S P Apparels Ltd Q4 FY23 Earnings Call Analysis
Revenue, margin, capex, fundraise and order book outlook from management commentary.
Management growth scorecard
Revenue
Category 3
Margin
Category 3
Fundraise
N/A
Order
Yes
Capex
Yes
2 of 4 growth signals are positive.
Full analysisRevenue 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).
See what S P Apparels Ltd management said on margin guidance — free account, 30 seconds.
Fundraise plans
- 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.
See what S P Apparels Ltd management said on order book — free account, 30 seconds.
Capex plans
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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Margin guidance
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.
Order book
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.
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What S P Apparels Ltd's management said in earlier quarters
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