This article first appeared on GuruFocus .
Release Date: October 30, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
-
EBITDA margin improved significantly to 19.8% in Q2 FY27 from 10.4% in Q2 FY26, driven by better realizations, operational efficiency, and stable cotton prices.
-
Demand from export markets, particularly China and Bangladesh, remains robust, with China importing around 50 lakh bales annually due to high local cotton prices and import duties.
-
The Odisha greenfield expansion (1.5 lakh spindles) is on track, with construction complete and machinery installation underway; commercial production expected to start in 30-40 days.
-
The new Odisha plant is expected to contribute Rs. 150-200 crore revenue in FY27 and Rs. 1,200-1,300 crore in FY28, with incremental margins 4-6% higher than existing operations.
-
Government incentives for the Odisha project include a 30% capital subsidy (Rs. 200-220 crore over five years), power at Rs. 4/unit for 10 years, and employment subsidies, enhancing cost competitiveness.
Negative Points
-
Domestic market demand was sluggish in recent months, though expected to pick up post-Diwali; this seasonality poses a risk to overall sales momentum.
-
Cotton price volatility remains a concern, with international prices fluctuating and potential narrowing of spreads between Indian and international cotton, which could impact margins.
-
The company does not disclose raw material costs, limiting transparency for investors analyzing cost structures.
-
Receivables increased from Rs. 396 crore in March 2026 to Rs. 473 crore in September 2026, though days outstanding remained stable at 58 days; this ties up working capital.
-
The merger of garment and fabric entities is delayed due to compliance issues, with combined revenue of only Rs. 70-80 crore for H1 FY27, below potential.
Q & A Highlights
-
Warning! GuruFocus has detected 5 Warning Signs with BOM:539221.
-
Is BOM:539221 fairly valued? Test your thesis with our free DCF calculator.
Q: EBITDA margin jumped to 19.8% in Q2 FY27 from 10.4% in Q2 FY26. What drove this improvement, and are these margins sustainable? A: The Chairman attributed the gain to three factors: strong demand for cotton-blended yarn over the past two to three quarters, operational efficiencies built up over the last two to three years now paying off, and stable cotton prices over the past year. He expects a similar environment in the coming quarter and remains "pretty bullish" on the future.
Q: What is the status of the INR 1,000 crore greenfield expansion in Odisha (1.5 lakh spindles), and is it on track for Q3 FY27? A: The Chairman said construction is complete and machinery erection is underway, with commercial production expected to start within 30-40 days. The full project is targeted for completion by March 2027, with INR 150-200 crore of revenue expected this fiscal year and INR 1,200-1,300 crore in the next financial year.
Q: With existing facilities running at 99% capacity, what margins will the new Odisha plant generate? A: The Chairman said the new unit's margins will be at least 4-6% higher than the existing operations, and the plant will be EBITDA-positive from day one of commissioning.
Q: What government incentives support the Odisha project? A: The Chairman detailed a 30% capital subsidy of roughly INR 200-220 crore paid over five years, power at INR 4 per unit for 10 years versus a blended cost of about INR 15 in Punjab, an employment incentive of INR 7,000-8,000 per worker per month for five years, plus PF, stamp duty and land benefits including about half the land price back upon employing 1,000 people.
Q: What is the domestic versus export sales mix, and how is demand from China and Bangladesh? A: The Chairman said exports were about 52% of total revenue last quarter. Demand from China and Bangladesh remains robustBangladesh has been consistently buying about 45-50 million kg and China about 50 million kg over the last 12 months, aided by a 40% import duty on cotton and 3% on yarn in China. Domestic demand was slower but is expected to pick up after Diwali with the festive and spring season.
Q: Where are cotton prices and yarn spreads headed, and will margins hold in H2 FY27? A: The Chairman said Indian cotton has eased from INR 70,000 to about INR 65,500 per candy, with imported cotton landing around INR 67,000. Yarn spreads were about INR 133/kg in Q1 and INR 141/kg in Q2, and he expects spreads of INR 130-145 going forward. He expects H2 margins to be similar to H1, with a possible deviation of about 2%.
Q: How is the company managing raw material procurement and inventory risk given cotton volatility? A: The Chairman said the company sources cotton from 10 countries daily, seeking the best deal, backed by a strong procurement team. To mitigate price risk, it maintains a healthy order book of about three months against cotton cover of five to six months.
Q: Will the import duty exemption on cotton be extended? A: The Chairman said the government has assured the industry of an extension beyond the current October 31 deadline, likely for two to three months, and he expects it may eventually be removed altogether given India's cost competitiveness and upcoming EU/UK trade opportunities.
Q: Why did receivables rise from INR 396 crore in March 2026 to INR 473 crore in September 2026? A: The CFO explained the increase reflects higher total billing, not stretched credit. Receivable days remain unchanged at 58 days, and most sales carry 120-day credit secured by letters of credit.
Q: What was the depreciation change this quarter, and what is the run rate ahead? A: The CFO said a change in depreciation method (including revised useful lives) created a difference of about INR 7-8 crore. Depreciation was INR 14 crore this quarter versus INR 24 crore last quarter, and the run rate is expected at around INR 17 crore per quarter going forward.
Q: How will the merger of the fabric and garment entities be funded, given promoter holding is already at 75%? A: The Chairman said the consideration will be non-convertible preference shares, with a minor cash component not exceeding 25%, since shares cannot be issued without breaching the 75% promoter cap. The combined entity's H1 revenue was about INR 80 crore, with margins of roughly 15-20%, held back by compliance-related stoppages ahead of the merger.
Q: What is the FY28 outlook and the phase-two expansion plan? A: The Chairman said FY28 revenue could approach the INR 4,000 crore mark with margins of 15% or better, though he declined to be aggressive given the slump from 2022 to 2025. On expansion, the company plans another 1 lakh spindles after the 7.5 lakh capacity, and a brownfield phase two could be executed two to three months faster than the greenfield build, with a decision possible within 6-8 months as cash flows stabilize.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
