Any current/future new fundraising through debt or equity?

No substantial increase in debt profile is expected despite capacity expansion. The company is moving towards becoming debt-free, with current long-term debt around INR 4 crores. Working capital requirements may increase due to new factories and capacities, but will be managed within current approvals. No specific mention of immediate plans for equity fundraising. For SP Retail Ventures, the plan is to turn around performance over two more financial years, then bring in private equity or a strategic partner followed by listing by FY26. Retail division may raise capital separately as part of it

Any current/future capex/capital investment/strategic investment?

The company has already invested around INR 30-40 crores in hostel facilities, with an additional ~INR 10 crores planned by the end of the current year. Further investment in hostel facilities may be required next financial year due to plans for a second shift in 6-7 factories. Capacity expansion is ongoing, with the ability to increase capacity by 10-15% annually with about INR 50 crores investment. The company is in negotiations for acquiring a factory near Bangalore or Chennai (FO1), with firm information expected by April 2024. New factories are being added along with new capacities; worki

Future growth expectations in sales/revenue/volumes?

India is positioned as a preferred garment manufacturing destination due to the China-plus-one strategy and anticipated free trade agreements, attracting global retailers to shift orders to India. SP Apparels plans to increase capacity utilization to approximately 90% by March 2024, with garment division volumes expected to grow by 15-20% annually. The company expects the SPUK division to recover and strengthen in FY24, FY25, and FY26, backed by new customer additions and strategic location change. Incremental growth of about 20% is expected from new and returning customers in garment division

Future growth expectations in earnings/operating earnings/profits/EPS?

The garment division expects around 18-20% EBITDA margin annually, maintaining consistent stable margins driven by improved spinning utilization and moderated yarn prices. Garment division capacity to grow 15-20% year-on-year, with new customers and resumed orders supporting growth, especially from US clients. SPUK division expects FY24 to be a recovery year, with FY25 and FY26 projected to be stronger due to new orders and customers in UK/Europe. Retail division aims to turn positive margins consistently over next two years, planning listing by FY26 post stabilization and potential capi

Current/ Expected Orderbook/ Pending Orders?

The current order book stands at INR 410 crores with orders booked until February 2024, showing about 20% year-on-year growth. There is a backlog of orders extending until February 2024, indicating strong customer trust and robust demand. New order bookings for the next season (FY24) in the SPUK division are expected to start by end November to early December 2023. Plans to add 2-3 new customers in SPUK and garment divisions are underway, which could increment garment division capacity and growth by approximately 20%. Discussions are ongoing in Sri Lanka with 3 potential customers; shipments e

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S P Apparels LtdQ3 FY23Textiles & Apparels

S P Apparels Ltd Q3 FY23 Earnings Call Analysis

Revenue, margin, capex, fundraise and order book outlook from management commentary.

Price: ₹1,038P/E: 17.3Market Cap: ₹2.0K CrSector: Textiles & Apparels

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Full analysis

Revenue guidance

Category 3

→India is positioned as a preferred garment manufacturing destination due to the China-plus-one strategy and anticipated free trade agreements, attracting global retailers to shift orders to India.
→SP Apparels plans to increase capacity utilization to approximately 90% by March 2024, with garment division volumes expected to grow by 15-20% annually.
→The company expects the SPUK division to recover and strengthen in FY24, FY25, and FY26, backed by new customer additions and strategic location change.
→Incremental growth of about 20% is expected from new and returning customers in garment divisions and SPUK.
→Sri Lanka operations are expected to start shipments by March-April 2024, adding to revenue.
→Retail division aims to stabilize and eventually list SP Retail Ventures by FY26 after consistent profitability.
→The company targets EBITDA margins around 18-20% with increasing order books totaling approximately INR 410 crores with orders booked up to February 2024.

Margin guidance

Category 3

→The garment division expects around 18-20% EBITDA margin annually, maintaining consistent stable margins driven by improved spinning utilization and moderated yarn prices.
→Garment division capacity to grow 15-20% year-on-year, with new customers and resumed orders supporting growth, especially from US clients.
→SPUK division expects FY24 to be a recovery year, with FY25 and FY26 projected to be stronger due to new orders and customers in UK/Europe.
→Retail division aims to turn positive margins consistently over next two years, planning listing by FY26 post stabilization and potential capital raise.
→Spinning division margins have improved, reaching break-even and expected to sustain double-digit EBITDA going forward, not pulling down overall profits.
→Overall, the company anticipates revenue growth driven by expanding capacities, improved operational efficiencies, and favorable macroeconomic trends (China plus strategy, FTA expectations).
→Long-term prospects look strong with India positioned as a preferred sourcing hub, boosting earnings and EPS growth over coming years.

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Fundraise plans

Yes

→No substantial increase in debt profile is expected despite capacity expansion.
→The company is moving towards becoming debt-free, with current long-term debt around INR 4 crores.
→Working capital requirements may increase due to new factories and capacities, but will be managed within current approvals.
→No specific mention of immediate plans for equity fundraising.
→For SP Retail Ventures, the plan is to turn around performance over two more financial years, then bring in private equity or a strategic partner followed by listing by FY26.
→Retail division may raise capital separately as part of its listing plan, but not in the near term.

Order book

Yes

→The current order book stands at INR 410 crores with orders booked until February 2024, showing about 20% year-on-year growth.
→There is a backlog of orders extending until February 2024, indicating strong customer trust and robust demand.
→New order bookings for the next season (FY24) in the SPUK division are expected to start by end November to early December 2023.
→Plans to add 2-3 new customers in SPUK and garment divisions are underway, which could increment garment division capacity and growth by approximately 20%.
→Discussions are ongoing in Sri Lanka with 3 potential customers; shipments expected to start by March-April 2024 after factory audits and sample approvals.
→Retail division is focusing on stabilizing and expanding, with plans to raise capital and list separately by FY26 after consistent profitability.

Capex plans

Yes

→The company has already invested around INR 30-40 crores in hostel facilities, with an additional ~INR 10 crores planned by the end of the current year.
→Further investment in hostel facilities may be required next financial year due to plans for a second shift in 6-7 factories.
→Capacity expansion is ongoing, with the ability to increase capacity by 10-15% annually with about INR 50 crores investment.
→The company is in negotiations for acquiring a factory near Bangalore or Chennai (FO1), with firm information expected by April 2024.
→New factories are being added along with new capacities; working capital requirements may increase but within current approvals.
→The company plans strategic investments, including raising capital and listing SP Retail Ventures by FY26 after turning it profitable.

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