RSWM Limited (500350) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to the RSWM Limited Q1 FY '27 Earnings Conference Call hosted by RI Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Singh. Thank you, and over to you, ma'am.

Thank you, Ray. Good evening, and welcome, everyone, to RSWM Limited Q1 FY '27 Earnings Conference Call. Today from the management, we have Mr. Rajeev Gupta, Joint Managing Director; Mr. Manoj Bansal, Chief Transformation and Risk Officer; Mr. Nitin Elyani, President and CFO; Mr. Surendra Gupta, Chief Compliance Officer and Company Secretary; Mr. Rakesh Jain, Senior General Manager, Corporate Finance. Before we proceed with this call today, I would like to of disclaimers 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 and risks that the business faces and the cause that may cause the future results, performance and achievements to differ significantly from what may be expressed or implied by such forward-looking statements. I now hand over the conference to Mr. Rajiv Gupta for the industry outlook. Following that, Mr. Nitin Tulyani will take over the financial overview. Thank you, and over to you, sir.

Thank you. Good evening, everyone. So it is my pleasure to welcome you all to the RSWM Limited Quarter 1 FY '27 Earnings Conference Call. Let me take through the industry outlook and the business environment for the quarter ended June 30, '26. Our financial results, investor presentation and press releases for the quarter have already been uploaded in the stock exchange. I hope you got an opportunity to have a look on these. The global textile industry continues to operate in a gradually improving yet uncertain environment with the demand across the key international markets showing sign of stabilization as the inventory correction has already largely moderated. Discretionary consumer spending in the several developed economies remain subdued, resulting in a gradual rather than broad-based recovery in textile apparel demand. At the same time, sourcing strategy of global brands continue to evolve with increasing efficiencies on supply chain resilience, sustainability and value-based products. However, on a micro level, operating environment during quarter 1 was influenced by mixed demand trends across geographies with increase in domestic demand, while export markets continue to witness a major recovery with the select customers of ordering patterns. Demand from certain export markets, including parts of Middle East remained subdued during the quarter. Global brands increasingly focus on reliable supply capable of delivering quality sustainability and product innovation, reinforcing India's position as a preferred sourcing destination. The quarter also witnessed India government's encouraging policy developments, including continued progress on international trade agreements and initiatives aimed at improving raw material availability. At the same time, geopolitical developments, including the West Asia conflict contributed to supply chain disruptions and volatilities in energy costs as well. Elevated crude oil prices have influenced input costs for synthetic yarn particularly. In addition, the evolving global trade landscape, including the recent U.S. tariff developments may lead to shifts in global sourcing patterns creating selective opportunities for the competitive Indian textile manufacturers over the medium term. Overall volatility in raw material prices, geopolitical uncertainties and evolving global trade dynamics continue to require prudent planning and operational agility. Now sharing the outlook that we see for the Indian textile industry, the long-term outlook remains encouraging despite the near-term volatility, supported by strong manufacturing ecosystem, vertically integrated value chain, skilled workforce and improving policy support, structured judgments, including recently concluded India U.K. free trade agreement, ongoing discussions on India-EU free trade agreements and increasing diversification of global sourcing from concentrated manufacturing hubs are expected to create meaningful opportunities for Indian textile exporters over the medium to long term, particularly for the value-added and forward integrated products. Improved cotton availability and softer cotton prices supported by favorable policy environment and a better crop outlook are also expecting to benefit for the cotton value chain. Our strategic priorities of RSWM remains unchanged, strengthening the product portfolio, improving operational excellence, expanding our presence in value-added segments and maintain disciplined cost management under RSWM 2.0 initiative. RSWM, we remain focused on factors within our control by increasing the share of value-added products, improving manufacturing efficiencies and strengthening customer relationship across domestic and international markets. We continue to leverage our diversified product portfolio and integrated manufacturing capabilities to respond effectively to changing customer requirements while maintaining discipline on cost and capital allocation. Further, as India U.K. agreement opens new opportunities for the Indian textile sector, we are actively exploring forward integration activities to maximize our potential arising from this FDA. This aligns our long-term strategy of increasing value addition, strengthening customer relationship and expanding our presence in the high-value textile manufacturing products. As we all have been discussing sustainability remains to be an integral part for RSWM in our long-term strategy through increasing use of renewable energy, resource efficacy and circular economy initiatives. We continue to make steady progress on LNG Green PET bottle-to-bottle recycling project, an important strategic initiative to expand our presence in sustainable polyester solutions and strengthening our ESG positioning. Innovation also remains a key differentiator as we steadily expand our portfolio of specialized yarns, functional fabrics and sustainable textile solutions. Our diversified manufacturing base allows us to clear the multiple end-use industries, reducing dependence on a single product category, all markets -- we also remain committed to disciplined capital deployment, directing investment towards projects that enhance productivity, modernize manufacturing facilities and deliver measurable returns within a reasonable framework of time. Looking ahead, the structural strength of Indian textile industry, combined with RSW's integrated business model, strong customer relationship and execution capabilities provides a solid platform for sustainable growth. We remain confident that our focus on value creation, operational excellence, sustainability, innovation and prudent capital allocation will continue to strengthen our competitiveness and create long-term value for all the stakeholders. Now I would hand over the microphone to our CFO, Nitin Tulyani, to take over through financial performance for the quarter ended 30th June '22. Over to you.

Thank you. Good evening, everyone, and thank you for joining us today. I will now take you through the financial and operational performance of RWE for the quarter ended June 30, 2026. Starting with the business environment. The first quarter of FY '27 reflected steady progress in operational performance despite a mixed business environment across domestic and export markets. Demand within India remained healthy across several customer segments supported by stable consumption and improved order execution. Export demand, while relatively softer on a sequential basis, remained in line with the expectations as international customers followed a calibrated procurement approach amid evolving global economic conditions. Our emphasis on product mix optimization, disciplined procurement and manufacturing efficiencies enabled another quarter of improvement in operating profitability, supporting higher gross margins and a stronger EBITDA performance. Moving to the financial performance for Q1 FY '27. Revenue from operations stood at INR 1,161 crores compared to INR 1,142 crores in Q4 FY '26, registering a sequential growth of 1.7%. Domestic business sales increased to INR 825 crores from INR 774 crores in Q4 FY '26, reflecting healthy demand across key customer segments. Export revenue stood at INR 336 crores, lower than the immediately preceding quarter to the business maintain a diversified customer base across multiple international markets. Gross profit increased to INR 46 crores compared to INR 43 crores in the preceding quarter with gross profit margin expanding to 39.8% from 37.4% favorable product realization better inventory management and efficient raw EBITDA for the quarter stood at INR 94 crores, register a sequential growth of 10.1% and a year-on-year increase of 16.1%. EBITDA margin improved to 7.4% in Q4 FY'27. The expansion in gross margins provided sufficient cushion to absorb higher operating expenses while delivering a healthy improvement in EBITDA. Moving to the operating level. Finance costs for the quarter stood at INR 31 crores compared to the INR 30 crores in the preceding quarter, primarily attributable to the increase in working capital requirements. Profit before tax increased to INR 24 crores, representing a Q-o-Q growth of 3.5% and a Y-o-Y increase of 15.7% PBT margin improved to 2.1% compared with 1.6% in Q4 FY '26 and 0.8% in the corresponding quarter last year. Profit after tax for Q1 stood at INR 17 crores compared with INR 7 crores in Q1 FY -- while PAT was lower than the immediately preceding quarter, Q4 FY '26 had included a significant onetime tax benefit arising from the company's decision to adopt the congressional corporate tax regime under the Income Tax Act 2025. Excluding this nonrecurring benefit, the underlying earnings trajectory still remains healthy. Our priorities for the remainder of the financial year. Our capital allocation philosophy continues to remain disciplined and value-oriented, prioritizing investment that enhances manufacturing efficiency, improve product capabilities and generate sustainable returns over the medium term. We remain committed to strengthening our portfolio of differentiated and sustainable products, supported by changing customer preferences and demand for environmentally responsible manufacturing. India's position as a preferred global sourcing destination continued to strengthen supported by integrated textile value chain, improving policy environment and growing emphasis on quality, reliability and sustainability. Looking ahead, our priorities remain clear: enhance operational efficiency, strengthening customer relationships, improve product realization and maintain financial discipline. With that, I conclude my remarks. We thank all our shareholders, customers, business partners, lenders and employees for their continuous confidence and support. We will now be happy to take our questions.

[Operator Instructions] First question is from Amit Gupta from ICICI Securities.

Sir, my question was on the initiatives to develop new products. So if I recollect, last year, there was like a joint development agreement with Birla Cellulose to develop a specialty like fabric or textile application on graphene technology. I believe there was some further progress as well to like with some tie-up with Birla Cellulose and then further, I think there was some tie-up with salon-related entities. So my question was, what is the update on this particular initiative, which was taken last year? Is it gaining traction? Or it may not be a meaningful like special application to textile, so to say? Is it really evolving to make a difference or it's not as great as maybe initially thought.

So thank you, Amit, for very important business. MPD has been focused and the last year when we started working on graphine and we had the tie up with Villa Cellulose for the viscose application of this graphine based fiber. So as RSWM is a part of FNT Bilvada group, so we are going to have a thin plant which will offer that and we will be using this for fiber both in polyester as well as viscose. And then finally impact on both PV, polyester and viscose yarn separately. So this project is very much on. We are working on the same developments are costing. One round of products from Grafin, Birla Cellrose has arrived. There has been certain further improvements targeted. Similarly on Fister's time, we are doing a lot of development in-house. So this is a project which is going to take some time, but we are definitely on it and we expect fairly good developments in days to come.

Very helpful. So just to follow up on this. Very broadly, by when can you expect some revenue traction or commercial, what do you say, adaptation of this initiative or it would be still like a little difficult to hazard a guess at this stage?

So I will not be absolutely clear on this, but I expect within this financial year, we should get it rolling.

Understood. And my last question was, is there any thought or a study as to how big the total addressable market for this particular initiative will be? That will be my question.

So in fact, this is not a product which already is used commercially very aggressively. So there is a potential to use in all possible uses of fabric at this point of time. This is one of the very high potential product will have many performance as well as medical beneficial attached to this product. So I think market will be really, really big. Now how quickly and how efficiently we are able to capture it is yet to be evaluated. So let us first master this product, then we will assess the various applications and then work out the market of the same.

The next question is from Prerna Jhunjhunwala from Elara Securities.

Just wanted to understand the demand scenario for yarn and fabric business separately in terms of how the prices are moving and how volumes are in the current quarter, whether it's the growth or it is flat. Some color on granular volume and price details would be helpful to understand the results better.

Thank you for your question. I could get the first part, which is market outlook on fabric and yarn I could not really get the second part of your question, if you can elaborate if it is only a subset of the first, then I'll be able to answer. If there is something else you want to target in second question, please elaborate again.

Second question is on volumes. What are the volumes in yarn and fabric businesses and how the prices have moved during the quarter? And how are we seeing them in current volatile times in terms -- that's what my question was on the second part.

So the quarter under review has been really, really volatile. We had all sort of variables affecting us. West Asian war, crude prices, thereby cister prices went up very, very high in March. So started impacting volumes in April, May and June prices for fiber went up as high as to the tune of 30%. So thereby uncertainties did prevail in terms of buying from customer stocking went to the lowest level for pricing. Everybody was concerned about this. So business during this quarter was more on. So lifting has been average because the prices of yarn were pushed accordingly and the fabric business was still having further challenge because the prices were not easily absorbed in the downstream further. So it is slightly more stable now. The prices have been more or less stabilized, but the volatility still continues because the crude prices are still fluctuating very high degree. So overall, if you look at the demand side, both international and domestic demand has been volatile, but domestic demand has been comparatively less volatile than international demand. So thereby, in synthetic yarn business, RSWM could do reasonably good sales in this quarter. And the current quarter is also going in the more or less same way. For cotton and minag yarn, the quarter under review, that means the first quarter has been really good because of the delta between yarn prices and cotton prices and the spread because of certain amount of stocking that every company does was good. So in second quarter, it is still doing reasonably good so far. So volume, both in yarn and fabric are reasonably good, but the challenges continues to be there in second quarter as well.

Sir, if you could elaborate on the numbers, that will be helpful in terms of yarn volume during the quarter and how it has grown for yarn and fabric...

Number in terms of...

Volume... How much metric tons of yarn would you have sold? And what kind of volume you would have done in the fabric business?

I am not having the figures in terms of the volume, but I can share with you that the capacity utilization has been in mid-90s. So we had in Minag, it was around 92%, 93% in synthetic yarn around 96% and in cotton yarn, it was around 98%. So all the businesses, the stock has been maintained and the volumes have been utilized fairly nice. In fabric business in denim, our capacity again has been in 90s, whereas in knit business, it has been in mid-80s -- so I think that is probably what you intended to get from number in terms of production, I am not having at this point.

No problem, we can calculate this. No problem. So next question is actually on the recent joint venture that you have signed for garment unit in Denim. I wanted to understand what will be your share of JV -- and when this unit is likely to commission plus what kind of revenue potential, what capacity of Denim garment in terms of units would be there? Some color on this JV would be really helpful.

Okay. So Prerna, it is too premature to really have the final figure on this. Today is the first day we discussed this in Board, and we have got the principal approval from for this stake percentage sharing is still under discussion, but RSWM will be a major majority shareholder in this. So we will be able to work on this. So the vision for garmenting will be in phases. In the first phase, we may go up to 5 lakh pieces per month, which may further be added in 2 more phases in the coming period. So this is on -- in line with what we have been discussing in last 4, 5 investor meetings that we see potential in garmenting and downstream expansion from RSW, RSWM has been doing fiber. We have been doing yarn, we have been doing fabric and now logical expansion of this is going into garment.

Fabric capacity that you have internally or you would be looking forward to manage it as an independent unit or garmenting...

As a principle, we keep all our businesses independent. If the quality and the price is matching, we will sell internally. This is not a dedicated garmenting unit for our own capacity. We are open to buy from outside. And wherever we require some particular fabric from outside, we will buy. Wherever it is the same fabric, both internal and external will compete. And depending on the commercial viability, we will have the decision. So this is not a dedicated garmenting line. We'll be open for buying from outside as well.

Understood. Sir, would you be interested in doing net garmenting as your fabric capacities are also in place and the logical extension for fabric business is already the garmenting. So any color on that?

So at this point of time, it is for denim -- our exposure in garmenting will start with denim. In second or third phase, we may consider net also. But at this point of time, the first phase clearly is for Denim.

Understood. And I would also like to understand the PET food grade chip business that you are entering. you've already started allocating capital to it about INR 100 crores has been allocated already. Sorry, may be wrong in capital allocation.

I can update you on B2B project, which is making food grade granules, which will be used for creating the bottles. So we have started this project. This project is on ground in reality. So we have the civil construction on. We have placed orders for all critical machines and project is likely to be completed in fourth quarter this year for trials and commercial production may happen in quarter 1 of next financial year.

Okay. And so what is the kind of revenues or margins that you are seeking to generate largely because this is a new business, new category. The clients will also not be textile clients. So any tie-ups with any customers that you have done to the utilization level?

So this will have 50,000 metric ton per year capacity and we'll be expecting a revenue of INR 500 crores from the project which we are implementing as the first phase of B2B. And normally, this industry clock EBITDA of around 15%...

15% EBITDA is the general margin. Fantastic. And any tie-up you have done with any customers to speed up utilization?

We have not done any tie-up at this point of time. We are largely focused on creating world-class facility, which will have a state-of-the-art machinery and also one of the best products in terms of quality in India. So at this moment, more focus is that. Maybe in the due course, we go for some tie-up. At this moment, we have not done any tie-up...

[Operator Instructions] The next question is from Pushkar Jain from Milli Capital.

I would just like to ask you the growth guidance. [Technical Difficulty] Yeah, so I was asking you about the growth guidance for the year and the margins that we expect for the full year, EBITDA margins.

Pushkar, that is really forward-looking thing. I can only promise you that the performance of the first quarter is positive. We have improved almost 12% over the previous quarter in terms of profit and EBITDA is INR 94 crores, which again is around 8%. So if you look at business-wise, outlook remains positive. And as a prudent management, we are fully working in terms of operational excellence and for rightful deployment of all resources. So let's keep our fingers crossed. We expect all quarters to be similar or better than this.

The growth did not come from the export segment, right, in this quarter, the top line was impacted due to the export demand, right?

As you know geopolitical situation, so there is West Asia conflict going around, delayed transit period, long transit and then high freight. So a lot of uncertainties impacted all this growth for this period.