Sutlej Textiles & Industries (NSE:SUTLEJTEX) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Q1 FY 'twenty seven Earnings Conference Call for Sutlej Textiles and Industries Limited. The management will be sharing the key operating and financial highlights for the quarter ended 06/30/2026, followed by a question and answer session. Please note that the sum of the statements made in today's discussion may be forward looking in nature and may involve risks and uncertainties. Documents relating to the company's financial performance are available on the stock exchanges and the company's website. Trish, you have been able to go through the same. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr.

0:46 Sachin Karwa, Chief Financial Officer. Thank you, and over to you, sir. Thank you. Good evening, everyone, and welcome to the earnings conference call of Sutlej Textiles and Industries Limited for the first quarter ended 06/30/2026. I will briefly cover the operating environment and then take you through financial performance in detail. Our CEO will thereafter cover the business segments and the strategic business update. The operating environment in the first quarter was mixed. Global demand remained relatively stable compared with recent quarters, but the industry continued to contend with geopolitical uncertainty, raw material price volatility and evolving trade dynamism. Cotton prices moved upward during the quarter, while polyester and viscose stayed firm on global cruise.

1:36 The policy environment for Indian textile, however, continues to improve with three trade agreements and the diversification of global sourcing creating durable opportunities for Indian manufacturers. Coming to the results. Stand alone total income for the quarter stood at INR704 crores, higher by 17% year on year and marginally ahead of Q4, which was itself our strongest quarter of FY twenty twenty six. Gross margin came at 46.8%, an expansion of approximately three seventy basis points over the same last quarter last year. Raw material consumption improved to 53.2% of the revenue from 56.9%, reflecting better product mix, our integrated fiber operations and disciplined procurement through a rising input cost environment.

2:26 The improvement extends across the cost structure. Employee cost stood at 16.6 of the revenue against 17.7% a year ago. This quarter absorbed the annual wage revision, which takes effect in Q1. Power and fuel improved to 11% of revenue from 12.2%. EBITDA for the quarter stood at INR 47.2 crore against INR 5 crore Q1 FY 'twenty six with EBITDA margins at 6.7% against 0.8% a year ago and 5.3% in the preceding quarter. This is the fifth consecutive quarter of margin expansion. The progression reached 0.8, 2.7%, 3.9%, 5.3% and now 6.7%.

3:15 Finance cost stood at INR 18.3 crores higher than INR 17 crores in the preceding quarter. This principally reflects working capital deployed to support revenue growth of 17% and increase in RM pricing. Our average cost of borrowing remains lower than a year ago, followed by a 40 basis point improvement achieved through FY 'twenty six. And our intent through the year is to bring absolute finance cost further down as operating cash generation strengthened. Depreciation stood at INR27.4 crore, marginally lower year on year. This brings us to profit before tax of INR4.2 crore against a loss of INR38.6 6 crore in Q1 FY 'twenty six.

4:02 I would highlight that this was a cleaner a clean quarter. There were no exceptional item against INR 22.5 crore of exceptional charge taken through FY 'twenty six. The profit reported is entirely operational. After tax of 1.5 crore, profit tax stood at INR 2.7 crore against loss of INR 25.7 crore in the corresponding quarter. On the consolidated results, we have also turned positive. On the balance sheet, our position remains disciplined. Working capital utilization remains comfortable against sanction limits. Inventories calibrated to demand and receivable cycles are steady. Maintenance capital expenditure is proceeding as planned and there is no change to our funding position.

4:50 Capital growth for the year is secured from internal approvals and existing facilities with no additional equity requirement. To summarize the quarter financially, revenue up by 17%, gross margin up by three seventy basis points, a ninefold increase in EBITDA, five consecutive quarters of margin expansion and a return to profit at both standalone and consolidated levels with no exceptional items. The numbers now reflect the structural work of past two years. With that, I invite our Hold Time Director and Chief Executive Officer, Mr. Ashish Dumasrivastar for business and strategic update. Thank you, Sachin, and good evening, everyone. Sachin has already taken you through the numbers, so I will not repeat them. Let me instead tell you what we believe they mean, what is happening inside each of our businesses and where we go from here.

5:43 When we spoke in February on quarter three call, we said Q4 will be better than Q3. It was. When we spoke on Q4 call, we said FY 'twenty seven would be a year of continued sequential gains compounding quarter by quarter rather than a single dramatic year. Q1 FY twenty seven is the first data point on that promise. And we want to talk you through it in detail because we think the quality of this quarter matters more than the headline. This is our first profitable quarter after a prolonged and difficult period, and it did not happen by accident or by market luck. It happened because the transformation we have been describing to you quarter after quarter is now showing up in the reported financials.

6:32 The headline is that company has returned to profit, but we want to be careful with that word. One profitable quarter does not undo the period we have come through, and we do not regard this as a destination. What matters to us is not that we made a profit this quarter, it is why we made it. This result was not produced by a market turn, a commodity tailwind or a one time gain. It was produced by decisions taken over the past few quarters, repositioning the product book, rationalizing the cost base, integrating the platform from fiber to fabric and refusing to chase volume at poor margins. That is why we believe this quarter is repeatable in a way that a market driven quarter would not be.

7:18 The single development we would place above all this, all others is this. Every one of our three business clusters and our six manufacturing units anchored in same delivered positive EBITDA this quarter. That has not happened before in the current cycle. For the last for the past two years, our stronger units carried the weaker ones. That phase is over. The recovery is now broad based, and a broad based recovery is a durable one. Let me take you inside the businesses. In Yaan, the strategy has been consistent. Profitability through product mix, not volume. Segment revenue of INR $6.40 crores grew 16%, but the more important number is the segment EBITDA of INR 34.4 crores against INR6.5 crores a year ago, almost a five fold improvement on 16% more revenue.

8:16 That gap between revenue growth and profit growth is the mixed strategy working. Sutlej's green fiber is the business we proudly hold because it is the proof of our entire thesis. Post consumer PET bottles converted into certified traceable sustainable material that customers and regulated markets pay a premium for. When we say the journey to value addition is the engine of this company's future, SGF is what the destination looks like. And the demand behind it is structural, written into European regulation, not a cycle that will reverse. Home Textiles grew revenue 22% and held profitability against a loss a year ago, a business that was a loss making at a full year level as recently as FY twenty twenty five has finally turned.

9:04 The quarter was softer sequentially on order phasing, not on demand. Visibility through the first half remains healthy. This business competes on design and relationships. Tariff noise, FX commodity home textiles, it has not dented ours because complex design led product is not easily resourced. Beyond the segments, let me update you on the three strategic priorities we have reported against. They remain unchanged for the past year. First, market diversification. Far East And Africa opened last year's, which had opened last year have moved from qualification volumes to repeated commercial orders. Our export growth this quarter came from disproportionately from these markets we did not serve eighteen months ago, and our exposure to any single geography is lower than what it was two years ago.

9:59 This is by design, not by attrition. Further, markets in Southeast Asia and Latin America remain on track for entry this financial year. The second one is on the value addition. Our commitment to move roughly one third of the portfolio into value added categories, and we are executing to that plan. Technical and blended yarns continue to gain share within the yarn book. SGF demonstrates a fully value added end of the spectrum and design led home textiles demonstrate it at the fabric end. Within this, our technical textiles entry is progressing to schedule. Protec business has moved from qualification into sampling and trials are advancing. I'll be measured though that these are FY 'twenty eight contributors, not FY 'twenty seven.

10:48 What matters this year is meeting milestones, and we are. Third, cost and efficiency. The ratio improvements Sachin described are not onetime gains. They are the output of the rationalization program that is not yet complete. The remaining benefits flow through the balance of this year. On capital, just one sentence. Everything we have described is funded from existing facilities with no equity requirement and no dependence in market conditions because we are mostly upgrading assets we already own rather than building new capacity. Looking ahead, we remain cautiously optimistic. Raw material prices, geopolitics and global demand are outside our control, and we take nothing for granted.

11:33 But what is inside our control is executing the same plan that produced this quarter, and every element of that plan remains on schedule. I will close where we began. We are not declaring a turnaround complete and the burden of proof rests with us. But we told you what we would do and the order in which we would do it. Every unit is contributing, every priority is on track, the capital is secured, the journey to value addition is tracking to plan. Our objective is not to maximize the quarter, it is to build a business that consistently delivers stronger margins, better returns on capital and improved cash generation and to create durable value for all our stakeholders.

12:21 Thank you for your continued trust and support. We'll now be happy to take your questions. Thank you. Thank you very much. We will now begin the question and answer Participants are requesting a TULEJTEX handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Himanshu Bisani from Pinpoint X Capital. Please go ahead. Hi. Am I audible? Yes. Mathieu, you're audible. Yes. Thank you for the opportunity and congratulations on a great set of numbers.

13:10 It's very interesting in sort of opening comment that you mentioned that this performance is more structural and you know, it is backed by our strategy of integration and higher value added products. So, sir, can you quantify that? You know, we have been targeting a 30, 35% of our YAN portfolio to become value added in, coming year. So what was the mix a quarter ago and what is right now? SRINIVASAN See, okay, I mean, at this point of time, again, as I said, it's a journey. At this point of time, we are and what happens when you get into these value added product segments is that you do the trials, the customer tries you out and the cycle gets completed anything between three to six months. So at this point of time, what we have identified is a great pipeline besides what we have executed. So as I said, this journey is ongoing.

14:05 At this point of time, possibly 10% to 15% of our production in yarn is on the on that category. But what is important here to note is that we already have a pipeline, and we are already having a couple of new SKUs, which are currently being tested and kind of evaluated by our customers. Understood. So that was just on key this EBIT improvement that we have in our Yaan business. So how much of that was quantified by the spread expansion which happened in quarter end Polyviscos and how much of that would have been from higher value added products and integration benefits, if you can quantify that? Sure. So I think, I mean, what we are doing is that the overall, if you look at our raw material to the sales ratio, there is almost a reduction of 2.5%, right? And that is basically coming because we are moving up that value chain.

15:05 I would say that almost 60% is coming of that improvement is coming because we are moving the product categories up. And balance is obviously the change in the bottom line is because of the operational efficiency, which we have kind of initiated. I understand. So, sir, on that, sir, obviously, spread would normalize, right? So... And once we have our target of, you know, 30%, 33% of our business value added... 30%, 33% of the Yarn business coming from value added, what kind of EBITDA margins this business can generate? See, at this point of time, we will not want to kind of speculate on how it is going to come around because while Yarn moving up the Yarn portfolio in 30%, 35%, a lot of it will also get into our the integrated approach, I mean, the fabric and then possibly the protect business, which we are starting, it will kind of flow into that.

16:09 So I will refrain from giving wanting to give you a very clear number. But at the steady state, I mean, obviously, everybody, all the Textile units look at a double digit EBITDA, and that should be our at least target in times to come. Thank you. The next question is from the line of Raj Doshi, an individual investor. Please go ahead. Hello. Thank you for the opportunity, and congratulation on a good set of numbers. So my question is, regarding the commodity and the value added.

16:57 What, what is the product mix that has been evolved compared to FY 2026? Can you throw some light on that? As I had commented that our intent is to move at least 30% to 35% of our yarn portfolio into more value added. And when we say value added, they are differently so I mean, if we were to look at it from the application lens, right, the yarn which primarily goes into apparel and which is either for knitting or weaving, which is where the commodity yarn kind of comes into picture, the way we classify. And then there are other industry applications which will come in. The industrial yarn, which is multifold, the yarn which is going into the carpet industry or the technical yarns which have certain amount of performance which is attached to the entire thing. So finally, we would I mean, our intent is to move to 30%, 35%.

17:52 We are somewhere midway in the journey, but as I said, I mean, there are enough products in the pipeline, which will further strengthen our push to get to our desired levels. Okay. Thank you for that. And also regarding the customer approvals, so specifically for the newly developed specialty labs, so have they progressed as expected? So yes, I mean, I think we are very clear on what product categories we want to kind of focus on. And for that, the customer trials and the customer is I mean, the first rounds have already kind of moved in. So, the first containers have kind of gone in. They will do the testing. They will work around and then obviously the repeat regular business can happen.

18:46 Okay, okay. Thank you. And apart from the product mix improvement, what are the factors that could improve the margin going forward? So I think as we had said that one is the product mix upgradation and it is not necessarily the yarn stand alone. We are also looking at it a vertical approach because our home textile business, which currently is not as significant as we would like it to be, there are growth plans for that. We have also incubated the technical textiles, the protective textiles business. And right now, we are in the investment mode there. The results of that will possibly come in the next financial year, but we are on track. I mean, some of our products in protective textiles have already got qualified. So we are tracking that. So integrated, I mean, you ask me what is going to be our approach from the besides upgrading our product, yarn product portfolio, it's about looking at what are the vertical opportunities, which means first going into fabric and then evaluating what kind of model we can work with our customers.

19:53 Okay. Thank you. I'll call back in queue if I may. Thank you. Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Amit Agarwal from Leeway Investments. Please go ahead. Good afternoon. Hello. Good afternoon, Amit. This is my 56 meeting in last I've been talking for last five, six years, and I've been raising the same question regarding implied cost. Our employee cost is around 15%, 16%, 17% every year that I've been pointing about this for so many years. Other peers all are having their employee cost to the turnover below 10%.

20:40 So nothing has been done about it. I think this is the major reason that we if bad conditions will report higher losses. In good market conditions, we just give some profitability and in very good boom period, we make some money and we invest in dividend. I think we are the least cost effective company in the whole industry. I'd like to have you comment and see if something is turning around next two, three years. Sure, Amit. So, I mean, let me just I mean, there are two ways of kind of looking at it. I am not at all saying that our employee costs are as per what our desired levels are. We are definitely working upon it, but it's a journey and we are going forward on that. And it will you will see some kind of a reduction by the much desired reduction in the coming year in this next few quarters. The second thing is the nature of our business is very different. So you can't necessarily compare us with the legacy yarn makers because there unlike the legacy yarn makers, we have our specialty is melange, our specialty is dime, which is kind of it's a mid processing which happens there. And that adds to a layer of cost, which is kind of working around. So our push and obviously, as we upgrade our product mix, we realize better from the market, the percentage, if in absolute terms, if you look at,

22:11 our costs have not increased in absolute terms. It is more a function of the sales price and the sales volume and, so to say, what we realize. So you're right when you say that we are and we are cognizant of the fact that we need to bring down, we are working upon it. But possibly, we are also a complex yarn business and also in the home textiles. We look at I mean, we also do a lot of job processing, where while the costs are there, the top line is not there. And as a result, the overall cost percentage of Manpower goes up.

22:58 I understand your point, but the difference is so big that it's very difficult to have a good margin business year after year. You might have one or two good years after in good market conditions. But for a long sustainable and growth company, if you are always lower than the loss compared to the whole industry, then it's very difficult to make good money and save good cash and put some money into the business. Because we invested 200 crores and put a bottle project five, six years back. I think that I haven't yielded anything on the profitability. It might have helped you getting the raw material. But we invested so much money and we never increased the bottom line as well as the top line from that INR 200 crore project.

23:45 So I think we are almost a stepwise zone. Nothing hasn't done much in last five, six years. Well, Amit, I understand that you know better than the promoter firm better than the investors, but that is my observation in last five, six years. No. So I understand, Amit, your voice is a little unclear, it's coming a little fumbled. But I'll be happy to walk you through our independent cluster wise businesses and then you can then you have a right to kind of compare our yarn business with the comparable yarn business. Currently, as I said, we have yarn business, we have a fiber business and we also have a home textile business. And all these three models are very different. And currently, we also agree that our costs are little higher, it can kind of come down, but at what levels and at what point, that's the journey which we have taken. And we are also seeing, as I said, that the result of this quarter is not a result of market tailwinds or the commodity price differential.

24:52 It has come because there have been definite steps which have been taken last quarter, and we're happy to kind of walk one to one in the interest of time and then see. But your point is well taken. And my last question is regarding the looms. How modernizes our machines? Because I've seen some leaders in China, they don't require any manpower. So how it plays in the long term? So again, as I said that we are we already have a strategic business plan in place. You have to understand we are a nine decade old company, right? I mean, we have expanded and we have kind of worked on. So we know exactly where we are there. We obviously are nowhere close to what China is. In fact, we are nowhere close to a lot of the best in class as far as India is concerned. But as you would realize that, I mean, we need to earn money so that we can invest money in modernization and move forward onto this.

25:52 Okay. That's a lot. I'll you, Rosan, giving letting me give my own views regarding the company. Thank you. Thank you so much, Amit. Thank you so much. Thank you. The next question is from the line of Himanshu Bisani from PinpointX Capital. Please go ahead. Yes. Hi, I'm audible. You are audible, Himanshu. Sorry, I got disconnected earlier. So I don't know if you answered it, but I'll just repeat it again. So when this place normalize, right, and we do achieve our target of, you know, one third, you know, value added business from... Value added business in the Yarn segment and also with the increase in scale from home textiles and the green fiber business, what kind of EBITDA margins are we looking at?

26:41 So as I said, it will not be right to for me to kind of give a I mean predict something, but like any other good textile company, we will want to be in the two digit number, and that's what the benchmark for us in near term is. So what kind of scale and growth you are looking at in the Home Textile business? So in the Home Textile business, I mean, now that we have become profitable, we are going to chase growth. And I mean, currently, we I mean, we are looking at doubling this in about two years, the Home Textile business. Got it. Got it. Sir, could you also throw some light on the green side of the business, what kind of top line we have in that and what kind of EBITDA margins we're looking at and what kind of growth we are looking at in that business?

27:38 So, know, I mean, on the green fiber, which is basically the recycled polyester, if you were to look at the gross margin, I mean, the gross sales, it will be roughly about INR400 crores. However, almost 70%, 75% of this gets consumed into our own units. And what we are planning to do and what we have already done is how do I move up in the portfolio rather than just looking at purely as a recycled polyester, how can we also add certain performance properties on to the recycled polyester so that it can be positioned very differently.

28:25 And we are in discussion with various brands on how we can kind of collaborate with them and fulfill their requirements. Understood. Sir, in the opening remarks, you mentioned that you want to reduce the absolute interest amount that goes out of our p and l. What is that number, sir? So last year, it was... We have been paying for $66.67 crores for the interest cost. What would be that this year? So I think the interest I'll ask Sachin to kind of just pitch in, but the interest because we are also doing our CapExes, it's not that we are not looking at CapEx. What we have said is that we have reduced our interest cost percentage by about 40 basis points. However, the outflow of interest will only increase because we also have our capacity expansion plans or the replacement plans to modernize our existing units.

29:28 So the number for this year, I mean, the last year was roughly about INR67 crores. And I think this year, we should be at about we'll be about INR75 crores. Got it. Got it, sir. Thank you so much and all the best. Thank you.. The next question is from the line of Ria Shah, an individual investor. Please go ahead. Vishay, your line has been unmuted. Please go ahead with your question. As there is no response, moving on to the next participant. The next question is from the line of Deepak, an individual investor. Please go ahead.

30:21 Hello. Hi, Deepak. Hi, sir. Congratulations on a good set of number. Thank you so much. So, sir, earlier during the quarter four call, you mentioned that FY twenty seven would be an inflection year. How has the demand evolved during the Q1 across the domestic and export market? And have our customer ordering pattern improved compared to Q4? So I mean, if you look at I mean, obviously, Q1 has generally is very good for the legacy yarn suppliers. And this year, because of the China effect, the 100% cotton gray yarn people have greatly benefited from the demand.

31:07 But as far as we are concerned, as I said, we have deliberately moved up a little bit on the value chain. So our product portfolio remains intact. And what we are seeing this quarter, we think it will be replicable in spite of all the market headwinds or the geopolitical uncertainties, which are going to be in place. Okay. Like as you said, demand improved informally across all geographies or like certain export market like U. S, Europe, Africa, China, South Asia recovering faster than other one? So I would say that, I mean, again, for different product segments, it is different. So for cotton grade, it was China, which boomed.

31:56 For us, it was primarily our typical hunting grounds are Latin America and Europe. Those have been steady. Bangladesh, which was a traditional market for us, but had to kind of undergo a severe contraction in earlier times. If the demand there is stable, I would say, it has still not come down come up to the levels where it was two years back, where it is stable. So what we have done is because I mean, currently, we do export to about 60 destinations. And because we have hedged and also opened new markets, our export requirement and export demand remains steady.

32:45 Okay. Understood, sir. Like customer had started rebuilding inventories or they are still buying cautiously? No. So I think there is definitely cautious approach. But what happens is because it had already gone down, the inventory levels had already gone down so low, now it's primarily they are not taking large funds this, but they are definitely rebuilding it as it goes. Okay. And sir, one last question. Regarding the last quarter, you indicated that the focus would be remain on value added YARN rather than achieving volume. How much progress have you made in increasing the contribution of value added yarn during Q1?

33:32 So I mean, this was something which I answered earlier and I maintain that it's a journey. Currently, we would like to I mean, final is that we convert 30% to 35% of our YAM portfolio into value added. At this point of time, we would be anything between 10% to 15%. Okay. And any guidance for Q2 and Q3? I think at this point of time, what we are saying is that let's maintain I mean, rather than giving a very clear outlook, I mean, what we are saying is we will maintain or we'll better the numbers what we have done for Q1. That's all what we can say at this this point in time. So like we can expect Q1 numbers in Q2? Well, that's what you are saying, I'm not saying. But yes, we will try to better that. Okay, sir. Thank you. Thank you so much for your opportunity and very all the best for the next quarter. Thank you, Deepak. Thank you so much. Thank you.

34:38 The next question is from the line of Malik Gandhi from Dolphin Management Advisors. Please go ahead. Yeah. Hi. Good evening. Congrats on a good set of numbers. So my first question is on the line of, like, how are you going to manage your debt going ahead? So how is it going to be, like, structured? Is it going to be more of long term and less of short term? Or, like, how is the mix structured in debt? So I think, you know, what is happening is that there is, I mean, we all know that there has been increase in the raw material pricing, right? And so for the short term, even if you were to maintain the same number of days, we will be drawing a little more for the working capital, right? I mean, that's how it is. And on the long term debt, obviously, it's a that's more for the CapEx and other needs, which, as we said, is, at this point of time, is reasonably secured for us. And we will be working around and obviously rebalancing credit lines based on how the results move.

35:45 Okay. Okay. Thank you. And my second question is on the line of like raw materials. I wanted to understand your view of the market going ahead like maybe one year down the line. How do you see cotton, polyester, viscose like shaping up? Like what is your view on the raw material prices? Okay. So I think on the on the cotton side, we all know that currently there is some parity which is coming between the international pricing and the Indian cotton prices. So they there, we are seeing that the prices will remain at either at the current levels or they will go only a little up from where they are at this point of time. On the polyester, I think once depending on the geopolitical situation, on the long term, we see that the prices might ease out because the raw material availability for them, whether it is the MEG, PET, will be a little more available and there is that's where it will it might go down from where it is currently, but it will mean, it will whether it will reach the original levels, which was before the war started is a question open to anyone and everyone.

36:58 So soft on the synthetics. On cotton, it is neutral to bullish. Okay. And with the rising, like, if you are saying that like, cotton is going to be bullish, so, like, you got... You have initiated that you will aim for a double digit EBITDA in the future. So are you still confident of achieving that despite the elevated prices? See, I mean, you look at our portfolio, I mean, for us, roughly 30% of our total consumption on fiber in terms of quantity is cotton. Balance 70% is primarily the synthetics, and in that, we also have a recycle, which constitutes roughly about 30%. So our play is more on the value added yarns, whether it is in the synthetics or whether it is in the Milan segment. So we feel I mean, at least that's the attempt that we'll kind of move around on that. And it's not I mean, story is more from just being an upstream player, how can we become a full integrated supplier to our customers, and that's the journey which we have embarked. So while home textile is one of the pieces, which is there midstream where we do technical textiles in a year or two, and I did not give a horizon as to where when we will get into two digits. But yes, that's what the attempt is. Okay.

38:24 Okay. Yes. Thank you so much. Thank you for taking my questions. All the best. Thank you. Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Well, thank you, everyone, for joining in, and we look forward to meeting up with you in the coming quarter. Thanks, sir. Thank you. Thank you. On behalf of Sutlej Textiles and Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.