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S. P. Apparels Ltd
Earnings Call Analysis
Q2-2025 Analysis
S. P. Apparels Ltd
S.P. Apparels Limited (SPAL) has shown promising financial results for the second quarter of FY '25. The stand-alone revenue reached INR 257 crores, with an EBITDA of INR 44 crores (17.1% margin). For the first half, the total revenue stood at INR 471 crores, yielding an EBITDA of INR 80 crores, marking a 17% margin. On a consolidated basis, revenues increased significantly, achieving INR 393 crores for the second quarter, reflecting a growth rate of 32.1% with an EBITDA of INR 52 crores. The company's efforts are reflected in the profit after tax (PAT), which came in at INR 21.9 crores, equating to a margin of 5.6%.
In the garment division alone, revenues totaled INR 257.5 crores in the current quarter, translating into an adjusted EBITDA of INR 43.9 crores. The company aims to enhance its margins, anticipating an increase to 18% in EBITDA by the financial year 2026, driven by improved operational efficiencies and increased capacity utilization, projected to rise from 3,600 machines to 4,200 machines.
SPAL is keen on expanding its footprint in the U.S. market, acknowledging the advantage of the 'China Plus One' strategy adopted by international retailers. Currently, the company has six active U.S. customers and seeks to sign additional clients within the fiscal year. By capitalizing on the shift in sourcing from China to India, SPAL anticipates promising growth opportunities in the next few years.
In the retail segment, S.P. Retail Ventures reported revenues of INR 22.5 crores, slightly down from the previous year. However, there is optimism as efforts have been made to reach breakeven by the end of FY '25, focusing on cost control and operational efficiency. The strategic discontinuation of certain unprofitable brands and the initiation of employee stock ownership plans reflect SPAL’s commitment to aligning employee interests with company growth.
Looking ahead, the company's guidance for revenue growth for FY '25 remains optimistic, expecting a total growth of 10% to 15%, with the second half anticipated to contribute significantly to this target. The consolidation of operations with Young Brand emphasizes a synergistic approach, highlighting an expected revenue of INR 1,500 crores combining contributions from existing operations and new acquisitions, which reinforces SPAL's confidence in meeting and surpassing growth expectations.
SPAL is strategically focused on resolving various operational challenges, including rising employee costs and fluctuating raw material prices. With the establishment of comprehensive training programs for new hires and an enhanced supply chain management strategy, the company aims to improve its profit margins over time. Management targets a consistent EBITDA margin increase of up to 4% over several quarters, showcasing a strong commitment to operational optimization.
In summary, S.P. Apparels Limited is positioning itself favorably amidst a competitive textile marketplace, leveraging national trends in international sourcing, operational enhancements, and strategic growth initiatives. The anticipated revenue growth and improved margins illustrate the potential for robust future performance; thus, it merits attention from potential investors seeking opportunities in the textiles sector.
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Ladies and gentlemen, good day, and welcome to S.P. Apparels Limited Q2 FY '25 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, Manav. Good afternoon, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q2 FY '25 Post Result 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. Chenduran, Joint Managing Director; Mr. S. Shantha, Joint Managing Director; Mrs. S. Latha, Executive Director; Mr. P.V. Jeeva, CEO; 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.
Thank you, Prerna. Good afternoon, everyone. I welcome you all to the post earnings conference call for Q2 and H1 FY '25 of S.P. Apparels Limited. I hope all of you had a chance to look at our investor presentation that is uploaded on the company's website and at the stock exchanges.
The Indian textile sector is currently experiencing favorable conditions in the global market. As international retailers adopt the China Plus One and Bangladesh Plus One strategy, India has become a key sourcing destination. This shift is driven by a [ desire ] to mitigate the risk and diversify supply chains, moving away from traditional markets.
In response to these shifts, American and European companies are actively looking for alternative to Chinese raw material. This trend, coupled with India's growing capacity and infrastructure, has allowed government exporters to significantly increase their production capabilities to cater to this demand. We are seeing this trend gain momentum with few prominent customers, who are actively encouraging their importers to shift sourcing away from China to India.
Similarly, U.S. importers are also showing a keen interest in placing orders with India, signaling a positive growth outlook for our market. Moreover, India alongside Vietnam and Sri Lanka, is emerging as a sourcing destination, reflecting a shift in preference from China and Bangladesh. This economic shifts are beneficial for us as we are eager to take advantage of these opportunities. To do so, we are implementing strategic measures, such as maximizing the utilization of our current capacity, and have also begun to attract interest from new customers who are ready to place orders with us.
Coming to our business performance. At our spinning division, we have faced some hurdles in the past, particularly due to the volatility in cotton prices. However, cotton price has stabilized on the lower side now, enabling us to maintain the profitability. Additionally, our dyeing facility has reached 95% utilization rate, enhancing the efficiency and performance of this segment.
In the garment division, we have made significant size in our operational efficiency. Our capacity utilization has increased to 82% in Q2 FY '25, up from 79% in Q1 FY '25. Historically, our utilization rate raised [ well ] between 72% to 74%, which has currently increased to 84%, and we are on track to achieve our target of 90% utilization by March 2025.
During this quarter, employee expenses were higher due to the recruitment of new workmen which improved our utilization rate. However, production efficiency was not at its peak since these employees are still in the early stages of the training. Over the time, we expect their productivity to improve. Additionally, the necessity to expedite certain orders where air transport led to increase at freight costs, which affected our operational margins for the quarter.
Turning to our recent acquisition of Young Brand apparel, which is a significant milestone in S.P. Apparels' journey and bring substantial potential for growth. We have identified several areas for improvement that will enhance margins.
With full control over the workforce, production efficiency order bookings, raw material sourcing and overhead, our goal is to improve margins by 4% to 5% in the upcoming years. Currently, out of 1,500 machines, we have achieved 74% utilization rate. And by end of March 2025, we anticipate it to increase to 92.5%, with 1,400 machines in utilization. Additionally, we plan to expand the capacity at the Young Brand by adding 300 machines in the next 2 years.
With regards to customers, [ SPFL ] has traditionally been concentrating in European and U.K. markets. However, the acquisition of Young Brand has opened those to the American market, where the brand enjoys a strong reputation. This has led to increased interest for American customers in SPFL's fashion products, demonstrating effective synergy between SPAL and the Young Brand.
In Young Brand, we anticipate some initial impact on EBITDA margins, but we are optimistic in reaching our goal of 18% margin in the garment division, including Young Brand. Going forward, the numbers of Young Brand will be combined with SPAL numbers under garment division for our presentation process.
Furthermore, we are happy to share that training of workmen at Sivakasi unit has been started, and we expect this to operate efficiently in the next 12 to 15 months' time.
Our current order book is INR 512 crores, where INR 402 crores from SPAL and INR 110 crores from Young Brand.
Looking at the garment division's performance, the adjusted revenue was INR 257.5 crores, with an adjusted EBITDA of INR 43.9 crores and an EBITDA margin of 17.1%.
Moving to towards our subsidiary in Sri Lanka, which is an asset-light business model with the high ROE has already started yielding positive results. The operations in Sri Lanka are enhancing our capacity without additional investment in assets. We have onboarded new customers of wholesale importers in our customer profile, which aligns with our expanded capacity and growth in customer volume.
In the retail division, S.P. Retail Ventures reported revenue of [ INR 22.5 ] crores during the quarter compared to INR 27.6 crores in Q2 of FY '24.
I'm excited to announce that our [indiscernible] brand has reached a breakeven point this quarter, with a top line of [ INR 22.5 ] crores despite the nominal loss. We expect the retail division to achieve a breakeven status by end of FY '25.
Additionally, we have made the strategic decision to discontinue the [indiscernible] brand, with the license set to experience in December 2024. We are actively exploring fundraise opportunities for our retail venture, including participation from existing shareholders.
With regard to S.P. U.K, our revenue for Q2 FY '25 was GBP 1.83 million and current order book is valued at GBP 4.01 million -- sorry, GBP 5.01 million.
At the S.P. U.K, we are experiencing a revival. After a year of transition involving office relocation and team restructuring, including the integration of new generation of designers, we are now back on track. I am pleased to share that in H1 FY '25, we've secured 2 new customers, and we have 2 additional customers to be signed up this financial year. We are confident of the growth of this division in FY '26.
Now we recognize our team's contribution to our success, for which we have launched employee stock ownership plans [indiscernible] as a token of appreciation. This initiative aims to reward their hard work and foster a sense of ownership, aligning their interest with country and with companies future growth.
Looking forward we anticipate improvement in margins with the aim to reach 18% EBITDA [indiscernible] in garment division. By March 2025, we expect to have an average of 4,200 machines running, up from 3,600 machines in FY '24, marking a significant increase of 18% growth in the capacity utilization.
Moreover, our recent investment in expanding capacities have enhanced our ability to grow, allowing us to seize new opportunities and provide strong value to our stakeholders. These efforts, along with 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 will run through the financial performance of the company.
On a stand-alone basis, we have recorded a revenue of INR 257 crores on an adjusted total revenue basis. And at the adjusted EBITDA, we have recorded INR 44 crores, which is at 17.1 [ percentage ]. And on the PAT level, we have recorded INR 18 crores of PAT at 7 percentage. And for the first half, we have done INR 471 crores with INR 80 crores of EBITDA, which is up 17 percentage and a PAT of INR 40 crores, which is at 8.7 percentage.
On a consolidated basis, for the first -- second quarter, we have done INR 393 crores, which is at a growth rate of 32.1 percentage at an EBITDA of INR 52 crores. This is an EBITDA, not an adjusted EBITDA, which is at INR 52 crores, which is 13.2 percentage and an PAT of INR 21.9 crores, which is at 5.6 percentage.
On the first half, on a consolidated basis, we have done INR 641 crores, with an EBITDA of INR 87.8 crores, which is at 13.7 percentage and we have done a INR 40 crores of PAT at 6.2 percentage.
On the division-wise performance, on the garment division, we have done INR 257.5 crores, with [indiscernible] INR 44 crores of EBITDA at 17.1 percentage for the current quarter.
For the first half, we have done INR 471 crores, with INR 80 crores of EBITDA, which is at 17 percentage.
For S.P. U.K., we have done INR 19.9 crores of top line, with an EBITDA negative of INR 1.1 crores. And at the retail division, we have done INR 22.5 crores on -- for the current quarter, with EBITDA of 8.8 [ lakhs ] negative numbers.
And in terms of our debt, on a stand-alone basis, our gross debt stands at INR 167 crores and net debt stands at INR 137 crores. And on a consolidated basis, our gross debt stands at INR 299 crores and net debt stands at INR 241 crores, which is [ 0.3 ] on debt equity and 1x of EBITDA.
Other data which is available in the presentation, we can get into the question-and-answer session.
[Operator Instructions] We have a first question from the line of Bharat Sheth from Quest Investment.
Am I audible, sir?
You need to be louder, sir.
Okay. Now is it clearly audible?
A little more louder, please.
Okay. Sir, my question is related to our U.S. market. So how many customers, as of now we have and when we are seeing, as per our MDA remark, kind of a traction. So what is our strategy? And how do we plan to enter that opportunity currently available from U.S. market?
Yes. So currently, in SPAL, we have about 6 customers, and we are in the process of increasing the customer base. And in addition to that, American customers from the Young Brand, they are also open for fashion businesses.
And in addition to that, there are certain basic orders size, where there is a requirement from the U.S. market into India is becoming more like Walmart, imported and all, and Young Brand has got limited capacities, which will be completely filled, whereas they want more orders to be placed. So what we are planning is are there any additional orders numbers. Can we take in the SPAL that is one way of increasing the customer base and the top line also.
In addition to that, the true, then we will be getting more importers from the U.S. which gradually, the number of customers will increase over a period of time. So in the next 2 years time, both the SPAL and the Young Brand will be having 10 to 15 customer base.
And what is the kind of potential that we anticipate that we'll be able to really reach U.S. sales, I mean, on SPAL and Young Brand work put together?
In numbers?
Yes. Broader, more part figure.
So it is like our sales top line grows only along with the number of machines, the utilization. The more the numbers, the more the order because filling the capacities has never been a problem. So why we are increasing the customer base is to see that there is a possibility of improving the margins by having more customers. And our continuous effort is to increase the capacity. So over a period of 2 years' time, we have put together Young Brand and the SPFL put together, we expect at least about 7,000 to 8,000 [ admissions ].
Okay. Great. And sir, and profitability-wise, how is the U.S. market vis-a-vis other this European and U.K. market?
And see the profitability because of volume American market, we would be able to improve our margin a little bit. But still, the price pressure is always in both regions.
Okay. And on SPFL and Young Brand put together, how much contribution is coming from the [ first one ] and how much is currently at the basic side?
With continuation of? [indiscernible] between SPFL and Young Brand is only [ adult ] products.
Sir, fashion product and basic product that -- my question is, like [indiscernible] basic, correct?
No, no. It's a mix. For all customers, there is a mix basic and fashion product. In SPFL, the fashion product is about 60% to 70%, and the rest, all the basic products. But whereas in Young Brand, it is only under garment. There is no fashion or there is no basic. Everything is essential based equally.
And second, further, I mean, sir, this S.P. U.K., the way we are playing out. So can that S.P. U.K. kind of again, one more, I mean venture can help us, I mean, to grow into the U.S. market? Like sourcing from India and fairly distributed to the American end user?
S.P. U.K. you mean?
I thought S.P. U.K separate subsidiary, sir?
No, no. We have a plan. We are not ruling it out. We are planning S.P. U.K. at phase 2, pertain to American market as well to contact some of the retailers, and they can source from India and Sri Lanka for the U.S. market, which we are not rolling it out. We might have an office in the U.S. also. It's too early to comment anything out there.
Okay. And last question, sir, on Sri Lanka, how the things are playing out or experiment with Sri Lankan outsourcing market?
Yes. Sri Lanka, we have already started the production, the first shipment is yet to go. So far, everything is going good and in line with our repairments. And as I mentioned in my speech that we can -- we have a plan for increasing up to 2,000 machines over a period of 2 years' time. So without any investment into assets. So there still essentially additional extra businesses, and we have to mitigate only the margin, which is -- shouldn't be a problem.
Margin to the extent of asset light? Is that fair [indiscernible]?
Yes. If it is asset-light, overall, if you look at it, the ratio will be better, but the margin will be tight because the labor cost is slightly higher there, but the production efficiency [indiscernible]. ROCE will be better.
You are talking about the CCL Yes. So we have to compromise on the [ ROSCETL ]. And that is the reason why there will be a pressure on margins. But overall, it will -- as a company, it will such better ratios to the numbers.
Okay. Sir, and last question on the retail side. How do we really -- as you said that from existing shareholders, so are we also planning to put the money in this retail business?
See, currently, the idea is to raise money in the retail division where the red portion will come down and the margins will definitely improve. So it's currently in the discussion stage, nothing has been finalized so far.
But it's required? I mean, SPFL is ready to put them also additional money in this -- our retail venture again?
No, no, no, no. We are trying to raise money from outside. Chairman's [indiscernible] getting money from the existing shareholders of S.P. Apparels.
We have our next question from the line of Aman Agarwal from [ Carnelian ] Capital.
A few questions from my side, with really starting on the spending decision. [indiscernible], how much utilization are you operating currently and are you EBITDA breakeven like -- how is the profit being spent in division right now, sir?
[indiscernible] utilization is the [indiscernible] and 95% is consumed by the [indiscernible]. it is capital consumed. And moreover, the efficiency levels are better now and the margins are around 14%, 15% on the division states. EBITDA percentage.
14%, 15% EBITDA [indiscernible].
At the [ digital ] stage.
Okay. Got it. If that's the case, like what was the main reason for current decline in environment margins? Like we are related to higher employee cost, but still like that spending going will [indiscernible] in overall garment margins, right? So why was garment margins like 17% compared to the historical level of 18%, 20% for us? So anything on that, sir?
Two things. See, if you look at the EBITDA margins in terms of percentage, we have been guiding for 9, 18 percentage. And now there is a reduction in margin is: one, because of the at right cost, which has a significant impact because of INR 6 crores for the first half, we're sitting in the expenses; two, there is an increased employee cost because of the training where our utilization level has gone up and the training cost is sitting and with the spillover in terms of sales, whatever additions that has happened from to Q1 to Q2 in terms of utilization level, the sales will get completed by Q3 and Q4. So spillover sales has an impact on the margin; and third is on the training cost also, like we have utilization levels going up because there are a lot of trainings that have been utilized for training has been done. So there is an increased training cost. These are the 3 things which have impacted the EBITDA margins.
Sir, again, on the exports volume, like FICR volumes have basically been flattish [indiscernible] garment exports for the stand-alone division. So that new...
[indiscernible] louder, [indiscernible]?
And I audible [indiscernible] also?
Yes.
Yes. So I was talking about the garment export volumes. So like could you have done 15.25 million units in this quarter compared to last year, it was flattish, right? So like even with new employees and higher capacity utilization, we had similar volumes. So like have we seen an increase in stock, which might go in Q3? Or like why are we not seeing increase in volumes despite the increase in utilization?
Yes. Actually, Balaji has already explained to you, the sales has been pushed to Q3 and Q4. So although the utilization is better, the sales will be pushed to Q3 and Q4. Overall, there will be an increase in growth in [ Asia ].
Okay. Got it. One final question is on Young Brand like we have reported 13.5%, 14% EBITDA margins in Young Brand. So like will this be a recurring run rate for now, like we are hoping for EBITDA margin expansion like we are working towards that direction. But like this margins will stay stable from year on [indiscernible]. This will be the minimum margins in Young Brand?
Yes. As I mentioned that this is any future quarters resulted [indiscernible] better than what we've been experiencing now. And we're expecting over a period of few quarters, let's say, 4 to 8 quarters, we are confident that the EBITDA margin can increase by another, about 4%.
Just to add to [ one ] point, this is only one quarter since we got -- I mean we have taken our control of Young Brand. So give us a couple of quarters to have a complete control on the EBITDA margin. So I guess whatever [indiscernible] that we are working towards the improvement on the EBITDA margin.
We have our next question from the line of Resham Jain from DSP Asset Managers..
So just 2, 3 clarification. First one is you had like close to 2%, 3% kind of garment growth in the first half, and our guidance at the beginning of the year in the last quarter was close to 10% for the full year. Do we still maintain that?
[indiscernible] the first half is slightly more or less flat. But as we said that the deliveries of Q1 and Q2 are pushed to Q3 and Q4. So we expect the overall FY '25, we expect the same number of the growth of above 10%.
Okay. So around 15% growth is what mathematically it comes for the second half?
10% to 15%. Between 10% to 15%.
Okay. For the whole year, we are looking at 10% to 15%.
Yes. Okay. So -- and then the second is that earlier, I think when we acquired this company, we thought of doing close to INR 300-odd crores in this new acquisition, Young Brand. But I think in this quarter, we did close to INR 94 crores. So is it that we have done better than our own kind of expectations here?
No, it was the previous quarter, Q1, the top line was a little lesser. It's all been pushed to Q2. That is the reason why it's still gone up. So we expect, all put together for the whole year, it will be around INR 303 crores, INR 305 crores.
Okay. So close to INR 75-odd crores kind of run rate?
Yes, between INR 75 crores INR 80 crores.
Okay, understood. And sir, in this business, again, when we took over, I think the margin was close to 10%, 11%. When I look at the numbers, it seems that this quarter, you have already done 13.5%, 13.8%. Again, some of the benefits have already started flowing through?
Yes, definitely, because although now officially, we took over the position in the end of June, but I have started intervening into the thing for the past about even before acquisition of about 3 months or so. And I used to push the previous CFO and the sales team to improve the margins. And now we have shared our expertise to them. So this has [indiscernible] the results.
And now we have directly -- we have jumped into this operations now. And we know where are the -- which are the areas to be plugged in and easily -- I could easily see [indiscernible] 4% improvement over a period of time. It's not by just customer increase the price or something. The efficiency we are working in terms of purchase, the sourcing supply base and the excessive employment of staff and [indiscernible] and the expenses are abnormally high. I mean a lot of other areas where the leakages needs to be plugged-in. So a lot of things [indiscernible] and a ForEx hedging that will channel about 1% or 2%. So many areas needs to be at [indiscernible]. We have identified the areas and we need to plug them over a period of time. All of a sudden, we cannot do it.
So one more point to add [indiscernible] as first of all, about [ first ] quarter sales being pushed to the second quarter. So the economics of scale is working over in terms of increase the margin. So if you look at it for the first half, as such, we should be aware between 12.5% to 13%.
Yes, that's a good point. So because the sale of second quarter is slightly higher. So the EBITDA has shown another 1% to 2% better. So if you average the H1, it will be more or less 11% to 12%.
Understood. Clear, sir. Sir, the last question is this year, if we just look at the normalized sales of Young Brand, on an annualized basis, we will be doing close to [ INR 1,330-odd ] crores kind of revenue in the garmenting business. On that base, with Sivakasi coming in and some improvement further in Young Brand and some of the old facilities getting ramped up, what kind of growth are we expecting in '26 on this [ 1,330 ] kind of FY '25 garmenting number?
I think you are looking at the consolidated numbers of Sivakasi and Young Brand, right?
Yes, yes.
[indiscernible] SPAL, there is say, 10% next year that will come to around [ three thousand hundred thousand hundred ] crores, also that of export. And Young Brand, we are targeting at INR 325 crores. So that will add on 1,100 plus 300 and -- 1,425, which includes Sivakasi for SPAL, so close to INR 1,500 crores.
Okay. And anything from Sri Lanka?
Including Sri Lanka, we said SPAL is part of -- Sri Lanka is part of SPAL put together, we say INR 1,100 crores.
Okay. Sri Lanka will not be very large in '26?
Yes, because in the early stage, we have to gradually step in.
Okay.
[indiscernible] is talking about INR 1,100 crores on absolute exports and you'll have the duties of the all other things along with it, that is where we said we will reach 1,500.
We have our next question from the line of Rehan from Equity Capital.
Am I audible?
You can be closer to the mic, yes.
Okay. Is it better now?
Yes.
Okay. On the labor front, I wanted to understand this higher labor cost, are we hiring this labor to prepare for Sivakasi? Or is it because we have -- we're trying to ramp up our utilization to ensure 90% as MD side as well that we're trying to achieve 90% by March in the coming quarter -- 2 quarters. So is this labor cost going to relatively higher on these 2 accounts? Or can you throw some more light on it?
Yes, exactly. For Sivakasi also we started recruiting people from this place. And [indiscernible] the migrant, we are going to increase the [indiscernible] to 90 plus. So we have to recruit them and train them before one quarter actually. So we started doing that. Because of that, there is an increase in labor cost.
Okay. So this includes the Sivakasi recruiting as well, right?
Yes. Yes. Yes.
That's just restarted one week before. So that will happen gradually, whereas the migrant mobilization will be little [ adverse ].
Okay. On the freight cost, I think Balaji sir mentioned there the INR 6 crores, INR 7 crores of freight costs. We do our sales on FOB basis. So do we expect -- I mean why is that impact on us INR 6 crores, INR 7 crores?
Yes. Yes, it costs actually, there was a delay in Q4 of last year. Because of that only, it has impacted. And moreover, the higher [indiscernible] cost normally [indiscernible] there have been so much because that is because of Red Sea issue, the freight cost itself was on a higher side. Now it has completely stopped.
No, but that delay was from our side because as per my understanding, all our shipments are on FOB basis. So the buyer would take care of the...
It's like this. Generally, normally in every quarter, there will be a nominal airfreight always due to late deliveries, and sometimes customers will request for a price at our cost. And this is -- see, order is only FOB. But if our deliveries are late, they ask us their freight at our cost. And it is not something new. Anyways, in every quarter, there will be a nominal increase due to [indiscernible] of some orders, we cannot be 100% accurate on top on deliveries.
So -- but this time, what happened, the airfreight cost of the -- all the airlines is 3x if used -- what it used to be. So that is why, generally, we used to spend about [ 50 lakhs ] or INR 1 crore for each quarter, but whereas because of the hike in the airfreight cost and with a little more air pricing, this has impacted the bottomline. Otherwise, all FOB only late deliveries, customers we will negotiate and if the customers accept extension, it's fine. Otherwise, we [indiscernible] cost.
Understood. It's very helpful. On Young Brand apparel, I have more question. The gross margins have come down quarter-on-quarter. Can you tell us more on that as to why we see now 4%, 5% gross margin between...
In the meeting, we explained to you about the spillover of sales from Q1 to Q2. And a certain portion of the value-added products would have been spilled over to Q2, and that's why there's a reduction in Q2 gross margin.
For SPAL, you said the Young Brand.
Young Brand. Young Brand [indiscernible] setting is about 6% broadly gross margin difference. Q2 is lower growth than Q1 despite higher top line I know...
[indiscernible] spillover of sales.
But sir, then how is that -- that should be higher growth, right?
No.
Gross margin is [ 24 ] against Q1 of [ 31 ].
There was [indiscernible] -- sorry, there was [indiscernible] COD.
When I buy fabric and dye on it, then the dyeing cost is sitting in my [indiscernible] here, but my expenses for dyeing is sitting on other expenses. So when I [indiscernible] in a few years, will definitely be showing lower number. Other expenses will be sitting on the bottom line.
Okay. So you're saying that... Can you reexplain that? It wasn't very clear.
I think the absorption costing is the issue here. Maybe we can off call and discuss on this separately.
Yes, say, for example, there are 2 ways of working. The raw material, either we buy finished fabric or sometimes these buy the yarn good for dyeing and then we get it. So when we do the job, then we ourselves for the buying and meeting. So that comes in the other expenses. If we buy a [indiscernible] purchase of fabric, it goes into COGS. So discussion, you can explain later.
I think it needs to be a broader expansion. I mean, the explanation on this is an off call and discuss on this. Can I know the name, please?
Rehan from Equity Capital.
Equity. Okay. Rehan, we can take the call, and I'll explain to you on this, okay?
Okay. And sir, if you could also quantify the [ spinning ] EBITDA for the quarter. I wasn't -- I couldn't hear that absolute low for the quarter.
Sorry?
The absolute value of [ spinning ] in the quarter EBITDA level.
Spinning EBITDA for the quarter, current quarter your are asking?
Yes, please.
Just hold on a minute.
Sure.
For the first half, spinning EBITDA is around INR 7 crores 15 lakhs.
This is first half?
First half, yes.
So I think in Q1, we did around [ 50 lakhs ] INR 1 crores, if I'm not wrong. So balance is coming in this quarter would be...
Coming around INR 1.5 crores or something. Now we have done [ 7.15 ].
Okay. And for FY '25, I think you had given a guidance of around [ 100 to 15 ] -- I think INR 1,200 crores to INR 1,300 crores top line. And I think we've done a...
Consolidated basis?
Yes. So FY '25. Just going to repeat my...
Correct. Correct.
Yes. So INR 1,200 crores top line in FY '25, you've, I think, achieved about INR 600-odd crores in the first half, [ 6 40 ].
When we gave the guidance, it was Q4, I guess, we expect that Q1 to be consolidated on the Young Brand, but the Young Brand, we didn't consolidate for Q1. So I guess we should be in line with the numbers whatever we have given in terms of INR 1,300 crores for the whole year FY '25.
Okay. Okay. [ thirteen thousand three hundred ], right for the full year?
Yes, yes. On a consolidated basis, yes.
Yes. Okay, that's fine. [indiscernible] if you haven't considered this run rate, it's more than that.
My question is also on the volumes. I think in -- for first half, if I take H1 FY '24 versus H1 FY '25, on the apparel business, the garment division, we've degrown in volumes by about [ 1.70 ] million pieces. Can you throw some light on why that is happening? And what -- and because I think in either Q1 or Q4, you had mentioned that you expect volume growth of 7%, 8% on a Y-o-Y basis for the full year. So do you see that much volume difference to come out in the H2? Or are we seeing a flattish share again?
Not if you look at our realization, our variation has gone up in spite of reduction in material cost. It's product mix, which has changed. But in terms of -- if you have read to the previous question, which has come on the sales growth, we are expecting that the second half should be far better than the first half. So the sales should -- because in the second half, whereby we should be in the position to end up on a 10% to 15% kind of growth for the whole year.
I'm not talking about absolute purposes. I'm asking you in volumes. The guidance you had given in Q4 or Q1 was 7%, 8% volumes. And to answer your question on realization, your realization has broadly been -- I mean [ one ] is different. I'm looking at the PPT and saying.
But FY '24 Q2, the material cost was on the higher side. The Young Brand [indiscernible]. So in spite of correction in the yarn prices, we are able to maintain the same kind of -- so there is a change in the product mix.
Correct, which is showing in your gross number, there's a [ 1.5% ] increase in gross numbers. I'm asking -- my question is on absolute volumes. If you have done x amount of pieces that are in H1 FY '24, in H1 FY '25, you have done 0.7 million less. I understand product mix change in absolute terms. I understand that completely.
But at an aggregate basis for the whole year, you had mentioned that you'll do about [ 7% odd ] volume growth. So are you seeing in Q2, the volumes do well? Or are you seeing realization do well? That's my question.
We are expecting the volumes to go up.
Okay. That's broadly my question. Yes. Understood. Okay.
And [indiscernible], I think, sir, you had mentioned in the opening remarks, has started?
Training has started and we expect the production to start in the first week of January.
Okay. First, in January, we expect production.
[Operator Instructions] The next question is from the line of [ Chirag ] from [ White Mine ].
Sir, my first question is just a refresh. Sometime back, we indicated that if the retail business doesn't turn around in a specific time frame, you are looking to shut it down. If I recollect, that time frame was March [ '25 ]. Are you sticking to it? Or is it getting extended or the time frame number it is not correct?
March [ '25 ] was not the deadline, which we have given. In Q1, we said we will look for 8 quarters. That is FY '24, we said we'll look for 8 quarters and then take a call on it. So we have [ dropped ] 3 quarters now. So we are looking at raising funds there.
So that see -- the problem in retail we said, yes, has been making negative losses, but it's not being supported by the losses in terms of cash losses. It's not been supported by cash intention. Whatever they get is purely on the debt front, which again is pulling down the numbers.
So sorry [indiscernible]. So just to answer this question, this is [indiscernible], Joint Managing Director.
So just to answer that question, yes, we are seeing progress. And I think even this Q2, the -- they're almost an EBITDA breakeven. And even in terms of raising equity, the conversation has been about that. So as you said, we have 2 more quarters, but then we want to extend that because we're seeing progress. And I'm sure with Q3 and Q4, with a significant progress on the EBITDA level numbers, I'm sure we will continue with the retail and the raising of funds.
So if it was going negative, it was getting worse or the impact is significant. And as you said, definitely, there was conversation about what do we do with the retail entity if it affects the parent company. But as of now, we are seeing significant progress on the bottom line as well as the EBITDA level. So we will look at Q3 and Q4, and I'm sure we will see the progress.
Okay. Because even if it break even, it will still be some optimal ROCE business. you. And it will take time for you to get to the average ROCE.
That's why we intend to move it. We're raising funds outside, so it doesn't affect the parent company's ROCE because again, as an industry, as a sector, it is different and it works in a different way.
So the first priority is to make sure that the bottom line does in -- the negative EBITDA margin doesn't affect the parent company. Once we cross that, then definitely, there is going to be work towards improving the ROCE, raising money outside and all that. So the parent company's numbers are not affected by retail as a sector.
Okay. That is helpful. Sir, second like broader question. So if I look at the commentary over the last 2, 3 years, the China Plus One, et cetera, now Bangladesh Plus, China Plus One et cetera, a lot of these stories have been made, but we are yet to see any proof of conversion happening in terms of revenue or in terms of customer additions in any form, okay?
So where are we in that stage? I understand the approved processes, et cetera, they are still looking at S.P. Apparels in India in general, et cetera, or the in next 12 months, can we see some through for footing because some of the peer [indiscernible] benefits flowing through India number. Though at the initial stage, but we have started seeing the benefits.
And second, earlier question is, if I look at last 3 years, while we have grown our revenues, our EBITDA and PAT number at conso level has stagnated. Something on -- one or the other part of business seeing some issues in one of the quarter, which drives you overall performance. At times [indiscernible], at times it is retail, at times, it is the garmenting business due to spinning profitability per and so forth. So if you -- we have a ballpark view on how to look at the businesses where we can see a sustainable earnings growth or cycle coming across because -- so this is the question that I had.
This is actually, as we all know that this industry is very dynamic, which has got a lot of risk involvement in terms of foreign currencies, then the government policies and importing government policies and labor intensive and the raw material fluctuations. So there are so many things involved in this. So it is a big challenge. The garment industry is a big challenge.
So no, definitely, the China Plus One and Bangladesh Plus One is working in defense and a lot of inquiries are coming, and that is the reason why we are talking about increasing our customer base, and it's not a very short-term south. We need to work for at least about 2 years' time to restructure the whole business model to improve everything.
But as far as SPAL is concerned, we never had a problem of filling the capacity. Our challenge was only increasing the capacity, which now we have as we said many quarters before that from 3,600 machine last year, by now, now we have -- by end of March '25, our average running will be 4,600. There is a significant growth of at least 15% to 20% growth in the capacity alone, which is a big thing, which we have been able to overcome.
So now that -- in addition to it, we have acquired the end plan. This is in the [indiscernible] inorganic growth by adding it quickly, we are able to get another INR 300-odd crore of business and additional [indiscernible] at INR 330 crores of business and capacity addition.
So this is a quick -- if at all, we had to achieve those INR 330 crores of sales in end brands, we have to work for another 2, 3 years' time to bring that number, so which we got so quickly here.
So I think we are very much on the track and -- it's a matter of time. And as I said, there are always challenges in S.P. U.K. This is -- S.P. U.K. is only the cost to COVID that time, and all of a sudden it cannot be corrected.
On spinning and [indiscernible] division, they are going okay. That's fine. And retail is continuous improvement is going on. It was lots of up and down, kind of a pain. And SPFL is constantly growing. It has never been flat. There are, of course, like registry issues on the airfreight cost gone up. So these things are only what we have to mitigate that in the -- for many years, we have been able to maintain around INR 18 crores of EBITDA, which is a good trend. This company is definitely performing book in spite of so many challenges.
No. But my question -- I'm not disputing the revenue side, revenue growth has been there, it is good. It's more about EBITDA and profit growth. Ultimately, revenues without EBITDA and profit growth doesn't matter much because it becomes ROCE dilutive.
EBITDA in garment division, we are able to maintain the 18% growth.
Across -- So I'm looking at comfort level of [indiscernible] business level because ultimately, you are not having a garment business [indiscernible]. That's the point I'm trying to drive that at control as well somehow our profitability has stagnated. And probably you mean need to relook at it very closely how to look at this particular piece.
And sir, the second question was, was that if we can -- if I can, what is your share of business in someone like [ Primark ]? I'm not saying how much Primark is contributing to your revenue, but would you be like [indiscernible] percent of their supplies?
Contribution? Please come again?
Sir, whatever amount of I suppose you supply Primark [ 100 rupee ]? How much that would be in overall scheme of more Primark relevant part of the business because we don't supply everything.
What I'm asking is we have 5, 6 customers. While we have done well with the single largest customers, why we are not able to scale up with [ adults ] in terms of our share of business with them? And more importantly, even with Primark, have we hit the roof over there and we can't increase our share of business over there?
Right. See, everything based on the capacity availability on whatever capacity we are offering to our existing customers, the business grows with each customer. So that is how it goes. So why we are not able to increase the business with other customers is because we never had additional capacity to offer to other customers.
Now, for example, Young Brand is additional capacity now that is coming from American Eagle and [indiscernible] customer, they have additional customers. And here from 3,600, now we are talking about 4,500. Now we are bringing in additional more customers. And we would like to maintain Primark share as it is today because we have to give room for the other customers to come in.
Okay. So you said your number of machine count is going from 3,600 to 4,500, right?
Yes.
Okay. And this will happen over 18 months?
Yes. No, by March '25.
March '25, but it is to get effectively utilize in another 6 months, right?
Yes. The utilization of machines from 3,600 last year to 4,500 March '25 for SPAL including the Sivakasi unit.
We have our next question from the line of [ Devanshu ] from [indiscernible].
So just wanted to understand our broader question that is how you look at the opportunity on the demand side at the rating especially from the European customers today after seeing from the Bangladesh that outright happens. And it's something that -- there is a talk in that either Bangladesh is going to stabilize more in terms of textile. After that, what would be the organic demand? So how do you see that?
See, it's like this. People have got to some [indiscernible] along in our opinion about Bangladesh issue. The retailers, the brands, what they're taking a stance is, they will not pull out the business from Bangladesh. They don't want to, because their margins are better. Land cost is much cheaper than other countries.
What they will now do is they will not increase further in Bangladesh. Where then the additional quality is what they want to increase, that will be done in other countries like Vietnam, India, Sri Lanka and Pakistan.
Okay. So in this -- on this opportunity, if you look at the scenario that they are looking for additional capacity in other countries like India, what could be the organic opportunity for us. Like for an example, we have the Young Brand acquisition for cross-selling opportunities. What could be the other opportunities you are looking for that in this acquiring the customers in the terms of [indiscernible]?
I don't understand. Can you come again, please?
So if you look at the companies that are looking for the additional capacity, not in Bangladesh, but for other countries in India or Vietnam. For that, I have to look at for an organic growth, what kind of opportunities you are looking? For an example, you acquired Young Brand just to have a cross-selling opportunities inside yourself only. So what would other opportunities you can have, you are looking for -- look for it in coming upcoming years?
So the new customers, our American customers will be looking for big factories with the mid capacities, whom we are not working with, so they will also be coming for the additional business. It's not because -- there will be -- there are many American importers and brands that have never been into Indian market for sourcing. So those are coming in and the hunting for the bid cycle, that is the biggest opportunity.
And one last question, sir. Are there several states like [indiscernible]. So it was going to the industrial policy, they are having a huge amount of subsidies for the textile part in terms of capital subsidy or an interest subsidy. So they are calling out like 80%, 80% capital subsidy, the government is providing to set up the textile plant in state of [indiscernible].
So is it a good opportunity for you to move some of their new CapEx lag towards because the labor cost, the low labor cost of this tax states are very less compared to the [indiscernible]? Just wanted your view on this?
Yes. This -- it depends on the management outlook and management capability. See, we -- our trend, what we take as a fan is that -- at the moment, we don't look at other states of India because we have still enough space to increase the capacity within [indiscernible]. Then in the existing factories, we can mobilize more local people also.
So at the moment, we don't have any plan to cross the state, rather we are crossing the country to Sri Lanka. Why? Because in India, you cannot get this kind of job working factories approved by the customers. Customers [indiscernible] and contacts because their factories are far, far better than Indian thing in terms of compliance and other things.
So how -- why we after that is because we do not want to invest further into this one, but to make it enough, not to make it a asset-heavy. So Sri Lanka [indiscernible] as good as [indiscernible] way of working. So we can immediately get the good factories with the skilled workforce, and the customer is ready to place the orders. So this is an easier way we think, rather than putting up a big factory in Northern part, the northeast part of India.
We have our next question from the line of [ Kiran ] from [indiscernible].
Sir, if I look at your garment revenue, we'll probably end up return on whatever INR 11,100 crores this year, next year. To go to just focusing on garments, right? To go to, let's say, INR 2,000 crores or INR 2,500 crores, the [indiscernible] of INR 1,000 crores to [indiscernible] crores, including Young Brand, excluding Young Brand. But essentially for that to happen, should we onboard some of the large U.S. players like [ Carter's ] or anybody else in the [ young kid ] segment. Otherwise, our growth will continue to be 10%, 12%. Is that a fair assumption?
No, we have that, as I have been mentioning, we have increased our customer base, added more customers. And now there is a way for allowing -- there is a room for increase the customer base because the capacity has been increased. [indiscernible] reducing the distance of existing customers who are long associated with this for many years.
So only way to increase the customers even to the American market, only way is to increase the capacity and give room for them to place the orders with us. So that's what we are working on.
The sharp cut is Young Brand, then in the state, we got 3, 4 customers. Samely, if they have other than 1,000 patients extra in the next 2, 2 years' time. So we will be focusing on new customers.
Got it. Sir, the other question that I have is, from a garment perspective. Is U.S. going to be -- given the demographics of U.K. and our young population is probably stabilizing or actually collapsing, is our next growth market primarily going to the U.S.? It should be kind of assume that the U.K. market will stagnate from here on at whatever INR 900,000 crores sales? And the next level of growth, the next INR 1,000 crore is going to come from the U.S., is that a fair assumption?
Yes. See, it's like this. 1 or 2 customers are consigned to only the U.K. market, U.K. and airline, but other customers are international players. They are into U.K., into Europe, they are into a market. So that is the bigger growth. So I think American market is much, much bigger than the European market. And once we increase the customer base of American customers, then automatically, the business will grow over a period of time. There could be -- the more contribution from the American market.
Got it, sir. Got it. Sir, the third final question that I have is, if I look at the 10-year history, right, 10-year, our margins grow substantially higher except for the COVID years. So gross margin, again, on garmenting on leases, not on the retail and the U.K. But just on garmenting, we are about 20 plus. Our competitor, whose in [ Kerala ] also is probably 20 plus. So just trying to understand, is there more competition coming in the children wear, kids wear, infant wear segment from outside India, which is forcing us to reduce our gross margin, just gross margin, sir, I understand about all the freight and all that for EBITDA.
But just on gross margin, is there more competition coming, which is sourcing us to reduce gross margins? Or is this a play on scale, where more scales have to compromise on gross margins. How is that working in the last 10 years?
It works both because even there are a lot of competitors are Indian players are coming in. So there is a controlled competition. There's no doubt about it. At the same time, economy of scale, that's what we are working. But for the kind of over what we are having, we see increase the top line to sales, INR 1,300 crores or something. Then definitely, we will be able to sustain this competition. That's our plan.
So you're saying the competition is also because from what we understand from the time you've been lifted, sir, is that infant wear, childrens wear, like the 24 months -- 0 to 24 months is like insanely labor-intensive process, extremely difficult for competition to get in. So therefore, there are only 2, 3 players in India who can actually do the scale.
So now what you tying look over the past, whatever, 5, 6 years, there are a lot other competition from India that's coming in that 0 to 24 months pace? Is that roughly the conclusion?
Yes, slowly, slowly because they also like to move to a little more complicated styles where the competitors think they can make a little more money. So that we cannot stop. So we strategized everything to see how we can maintain this EBITDA margins.
Ladies and gentlemen, that would be the last question for today. And I now hand the conference over to the management for closing comments.
Yes. I thank all the shareholders who participated in the con call. And as I always say, the team, especially, we have big plans, I mean, [indiscernible] the business plans and for the top line growth and the bottom end. We are consistently working towards it despite a lot of challenges in this industry. And we are confident that we have a long way to go, and we will be able to -- that is [indiscernible] shareholder. Thank you. Thank you for participating.
Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.