RSWM Limited (500350) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening and welcome to the RSWM Limited Q4 and FY '25 Earnings Conference Call. We have with us today from the management, Mr. Rajeev Gupta, Joint Managing Director; Mr. Nitin Tulyani, President and CFO; Mr. Rakesh Jain, General Manager, Corporate Finance; Mr. Surender Gupta, VP, Legal & Company Secretary. [Operator Instructions] Please note that this conference is being recorded. Before we proceed with this call, I would like to take this opportunity to remind everyone about the disclaimer related to this conference call. Today's discussion may be forward-looking in nature based on management's current beliefs and expectations. It must be viewed in conjunction with the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what we may express or implied by such forward-looking statements. I now hand the conference over to Mr. Rajeev Gupta for the industry outlook, post which, Mr. Nitin Tulyani will take it over for the financial overview. Thank you and over to you, sir.

Thank you, [indiscernible]. Good evening, everyone. I hope you and your families are safe and in good health. It is my pleasure to welcome you all to quarter 4 and FY '25 earnings conference call. I hope you had an opportunity to review our financial results and investor presentation, which are available both on our website as well as on stock exchanges. I'm pleased to share the quarter's performance has been encouraging, reflecting our sharp focus on execution, diversified business portfolio and initial results of the transformative journey started under RSWM 2.0. We have seen positive momentum across our yarn and fabric business, supported by improved operational discipline, innovative initiatives and the efforts, enabling us to deliver better products at right quality at right time with a greater alignment with the evolving customer needs. Our exports have continued to perform well. There has been significant increase in the revenue from Middle East, Africa, Southeast Asia and other markets in FY '24-'25. Indian favorable tariff position remains a strategic strength, especially compared to the competitors like Vietnam and China. This advantage is helping deepen engagement with global brands, particularly from U.S. and Europe, where our market share continues to grow. While U.S. imports tariffs still being not clear for India at this moment, we are closely monitoring this, and we understand the partners to prepare any potential change in trade policy or the cost structure thereafter. On the industry front, cotton yarn spread remained under pressure, impacting the spinning margin across the sector. Despite these external challenges, we have stayed focused on improving our realizations, optimizing our product mix and enhancing process efficiency, as explained in the last investor call also. These internal mails have partially offset the margin pressure and supported the overall profitability of RSWM. Looking ahead, strategic development that has happened recently is very progressive in that is India, U.K. retail agreement. Beyond it's diplomatic significance, the FDA could be transformative for Indian exporters. Apparel industry currently is exporting to U.K. Yet the shares of Indian export is only 6% in the overall GBP 24 billion apparel industry of U.K. We are expecting that these changes in the policy, FDA. We have an opportunity to unlock almost GBP 1 billion additional exports from India to U.K. and taking our share from 6% to maybe 15% to 20% driven by favorable sourcing and supporting policies. At RSWM, we are particularly well positioned to capitalize on this opportunity. Our strengths like the categories that we are operating to U.K. Demand of these categories in trousers, shirts, T-shirts, dresses, especially the denim and the knitting segment that we have. We are as particularly diversifying away from the traditional sourcing countries. Our integrated manufacturing ecosystem, strong design capabilities and trusted relationship with the global brands give us distinct edge. Furthermore, as international customers are increasingly prioritizing sustainability, compliance and traceability, our ongoing efforts under RSWM 2.0 transformation and proving to be both timely and helpful. RSWM 2.0 is not just a transformation plan. It represents the cultural shift across the organization. We have adopted the new mindset, which is rooted in agility, cost effectiveness, smart manufacturing or product development, sharper execution and the timely on time to our customer's needs. The early effect of this general RSWM 2.0 is already visible in the areas like productivity, client satisfaction and cross-function alignment. The energy and the commitment within our team is inspiring, and it gives us confidence that we are building a future-ready organization capable of creating long-term value in the dynamic global environment. Now for more details the financials for this quarter and for the year, I request my colleague, Nitin, to take over.

Thank you, Mr. Gupta, for the introduction. Good evening, everyone. I will now be sharing the RSWM financial and strategic highlights from financial year '25 and how they are preparing us for the coming financial year '26. Despite external challenges, RSWM reported our FY '25 revenue increase of 18.9% year-on-year, reaching to a new height of INR 4,825 crore. This was driven by improved order visibility, a balanced product mix and a focused sales and execution network. Coming to the full year '25 financial performance. Gross profit rose 19.4% to INR 1,729 crore compared to INR 1,448 crore in FY '24. Gross profit margin moved slightly from 35.7% in FY '24 to 35.8% in FY '25. EBITDA increased by 76.8% to INR 233 crore, up from INR 132 crore in the FY '24. EBITDA margin improved from 3.2% in FY '24 to 4.8% in FY '25, which is clearly reflecting the better cost management. Our PAT stood at a loss of INR 41 crore mainly due to the elevated finance and depreciation cost. The finance cost increased during the year primarily due to the higher working capital requirement and the addition of the term loans for the unit we acquired from Ginni Filaments at Tata location last financial year. Depreciation rose mainly on account of the commissioning of the new kapaas date, which is located at Banswara, Lodha. As I mentioned in our Q2 and H1 FY '25 earnings call, we had a buildup of finished goods inventory, which was subsequently liquidated during the year, which has resulted in decrease of our inventory standing in the balance sheet at the end of the financial year. Now coming to the quarter 4 financial year '25 financial performance. Revenue rose 7.2% year-over-year to INR 1,256 crore. Total income increased to INR 1,265 crore. Gross profit for the quarter was INR 432 crore with a margin of 34.4%. EBITDA rose 14.8% year-over-year and 36.2% quarter-over-quarter to INR 79 crore. Also, EBITDA margin improved to 6.2% from 4.6% in quarter 4 FY '24, reflecting a year-over-year increment of 163 bps. PAT turned positive at INR 1.6 crore in Q4 FY '25, recovering from a loss of INR 8 crore in Q3 FY '25. We were getting [indiscernible] cushions and not many earnings call that when we are turning PAT-positive. So this year, the team of RSWM 2.0, the management has been able to turn PAT-positive in current quarter. On the strategic front, we made significant advances in innovation and sustainability. The [indiscernible] initiative based on 5 elements, fire, earth, water, air and space combines Indian tradition with the textile innovation. It attracted strong interest at Barre' effect 2025 that was conducted at the Bharatmala location in New Delhi, and it was attended by many industries and government stakeholders. We also signed a development agreement with Berland and PACC Limited to produce refined-based textiles. This enabled us to venture into emerging segments such as technical fabrics and smart clothing. Grapheme, a product that is developed by PACC, represents a promising innovation for the textile industry, offering multiple performance enhancements in a single application, including antibacterial properties anti [indiscernible] behavior, thermal regulation, UV resistance, aberration resistance and improved pile strength. We remain committed to prudent capital allocation and aligning every investment with our long-term strategic goals. While FY '25 presented challenges, the structure improvement made during the year have strengthened our foundation. As we enter FY '26, we do so with a major optimism. Our focus on financial discipline, operational efficiency and our sharper product approach position as well to deliver steady progress and improved outcomes. With this, I would like to conclude and open the floor for any questions you may have.

[Operator Instructions] The first question is from the line of Saket Kapoor from Kapoor Co.

Congratulations to the team that we have turned the corner, at least for the first -- I mean the last quarter. And the first point would be, sir, the efficiencies and the support from the market. If you could just give us some more color, what factors actually attributed to this profitability and whether these factors are now consistent or you see reversal of any of the same? How are things shaping up in terms of the margins or the spreads? If you could give us some color on spread and also on the utilization level And then I'd probably...

Thank you very much, first of all, Mr. Kapoor, for your compliments. If you look at the performance in fourth quarter, there is a mixture of things which are consistent and few things which are the -- onetime. As Nitin also shared, we had a reduction of stock in various businesses, especially our synthetic yarns in that. So that is a onetime thing, which has done during this quarter. Now a couple of other things. One, working on the internal efficiencies, both in terms of consumption norms and utilization, is something which has helped us. If you look at the various businesses within RSWM, the cotton yarn spread is more or less the same. The markets have been good, especially in Bangladesh market. Demand has been good. And overall consumption levels are same. The margins were more or less similar in this way. So focus on internal efficiencies helped us in selling slightly better. If I talk about denim segment, the industry is still passing through the same challenge level of low utilization across. Within that geography of industry performance, there was an option to capture good orders and improve utilization for RSWM. So that is something which we build on from last year's -- or last quarter, working towards acquiring the customers, working closely with the brands, and thereafter, improving our efficiency. The third thing is more working on the consumption levels within knit and denim and try to see that our cost is optimized. And we are working on -- last time, we discussed about try of contained application to various business models and making us more efficient and more effective for cost management. I think these things are sustainable. And the way we have been posting in this quarter, I'm 100% sure and confident that we will now retain ourselves in this positive arena of profitability.

Correct, sir. And on the utilization levels, sir, can you give some color on how our various verticals, utilization levels there, average utilization levels for the last year?

Average utilization has improved. If you see, in yarn particularly, we were already in the high 90s. So we continue being there. In knitting and denim, our utilization have improved by 5% to 7% in both the businesses. And we are in now -- post 90s in denim and mid-80s in knitting. So that's the current level. There is still a little bit of a possibility of improvement in utilization, but broadly, they are slightly better than the average industry.

Okay. Just to come to the strategic collaboration for the grapheme part and also the investment in Bhilwara Energy. If you could just elaborate the significance of these 2 and -- yes, on these points, sir.

So with respect to the investment in Bhilwara Energy, the overall objective was we are able to get the renewable source of energy at competitive prices. So we are able to get sufficient wind power from this company. And coming to the -- your question around grapheme, so grapheme is still under development, and it is in very early stages. So we are still working on development of a master batch. And accordingly, we will be able to communicate you later on the same.

Sir, just to conclude here, for the investment in Bilwara Energy, I think to the point mentioned there, the Singularity fund that met is indeed INR 250 crore. So that is fresh with issuance of shares on heavy? Or are there promoters that are down their investments in Bilwara Energy?

We have liquidated our share. So that is our investment coming from Similarity.

So what is the...

Has been shared in our investor presentation on the same and also on the stock exchange, the information is available in detail.

Okay. I'll go through the same. So now coming to the other development, especially for the retail agreement with the European nation. How has that affected -- I mean, has benefited or affected the sector, especially I think the forward integrated players are getting to -- going to be more benefited. So if you could just give some more color on that same, sir.

You're absolutely right. If you look at as a country, India stands to gain in these 12 months but for U.S. and U.K. As I shared, India has around 6% share in U.K.'s apparel industry, which as a country, we should move towards 15% to 20%. The American tariffs are yet to be settled. We saw the development in the China tariff being discussed with the U.S. Similarly, I also expect that the India-U.S. tariff will also settle for times to come. But overall, the expectation is that India stands to gain with these challenges. Coming to RSWM as a company, we are not directly exporting largely to U.S. We are in indirect exports either to run customers who are then exporting to U.S. or we are supplying to other countries, which in turn are exporting to, say, Bangladesh or Sri Lanka, which in turn are exporting to U.S. So I cannot say we are isolated, but at the same time, we are less impacted even this fall period of 90 days.

[Operator Instructions] The next question is from the line of Tanush Meta from JM Financials.

First of all, sir, congratulations on a good set of numbers, [indiscernible]. And sir, my first question is on market expansion which new market that RSWM is targeting? And what steps are being taken to establish your presence in this region?

Can you repeat your second question, please?

New markets, what are the steps we are taking to establish a presence in the new markets?

Okay. So we intend to consolidate our position in the market, go more as a player which offers quality and the value-added products. So we are consolidating both in our existing markets and also try to penetrate in the new markets. All the businesses are trying to explore possible new customers and new markets. We were able to have better product and with a better level of contributions or the web generation possibilities. We have been trying to go direct to the customers, customers which are looking for sustainability and environment-friendly products. We also would like to work on the brand, which gives you better visibility in the market and better profitability in the market. So Middle East, Europe, America, in fact, all the countries, we are trying to penetrate more, but our concentration is not on geographical things. Our concentration is more to spread to the value-added customers and value-added products.

Okay, sir. Talking about the sustainability, sir, what practices are being adopted to align with the global environmental standards?

There's a couple of things when you look at sustainability. It is leading to, first, the use of water. We, RSWM, is a liquid, zero discharge company. All of our manufacturing facilities are using recycling, and we do not discharge water to the environment. That's the one responsibility we have. Now second is the shifting of normal boilers to biofuel boilers like from traditional fossil fuel. We are now converting all our boilers to biofuel. Most of the conversion will happen within the current financial year, which has started from April. And we will become a compliant company in terms of biofuel boilers. Third, in terms of our consumption. We are currently in mid-20 percentage of our green power, which is from solar and wind. And we continue to work on this area and become more and more green power in terms of consumption. So these are 3 things. Then base management is in the fourth area. And the biggest thing we are doing for sustainability is using the PET bottles as a raw material for converting this into plaster staple fiber. We are currently consuming 60 lakh bottles a day, and thereafter, ensuring that we become recycle or contribute our best in terms of sustainability. In addition to that, all social compliances, working for female, taking care of our employees, all welfare activities, all those things are standard RSWM practices, and we continue to do that.

Understood, sir. And can you share any -- share us with the debt level of the company? And how will it impact the future financial stability?

I'll request Nitin to respond to this.

So with respect to the debt management, including our working capital, we are at INR 1,700 crores, which include INR 700 crores of term loan and balance being a part of our working capital, cash credit facilities and discounting facilities we have taken from different banks. So our focus remains on improving our debt profile by refinancing the high-cost borrowings, repaying selected loans and enhancing the cash flows through the working capital optimization. We are also working on the block current assets so that we are able to improve the flow of the working capital. Apart from that, with the improved capacity utilization and a better product mix. We are targeting to lower debt-to-equity ratio and improve interest coverage. So the ultimate target is to strengthen our balance sheet and support future growth with a more sustainable capital structure.

Okay, sir. Understood, sir. And is RSWM working on product innovation or investing in it to stay ahead of the market?

You're absolutely right. We are investing in product development centers and core servers with our customers design aligned collections, innovation, our focus on brands and function like antibacterial or moisture wicking or UV protection, all those things are something which we are continuously doing at this point of time. There is no particularly new investment that we are proposing for new product development at this point of time. But all existing businesses are focused more on new products and trying to see that we work on sustainability and giving more value to customers and more functional capabilities to our product.

[Operator Instructions] We'll take the next question from the line of Marshall, an individual investor.

My question is that. This quarter, our turnover has definitely increased by 5%, but margin is still lower. Whereas so far, what is the commentary that our utilization growth [indiscernible] stable. So why our margin under like [indiscernible]? So what steps the manage taking to improve the margin, please? I want to show on the baton of something. I think our CFO seems to be a new person. But see, a couple of years back, the company has given a healthy dividend on this over the shareholders spread healthy amount of debt. On the same part, company project to INR 9,200. So whenever we sell it INR 150 or price, again, we have to pay [cash]. So we have been suffering from both sides. This was a very, very inaccurate decision. So now we need to you can see that now since the actual market is good, UKFC is done. So like what are the drivers -- or what are the growth drivers in the next couple of years? And how do you plan an updated [indiscernible] so far to pan out?

Thank you very much, first of all, for very open and clear views. Let me admit that in last 2 years for textile industry overall has been tough, and particularly RSWM being a player in predominantly from Synthetic yarn market has suffered poor performance for the financials. Coming to the quarter under concern, which is the fourth quarter of financial year '24-'25. Our EBITDA margin stood at 6.2% from the last quarter of 4.6% and last year, the EBITDA margin of 4.7%. So if you look at, there is an improvement from 4.6% to 6.2%, which is around 1.6% EBITDA margin improvement. So whatever we are discussing is development, which is recent and we have a promising future. If I share with you the quarter 1 for next financial year working as of today, things are under operating either equal to quarter 4 or slightly better than that. So we're likely to expect similar kind of -- maybe slightly better performance for the current quarter. But this is uncertain times, and you never know what is going to happen the very next day. So let's keep our fingers crossed, and I can only show you some new management, including my CFO, myself and the team members who are now working on RSWM 2.0 are focused, more agile for customer needs and for investor needs. The pain that you have expressed oyurself in terms of not perceiving as a stakeholder your dividend for the last couple of years, we fully appreciate and new management definitely take note of that, and we'll try to work on that.

No. Right. Actually, I was referring to gross margin, not the EBITDA margin. So if gross margin would have been better, EBITDA would have been even better. If you see on Q3 versus Q4 versus -- our gross margin has gone down.

So yes, we're definitely working on the cost optimization part and the raw material optimization. So that's in our radar and the team is definitely working on it.

If you look at -- particularly this quarter, we have liquidated a good stock for synthetic yarn. So where EBITDA out of the different 5 products that we work is comparatively lower. So that is why your gross margin reflection is not there in terms of facility. But if you see overall improvement in the businesses other than synthetic yarn business, it has been reasonably good. Now we focus more on the value-added segment, which probably will give better margins.

Good and regarding dividends, I was not referring to the company didn't give dividend. Like that I fully understand. Why I was referring to that in 2022, the company has given INR 25 dividend, which was not required because on the one hand, company gave dividends. On the other hand, the company made right issue of just INR 100 per -- on the one hand, company gave dividends. So the shareholder money on which -- like in the tax, you have to pay 30% tax on the dividend. So the dividend was paid. And again, the same money the company took back -- I think, generally, took back by making it INR 100. So when the sale price is sorting INR 150, debt issue INR 190. So again, there is a difference. So whenever we sell those sales which was listed on the right issue. Again, you to pay the capital gain tax. So what I'm saying that decision was not a financial prudent decision because there was no need to give INR 25 dividend at the same time because on the one hand, by dividend, company had made cash outflow. Then to recoup that, the company a right issue. So again, it was get inflow. So there was no need to give the dividend and again to make right issue. So issued INR 25 dividend, company INR 2, INR 4 dividend. So this balance INR 20 could have been offset with the proposed rights issue. So what I'm saying the shareholders have burned their fingers first by the well performance of the company in the last couple of years due to the overall market issue, cashless issue. Number two, what could have been avoided but that there was no need to give that hefty dividend of 250% per share and take the money by right issue. So like my point was that now RSWM new management is under double pressure. So the shareholders are compensated in a way why you have better performance so that whatever loss -- whatever tax loss they have suffered due to none of therefore can be recouped in the near future, at least. This was the point.

Understood. Noted. And I once again stress my thankfulness for being so frank.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor Co.

If you could just outline to us the CapEx number for the current financial year. And Nitin, sir, you mentioned that a lot of efforts have gone into the lowering of the finance cost as a percentage of sales? So what should be the reduction in absolute number or a percentage of sales going ahead, especially for finance costs?

So currently, we are at roughly 2.5% in terms of the overall sales number. But definitely, we are working on restructuring of the debt, that is since we have suffered losses from the last 2 financial year. So we tend to take the financing to repay our high debt so that our own current cost is balanced. Plus, we are also exploring some other options of going towards vendor bill discounting as well as the debtors bill discounting.

Okay. Sir, any color you can give of what these initiatives would translate into -- if we take the INR 163 crore number for this year vis-à-vis INR 153 crore for last financial year, how should -- what should be the landscape, whether in absolute terms or as a percentage of sales?

Okay. So the one reason why the finance cost has rose is on account of the Ginni Filaments capital expansion that we did last year. So for the current financial year, we are going for the normal capital expansion only. And there is no huge capital expansion plan as of now.

So during this year, capital expenditures would be limited only to normal maintenance capital expenditure or some balancing treatments for enhancing the utilization. Otherwise, we are not committing ourself to any major CapEx for this year.

Okay, okay. But will you be able to quantify other cost efficiency or finance cost, what kind of reduction we can see, and also on the power and fuel front also?

There are 2 functions: one is the consumption norm, and second is the price of per unit power costs. So there are 2 ways to work on that. So reducing the per unit power cost, we are continuously working more for green power, which is comparatively giving us advantage. So that is one thing. And second, in terms of reducing consumption of our -- we are working more on the power saving and more efficient machines, which are energy-efficient. And whatever the normal CapEx, we are doing at this point of time. Majority of them is a step towards improving our power efficiency and reducing our power consumption. So there remains one focus area in all textile working in all those years.

Right. So my concluding question for you on the Ginni Filaments acquisition. Sir, what have we -- how much have we spent on the acquisition and also on the modernization aspect? I think the machines were old, which we alluded earlier. So what has been the maintenance CapEx on the same? And what has been the contribution of the Ginni acquisition for last financial year and the current financial year, taking into account the current split? How -- as a percentage of the total revenue pie, contribution from Ginni Filaments acquisition?

Okay. So Ginni acquisition actually had 2 parts. One was the spinning division and second was the knitting division as a part of Ginni. So we had around INR 80,000 in that acquisition. Part of them was -- a good part of them were very old generation of machines, which were highly inefficient in terms of running. The acquisition, to best of my knowledge or memory at this point of time, it was around INR 160 crore. Now if I share with you the working of these 2 verticals of Ginni acquisition in Chhata, which we did, I'm happy to share that the knitting, working has been really good. We have been able to sort out all the teething troubles that initially cropped up because of the changeover or change of the management, the delays in shipment or stabilizing the working all that is taken care. The current quarter has been reasonably okay. And I expect better performance in the coming quarters to come. Spinning, of course, remains a challenge because of the age and the health of the machines. Looking at our own financial commitments and the ventures burden, company did not decide to go for any major modernization in Chhata in the last couple of quarters. Even next year also, we are not proposing any major restoration package for Chhata. We try to minimize the loss in terms of efficiency and try to strike a balance in terms of right product mix and right utilizations.

Ladies and gentlemen, we'll take that as a last question for today. I would now like to turn the conference over to the management for closing comments. Thank you and over to you, sir.

So thank you. Nitin Tulyani, this side. In closing, I extend my sincere gratitude to our employees, stakeholders and partners for their unwavering support. With collective effort and a shared vision, we are well positioned to drive innovation, strengthen our market presence and deliver sustainable value. The road ahead holds great promise, and we are confident in our ability to grow and succeed in the years to come. Thanks once again.

Thank you.

Thank you, members of the management. On behalf of RSWM Limited, we would like to formally conclude this Q4 FY '25 Earnings Conference Call. We sincerely appreciate your participation in this event, and we kindly request that you may now disconnect your lines. Thank you for your time and engagement. Thank you.