S.P.Apparels Ltd

BSE:540048

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day and welcome to the Q4 and FY '24 S.P.Apparels Limited Earnings Conference Call hosted by Elara Securities India 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 India Private Limited. Thank you and over to you, ma'am.

[Prerna Jhunjhunwala, analyst]

Thank you, Sheetal. Good afternoon, everyone. On behalf of Elara Securities India Private Limited, I would like to welcome you all to Q4 and full year FY '24 post result conference 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. PV 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.

[Perumal Sundararajan, executive]

Thank you. Good afternoon, everyone. I welcome you all to the post result conference call for Q4 and FY '24 results of the company. 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. India's textile industry is on the rise benefiting from significant global shifts. The China Plus One policy is driving businesses to diversify with India emerging as a key player. At the same time, concerns in Bangladesh are leading international customers to seek stability and they have begun to shift their focus on India and Sri Lanka for manufacturing. These trends are setting the stage for India to enhance its role in the global market.Let's talk about the garment division, I am pleased to provide an update on our garment division. Our strategic approach has been twofold. We have continued to grow our established kidswear business while simultaneously diversifying into the adult wear and innerwear segments to accelerate the company's growth. We are not just sustaining our momentum in the kids and the baby segment. We are actively expanding it with a new project in Sivakasi. The pilot for this expansion is set to commence in June with the main factory expected to be operational by the third quarter of FY '25. In terms of capacity growth, we are employing a multifaceted strategy. This includes acquiring additional production capacities for new products and expanding offshore production in Sri Lanka alongside growth in our existing facilities.Our operations in Sri Lanka are already yielding results with 2 customers' orders currently in production. Furthermore, we have received concurrence from a major customer to proceed with operations that promises to be a significant business opportunity. By the end of this financial year, we anticipated having 1,000 machines including those from SPUK in addition to S.P. Apparels India fully operational in Sri Lanka. The potential for growth in Sri Lanka is substantial. Our customers are eager to shift some of their businesses away from China and reduce their dependence on Bangladesh too due to the economic unrest there. This shift is creating an increased demand for our services in both India and Sri Lanka. Additionally, to meet the rapid increase in volume demand from our customers, we are offering them the full capacity of our Sri Lankan operation. We expect this to drive significant growth in the coming years.Additionally, through the acquisition of the company Young Brand, we have added 2 new customers to S.P. Apparels Limited, which aligns with our cross-selling opportunities. This is a testament to our commitment to expanding our customer base and enhancing our market presence. In our garmenting division, we are seeing a healthy increase in both our order book and capacity, which is growing at the rate of 7% to 10% without considering Sri Lanka. The current order book is INR 389 crores. Commenting on our garment division performance. The adjusted revenue stood at INR 938.4 crores with EBITDA of INR 165.5 crores and EBITDA margin of 17.6%. The utilization stood at 78% compared to 72% in FY '23. With regard to Young Brand, I'm excited to announce that we will be completing the 100% acquisition process of Young Brand Apparel before the end of this month marking a significant milestone in our expansion journey.There are many barriers for entry in the innerwear sector and we were able to enter this industry through Young Brand. Our customers are looking forward to ordering from us once the acquisition is complete. We are seizing cross-selling opportunities by targeting Young Brand American clientele for our children's wear segment while also pitching our existing children wear customers on the Young Brand innerwear range. We have already begun to expand our customer base through these cross-selling initiatives. This strategic move is poised to strengthen our position and catalyze growth in the dynamic apparel industry. With regards to textile division, that is spinning and processing division. In our spinning segment, we are witnessing a stabilization of cotton prices presenting us with a promising opportunity for bottom line improvement.Moving to our dyeing facility, I am proud to report that it is operating at full capacity reflecting the high demand for our quality services. Regarding retail division. During FY '24 SP retail ventures recorded revenues amounting to INR 82.9 crores compared to INR 80.6 crores in FY '23. In our retail division, we are exiting from Head brand shortly. To further fuel our growth and capitalize on emerging opportunities, we are considering engaging with strategic or financial partners, a move that will strengthen our footing and enable us to scale new heights in the retail landscape. With regard to S.P. Apparel U.K. Limited. Our FY '24, SPUK's revenue amounted to GBP 5.48 million compared to GBP 5.98 million during the same period last year. The current value of our order book stands at GBP 2.7 million. SPUK has navigated through the challenges posed by the cascading impact of COVID-19 with resilience and strategic restructuring.Our dedicated team in London has worked tirelessly to steer the business back to a path of robust performance. As a result, we are now in a strong position and are planning to double our business by FY '25. By the end of this quarter, we anticipate having 5 customers for SPUK reflecting our growing market presence. Furthermore, our efforts are geared towards doubling our top line by FY '25 with our operations in Sri Lanka playing a crucial role in supporting this ambitious goal. General outlook: I would like to add that as we look to the future, our prospects for substantial growth are bright across all divisions. The kidswear division, a corner stone of our business, is set to expand with additional capacity and 2 new major customers. Coupled with our foray into the adult innerwear segment, we anticipate a significant increase in our market share.The acquisition of Young Brand is a strategic move that allows us to enter the innerwear market broadening our product offering and [ facilitating ] our growth trajectory forward. In Sri Lanka, we see bounteous potential with the high demand and plentiful labor allowing us to rapidly scale up to those initiatives in the near future. For our SPUK division, we are focused on doubling our top line in FY '25 capitalizing on the significant opportunities ahead. We are also in the process of implementing the ESOP scheme pending shareholders' approval, which will further strengthen our business model. This is a time of transformational expansion and we are fully committed to seizing the vast growth prospects on our horizon.Thank you and over to Balaji, our CFO.

[V. Balaji, executive]

Thank you, sir. Good afternoon, everybody. I'll just run you through the financial performance of the company. On a stand-alone basis for the quarter Q4 of FY '24, the adjusted total revenue stood at INR 254 crores, which is at a growth of 9.3%. Adjusted EBITDA stood at INR 38.5 crores, which is at an EBITDA margin of 15.1%. And PAT for the current quarter stood at INR 26.84 crores, which is at a growth of 15.3%. On a stand-alone basis for the whole year, we have done an adjusted total revenue of INR 938 crores and an adjusted EBITDA of INR 165 crores with a margin of 17.6% and with a PAT of INR 103 crores at a growth of 13%. Our EPS stood at INR 10.7 per share for the current quarter and EPS for the whole year on a stand-alone basis stood at INR 41.4 per share.On a consolidated basis, our revenue for the quarter stood at INR 294 crores, which is at a growth of 7.8% year-on-year and our EBITDA stood at INR 38.92 crores at an EBITDA margin of 13.2% and our PAT stood at INR 28.4 crores with a growth of 38%. For the whole year, we have done adjusted revenue of INR 1,077 crores and an EBITDA margin of INR 155 crores, which is at 14.4%. PAT stood at INR 89 crores, which is at 8.6% growth rate year-on-year. Our EPS for the current quarter stood at INR 11.3 on a consolidated basis and EPS for the whole year stood at INR 35.7 per share. On the performance of segment-wise performance. On adjusted revenue, our garment division revenue stood at INR 254 crores with INR 38 crores of EBITDA, which is at 15.1%. This reduction in EBITDA is purely because of airfreight that happened during the current quarter due to the inefficiency of labor.SPUK revenue stood at INR 14.06 crores for the current quarter with an EBITDA of minus INR 72 lakhs, which is purely because of the overheads which has been occurring due to the change in the office printers. And our retail performance for the current quarter stood at INR 25.36 crores on the top line with a marginal EBITDA of positive INR 40 lakhs for the current quarter. For the whole year, our retail performance was INR 82.9 crores with an EBITDA negative of INR 8.19 crores. On the current debt position, our long-term debt at INR 91 lakhs, which is very, very minimal and working capital stood at INR 101 crores. So total gross debt is INR 102 crores and cash and cash equivalents is [ INR 59 crores ] on a stand-alone basis and our net debt as on 31/03/2024 is INR 42 crores. All other informations are available on the website.And I would request to take up question straightaway.

[Operator]

[Operator Instructions] The first question is from the line of Aman Agrawal from Carnelian Capital.

[Aman Agrawal, analyst]

Congrats on a good set of numbers. My first question was on the outlook for the garments business. How is the interaction with the customers in Europe and U.S? Are we seeing a revival in demand? How do you expect the demand to pan out for FY '25 like more towards H2 of FY '25 or do you see good demand really starting from Q1 itself?

[Perumal Sundararajan, executive]

As I mentioned in my speech that the customers are looking for, number one, is the consolidation of the suppliers. That's a key thing most of the retailers are doing of late in the last about 5 to 10 years' time. So definitely they will cut down the number of suppliers who are underperforming or small or nonvertical sectors and they will move the business to a much bigger in size, backward integrated and the long-term associated factory. So definitely we stand to gain because we are the preferred supplier for all of the customers. In addition to that, this antiChina sentiments all over Europe, U.K. and the U.S. So we always stand to get the opportunity of diverting some of the businesses from China. Now in addition, even Bangladesh; the European, American and the U.K. customers; they want to mitigate the risk of diluting the concentration of sourcing from Bangladesh because too much of orders are being placed in Bangladesh, they find it too risky. So that also starts moving to India and Sri Lanka. So as such, we don't see any order booking difficulties in the near future.

[Aman Agrawal, analyst]

Understood, sir. So on our nontraditional business or what kind of volume growth are we targeting for this year industry apparel business?

[Perumal Sundararajan, executive]

Can you come again, please?

[Aman Agrawal, analyst]

I'm talking about our traditional business, what kind of volume growth are we targeting? I'm not talking about the acquisitions we have done at our Sri Lanka unit, which we are basically focusing on. On our traditional business, the existing factories we have, what kind of volume growth are we targeting for FY '25, sir?

[P. Jeeva, executive]

As per MD speech, we are targeting for 7% to 10% excluding Sri Lanka this year. And once Sri Lanka operation is through, there will be an additional value.

[Perumal Sundararajan, executive]

We expect between INR 100 crores to INR 200 crores of business in this FY '25.

[Aman Agrawal, analyst]

From Sri Lanka?

[Perumal Sundararajan, executive]

Yes. FY '26, sorry. FY '25 because the effective shipments will start from third quarter onwards, second half only.

[Aman Agrawal, analyst]

Understood, sir. Sir, now comment on the capacity utilization. Earlier we had guided for 90% kind of capacity utilization by Q4, but we have achieved 76% only. So what is the challenge here and how are we looking to resolve this going forward?

[Perumal Sundararajan, executive]

We have achieved 78%, but continuously it is improving and I'm sure by end of FY '25, we would be able to reach 90% efficiency. So because in between there are some disturbances in regard to the election things and a lot of things so the people did not turn up. And now it's settling down so from now onwards, we are expecting a workforce inflow much better now. So I'm sure the end of financial year, we will be able to achieve between 85% to 90%.

[Aman Agrawal, analyst]

Understood, sir. Next question was on the garment division margins. For this quarter, we have reported 15.1% margin. We used to do 18% kind of margins before and our guidance used to be around 18% to 20%. So what impacted our margins this quarter and what kind of margin should one expect for this year?

[V. Balaji, executive]

So Aman, if you have recollected in my speech, it was informed that there was some air shipments that happened during the current quarter because of higher inefficiency and Red Sea issue. So I think this quarter we had taken a hit of around INR 4 crores from the airfreight. That's pulled down on our margin to an extent of 250 bps for the current quarter. But still our guidance on the margin will be at 18% and we continue that the 18% can be sustainable for the whole year. Maybe this quarter there is a reduction in margin in this quarter. But when you look at our year-wise, our EBITDA margin will proceed to 18%. We are 17.67%, which is close to 18%. And even for the next year, we are guiding for an 18% EBITDA margin for the whole year.

[Aman Agrawal, analyst]

That's really encouraging to hear. My next question was on the retail business. We have delivered positive EBITDA margins for the first time in last few quarters in this business. So what basically drove this improvement in margins and was there any oneoff which led to this kind of positive margins for us in the retail business?

[Chenduran Sundararajan, executive]

If you look at the turnover, we have done INR 25 crores of turnover for the current quarter. So whenever you do INR 100 crores for a year, we are breaking even at the EBITDA level and that is what is reflected in the numbers. When you look at compare it year-on-year, we have done closer to the same number. But last year the yarn prices were high so our margins were under a lower side, but now I think we are back on the margins. On the gross margin levels, we are doing well and that's why you see that the EBITDA is positive. Once we do INR 25 crores, [indiscernible], which is purely fixed overheads are getting diluted in terms of the margin.

[Aman Agrawal, analyst]

Understood, sir. Sir, for FY '25, how to think about the retail business? Do you expect to achieve INR 100 crores kind of turnover in that business? How should one basically think about retail business in next year?

[V. Balaji, executive]

So two things in terms of FY '25. One is that we are looking at INR 100 crores, INR 110 crores of top line for FY '25. That itself will definitely bring the EBITDA positive for the retail division as a whole for the whole year. And in terms of the nonperforming Head; as our MD has informed that we are exiting Head by December 2024. So this is a new brand which has come and which is not performing and we are exiting Head. That also will start yielding better margins going forward. So I guess these are the 2 things which will guide us going forward in terms of top line and EBITDA margins.

[Aman Agrawal, analyst]

Understood, sir. Sir, in terms of tax rate in this quarter, we had very negligible tax? So what was the reason for that? We just had INR 1 crore of taxation for this quarter.

[V. Balaji, executive]

Tax rate for the current quarter because retail we have taken deferred tax asset for the full year so we're just closely around INR 2.5 crores. So that's why there is a reduction in the tax rate.

[Aman Agrawal, analyst]

We have booked deferred tax on the retail business, right?

[V. Balaji, executive]

Deferred tax asset.

[Operator]

The next question is from the line of Shubham Sunil Jain from Nv Alpha Fund.

[Shubham Sunil Jain, analyst]

I just had 1 question. So you mentioned that there are 2 things that we're doing. One is creating a presence in Bangladesh and the second thing that we've done is the acquisition of Young Brands, which has given us access to innerwear. So I just want to understand that from our existing customer itself, what kind of wallet share opportunity that has opened up for us? What is the amount of garments if you have an estimate that they're sourcing from Bangladesh and what kind is innerwear sourcing are they doing across India and Bangladesh?

[Perumal Sundararajan, executive]

See, already in the innerwear Young Brand, already our capacity being used for I think about 67%. So for the remaining, we will be bringing in our existing customers who will be ready for placing their innerwear business to Young Brand. So which means easily this capacity can be filled. So there is no question of how much quantities or something because their expectations are very big, but our requirement is small so it is not a big way. And today, the business is because of the consolidation. The customers are willing to give us as much business as we want. So only the capacity needs to be grown. As we grow the capacity, we will be getting more businesses, more orders. That's the reason why we are acquiring new running factories and we are also stretching up to Sri Lanka for additional capacities, which means that we have the definite businesses from our customers based on which we are expanding on to new factories and the offshore production.

[P. Jeeva, executive]

And also you were talking about the Bangladesh product. The product what they are trying to divert from Bangladesh is the same kind of product, which we are already doing.

[Shubham Sunil Jain, analyst]

Understood. So first, I have a follow-up question on Young Brands. So at full revenue potential, what is the kind of revenue we can do from the existing facility that is there?

[Chenduran Sundararajan, executive]

So the potential if you look 1 shift, we can do INR 1,250 crores, INR 1,300 crores of revenue on the garment division. And in terms of Young Brand, I think we can do closely around INR 450 crores is the current capacity.

[Shubham Sunil Jain, analyst]

Understood. And how much more land is available over there for us to scale up? Can this INR 450 crores become INR 1,000 crores in Young Brand itself just in terms of capacity?

[Chenduran Sundararajan, executive]

I think the land is sufficient enough. We have 24 acres of land there and what is being utilized is only 7 acres. So land is not a constraint.

[Shubham Sunil Jain, analyst]

Understood. And a follow-up question on Bangladesh. So I understand that they're doing the same products, but our existing customers if they are procuring, say, INR 10 worth from India, are they procuring like INR 50 worth of Bangladesh and is that the kind of opportunity that is opening up for us because we're establishing a presence in Bangladesh?

[Perumal Sundararajan, executive]

Can you come again, please?

[Shubham Sunil Jain, analyst]

So I just want to understand how much more wallet share can we gain in our existing customers just because of our setting up capacity in Bangladesh?

[Perumal Sundararajan, executive]

See, it all depends on the capacity of what we offer to them. So if we offer them say another 1,000 machines, probably they will increase monthly another 1 million pieces. So that's the kind of underwriting with our customers.

[Shubham Sunil Jain, analyst]

Understood. So what is the kind of capacity that we're putting up in Bangladesh in terms of revenue potential?

[Perumal Sundararajan, executive]

We are not putting up anything in Bangladesh. See, they want to derisk their concentration in Bangladesh so they will divert to India and Sri Lanka. We have additional capacities in Sri Lanka not in Bangladesh.

[Operator]

The next question is from the line of Rehan from Equitree Capital.

[Rehan Laljee, analyst]

I just wanted to know what is the contribution from spinning for this quarter, sir?

[Perumal Sundararajan, executive]

What contribution?

[Rehan Laljee, analyst]

Spinning division.

[V. Balaji, executive]

Spinning division in terms of the EBITDA level, it is closely around INR 40 lakhs profit.

[Rehan Laljee, analyst]

INR 40 lakhs profit for the quarter?

[V. Balaji, executive]

Yes. EBITDA level.

[Rehan Laljee, analyst]

Understood. Second is that considering that you're targeting 90% kind of capacity -- 85% to 90% capacity utilization from your core business by FY '25, what is the optimum capacity? Is 90% sort of the peak or then you'll have to debottleneck? How does that function?

[Perumal Sundararajan, executive]

This is all the time. Now we are in 78% so gradually we'll ramp it up up to 90%. So it will be all the time. So in the year, that capacity will be maintained.

[Rehan Laljee, analyst]

Okay. So then other than that 90%, then you'll move to Sri Lanka for further business. That's correct understanding.

[Perumal Sundararajan, executive]

No, that is parallely happening. See, why we are going to Sri Lanka is for a sudden increase because the customers want us to take more business and the bottleneck here is the capacity. So they are permitting us to use the capacity out of Sri Lanka where they are also benefited by duty-free thing and we also benefited by extra business. So the Sri Lanka operation will give us improved immediate jump to up to INR 100 crores in this financial year and next year maybe INR 200 crores to INR 300 crores increase. But parallely we will also be increasing our capacity to 7%, 10% of the capacities year-on-year. So that will also happen. And the third one is we are putting up our new factory in Sivakasi and that will also added on to our India capacity. And aspiring this Young Brand is additional capacity of 1,800 machines, that is also added on to this one. So we are making the efforts on the 4 sides; existing continuous improvement, offshore Sri Lanka and the acquisition of Young Brand and 1 or 2 more factories we are still looking for and the new projects.

[Rehan Laljee, analyst]

Understood. Third is that the competitor who is in a similar product mix as you gets better price realization. So just wanted to understand do we foresee any better realizations going forward or why are they getting better realization versus us because they're in similar business segment?

[Perumal Sundararajan, executive]

As I mentioned in my speech, we are now looking for adult products also. So that is the reason why we are looking at adult products so this will improve the average price realization. So this will happen over a period of time.

[Rehan Laljee, analyst]

Understood. And can you help me understand what is the current open exposure for your ForEx position?

[V. Balaji, executive]

We are covered up to 94%. Only 6% is open.

[Rehan Laljee, analyst]

Okay. And just to clarify, your guidance for volume on the core garment business will be 7% to 10%. Is that correct?

[V. Balaji, executive]

Correct.

[Operator]

The next question is from the line of [ Pinkesh T ] from Profitgate Capital.

[Unknown Analyst]

As I could see from FY '23 to FY '24, we are in a flattish mode. We have grown just 0.9% and while our export volume segment from last 2 quarters. So this growth of just 1% and exports growth at flattish mode, is it because of the rising cotton prices and the inflation and there is no clue that I can conclude that there is volume growth at the business side. So what's the company's view on this?

[P. Jeeva, executive]

Actually when compared to '22-'23, there was an increase in capacity. But although there was increase of 5,000 to 7,000 increase in capacity; the average rate -- because in '22-'23, the yarn prices are higher price. When compared to that, in '23-'24 there is a difference of 3% to 4% reduction in the overall value, which had dipped on the other overall. And also the efficiency because we started recruiting more number of [indiscernible] so there is an efficiency drop of 5%. So we took the EBITDA for 8% in the sale. Otherwise we have achieved -- so there is a flat revenue we got. Otherwise we would have achieved 8% on the sales. That is the main reason.

[Operator]

[Operator Instructions] The next question is from the line of Akshay Kothari from JHP Securities.

[Akshay Kothari, analyst]

So just wanted to know you have guided for 7% to 10% volume growth. This is after factoring in the FTA because it's very much likely that FTA won't be coming in this year as well?

[Chenduran Sundararajan, executive]

So with respect to FTA, I can't comment on that.

[Perumal Sundararajan, executive]

Nobody knows. Maybe after the new government forms, likely actually they'll again initiate it.

[Chenduran Sundararajan, executive]

Actually there is an election in U.K. And after the new government formation in India and new government formation in U.K., again we will have to start from first. So we don't want to comment much on FTA.

[Perumal Sundararajan, executive]

So let's not talk about it and lets work considering no FTA. That's how we have started working.

[Akshay Kothari, analyst]

Okay. So 7% to 10% is excluding FTA, which could be much more in case FTA comes in this year itself?

[Chenduran Sundararajan, executive]

No. See, FTA has no impact for us. It could be an impact from a margin to an extent of 100 bps. That could be the only factor.

[Perumal Sundararajan, executive]

To be honest even without FTA, the business from China and Bangladesh is diverted. I don't think India has enough capacity to face that kind of volume of orders. So FTA has got no impact at all at the moment for India. Let's say if FTA comes, that duty free benefit will be passed on to the customer. They will not be benefited. So that will be helpful only when India is in want of orders, but that's not the case today.

[Operator]

The next question is from the line of Prerna Jhunjhunwala from Elara Securities India Private Limited.

[Prerna Jhunjhunwala, analyst]

Congratulations on a good set of numbers. I just wanted to understand your demand scenario much better because we're talking about INR 100 crores of revenue from Sri Lanka this year and INR 7 crores to INR 10 crores growth in garmenting. On an overall basis, how do you see demand shaping up? Are customers giving you price hikes in current scenario or they are just willing to give more orders at a reduced price? And how is the profitability panning out in both the segments, both Sri Lanka and India? Could you just help on that?

[Perumal Sundararajan, executive]

Yes, it's like this. The prices from customers will continue to be under pressure. Nobody will increase the price unless otherwise there is a big impact. In fact when the yarn prices shot up, everyone considered a little bit of contribution. But otherwise every season, there will be a pressure on the prices. So we will never think of increasing our selling prices. That's for sure. So we have to mitigate this in so many ways internally by maintaining the material cost, the overheads and the labor cost, efficiency; lot of things we need to do. And for our fixed overheads here, had it been -- say instead of INR 1,000 crores, it is INR 1,500 crores of business; the margin would have improved because most of the things are fixed overheads over here. So that is one of the reasons why we are taking Sri Lanka business also, which will help us bring in -- it's not this kind of margin. There will be definitely reasonable margins will be brought to our whole S.P. Apparel company even if we say in the next 2 years' time, if it is INR 200 crores to INR 500 crores in 3 years' time. So automatically the existing overheads will take care of additional INR 500 crores to INR 1,000 crores. So that is the only way we can improve the margin. And the capacity increases -- I mean the negotiation curve with the mills, with the dyers and everything; that will also help us.

[V. Balaji, executive]

I would like to add 1 more point here. First year for Sri Lanka operation will be INR 100 crores and second year it will be INR 200 crores not for FY '25. So it's INR 100 crores for the first year of Sri Lanka operations.

[Prerna Jhunjhunwala, analyst]

Okay. We start from H2 of this year.

[Chenduran Sundararajan, executive]

Yes, correct. Correct.

[Prerna Jhunjhunwala, analyst]

Okay. Understood. And sir, I wanted to understand the Sri Lanka operations a little more in detail in terms of which customers; your existing customers, new customers; where are these orders getting booked; India, SPUK? Some clarity on the customer group of Sri Lanka business that is being run today and expectations on that business?

[Perumal Sundararajan, executive]

See, only the existing customers, they want to place more business with us. But because of the capacity constraints, they are allowing us to produce from Sri Lanka. So only the existing customers, business will increase. And we are open for increasing customer base by adding few more new customers after we have acquired Young Brand. So we are taking those customers also for our products. And also some of our customers will go to Young Brand for the undergarment one. So it is only existing customers of S.P. Apparel and Young Brand at the moment and the U.K. customer, SPUK. Three: Young Brand customer, SPUK UK customer and S.P. Apparel customer.

[Prerna Jhunjhunwala, analyst]

Okay. Understood. What is your current capacity in terms of machines today?

[Chenduran Sundararajan, executive]

Close to 5,000 machines.

[Prerna Jhunjhunwala, analyst]

5,000 machines. And we are adding 1,000 machines this year in Sri Lanka? And in India, Sivakasi will be around 500-odd machines.

[Chenduran Sundararajan, executive]

Yes, correct.

[Perumal Sundararajan, executive]

And the Young Brand is 1,800 machines. 1,800 machines of Young Brand.

[Prerna Jhunjhunwala, analyst]

Okay. This is the total capacity for FY '25, end of the year?

[Perumal Sundararajan, executive]

Available, yes, correct.

[Prerna Jhunjhunwala, analyst]

Available by the end of the year. Okay. Understood, sir. And then we look at more capacity expansions in Young Brand and Sri Lanka when you are fully utilized over there?

[Perumal Sundararajan, executive]

Exactly, you got it right, yes.

[Prerna Jhunjhunwala, analyst]

Okay. Understood. And sir, Sri Lanka will be job work or manufacturing, all the efficiency and everything will have to be looked by you or by the partner?

[Perumal Sundararajan, executive]

See, it is like this. For SPUK businesses, it is on FOB basis. They place the order and they supply it. And for S.P. Apparels India, it is a job work, only CMC. We send the materials from here because Sri Lanka is not indigenous to produce any of the raw materials. That's the way the country operates for this industry. So it will be on as a job work basis.

[Prerna Jhunjhunwala, analyst]

Okay. Understood, sir. Thank you. This is lot of clarity and all the best for strong growth in the coming years.

[Operator]

[Operator Instructions] The next question is from the line of Aman Agrawal from Carnelian Capital.

[Aman Agrawal, analyst]

Sir, in terms of debt like after this acquisition, where do we stand? Currently we have net debt of INR 42 crores. So after the acquisition and the CapEx plans we have, how do you think the debt will move for next year? Just wanted to clarify that.

[V. Balaji, executive]

Aman, what we have done and said, all the investment that was placed for the purchase of this acquisition has been diluted and we have closed on all of our packing credit. So I guess once we complete the acquisition process, our debt could go close to net debt including packing credit go up to INR 150 crores, INR 160 crores.

[Operator]

[Operator Instructions] I now hand the conference over to the management for closing comments.

[Perumal Sundararajan, executive]

Thank you. I want to express our sincere gratitude to our shareholders, customers and dedicated team for their continued support. We are excited about the path ahead and remain committed to delivering sustainable growth and value. Thank you for joining us today and we look forward to sharing our future success with you. Thank you and have a good day.

[Operator]

Thank you. On behalf of Elara Securities India Private Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.