S.P. Apparels Limited (SPAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the S.P. Apparels Limited Q3 and 9 Months FY '24 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma'am.

Thank you, Viren. Good afternoon, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q3 and 9-month FY '24 Post Results Conference and business update call of S.P. Apparels Limited. Today, we have with us the senior management of the company, including Mr. P. Sundararajan, Chairman and Managing Director; Ms. S. Shantha, Joint Managing Director; Mr. S. Chenduran, Joint Managing Director; Mrs. S. Latha, Executive Director; Mr. P.V. Jeeva, Chief Executive Officer; and Mr. V. Balaji, Chief Financial Officer. I would now like to hand over the call to the management for opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I welcome you all to our post results conference call for the Q3 and 9 months ended FY '24 of the company. I hope all of you had a chance to look at our investor presentation that is uploaded on the company's website and stock exchange. I would like to talk about -- highlight about the latest acquisition before we go into detail, acquisition of Young Brand Apparel Private Limited as well as Bannari Amman Spinning Mills run impact the assets. I'm delighted to say that we are embarking on the strategic appreciation initiative geared towards enhancing our market presence and diversifying our offerings to the customers. As part of this initiative, we are planning to acquire 51.33% stake from Bannari Amman Spinning Mills Limited and a 49% stake from the joint venture parents from U.S. -- joint venture partners from U.S. and The Mexico in Young brand. The acquisition of 100% of Young Brands will be at the cost of INR 165 crores. Also, we are acquiring the garment unit of Bannari Amman allocated at Palladam, along with its movable and immovable assets and the leasehold rights of the land and its customers and employees. Deal also includes a leasehold of 6.43 acres of land inclusive of its existing building located in SIPCOT, Perundurai, Tamil Nadu for a total cost of INR 58 crores. Young brand Apparel Private Limited renowned in the intimate wear manufacturing sector has an impeccable presence in critical global markets and remarkable manufacturing growth. The company is making impressive strides in expanding its presence in markets with U.S., Europe and the U.K. We view this acquisition as a strategic effect aligning with our vision to broaden our reach into various textile categories, boost to our export basket and build a more diverse business model. It takes established customer base and product line, Young Brand Apparel Private Limited will enhance our cross-sell synergy, especially as we focus on deepening our footprint in the U.S. market. This application will not only solidify our export spread, but will also lay a robust foundation for sustainable and resilient business growth. We are eager to welcome Young Brand Apparel Private Limited as we embark on this exciting new chapter together. We will fund these acquisitions through a balanced mix of internal accruals and borrowed capital. Now let me talk about the various segments of the business. The garment division, in the recent quarter, we faced a few unexpected weather-related disruptions such as cyclone in Chennai and Tuticorin port areas. These disruptions had an impact on our garment shipments and uncertain shipments were delayed. This also includes the Red Sea issue also. We also had some damages to our stock, but luckily, the damage is minor and will be covered by insurance. This quarter, there was a decrease in unit realization of garments, which is due to the yarn prices coming down. Hence, this lower yarn price affected our segment's overall revenues. However, our strategy to diversify our product range by manufacturing ladies and men's wear and expanding into the intimate wear segment, which has a better unit price will increase our realization in the future. As it currently stands, our order book whole orders worth INR 382 crores. In Q3 FY '24, our quarterly revenue reached INR 225.28 crores as compared to INR 226.65 crores recorded in Q3 FY '23 with exports of 14.3 million pieces during this quarter. Our Garment segment reported an adjusted EBITDA of INR 38.71 crores in the same quarter with EBITDA margin amounting to 17.2%. We are glad to report an increase in utilization levels escalating from 74% in Q3 FY '23 to 78% in Q3 FY '24. Furthermore, we are currently preparing to construct the new factory in Sivakasi that is anticipated to be operational by August 2024. We would like to reaffirm our guidance of adjusted EBITDA margin of 18% for FY '24. However, our revenue may be flat year-on-year in spite of the reduction in unit realization, which we have discussed earlier. With regard to the spinning division, during Q3 FY '24, we have seen a rebound in our spinning segment compared to the same period last year. The markets have largely stabilized due to a drop in cotton prices, enabling us to achieve breakeven this segment -- in this segment. We are optimistic that this improved performance and trend towards stability will continue in the future quarters. With regard to our SPUK division, it has been on a positive path to recovery. I am pleased to share that we have onboarded a new customer during Q3 FY '24. Also in line with our new strategy, we plan to direct a few orders from the SPUK division, the subsidiary in Sri Lanka for manufacturing. For this quarter, SPUK's revenue amounted to GBP 1.32 million compared to GBP 1.12 million during the same period last year. SPUK EBITDA stood at 3.9% for the current quarter. Looking ahead, we are confident in our potential to secure new more -- few more significant customers for this division by March 2024. We, therefore, forecast a strong performance from this division in the coming period and beyond. Regarding retail division, during Q3 FY '24, S.P. Retail Ventures recorded revenues amounting to INR 14.9 crores when the EBITDA reported a loss of INR 2.9 crores for this quarter. The profitability of the Crocodile brand remained consistent, however, the introduction of the new brands and the related fixed overhead costs have impacted our profit margins. At present, our retail division is experiencing a phase of consolidation particularly as we work towards stabilizing new licenses and brands. With regard to the industry outlook, throughout 2024, we successfully navigated various economic and geopolitical challenges, leveraging emerging opportunities despite a slight dip in sales in the U.S. and European markets. The Indian government extension of RoDTEP and RoSCTL scheme fostered the positivity. Meanwhile, rising wages in Bangladesh have made India more attractive to retailers. Coupled with it predicted demand increases, increase in spring and summer wear the U.S. and the European market and sourcing transitions away from China. We look forward to various emerging opportunities in the Indian apparel sector. As we continue to evolve, we have expanded our garment export segment beyond kids apparel to include men's, women and now intimate apparel. This expanded portfolio, along with our recent acquisition, will facilitate further growth opportunities. In addition, our newly acquired garment unit and additional land bank provide us with ample space for future expansion. Bolstered by government policies that support our endeavors combined with the promising recovery in demand, we are optimistic about the future and are excited to build upon this favorable condition. We anticipate a bright future as we strive forward in this journey. Thank you, and over to Mr. Balaji, our CFO.

Thank you, sir. Good afternoon, everybody. I'll just run you through the financials of S.P. Apparels Limited. On a stand-alone basis, total revenue for the quarter stood at INR 225 crores, which is very flat year-on-year. Total revenue stood at INR 684 crores for the period ended 9 months, which is flat year-on-year. EBITDA for the quarter stood at INR 39 crores, which is 18% growth year-on-year. EBITDA for the period 9 months is INR 127 crores and a growth of 10.5 percentage year-on-year. PAT stood at INR 22 crores for the quarter, which is a 37.5% growth year-on-year. PAT for the 9 months stood at INR 77 crores, which is 12.2% growth year-on-year. EPS for the quarter stood at INR 8.9 per share and EPS for 9 months stood at INR 30.7 per share on a stand-alone basis. On a consolidated basis, total revenue for the quarter stood at INR 253 crores, which is 1.9% less year-on-year. Total revenue for 9 months stood at INR 783 crores, which is 5.1 percentage less year-on-year. EBITDA for the quarter stood at INR 36 crores, which is 15.8% growth year-on-year. EBITDA for the period of 9 months stood at INR 116 crores, which is 3.9 percentage growth year-on-year. PAT for the quarter stood at INR 17 crores. PAT for 9 months stood at INR 61 crores. EPS stood at INR 7 for the quarter and INR 24.4 for 9 months ended on a consolidated basis. On division wise performance, revenue for the quarter stood at INR 223 crores versus INR 219 crores year-on-year. Revenue for 9 months of our garment division stood at INR 693 crores versus INR 704 crores year-on-year. EBITDA stood at INR 38 crores for the current quarter comparing year-on-year, it stood at INR 32 crores. EBITDA stood at 17.2 percentage for the current quarter versus 14.5% year-on-year. EBITDA for 9 months stood at INR 127 crores, which is 18.6 percentage comparing year-on-year, which is 15.8%. And performance of SPUK, revenue for the quarter stood at INR 14 crores versus INR 11 crores year-on-year. EBITDA for the quarter stood at 3.9 percentage positive comparing a flat EBITDA year-on-year. Retail, SP Retail ventures, revenue for the quarter stood at INR 15 crores versus INR 20 crores year-on-year. EBITDA stood at negative INR 3 crores for the current quarter. In terms of our debt position, long-term debt stood at INR 2.7 crores, working capital at INR 163 crores, total gross debt stood at INR 166 crores and net debt INR 131 crores on a stand-alone basis. Working capital, stock stood at INR 243 crores, receivable at INR 85 crores and payable at INR 70 crores. So net working capital INR 258 crores. Other data which is available in the presentation. Now we will get into the question-answer session.

[Operator Instructions] We have our first question from the line of Rehan from Equitree Capital.

I just wanted to understand, we had an order book of roughly INR 400-odd crores in the last -- for Q3. And we had a consol level revenue of about INR 257 crores. So just wanted to understand what is the execution challenges we are seeing to not be able to realize higher part of the order book?

See, the order book is something -- it is very wavery. It is not very steady. Sometimes the order book will be like delivery for 6 months or 12 months annual booking and sometimes only the fashion will be for 3 months or 3 months delivery or 4 months delivery. So it is always fluctuating. Generally, it will always range as of today with the considering the top line it will range from say INR 370 crores to INR 410 crores, something like that. So that is only a yardstick. So if you look at in the past, it used to be about INR 250 crores, INR 300 crores, then gradually improved to INR 320 crores, INR 350 crores as we grow bigger. So there is no real any logic behind the order book changes.

Okay. Understood. Second would be, I think I missed it when -- in your opening remarks regarding your spinning division. So currently, are you -- how is it contributing considering you're seeing raw materials stabilize significantly. So what kind of contribution is it giving right now? Is it at breakeven? Is it positive addition to the current numbers. Could you help me understand that?

Yes. So good thing is that the yarn price has come down and it is maintaining the same price, its neither going further down or it is not increasing. And the yarn price is also more or less the same. There is no big changes. So it's the kind of a fixed situation, which is like EBITDA, our EBITDA margins will be around about running -- around 8% to 10% is EBITDA margin, so which has been maintained now. But if you look at the last quarter, there was a big loss in the spinning division because of the mismatch of the yarn prices versus the cotton price, so which is a good sign and it might continue for quite some time.

Understood. My last question would be, with the current order book of about INR 380-odd crores with Sivakasi expected to come early on stream in this FY '25 and the Young Brands Apparel, what guidance can we gauge from you for FY '25 if you can share some light on the same, sir?

The guidance, we cannot give you see, but it's simple like the Sivakasi is going to be for FY '25, '26 only. So that's about roughly 400 machines. So you can easily plan about what we expect is about the '25 -- FY '26 will we see about INR 60 crores to INR 80 crores. That's the kind of number we are looking at. The machines are running up and running fully. And with regards to this Young Brands one, we have already mentioned in the press release. But currently Young Brands is doing an export of INR 330 crores. So we are going to take the possession shortly after the DD, everything is done. So definitely, we will be able to maintain the INR 330 crores. And with our own, we'll put additional efforts to see how we can increase it further.

Understood. Sir, in FY '25, what kind of capacity do we expect from Sivakasi in terms of utilization, 50% to 60% is fair to understand?

I think for '25, Sivakasi could be very low in terms of utilization because it'll get commercially operated maybe mid of October or December. So for FY '25, you may not find...

It will be better we take the numbers for FY '26.

The next question is from the line of Surya Narayan from Sunidhi Securities and Finance Limited.

Just to understand from the Young acquisition, at around INR 330 crores of revenue, what is the EBITDA margin you have seen there, the unit was cooperating?

Their EBITDA margin currently is around 11 percentage, somewhere between 10 to 11 percentage. And there is very good scope of improvement moving on the EBITDA margins.

Gradually.

Okay. So is there any chance to again expand the facility? Or do you want to just carry on the existing facility as it is.

So we have no plans of any expansions, maybe modernization will be happening, but definitely no expansion.

So this acquisition is it around INR 223 crores is for the press release. So how much you are going to incur over there to modernize, any ballpark figure you have in mind?

I think in terms of modernization, what will be the cost that needs to be studied and then only we can give you any number in terms of that.

Okay. So sorry, I think I was under the impression you're talking about the spinning mill. So there is no modernization at present required for Young Brands. We will continue with the INR 330 crores of business. Currently, the EBITDA is about 12% to 13% -- 10% to 11%. So they say that by the next quarter, they may be able to achieve a little more 2%, 3% more. So that's the thing. What's his last question.

Cost of...

Modernization is not there. We are not going to do any modernization now.

So how will you raise the EBITDA margin because this is basically an outsourcing arrangement from the brands.

Actually, their utilization level needs to be improved. So they are at 70% utilization. There is a possibility that the utilization level can be increased.

The installed capacity is 1,800 whereas they are running effectively at only 1,200 worth of orders.

So how many pieces of garments, we have -- the unit is generating per year.

We'll just let you know once the transaction is complete, we will let you know in terms of what is their production capabilities. And we will just let you know once the transaction is completed.

Okay. Can you just guide us on the kind of the leverage we will be doing for the acquisition?

On the book, you are asking?

Yes. At the moment, I understood your stand-alone debt level you have said earlier, but what is the additional debts that the company will be adding for the acquisition.

On the book, we have close to around INR 125 crores as investments, which will be leveraged for the buyout. And subsequently, anywhere between INR 70 crores of additional debt should be borrowed.

Okay. Okay. And sir, this Sivakasi is it -- you said at full capacity utilization in FY '26 or beyond may generate around INR 60 crores -- INR 60 crores to INR 80 crores of revenue?

Yes, yes. So 400 machines is the plan which we are doing for the first phase. So for 400 machines. we've suggested INR 80 crores.

If it is fully running.

Sir, the last question is that because the yarn prices are -- softening yarn prices has led to some sort of pass on to the end consumers. So that is why the ASR was a little bit muted. So now that the yarn prices are now seeing the consolidating for, again, for a up move. We don't know to what extent it will be rising. But surely looking at the cotton prices, it is stabilizing at this level. So if that is the case, then what is the guidance you can give for FY '25 realization growth?

For FY '25, we have already stated that for FY '24, we may be flat. And for FY '25, we look at anywhere between 10 to 15 percentage in terms of growth, both in terms of revenue and in terms of the number of pieces.

So what -- that is what I'm asking what is the volume growth and value growth you are -- you could be looking at?

Value growth, we are not -- we cannot confirm on the value growth, but volume growth could be anywhere between 10 to 15 percentage.

[Operator Instructions] The next question is from the line of Akshay Kothari from JHP Securities.

Sir, what is the reason for Young Brand's sale? Why were the existing group actually selling this unit?

That there is -- they have to -- I cannot comment on that. There must be some reasons. That's a very tricky question. We got the offer. So we simply found it more interesting. And that's why we have taken only the garment side, we have not taken the spinning side. We've not acquired the dying as well as the spinning.

Okay. And generally since they are like a job worker, so they will be having some long-term contracts with the brands, for example, Jockey because based on that only. So what is the tenure of that contract if they are expiring anytime soon?

That's all subject to due diligence now. It's all under due diligence. We really don't know yet.

Okay. Okay. So by when do we expect the transaction to get completed?

Maybe mid of April. 2 months from now.

Okay. And sir, just on that front only, you did mention about EBITDA margin of around 11% in Young Brands. What is the PAT margin currently they are doing?

PAT is somewhere around 5 percentage.

Okay. And sir, I think you did mention or not, what would be the mix of internal accrual versus debt for the acquisition?

Yes. So you're asking what is the composition? So what we are looking at funding the garment unit, the INR 58 crores, we are looking at taking a support from the bank and the buyout of shares of INR 165 crores will be funded through the internal accruals.

[Operator Instructions] The next question is from the line of Prerna Jhunjhunwala from Elara Securities Private Limited.

Congratulations sir on this acquisition. I just wanted to understand the customer profile of the acquired company and how synergies can help us elevate to a higher level.

Current customers, they are working with American Eagle.

They are working with the Jockey, American Eagle, and they have some U.S. importers as well. And they have a few more customers, which we are still not into it completely. So the customer base is quite impressive. There's no issue about it.

Okay. And what were the synergistic benefits that we can derive from this acquisition with our existing manufacturing or expansion to do that, what kind of synergies can we expect?

Sorry, you need to be clear of the question.

Yes. So I will asking what kind of synergistic benefits can we expect from this acquisition in terms of customer addition or geography addition or manufacturing capability synergies, what else can we...

It's like this, because this acquisition of Young Brand, this completely different product altogether. That's all the underwear, the lingerie and the sort of products, which is completely different. So it will cross sell. Our existing customers might be interested in buying those products as well. And their customers would be interested in buying kids brands or babies one as well. So they're going to be a real complementing each other kind of a situation. Real synergy will happen. This is with regard to the customers. And with the production side, I think it's already running one and there is -- yes, we will try to understand the better business model from that company and we will implement what best is working out here to that company. So a lot of things will happen.

Okay. And are you also taking over the running management when we take over the company or it will be replaced by our own professionals?

No. As their salaries -- there are professionals running the company. So there's not going to be any change in the management -- I mean, middle management team.

Okay. Okay. Understood.

They're doing extremely well. So we will just let this continue as is.

Okay.

So just to add a point on the synergies, like the geographical presence of Young Brand, which is much into U.K. So -- sorry, in U.S., it will give us more to work for S.P. Apparels in U.S. also. And also that is a place where you have 26 acres of land where there is some possibility of increasing the capacity there also is possible. So to add just 2 more points on geographic and expansion of factories.

And we can also leverage the network in Sri Lanka also with -- because Sri Lanka is known for intimate wears, if I'm not wrong currently.

You're aware of everything. You are aware of the industry very well. Sounds nice.

Okay. Yes. The next question is on the margins of the garment business. With spinning margins now at breakeven and maybe it may improve with cotton prices at lower level. Can we expect EBITDA margins of garment business to reach near 20% over the next 2, 3 quarters? Or are there any pressures with respect to demand in U.K. or our existing customers.

Prerna, I guess we are -- in the opening remarks, Mr. Sundar spoke about the EBITDA margin guidance of 18 percentage. So whatever beyond 18%. So I think we have done for the 9 months, we have done 18.6 percentage. We should be anywhere between 18% to 19% for the whole year. And we would stick to -- on the guidance between 18% to 20% margins in the future.

Yes, we would like to maintain that 18% to 20% because there are a lot of -- the industry is very dynamic. There are so many changes positively or negatively adversely. So it's a challenge. It's a challenge to maintain 18% to 20% because of the external influences. So I don't think there are chances of improving more than 20%. That can happen gradually over a period of time only.

Okay. Okay. Sir, last question on Red Sea impact since our exposure to Europe and U.K. is high. Is there any impact in terms of our customers asking for predeliveries -- preponement of deliveries because the number of days have increased? Or is there any advantages or disadvantages because of this event to you.

Actually, because of that, there are disadvantages for the customers. In some cases, because of late receipt of goods, they are taking the goods by air on their cost. So there is no impact for us, but they are taking air on their costs.

The next question is from the line of Resham Jain from DSP Asset Managers.

So I have a few questions. So the first one is on acquisition itself. So if we just break this acquisition into 2 parts. One is the Young Brands and the second one is the asset which you have taken over, what will be the revenue from ex Young Brand in terms of -- or it is just an asset.

Young Brand is an -- we are acquiring the share of their running business. So where -- I think they have done INR 330 crores last year. And this -- last 9 months, 3 quarters, INR 229 crores, they have done. So there is -- there is no big vertical. We are just getting those 300 odd business straight away as a part of the S.P. Apparels group. And once we take the possession, and we are very, very confident with support of our customers there, and they are also working on additional new customers. So probably we can easily increase in the next 12 months and easily another about 20-30 Crores. So that's what we look at it. And the EBITDA, we don't see any problem in improving EBITDA. That's what we are looking at. Like what we say 18% here, and we expect 15% to 18% there. That's what our target is to work with in Young brand. So over a period of time, we will try to maintain 18% in Young Brands also as in S.P. Apparels garment division. And with regard to the acquisition of these assets here I think this is very much in Tripur, out of Tripur, which has got about 550 sewing machines running. And because for want of orders, there has been a drop in the business, only 120, 130 machines are running and they have the hostel facilities everything. So we have already started working with them. And gradually, we will be able to take the complete possession before end of March. And with the employees, everyone will be taken by S.P. Apparels. It's not going to be a subsidy of S.P. Apparels. It's going to be one more factory of S.P. Apparels. That's the plan.

So this additional factory can give you what kind of top line, sir?

This additional one is -- after this acquisition we will bring about another about INR 100 crores, close to INR 100 crores, INR 80 crores to INR 100 crores.

So sir, is it fair to assume that this INR 223 crore total acquisition cost should lead to eventually over the next 2 years, close to INR 460-odd crores of revenue once you streamline everything, maybe 2 years, 2.5 years.

Yes.

And one should assume whatever, 15% to 18% margin in that range.

Yes.

15% range.

Yes. We will work towards 18%, but we can -- the currency is only 12%. And I think we will be able to improve it by 15% in the -- once we acquire in the first quarter itself, we should be able to touch 15% EBITDA. That's what we hope for the next year.

Okay. Understood. So that was my first question, sir. The second one is on the existing garmenting business. When I look back in terms of, let's say, the -- your kind of commentary in the previous quarters, there was some upbeat in terms of the overall business momentum. But it seems that the overall -- you are saying that FY '24 will be flat kind of growth versus, let's say, 15% growth in the year beginning. So -- and I understand that the overall business environment has also changed. But how do you see the situation for S.P. Apparels per se? And in terms of new order pipeline, new customers, how is that building up?

The market scenario -- with regards to S.P. Apparels, we see -- next year, we are confident we should be able to increase the business by about 10% -- 10% to 15%, that's for sure. And in addition to that, this Young brand will add on to this and this -- the new factory also will add on to this. And Sivakasi factory will not give any big support for the '25 FY. And the market scenario is that, yes, there is a tough competition for India from Sri Lanka and Bangladesh because of the duty benefits, definitely, people are -- customers are looking at Bangladesh and Sri Lanka. That is another thing. And of course, as we are really strong in the fashion products to the kids and babies, still, we will continue to get our business. But as we grow with our existing customers, we are looking at men's and ladies, fashions and even lingeries, undergarments and other things. So we are -- what we are planning for next financial year is: one is the lingeries and undergarments from the newly acquired factory for our existing customers as well as these Sri Lanka factories, which will come under S.P. Apparels only. The exporting will be by S.P. Apparels, although it is in Sri Lanka. It will be accounted -- hopefully, we are planning for that one. So that will also add on additional business. It's more than what we are currently getting through another department. So this is the current scenario for the next 1 year.

Okay, understood. So the other one is in terms of -- and I have been a little critical about this division, which is retail. And this year also, if I look at the first 3 quarters, we had almost close to INR 9 crore EBITDA loss maybe at PAT the loss would be even higher is what I presume. So -- and you have been quite positive over here. But in terms of trajectory, as an investor, are not able to understand how are you taking this business forward? Is that like for a revenue of INR 58 crores, loss of INR 10 crores, INR 12 crores seems to be quite high. So if you can just explain how are you thinking of -- what are you thinking about this business going forward? Because it is pulling down the overall profitability of the company.

I think Chenduran, can you answer the question.

Yes. So yes, to your question on the retail, the trajectory, how it's going compared to even last year, it's been quite difficult with the, again, market situation and all that. But as we said or we've been saying that Crocodile has done an EBITDA positive. So it's performed well. Even to be fair for Q3 the other brand Angel & Rocket has become profitable on a gross margin level. We used to make losses on gross margin because of smaller volumes. Now that has increased. The biggest letdown has been on the other brands where the contract comes to an end by the end of this December '24. And that is a minimum guarantee royalty agreement with them which we are negotiating. So we are in a process where if we have to exit, we have to exit by the end of this year, which means selling the stock, liquidating stock and clearing and all that. So that has been going on for the first 3 quarters because we decided this 3 quarters back. So this impact from the Head brand is going to affect us for Q4, maybe Q1 next financial year also. But by the Q2 next financial year, we'll be out of this Head minimum guarantee and all that. So if that turns out positive in terms of conversation, things will improve immediately. And if doesn't in 2 more quarters, there will be impact from this. And I remember during a concall from -- in the first quarter of this financial year, we said that we look at it retail as a whole for 8 more quarters and I think we are 3 quarters down the way, we are making corrections, making sure that things don't go worse than this, but in 2 more quarters, we'll be able to see the results. If we don't, then we know what to be doing with the business in, say, four more quarters. We are definitely monitoring it closely and addressing as much as we can to limit the damage that it can do to the parent company.

Okay. The last one is on cash flows. So as you mentioned, you have a net debt of INR 131 crores. Is that correct?

Correct, correct.

And you will have another INR 233 crores to be paid. And then you mentioned INR 70 crores of incremental borrowing, I actually didn't able to reconcile all these 3 numbers because if your net debt is INR 131 crores, and if you have INR 233 crores of incremental acquisition to be -- yes.

We have INR 125 crores of investment capacity, which has not been part of the net debt. So if I reduce that INR 125 crores, my net debt will be around INR 8 crores to INR 9 crores only.

Okay. Then it is correct.

The next question is from the line of Rehan from Equitree Capital.

So I just wanted to understand how -- like how much of a hit have we taken because of the Red Sea issue. I think you mentioned the same in your opening remarks, so are we seeing some backlog, which will be complex, which will be realized in Q4? Or can you help me understand the impact of the same.

So in terms of sales, we could have somewhere around INR 6 crores to INR 7 crores worth of shipments that were kept on hold during the December end. So that would be into the sales for Q4.

Understood. So nothing is severe as such.

Sorry?

Nothing severe as such.

Nothing severe, nothing severe.

[Operator Instructions] The next question is from the line of Surya Narayan from Sunidhi Securities and Finance Limited.

Sir, just one view on your side. Currently, what we have seen is that Page industry itself is generating EBITDA of around 18% to 20% on the longer side. So when we are buying from the Young Brands, the similar kind of EBITDA margin. So how far is it viable for -- I mean, at what level do you see the EBITDA margin viable at our end?

Sorry, your question...

Can you come again, please.

Yes. yes. Okay. So what I'm asking is that Page industry, if we see the -- their long term -- I mean, the Jockey is a franchise. I mean the Page industry is a franchise of Jockey so then -- the Page industry is generating EBITDA of, if you see the long-term EBITDA of around 18% to 20%, and higher than 22% maybe? So -- but in the recent time, it is around 18% to 20%. And when you guided that you are eyeing for Young Brands around 18% margin. So is it viable to sustain that? Or we will be able to settle somewhere around 12%, 13%.

See, Young Brands...

So Young Brands, we have given a guidance of 15 percentage going forward. Now currently, we are making only 11 percentage. And in terms -- you are comparing the EBITDA margin with Page. So Page is we are B2B only, they are into B2C. So they have -- they are backward integrated in terms of their overall setup. So I think you cannot compare Page EBITDA margins and S.P. Apparels EBITDA margin, but definitely we are moving towards increasing our margins from 18 percentage to 20 percentage. That is a part of our process, which we have been doing it regularly.

No I'm not comparing you with the Page industry. I'm comparing Young Brands with Page Industries.

Young Brand is also a manufacturing company. It is also like S.P. Apparels.

Correct. So that is what I'm saying. When Page itself is generating around 18% to 20%. So where we see the -- our margin in Young Brands to settle around -- currently its around 11%, 12%. So is it possible to raise it to 15% beyond?

No, See, we can -- we are working towards 15% at the moment. In the long term, yes, 18% is possible by combining that, that's the advantage S.P. Apparels acquiring Young Brands. There is -- there are more possibilities of we are coming and putting Young Brands also in this 18% to 20% slot in the long run. Completely different fabrics, different products. Everything is completely different ball game of manufacturing and exporting.

The next question is from the line of Anand from Avendus Spark.

I just wanted to check on you were mentioning about the SPUK and S.P. Sri Lanka facility. What is the kind of capacity that we are setting up in Sri Lanka? And what are the products that we are looking to cater to any large clients, we have got something on that front, sir?

Because there are certain customers of SPUK, they are only insisting on the duty-free countries preferably, then they want to grow the business. So naturally, we offered them Sri Lanka production, so which is fine. Where also some of the customers have seen the factories and they are fully convinced. And so the capacity is something we are planning for the next to 1 year time to up to 1,000 machines. Over a period of 12 months, we are planning production of 1,000 machines out of Sri Lanka for SPUK.

Sir, this is more of like the same customer, what we are doing from India shifting to Sri Lanka or is it a new business that we're getting there.

SPUK, it's the same customer. The SPUK is buying from India, buying from Sri Lanka, sometimes buying from Bangladesh also because they are based at London. So the same customers, and we are adding one more customers, so they are also interested in Sri Lanka also. Additional capability -- for example, additional benefit because SPUK is not manufactured. It's only a trading business. So for the SPUK, the trading, they can source from many countries, wherever the price advantage is there and different products, then they can make everything. They are not restricted to only product, knitted product or the babies or something like that.

The next question is from the line of from Aabhash Poddar from Aionios Alpha Investment Management.

So actually, I just wanted to check on Young Brands. You said for 9 months, you have done around INR 230 crores of revenue. And for 9 months '24. And F '23, you have done INR 330 crores. So is it there's some seasonality where Q4 you will be similar to that number? Or will for F '24 you will be at a lower level. And from there on, we are saying F '25 as per the press release, you'll be closer to INR 370 crores, INR 400-odd crores. So just wanted to understand the revenue growth for Young Brands. That is point number one. And point number 2 is wanted to understand when you say you should be able to take margins from 10%, 11% to 13% to 14% or 13% to 15% in quickly, is it led more by your sourcing and your capabilities, which is why gross margin is something which is easily expanded. Are there any low-hanging fruits, if you could just talk about 1 or 2 factors, which is giving you this confidence on the margin front?

See, the first question is that in the last 3 quarters, we cannot comment on anything because the previous management one, so we don't know. I mean even Q4, we really don't know what's going to be the numbers because we are going to take the possession somewhere in the month of April. But what -- I had a discussion with the previous management is that they are expecting to close around, say, INR 320 crores to INR 330 crores, that is something. And we -- by looking at their customer base and the capability, we strongly believe because currently, we are doing only 1,200 machines. So once the order inflow is coming, see there are definitely the -- there is a synergy that the customers know S.P. Apparels, the minute they got the news from the media some of the customers have approached us and good that S.P. Apparels is acquiring it. So we are ready to place more orders for the such kind of products, underwear products kind of things with us. So with the existing our customer support and also they are also pushing with a lot of other customers US importers and we should be able to increase the running capacity utilization from 1,200 to say, 1,500 machines in the next 12 months' time. So that will fetch another about, say about another INR 50 crores, INR 60 crores of additional business. So we are aiming for upto INR 400 crores in the next financial, but I'm not sure unless I really jump in it, we are not able to comment anything. And the second question is margin in the Young Brands. Young Brand margins, once utilization goes up and these products are something because of worth of orders, sometimes the existing management is forced under pressure to take the orders even for loss to keep the factory running. So with our support, with our customers support once the order inflow is coming, so automatically, there will be an improvement in the margin to 15%, up to 15%.

Understood. Then just one last bit for the overall business growth for S.P. Apparels, the organic business. So you are working on new factory at Sivakasi, you are working from SPUK and Sri Lanka belt. And you obviously when we hear global commentary as well, where we understand all the export demand and all those challenges have gone away. So in that backdrop, I just wanted to understand is 10% to 15% a conservative number? You think you can do better. Just wanted to understand the growth in perspective. Not including Young Brand at a part of this. I'm just saying S.P. Apparels as a total as an entity. Shouldn't we grow faster with the number of efforts that we are making.

The 10%, 15% growth, we are talking about is only that is related to S.P. Apparel's garmenting existing setup, excluding Young Brands and excluding Sivakasi. So that is going to be a consolidated number can be another about, say, INR 400 crores in the next financial year. In addition to 10% to 15% growth of our existing.

As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Thank you, and over to you, sir.

Thank you for showing interest in this con call and trying to having interest to know more about the information, and there are more questions focused on the acquisition part. And we are very confident this move -- acquisition move is a very right move for us, and that's our strength also. And definitely, their customers are really interesting to us and with additional customers -- additional capacities and additional customers, it makes a lot of sense to the acquisition of this company. And also, we are very, very optimistic about the Sri Lanka operations for the SPUK as well as we are planning for Sri Lanka operation for our S.P. Apparels business also. So we are confident for the coming financial year to have a very, very interesting number. And thank you for showing interest in our business, and thanks for participating. Good luck.

Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.