GHCL Textiles Limited (GHCLTEXTIL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the GHCL Textiles Limited Q3 and 9 Month FY '26 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] I now hand the conference over to Mehal Gogia from Go India Advisors. Thank you, and over to you, ma'am.

Thank you. Good morning, one and all. It's my pleasure to welcome you on behalf of GSPL Textiles Limited. Thank you for joining us today for the Q3 and 9M FY '26 earnings call. Today on the call, we are joined by Mr. R.S. Jalan, Non-Executive Director; Mr. Raman Chopra, Non-Executive Director; Mr. Marshal Sonavane, CEO; Mr. M. Parasuraman, CFO; and Mr. Manu Jain, Senior General Manager, Finance and Accounts. Please note that today's discussion may include certain forward-looking statements. Therefore, they must be viewed in conjunction with the risks that the company faces. I now invite Mr. Marshal to present his opening remarks, after which we will open the floor for Q&A. Over to you, sir.

Good morning, everyone, and a warm welcome to GHCL Textiles Earnings Conference Call for the third quarter ended 31st December 2025. Our detailed results and investor presentation are available on the stock exchanges. I will begin with an overview of the operating environment. On the cotton front, the new crop production is projected to be slightly lower at around 292 lakh bales versus 300 lakh bales last year. Cumulative cotton arrivals for the season have reached 144 lakh bales, an increase from 132 lakh bales last year. The overall supply is expected to remain comfortable. In terms of consumption, domestic usage has eased to 80 lakh bales compared to 94 lakh bales previously. At the end of Q3, spinners held 35 lakh bales, while the Cotton Corporation of India held 64 lakh bales. Global cotton prices have remained volatile, particularly New York futures due to international trade dynamics. Domestic prices have eased upwards and are in the range of INR 57,000 per [ candy ]. Turning to the demand side. Global yarn markets continue to face volatility driven by tariff uncertainties. While there is no fresh clarity on the U.S. India trade agreement, other markets are opening up with the signing of FTA with Europe, New Zealand, Oman and U.K. earlier. These FTAs will open up duty-free assets for India, leveling the playing field against global competition and create new avenues for growth across the textile value chain. Despite the current difficult times on the demand side, we have ensured maximum utilization of our units and continued our operational excellence journey. Next, I want to update you on our strategy and execution. Our 25,000 unit spindle -- 25,000 spindle unit has stabilized remarkably well. It is currently operating at 98% utilization, contributing steadily to our volume and efficiency. We are also making strong progress in broadening our value-added portfolio. On our vertical integration road map, the installation of our Phase 1 knitting capacity, comprising 15 machines is currently underway and will be completed in quarter 4 FY '26. We'll set up Phase 2 expansion in first half of FY '27. Now turning to our financial performance. Q3 FY '26 continue to reflect our operational discipline. Revenue stood at INR 351 crores, EBITDA at INR 334 crores and PAT at INR 13 crores. For the 9 months FY '26, revenue came in at INR 960 crores, up by 9% same period last year and EBITDA came in at INR 104 crores, up by 23% same period last year. A key highlight this quarter is the strengthening of our financial profile. In January '26, our credit rating was upgraded by CARE Ratings from A-/A2+ to A/A1, A1-. This upgrade is a testament to our robust balance sheet, prudent financial management and the confidence that rating agencies have in our business model even in these challenging times. Our focus remains firmly on our strategic priorities, broadening our value-added portfolio, enhancing operational excellence and strengthening vertical integration. These priorities continue to guide our capital allocation. Our committed investment plans remains on track. GHCL Textile is well positioned to sustain its growth momentum. Thank you for your continued support. We would now be happy to take your questions.

[Operator Instructions] Riddhesh Gandhi from [ Discover Capital ].

Just wanted to understand [indiscernible] megawatts of renewables comes up next quarter, approximately how much EBITDA savings should we be expecting from that?

Riddhesh Ji, I actually couldn't hear you. Your voice is breaking.

Yes. [indiscernible] Incremental renewable capacity comes up next quarter of 10 megawatts, about how much the cost savings would we expect from that?

Okay. So we have 2 renewable projects which are in sort of pipeline. There is a rooftop solar project, which is 3 megawatt, which will be commissioned by February. And there is a 10-megawatt ground solar project, which will be done by June '26. Both these projects put together, the saving would be about INR 7 crores to INR 8 crores. The 3-megawatt unit would have a saving of about INR 2 crores and the 10-megawatt unit would have a saving of about INR 6 crores. This is per annum growth.

Got it, sir. Sir, the other question was just given what's happening with pricing of the cotton, the MSP, the duty-free imports being stopped from mid January and the slight increase in prices [indiscernible]. Given all of these things, if you could just sort of highlight what your own outlook is on overall spinning spreads?

Riddhesh Ji, I think spinning spreads in quarter 3 definitely were under pressure and primarily because of 2 things is that there is no clarity on the demand side, that puts a demand side pressure on us. And cotton, while it was benign at the beginning of quarter 3 has started to go up with the new crop and procurement by CCI. But I firmly believe that I think the worst is over and quarter 3 onwards, and we saw green shoots in December itself when sort of demand went up, we saw good inquiries from export as well. And cotton price more or less is stabilizing. What we are sensing is that it is going to stabilize. And with the demand side getting better with all your FDAs in pipeline, I think the spread should start to look upwards from quarter 4 onwards.

Correct. But the FTA impact won't be seen now, I assume, right? Because by the time the FTAs are [ refuted ] and all of that, it's still a year away, right?

Definitely, it's a year away, but I think the overall thinking of buyers starts to align with the FTAs. So they would start to look positively towards India as a market, right? And you would hear more conversations going on with European buyers and wherever the FTAs have been signed for a more longer-term agreement and relationships will start to get better.

The next question is from Raman KV from Sequent Investments.

On a sequential basis, the revenue from fabric has declined. And as per the previous con call, our guidance was to have revenue from fabric by 12% to 15% by the end of this year. So can you comment on that? And does the sequential decline in the revenue from fabric also had an impact on our EBITDA?

On a quarter-on- basis, our revenue from fabric has actually gone up. I think last year -- last quarter, our percentage of fabric revenue was about 11%. We are at about 11.8%, 12%, right? On a 9-month basis if you see it is about 21%, right? So what we had stated last quarter that a guidance of 12% to 15% of revenue coming from fabric, we are on track of that. So by quarter 4 and the year-end, you will see we will be clocking about 12% odd as a percentage of fabric revenue. Coming back to, I think the second question on impact on EBITDA. I don't think fabric had any impact on our EBITDA for this quarter. So I think from a fabric point of view, whatever we have committed, we are on track for ramping up that volume.

No, sir. I meant the fabric volume. So on a sequential basis, the fabric volume has declined?

If you see on a 9-month basis, our last year volume was about both put together, right, about 386, I think in the presentation it is there, about 386 tons of fabric and 114 lakh meters of woven fabric. Compared to that, we have significantly improved, right? We have done about 1,000 tons of knitted fabric and 142 lakh meters of woven fabric. So you will have to see it on a more longer-term basis. Definitely, there will be a quarter-to-quarter variation. But on a longer term, we are on track of ramping up our fabric volume.

So the sequential decline in the EBITDA margin, what can that be attributed to, towards?

So 2 reasons primarily, if you see our power cost this quarter has been higher compared to last, primarily because of the change in mix of power, renewable energy proportion right generation is lower this quarter compared to last. And the second reason is a bit of a compression in the spreads.

Sir, if you can provide what is the current domestic cotton yarn prices for the Q3 quarter? And what's the current domestic cotton prices?

I think we can talk in terms of spread because that number we have been giving [ quarterly, quarters ].

Okay, yes.

[indiscernible] will depend a lot on what product we are talking about, right? And similarly, our cotton price will depend a lot on that. So spread, I think last quarter, we were at about INR 131 per kilo before packing cost. This quarter, we are at about INR 128 per kilo. Our Q3 was INR 128 per kilo before packing cost.

And currently, are you seeing any revival or is it still decreasing?

We are seeing a revival. I would not be able to put a number on how much could it be. But definitely, we think December onwards, situation has started to look up.

Understood, sir. And sir, I just want to understand how much do we -- how much percentage of our total revenue is exports? And if you can give a split between how much are we exporting to U.S.A. and how much are we exporting it to EU? And on a follow-up on that, international cotton prices are technically are at a lower price than Indian cotton prices. So does this impact our exports by any margin?

So I think the percentage of exports is also there in our investor presentation, which has been uploaded. So for 9 months FY '26, it's about 9% of our revenue is on exports, right? And I think this last year, it was about 17%, but that was a conscious decision from our end because the realizations were better at least for our category of products in the domestic market. As a follow-up question, you had asked about how global cotton prices being lower affect our export potential. Yes, it does affect, but in our GHCL Textiles' case, we are in very sort of customized high value-added products. For us, as in the product quality plays a lot of role in our ability to export the product, definitely higher cotton prices reduces the margin which would have got if the cotton prices were similar across market.

Understood, sir. And sir, my final question is on the knitting side. You said by Q4, you will -- your knitting capacity will be commissioned and you expect 14% to 15% margin. So are we on track of it? And if you can throw some light on how much revenue -- incremental revenue are you expecting in FY'27 -- will -- and with respect and the margins with respect to it.

So see, I think what we are saying is that quarter 4, the machines would be operational, but definitely, we would need a few months for stabilization of customers' products and everything. I think from next year onwards, and let's say, on FY '27 because we are also putting sort of a number of 40 machines being in-house by quarter 1, quarter 2 maximum. I think the 40 machines and the entire Meenakshi project put together, we have said that the total margin will be accretive, right, in terms of 13% to 14% to 15% is where we will be able to get on that. So that entire project, I think the number will be between INR 250 crores to INR 300 crores at a 13% to 14% margin.

So we can do INR 200 crores additional INR 200 crores in FY '27?

In FY '27, because Meenakshi as in our new 25,000 spindles has already been operational. Okay. So if you just want to talk about what would be my additional top line from the 40 knitting machines, which will come up next year and assuming for a full year operation, it would be about INR 30 crores to INR 40 crores, right?

Okay, understood.

The next question is from Saransh Gupta from SVAN Investments.

I have a couple of questions. So in this quarter, our export contribution has gone up somewhere around 11%, if I'm right, which was 9% last quarter. So with such uncertainty in the global market, where do we see demand going up? And does that mean that in our domestic market, there is some pain that we are taking?

So yes, I think exports for this quarter have been better than last quarter. And our exports are well distributed across Bangladesh, Europe, Southeast Asia, East Asia, right, a little bit in some of in Northern African countries once in a while, it happens as well. So we are sort of seeing -- your question was where do we see the growth coming from? Is that -- is my understanding of your question correct?

Yes. And also, is there some pain in the domestic market?

Okay. So 2 questions. Yes. From an export point of view, we definitely see demand moving from India to some of these other locations, let's say, primarily Bangladesh and Vietnam, right? And particularly the U.S.-led demand has started to move so to say. So definitely, there some better exports happening from these locations, particularly Bangladesh, and we saw that a lot in November and December when exports went up. In fact, I think India exported about 115,000 tons of yarn in December compared to a usual run rate of about 100,000 tons. So December, definitely, the entire industry sort of exported a lot more. Domestic demand, while it has remained muted, but we do not see a large contraction in the domestic demand. There are month-on-month variations for sure. But largely, I think domestic demand has remained the same, at least in our case.

Okay. Second one was that you said that our cotton spread was INR 131 in the last quarter came down to INR 128 this quarter. what was the yarn spread this quarter, it is sequentially down, if you can like -- we can compare it with the last quarter?

That is the spread, right? Our yarn spread as yarn minus cotton price, that is about INR 128 per kilo this quarter. Last quarter was INR 131.

No, no, I am asking like after December, like for January and for January, how is it shaping up?

So it's difficult to give you a number because we are just in the first month. But I can tell you that it has started to look upwards, at least between December and January, things have started to look upwards.

That's good to hear. So sir, out of the INR 1,000 crores CapEx commitment that we have done, we already deployed, I believe, INR 600 crores till now. So the rest INR 400 crores, if you can give us a bifurcation and by when we will be deploying that?

So the rest INR 400 crores we have set for our vertical integration journey. This could be frankly investment coming in fabric and processing capacities. most likely between next 2 years to 3 years. Processing, we are looking at PM Mitra Park as a location or some other suitable locations where it could be put up. Depending on the execution of those projects, this investment would also happen. But our internal number is that between next 2 years to 3 years, entire remaining INR 350 crores, INR 400 crores will be deployed.

Okay. So as we are moving forward towards vertical integration, do we have any plans to get into other segments also such as like polyester yarn or maybe garmenting going ahead?

We are into blended yarns, right? So we are into blended [indiscernible] yarn where we use a lot of these polyester, mobile tensil and other fibers. If your question pertains to filament yarn, we do not have a plan to enter into filament yarns. Garmenting also as of now, we do not have our first port of call to finish our commitment of INR 1,000 crore investment, which is up to [ ready-to-wear ] fabric only.

Okay. Sir, just one last question. Like in the December, the duties from cotton -- imported cotton was removed. And first of all, is there any new news on that, that will it be implemented again? And if not, do we see any impact from the quality of the cotton that we get or the prices of the cotton [indiscernible], which has been stabilized for a quite good time. Can we see [indiscernible]?

So there have been representations from the industry and conversations with ministries on extension of duty waiver, but of course, no decision has happened until now. And duty has been reinstated from 1st of January. There is a difference between global cotton prices and domestic cotton prices. And that definitely, if your raw material is expensive, it will have an impact on the overall industry as well. Probably we will see -- as in the conversations are going, we will see when the outcome of those conversations come about. Second, in terms of overall quality of cotton available in the domestic market, as in the supply situation because India -- a lot of Indian spinners imported almost about 3 million bales have been imported, right? And India's domestic production itself is going to about 292 lakhs. So on an overall basis, I think the supply is comfortable. That's what we feel. Quality, of course, because of unseasonal rains which happened, quality concerns are there, but we have been able to procure with our relationships with the dealers and with our procurement approach, we have been able to secure good quality cotton at least for our company.

That's good to hear. Sir, just one last question, if I can squeeze in. With the 40 knitting machines expansion coming up in H1 FY '27 out of which 15 has already commissioned -- will be commissioning in Q4. How do we see our revenue mix shaping up for the next at least 2 years to 3 years?

Sorry, I missed your last part. How do you see -- can you just repeat from that part?

The revenue mix shaping up for the next 2 years to 3 years?

Right. See, I think we have given a vision for last quarter as well and before that also Mr. Jalan has stated it. Once we complete our vertical integration journey, we will still have the sort of yarn proportion would be about 40% and the rest will be sold as a processed fabric. I think this is the vision we have kept, and that is how our revenue mix will also change.

[Operator Instructions] The next question is from [ Devang Vishal ] from [ DV Enterprise ].

Yes. Yes. Sir, my [indiscernible] question is, if our export is just 10% of the [ rebate ], right, then what will make it a difference for these FTAs and all?

So I think we are -- so let me just sort of elaborate our customer mix, right? So we have -- a large part of our production is customized value-added goes to strategic customers, large buyers in India. The 10%, which we export to other countries is also highly specialized and premium products only, right? So definitely, there is a scope of doing better on that. That proportion can go -- let's say, last year also, we were about 17%, 18%, right? That proportion can go up to that level, and that is where the FTAs will help. Some of the those where we have not been able to go, right? And primarily, we are an upstream value player, right? So we are yarn manufacturers. So our direct exposure on exports will be limited, particularly to some of these areas like Europe, U.S. or New Zealand, for example, right? Primarily, it will go to some of the countries where conversion happens and they will be exporting, so to say. If India signs FTA, the garmenters who are in India will be able to export more. And ultimately, the benefit will trickle down to us. That is how the FTAs are going to help.

Okay. Sir, can you just get me on that, like what's the net debt we have? And at what percentage the debt is at?

[Technical Difficulty] I think yes, the net debt at this point of time is around INR 41 crores. [Technical Difficulty] So, it will be roughly around 8.5%.

Yes. So it's very negligible. Sir, is there any possibility that we can grow on the operating profit margin by double digit or high teens?

On a year-on-year basis, you are saying the growth?

Yes. Can consider on both the sides because if quarter 1 or 2, like half of the year has been completed, right? So like is there any possibility like OPM to touch by like efficiency can we go on a higher side by double digit or higher teens?

I think on an EBITDA basis also, we have delivered a double-digit growth compared to last year, right? And on a PBT basis also if you compare 9 months this year versus last year. Coming back to, let's say, on a contribution margin basis or maybe on EBITDA basis, if operational efficiency can help, definitely. I think there are 3 levers, 4 levers where we continuously work on. One is how do I make my product better? How much of more value added can I do, which sort of helps me differentiate from the competition. Second is, can I reach out to the right set of customers? Can I improve the kind of customers I operate with, enter into more premium categories. The third is that can I improve on my utilization? We currently are maintaining about 98% utilization and that effort continues to happen on that. And how do I sort of make sure my power mix gets better and better and where we are investing in our renewable energy, right? So all of these things are happening. And we have actually delivered double-digit growth on our profitability compared to last year. So I think that effort continues to happen. We are hopeful the journey will continue on that. Right now, putting a number that how much will be my growth as in the situation is changing month-on-month, quarter-on-quarter basis, particularly on the demand side and cotton side. So it is difficult to give you a number. But yes, I think our efforts are in that direction only.

Okay. And sir, the last question, like we are having a very good line of spindles. If I'm not wrong, it's 2 lakh, 2.5 lakh spindles we are having -- and the rotors are there, we are coming up with the knitting plant also. Sir, can you just define the perfect ratio like what's the time line? Like is the machine or the plants are older one or like you can use it for the next 5 years, 10 years with the same efficiency?

So I think the question -- so we have -- we do not have very old spindles. Every year, we have been spending money on modernization. So there is a significant modernization CapEx, which has gone in already. We do not see a lot of modernization CapEx at least for the next 3 years to happen, right? So whatever money we will be investing henceforth is primarily on expansion only.

[Operator Instructions] The next question is from [ Raj Lakhani ], who is an individual investor.

So I have 2 questions from my end. So over the next 3 year, 3 year, to 4-year period, how do you see internal yarn consumption for the fabric segment? And second question is what are the key levers for ROE expansion going forward during the same period?

So on the fabric internal yarn consumption, the 25,000 spindles which we have recently commissioned, that unit has been commissioned as entire end-to-end from yarn to fabric. It produces 21.5 tons to 22 tons per day. I think that would get consumed in this 40 knitting machines. For the woven we sort of utilize a mix of in-house and outside yarn. Some of the yarns which we don't produce. I think that gets utilized there as well. But overall, if you see on a net basis, probably it will be about 40 tons per day, which will get when, let's say, particularly for next year between 30 tons to 35 tons per day would get used once this 40 knitting machines and our woven fabric current production is happening. So out of -- just to sort of clarify again, we produce about 130 tons to 145 tons per day. Out of that, about 30 tons to 40 tons per day would get used in our internal yarn consumption.

Okay. And the second one, like what are the levers for our expansion?

Sorry, I actually forgot to answer your second question. For our ROCE or maybe ROE expansion, see, first of all, we believe the normalized EBITDA for spinning industry is about 14%, 15%. And we have actually delivered -- if you see our history for 5 years, 7 years, I think that is -- we have delivered that level of EBITDA percentage. I think with the demand side getting better, we should be able to reach that normalized EBITDA of 14%, 15%, which we were able to get on a stand-alone spinning. Along with our vertical integration, which will be more margin accretive, right? It is more profit maximization, which happens on vertical integration. I think that will take us to an EBITDA margin of about 16% to 18% on a normalized basis. I think that lever definitely will help us on our profit maximization, which will lead to our ROCE improvement. Also, we are working on how do we adjust our working capital, can we optimize it better, right? And I think these 2 primary levers will help us on ensuring we are touching about 8%, 10% ROCE.

Next question is from Arun Julani from First Water Capital.

Can you hear me? Hello?

Yes, I can hear you, but not that clearly. Could you speak louder?

Sure, one second. Yes. I want to ask about the cash situation. It seems like you're operating on a very thin level of liquidity. How are you doing that? Because like as of September, it was INR 6 crores. So how are you managing to operate as a business with such a low level of cash?

So, Jalan Ji, can you or Raman Ji take this question?

Look, I think what Arun Ji, you are asking is that how are we managing the working capital, right?

Yes.

The cash balance is INR 5 crores to INR 6 crores. Then in addition to that, we have a lot of credit line also with the banks. And our working capital deployment is already more than roughly around INR 200 crores, INR 300 crores. So liquidity-wise, we don't have any problem. And like you must have heard to our CEO that overall, our debt at this point of time is very thin, only INR 41 crores of the debt on this kind of a balance sheet. So therefore, the liquidity, I don't see any kind of a challenge.

Yes. But I mean, most businesses don't work on such a thin as in like if there's a liquidity squeeze or whatnot and lines are withdrawn, there seems to be very little for contingency.