S P Apparels LtdQ1 FY23Textiles & Apparels

S P Apparels Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

N/A

Order

Yes

Capex

Yes

2 of 4 growth signals are positive.

Revenue guidance

Category 3

→Garment division growth is expected to be around 14% to 15% for FY '24 (Page 9, 10, 11).
→Volume growth in garments is anticipated to be about 20% to 22% (Page 10).
→Capacity utilization currently at 70%, with potential to increase by 10%-15% and additional 20% capacity from Sivakasi factory (Page 4, 11).
→Expansion via second shift to increase capacity without capital expenditure is being considered (Page 11).
→Order book size is INR 365 crores, with expectations for quarter-on-quarter increase (Page 6, 14).
→Emerging inquiries from new customers in U.S. and EU expected to drive growth (Page 4).
→Retail division (Crocodile and new brands) aims to break even EBITDA next year, with Crocodile expected to contribute more positively (Page 8, 9).
→Spinning is captive; growth impact mainly on EBITDA margin, not revenue (Page 14).

Category 3

→The company targets **14%-15% growth in the Garment division for FY '24**, considered achievable.
→PAT (Profit After Tax) growth is expected to be substantially higher due to normalization in spinning and retail segments.
→EBITDA margins for the Garment division are guided to be sustained around **18%**, with management confident this level is achievable regardless of cotton price fluctuations.
→The retail business is expected to reach **EBITDA breakeven next year** on a consolidated basis, led by improved performance of the Crocodile brand offsetting losses in the newer brands.
→Capacity utilization is around 70%, expected to increase by 10-15%, which should support volume and profitability growth.
→New factory in Sivakasi expected to be operational within 12 months, enhancing capacity and future growth.
→Overall, management expresses confidence in **year-on-year better results** and ambitious plans over the next 5 years.

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→No explicit mention of any current or planned new fundraising through debt or equity in the transcript.
→Discussion on liquidity indicates a strong position with cash and cash equivalents of INR 121 crores and net debt of INR 40 crores as of March 31.
→Retail business cash loss of INR 6-7 crores in the current year may require Board decision on further support, but no clear indication of fresh capital allocation or fundraising.
→Board is to decide on capital allocation, especially concerning retail segment funding.
→No direct mention of seeking external investors or equity infusion at present; preference seems to be internal capital management and selective investments.

Yes

→Current order book size: INR 365 crores (as of the latest quarter).
→The order book is solid and booked till August.
→Order book includes both long-term orders (for up to 1 year) and short-term urgent deliveries; hence, it doesn't directly correlate with quarterly revenue.
→Management expects a quarter-on-quarter increase in the order book.
→Despite a reduction in average price per piece (from INR 140-150 to INR 120-130), order volumes and orders continue to increase, especially in baby garments.
→The company benefits from customer consolidation, leading to increasing orders from existing customers and potential new customers in the pipeline.
→Lead time for orders generally ranges from 90 to 120 days.

Yes

→New factory construction at Sivakasi is planned, with construction starting in July 2023 and expected to be operational in 12 months.
→Plans to increase capacity by about 20% from the Sivakasi unit.
→Considering a second shift to utilize existing capacity without additional capital expenditure.
→Continuing installation of rooftop solar energy plants in new and existing factories, targeting 1-2 megawatts capacity addition every year.
→Factory consolidation completed by closing smaller factories and transferring employees to bigger units for better efficiency.
→No further factory closures planned; focus is on capacity expansion within existing factories.
→Capital allocation for FY '24 focuses on core garmenting area capex, though specific guidance is awaited from management/board decisions.

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