Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RSWM Ltd (BOM:500350, Financial) reported a 3.1% quarter-on-quarter increase in sales to INR1,208 crores, with a year-on-year growth of 34%.
- Gross profit rose by 7.8% quarter-on-quarter and 29.2% year-over-year to INR434 crores, reflecting effective cost management.
- The company has maintained full production capacity, distinguishing itself from many competitors.
- RSWM Ltd (BOM:500350) has managed its inventory well, reducing aging stock and controlling costs.
- The company entered into an agreement to sell its cost-inefficient thermal power plant for INR48 crores, and approved a capital expenditure of INR740 crores for a new greenfield unit in Jammu.
Negative Points
- The average yarn spread decreased by 0.9% quarter-over-quarter, putting pressure on margins if cotton prices remain high.
- The company reported a net loss of INR14 crores for the quarter.
- EBITDA margin saw a small decline of 17 basis points quarter-over-quarter, indicating stable but not improving operational efficiency.
- The textile industry faces challenges due to geopolitical issues, including disruptions in Bangladesh and competition from China.
- RSWM Ltd (BOM:500350) has a significant debt position with outstanding term loans around INR900 crores.
Q & A Highlights
Q: When does the management see the EBITDA margins rising back to normal levels?
A: The sustainability of current EBITDA margins at 4% is challenging. The timeline for normalization depends on geopolitical situations, such as the Ukraine-Russia war and Middle East conflicts. The company is exploring alternate markets like Latin America, but high shipping costs and disturbances in the Red Sea area are hurdles. (Nitin Tulyani, President & CFO)
Q: Why do knitting spinners have a higher EBITDA margin compared to RSWM?
A: Comparing RSWM with knitting spinners is unfair as knitting spinners are predominantly into cotton, whereas RSWM's stake in cotton is only one-third. Additionally, companies with lower employee costs due to family management have an advantage. (Nitin Tulyani, President & CFO)
Q: What subsidies are expected for the greenfield project in Jammu?
A: The Jammu and Kashmir investment promotion scheme offers a subsidy equivalent to the investment in plant and machinery over ten years, limited to the GST applicable on the products produced. For an investment of INR700 crores, the subsidy would be around INR120 crores annually. (Nitin Tulyani, President & CFO)
Q: What revenue can be expected from the new Jammu unit once fully operational?
A: The turnover to investment ratio for the Jammu project is expected to be between 1.25x to 1.3x. (Nitin Tulyani, President & CFO)
Q: What is the impact of the recent situation in Bangladesh on RSWM's operations?
A: The situation in Bangladesh has caused delays in exporting goods and receiving payments. However, the factories have reopened, and production has resumed, with full normalization expected in about two weeks. (Nitin Tulyani, President & CFO)
Q: What are the capital allocation plans for the upcoming quarters?
A: The company plans to invest around INR700 crores in the Jammu and Kashmir project. No other substantial capital expenditure plans are currently in place. (Nitin Tulyani, President & CFO)
Q: What steps have been taken to decrease expenses in recent quarters?
A: The company has optimized manpower strength and engaged external agencies like NITRA to study and implement recommendations for worker engagement in manufacturing processes. (Nitin Tulyani, President & CFO)
Q: What is the current debt position?
A: The outstanding term loans are around INR900 crores, which has remained static over the years despite significant volume growth and capital expenditure. (Nitin Tulyani, President & CFO)
Q: How are things in Turkey, given the financial strain and currency devaluation?
A: The situation in Turkey is improving, with no recent issues regarding dollar shortages. All payments have been received as scheduled in the last nine months. (Nitin Tulyani, President & CFO)
Q: Are there any plans to get into branding and retailing?
A: The company is not planning to enter the B2C segment or retailing. However, it has branded its synthetic yarn as Ultima and its cotton products as Kapaas. (Nitin Tulyani, President & CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
