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S.P.Apparels Ltd
Earnings Call Analysis
Summary
Q1-2025
In Q1 FY '25, S.P. Apparels reported a consolidated revenue of INR 245 crores, a modest growth of 1.1%, with an EBITDA of INR 32.4 crores at a margin of 13.2%. The Garment division achieved a 79.8% utilization rate, up from 76%, but sales volume dropped slightly. The company targets to leverage market trends and aims to hit 90% utilization by end of March. S.P. U.K. is set for revival, with a current order book of GBP 4.4 million and expected revenue doubling in the future. Retail and sustainability initiatives show promise, anticipating breakeven in retail by FY '25 and carbon neutrality by 2033.
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Ladies and gentlemen, good day, and welcome to the conference call to discuss Q1 FY '25 earnings of S.P. Apparels Limited hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma'am.
Thank you, Sean. Good afternoon. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q1 FY '25 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; Mr. S. Shantha, Joint Managing Director; Mr. S. Chenduran, Joint Managing Director; Mr. S. Latha, Executive Director; Mr. P.V. Jeeva, Chief Executive Officer; and Mr. V. Balaji, Chief Financial Officer of the company.
I would now like to hand over the call to the management for opening remarks. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone. I welcome you all to the post earnings conference call of Q1 FY '25. I hope all of you had a chance to look at our investor presentation that is uploaded on the company's website and stock exchange.
The Indian textile sector is experiencing positive growth in market trends due to the China plus 1 strategy and recent vertical under in Bangladesh, industry stakeholders are reevaluating the [indiscernible] on Bangladesh and looking for other countries to diversify their supply chain. Consequently in India, Vietnam and Cambodia are becoming more appealing options for [indiscernible]. This economic shifts are beneficial for us as clients are looking to increase their production capacity to satisfy their rising needs, which we are planning to fulfill gradually.
We are leader to take advantage of these opportunities. To do so, we are implementing strategic measures such as maximizing the inclination of our current capacities. We are also expanding into more favorable locations, like Sri Lanka, where we have established a subsidiary resegmenting the country's duty status and the availability of abundance [indiscernible]. We have begun to attract interest from numerous customers ready to place orders with our new entity, which we anticipate will significantly contribute to the company's growth in the upcoming years.
[indiscernible] the spending divisions by performance. In recent years, we have encountered challenges, especially with the fluctuating prices of cotton. Despite this offset, we have managed to find the balance between the cost of cotton and beyond sales, which we expect to be late to a considered EBITDA in the future. Additionally, our bank facility is now operating at full capacity, enhancing the efficiency and performance of this segment.
In the government division, we have broadened our range by venturing into the other thread markets. We are also set to boost our production with a new facility in Pragati, which will introduce 400 machines to our operations and we [indiscernible] to start in the second half of FY '25. Furthermore, our subsidiary in Sri Lanka is already yielding potion. We are currently in talks with 2 customers orders in addition to existing customers and anticipate a significant business opportunity with the major customers shortly.
At the end of financial year '25, we aim to have 1,000 ships in operations in Sri Lanka. Our current order book stands at INR 402 crores. Looking at the Garment division performance, the adjusted revenue was INR 214.1 crores with an adjusted EBITDA of INR 36 crores and the EBITDA margin of 17%. The utilization rate was 76% in Q1 FY '24, FY '25 -- sorry, the utilization rate now is 79.8 in Q1 FY '25.
In the Retail division, S.P. Retail Ventures reported revenue of INR 14.8 crores compared to INR 14.9 crores in Q1 FY '24. We have strategically chosen to discontinue the brand edge due to some profitable outcomes, which were adversely affecting the division. Our focus is now on the corporate brand, which is a strong brand in our portfolio, and own Children's brand, Angel & Rocket, which is showing consistent improvement. We expect the retail division to achieve a breakeven status by the end of FY '25, as we mentioned in earlier con call.
With regard to S.P. U.K., our revenue for Q1 FY '25 was GBP 1.1 million, and current order book is valued at GBP 4.4 million. At S.P. U.K., we are experiencing a revival. The company has revamped this segment by hiring a new team of a new team of designers to move to new office and expanding customer base with 3 additional clients. We are confident of the growth of this position and the aim to double our revenue base in the coming years. We will be able to show positive figures from end of Q3 '25.
We recognize our teams to contributions to our success, and we have decided to issue employee action plans as a token of appreciation and recognition. This initiative aims to reward their hard work and foster a sense of ownership, aligning their interest with the company's future growth. With regard to the acquired many brands, the manufacturing sector at Chennai, that the Q1 '25 as the business [indiscernible] -- Q1 is INR 59 crores and the order in hand is about INR 75 crores.
Additionally, we are dedicated -- this is the situation with gained brands. And we are confident of improving the EBITDA hopefully from between 15% to 18%, there are a lot of opportunities to improve the sales.
With regards to sustainability, additionally, we have dedicated sustainability and are actively working towards achieving carbon neutrality by 2033. This goal will involve reducing greenhouse gas emissions, investing in renewable energy and improving overall energy efficiency across our operations. Our aim is to minimize our annual [indiscernible] impact and lead by example in the transition to a more sustainable future.
Looking forward, our growth is expected to be driven by increased utilization of the capacity and new upcoming production capacity in the garment division. The newly added acquisition of [indiscernible] brand apparel and expanding operations in sand Kroon with gradual growth in the retail and S.P. U.K. division. We hope there should be good numbers in the future quarters. This is along supportive market trends are set to contribute to our company's expansion in the coming years. Thank you, and over to Mr. Balaji, our CFO.
Thank you, sir. Good afternoon, everybody. I'll just run through the performance of the company and the division-wise performance. For the current quarter, we are -- on a standalone basis, we have delivered INR 214 crores of top line with an EBITDA of INR 36 crores and a PAT of INR 22 crores. On a consolidated basis, we have done INR 245 crores of revenue, which is 1.1 percentage in growth and with an EBITDA of INR 32.4 crores at an EBITDA margin of 13.2% on a consolidated basis.
With the PAT of 18.1, we have delivered 20% growth for the -- on a year-on-year basis. On the performance of deliveries performance, garmenting has a revenue of INR 212 crores -- sorry INR 214 crores as against INR 212 crores year-on-year with an EBITDA of INR 36 crores for the current year, the current quarter, which is at 17 percentage. When you compare it with year-on-year, we have delivered INR 39.9 crores of EBITDA value at 18.8 percentage year-on-year.
S.P. U.K. has delivered INR 14.8 crores -- sorry, INR 11.7 crores as against INR 14.8 crores year-on-year. And retail has a revenue of INR 14.8 crores as against INR 15 crores year-on-year. EBITDA margins of retail stood at a negative number of INR 3.49 crores as against a negative number of INR 4.4 crores year-on-year. On the financial statements, all the financial statements are available in the presentation. I would just like to give an update that the [ [indiscernible] has been avoided on 21st. We have taken over the control of Enron on 21st of June and 10 days consolidation has been done with the current consolidated financial numbers.
Brand apparel's quarter 1 performance is also present in the presentation, which we have given separately. And with respect to our debt position, currently, we have a debt -- gross debt of INR 189 crores with a net debt of INR 162 crores. There is an increase in there due to the acquisition support from any brand apparels. Other things are available in the presentation, and we will get into the question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Rehan from Equitree Capital.
I just had a question on the capacity utilization. In the PBD, it's written that the capacity utilization is about 79.7%, and that's higher than last year at 76%. But the volume in terms of number of pieces has reduced. So are we sitting on higher inventory? Or can you explain that?
So like if you look at the utilization, so utilization is purely production based and the sales quantity, what you look at is purely on the sales pace. So there has been some shift to it next quarter.
See, I think this increase in incisional machine it happens gradually over a period. As on today, it is 79.8%. But it doesn't mean that for the entire quarter, it has that percentage. And not only that, the production is not necessarily to be shipped in the subsequent months. Sometimes in the volume model we keep producing and it will be in WAPA and then subsequent months, it will be shipped. So we may not have to relay the production value with the shipment value.
And the facility, it's rotating, it's not basis for the quarter?
Correct, correct, correct. Moreover, you will see there has been increase in the utilization where it is attributing to the new migrants who were joined and their efficiency is very low. So there is different efficiency level also.
Okay. Understood. Second question, if I can, to get to the capacity utilization of what we are trying to achieve of 85% to 90%, what are the real constraints that the companies can see? Is it going to be labor availability? Or is it order book? Or what other restrictions that we see that could slow the 85% to 90% capacity utilization? What's basically stopping us from going there?
Actually, the capacity utilization that's coming at the moment, the constraint is only the labor availability. And as we mentioned in the last quarter, we have already come out for that situation. Now the labor inflow is consistent, we are getting enough manpower and keep on trading them. And every month, we are increasing the capacity by minimum of 75 to 100 machines and hopefully achieving 90%, 95% that will happen in third quarter.
Okay. And Balaji, sir, if you could tell me the condition of spending for the quarter at EBITDA level?
Sorry?
The contribution of selling for the quarter -- last quarter, [indiscernible] last year this quarter, how much is the contribution from spending?
Spending, it should be around INR 65 lakhs, INR 70 lakhs.
The next question is from the line of Ash Podar from INS Alpha Investment Management.
So just a couple of questions. One, if you sort of talk a bit more about Sri Lanka. You said you want to reach around 1,000 machines in Sri Lanka. Can you talk a bit about what is the realization here? How do you think in terms of numbers, some timelines and some about the population overall, that will be really helpful.
Okay. See, as we mentioned in the previous con calls also, it is a contract, this is not the company want to practice there. That is the way the business model works. So the customers are okay with that contract model. And so we are shortlisting the best factories as good as volume capacity, efficiency and the costing. So based on this, we have shortlisted a few factories, and they have done the audit and the customers also have -- some of the customers have audited and placed the orders.
And the big customers, now the audit is going on in this week. And probably the orders will be released the end of this month or next month beginning. And as the customers are satisfied with the shipments and quality and the prices, so they will start increasing the business, placing production at Sri Lanka also in addition to India based on their comfort.
So getting those capacity in Sri Lanka is not a big issue because there are good factories available with the skilled workmen. So we will have the business. As the order book increases, we will also increase the contracting facilities over there. This is how it operates. And with regards to the margins, it is more or less at par with India because it's a duty free, although there is a slight increase in the labor costs.
So in terms of realization, it can be pretty similar to what we are doing here, but the margins will obviously be different since its contraction for us. So that's how we understand this model, right?
There is no difference between steel and realization of the year. The average price is more or less the same going to be.
Perfect. That's very clear. And the second question was on young brands. So earlier, when we had acquired this new, you were earlier saying that on margin model first to get to 14% to 15%, and then obviously, over a period, we are getting to 15% to 18%. Just listening to your commentary, it seems like you are more confident now more towards the upper end as compared to the lower end. So if you could just talk about what anything that's changed here for young brands? And second to part to that, are you still confident of reaching that INR 400 crore top line from your entire year that you talked about earlier in the press release something more? so just some or some thoughts on young brands as well?
Yes. So continuously, we have been attending the various operations level in the end brands continuously. And what we noticed the efficiency of the fact is good and the availability of poses not really challenging over there because that region is more -- is a catchment area of the workforce. So that is not going to be an issue.
On the getting the orders, already they have American customers, but that's not enough for increasing the sales. So we are going to push some of our customers or other new customers either on the U.S. or from the Europe and the U.K. So that will happen over a period of, say, 6 months' time. So that additional customers will happen for FY '26.
And again, there is a cost controlling and the material sourcing such kind of areas where it needs to be addressed. There are a lot of areas where we can comfortably improve the margins as what we have experienced in the [indiscernible] here, in their office. So we can easily be anticipate easily -- easily improve to 3% to 4% just like that by correcting all those lapses. So this is what is going to happen. And with regards to top line, so once we reach 1,500 machines, we are confident we will be close to INR 400 crores next financial year.
[Operator Instructions] Your next question is from the line of Surya Narayan from Sumit Securities.
Just my question on the young brand has been answered. So just wanted to underline definitely, the realizations, I mean, increasing those, I mean [indiscernible]. So when can we expect the realization in industry is currently going on a very muted part. So by what time we can see the realizations can improve, sir?
Realization means?
The average realizations of the gaps.
Beyond?
Yes.
Can you come again.
I just asking the average realizations is around -- hovering around currently 160, 170. So I mean, can we expect any deep from this current level? Or it will be similarly stays here?
So you're talking about realization per piece?
Per piece, sir.
Per piece. So realization per piece has got nothing to do in terms of improving on the revenue front. So it needs to be like we need to reduce more so that the real -- because we capture the chosen cater and the realization per piece will be at the same level. It can be only around INR 135 to INR 140. And that's been the case for us for past 4, 5 years. And we need to produce more quantity so that the sales improves.
Yes, it can happen. As I mentioned in my speech that we are increasing for other category for the future increase in capacities, then probably the average of the realization part will improve. But I'm not sure if you were to INR 160 or INR 170. But over a season, there will be an increase because we are adding other products as well.
So by year-end, how much as a category of revenue it can get out of the total basket of garment?
That's not sure -- that, we are not sure about it because there are so many factors involved in this. So we are not sure. It can go up to, say, 5% to 10%.
Currently, it is 15%, and maybe we can improve up to 20% in quarter 3.
Okay. Because the berth category set of is quite different. And are you accommodating in the same premises or any dedicated [indiscernible] has been gained here?
Same set only.
Same set?
Yes, same set. Because you have versatile in all, say, all products, so we can reduce the babies and increase other [indiscernible].
The next question is a follow-up question from the line of Adash Podar from INS Investment Management.
Just wanted to check on 1 thing. You said that in young brands, that is not so much of a challenge from the before. So is there possibility possible between the orders that we get products, the apparel and -- because young brand is clearly more of your intimate wear and we do more of content there. So is there fungibility possible, sir, that you can [indiscernible] going forward?
Yes. That is possible because there is no big challenge we see in populating the workforce. So we definitely look -- we are very confident that we can increase the sales. We can reach the capacity of 2,500, 2,600 machines. And also, we can go for expansion after 2, 3 years' time because we have enough place, we can place for building the new factory also.
And Innerwear segment is the most demanding one, and there are entry barriers to this segment. So we spend to gain. We get the opportunity to increase in terms of orders as well as margins.
Okay. Perfect. And despite the way the first quarter has gone, you would still hold on to the target that you said for the entire year? And you were saying that organic business growth will be 10%. And then we have this [indiscernible] factor and on top of that, we have young plants. So we still hold on to what we said after the end of the year or at the end of Q4?
Yes.
[Operator Instructions] The next question is from the line of Rich Maja, who's an individual investor.
So my questions regarding the recent capacity additions, who are existing doing that 79% utilization level. So post this new capacity, what will be our utilization level? And where do you see this capacity going up over the next 2 years?
When you say new capacity, I'm not able to understand which one do you mean? So you are talking about the [indiscernible] factory, you mean?
Sri Lanka [indiscernible] and Sri Lanka, that one.
[indiscernible] factories have to start.
[indiscernible] start foreign emissions by March. March, generally, we will be able to run about 400 machines in [indiscernible]. But Sri Lanka is only the contract basis. If we are aim to think about the any investments or joint venture in Sri Lanka, it's too early to talk about it.
But when those factories are on the job of basis, so there is no question of capacity utilization over there. With regard to young brand, the installed capabilities is 1,600 machines. But currently, we are using 1,100 machines. So gradually, in the next 6 months, we will be able to utilize about 90% in young brands. With regards to overall SPFL garment division over here, we expected a 90 plus by end of March.
Okay, sir. And 1 last question, how much CapEx has been planned for this year?
We are looking at capacity -- I mean, CapEx of around INR 40 crores, including the investments in [indiscernible].
Next question is from the line of Akasha from India Investments.
I have 2 sets of questions. So I just want to hand on the acquisition of young brand. Can you please provide insights on the projected revenues and EBITDA margins for the FY '25? And how much will it contribute to the top line? Yes, go ahead.
So we are looking at INR 300 crores of revenue from young brand for the current financial year. And at the EBITDA level, it should be in a position to contribute around INR 32 crores to INR 35 crores based on the percentage on the completion. So that is what the estimated number should be in terms of young brand numbers.
Okay. And how are you leveraging the cross-selling opportunity? Have you started with young brand customers?
Sorry?
No, I just wanted to know...
Can you repeat the question, please?
Yes. So I just wanted to know how are we leveraging the cross-selling opportunity, which we have started with the young brand customers?
Cross-selling, as firm was saying that they are utilizing at 1,000. They are working with 2 new -- 2 U.S. customers. We would like to add customers there. and also take our customers there so that the utilization level goes up.
Surely, this said, our existing customers in inner garment requirement, definitely, they are also looking for new sources. So once this -- the young brand is all settled down in terms of filling the capacity in terms of compliances, everything when we will approach our existing customers to increase them to place the orders for never. So that should not be a problem.
[Operator Instructions] The next question is from the line of Prerna Jhunjhunwala from Elara Securities.
Sir, a broader question, how are we seeing the opportunity on the demand side shaping up, especially from the European customers today. In light of Bangladesh and if Bandari stabilizes also, then also, I mean organic demand I'm talking?
Okay. See, as I mentioned in the previous con calls, any way customers are having sourcing strategy of moving some of the businesses from China as in Bangladesh. Anyway, even before this Bangladesh issue, anyway it was a plan of most of the customers because they all felt to them, they are putting more businesses into Bangladesh, where the political instability is there. Almond of label, restlessness and such kind of things and natural calamities.
So considering all these things, so they have given no choice to increase the business over there because they're duty free. But now [indiscernible] has been putting more orders increase, they have started feeling very risky. So for that reason, they have already decided to move some of the businesses to India, Sri Lanka, Vietnam and Cambodia, other than China, Pakistan and Bangladesh. So this is the current scenario.
So with this situation, the current issue, they are becoming more sure of going steady with their strategy. Overnight, they will not be algo, it will settle down. But still, they will continue to work to divert the business to some extent to other these 4 countries. So we plan to gain for India and Sri Lanka.
Okay. Understood. So in this scenario, for organic growth, what all opportunities would be there for us. Like young brand, we understand cross-selling and all that. But on the client addition front, and in other geographies that we are seeing some traction. How -- what kind of inquiries are we getting? Some color on that would be helpful.
Yes, after acquisition of young brand, we started getting the new customers for our existing business, the babies and Kibler business, by their customers who were already in the process of inquiry going on with the yen brand and their Manalapan factory. So those customers, once they have the news that we are taking over, acquiring, so they started approaching us mostly from U.S.
So there are possibilities that their businesses will come to us, subject to availability of sufficient capacity in our existing center. But we are not ruling out that those business can move to Sri Lanka. These new businesses of U.S. can move to Sri Lanka. So there are cross-selling happening either way. So as they shift to young brand also, we will be bringing additional business to young brand by our existing customers. So I think the profiling have happened, and this will take about 6 months to settle down. So overall, the customer base for both will increase.
Okay. Understood. And sir, this current order book of S.P. U.K. is GBP 4.4 million, it is executable over how much?
GBP 4.4 million.
GBP 4,4 million. Yes, what's the question?
It is executable about in how much period? Like it provides visibility for?
For 5 months time.
Five to 6 months.
Okay, 5 to 6 months. So we can see double these revenues coming in for S.P. U.K. from...
From Q3 onwards, we are confident that we will be back on track and take off.
And sir, EBITDA will be positive at those revenue?
Hopefully, it should be because it's a daily model. So what is pulling down the EBITDA margin is only because of the fixed elections. So there are, I think, about 12 people working over there, the design costs and the business head and other costs. So this is an or in down the margin. So it's going to -- even if we do INR 10 million or INR 15 million, which is possible. So these emails are going to be the same. So naturally, the EBITDA will be very attractive.
The next question is a follow-up from the line of Surya Narayan from Suniti Securities.
Just a follow-up question to understand [indiscernible] that the young brand has -- you are pushing on all the companies into undergarments. And where the after the angle is less focused rather than the delivery. So what I understand is it like there, the capital put on our asset term will be higher than the existing garment. Is it the right understanding, sir, because of the low margins...
The Sri Lankans company, right?
No, your [indiscernible], sir.
Yes, the asset will remind you, you take S.P. Apparels standalone or the end brand, the asset down will be remaining the same.
Okay. Because in case of [indiscernible] and also a lot of -- I think [indiscernible] to be taken to printing. So those things are there, but that is not there in the case of undergarment.
Surya Narayan, the end brand doesn't have a backward integration. So S.P. Apparels here has a backward integration. So if you look at the Garment division as a separate entity, the asset term will be on the higher side. But because it is backward integrated, we are money invested into the assets will bring down the asset turn. But there is purely only garment. So the asset term will be on the higher side. You can look at assets at 5 to 6x there.
Yes, that's fair understanding. And sir, just recently, just understanding a broad scenario of lower availability. So prior to, let's say, 2 years back, the individual states from the Eastern side where we generally procure level, so that was a fairly easy process to get. But now the Eastern side, a lot of governments are putting up their own facilities. They are incurring even a few of the listed companies have gone there. So [indiscernible] the labor availability or migrant labors will be more available in the [indiscernible] side. So how are you -- how the industry, especially from this high side, is going to profit there?
[indiscernible] not this side, there are plenty of raw hands, workforce are available. It's not -- currently, still it's not a tight situation, number one. And number two is that as the things go up for us, it is only the -- this company relies on the migrant works is only on, say, about 1/3 or about say, 40% of the total, 1/3 only. I would say 1/3 of the total workforce only there.
So -- because we have mitigated the risk of workforce by having at the strategic locations, like silica [indiscernible] various places of coming orders, where the abundant workforce locally available. So that is our biggest spend as against other companies, some of the companies who are 100% delay only on the hospital workers, where again today is only the migrant workers, not even the [indiscernible] workers. So that risk has been mitigated. And over a period of one, we reach a machine, it plays 90% plus. So only we may need about month on month about 100 to 200 workforce new to replace the attrition. So we are very well safely placed with regard to the mobilization of workforce.
Okay. And because [indiscernible]...
I'll add a couple of points here. See, the mitigation in terms of the [indiscernible] we have gone to seal and call, so where it is a geographical number acquiring the end brand [indiscernible] new factories in Chennai also when our labor force is available. [indiscernible] or migrant all the way.
We can put up again 1 month in some where the new [indiscernible]. So our [indiscernible] that's very safe and concrete.
Okay. Because Bangladesh happens to be made in the knit and denim. So given any strategy by the global change to shape [indiscernible] Bangladesh plus 1 strategy, then we need to be ready for a fleet of expansions. So just wanted to understand whether the kind of level because already, we have been facing the availability in person of even upgradation. So even though we may be hearing some asset machines, but not be lower there on the learning curve and it takes time to be [indiscernible] product. So in that light, just wanted to understand whether familiar is capable or you need to see some of its locations as well?
Part of your question we didn't understand. Actually, I guess, there is some problem in mobile or in the line. But I guess your question was to do with the availability of labor force in coming order as a general. So currently, less as a part of strategy, we have already explained to you that we are mitigated. We have all the mitigation taking care of the risk to what we what you are saying, but I don't know, the question was not that clear in terms of...
Yes, growth, we have well placed with Sri Lanka and new projects. And for filling existing capacity to increase the utilization, we have a risk mitigation of local plus these migrant workers. So it's not a big challenge at the moment now. So over a period of 6 months' time, we will be reaching, as I said, we'll be reaching 90% plus utilization. So only the outflow will be balanced maybe into. But we do not affect the growth. I'm not able to understand your question because it is not very clear, but I think the answer should be there.
My question was early to do because the current young brands and the Sri Lankan patients and the other acquisitions, that is actually to take care of the accretion of 2 to 3 years CAGR, what are the projections you have been. But beyond that, the visibility just to understand whether you are looking at any Eastern part of the country to expand or you'll be speaking to some as well?
We do not have any plans for putting up any center in the Eastern part.
Add a point here, see, the growth doesn't come only, and we are practice in Eastern part or Northern part or some part of the country. So like the growth can happen -- can also happen by adding factories to the existing. So I think putting our factories today, the scaling up the factory is varied out when it comes to the other states. So it is always possible that there could be some inorganic as like young brand.
We have a very clear that we have 10 years with regard to managing the workforce. Because even in Tamil, we can -- we have anticipated more pockets where we can get workforce, that we are diverse with this handling the abundance model of satellites we're handling. So it's not a big issue for us.
The next question is from the line of Nirav Savai from Abacus Investment.
Most of my questions are answered. Just 1 on Chivas. Am I right in hearing it's going to start from March '24 -- March '25?
Sorry, you were not audible.
Very stable. Can you [indiscernible.
Just wanted to confirm, did you say Sri Lanka is going to start from March '25?
No, Sri Lanka will be starting from October this year.
Sri Lanka, the new greenfield expansion that we're doing.
[indiscernible] from December.
From December. And total, how many machines will be having and what will start in the first tranche?
Yes. Festival should be around 50 to 75 under total of core and debt, we will be able to achieve 400 by December '25.
And all of the customers are already ready.
So by December '25, we will be using entire 400 machines. But initially, we had some plans of 1,000-plus machines, right?
No, this is phase 3, 400 machines. Phase 2, we'll be doing another 400 machines.
So 50 to 75 you said? I didn't get exactly what it was.
No, 50 to 75 means to start [indiscernible].
Utilization, you are saying, is it?
Because we cannot just to suddenly increase all of a sudden, we cannot makelike the fact that I'm [indiscernible]. So it has to grow month on month we increase the number of lines, train them, engage them. That's how it goes.
Okay. So in Q4, we should see some incremental revenue coming from this greenfield expansion?
Yes.
And you said the order book is there in place. So this would be somewhere in Q4, NV order book visibility in the first quarter -- second quarter itself?
No, no. It's like factory, the customers are ready to underwrite the factory. That's why he was talking about the undergarments already order book.
So existing customers have gone and done the tin whatever requirement is has been approved from existing?
The orders in October, October, November for Q4 shipment.
The next question comes from the line of Chirag Shah from White Pine Investment Management Private Limited.
I have 2, 3 questions, which could be interlinked. One, sir, suggestion first, sir, in the presentation, if you can actually clearly indicate about your ramp-up plans of new products because if I read through the transcript, there seems to be continuous delays and the communication over the quarter seems to be a bit confusing. So that is 1 suggestion. So at least we are able to track and monitor and have a better qualitative discussion on the call. rather than just start with the numbers, which quarter, how many machines, et cetera, et cetera. So that's one.
My reading is that there has been continuous delay in some of the or in the projects that you indicate versus when it is initially communicated to us.
So we request you to look into it on that. And sir, I'm not able to understand, sir, if you are indicating 400 machines will be utilized in Q4 of '25 or December '25.
No, December '25.
December '25, we'll be running 400 machines.
December '25. Because then there is fees to a significant delay with this, right, sir? Because we had ambitions -- we have very different ambition when the project was started and what you indicated. Sir, what has changed materially? .
about 2, 3 months, right?
No. Actually, we have indicated that this will start from October this year. As we planned, we'll be definitely starting from maybe November or December 1 or 2 months delay. As we committed, we are starting the production from December. But we say the completion of total filling of these factories will happen in December '25.
Okay. So there seems to be a delay. Sir, second question is, again, coming back to another point that you made, China plus Bangladesh [indiscernible] plus one strategy that you indicated. But when we look at some of the other data points published by various agencies, the shift is yet to be visible while we have been talking about when the industry garment industry in India I'm referring to, since quite a few times now, but the data doesn't indicate the shift is green. I mean, in fact, in some of the other sectors, which are more complex and timelines are much more longer in terms of appeal profit, the shift is visible.
So what is happening? Why the shift is not being visible? And whatever lots of markets in China has seen has gone to some of the other countries, we know the reasons. I'm not even debating the reasons. But even now we are having the same line that there are huge inquiries, et cetera, et cetera, but the conversion is taking perennial year time, sir. So how should one look at this part, if we could help us?
It can happen only over a period of time. It will take, say, 1 or 2 years' time to gradually [indiscernible] is taken, but seasonal season, we have to the customers have to look for the best factories and the capacities, capabilities. And so it cannot happen. This specific decision has been taken with most of the retailers, but you cannot see them in numbers all of the [indiscernible].
Okay. So if the discussions were started or indicated 2 years back or 2.5 years back, ideally, we should be seeing some impact, right? This could be miniscule? But because 2.5, 3 years is a reasonable time for conversion for garmenting industry, I would say.
Definitely see, it will take our case. We have been facing them for the past 2.5 years. See, it's a major decision, it's a business case, they have to go through the business case in a sense to various like quality technical team then commercial planes. There are so many complex same it will take it on time because that's not the priority at the moment for any retailer. It's only a strategy. They may not have to do it expressly. So in our case itself, we have been working with closely with our customers. And only now, we have been able to get the business for Sri Lanka. So it will have its own time and space.
Okay, sir. And sir, lastly, part, we have been indicating you have a good amount of orders in hand, but labor was a challenge. So can we assume that issue has now been sorted and there could be much bigger conversion of potential orders?
Because I've been here -- whenever I look at your past commentaries, you have been indicating labor challenge while you had good amount of orders in hand, which you couldn't take up simply because [indiscernible] we used to be getting addressed. So is it the right way to look at it that from here on, we are behind for us?
Yes. See, we -- no, our company, as S.P. Apparels as a company, we have very clear visibility, strategy, long-term strategies. We never ever grow just for quarter-on-quarter results kind of were working. So the bank over challenge has been -- you must have noticed, but I think for the past few years, 2, 3 years, I mean, before COVID, we reached the maximum, the factory level on this capacity. But of course, during the COVID and after the COVID, everything got disturbed. So mobilizing the people from the Northeast side was a big challenge.
Only now we have been able to streamline everything. Today, we have set in such a way that we will be able to utilize 90% plus capacity, means we are confident of mobilizing more people into the -- in our factory and paying system, improving the efficiency retention, everything is in place now.
So we -- you have to wait and see in the next 4, 5 months time, you will see the increase in the capacity renin addition then to mitigate this, that is why we said, I always used to say to mitigate this workforce we always go for old new project grain factory projects and upgrading any facts like in brands and also offshore production like Sri Lanka. So these 3 things, in addition to increasing capacity in our existing centers, so there are 4-pronged rep approach they are doing to improve the growth, which is working out well. We have not just say any updates.
And sir, last is the, Crocodile brand, you indicated that it is breaking even or it is profitable today?
Crocodile, it is profitable.
Crocodile as a brand is profitable. I think health and the insurance rocket is pulling it down. So strategically, we have exited had and we have given the termination notice, and we will come out of the brand license agreement effective December 2024. And after that, I guess, the minimum royalty, it is pulling the overall numbers will definitely be closed and also that we are also looking at increasing the Crocodile presence by doing the garment distribution work, which we have not done so far. So I guess by Q3 onwards, you can see the efforts which we have put is yielding results.
Sir, is it possible to make it only compete brand, what is the revenue and probably profit and what is the profitability because it gets lost in the aggregate number, right, of the retail business?
So what we will do is, sir, we'll add this in the presentation going forward from the next quarter .
It would be helpful because anyway, you are exiting the other 2 pieces. So it would be helpful.
Not the other 2, only head.
Okay, only head. Great. But any which the Crocodile brand is what -- because it will also help us to monitor the scalability of cropland because given the way you are looking to expand yourself, Crocodile brand becomes a much smaller piece in overall team of saying unless there is some other advantages of doing the retail business, which are not -- which is not scaling up, you also need to look at that. if there are more qualitative advantages of running the Crocodile brand in terms of business and market understanding, fair enough.
Otherwise, Crocodile brand excels the retail business, whether it needs to be done or not has to also be [indiscernible].
Well taken.
The next question is from the line of Akshay Kothari from JHP.
Yes. So just wanted to know what is the current stages per employee for the labor, which we are paying and considering the next 4, 5 years could be -- could come on with a lot of populist measures, would be for foresee any sort of increase in minimum wages as per minimum wages at [indiscernible]? And how would it impact us?
So in terms of wages, I guess we need to -- we cannot just keep the numbers open. You just drop me a mail, and I'll share you what the wages, what we did. In terms of the revision, we go by the standards which are available in the market and where there needs to be a change in the industry than we do it accordingly. So to retain, we gain the employer -- I mean, work man, we need to enhance the wages regularly. So we keep increasing their wages based on the market and the list. .
The moment there is no any due of revision of minimum wage by the government of [indiscernible]. So nothing in the near future.
Okay. And just wanted to know a range we will be around 10% to 15% above the limit, right, or not?
No, in current.
Which one you are asking, the 15%?
So for example, minimum basis as per our ruling is [indiscernible] 600 for rates. So we would be around 10%, 15%, 20% above that? What is that range?
So it will be around 5% to 10%.
[indiscernible] you can.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Yes. I'm sure and I'm hopeful that we have satisfied all your queries and we have been able to answer all your questions. And thank you so much for participating in this con call, for your interest in this company's growth. And thank you all again, and we are confident that Q2 results should be better than Q1, and we are coming out of these things from Q3 onwards. Please rest assured that we will do our best to perform and see the results to the investors. Thank you. Have a good day.
On behalf of Elara Securities Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.