Sportking India Limited (SPORTKING.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sportking India Limited Q1 FY '26 Earnings Conference Call hosted by MUFG Intime India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. [ Dharshi Jain ] from MUFG Intime India Private Limited. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. Welcome to the Sportking India Limited Q1 FY '26 Earnings Conference Call. Today on the call, we have Mr. Munish Avasthi, Chairman and Managing Director; Mr. Sandeep Sachdeva, Chief Financial Officer; and Mr. Lovlesh Verma, the Company Secretary. A short disclaimer before we start this call. This call will contain some forward-looking statements, which may be based upon our beliefs, opinion and expectations of the company as of today. These statements are not a guarantee of future performance and will involve unforeseen risks and uncertainties. With that, I would now like to hand over the conference call to Mr. Sandeep Sachdeva, the Chief Financial Officer; for his opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone. First of all, I would take you through the financial performance of the company for the quarter ended 30 June '25. For Q1 FY '26, Sportking India Limited achieved revenue from operations of INR 585.8 crores and gross profit stood at INR 157.2 crores with an increase of 2.1% on Y-on-Y basis. Gross profit margin expanded by 254 basis points year-over-year and further 21 basis points quarter-over-quarter. The gross margin for the quarter stood at 26.8%. Gross margin for the quarter was led by stable and softer input costs given largely range bound cotton prices, over majority of the foregone quarter enabling better inventory management. Operational EBITDA stood at INR 70.5 crores. EBITDA margin expanded by 40 basis points on Y-o-Y and 22 basis points over the sequential quarter to 12%. Profit after tax was INR 35.2 crores, seeing an increase of 10.5% year-on-year. Profit after tax margin was 6%, experiencing a margin expansion of 98 basis points on a yearly basis and 26 basis points on a quarterly basis. Share of export in the revenue was approximately INR 341 crores for the quarter. The company had another quarter of strong showing over the export front with an overall mix of sales from export increasing to 58% in Q1 FY '26 from 47% Q1 FY '25. Overall quarter exports have increased by approximately 18% year-on-year. Capacity utilization at 95% remains at the same level as quarter 1 FY '25. Both cotton yarn production and cotton yarn sales remained marginally higher in quarter 1 FY '26 coming in at 20.9000 metric tonnes -- sorry, 20.9 metric tonne and 20.3 metric tonne, respectively. Thank you, all. Now I will hand over the call to Mr. Munish Avasthi, CMD of the company for his remarks on the results and outlook.

Thank you, Sandeepji. Good afternoon, ladies and gentlemen. I hope you had an opportunity to go through our press release and investor deck. As highlighted by our CFO, this quarter, we maintained our trajectory of margin growth, delivering broad-based growth across all key margins. On the business front, exports remain robust in spite of a lot of geopolitical tension around the world. On the macro front, despite the Indian cotton being largely stable over the quarter, we observed it to be inching up slowly as the quarter -- as the quarter grew to a close. This rising prices was caused by a combination of factors, such as high inventory with Cotton Association -- Cotton Corporation of India, lack of fresh supplies in the market as well as support prices giving prices higher for buyers. The international cotton prices remain at a discount to Indian prices, and this gap is further accentuated by levy of import duties of 11%. Most of Indian textile players are at a relatively disadvantageous position from the point of view of landed raw material cost. Progress of the new cotton season is satisfactory with almost same area planted as last year, and with good monsoon, early predictions are the good quantity and better yield. The other key event was the recent declaration of 25% tariff on Indian goods by the U.S.A. The U.S.A. is a very important end-user market as far as textile players are concerned. The additional 5% tariff differential as compared to 20% tariff levied on other Asian players will have some adversary effect on Indian players pricing the edge. While we remain hopeful of an amicable settlement being achieved soon, I would also like to highlight that we have very limited direct exposure to the U.S. market, but have a relatively larger indirect exposure to the U.S. market through our international customers who are currently better placed than the local players under the proposed tariff structure. About the progress of our ongoing programs. First of all, our SPV for solar power is on target to deliver the contracted power from 1st March. We are also committed to closed our integration of our apparel manufacturing and dye house within this company in next 6 to 8 months. Our confidence in our business fundamentals as well as the potential of the overall Indian textile sector remains undeterred. We will be undertaking a CapEx plan of approximately INR 1,000 crores as a part of greenfield capacity addition program to increase our spindle count by 150,000 spindles. This is a significant capacity expansion to approximately 40% over existing spindle count of 3.8 lakhs. Existing capacity utilization is already at 95% and thus, upcoming capacity substantial headroom for growth and meeting growing demand for company's products. The time line for this project is 12 to 15 months, and we are confident to ramp up the operations within this time frame. The CapEx outlay will be funded through a mix of internal accruals and term loans. The proposed spinning units will be set up in the state of Odisha and we have first diversification outside the state of Punjab. The geographic location of the upcoming plant will enable the company to better serve the Eastern market of the country, enabling a diversified presence as well as better to serve the international markets given proximity to ports. Amidst ever-changing market conditions, our focus continues to be on producing quality products and building operational excellence. I pass on the call to the moderator to open the floor for question-and-answer session.

[Operator Instructions] The first question is from the line of [ Param Vora ] from Trinetra Asset Managers.

So what I wanted to ask was that regarding the ongoing tariff situation with U.S., so since you export to the U.S. So can we expect a turnaround like decreasing the share of export to that country and focusing on the new geography?

Thank you for the question. First of all, we don't have any exports to U.S. as a company. So there is no question of diversifying the exports when we don't export to the said country.

Sorry, I must have misunderstood something. And my second question was regarding the proposed merger. So how do we anticipate the contribution to new value-added segments and company overall revenue and profit margins?

So that -- as we mentioned that we are confident of achieving the integration of our apparel and dyeing capacity with us in the next 6 to 8 months. So definitely, there will be -- the top line increase in the first year should be around INR 200 crores. And it should -- the EBITDA in that business is slightly better. So it will give us a better EBITDA, of course.

The next question is from the line of [ Deepak Ajmera ] from IGE India.

So my question related to the [Technical Difficulty] so you can explain the ramp-up and utilization...

Sorry to interrupt you, sir. Your voice is breaking.

So my question is related to the CapEx that you are [Technical Difficulty] INR 4,000 crores that I just wanted to know about its ramp-up and utilization and time line for the same?

Yes. As I mentioned in my opening statement that we expect to finish to be -- to finish -- to come up with the commercial production within 12 to 15 months from now.

Okay. And how much optimum revenue can expect from this?

We are expecting a revenue of around from this INR 1,000 crores to INR 1,200 crores from this new expansion.

The next question is from the line of Prerna Jhunjhunwala from Elara Securities.

So just wanted to understand the premise of this expansion -- huge expansion, given that the profitability in the yarn business continues to remain under challenge. So what gives you confidence that you'll make decent returns on this investment? And what kind of expectations do you have from this investment going forward? Do you expect the profitability of the spinning business improving over the next year or 2 kind of a situation where this returns -- the return provided by this CapEx is strong enough.

Thank you for the question. So I will put it into 2 parts. First of all, these are one of the worst times for textile industry, spinning industry per se with a lot of headwind we are facing from internally and externally. Externally means with all the tariff uncertainties. And internally, with the MSP and import duty levied on the imported cotton. So in spite of all this, we are doing pretty well as we are maintaining double-digit profitability for the last so many quarters, and we are working at almost -- we are fully utilized. So we see -- we see these things that this time will not last forever. I think 12 to 15 months -- we see a lot of resolution happening over the next 12 to 15 months. So we are pretty confident. And about this particular investment, we have -- so we have -- most of our capacity has been in Punjab. So the incentives in Odisha are much better. And we are -- we see a jump of 4% to 5% in EBITDA level because of the incentives and the geographically diversified portfolio. And there'll be many products which we don't make, which we'll be making, which are a little bit more profitable. So we are very optimistic about this and -- so we are a conservative company. We took a lot of thought over the last 1 year and then we went forward with this. And we are pretty confident that this will help us in improving the overall EBITDA of our company by at least 200 to 300 points.

That's great, sir. Sir, could you help us understand what kind of incentives you will be getting from Odisha government? And what kind of synergies you are looking forward to with this investment in Odisha?

So first of all, the -- other than the incentives, which we can mail you separately, there's probably a big list of that. Other than that, we are based out of North India, and this gives us an access to Kolkata market and Bangladesh market, which is closer to Odisha and even the South Indian market, which is closer to Odisha, more access to those markets where we are not functioning right now. Secondly, Odisha is cotton surplus state, one of the few cotton surplus states left in the country. And third is the proximity to the ports. So all these factors made a lot of sense to us to venture into Odisha for our new project.

How far this project is from Odisha Textile Park? As that would be also a good market for us to serve.

Yes. Thank you for reminding me. So this -- we see a lot of investment -- downstream investments coming in Odisha. So when we signed an MOU, there were many garmenters from Singapore and very big garmenters from India who are putting up their plants in Odisha. So we see that as another opportunity to cater to that market also. And we are in the proximity of 50 to 100 kilometers from all of them.

That's wonderful. So do you have any plans to further forward integrate into fabric given as a next step in Odisha?

Ma'am, definitely, right now, we are undergoing an exercise to integrate our garment facility with this company. And we -- I think we will be able to put it off within this fiscal. And we want to scale -- we have the opportunity to scale that business up initially in Punjab as it is. And then, of course, we have the plans to go once we realize the full potential of our existing capacities and those plans are of course there.

Sir, last question on U.S. tariffs. I understand you don't export directly to the market, but your clients might be exporting eventually to those markets. Have you seen any kind of pressure from the clients to share any kind of tariff with them?

See, ma'am, this is something which is just 2 to 3 days old, 4 days old, and though the first round of tariffs happened and everybody knew what was coming. So I don't think so anybody is asking for -- to share any tariffs and all. But how the new dynamics work, how the new costings are done and how the new orders come is anybody's guess. But I know one thing for sure that after these uncertainties are over, that with China being at 55% and being the major exporter across the world, so I think other countries might not feel as much pain as expected. But right now, definitely, it's very uncertain. The statements change every day. So definitely, the sentiments around the world are pretty pessimistic and people are just not taking any decisions. So everything -- but I think in next 2 months, we see a lot of clarity and everybody wants this tariff talk to die down, whatever the tariffs, everybody wants to know what tariffs are finally. And it's been going on for the last 5 -- 4, 5 months. So we expect some normalcy to come back in the business in next 30 to 45 days.

That's great. I'll wait for your e-mail on the Odisha facility benefits to come in.

The next question is from the line of Saransh Gupta from Svan Investments.

Sir, just carrying on to the previous participant's questions in terms of the tariff.

Sorry, you are not audible, please?

Yes. Now, it's clear?

Yes, better. Better.

Understand on the demand perspective and the spread perspective. Now since the end client that we are servicing tax at the higher tariff. So how shall one look at the spreads in the near term? I agree from the medium to longer term, you seems to be more bullish and beyond which we are also increasing our CapEx. But in the near term, how shall we look at the situation in terms of the spreads?

So I really didn't get your question very well. But anyway, I like -- I'll try to answer it whatever I got. So I think you have been asking about the spreads going forward, right?

Yes, sir.

So the spread, initially, what we have seen in this quarter, for first month, we have been pretty consistent in the similar run rate where we were in the last quarter. But going forward, it's very difficult to assess the situation with so much of uncertainty around us. So we are well protected with -- as the cotton prices have gone up. So we are well protected with -- as we generally have a tendency to stock our cotton for the season. So we are protected from that angle, but how the market behaves and how this tariff uncertainty pans out in the next 2 to 3 months, it's very difficult to answer how the spreads look going forward in the next 2 to 3 months.

Sure. Okay. And in terms of your fresh investment that you are doing in Odisha. So you indicated that the profitability will be 200 to 300 bps higher than what we are doing right now. So is it including the incentives that we'll be getting it from the government? Or is it just the technology or the -- the upgradation of the technology that we are using it that will help us? And what payback one should assume in the -- on the expansion?

So it's a combination of everything. I think the technology, of course, the new technology we'll be putting in will also help in improving the margins. Incentives is one -- second and the third is the geographical advantages we'll get with Odisha with proximity to port and different markets, which are major markets where we are not working right now. So on the combination of all 3, we expect will help us in improving our margins by 200 to 300 basis points.

Your payback period?

Sorry?

[Technical Difficulty] or payback period of the same?

We have not yet worked on that.

Ladies and gentlemen, the line for the management seems to have disconnected. Please hold while we reconnect them. [Technical Difficulty] Ladies and gentlemen, the line for the management seems have been connected. Thank you, and over to you, sir. The next question is from the line of [ Raman from Sequent Investments ].

I just have a few doubts. So what are the major countries to which we export? And if possible, can you give a percentage breakup?

So most of our exports, more than 50% of our exports goes to Bangladesh. Then we export, rest all of the countries are in single digits. So like China, we do to Latin America and European countries. So we can give a breakup, we can send you by mail.

Sir, what about U.K., how much percentage does -- do we export to U.K.?

U.K. We don't do anything directly to U.K.

Okay. So there won't be any substantial benefit for us with respect to the U.K. India free trade agreement, right?

The benefit will only be indirect with all the apparel manufacturers within India who are exporting to U.K. If they get more orders, they need more yarn. So that is the benefit we're going to get.

Sir, and with respect to you -- again on the export part, with respect to Bangladesh, how about the working capital or payables from the companies to which we export yarn to?

So we export under LC. All our exports to Bangladesh are under LC. And we get paid on time. That's it, right? So it's just all in the LC business, we don't do any CAD business with them. So all the deals are paid on time by the banks as LC matures.

Okay. And sir, my last question is with respect to your weekly CapEx, which -- so you're adding about 1.5 lakhs spindles additional which will generate about INR 1,000 crores to INR 1,200 crores of revenue -- additional revenue. So I just wanted to understand this plant, this is a new plant. So can we expect the margins of this plant to be higher than the existing plant's margin?

Yes, sir. I think we have -- I have discussed it in the previous question. I addressed this in the previous question that we expect our margins to be better with this plant because of different reasons, like geographical advantages, new technology and, of course, the better incentives given by the Odisha government.

Sir, can you give any ballpark figures with respect to how much cost saving will it be with respect to traveling as well as the incentives provided by government?

So we said that we are expecting a margin expansion of 200 to 300 basis points on our total overall company after we invest -- after we come up with our first expansion.

So this benefit can we see by FY '27 end?

So we will be coming in production by '27 end. So I think the real benefit will start showing in '27, '28.

The next question is from the line of [ Ankit Gupta ] from Bamboo Capital.

Given how situation is currently, given the uncertainty on the tariff part and higher cotton prices prevailing in the Indian markets, do we expect our margins will go down from the current levels? Or we can expect at least 10% to 12% of EBITDA margins to remain over the next few quarters?

Very difficult to say, sir, but we are committed. I think this has been the case for last 2 quarters as well. The things have really -- things have actually deteriorated from macro point of view in the last few days. But yes, we can expect the margins -- we expect the margins to stay in double digits for next 3 quarters, under the present circumstance.