S.P. Apparels Limited ($SPAL)

Ladies and gentlemen, good day, and welcome to the S.P. Apparels Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities. Thank you, and over to you, ma'am.

Thank you, Riya. Good afternoon, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q4 and Full Year FY '26 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. C. Sundararajan, Chairman and Managing Director; Mrs. S. Latha, Executive Director; Mrs. S. Shantha, Joint Managing Director; Mr. S. Sundararajan, Joint Managing Director; Mrs. 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. This is P. Sundararajan, Chairman and Managing Director of S.P. Apparels Limited. Thank you for joining SPAL's Investors call. FY '26 was a year where the global apparel market remained dynamic. While customers continued to prioritize compliance and reliable suppliers and diversity sourcing, the year also saw short-term volatility from trade and geopolitical developments. Overall, we stayed focused on execution, customer relationships and building long-term capability. Before I move to division updates, I want to provide the right context for Q4. Sequentially, export volumes in the Garment division were softer in Q4. This was driven by 2 factors. The first, the [indiscernible] related disruption that began in Q2 and impacted booking and shipment schedules across subsequent quarters. The second short of disruption [indiscernible] in Strait of Hormuz, which affected cargo movement and timing. Importantly, realizations remained broadly intact, and the quarter was largely volume led rather than pricing led. It is also important to highlight that the sequential impact in Q4 was more visible in SPAL stand-alone garment exports than Young Brand. Yen brand was impacted during the year because it is more U.S. customer heavy, but the stand-alone export garment saw a sharper sequential decline in Q4 due to the combined effect of shipment timing and the above macro and tariff-related factors. Let me now talk about our Garment division, which remains the core of the business. For FY '26, the Garment division, including Young Brand Apparel delivered operational revenue of INR 1,421 crores and EBITDA of INR 230 crores, maintaining a healthy margin profile. Our integrated operations, including spinning and dying continue to support quality consistency, delivery, reliability and supply chain control. This integrated capability remains particularly important in infant and kids wear, where the compliance and product safety standards are stringent. However, as explained to you during the last call, our Garment division during Q4 faced a little pressure in the order booking due to U.S. tariff volatility. Our capacity was brought down due to this. Now the customers from the U.S. are coming back and are placing orders. We are expecting the pace to improve from August '26. In India, Garment division, we continue to broaden the customer base. We have added a couple of new customers to our portfolio. We are strengthening the Sri Lanka operations, which will drive growth in coming years. Sri Lanka is a key strategic initiative for us. We commenced our first factory operations around mid-April '26 and are progressing on scaling to 4 factories within 12 months. This expansion strengthens our manufacturing footprint, improve geographic diversification and reduce concentration risk. We will keep our external communication at a high level, and our focus remains on stable ramp-up, compliance and customer onboarding. Young Brand remains strategically important for the group, strengthening our presence in [indiscernible] exports with marquee global customers. In FY '26, Young Brand reported adjusted operational revenue of INR 321.26 crores and adjusted EBITDA of INR 49.23 crores. As mentioned earlier, Young Brand was impacted during the year because it is 100% U.S. customer base. The U.S. tariff situation in Q2 temporarily disrupted the booking, and we provided calibrated commercial support to maintain continuity, which had a spillover effect into later quarters. The good news is that the situation has now stabilized and demand has revised. Some policy-related elements remain outside management control, and we will continue to communicate conservatively on those. Additionally, I would also like to highlight that the [indiscernible] expansion is underway and we'll continue to bring incremental growth to the division. Our SPUK business has improved meaningfully, and I'm pleased to share that SPUK reported positive EBITDA during FY '26, reflecting progress in operating leverage as scale improves. FY '26 revenue for SPUK was GBP 7.5 million. On the retail side, our focus remains on improving discipline and moving towards sustainable profitability. A key milestone is that the retail division reported positive EBITDA consequently from Q2 to Q4 '26, reflecting better execution and control. For FY '26, retail revenue was INR 71.54 crores, and the losses have narrowed materially versus prior year. We will keep external commentary limited unless required while continuing to focus internally on improving performance. Our current order book for all the divisions is SPAL Garmenting division is INR 380 crores, Young Brand Apparel is INR 142 crores, SPUK is GBP 6.1 million, all putting together approximately INR 600 crores in the order book currently. As we enter FY '27, the key message is that the temporary disruption phase is behind us, and we are seeing normalization in customer engagement. We are increasing focus on the U.S. market with ongoing discussion with 3 to 4 large customers. The rationale is clear, higher order sizes, better realizations and strategic importance for scale. Over time, we aim to improve, to move towards a more balanced geographic mix. On profitability, raw material costs have moved up during the year. We are addressing this through a combination of selective pass-through to customers where feasible ongoing commercial discussions were required and internal efficiency initiatives. Despite these cost pressures, our overall margin stand remain unchanged, and we continue to guide for EBITDA margin of around 15%, supported by pricing discipline and tight cost management. Furthermore, there is a potential contingent upside relating to the commercial support extended earlier to customers during the tariff disruption. We believe there is a strong probability that a portion of these discount credits will be reimbursed by customers once the relevant refunds are received. However, the timing is not within our control, and we will remain conservative and recognize any benefit only when it materializes. Foreign exchange remains a sensitivity. We will continue to manage this prudently and keep our messaging directional rather than tied to a precise currency assumptions. At the same time, where we benefit from favorable currency movements, it can partially offset higher input costs, which supports our efforts to keep margins broadly intact. On ESG front, we continue to invest in renewable energy. Our solar capacity expansion is progressing, and we are committed to reaching around 4.5 megawatts by March '27. This supports lower energy cost volatility and strengthen our ESG positioning. Looking ahead, we remain confident in our growth trajectory. We continue to work towards our INR 2,000 crore top line ambition. As the business normalizes and operating leverage improves, we also expect the core garment export business to sustain an adjusted EBITDA margin in the range of 17% to 18% while our overall profitability plans remain disciplined and consistent with our broader margin guidance. With that, I will now request our CFO, Mr. Balaji, to take you through the detailed financial highlights for Q4 FY '26 and full year FY '26. Thank you.

Thank you, sir. Good afternoon, everybody. I'll just run you through the financial performance of the company of FY '26. On a consolidated basis, for Q4 FY '26, revenue from operations stood at INR 364 crores compared to INR 399 crores year-on-year. EBITDA for the quarter stood at INR 44 crores as against INR 54 crores EBITDA year-on-year. EBITDA margin stood at 12.2% compared to 13.6% year-on-year. Profit after tax for the current quarter stood at INR 18.59 crores as against INR 13 crores year-on-year. On a full year basis, consolidated revenue from operations increased to INR 1,578 crores as against a year-on-year number of INR 1,395 crores, reflecting a growth of 13.2% year-on-year. EBITDA for FY '26 grew to INR 217 crores from INR 187 crores in FY '25, a growth of 16% with EBITDA margins of 13.8% compared to 13.5% last year. Profit after tax for FY '26 stood at INR 100.95 crores as against INR 95 crores year-on-year. On a stand-alone basis, revenue from operations for current quarter stood at INR 251 crores as compared to INR 277 crores year-on-year. Adjusted revenue from -- for the quarter stood at INR 249 crores compared to INR 279 crores of adjusted revenue year-on-year. Adjusted EBITDA for Q4 stood at INR 42.94 crores as against INR 45.35 crores year-on-year. And adjusted EBITDA margins improved to 17.2% from 16.2% year-on-year. Profit after tax for Q4 stood at INR 21.36 crores compared to INR 24.74 crores Q4 FY '25. For the full year, on a stand-alone basis, revenue from operations stood at INR 1,113 crores as compared to INR 981 crores year-on-year. Adjusted operational revenue for FY '26 stood at INR 1,100 crores as against INR [ 984 ] crores year-on-year. Adjusted EBITDA for FY '26 increased to INR [ 118 ] crores from INR 164 crores year-on-year. And adjusted EBITDA margin was 16.5% compared to 16.7% year-on-year. Profit after tax for FY '26 was INR 87.5 crores as against INR 83.53 crores year-on-year. Segment-wise performance. Moving on segmental performance of Garment division, which includes the Young Brand Apparel, reported an operational revenue of INR 316 crores versus INR 361 crores year-on-year. On a full year basis, Garmental operations revenue stood at INR 1,421 crores as against INR 1,308 crores year-on-year. Garment EBITDA stood at INR 51 crores for the current quarter compared to INR 58 crores year-on-year. And for the full year basis, Garment EBITDA stood at INR 230 crores against INR 212 crores year-on-year. For Young Brand Apparel, reported an adjusted operational revenue of INR 66 crores for the current quarter as against INR 81 crores year-on-year. Adjusted EBITDA for the quarter stood at INR 8.47 crores as against INR 12.85 crores year-on-year. For FY '26, Young Brand adjusted operational revenue stood at INR 321 crores as against an adjusted EBITDA of INR 49 crores for the current financial year. On SPUK, operational revenue stood at INR 35 crores for the current quarter compared to INR 18.34 crores year-on-year. For the full year FY '26, SPUK revenue stood at INR 87 crores, and I'm pleased to highlight that SPUK reported a positive EBITDA of INR 1.1 crores for FY '26. Retail reported operational revenue of INR 17.77 crores for the current quarter versus INR 23 crores year-on-year. For FY '26, retail revenue was INR 71.5 crores compared to INR 79 crores year-on-year. And our retail EBITDA losses reduced to INR 6 million in FY '26 compared to INR 6.8 crores year-on-year. On the balance sheet numbers, with respect to the debt position, on a stand-alone basis, long-term debt stood at INR 53 crores and working capital stood at INR 207 crores, gross debt INR 271 crores and net debt net of cash and cash equivalents stands at INR 217 crores. On a consolidated basis, long-term debt stands at INR 63 crores and working capital loans stands at INR 334 crores. Gross debt at INR 397 crores and net debt, including net of cash and cash equivalents stands at INR 338 crores. We also have liquid investment of INR 60 crores in various instruments. All the other information is available in the presentation, and it's time for us to take questions. Thank you.

[Operator Instructions] First question is from the line of Rehan from Coheron Wealth.

Am I audible?

Yes.

So I just had a couple of questions on the quarterly performance. The ForEx structure right now is -- I think we had some part of it and we don't have some part of it. But from a currency standpoint, are we seeing any inflow of volume for us because rupee depreciation should play a role for us in volumes?

You are talking about volumes of in pieces?

Yes, like depreciation of rupee now is at about INR 95, INR 96 from -- which was INR 90 earlier. So your customers would find your product cheaper at the moment. So is there any more volume that is being asked for or purchase orders? How are they lining up with this rupee depreciation?

Yes, we -- yes, this global competition against Bangladesh and other countries. So this is helping us being duty -- we are coming under the duty paid -- we are not in the duty-free as against Bangladesh and Sri Lanka. So this currency depreciation of rupee is helping us to compete with this, not only for this and also the raw material prices have gone up here. That is all over the world. So that is not only for us. So it is supporting us now. Definitely, it's helpful to us. And that is the reason we are able to get more business.

The FTA, any idea when it will kick in further because I think there was a small delay from the U.K. house. So any idea on the same?

There is a talk going on for the steel. There is a negotiation for the steel importing. So once that is over, any number is expected in the next 2, 3 months' time.

Okay. That's great to hear. Coming to...

We will also be through during the same time, duty free.

Okay. Okay. And there's been -- because of this global uncertainty, there's been a delay in ramp-up, I think, with Sivakasi in Sri Lanka and the Salem expansion. So considering now that the headwinds are largely behind us, as the management also said, how are we looking at Sri Lanka ramping up meaningfully in FY '27, like Q1, Q2 onwards? Are we expecting something? Because as of now, I think we are closer to 1,000 machines that have been installed, and I think 1 or 2 factories are also up. But there's no business that we can see on a top line level at the moment. So if you can throw some light on Sri Lanka specifically because that's our largest growth driver.

Yes. See this FY '26, we have been able to do about INR 40 crores -- INR 45 crores of FOB business, export top line within this 1 year time. And we are aiming for INR 200 crores to INR 250 crores during the next financial year out of Sri Lanka.

Okay. I thought that is supposed to be INR 400 crores, right, at 2,000 machines?

Yes. That is the capacity what we have acquired is this can generate INR 400 crores, but we are aiming at INR 200 crores to INR 250 crores. And probably in FY '28, we will be able to do INR 400 crores to INR 450 crores.

And Salem will add -- now Salem expansion is back. So that would add about another INR 60 crores because it's 300 machines, right?

It's around INR 50 crores to INR 60 crores. We have just slowed down the project because of the U.S. tariff uncertainty. Now we have geared up the project, and that will definitely bring another about INR 50 crores, but not immediately, maybe FY '28.

But wouldn't that contribute now because we've already -- that was supposed to be done in Q2 and now we're already at Q1 of FY '27?

So we have put that project on hold because of the uncertainty with the U.S. tariff issue. So we were wondering whether we should go ahead with another project or not. So now that since the tariff issue has been very clear, so we have resumed the project activities. So the order book, we have to recruit and start the production, commence the production, and it will take another 6 months to reach a level to make the commercial production. So -- but safely, we are betting on FY '28 for Salem [indiscernible].

And Sivakasi, how is Sivakasi ramping up?

Sivakasi also because of the U.S. tariff, the one is with regard to Young Brand Apparel, so Sivakasi for SPAL. For SPAL also because of the tariff issues, we put that factory on hold. In fact, we closed the factory for a while. So now that since everything has been on track, we have already started the production now. Probably in the next 3 months' time, it will be fully up and running up to 200 machines to 300 machines.

So that would also add about INR 40 crores, INR 50 crores of top line in FY '27?

Exactly. See, that is why we are giving you the -- we are aiming for INR 2,000 crores next year is considering all these things.

But you are holding this guidance of INR 2,000 crores with 15% EBITDA?

Yes. With respect to the guidance, we are looking at INR 2,000 crores next year on a consolidated basis with a 14% to 15% EBITDA.

That is including SPAL India, SPAL Sri Lanka and then Young Brand Apparel, all put together.

No. But right now, you're at INR 1,600-odd crores -- like closer to INR 1,600 crores, INR 200-odd crores will come from Sri Lanka, that's INR 1,800 crores. Where will the balance INR 200 crores come from? Another INR 40 crores from [indiscernible], that's INR 1,840 crores. Where is the balance INR 150 crores going to come from?

Sri Lanka is [indiscernible].

So if you look at our utilization for the current quarter, our utilization is only 64%. There is a good headroom for us to improve our utilization level in the current Indian factories. So 100% the sales will come from all the existing factories and Sri Lanka factory also.

See currently, we are in India, 4,000 machines in SPAL India, but it should have been at least 5,000 machines, which we are -- which will happen in over a period of 3 months to 4 months' time.

Okay. So you're saying basically second half -- so basically, your second half will show better result because as of now, your -- this consolidated figure is adding about INR 1,850 crores?

INR 1,850 crores?

[Indiscernible], INR 1,600 crores, you've done almost INR 1,600 crores this year, INR 200 crores for Sri Lanka is on the lower end and INR 50 crores from Sivakasi. So that's INR 1,850 crores, right?

All will be happening in the second half because Q1, Q2 still we have the after effect of tariff issue and recovering the machine capacity, running capacity, all these things will happen in Q1 and Q2, then take off will be Q3.

Okay. But I just want to understand from a business perspective...

Sorry to interrupt. Can you please rejoin...

It's just a follow-up on the same, if you can allow me?

Sure.

Q2 was when the tariffs came in, and we saw better numbers in Q3 despite a 50% tariff. So Q4, now that tariffs are -- mid of Q4 was knocked off in mid-Feb. And now we are already in early Q -- almost ending Q1 rather, sorry. And why is that effect still being seen according to you? Like what is the problem that we are seeing from...

Execution will be -- when we book an order, the execution will be 3 to 4 months later. That is how we got this Q2 and Q3 were better. So now after the tariff thing, only the order started coming now for which the shipments will happen end of Q2 or Q3.

Okay. So it's a 3, 4 months, basically a 90-day cycle?

Yes.

Next question is from the line of Murtuza from Pinpoint Capital.

Am I audible?

Yes, yes, very much.

I just wanted to start with regarding SPUK, it's just turned EBITDA positive this year. So what sort of revenue run rate are we entering with in FY '27? What sort of -- what are we exactly seeing as of now? And I just want to understand what sort of -- how confident are we in the 2 anchor customers who were earlier mentioned like as a potential INR 80 crores contributors? Just wanted to understand that better.

With respect to SPUK, we have already had GBP 6 million order book as of today. And we are looking at another GBP 6 million to GBP 8 million in revenue for the whole year. So put together, we should be anywhere between GBP 12 million to GBP 14 million on the numbers for SPUK for the whole year, FY '27. What was your second question?

Customers of SPUK. we are going very strong with those 2 customers. We expect at least about GBP 8 million each customer, so which comes to right away GBP 16 million for the next year, for FY '27. And also, we are adding another 2, 3 more customers. So I think SPUK is now taking off.

Okay. That's great, sir. And sir, secondly, regarding the retail EBITDA, it's onto almost breakeven in 1 year. So just wanted to understand a bit better whether this improvement is structural from the better rationalization and cost discipline? Or is there a revenue recovery element? And like when can we expect it to consistently become PAT positive?

On SP retail, retail there are a lot of strategies that needs to be done, which we have worked and is working out well in our favor. However, there is an elevated interest cost on SPUK retail venture, which needs to be supported through equity. So whenever we raise equity in retail, I think it will be even PAT positive. So the depreciation is not an issue, but it is only the finance cost, which is pulling down the bottom line.

Okay, sir. And so are we planning to deleverage a little or...

Yes. We have been telling this quite regularly. So we are trying to raise equity there in retail ventures. So maybe once we are all quarters of the year is positive, then we will reach out for raising equity with -- even we are ready today. If somebody is interested, we would like to open up, no issue.

Right, sir. Okay. And sir, regarding the cotton price volatility, with us spinning and 9 plants backward integrated, I just want to understand how does the cotton cost environment compared to the year ago? And is there any pricing lag between the input cost and the export realizations that is sort of creating a margin pressure on us?

Yes. This is actually -- yes, now the cotton price has gone up and now it is stabilizing and slightly it is coming down now. It went up to INR 75,000. Now it is about INR 70,000. So it is somewhere stabilizing in between and which is -- this price is workable for making a good margin of EBITDA, PAT as far as spinning is concerned. And because even the yarn prices have gone up by about -- say, about another 5% or so, so this will help us spinning to be sustainable -- profitably sustainable. That is one thing. And we are passing on this also to the customers because it's a global issue. So the customers are leveraging it. I mean they are accepting the price increase. Plus, as I told before, rupee depreciation is also supporting us.

Okay, sir. Okay, sir. And sir, lastly, I just wanted to understand, it's a bit future headed question, but with Bangladesh losing its EU LTC status by 2019 -- 2029, European buyers will have to diversify over the 3, 4 years. So are we seeing any early inquiry flow, especially because of this shift? Or is it a little too early?

Now even just 1 hour before we got a customer who never did in India, who is only doing in Bangladesh and Sri Lanka has come to us and he himself said that by 2029, this will be no longer duty-free in Bangladesh. So now they are getting ready for India. And on the other hand, they are expecting FPA to happen in the U.K. and EU at the same time very shortly. So the message is very clear from the customer's point of view that they are reducing, or if not reducing, they are not increasing the existing business out of Bangladesh, and they are coming to India. And of course, Sri Lanka is an extension of India. That is how we look at it. So it's a very good opportunity in the next 3 years and people -- customers have started moving the business to India.

This is great to hear, sir. opens a lot of opportunity for us.

Especially for India, great opportunity. Two things. Bangladesh is going to lose the duty-free status [indiscernible] I mean, India is going to take duty-free. So this is a double win situation.

Next question is from the line of Ms. Prerna Jhunjhunwala from Elara Securities.

Just wanted to understand the geographical diversification point that you mentioned in your opening remarks and addition of new clients. Could you throw some light over there on how we are looking forward to diversify geographic contributions? And who would be the new clients in the geographies that you're talking with and closing contract?

Currently, our exposure with U.S. is only 22%. And now because of the tariff issues, we had some issues and it has come down to 17% this quarter. And now because the tariff is coming up, and we are also adding a couple of customers from the Eurozone, which will give us some more comfort in terms of diversifying and having a balanced approach with U.K., U.S. and Europe. So we are looking at 35%, 35%, 30% with respect to -- 30% with U.S., 35% with Euro and 35% with -- so we are moving towards it, and we hope by FY '27, this target will be achieved.

Yes, the customer base will be well mitigated by end of 2027 FY.

Okay. And sir, how many customers do we have now between U.S., U.K. and Europe?

As a group, I think we have 12 customers. We have 12 customers, out of which American customers are about 4 customers, 4 or 5 including [indiscernible]. So about 5 to 6 customers and about 7, 8 customers of Europe and the U.K.

Understood, sir. Sir, next question is rupee depreciation. In the past, whenever rupee has depreciated, what kind of benefits we have seen coming to us as well as India? And how are you seeing this depreciation because relatively, we have outperformed against other countries. So some light here?

In terms of currency, see, whenever we get the orders, we are covering 80% and only 20% is kept open. So we don't have this -- we cannot look at currency depreciation as a point of getting more business. But in terms of coverage, we do cover immediately when we take orders. So there is no leverage for us to use the currency depreciation in our favor.

Okay. Understood. And sir, could you please help us in your current machine capacity? And what should we expect by FY '28?

FY '27, we are looking at 5,700 machines in India, 2,000 machines in Sri Lanka and 1,400 machines in [indiscernible]. So that's the range in which we are working at. FY '28, I think it will be -- we are not looking at expansion currently provided. We are utilizing the current capacities. We are sweating on the current assets what we have. So FY '28 will be decided once we have the current utilization level moving up.

Understood, sir. And sir, how is the inquiry for U.K. FTA? Can we see immediate benefits coming in if the FTA is signed in the next 2, 3 months? So any dialogues that you can share to see what kind of benefits we can accrue with FTA coming in?

See, the benefit will definitely be passed on to the customer because they will take the advantage because they -- currently, they are paying the duty, which they are no longer going to pay the duty. There is not a big change in the pricing. Only thing can happen is they will be giving more business to us versus Bangladesh. So we have to get ready with the enough sufficient capacity to accept that kind of volumes and which we are ready now. That's the only advantage we can have.

Okay. And because of this advantage, how do we see the revenue growth utilization and employee additions going forward, at least in the next 1 year?

So for the FY '27, we have enough capacity to fill in. So if the FTA comes, we will immediately get all our capacities filled. But probably from FY '28, we will be adding more capacities in India and Sri Lanka both. So we can -- we will be in a position to take any kind of volume from any customer, including American orders. So that is the plan. So we are expecting EU and the U.K. to be inflowing of more orders once the FTA is announced. And as such, Sri Lanka is already duty-free, so we are well positioned for the next year to accept all the orders with the flexibility between India and Sri Lanka, which is good for us.

Next question is from the line of Bhavika Jain from [indiscernible].

Sir, I want to understand as we are like integrated facility, so how the current spread situation, which is going on in the industry will advantage us because as we see the peers in the textile sector have benefited from the spread, and we are expecting that this benefit will continue going forward for 2 to 3 quarters. So do we expect the same? And the second question, I want to understand that like as we are expecting to increase our adult clothing segment, so want to understand that how the end market, as for my understanding, U.S. and Europe is the biggest market. So do we see any growth guidance given by those like geographies? Or like I want to understand from the industry point of view, what's the view of the end market currently and going forward?

Retailers' margin.

Retailers' margin, okay. So that is something they always -- there is an acute competition between the retailers. So probably they will not be benefited. They will also reduce the retail prices. That is not going to happen because they have to compare with their competitors. So this benefit will finally go to the consumers only.

No, no, sir. My question is that, first, talking about the margin side. I'm asking that currently, like we are doing 15%, like recently, we did quite a little less margin. So I'm just asking that seeing the current scenario, do we see improvement in our margin profile? And will it be sustainable?

There is a possibility because since they have enough room, this duty free of 10% benefit, probably we will be able to get 1% or 2% we can get as an extra margin on the prices. Could be possible.

Next question is from the line of Bhavin Chheda from Enam Holdings.

Good set of numbers in a challenging environment. Regarding the machine count, sir, you mentioned in FY '27 availability, India 5,700 machines, I suppose it was supposed to go to 6,000 machines in March '26 only. So have you postponed this 300 machine expansion?

Yes, yes, yes. See, we plan to increase 6,000 by end of March ' 26 in the first quarter, which now we are sticking to 5,700. [indiscernible] expansion of 440 machines, we are still slowing down because of the U.S. tariff volatility.

But U.S. tariff is now at 10%. So what is slowing down? Basically, I think I believe the tariffs are now equal for everyone?

I think you have missed a couple of questions before there was an information asked about why there is -- now that there is a tariff issue is being removed, why the sales is coming in the second half. So we said that there is a gap. So now only we have started recruiting people in Sivakasi. By end of March, we will definitely improve the utilization level, but we are not adding any machines until we are confident about the utilization going on.

There are 2 issues. One is U.S. customers only now after the tariff more clarity, now they are going to start the orders from the next season because already they diverted the business to Bangladesh and other countries because of this tariff issue with India 50% penalty, this one. So now we start placing the orders, which will come to us by end of June or something, and we will start the production somewhere in August or something like this. This is how it goes. So after effect is because of tariff issues, it was a big hit for us for at least for 2 quarters. So now only we are going to revise from Q3.

Okay. Despite this, sir, you are expecting INR 2,000 crores top line in FY '27. So second half will cover whatever you miss in first half?

Yes.

Okay. So INR 2,000 crores turnover from current capacity and as you are discussing with the U.S. plant is not a problem with 15% margin?

Yes.

Okay. And so in terms of capacity addition now by end of the year, once U.S. clients are back, you will be again adding that 300 machines towards the end of the year or next year?

Two things. One, 15% margin guidance is with respect to the garmenting, it's not on a consolidated basis. INR 2,000 crore revenue is on a consolidated basis and 15% margin is on the garmenting division. Point number two, see, adding missions of 300 machines is going to cost only INR 2 crores, INR 2.5 crores of money. It's not about adding mission as a capacity, but you need people. So once we start utilizing the capacity, well, we can add up at any point of time. That should not be -- adding capacity should not be a big hurdle in between.

Okay. And sir, 15% you said garmenting division. So retail and SPUK, what kind of margin you expect next year?

So retail is just now picking up. We are breaking even at the EBITDA level. SPUK, we are looking at anywhere between 4% to 5% on the EBITDA level.

Okay. Okay. Great. And all the -- once you -- current capacity and say, 200, 300 machines, you said can be added easily in India, after that, what is your peak potential turnover, which I assume can be achieved in FY '28 from the current capacities?

It will be roughly -- see, you are talking about the full peak capacity, which will reach around INR 2,500 crores of revenue capacity -- INR 2,500 crores...

With the existing customer base and the capacity base.

Sure. And sir, you also mentioned Bangladesh will lose a duty-free status by '29. Is it similar for Pakistan also?

I have no idea about that. It is already, Pakistan is duty free.

It's duty free. So I think by '29, you said that Bangladesh will no longer be duty-free in EU. Same is the case for Pakistan?

No idea about Pakistan. It's a developing country. So -- but Pakistan, I don't know it's a developing country or still under developed.

Next question is from the line of Utkarsh Somaya from Eco Quantum Solutions Private Limited.

I just wanted to reconfirm that you said your consolidated guidance for FY '27 is INR 2,000 crores and 14% EBITDA margin. Am I right?

Yes.

And for FY '28, did you say INR 2,500 crores and 15% EBITDA margin?

No, no, no, no. He said when you utilize all the machines, what will be your revenue? I said INR 2,500 crores and at an EBITDA margin of 15%. That is what we said.

I get that, but I assumed it will be fully utilized because you said you may add machines in FY '28. So I assumed only if you fully utilize this, you'll add machines. So can you tell me what you think you'll do in FY '28?

FY '28, currently...

Logically, it should happen. Logically, it should happen because once we fill all the capacities, including Sri Lanka, Young Brand expansion and the same factory filling, increasing the existing factories in India of SPAL, so we will definitely go up to, say, 9,000 to 10,000 machines fully. So it should be -- when you touch 10,000 machines, then it should happen for -- I mean, INR 2,500 crores is the calculation.

And are you able to operate at 100% utilization or optimum is like 80%, 90%?

We are working towards it. You never know. Anything can happen. We are working towards that.

No, no. What is the general optimum utilization level?

90%.

Next question is from the line of Shubhankar Gupta from Equitree Capital.

Just 2 questions from my side. First is on the FY '27 guidance, right? And a lot of numbers have been thrown. Just want to get clear clarity on a segmental breakup level. So you said consol is INR 2,000 crores, right, with margins of 15% on garmenting and 4% to 5% on SPUK, correct? Just want to get clarity on the segmental revenue breakup FY '27, the estimate which you have made.

You need revenue breakup, that is what you are asking?

Yes, sir, for all segments.

So in terms of revenue, INR 1,800 crores from SP Apparel's garmenting division.

Including India.

Including Young Brand and Sri Lanka put together. And we are looking at INR 150 crores revenue from SPUK and INR 80 crores, INR 90 crores of revenue from Crocodile, the retail venture.

Got it. Got it. That's helpful, sir. Second question from my side. So I think across industries, one common thing which has come out is labor disruptions, which have been there, right? I just want to understand, you must have said something similar. So how [indiscernible], one? And second, given that you're giving good growth guidance for FY '27, around 25%, right? Are you not seeing any sort of major or grave disruptions for the labor bit in Q1 already?

Labor disruption is where? Labor disruptions you said where?

Yes, sir. I think across industries, this is a common theme, which has come out that labor because of multiple LPG issues, labor returning to Bengal for boating, et cetera, had been an issue for Q1. So my question is, have you not seen any sort of labor turbulence in the Q1 already? And if yes, then how do you see it going forward? If no, then it's perfect.

Actually, it is not a labor disruption. As [indiscernible] said, there was a recession in the U.S. business. We were forced to reduce the capacity because that is why the labor, they have all returned to their native places. Now we are again calling them back. We will be able to fill the capacity in Q3 and Q4.

You're calling them back, I just want to understand like are we -- have we been able to get success in getting them back? If yes, then let's say you called back 100%. How many have come back? How many are yet to come back sort of a scenario is what I'm asking for?

Yes, it will not happen 100%, but of course 30% to 40%, they will come back. Again, we have to newly recruit and train them. That is a continuous process that will happen.

Got it. Got it. But sir, if that is the case, then again, capacity utilization...

Can you please queue for followup. Due to time constraints, that was the last question of the day. Now I would like to hand the conference over to management for closing comments.

Thank you, everyone, for the various questions. And I am confident that we have been able to answer all your questions to your expectations. To summarize, FY '26 was a year where we delivered growth while managing temporary disruptions. Q4 was softer mainly due to volume timing and short-term disruption in global trade routes while realization remains steady. With the normalization in demand, Sri Lanka scale is progressing well and a clear focus on disciplined growth and margins, we believe that we are well positioned for stable and sustainable growth going forward. Thank you. stay confident in our company, and we are very confident about our way of working and the growth. Thank you.

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