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S. P. Apparels Ltd
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Ladies and gentlemen, good day, and welcome to S.P. Apparels' Q1 FY '23 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, [ Lisa ]. Good evening, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q1 FY '23 Post Results Conference Call of S.P. Apparels Limited. Today, we have the senior management of the company, including Mr. P. Sundararajan, Chairman and Managing Director; Mrs. S. Latha, Executive Director; Mr. S. Chenduran, Executive Director; Mrs. 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 senior management of the company for initial comments. And thank you, and over to you, sir.
Thank you. Good evening, everyone. Greetings to all of you present on the con call to discuss our Q1 FY '23 performance. I hope and wish that all of you and your loved ones are healthy and safe. I would like to update you all on the buyback where, due to certain regulatory process, which needs to be fulfilled, the Board will deliberate on the buyback plan after the regulatory content fulfilled in a couple of weeks' time.
As you are aware about the performance of the company, during this quarter, we have performed well. Our margins in terms of value have been the best across so far.
Let's review the performance division-wise. Garments division. Our garments division revenue for this quarter stood at INR 223 crores versus INR 116 crores for Q1 FY '22, which is at a growth of 93% year-on-year. Total exported quantities stood at 14.8 million pieces. Adjusted EBITDA of the garments division stood at INR 48.2 crores of the current quarter as against adjusted EBITDA of INR 29 crores year-on-year. Our current order book stands at around INR 400 crores. We have -- we are in the process of adding 2 more customers, new customers from Q3 onwards.
Regarding free trade agreement FTA for U.K., it's a long awaited one and our commerce and industry minister has indicated that it would happen very soon in the near future on account of 75th independence anniversary. If this happens, it will be a great advantage and opportunity to India as we will be at the same level playing field with other competitor countries like Bangladesh, Sri Lanka, et cetera. This will also improve the orders inflow for our country. With regards to capacity utilization, it is around 78%, and this was expected to increase by around 10% to 15% going forward.
As we informed earlier, our new factory in the down south is under process and is expected to be completed by end of June '23.
Regarding spinning, now we have invested into 1 megawatt of solar plants in our spinning plant as part of our sustainability strategy program. And going forward, we propose to increase 1 megawatt every year. The plant has commenced only during the month of July and is expected to contribute to the margins going forward. Further, the cotton prices are very volatile, and the fluctuations in the yarn prices are not in correlation with the cotton prices. We have reduced our yarn production during the month of July and August until the price rise stabilizes. We expect the cost of prices to decrease during November. We are expecting ascension in spinning margins during Q2 due to the hike in cotton prices and fall in the yarn prices.
With regard to the [ battery ] processing division. In spite of shortage of coal availability and the raise in the input cost, our processing division was able to perform well with good utilization level and contributing margins effectively.
Regarding SPUK, it has seen a lot of disruptions in supply chain, majorly due to the third wave in the U.K. and Europe. Nonavailability of adequate containers has interrupted the supply chain severely and disturbed the revenue for the current quarter. Revenue for the quarter stood at GBP 1.21 million as against GBP 1.12 million last year. SPUK has made loss of GBP 33,000 as against loss of GBP 8,000. I'm confident that SPUK will be able to come out of the crisis and will be able to do well going forward from Q3 '22 onwards.
With regards to S.P. Retail Ventures Limited. As planned, we have hired out the retail division into a separate company and we have added 2 more brands under the Retail portfolio. We have added a children's brand, known as Angel & Rocket, which is a premium brand under S.P. Retail Ventures Limited. We have also added 1 more brand under the Retail Ventures portfolio, which is an international brand which is well known for [indiscernible] have given license to S.P. Retail Ventures Limited to manufacture and sell apparel and footwear groups in India under the brand Asia. This brand comes under the athleisure segment.
Currently, we have 59 stores under all brands. We have opened 2 new stores for Angel & Rocket in Bangalore, which are doing well. We have also opened stores for HEAD, which is also doing well. We are confident that with brands like Crocodile, HEAD and the Angel & Rocket and also Natalia, it will do very well and we'll be able to get this company listed at an appropriate time separately.
Financial performance of S.P. Retail Ventures. Total revenue for Retail stood at INR 17.14 crores, and we had a positive EBITDA of INR 50 lakhs, and we have a loss of INR 40 lakh for the first quarter. Current liquidity. Our liquidity position is strong, and we have serviced all the debts up-to-date.
Now I pass on the financials by Mr. Balaji, CFO, and thank you.
Thank you, sir. Good evening, everybody. I'll just run through the financials of the company with listing the presentation. We have a total revenue of INR 252 crores against INR 131 crores year-on-year, which is a 92% increase. And we have an EBITDA -- adjusted EBITDA of INR 48.45 crores as against INR 27.83 year-on-year, which is an increase of 74 percentage. We have our PBT of INR 35.45 crores as against INR 16.32 crores year-on-year with a 111% increase, and we have our PAT margins at INR 25 crores -- INR 25.8 crores as against INR 11.55 crores year-on-year, which is an increase of 123 percentage.
Garment division made a revenue of INR 223 crores as against INR 116 crores year-on-year, which is a 93% increase. EBITDA margins of the garment division stood at 21.6 percentage as against 26% last year. And our revenue from retail operations stood at INR 17.1 crores as against INR 4.5 crores last year, and the EBITDA margins for retail division stood at positive 2.9 percentage as against negative 53 percentage last time. And U.K. stood at INR 12 crores as against INR 11 crores last year. And the EBITDA margins for retail is at minus 1.9 percentage as against positive 0.3 percentage year-on-year.
Our current debt position is we have a gross debt of INR 199 crores and a net debt of INR 171 crores. Our working capital -- as part of working capital, we have INR 138 crores as inventory, INR 78 crores as receivables and INR 59 crores as payable for the current quarter.
This information is available in the presentation, and we can get into the question and answer right away. Thank you.
[Operator Instructions] The first question is from the line of Shikha Mehta from Equitree Capital.
Congratulations on a great set of numbers. I just had a couple of questions. On the retail side, we've done very well. So is this a run rate we can consider going forward for the rest of the year? And also could you throw some light on what strategy has worked for us, what changed, et cetera?
In terms of the run rate going forward, I guess, we've already explained to you on the growth that's coming. You can definitely look forward for same set of numbers going forward.
It's regarding retail, right?
You're talking about retail?
Yes, yes.
Yes. On the retail side, yes.
See, in the retail side, see, as I mentioned to you now, we have announced 3 brands under this umbrella. Natalia is also in the pipeline, which is our own brand. So currently, we have Angel & Rocket in our premium kids segment, our own brand, company's own brand -- I mean SP Retail's own brand, and Natalia is also own brand. Crocodile is a licensee brand, which we have been doing for the past 15 years. And HEAD is the one, which we got the license just before the first COVID lockdown. So this is the current scenario.
And with regards to the performance, all these retail have taken a big hit during this continuous COVID lockdowns. And again, in Tamil Nadu, for many weeks, Saturdays, Sundays are not open. So we had a big hit. Now everything is back on track now. So Crocodile is doing extremely well, and we have about a number of...
59.
59 stores are EBO stores, in addition to distribution channels and the shop-in-shop like large format stores. So Crocodile is definitely has turned around and is doing extremely well.
With regard to Angel & Rocket, our own brand, so this is -- after the lockdown -- COVID lockdown, now only we're taking the aggressive steps now. We have the presence in Shoppers Stop, Lifestyle, Central, which is a Reliance Central and so on. And also, we have opened our own 2 stores in Bangalore, Angel & Rocket, which is doing very well. So it will take about another few quarters to break even and to be able to make profits.
With regards to HEAD, HEAD is, I think everyone knows, it's a famous brand globally. Originally, it's from the U.S. and now it's been owned by Austrian owners. So we have got the license for India for apparel as well as footwear for India under the name of HEAD. So now we have 1 store open at Chennai, and we have 3 more stores in the pipeline of EBO stores. And we already have the presence in Central, and we are talking -- there is a discussion going on with the Central Reliance, where there is a possibility of getting presence in about 50 to 60 stores.
So this is the -- this is a brief about the retail business model.
All right, sir. Sir, also on the volume front, as shown on Slide #9, I think, we are still -- as in FY '22, we are still not doing the same volumes we did pre-COVID. And if we continue on the run rate we've done this quarter, we should just about touch our pre-COVID volume number. So, can you explain why that is? Is that because we're seeing slower demand? Or -- can you explain that? And as part of the same question, are -- so our total turnover has been higher than pre-COVID levels. So is that because of raw material hikes, because of which we had to take price hikes? Or is there another component to it as well?
You're talking about the EBITDA margins, right?
Sir, I'm talking about our volumes.
Volumes. Volumes, actually comparing last year-on-year quarter, we definitely moved 20% ahead in terms of volume.
Yes. So this year means our volumes, that we go at the same -- run rate will be the same as they were in FY '19 approximately, correct?
Correct, correct. FY '19 was a different story, where we had some order issues postponed to FY '20 and where our projects were delayed. If you look at the call transcript FY '20, you would understand. So expecting the projects to be completed, we took orders and we were not able to complete the orders in-house. We had to outsource it and complete it. So that is FY '20. So I guess you should not look at FY...
I think FY '21, that is during the COVID, there is a partial lockdown FY '21. So the sales were dropped. So for ideally, we should compare with FY '19 where it was -- that was a year there was no interruptions during the whole year. So if you compare like-for-like from FY '19 to FY '23 , I think we are firm and slightly more. And this is -- your question is because of the raw material increase or something, that is only playing partly in this number. But there has been a growth in the capacity also, in the sense in FY '19, we were having about 3,300 machines running, and now it's about 3,400 machines on an average. So that is one reason. And a little bit of increase in the raw material prices. But let's just not compare with FY '20 and the FY '21...
No, sir, I'm asking about FY '19 only. FY '19 and FY '23 volume should be flat if we go at the same run rate as we have in Q1, though the top line number, the total revenue number will be much higher. So is the number -- is the revenue number higher due to raw material hikes, and hence, we've taken price hikes? Or is there something else as well?
No. Material increase is about 5% to 10%, not much. It is only because of the real increase in the production and the sales booking. Because FY '19, there was a small disturbance with one of our major customers. So there was a drop in the order book during the period for about 4, 5 months' time. So now we have revived everything. We are back on track. And now in Q1, Q2, we are back to normal. There is going to be a natural increase in the top line.
All right. And sir, how much of the raw material price hike have you been able to pass on?
It's about 5% passed onto customers. Around 9% -- up to 10%. It is depending on the customer to customer, 5% to 10%, we are able to pass on.
All right, sir. And we said in our opening remarks that cotton will be cooling off we assume in November. So post that, do we need to correct our finished good prices as well? Or how does it function?
Yes. Definitely, there will be reduction in the sales price also, unit price also because customers are also waiting to -- waiting for the right time to get back to normal. So in fact, they mentioned that when the cotton price comes down, you should -- we should be in a position to contribute to some extent -- to be competitive.
And sir, are you seeing incremental business coming from the Middle East and Australia post the FDA?
Yes, there is a possibility. But we are not looking at that Middle East area, Middle East countries.
All right. And sir, could you also shed some light on the status in the U.K.? It seems that there has been some sort of demand slowdown. So are we experiencing that in our products as well?
Yes. Definitely, there is a recession in all over Europe and the U.K. due to this Russia, Ukraine war. So definitely, there is a recession. And as we always said with regards to babies and kids, we are not very much affected. And -- but there is kind of a competition with other countries like Sri Lanka, Bangladesh, because everyone is in need of orders. So that is the challenge we are facing. But we are able to manage so far by being competitive to some extent, where there is what we call the margin has been very tight now. However, we are working internally to see how we can mitigate this reduction in margin and get back to the same position in terms of margin.
Right. And sir, also, our interest cost has gone up significant amount this quarter. So is that due to an increase in debt? Or how should we look at that? And is that again the run rate to consider for the rest of the year?
No, I think the interest costs have gone up just by some INR 40 lakh, INR 50 lakhs. And it is purely because of the material costs going up. Carrying cost on the inventory is also going up. So the utilization level is also going up. So going forward, I don't see that there will be a big increase in interest cost.
All right, sir. And last question, if I may. Could you also tell me what our profit number would be adjusting for the ForEx gain and loss? There are in your presentation, I think on Slide #10, there are 2 line items. One is gain on ForEx currency and then below that, there's M2M gain. So if you could just explain.
So ForEx gain is the difference between the spot and the realization, M2 is a notional number which is pertaining to the outstanding forward contracts. So that's it.
[Operator Instructions] We'll move on to the next question. That is from the line of Niraj Mansingka from White Pine Investment Managers Private Limited.
I just wanted to ask 2 questions, one on manufacturing and one on is employees. Can you tell me what is the capacity of machines right now and how it will move forward in the next 2 to 3 years like when is the capacity gets added? I mean, how some of the step-ups it can...
Yes. So currently, we are running close. So we have total about 5,100 machines installed capacity. And currently, we are using about 75% of it. We're comfortable around 3,000 -- I mean, close to 4,000. And in the next 3 months' time, we are expecting this to go up to 80%, 85% by November, December, which means it will cross about 4,200 machines we hope to close. And so in the future, probably in 12 months from now -- next 1-year time, we are expecting an increase of another about 15% to 20% increase in the machine capacity from current scenario. So -- which will definitely fetching the growth of 15% to 20% additional in business.
Okay. So [indiscernible] months from now, we will get capacity revision, not before that.
Sorry?
How many months from now will you add 20% machines?
So there will be around 500 to 700 machines.
And how many months from now?
12 months, 12 months.
Okay, 12 months. And till 12 months period, the number of machines will remain at still 5,100. Only utilization will [indiscernible] this. Is it right to say?
12 months from now, we will add another, say, INR 700 or 800 where we should be very close to 6,000. And our utilization level should be a reason going forward.
I'm sorry, I could not hear the last line. When will you add 700 to 800?
See, by next year, right now, there will be -- see, there are 2 methods of increasing the production, not physical machines alone because we will be adding on another about 300 to 400 machines next year by now. And also in addition to that, we are increasing with the existing capacities. Still, we have room for increasing in all our existing factories. So all those idle machines will be filled, that's second thing. And third one is, as we have been mentioning in the last few con calls that we are planning for 2 factories starting with second shift. So already we have started 1 factory, which there's a second shift about the 2 lines. So gradually in every quarter, we will be increasing 2 to 3 lines in the second shift. So all these combinations, we will be able to increase our production capacity by about 600 to 700 machines.
Okay. Got it. The physical machines will add only 12 months from now. But by using more and more double shift, you will add utilization of those machines in the next 1 year from now. Is it right to say that?
Correct, correct.
Got it. And the other thing is on the employee -- number of employees. How many employees do you have right now?
Around 12,500 because we are backward-integrated. So all put together, we should be having close to 12,500 employees.
Okay. And can you give some color on how you're planning to hire and retain because that has been the biggest slowdown -- or you can say that was the biggest important factor for your growth in the past.
We have [indiscernible] in terms of those employees.
Yes, this is -- I have been informing all these on con calls that there is a challenge in motivating demand for workforce. And as I mentioned last time that we are nearly able to come out of this issue. Yes, now I would proudly say that we are out of this challenge problems, and we are able to mobilize the workforce the way we want it. So henceforth -- this was the only constraint this company was having for the growth. But from now on once this has been -- once this has been turned around now, we are in a position that we can increase the workforce easily by 15%, 20%, and it will not be a bottleneck. Hopefully, we say that it should not be a bottleneck hereafter.
Can you give some color how do you overcome the challenge of your [indiscernible]?
So this is our internal [indiscernible]. I don't think we have enough time to talk about it now. See like -- in the sense, we had made attempts in different channels to get the people mobilized. A lot of network we have done, the big team is working here. So that's a big subject anyway. But we have done it.
The next question is from the line of Rakesh Wagwani from Monarch Networth.
Sir, can you -- can you just explain a bit on the point you mentioned in your opening remarks regarding the FTA agreement that's going to be implemented from 15th August. I just didn't get the point properly. Can you please help me on that?
I mentioned that as a part of 75th independence anniversary, the government is very keen to get this FTA done with the United Kingdom, the U.K. It was just an indication. But I've been reading in the newspapers and getting a lot of information officially from the associations that our commerce and industry minister has said yesterday that we are working very hard. And any moment, I think they have done a [indiscernible] or something like that. They have several rounds of sitting they discussed. And more or less done, so we expect any moment maybe in the next 2, 3 months' time, the FTA should be -- this is what I guess. So if that comes through, then it's very good opportunity for India because we will be at par with duty-free countries like Sri Lanka, Bangladesh, Pakistan and other countries. So there will be a same level playing field so we can take more orders at the competitive prices.
And definitely, if the FTA is run out, and the European and I mean, U.K. customers are having the preference to place the orders to India first.
Okay. Sir, I just have one more question. We are reading that in Bangladesh, which is Bangladesh as a country is witnessing power shortage problem. Can you please talk about that? And are we getting some orders because of that?
See, definitely, many buyers in the U.K., just 10 days back, so everyone has said that they want to divert -- see, I mean, last year, the customers are talking about diverting the business from China. I don't know. Suddenly this time, they want to divert some of the business from Bangladesh for 2 reasons. One is that the overjumping of orders to Bangladesh, which is too risky for them. And secondly, the raw material costs, the power problems, power issues and uncertainties on deliveries. So this is a worrying -- it's a big concern for the buyers. So they want to play with the safer country. So that's one of the reasons again, that they prefer India. So obviously, we are getting some even regular businesses, which are supposed to be produced in Bangladesh, is coming to us now.
Okay. And sir, one more question regarding the buyback. Is there any amount that the company has thought to do buyback? Like because we have a lesser cash on the books as far as the recent presentation. Any amounts you have thought?
See, the Board has not deliberated anything to the amount. As of now, there is no comment to talk about the buyback.
[Operator Instructions] The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
Congrats for good set of numbers. My question is again on the demand front. We just mentioned that you are not witnessing any slowdown in demand due to the recessionary environment in the European countries. So, can you explain us why so? And if that is the case, then what is the replenishment cycle in the kids where like that is what is helping you out? Or as you just mentioned, that some of the customers want to shift from Bangladesh and Sri Lanka to India for much stable supply. That is the reason why you're saying that this recessionary environment will not lead to lower demand for you.
The first question is, there is a recession all over Europe, the U.S. and the U.K. as well. And definitely, there is no doubt about it. And but as I always mentioned, that the babies and kidswear, if given an opportunity to spend, the customers will spend first for the children's garments. So that is one reason. And the second one is also, see, all the years, what I assume from the way they spoke to me, they have not been comfortable with Bangladesh for whatever reason. So given a choice, they would always like to move to India. Because of this recession, so they really don't need to depend so much on Bangladesh. So now they got a room for -- there's a time to shift some of the businesses to India because their requirement is less now than compared to previous seasons. So that is one of the second reason why they are coming to India. So this is the right time for them. And keeping in mind the FTA also. So they want to set up their factories in India. By the time FTA comes, they will be comfortable in the competition.
I just have another question, second question, if I can ask. So the second question is related to the first question. You just mentioned your initial comment that more customers are also getting added by quarter 3. So should we expect that this 2 customers will add on to your revenues from FY '24 and not from the second half of the year because that is how it got...
The business -- I mean, the shipment will be done in Q3, in these 2 customers. It will start.
We'll move on to the next question. That is from the line of [indiscernible] from Scan Capital.
Congratulations on a good set of numbers. Sir, my question is, you talked about the solar plant which has started in July. Sir, can you talk about how much electricity it will generate and compared to how much electricity demand we have given, sir, many smaller players than us have completely backward captive power supplies.
It's a 1 megawatt solar plant, and we are expecting 5,000 units to be generated every day.
Okay, sir. And given, sir, what is the number -- approximate number of units we require for our operation, sir -- number of units of electricity?
For us -- we, as a company, I think, is -- requirement is huge. So we are looking, for us, we need a 8 megawatts to 10 megawatts of solar in case if we all go to solar. So we have a huge headroom to grow into solar. So that's why in the opening remarks, Chairman spoke about increasing the solar 1 megawatt every year.
See, there are 2 things. One is gradually, we should also get the support -- to support the margin. So we need a solar power, an energy thing, which will also now help us improve the bottom line. And second thing is also it's in the kind of [indiscernible] for sustainability, so natural renewable energy is important, all the customers are expecting as against the global warming. [indiscernible] so year-on-year minimum of 1 megawatt, maximum of 2 to 3 megawatts year-on-year. So that in the next 5 years' time, we will be self-sufficient with our own renewable energy...
Because I asked because, sir, 15, 20x smaller companies than us in the textile, sir, they have completely backward integrated, sir, power supply system. So I thought maybe we should -- power is one of the critical components in our industry, sir. And another question, sir, given another big component of our P&L, sir. Heating requirements, sir, we use coal right now. Given sir, the elevated prices in coal, are we looking at shifting to alternative heating generators like [indiscernible] oil or propane or petroleum coke, like other textile manufacturers have done, sir?
Yes. See, with regards to the own captive energy, yes, we used to have before we have renewable energy. But we have sold those wind energies about 7, 8 years -- 10 years back. So now we are, I mean, coming back to the backup of our own energy -- renewable energy, that's one thing. That again, it's a question of investment. You see, we have also bear in mind the return on -- ROCE is also important. So we cannot put all -- it make about INR 100 crores to INR 150 crores, all of a sudden, we don't want to invest because as such, our margins are reasonably good. So what we plan is at the same time, somewhere we need to start this thing, renewable energy, for sustainability purpose also. So that's how we started. Over a period of 5 years' time, we will be self-sufficient. And with regard to coal, yes, alternatively, we are using [indiscernible].
The next question is from the line of Shikha Mehta from Equitree Capital.
Sir, I just had a couple of follow-up questions. To one of the participants earlier we spoke about the additional capacity we were adding plus the second shift. So all of that put together, how much revenue will we be able to add at optimal utilization?
Optimal utilization will be, as we mentioned, around 80% to 85%. And the growth we expect is about 15%, 20%.
Sir, I meant all our new capacity plus the second shift, all of that put together, how much revenue can we add?
15% to 20%.
15% to 20%. Okay. And sir, I had another question. If you could give us what percentage we are in all our top 5 brands, wallet share?
Can you come again on the question?
What wallet share we have in percentage terms in our top 5 brands we supply to?
What was that?
Wallet share. Wallet share of what? Of the customers, you mean?
Right, right.
One customer is about 40%, and the second one is about 25%, and then other one is 15%. And the remaining all about -- are around 5% to 10%.
Sir, I mean as in their books. Out of their total supply, how much would we be supplying to them?
That's what you mean.
Right.
See, first customer, about 80%, 82%. And another customer is another about 30%, 40%. Third one is they are quite big. And it's too early to know the exact share of our investment. Then the remaining volume was just starting so not much.
But sir, our top 5 customers, we are 82% of their total suppliers and 40% of their total suppliers.
Yes.
The next question is from the line of Rakesh Wagwani from Monarch Networth.
Sir, I wanted to understand a little bit more or further about the Bangladesh competitiveness compared to us. Can you just talk or give us, let's example, explain what is the competitive advantage that Bangladesh has with respect to cost and why it is coming down.
See, they are competitive because of their low labor costs and the duty free to the importing country. And -- but because of the uncertainties in delivery and this ethical factory compliances is still -- then the overjumping into Bangladesh because of the competition among the retailers. Everyone wants cheaper imported growth. So everyone wanted to place more orders to Bangladesh, but they had no other choice. So now -- which means that by force -- which [indiscernible], they have to place more orders into Bangladesh. At the same time, they felt because of the uncertainties in deliveries and uncertainties in the ethical compliances and et cetera. So now that India is becoming very strong and FTA is expected and there is recession in the Europe, U.K. and the U.S. So they are using this -- the reduced buying, they want to first five India [indiscernible] to the Bangladesh country. So that's the strategy, it looks like.
Sir, just wanted to confirm that FTA, more like if India is also included in the FTA, that is a big change towards India from Bangladesh.
Yes, we are keeping that also in mind that hoping that if they stop placing the orders out, they are hoping by the time we ship from India, landed to U.K. or Europe or maybe U.K. now. So they might -- there is a good chance of getting them duty free.
The next question is from the line of Kaustubh Pawaskar by Sharekhan by BNP Paribas.
My question is on the margin front. Sir, in your initial comment, you mentioned that second quarter, you will continue to fill the hit on the margins. And from second half there would be a gradual improvement in the margin. So is it a right understanding?
Yes, that's correct. What we gave you is [indiscernible] last time also, the same thing we are doing now. The Q1, Q2, Q1 results are what we have declared is better than what we anticipated because we have done a lot of internal things to improve the margins and things. But it was uncertain when we were talking to you during the FY '22 results. Same with Q2 also that it's, again, we have to undergo these difficulties because of the yarn -- the cotton prices are on the high side, cotton stock rate everyone has now, and the yarn price is coming down. So this is a completely different direction. So that is one challenge as well as most of manufacturers have booked the orders at the lower price, but the yarn price has gone up. During the yarn price increase, everyone has covered the yarn. So there is going to be tough numbers in Q2. However, as far as S.P. Apparels is concerned, we are confident that we should be in a position to maintain the same as in Q1. Maybe a little 1% or 2% less also. I mean it's too early to say that.
And my second question is -- once the capacity utilization goes up to around 80%, 85%, what -- incrementally, how much it will add to your margins? As you said, that 15% to 20% will be added to your revenue in terms of margins also because of the efficiencies, how much it will help us too?
The percentage may not be the same. But in the value terms, there should be definitely an increase.
We have been guiding for a margin of 18%, and we would like to stick to it in spite of increase in the cotton prices, we would like to stick to the guidance which we have given already, that we will maintain 18% -- at least 18 percentage.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
Okay. Thanks for everyone's participation and thanks for the various questions you have asked. I'm sure -- I hope I have been able to answer all your questions to the point. And as I always say that we are very confident about the business model what we have. And me and the entire team is working so hard to make sure that we continuously improve in terms of top line and the bottom line, which we have been consistently proving to the shareholders. And we see a great future in the next few quarters, very visible, very visible obvious that order book is now 400 and the capacity are going to go up and the FTA is on the way. And so a lot of positive things are happening. So we are confident that we should be doing great numbers in the coming future. Thank you.
Thank you. 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. Thank you.