miss the opportunity.
Sir, in your broader thought process, this offshoring in Sri Lanka or either offshoring or complete buyout kind of an option that you're evaluating, how big this can be in overall scheme of things? It can add, what, 500 machines or it would be lower than that?
So that depends on the customer concurrence, straightaway going with 300 machines or 500 machines, but then [ retail ], we can increase up to 1,000, 2,000 machines, not an issue, but that will happen only in the -- over a period of time.
Yes. Fair point there. But -- so you are not looking to start with not more than 200, 300 machine, right? That is the right way to look at it?
It's too early to say anything, I told you. We have to see the customer's concurrence, after that clearance and how many customers are willing for it and what are the quantities, what size they would like to -- [Indiscernible] produce from that, all depends on those decisions. So which means that capacity is open.
Okay. Sir, second question was coming back to the retail business of India. I just wanted to understand how are you looking at it? Because when -- what are the monitorable or the time zone that can -- that you have given to take hard call on that business? Because we have been trying time and again to rejuvenate the business. And I understand opportunity is very big. But despite that, execution, there has been some issues coming across. Management bandwidth is getting blocked over there. Why not focus on woven Sri Lanka completely rather than focusing on retail. So internally, have you formed up any time line, any monitorable where you are, when you will be willing to take hard call on that?
We have a road map of 7 quarters to turn around -- one second.
So on the retail, we will look at retail as a whole, with all the 3 brands in terms of the turnaround. We look at it for 7 more quarters and based on our experience with the Crocodile brand, it took a lot of time for the brand to reach a level where we've been fully out of issues in terms of profitability, inventory and receivables, all of those. So it is going to take time and primarily because of the new brands that we had launched, specifically during the COVID period. But internally, we have kept the deliverable and we are monitoring. And we've given targets where we have a look at it in, say, 7 more quarters on the retail overall, unless it's turned around, then we'll look at other options.
Okay. This is helpful. The last question, if I can ask, is on the hostel facility. Any update on that? How are you -- how many locations or what percentage of your production does have hostel facility and how are you going to ramp it up?
Can you repeat the question?
Hostel facilities at your existing factories and even the new ones that you are constructing in Sivakasi. So what percentage of our revenue can come from those kind of facilities and what is coming currently? And how are you thinking over next 2, 3 years?
Actually, At the new factories, there will not be any hostel for the outsiders, we are using all local people only. And the revenue contribution from the hostel facilities at the moment, it is a growth of 30% to 35% and balance 65% from the other factory.
Any though process on increasing this number? How are you looking at -- what -- are there any specific challenges that you are facing because of which you don't want to raise it up, because providing a hostel could be a very good opportunity also to attract the talent, right, which has been a challenge?
No, our strategy is, as I have been mentioning in all the call, that for the India business or our business, we also have 3 types of business model. One is the local, who are commuting from home, which is a Phase 1, and another one is the hostel migrant, which is again 1/3 of the total business we are -- it is only a risk mitigation and the third level is the hub and model kind of -- I mean satellite factories where new projects, new centers where there is abundant people are available to whom we will train and develop them. So like [ Kovilpatti ] is one which is working out very good. So we constantly keep these 3 models always to mitigate the risk. And now for mitigating the risk -- not only for mitigating the risk, to increase the capacity quickly, we are planning for association of woven factories, and we are planning for offshore production, which will bring in more additional capacity immediately. So this is the strategy of our workforce management.
Okay. So would it be right to make an assumption that wherever you have hostel factories, the turnover of the labor is lower than the other 2 factories? Would it be the right assumption or not necessary?
Generally, the hostel factories aspiration is comparatively higher.
Is higher?
Yes.
Interesting.
Because all migrants.
They are all migrants. Okay. That is the reason why it is higher. Okay. Sir, and lastly, any capital allocated for this acquisition of a woven factory? Any thought process over there? What kind of size, what kind of capital you want to invest...
No, it's too early to discuss on these things. It's in early stage.
[Operator Instructions] The next question is from the line of Prerna Jhunjhunwala.
Sir, just wanted to understand the demand upsell that is happening and you're getting good orders from the customers. So could you give some color on how the demand coming is from existing or is it demand ramp-up from new clients as well and how your customer concentration is changing and is likely to change over the next 2 years?
Yes, this is purely because of the consolidation. See, all the retailers, everybody, no exception, everyone wants 2 things. One is reduce the number of players based on the performances and the longevity of the relationship. And the second one is, they need one more country other than China to mitigate -- to move away from China or reduce from China. So this is what every retailer is working on. So we plan to take the advantage of this because of the consolidation one. So most of the business are coming to big factories like ours and reducing -- they are reducing number of suppliers. So this is one of the reasons, not just because -- not that there is a big demand in the European market or something whether, that's not the case. With the limited volume of business, what retails are doing, this is the right time for them to easily consolidate the factories. So that's what is going on. And China Plus model is also helping us to get some of -- now we are doing all China products also here now. So the customers are asking us to do China products also here.
Okay. So China products, meaning will it be cotton-based only? Or it will be...
It's a blend, cotton, polyester, something kind of winter products, those kind of things.
Okay. Okay. And any [Technical Difficulty] on the new customers that you added up in the last 2 years, how is the [Technical Difficulty] happening on new customers?
Yes. So this is not the right time to tap the new customers because the recession is going on in all over Europe as well as in U.S. because of Russian war. So there's no point in tapping or knocking at the door of the new customers at the moment. We are waiting for the right time to try for new customers. And in the meantime, we will maximize our capabilities in all the aspects, from acquisition of a factory in India, the Sri Lankan offshore production. So all these things, once we are ready, in the next 2 quarters, probably that would be the proper standing to tap the new customers as well.
Okay. And sir, also wanted to understand what made you circle on Sri Lanka because there is political instability there as well as economic instability and they have been losing orders as you mentioned? So before circling on to Sri Lanka, have you looked at Bangladesh and any other geographies and Sri Lanka was a win-win, so would just like to have some color on geographies.
Yes, there are possibilities at looking at Bangladesh or Vietnam or Cambodia. Vietnam or Cambodia are completely Chinese kind of working model, which won't suit us. And China has been putting up their big factories in Vietnam and Cambodia. That's ruled out. And only Bangladesh and Sri Lanka are the 2 options available in front of us, where again, Bangladesh is always risky from the customer point of view because, given a chance, they would like to move the businesses as much as possible to India. So where -- because still there are component issues, fire safety issues and the workmen unrests, all these things are happening there. That's one. And the second thing is cultural problem for us to handle them and still there is the communication -- language is a problem for us to take over those factories. Yes, it will not be difficult, it's a good option for Bangladesh as well. But given a choice of Bangladesh or Sri Lanka, we prefer Sri Lanka because culturally there is no difference. And abundant labor is available as in Bangladesh.And as for the political instability, it is not the case because that country is not -- tourism is not doing good, so they depend only on the garment business where they import the materials out of China or India and they export the [ wages ], that is what they are doing. And now they are in need of the orders with the right time under [ what form and available clarity ]. And this is the right time, and culturally, we are in line -- they are in line with our way of working, and they understand everything what we are talking about. And customers also will be preferring Sri Lanka and only then they'll go for the Bangladesh.
Okay. Understood. Sir, last question on geographic distribution. Now how much of our revenue is coming from U.K., Europe and U.S. individually?
U.S. contribution is 8% this quarter and [ 44 ] percentage is European contribution, rest from U.K.
We'll move on to the next question, that is from the line of [ Ketan ] from RoboCapital.
Sir, what will be the revenue guidance for FY '24 and '25 as consolidated?
So we are providing the guidance of growth of [ 20%, 25% ] if everything goes well. And if the offshore production is set, then probably we may cross another 4 to 5 percentage.
The next question is from the line of [ Rusmik Oza from Nine Rays Equity Research ].
Just wanted to get some sense on this FTA with U.K. As and when it comes, how does it impact our EBITDA margins positively? And does it lead to any change in the guidance you've given in the presentation of 18% to 20% EBITDA margin that you're looking at, especially from an FY '25 perspective?
Yes. So FTA is again -- everybody is waiting for FTA to be through. But we are -- we really don't know the government policies with regard to the duty processing, we really don't know, because at the moment, Sri Lanka is duty-free, and Bangladesh is duty-free. And India is yet to be duty-free, once FTA is announced. But we really don't know what are the benefits to this, whether we'll continue to get the same benefit at the moment what we are getting or there may be any cuts in the benefits, we really don't know. From the customer's point of view, yes, there will be some sharing of the profit, if at all the duty is saved. So -- but according to me, the bottom line, there will not be any significant change either way whether in our favor or against us, I don't see anything. It's only the more business in the -- it will be open for more business to India.
Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for the closing comments.
Thank you. So hope I have been able to answer most of your questions clearly. And still, if you are not clear, please feel free to call any of us from the management, we will be happy to clarify if at all you have any queries. And thanks for your time spent and have a good day. Thank you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Elara Securities Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines.