Banswara Syntex Limited (503722) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call hosted by Banswara Syntex Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravindra Kumar Toshniwal, Vice Chairman of Banswara Syntex Limited. Thank you, and over to you, sir.

Thank you. Hello, everyone. Good afternoon. I welcome you all to our quarter 1 FY '27 earnings conference call. Along with me, we have on this call our MD, Shaleen Toshniwal; our CFO, Ms. Kavita Gandhi; and SGA, our Investor Relations advisers. I hope you all have been able to go through our investor presentation, which we uploaded on the exchange of our company website. So firstly, I would like to highlight a landmark development for the Indian textile industry, that is on the 15th of July 2026, the India U.K. free trade agreement came into effect. This marks a significant milestone in enhancing the global competitiveness of Indian textile and apparel exports. The elimination of import duties on Indian textiles and apparel entering the U.K. is expected to significantly improve the competitiveness of Indian manufacturers and strengthen our position as a preferred sourcing destination. We hope this will create opportunity to expand the country's share in the U.K. textile market. Supported by our improved pricing competitiveness and a deeper engagement with global brands and retailers, we hope to sustain a growth in exports. This agreement is expected to open a new phase for us. For Banswara Syntex in particular, it is an encouraging development because of our long-standing relationship with the U.K. and its leading customers. We have a strong presence in the value-added products and in our MMF products for the U.K. market. Our integrated manufacturing capabilities position us well to capitalize on these opportunities, and the benefit of the India U.K. FDA will begin to accrue from the coming quarters. We also believe that the potential conclusion of similar trade agreements with the European Union could further strengthen India's position and Banswara's position as a preferred global sourcing destination and create additional long-term growth opportunities for the company. Now let me take you through the financial performance for the quarter. Our total income increased by 4.1% to INR 322.4 crores in quarter 1 FY '27 on a year-on-year basis. The EBITDA stood at INR 29.5 crores during the quarter. Profit before depreciation and tax came in at INR 19.6 crores. The company recorded a profit after tax of INR 4.4 crores in this last quarter as compared to a loss of INR 1.4 crores occurred -- which occurred in the quarter 1 of FY '26. The year-on-year growth was supported by improved realizations and a higher contribution from value-added products. On a sequential basis, performance reflected the seasonally softer first quarter. This is always true for us, along with the temporary operational headwind, which is due to the labor availability during the first quarter. These challenges have now largely eased. Operations have stabilized, and we expect this positive momentum to continue over the coming quarters. Now moving to each of our business divisions. The Yarn division recorded a revenue of INR 96 crores in quarter 1 FY '27 compared to INR 110 crores in the corresponding quarter last year. Here, we have a reduction. Sales volume stood at 36 lakh kgs and the capacity utilization stood at 70% during the quarter. As we highlighted before, the temporary labor shortage during this season due to the various festivals and marriages does impact our production during this quarter and resulted in a lower output and sales. However, some improved price realization in the domestic yarn helped us to offset some of the impact. Another aspect of the quarter was the higher internal consumption of yarn to support our downstream Fabric and Garment business. We prioritize our internal consumption. And while this resulted in lower externally on sales, it's a conscious strategic decision under our vertically integrated business model. By increasing internal transfers, we are able to create greater value across the textile value chain, improve our overall operational efficiencies and enhance profitability at the consolidated level. We continue to increase the share of value-added yarns in our product portfolio, strengthening both the realizations and our upstream businesses. Looking ahead, the labor availability has improved significantly, and we expect our yarn division to normalize progressively over the coming quarters, enabling the yarn division to return to its normal operating level. Now the Fabric division. Moving to the Fabric division. We are pleased to report a strong start to FY '27. The division delivered a revenue of INR 147 crores, representing a healthy 25% year-on-year growth. Sales volume increased by 18% year-on-year to 59 lakh meters, and capacity utilization improved to 80% during the quarter. This reflects a robust demand and better operational efficiencies across the business. One of the key growth drivers during the quarter was our continued focus on value-added fabrics. We've been consciously increasing the share of premium product categories such as our bi-stretch fabrics, both in polyviscose and polyrich blends, wool blend in our portfolio. This strategic shift has enabled us to achieve better realizations and enhance the value addition, thereby contributing meaningfully to the division's revenue growth. The demand remained healthy across the United States, the domestic market, while Europe and the Middle East witnessed a relatively softer demand. Despite this, our diversified customer base and geographic presence enabled us to deliver healthy growth. Importantly, our order book remains strong, providing good revenue visibility and confidence for the coming quarters. We continue to strengthen our customer portfolio and have added core articles with brands such as Haggar and with NEXT in the U.K. At the same time, we have further deepened our engagement with several existing customers, reflecting our confidence in the product and our customer support in our innovation capabilities and execution strength. Looking ahead, we remain focused on further expanding our Fabric business, improving the operational efficiencies and strengthening our customer relationships across key markets. The Garment division. Moving on to our Garment division. The business reported a revenue of INR 69 crores during quarter 1 FY '27 compared to INR 75 crores in the corresponding quarter last year. The sales volume stood at 8 lakh pieces, while capacity utilization was 69% during this quarter. The first quarter is typically a seasonally softer quarter for our Garment business. During this quarter, however, the geopolitical uncertainties with the West Asia share crisis starting, led to temporary export logistic constraints, with the customer pickups in shipping being delayed, which resulted in the deployment of certain dispatches and had an impact on our revenue in this quarter. We expect the deferred dispatches to be executed in the subsequent quarter. Despite this temporary challenge, the underlying business environment remains healthy. Our order book continues to be robust and is fully booked through to November and even December now, providing us with strong revenue visibility and confidence for the coming quarters. This healthy order pipeline reflects the continued trust of our customers, and we hope to be able to execute well. We continue to deepen our engagement with existing customers, with increased business from our global brands such as Mango, Celio and Walmart. At the same time, we have expanded our customer portfolio through the addition of international new brands such as C&A and NEXT. We expect them also to contribute meaningfully to our future growth. Looking ahead, we remain optimistic about the growth prospects of the Garment division, the combination of a healthy order book, increasing business from existing customers, onboarding of new global brands and the expected benefits from the India U.K. free trade agreement and the proposed India EU FDA is expected to strengthen our export opportunities. I can also add that the domestic market remains buoyant, and there is also good demand happening in the domestic market for us. Overall, while the quarter was impacted by a few temporary operational headwinds, the underlying fundamentals of our business remains strong. The labor availability has improved, the execution of the deferred orders has commenced and demand for our products continues to be healthy. Supported by our integrated manufacturing model, a growing portfolio of value-added products, our expanding relationships with global and domestic customers and the favorable trade environment, we remain confident of delivering a stronger momentum through the balance of FY '27 to achieve the guidance we have outlined for the whole year. With this, I now open the floor for questions.

[Operator Instructions] We have our first question from the line of Akshay Satija from Alpha Invesco.

Congratulations on the set of numbers. I just had a few questions. So if you could highlight what is the contribution of exports for fabrics and garment separately?

Okay. Is that -- is there any other question?

Yes. Okay. So next would be, what would be our jackets contribution? I believe we were giving volume and value-wise segmentation like what sales we did from jacket separately, if you could highlight that. And what would be a segment-wise margins? And then are we seeing enough demand or inquiry pipeline now that we are feeling confident to rather add more capacity instead of just focusing on the maintenance CapEx that we've been doing for 2, 3 years? Are we looking forward to adding more on towards expanding the capacities?

Okay, Akshay. So yes, that's 3 different questions. We'll try and answer each one of them. So if you look at the segmental growth in our export and the domestic, the export business, I'll let Kavita give me the exact number. But I think it's around...

Overall exports remains at 48%. But since you wanted to know, sir, fabric and garment, overall export, fabric and garment contributes around 70% of exports.

Okay. So fabrics and garments, 70% is export, 30% is domestic market?

No, no, no. 70% is total turnover of exports come from fabric and garment and 30% comes from yarn.

If you ask us about garment, about 60% is export and 40% is domestic. For fabric, I believe it's 50-50.

Okay. Okay. And what was your jacket contribution?

So generally, we've been averaging about 600,000 jackets a year, roughly about 50,000 jackets a month. This year, we expect to close between 800,000 to 900,000 jackets. We'll probably be averaging between 75,000 -- 70,000 to 75,000 jackets a month. That's a significant -- the...

And what would be the run rate in Q1?

In Q1, the demand for jackets has been relatively soft. I think we closed at about 135,000 jackets. But the run rate from here onwards is upwards of 75,000 a month, and the booking is almost confirmed until end December.

Okay. Perfect.

Now if you get to the segment-wise margins, more or less, we expect the margins in the Fabric business to be about between 12% to 14% EBITDA, and in the Garment business between, say to 8% to 10%. And our Yarn business is also somewhere between 8% to 10%. And our target is at about 12%. In this first quarter, we achieved 9%, but we expect to cover it up an average 12% by the end of the year.

Okay. So were the margins in line in Q1? Or is it something that we are expecting for full year '27?

They were only in line in the Fabric business for the first quarter. Yarn, because of capacity utilization, we didn't hit the target. And Garment, because of the goods not being dispatched in time due to the container availabilities, we had a backlog.

Okay. Okay. On the capacity, if you could highlight -- are we confident and are you seeing...

Your last question was on the demand.

And the growth.

And I think, yes, the demand is definitely looking good for both, I can say, for both Fabric and Garment, at least for the next 2 quarters is looking very healthy and meeting our projections are somewhat slightly surpassing our position. So that keeps us optimistic. And with all of the tailwinds that Raviji has mentioned in his speech, we expect demand should improve going forward as we hit the next year as well.

So we are actually thinking of making investments, which we continue to make. This year, we will be investing another -- about INR 140 crores is planned and already sanctioned, and we will be making these investments in Fabric and Garment and some -- from a common infrastructure. So we are being more aggressive on what investments we have to make to supplement the capacity as we are anticipating that there will be demand, which will cover up whatever capacity we have, and we'll need more.

Okay. So of this INR 140 crores, could you just segregate which would be maintenance that we're supposed to do to maintain the current capacity? And what will help us, what portion would be to expand for the capacity?

I mean, in general, we're looking at an expansion next year of about 20%, 25% in Garment and an expansion of about 20% -- I'm talking now '27-'28 FY, is that we expect from -- we expect to close this year close to around INR 1,500 crores. And then we are talking about '27-'28, another expansion of 20% in our Garment and Fabric business. Yarn, we haven't yet made the numbers out. We maintain our Yarn business or even marginally grow it while keeping both these expansions. That's about roughly what we are looking at based on these -- that we're already making.

[Operator Instructions] The next question is from the line of [ Nishant ] from [ Green ] Portfolio.

Am I audible?

Yes, go ahead.

Okay. Sir, I want to know -- I know the quarter 1 is seasonally your weakest quarter, but the sequential drop was still sharp, like Garment revenue down 28% and Yarn volumes down 21% versus quarter 4. So my question is, how do you build from soft start to much stronger second half? Your full year guidance, earlier you said INR 1,500 crore. And on Garment specifically, I want to know, around that [ fall ] shipment that got delayed and come back later or the real demand you have actually launched? Like I want to know on the -- specific on Garment sector.

Right. So I'll let Shaleen answer the Garment question first.

Yes. Thank you, Nishant. I think that's a good question because -- if we could have a stronger start to the year, that obviously gives us a much better opportunity to get overall better numbers. Now when it comes to Garment, this particular quarter is for export is the sweet window for maximum exports for the autumn/winter season. And typically that autumn/winter season has been a little bit weak for us in terms of export demand. And also for the domestic demand, that also is a little bit of a weak period because the festive season shipments really pick up from supply onwards. That first quarter tends to be a little bit weak for garments. Now to supplement it going forward, focusing on improving our autumn/winter product range. And I'm happy to say we have done a lot of sampling this year. Hopefully, next year, we will have an improved number in the first quarter. And going forward for the rest of the year, already the numbers have improved significantly in terms of the order book. So I'm confident and we're looking at possibly a INR 100 crore quarter sales from here onwards on the Garment side.

The next 3 quarters.

Next 3 quarters.

The INR 300 crores...

And what about July, sir?

July is on target. It's -- we should have, I think, finished with about 30 -- with whatever spill over, INR 30 crores. And I think by the end of this quarter, we should be hitting that round about INR 100 crore mark.

Okay. So rides on target.

Yes, yes.

[Operator Instructions] We have our next question from the line of [ Pushkar Jain ] from [ Mili ] Capital.

You said FY '27, our revenue guidance is like INR 1,500 crores. What is our margin guidance for the year, sir?

So the margin, you're saying?