GHCL Textiles Limited (GHCLTEXTIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the GHCL Textiles Limited Q1 FY '27 Earnings Conference Call hosted by Go India Advisors LLP. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Mehal Gogia from Go India Advisors. Thank you, and over to you, ma'am.

Thank you. Good evening, one and all. It's my pleasure to welcome you on behalf of GHCL Textiles Limited. Thank you for joining us today for the Q1 FY '27 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; and Mr. M. Parasuraman, CFO. 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. Marshall to present his opening remarks, after which we will open the floor for Q&A. Over to you, sir.

GHCL Textiles earnings conference call for the first quarter ended June 30, 2026. Our results and investor presentations are available on the stock exchange. Let me begin with the operating environment before turning to our performance and the road ahead. The global backdrop continues to present a case of cautious optimism and the U.S.- Iran conflict remains a source of uncertainty. During the quarter, the conflict drove raw material volatility across both cotton and synthetic fibers, pushing prices higher and causing some delays in order execution at elevated price levels. Markets remain volatile, and we are monitoring these developments closely. Despite this external turbulence, the demand environment has been encouraging. The yarn market remains on an upward trend as demand is steady and higher prices are being accepted, albeit with some lag. Domestically, cotton prices witnessed an upward trend during the quarter, rising from INR 62,000 per candy in April '26 to INR 67,000 in May '26 and then dropping to INR 64,000 per candy in June '26. Prices have since risen again to INR 68,000 per candy. On the global front, cotton markets, particularly New York futures have also increased, driven by ongoing international trade situation, reaching to USD 0.80 per pound at the end of June '26. On trade policy, the execution of India-U.K. Free Trade Agreement and the upcoming execution of the India-Europe agreement represents meaningful structural tailwinds for the Indian textile value chain. The new duties imposed by the U.S. on Indian exports replaces the erstwhile tariff of similar magnitude. Clauses on treating the tariff [indiscernible] quota for the competing nations and further potential conclusion on USTR Section 301 overcapacity growth needs to be evaluated further to assess overall impact. Turning to our own operations. We continue to maintain optimum utilization and advance our operational excellence agenda. Of our total yarn production, 89% was sold directly to customers and the balance 11% was consumed in fabric production. Our share of fabric sales to total sales has increased to 16% in this quarter compared to 9% in the same quarter of last year. Our positioning as a preferred supplier has allowed us to strengthen relationship with global and domestic brands, optimize our product and customer basket and sharpen our focus on value-added products. Our business has delivered robust performance and same is reflected in reported financials. In quarter 1 FY '27, revenue came in at INR 410 crores, up 52% on a year-on-year basis. EBITDA was INR 70 crores and PAT INR 39 crores. On our project pipeline, the first 15 knitting machines were installed with commercial production stabilized and quality acceptance from customers is good. We are going ahead with remaining 25 knitting machines and [ tables ] with part deliveries received by us and remaining to be completed during this year. Additional project pipeline includes additional 11-megawatt solar energy and land allotment under PM MITRA Park. These are under progress, and we will share more details on these as they develop. Looking ahead, demand tailwinds appear to be strengthening on the back of FDA pipeline and domestic demand, which has been growing consistently. The evolving U.S.- Iran situation remains a key headwind trigger along with the U.S. tariff policies and related investigations. Our strategic priorities are clear: expanding our value-added product portfolio, deepening engagement with key customers, driving operational excellence and enhancing vertical integration to support sustainable growth. This will enable us to navigate the volatility and maintain our desired performance. GHCL Textile is well placed to capture these opportunities. We remain committed to creating long-term value for our shareholders, and we thank you for your continued confidence and support. We are now happy to take your questions.

[Operator Instructions] We take the first question from the line of from Saransh Gupta from SVAN Investments.

Congratulations on a really good set of quarter. Sir, I had a few questions that I wanted to ask. Firstly, what kind of cotton inventory do we have currently?

So, Saransh, we maintain typically cotton inventory for the season. So, as of now we are well covered till the beginning of new season.

[Technical Difficulty] at my end, so can you please tell that again.

Saransh, you had 3 questions, right?

Yes sir. First one is at what current level of cotton inventory are we at? Like, how many more months of cotton inventory do we have at [indiscernible]?

Yes. So, I answered that, we are well covered till the beginning of new season which will be about November, December.

Okay, November, December, Understood. And sir, currently, with such volatile price [indiscernible] of raw materials, what are the spreads currently in the market?

So, currently our spreads are about INR 160 per kilo without the packing cost. You can take an average packing cost of about INR 5, so this [ package ] is about INR 155 per kilo is what our current spread for the last quarter was. And this is sort of a jump from about INR 138 per kilo which was there in quarter 4 FY '26.

Sir, even the current trend in the prices and the [cloak ] of inventory that we have, is it fair to assume that the current numbers that what we reported in terms of our margins are sustainable? Same thing, in terms of knitting and the fabric which has come to 16%, definitely something has come from our new knitting capacity, the machine capacity that was set up. So, over a period of time, [indiscernible] as the fabric contribution and what sustainability of the current margin?

So, you have 2 questions, right? One on the sustainability of margins. So, yes, I think because of timely procurement of cotton, there is definitely a benefit which has been derived from that. There are 2 aspects to it. One, as we sort of progress towards quarter 2, quarter 3, the lower cost cotton inventory would have been consumed and there will be a gradual increase in the cotton price. We definitely have to see whether at elevated levels of cotton, which is at about INR 70,000 per candy right now, then the [indiscernible] higher yarn prices can be absorbed by the market or not. So definitely, there will be impact of higher cotton inventory, which will sort of start to come in now. If the market remains like this and prices are getting accepted, of course, the spreads would remain. But I think on a very conclusive basis, what we can say is that the spreads will be better than what we have seen last year for sure. At least on quarter 2, it will be similar to what we have right now. Post that, definitely, we need to see how the overall market behaves. In terms of fabric, yes, fabric has almost reached about 16% of our overall sales and is composed of both our woven and knitted. There is definitely a contribution from our 15 knitting machines. On the woven end, [ little bit ] is almost a split of about 50-odd percent. Woven continues to remain on a [indiscernible] model, while, let's say, a significant part of knitted will start to become in-house. In that case, as we have always said, there will be an incremental margin from in-house production about 2%, 3%, which will get added over being only a stand-alone yarn manufacturer. But even with 40 knitting machines, our total in-house knitting capacity would be only about 12% to 15% of our overall yarn production. So, you have to sort of adjust the overall margin increase as per that as well.

Okay, so that means that our total contribution on [indiscernible] net 2 to 3 years will probably remain in the [indiscernible] 16% to 20% only.

So, next 2 to 3 years obviously we have a plan to forward integrate further, right? So, we have always said that our objective is to become a ready-to-cut fabric packing ] supplier and the journey is what we have planned is for next 2, 3 years. So, I think that percentage will definitely go up when we become a ready-to-cut fabric supplier. Fabric will become a significant part of our overall topline, probably in the region of about 30% to 40%, which is right now at 15%, 16%. But this is after 3 years is what I'm talking about. So that journey has to be traversed.

And just in terms of the solar power, can you give us some -- I mean where are we in terms of power consumption and with the completion of the renewable project that is there in the hand, what type of sales one can anticipate?

So, see, we have been working on 2. So, as of now let's say renewable power is have a total installed capacity of about 65 MW. And another 7 MW is part of the pipeline, okay? So, in the last year we have been working on two projects. One was a rooftop solar project of about [ 3 ] MW capacity. This has been implemented in January. So, this year we'll get the full benefit of it, which is the savings is expected around INR 2 crores per year. The second project is on 11 MW ground solar project. That is in progress. There been recent some changes done by MNRE on particularly ALMM list because of which the project slightly got delayed. The commissioning date is in December now. So that project could get a benefit of about INR 6 crores per year, but the full benefit will only come next year.

We take the next question from the line of from Raman K.V from Sequent Investments.

I just have one question with respect to the cotton. You mentioned that the cotton prices have started to increase as of July 2026, and you will be purchasing the cotton inventory at a higher cotton price. So, I just want to understand, you also mentioned that you will be able to maintain the INR 150 crores, INR 155 crores spread. So, I just want to understand where is the demand coming from? Is it because of the EU-India FTA? Or is it because of the internal domestic demand? So, if you can highlight where is the demand coming from? And is the demand still persistent at a higher cotton price, like at a higher spread as well?

So Ramandeep, few clarification. What I said is that we have about -- let's say we have about cotton inventory till December -- November, December. We have been building up this inventory from the beginning of the season when the prices were much lower, right? And gradually, the prices have started to go up as the season has progressed. So, in the quarter 1, we got the benefit of our lower priced cotton inventory, right, apart from the price increases, which has happened because of demand, right? So that is number one. So, we are not going to procure cotton today for utilizing for our sales as of now, right? So, there is an inventory buildup whose benefit will accrue and gradually that inventory price will start to go up as well, right? So that is number one. Number two, on the demand side, there is a growth both in domestic market as well as in export and definitely the trigger points are resolving global situation with respect to tariffs, also some of the FTAs which are coming in pipeline. What we are seeing in the demand side of things is that prices are increasing gradually and getting accepted with a lag. So as of now at INR 68,000, INR 69,000 level, the spreads are maintainable. But let's say, if the cotton prices increases further, which has already happened, will the prices get accepted or will get accepted with a lag, there could be a reduction in spread because of it. What I earlier said as well is that this year's spreads will be better than what we have done last year, right, and even better than what was there in the quarter 4. So that trend looks to be continuing. Whether it will be INR 150, INR 145, INR 150, I think that's only we can say as we progress through the year. At least for quarter 2 perspective, we think it will be similar to what we have done in quarter 1, maybe slightly lower.

So I think in our quarter 4 FY '26, our spread was around close to INR 130, INR140-ish. So, you are saying on an average basis for the entire year, our spread will be in that -- more than -- like around 140-ish?

So you are correct. Our spread in quarter 4 was about INR 138. This definitely for the full year will be better than that, right, at least from a demand situation point of view, that looks to be continuing.

Understood. And sir, on the capacity front, we are almost at full utilization. So apart from the knitting machines on the -- on the yarn side, are we having any capacity expansion as of now? And if so, when are we expecting this capacity to be added like fully operationalized?

So yes, I think on the capacity expansion side, only the knitting machine is giving pipeline for us, right? But as we have sort of said earlier as well, we almost have about INR 350 crores of CapEx to be deployed primarily for our ready-to-cut fabric production facilities, which is what we are focusing on.

Understood, sir. And sir, just last question. For the quarter, what was the inventory gain impact? Like we did around INR 69 crores of EBITDA. So out of this INR 69 crores, what was the impact of -- like how much did we gain on the inventory?

So, see, if you think about -- if you see our sales price increase has almost been about 20%, 24%, while let's say cotton prices have gone or inventory gain would be about 10%, 12% only. So, rest of the spread increase has actually happened because there has been, one, better pricing in the market, second, our customer selection and our entire strategy around strategic customers, bottom [indiscernible].

We take the next question from the line of Resham Jain from VVD Asset Management.

Congratulations on very good numbers. So, I have 2 questions. First one is on the overall yarn demand. So, what we see from the numbers is that the demand from China for the cotton yarn has been quite muted since last few years. But suddenly, I think beginning of this year, we have started seeing very good kind of exports from India. How big is this? And are you also exporting to China? And also, what has changed particularly in the overall cotton yarn scenario? Why the demand -- based on your assessment, why do you think the overall demand is much better?

From China, you mean, right?

China and in general also, the overall demand conditions are much better right now. What is driving this?

Okay. So, we'll address first China right. So yes, since I think December, we have been seeing a lot of opportunities for export in China. GHCL Textile per se does not export much to China, right? But yes, there has been a lot of demand, which is coming and getting fulfilled from India. And I think that trend has continued. While it has slightly slowed down in quarter 1, but yes, it is still there. It's much more than what it used to be before December. One reason which I can -- as in, our assessment is that, one, the overall cotton production in China is going down. So there has been more acreage reduction and output reduction when it comes to Chinese cotton. And of course, the prices in India, at least before December when a lot of this quantity was booked was much better or much cheaper compared to everywhere else. So, I think that was one big trigger why it happened. And it is continuing because overall Chinese cotton output has gone down. And of course, the bans on Xinjiang cotton and everything in the U.S. market. So, I think that is, in our assessment, the reason why there is a significant demand and continued demand from China. In terms of the overall why demand situation has gotten better, one, of course, this entire demand tailwind coming from FTA signings and all the global markets and brands looking India positively because of it. Second, Indian domestic market itself has at least grown by 6% to 8% year-on-year now, and that seems to be strengthening as well. So, this is also a second reason why even we see a lot of growth in the domestic market and export market. So, I think some of these reasons are more structural in nature, and that's why we believe that some of these demand tailwinds are set to continue. The third part is that before December, many of the retailers were sort of sitting on a very low inventory sort of thing, which also they are -- it is just replenishment of inventory which is also happening. So, Resham, I think in my assessment, these are the reasons why we see a good demand. Resham, any further questions?

Yes. So, the second question is on PM MITRA Park. The land has already been allocated. So, if you can give more update on the same, like what is the next step? And when are we starting the overall project here?

So, as per our discussions with the execution body for PM MITRA Park [indiscernible] the project from their end is to be completed by December '27. That is the timeline which they are working on. As per the policy, we are supposed to complete our project within 3 years of land allotment. So, those are the raw timelines, right? So, some of the discussions we are actively engaged with [indiscernible] for initiation of the project but overall from a timeline perspective, both from policy perspective, also their timeline, '27 is when the project is supposed to – sort of between '27-'28 when project is supposed to completed and the commissioning can happen.

Like, December '27 your commissioning should happen, right, is what you're saying?

[indiscernible] from the completion date from the PM MITRA Park and the facilities to be provided by the government and from the date of allocation, which was in '26, right, we have about 3 years to complete it. So basically, the land allotment happened at the end of -- within the first -- last quarter. So basically, 3 years from hence, we have to complete the entire project and commission it. That is the maximum time.

So along with the PM MITRA Park body, you will also parallelly start the project. Is that the correct understanding?

Yes, that's the correct understanding.

Okay. So, from your timelines, assuming their facility will get ready by December '27, when will your plant, like, the processing plant or the fabric manufacturing plant will be ready?

So, it will be in CY '28.

CY '28.

[indiscernible] have to start building it. [indiscernible] in CY '28 we will sort of plan to commission it and initiate it. Maybe a part of it could be done earlier as well. It all depends on how the progress happens on the overall park and its facilities.

Okay. And this will be INR 350 crores or INR 400 crores kind of CapEx, right, which you are planning here?

Correct. Correct.

So the second question is given that the balance sheet is already quite strong for us and this project is going to happen within the next 2 years' time, while the cash generation, which I could see is significantly higher and I think PM MITRA Park would have some debt concession as well. So, you will fund it through some concessional debt as well. So how are you going to use the cash? Because I couldn't see any other project other than this?

So right now, we are working on 2 projects, which we have said, right? One is on completion of our knitting and the solar projects, right? So that is where the cash will be able to deploy it. And simultaneously, as government starts to build up the PM MITRA Park, there will be some activity starting from our end also.

Okay. But those are small CapEx, right? Those are small CapEx compared to the cash generation which you are planning to have?

Yes, so, this year, our [indiscernible] CapEx all projects put together, including modernization, replacement of capital equipment will be about INR 100 crores, INR 120 crores.

No, Resham, if I could add to what Marshal said, like you rightly said, at this point of time, our plan of INR 350 crores to INR 400 crores of investment is already there in pipeline. We are also debating within ourselves that what are the new -- other new initiatives we should be taking. And at the appropriate time, we will share those details also with the investors.

Okay.

And we are planning in the next few quarters is how...

Yes, yes. Surely. We are planning in the next few quarters that how are we going to deploy the resources going forward. Obviously, the journey is very clearly defined. And like Marshal has been saying that our target is to double the revenue. And obviously, the margin will also expand because of this vertical integration. Along with this, what else we can do, we are working on it.

We take the next question from the line of [ Shreya Chatterjee ] from [ AGS Capital ].

Congrats for a very good set of numbers. I had a couple of questions on the demand side and especially what is happening on the FTA part, like the U.K. FTA has been lifted and everything. So, if you could just give a volume guidance of your yarn or fabric part? And if you could just quantify the impact of the U.K. FTA and maybe the EU FTA also coming by the end of the year and the New Zealand FTA, that would be really helpful.

So, we don't have a direct exposure to these markets, right, to U.K. and U.S. We have indirect exposure because we sell to the customers who would be exporting, right? So, in terms of our volume, we are already at 98% plus utilization. So, this will definitely not impact in terms of our volume. Of course, where we sell, which customer we sell could sort of adjust. But overall, from a volume perspective, we are operating at 98% utilization. The way the FTAs, of course, will impact a lot of our customers, right, because U.S., U.K. both are very large markets. Particularly in U.K., of course, there was a duty disadvantage which India had with respect to, let's say, what Bangladesh would pay or Vietnam would pay. I think that brings us to parity. In a market which is almost $40 billion, our market share was about 4%, 5%, that would itself double, right? So, there is -- if we are doing about $1.52 billion business in U.K. market, it could double to almost $4 billion. Similar is the case in U.S. as well. I think U.S. is almost a $400 billion market. And where India, of course, has market share of about 6% at least on the apparel side and that itself because of stability in that market, if it comes, then that could impact significantly also. The other markets which is large and where FTA would have a big impact is European Union, which is also sort of stated to go into execution mode by the end of this year. I think that is a big trigger and demand tailwinds which can come from that market as well. So, EU, U.K., U.S. put together is almost a $900 billion market or $850 billion to $900 billion market. So significant opportunity exists for India textile players because of these FTAs.

Any market share gain that we -- like any particular volume number market share gain that we've seen directly coming from all these changes?

As I said, for us, no. But what, as in, all the industrial bodies, government bodies has predicted is that at least in U.K., there's a potential to double the market share. In U.S., it is sort of supposed to go from 6% to, let's say, 7%, 8%, right? So that is what all industry bodies are expecting. And largely, I think it would come as well.

Got it. Got it. And sir, what's the guidance of inventory days that we -- like with the cotton prices going higher, what inventory days do we want to maintain for the whole year going ahead?