Banswara Syntex Limited (BANSWRAS.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 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 from Banswara Syntex Limited. Thank you, and over to you, Mr. Toshniwal.

Thank you, Avidat. Hello, everyone. Good afternoon. I welcome you all to our quarter 1 FY '26 earnings conference call. Along with me on this call, we have our CFO, Ms. Kavita Gandhi; and SGA, our Investor Relations Advisers. I hope all of you have been able to go through our investor presentation uploaded on the exchange and on our company website. Now before I move to the specifics of our performance, let me briefly touch on the broader textile industry landscape, which remains an essential pillar of India's economic growth. India has firmly established itself as the second largest producer and the third largest exporter of textiles and garments globally, ranking among the top 5 exporters across several textile categories. On the domestic front, the market is growing steadily at a CAGR of 10% and is expected to reach USD 350 billion by 2030 while exports are projected to scale up to USD 100 billion by FY '30. This growth is being supported by various policy measures of the government, notably the good work done in making the India-U.K. free trade agreement happen. This has eliminated 99% of the traded products from India with -- from duty and tariffs and will boost and enhance the competitiveness of Indian textile in all of the international -- in the key international market of the U.K. Congratulations to the Ministry of Textiles for achieving this. In addition, initiatives such as the 100% FTI under the automatic route and a 19% increase in the Ministry of Textiles' budget allocation are encouraging both the domestic and international investments in textiles. In this context, the ongoing free discussions -- free trade discussions with Europe also present a potential upside, offering access to additional markets and further supporting our export growth. Let me also address the elephant in the room, which is the Trump tariffs. The U.S. is an important market, and the tariff has been a setback for India as a whole. However, I wish to state Banswara's position, particularly regarding the U.S. tariff and its impact on us. Every company will have a different impact. For us, we have built our business over the past 2 decades with the U.S. customers who have had the flexibility to manufacture garments in various tariff-friendly countries that is relatively tariff-friendly right now, such as Bangladesh, Egypt, Sri Lanka, Jordan, and Vietnam. And today, nearly 90% of our U.S.-linked business is based on fabric routed through these different geographies around India. So we remain competitive in our fabric offering through our differentiated manmade fabrics, and we compete as always against the Chinese suppliers in the U.S. market. In fact, logistically, when we have to supply our fabric to exporting countries like Bangladesh, Egypt, Sri Lanka and Jordan, logistically, we are at an advantage as compared to China. So we expect that out of our total exports of fabric, only 10% of our fabrics were going as garments directly from India. The rest were being exported as fabric directly through different geographies who are not yet experiencing the very high tariffs that India is experiencing. Due to this, we expect that there should not be any reduction in our targets of whatever exports we achieve for the U.S.A. This is just to clarify Banswara's position on this. We have seen already that as far as our competition with China is concerned, in the worsted woolen blended fabrics, we have grown substantially in our business share and have taken the Chinese market share aggressively in India. This is also expected to happen over the years with the growth in our manmade fabrics and polyester blends. That said, the industry continues to show long-term potential. The current environment remains complex, however. The global manufacturing landscape is facing sustained headwinds, including demand-side pressures, rising input and labor costs, unpredictable raw material prices and changes in consumer preferences. In addition, ongoing uncertainty around the tariff regimes and shifting trade dynamics continue to add to the near-term challenges. Despite these challenges, we remain focused on leveraging our supply chain flexibility and product strength to navigate this environment effectively and capitalize on long-term growth opportunities. I can also add that the domestic market continues to be a large growth opportunity, and we will leverage our differentiation and competitiveness to be a China Plus One for most countries, even if not possible so much for the U.S. Now let me take you through the financial performance for the quarter. Our total income increased by 12.7% to INR 309.6 crores on quarter 1 FY '26 on a year-on-year basis. The EBITDA also increased marginally to INR 21.9 crores during quarter 1 FY '26. However, the profit before depreciation and tax was lower at INR 11.2 crores. And as a PAT, the company recorded a loss of INR 1.4 crores in quarter 1 FY '26. Our total income did grow by 12.7% on a year-on-year basis, primarily driven by strong performance in the garment followed by the fabric and yarn. This growth was supported by improved capacity utilization in our garments, where the demand particularly increased and lifting was good in most markets. However, our EBITDA for the quarter was impacted by certain operating challenges we faced in the Yarn division, particularly. We faced a temporary labor shortage during this first quarter 1 period, which led to higher operating costs and a subsequent impact on margins. We lost substantially our capacity utilization in the Yarn division. That said, these challenges were seasonal in nature and have started to ease down. Moreover, the investments we have made in modernization and process improvements are already beginning to show results and will enable us to address such issues more efficiently going forward. The -- going forward, we do expect that the profit before tax will remain under pressure, mainly due to higher interest costs from increased working capital and term loans as well as with the increased depreciation during every quarter. This will require us to execute all of our 3 businesses with higher turnover and margin. Now moving to our business divisions. For the Yarn division, the revenue from the yarn vertical witnessed a 10% increase in quarter 1 this year as compared to FY '25. The sales volume increased by 13% year-on-year basis to 51 lakh kgs. The capacity utilization was lower at 70% in quarter 1 FY '26. The growth was modest, the demand remained muted, and we faced labor shortages, as I mentioned earlier. And we could not get the utilization levels that we target. There was a reduction in some stock, and that is why you see that the sales increased even though the utilization did not. We shall continue to focus on high-value yarn products that leads to enhancing our value growth. With strong seasonal demand expected ahead and a healthy level of advanced bookings already in place, we are cautiously optimistic about the coming quarters in the Yarn business. For the Fabric division, the fabric vertical witnessed a growth in revenue of 4% to INR 117 crores in quarter 1 FY '26 as compared to the corresponding period last year. This was lower than expected, but we were challenged by a slower lifting due to the tariff pressures and quarter 1 headwinds, which slowed even the domestic market. The capacity utilization in the fabric vertical stood at 70% for quarter 1 FY '26, and the sales volume was around 50 lakh meters. We expect the next quarters to be better, supported by good order bookings that we already have and the launch of our new Siro collections. We are also working to grow the wholesale markets in Italy and France. At the same time, we are focusing on using our capacities better in the domestic market, especially to replace the Chinese products that get imported. Now about the Garment business. For quarter 1 FY '26, garment revenue grew by 42% year-on-year to INR 75 crores. This was a healthy growth. The capacity utilization in the garment vertical was also much better and stood at 78%, an increase of 29% year-on-year. The Garment segment is continuing to show strong momentum with healthy growth in both revenue and volumes. The capacity utilization has improved, reflecting better demand visibility and stronger traction in export and domestic markets, both. We are focusing on our value-added offerings, which gives us confidence as we move into the next quarters. The focus now is on maintaining this pace, fulfilling our order pipeline efficiently and building further on the positive trend by expanding in new markets. As you all would be aware, we did complete our shifting from Surat, and therefore, the garment capacities are now more stabilized. With this, I would like to open the floor for questions. Thank you, everyone.

[Operator Instructions] The first question is from the line of Isha Shah, an individual investor.

Am I audible?

Yes, go ahead, Isha.

Sir, so I have 2 questions. One is what are our margins in Yarn, Fabric and Garment? Like individually, I would like to know segment-wise. And second is in our last con call, you did mention about achieving 12% EBITDA and top line of INR 1,550 crores, okay? So how do you plan to achieve this? So these are my 2 questions.

Right, thank you. So first, when I speak about EBITDA margin, I'm not speaking with 1 quarter in mind or specifically quarter 1 in mind. But over a general period of time over the years, the yarn EBITDAs have been in the range of, let's say, between 6% to about 8% in the Yarn business. In the Fabric business, they have been in the range of maybe 8% to 10% or 8% to even 11% or 12% sometimes. And the Garment business has been, what would you say, Kavita, is roughly the EBITDA that we get, range?

Range, obviously, probably come from 6% to 8%.

6% to 8% in the Garment business. So those are the normal EBITDAs that we experience in the business. And we were looking at averaging to a 12% EBITDA. And we still hold that for the whole calendar year as a possibility. We achieved only 7.1% in the first quarter. But the first quarter had a lot of headwinds, and this particular capacity utilization that dropped in our Yarn business was almost about 10% to 15% utilization drop, which maybe we lost about 300 tonnes of Yarn productivity in the first quarter. So this significantly impacted our yarn profitability in the first quarter, which dropped to almost 4% EBITDA internally. So this was really the reason why we could not achieve better than quarter 1 last year. Otherwise, the result would have been significantly better than quarter 1 of last year, even in our first quarter. Now going forward, with this resolved and the capacity utilization issue not being there, we are seeing demand in spite of all of the challenges that we expect, given the scenario of what has happened with the U.S. The demand for manmade synthetics imported into our country from China is reducing and it is being replaced by suppliers like us. And we are in a very good position to be able to take up a larger share of the China Plus One market domestically for sure in the Fabric business and in Garment packages supplied to various retailers within India. And that is a very bullish scenario over there. Apart from that, the FTA with the U.K. is going to be very positive. So based on that, we hope that we can recover, if not in quarter 2 but definitely by quarter 3, quarter 4, the momentum should come back. And we have not revised the targets that we made to achieve INR 1,550 crores and to achieve a 12% EBITDA.

Okay. So sir, just to confirm, like you said these EBITDA margins, they have been over the years. So what -- at what capacity utilization would be for EBITDA margin be in yarn, fabric, and garment?

Usually, our yarn capacity utilization has been between 80% to 85%. And in the fabric, it has between 70% to 75%, and in the Garment business, we have been between about 70% to 75% again is what I'm given to understand. So there is sufficient capacity available. And we have now realized very clearly, we have to be more aggressive to compete with China, use all of the capacities and increase the turnover and therefore reduce our total cost of overheads to improve the EBITDA. This is the direction we are moving towards.

[Operator Instructions] The next question is from the line of Nirbhay Mahawar from N Square Capital.

Sir, last year, we invested around INR 148 crores. So could you just run through what exactly was the CapEx breakup and what is this year's CapEx?

Right. The breakup of where we invested the INR 150 crores, I'll just give you briefly. I think it was mainly about INR 60 crores to INR 70 crores was within the Fabric business, which was mainly in Worsted Spinning and in adding some machineries in our finishing. And the balance was invested within certain infrastructure improvements within power and spinning and a little bit in the garment part. Those were the main investments, but we are seeing definitely that all the investments we made will result now in an increased business that we have in our worsted fabric as well as now have more capacity available in yarn to go coarser in counts and to produce more technical yarns as well. So all that investment, I think, should begin to leverage from quarter 2, quarter 3 onwards.

Okay. So sir, revenue is yet to flow from the last year's CapEx, and you are expecting it to ramp up in...

Yes.

And how about this year's CapEx?

This year's CapEx, we are expecting to spend about another INR 100 crores, about another INR 100 crores, which is one to complete the 132 kVA project, which we had on our power part. Then there's additional water treatments and various other infrastructural things for pollution control, which we have installed, where there is a significant investment because our water consumption has gone up. So these plus, is there any major other investment involved?

Few machineries...

Yes, some modernization and top-up machineries in each of the areas would be there. So there's not a significant one allocation in an area. These will all be supporting our overall strategy, the investments we've made.

So if we look at last 2, 3 years, there has been pretty aggressive investment in capacity building or public modernization. Are we confident that this will flow through revenues and superior margin because that is completely missing in -- if you look at numbers?

You're absolutely right, Nirbhayji. We yet have to leverage all of that investment, and we have not yet been able to do so. But the whole point of making those investments was to make sure that we have the capability when the market is asking for it. So I think that the domestic market is showing us clear signs that it can be ratcheted up, all of our sales, and we just have to be a little more aggressive in our pricing. And that is not going to impact margin because we have capacity available. So this is something which we will be doing going forward in all of the quarters. In the export market, the U.S. part is a setback to our garment strategy because selling garments as a package to the U.S. all the time we invested in building a certain customer base will now get eroded. Instead, we will have to focus more on the U.K., Europe for exports. The domestic part of our garment strategy continues to grow very well. So I don't see that any of the investments we've made will not be leveraged and will not be used. It has been delayed, and we are working to take away this delay as soon as possible.

Sir, I was looking at your export revenue mix and direct U.S. revenue in annual report shows only INR 23 crores. So does it get routed to other countries?

Yes, yes.

There is a very big number of INR 272 crores, others. So what exactly is this others? If I look at out of INR 570 crores export, INR 272 crores is the others. So which are these countries?

This one is a very small, small like North America, Latin America and all that area where it is not yet to build that market. So right now, it's all getting plugged into others in that...

No, no. I mean, so what you would have, for example, our shipments to Bangladesh or to Vietnam or Sri Lanka will be in these others. So actually, we have a sale of something like INR 60 crores to the U.S. alone in terms of sales to U.S. brands. And then that fabric or that particular thing gets delivered into some other country, right? So yarns can be delivered elsewhere, and fabric can be delivered elsewhere. The garment export, net going out of India, was very small for us, only about INR 8 crores or INR 10 crores. So that is something where we are going to have to replace. The rest of the other exports covers also, like Kavita was saying, Latin America and various countries in Europe. Again, these countries in Europe have destinations which are scattered all over the world where the garments are made.

Okay. Okay, fair enough. Another thing sir, actually, why I was trying to understand this INR 272 crore others number is because it is the fastest-growing category. If you look at the last year, this others number was INR 210 crores. So I mean, any pocket which is growing much faster, and we are not mentioning here?

So that pocket is Europe actually. Europe for us has been the fastest-growing market last year, and we continue to see a good momentum that will come out of both U.K. and Europe.

[Operator Instructions] The next question is from the line of Rajeev Saraf from Saraf [ Brokings ].

I have 2 questions. One is with advanced booking in place for upcoming quarters in the Yarn business, can you share your visibility on yarn volumes and expected revenue momentum in the coming quarter?

You're only looking at yarn right now, is it, Rajeev?

Yes, yes.

Okay. So the yarn bookings, we don't usually accept for more than 30 days. So we have a coverage of around 30 days of yarn booking. More than that, we don't accept because our delivery period for yarn is within 15 to 30 days, right? So normally, we don't take advanced bookings beyond that because in any case, if the market changes and the prices increase, we stand to lose. And if they decrease, people don't lift.

Okay, okay. And another follow-up question is that garments have done well this quarter, both in terms of volumes and revenue. What kind of steady-state quarterly revenue do you think is sustainable from here?

We're expecting at least a revenue of INR 25 crores per month as a minimum in Garment business. And maybe on the upside, it could go up to INR 30 crores.

Okay, okay. And what's the broader plan to grow the garments as a share of your overall business?

So we've been discussing this, and we have a lot of more meetings and strategy sessions involved in this, in which we are looking at the possibility to use all of our capacity and even leverage additional capacity that is available in the country today. Especially with this whole scenario in the U.S., there is going to be a lot of garment capacity available, and we have the design and sourcing skills to produce the garments even using additional capacity in the country. So we're seeing what could be the upside here. There is a lot of potential, and this is both for the domestic market as well as for Europe and U.K.

[Operator Instructions] The next question is from the line of Viraj Shah from Shah Investments.

Going on the last participant's question, so on the garment side, given the U.K. FTA and China plus headwinds, how do you see the export pipeline shaping for garments?

So we think that it will do very well in both the U.K. and Europe. As far as the U.S.A. is concerned, it's particularly dead because we can't battle a 50% or a 25% tariff, especially when all around us, our neighboring countries have less than us, right? So it's going to be good even for countries like Korea and Japan and the Far East. So overall, I think that the ecosystem of the textiles in India of MMF and worsted fabrics has evolved. We now have availability of a lot more variety in India and this is going to help our China Plus One strategy. Whatever you may say, China will remain a formidable competitor, but we will continue to chip away at trying to get the share. I do realize we need to get it faster and we have the potential and capacities to do it, yet our execution needs to improve.

Understood. Sir, are you seeing any shift in customer sourcing preferences?

The customers are basically looking for good service, good product at good price. And they are pretty neutral to geography as long as they get this.

The next question is from the line of Ronit Kapoor, an individual investor.

So I want to know, has the company like reduced its garmenting capacity? Because I'm looking at the previous presentation. The trousers and the jacket capacity has slightly reduced as compared to the numbers given so I wanted to check on that.

Yes, it's correct. Good observation, and you have picked that up because we shut down our SEZ in Surat. So those machines haven't been moved and installed yet. We are waiting for the permission to be able to revive that unit as an FTA -- as a DTA, Domestic Tariff Area, instead of SEZ. So that capacity has been reduced in both the jacketing and the trousers.

But when is it expected to start?

We are hoping that the government permissions come through, but it's rather difficult to say because delisting from an SEZ and getting a permission to operate that same area in the DTA is proving to be longer than we thought. This is something we are taking up with the authorities and hope to get resolved by the end of this year, hopefully.

Okay. End of this calendar year, right?

End of this calendar year, yes.

Okay. And one more thing was in the previous presentation, you all had mentioned that you all are looking at new clients for garmenting like Zara, H&M, and others. So has there been an update on conversions like any samples?

Yes. So unfortunately, we have put in also a lot of effort in trying to acquire some U.S. customers, which now it seems won't go anywhere. So that effort got wasted in our garment part. But the U.K., we are looking at significant growth and even in Europe, in France and in Italy, in particular. I won't mention the name of the customers, but we are looking at significant growth there.

So there's no update from Zara and H&M as of now?

H&M has been in continuous touch with us. Zara, no.

Okay. And lastly, you stated that you will be able to leverage your capacity for garmenting. So as of now, I think you have capacity of around INR 450 crores. But you have space in your current units, right, you had stated. So how much more can we reach if we install additional machinery?