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

Ladies and gentlemen, good day, and welcome to the Q2 and HY 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, sir.

Thank you. Hi, and good afternoon, everyone, and I welcome you all to our quarter 2 and half yearly FY '26 earnings conference call. Along with me, we have on this call our CFO, Ms. Kavita Gandhi; and SGA, our Investor Relations advisers. I hope all of you have been able to go through the investor presentation uploaded on the exchange and our company website. Now I would like to share with you our financial performance, but just briefly, let me touch upon our industry landscape. Historically, the Indian textile industry has been largely dominated by cotton-based products. However, we have seen over the past 2 decades, a clear and steady shift towards man-made fibers, driven by many factors such as affordability, durability, ease of use and evolving consumer preferences. The man-made fiber and the man-made fabric industry in India remains evolving and holds significant growth potential. Globally, while MMF accounts for nearly 70% of the total fiber usage, in India, it only stands at around 40% to 45%. This indicates a large opportunity for growth. The domestic MMF market is expected to grow at a CAGR of around 6% to 7% in the coming years, supported by a good, strong domestic demand and favorable policy initiatives. Within the MMF, polyester as a fiber dominates and various government measures have already been introduced like the PLI and the reduction in the GST from 12% to 5%, and this is expected to further stimulate the demand for our MMF-based products. Overall, the shift from natural to man-made fibers is expected to continue, and we expect a growing demand for performance apparel, positioning India for a long-term growth in the global textile value chain. At the same time, we are mindful that there are several headwinds and many ongoing global uncertainties. This is especially true of the U.S. tariffs, which continue to impact many of our textile industry players. Fortunately, for Banswara, our direct exposure to the U.S. market in the form of garments exported from India is relatively low, and so we have not been exposed so much to the direct tariffs. In fact, our fabrics continue to go to the U.S. market through the various garment-making nations who have a lower tariff than India, namely Vietnam, Bangladesh, Sri Lanka and also Jordan, Egypt. Our long-standing relationships with the clients continues to remain and many of the clients from other international markets have helped us to maintain steady growth. So, we are reasonably pleased with our performance for this quarter and the first half of the fiscal, where we have had a recovery from the quarter 1, which was not good. Our total income increased by 12.2% sequentially and went up to INR 347.4 crores in quarter 2 FY '26. Our gross margins remained strong, consistently above 50% during both the half year and the recent quarter. highlighting our focus on operational efficiency and our product mix optimization. Our EBITDA for the quarter stood at INR 33.6 crores. This is a jump of 53.3% on the last quarter. Our profit before depreciation and tax came in at around INR 23 crores for quarter 2 FY '26. We reported a PBT, a profit before tax of INR 9.5 crores and a PAT of INR 7 crores in quarter 2 FY '26 compared to a loss in the previous quarter. For the first half of FY '26, our total income now stands at INR 657.1 crores, which is a 6% increase compared to the same period last year. Our EBITDA stood at INR 55.5 crores, which is also an increase over last year. However, our PBT and PAT is marginally less as compared to last year due to the higher depreciation and interest cost. The net debt as on 30th September 2025 for our company stands at INR 508.8 crores. This is an increase of INR 52.7 crores over last year, and this increase is primarily on account of our ongoing capital expenditure and our higher working capital requirements to support the business growth and operational needs in this difficult period. Our continued focus on our value-added products, our utilization of resources and our long-standing client relationships helped pull us through this very difficult period. And despite this challenging environment, we managed a reasonable performance. Speaking about each of the divisions, broadly, the yarn division has been flat with no real increase over the last quarter and on the half yearly basis. The sales volume remained at 49 lakh kgs and for the whole year -- half year -- for the half year at 100 lakh kgs and the capacity utilization is at about 81%. This was impacted mainly by labor shortages in the first quarter 1, but this has improved in quarter 2 and is now expected to be stable. We continue to focus on trying to deliver more higher value-added yarns in this commodity-driven market. In our Fabric division, we reported a very strong performance in quarter 2 FY '26 with revenue rising 13% year-on-year and 27% quarter-on-quarter to INR 149 crores, supported by a healthy demand in both domestic and international markets. And for the half year of FY '26, revenues grew 9% year-on-year to INR 266 crores, reflecting a robust demand in key markets, including the Middle East, U.K. and the European regions. Our sales volume increased 19% quarter-on-quarter and rose to 59 lakh meters in quarter 2, while the first half of FY '26, it stood at 109 lakh meters. Our flagship brand, Simone Federico & Figli and our new collections of stretched siro yarns and fabrics continue to gain a lot of traction in both the international and domestic markets. Our capacity utilization improved to 77% during this quarter, and we hope that we can continue to do better as we go forward. In our garment division as well, the growth was very good. And sequentially, we grew 7% from the last quarter to INR 80 crores and reported a 13% year-on-year increase for the first 6 months to INR 155 crores. The capacity utilization remained at 78% during the quarter. And while the overall operating environment continues to remain challenging, the division has maintained stability through disciplined execution and finding alternative markets to the U.S.A., where we had invested a lot of time and energy to build many customers and lost some of our garment businesses there. The division continues to focus on operational efficiency, capacity utilization and maintaining a balanced growth trajectory across key markets while not being too focused on the U.S. To summarize, while our yarn growth was flat, both fabric and garment businesses are showing improvements in both top line and bottom line. And with that, I would like to open the floor for questions. Thank you, everyone.

[Operator Instructions] We take the first question from the line of Ravi Shah from [ BRS Capital ].

Congrats on a good set of numbers. Sir, basically, my first question would revolve around our capacity utilization. So, could you elaborate on it? What would be our normalization in yarn? And what is the optimal run rate? And what currently limits us? Is it currently labor, demand or logistics?

So, for each one of our businesses, it is different. For yarn, the key bottleneck is labor, and this is a seasonal thing, which happens yearly. So, we're not too perturbed by that, and we have got it back under control. The seasons vary every year due to various religious festivals and marriage seasons. And this is something where long term we are quite accustomed to finding solutions for most of the months. but except for a few months where we do have to suffer some utilization problems. There's no other challenge. Sales is perfectly robust. We can sell everything we produce. And if we do get better utilization, it will help improve our overall margin. Now for the fabric division, there is no labor shortages at all. The only constraint is being able to sell more fabric. We have enough capacity, and we try to utilize our capacity for products that have more value in the market. Stretch fabrics is what we are famous for, and we are the leaders in man-made stretch fabrics in the country. There is now a demand which has increased, in fact, because of the GST change. And this is a very interesting situation where in earlier, the garment, which was sold in India at INR 1,500 attracted 5% and anything above that was 12%. Now a garment up to INR 2,500 is attracting only 5%. This means that a fabric which we were earlier selling at a price of only -- I mean at a price -- the fabric that went into a garment of INR 1,500 could only be about INR 130, INR 140 a meter. Whereas now if it goes into a garment, they can afford a fabric up to INR 250 a meter. So, we are seeing now that most of our better-made fabrics, which we were selling all over the world are now ripe for India without the GST increasing to 12% and customers are upgrading their product, and we will see that this is going to be a very healthy sign for the industry in MMF particularly. Garment division, the bigger challenge was the U.S. market. So, like I said, each of the divisions had a different challenge. The yarn was the challenge about the labor. The fabric division is about demand at a particular price. And the garment division is about the U.S. market, with the 50% tariff has become prohibitively expensive for them to import from India, the whole garment. So, we've had to shift our base of selling fabrics via other countries and offering even some discounts where we have continued to engage with customers, even at prices which are at par because we believe that this whole matter of the tariff will eventually go away. It's only a question of time, but we have to last through this and manage to get out of it in a better way while still maintaining the relationships. So I hope I've been able to answer your questions.

Very clear. Sir, continuing on what you mentioned about other countries, sir, now the FTA has been signed with -- is upcoming with U.K. So how do you expect that to impact our exports? And what kind of scale up are we planning for FY '26, FY '27 in this area?

Yes. So the U.K., the only challenge right now is that they yet have to ratify this in their parliament. And that takes about a process of 1 year. The agreement was signed in June, and we expect the ratification to happen by the U.K. government in June of '26. Post that, there will be a duty-free status until then goods going into the U.K. from India still carry a duty. And that is why we have to still wait for the real demand to pick up. The customers are doing a lot of sampling and preorder costings and preorder sort of like scenarios, but the real orders will only begin to flow when deliveries will happen, which are duty-free. So, we're still waiting for that. V

Very clear, sir. Sir, last question, again, on a macro level only. How do you see India's cost competitiveness relative to Bangladesh and Vietnam in rubber exports post this FDA, which we just spoke about?

So, post the FTA, we'll be in a very good position in many areas of the garment. So, we may not be most competitive at the cheapest end. But in the end of where we are talking about making a little bit more tailored clothing or better sportswear, we should do very well because we have an integrated ecosystem in India, which goes all the way from fiber to garment, whereas in Bangladesh, they have to rely a lot on imports of the fabrics. So, there is that advantage. Speed of operation is what we are improving. The customers today look at reactivity and service as being equally important to price. And here is where we are trying to find a niche for India, and we are hoping that we will be able to do better. So I think that as time is going by -- Bangladesh has its own challenges of the elections coming up, of various absenteeism, port strikes. And there is no customer who wants to be reliant only on one country. They do look at India as a long-term potential and want to engage with us. So, I think there is a good future.

[Operator Instructions] We take the next question from the line of [ Prisha Rathi ] from [ NM Securities ].

So I have a couple of questions. So, my first question is that what share of yarn production is now value-added or specialty yarns? And how is this contributing to our margins?

Right. So out of our total yarn production, I would say about 30% to 31% may be value-added right now. We hope to take it to 50%. The challenge is that a lot of these value-added yarns can only be leveraged and moved to 50% if we use them in our own fabric and likely also if we use the fabric in our garment, but that's not necessary. We need to find ways to use these more value-added yarns with the right kind of finishing. Because people do not have the right finishing capabilities in the country, they're not able to use more value-added yarns. So, we have that advantage internally. And for that, we are seeing how we can even leverage our total capacity of finishing by doing some of the run-of-the-mill finishing outside and using outside capacities and using our own capacities for the more value-added finishing and delivering to the customers the product of our specialty yarns in fabric form. So, this is one strategic focus we have, and we are moving along that direction to try and increase it. The margin improvement is significant. The margin of EBITDA, let's say, if you do these more value-added yarn sales is maybe about 15% as compared to 7% or 8%.

Okay. Okay. Understood, sir. So, my second question is on raw material side. So raw material cost as a percentage of sales remained largely stable Y-o-Y. Could you break down the movement in polyester and viscose input prices and your ability to pass those on to the customer?

I would say, if you look at our gross margin, our gross margin is slightly better, and we have been able to be steady on that, which shows that we are able to pass it on. That is not a challenge. We remain more innovative in terms of whatever we are making, which is why the raw material price impact is not that significant. What is significant for us is internationally, the price of polyester and viscose in the country is higher than China. And we have a QCO the government has imposed, which prevents us from getting these fibers imported into the country for -- freely. Like this is restrictive in a way, it's like a nontariff barrier. And this is preventing it, but there is a lot of lobbying going on with the government and the government is listening. And we hope that if this QCO goes away, there will be then really no challenge even for the international market.

[Operator Instructions] We take the first question from the line of [ Nirbhay Mahawar ] from [ N-square capital ].

I joined the call late, so I may have missed this. But I just wanted to understand, in last 2, 3 years, business environment has been reasonably competitive. And does -- is it leading to any consolidation or gain of market share for players like you?

Nirbhay [Foreign Language], thank you. Welcome to the conference, and you've always been there supporting us through many years. I can say that the industry, as far as we are looking at it, is consolidating a lot in the worsted business. So, we have made significant investments in our polywool and all-wool business, including in Simone as a brand and we have seen that the business globally has shrunk, and there is a lot more consolidation in the worsted business because China has gotten out of a large of these capacities. There were 2 or 3 very large mills in China, which have closed down. So, we are seeing there is a buoyancy in this worsted business, which seems to be very healthy, and we have increased our volume of the worsted. And you will see, therefore, that even though we have reduced the meters we have sold, the sale has increased by 13%, 14%. So, we have increased the value per meter by selling more worsted blended fabric overall. The other consolidation we see happening is that in the spun yarn industry, there is no more capacity addition happening as such. So, there is a limited number of players who are left. And those who are left are being able to become a little bit better at getting the price they want, since the capacities are not being added the way they were happening before. So, I think by and large, we remain at a good inflection point where if we can from India, really get into taking head on the Chinese competition, where China is showing less interest relatively in many areas of the complex part of the textile business, those are up for grabs, and we can take that business.

So, sir, in terms of capacity utilization, like what would be our blended utilization for the whole...

I would say it's between 75% to 80% right now. So, we still have scope in that capacity utilization part. And like I had explained earlier, the yarn part is only -- the challenge is the labor. It's not about -- whatever we produce, we can sell in yarn, but we want to produce the better stuff so that we have a better margin. Otherwise, it's a commodity price and sometimes it's just not worth producing it. So, the fabric part is very interesting and the garment part is even more interesting. And we plan to increase our fabric and garment sales significantly, including the internal consumptions of our yarn to be able to get an overall EBITDA margin that keeps improving.

So in terms of revenue size, what revenue we can deliver if demand is not a constraint, let's say, 3 years down, 2, 3 years down the line, demand revives significantly and then...

Yes. So I see that demand will revive because there are not many players coming in, and it is an essentially complex operation at a high capital cost. So, the barrier to entry is very, very strong. So we will see the demand come back for sure. As the Chinese get less interested in it, it will be even more buoyant. And we will say that at this point, we are not projecting hitting more than INR 1,400 crores by the end of this year. But we have always said that without any significant CapEx, we have the ability to hit INR 1,800 crores, and we maintain that. It is just a question of the demand coming back within the next 2 years.

[Operator Instructions] We take the next question from the line of [ Runit Kapoor ] from [ Investar Investments ].

So actually, I had a question on -- seeing your debt has skyrocketed now to about INR 500 crores, so I want to know like how much is the balance CapEx spending for the year? And when do we see deleveraging begin? [Technical Difficulty]

The line for the management has got disconnected. Please stay connected while I rejoin the management. Thank you for waiting patiently. The management’s line has been connected. Sir, you can go ahead.

Yes, Runit, are you there?

Yes, I'm there. So...

[indiscernible] debt. So, yes, you're right. The debt has gone up by 12.7%, as we said, about INR 52.7 crores, it has gone up from last year. This in this given challenging -- the landscape which we had in the last 1 year of trying to retain customers and give them incentives to continue to buy, we have extended more credit. And due to this, some of our debtors have gone up. And also, we have had some investments which we have made. So, this is the reason why this has happened, but we are slowly getting back to our old credit terms, and we are getting back into being more financially prudent in terms of whatever inventory we manage, both inventory as well as the debt has increased, and this had to be supported. I think it is exceptional, and it was still creditable in a way that in spite of these increases, we managed to claw back our profitability to be the same level. And we think that in spite of these increases, which may persist throughout this year, we don't expect that the profitability will drop. So, this is something which we are trying to maintain and not let the sales volume go down even if we have to incentivize the customers a little with faster deliveries, which means more inventories and more better credit terms as long as we don't have bad debts, which we are controlling very well.

Yes. Okay. And the balance CapEx, I think your modernization exercise was supposed to be completed by this year. So how much is pending on that front?

I'll let Kavita answer that if she's around.

See the balance CapEx for the remaining rest of the year will be also in the range of around INR 70 crores to INR 80 crores.

Okay. And so right now, is the debt expected to increase because like how are you going to fund this?

Long-term debt will increase. But as Ravi [Foreign Language] explained, we are keeping a very tight control on the working capital. So that we will try to maintain it. Of course, for some period, the long term will increase.

So overall, if I see, like modernization should be completed by this year?

This year or maybe it may flow in the quarter 1 of next year because by the time you get the machine installed, start working. So, it may spill over in next quarter, next year, quarter 1.