Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- S.P. Apparels Ltd (BOM:540048, Financial) is benefiting from the China plus one strategy and political unrest in Bangladesh, leading to increased interest from clients.
- The company is expanding into favorable locations like Sri Lanka, leveraging its duty-free status and skilled labor availability.
- The main facility is operating at full capacity, enhancing efficiency and performance.
- The garment division has broadened its range by venturing into the adult market and is set to boost production with new machines.
- The subsidiary in Sri Lanka is yielding positive results, with significant business opportunities expected from new customers.
Negative Points
- The spinning division has faced challenges due to fluctuating cotton prices, impacting overall performance.
- The retail division reported a slight decline in revenue and continues to face profitability issues.
- There is an increase in debt due to the acquisition of EN. brand apparel, raising concerns about financial leverage.
- Capacity utilization is currently at 79.7%, with constraints primarily due to labor availability.
- The company has strategically chosen to discontinue certain brand enhancements due to unprofitable outcomes, which may affect future growth.
Q & A Highlights
Q: The capacity utilization is about 79.7%, higher than last year's 76%, but the volume in terms of number of pieces has reduced. Are we sitting on higher inventory?
A: Utilization is production-based, while sales quantity is sales-based. The increase in utilization happens gradually, and production may not necessarily be shipped immediately. Additionally, new migrants with lower efficiency have joined, affecting overall efficiency.
Q: What are the constraints preventing us from achieving 85%-90% capacity utilization?
A: The main constraint is labor availability. However, we have overcome this issue and are consistently increasing capacity by 75-100 machines monthly. We expect to achieve 90%-95% utilization by Q3.
Q: Can you provide more details about the operations in Sri Lanka and the realization there?
A: In Sri Lanka, we operate on a contract basis. We have shortlisted factories based on volume, capacity, efficiency, and costing. Realizations are similar to India due to duty-free status, despite higher labor costs. We aim to reach around 1,000 machines in Sri Lanka.
Q: Are you confident of reaching the 400 crore top line from the newly acquired EN brand apparel?
A: Yes, we are confident. We have identified areas for cost control and material sourcing improvements. With 1,500 machines, we expect to be close to INR400 crores next financial year.
Q: What is the contribution of the spinning division at the EBITDA level?
A: The contribution from spinning is around 65-70 lakhs at the EBITDA level.
Q: What is the current status of the adult category in the garment division?
A: The adult category currently contributes around 10%-15% of revenue. We aim to increase this to 20% by Q2.
Q: How are we leveraging cross-selling opportunities with the newly acquired EN brand?
A: We are working with two new U.S. customers and plan to add more. We will also encourage our existing customers to place orders with EN brand to increase utilization.
Q: What is the projected revenue and EBITDA margin for EN brand for FY 23?
A: We project 300 crores of revenue from EN brand for the current financial year, with an EBITDA contribution of around 30-35 crores.
Q: How are we addressing the labor availability issue?
A: We have mitigated the risk by having strategic locations in Tamil Nadu and Sri Lanka. We are confident in mobilizing and retaining the workforce, and we expect to reach 90%+ utilization in the next six months.
Q: What is the current wage per employee, and do you foresee any increase in minimum wages?
A: We follow market standards for wage revisions to retain employees. Currently, there is no indication of a minimum wage revision by the government.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
