This article first appeared on GuruFocus .
Release Date: August 03, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Strong start to FY27 with healthy revenue growth and significant profitability improvement, driven by better yarn realizations and disciplined raw material procurement.
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Strategic buying approach effectively managed input costs despite rising raw material prices, protecting margins.
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Favorable market conditions with better realizations across product portfolio, particularly in cotton yarns, supporting strong margin improvement.
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Successful commencement of solar power projects, expected to reduce annual power costs by 12-15% and increase renewable energy share.
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Greenfield expansion in Odisha progressing as planned, with first phase production expected in Q3 FY27 and full project completion within the financial year, providing headroom for future growth.
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Improving industry outlook with global textile sector recovering, inventory corrections largely mobilized, and India emerging as preferred sourcing destination for yarns.
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Alignment of Indian cotton prices with international markets improving competitiveness of Indian spinners.
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Strong export demand, particularly from China and Bangladesh, with China's increased buying supporting yarn realizations and profitability.
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Potential benefits from India-UK FTA and progress towards India-EU trade agreement expected to improve India's competitiveness in key export markets over the medium term.
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Management confident of maintaining elevated margins for next two quarters, with long-term margin guidance of around 15% after Odisha plant ramps up.
Negative Points
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Uncertainty regarding sustainability of elevated margins (18.8% EBITDA) beyond the next two quarters, with management acknowledging potential for fluctuation.
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Dependence on China as a key buyer for yarn exports, with concerns about demand sustainability if China's buying pattern changes.
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Cotton import duty exemption is temporary (until October 31), creating uncertainty for future procurement costs and competitiveness.
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Potential impact of rising cotton prices on margins once low-cost inventory is used up, though management expects new crop to moderate prices.
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Acquisition of Marvel Dyers and Subhagya Sales is delayed, with full impact expected only from next financial year, adding uncertainty to near-term growth.
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Global textile industry remains cyclical, with historical margin volatility (ranging from 9% to 28%) posing risks to consistent profitability.
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Export growth slower than overall revenue growth, with concentration risk in Bangladesh and China (60-70% of exports).
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New greenfield project will take 5-6 months to fully ramp up, with only 30-40% revenue contribution expected in Q4 FY27.
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Management unable to provide clear guidance on future spreads due to macro environment unpredictability.
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Potential for increased competition and capacity additions in the industry if high spreads persist, though management notes no rush of new projects currently.
Q & A Highlights
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Q: Given that spreads have reached multi-year highs and such spreads have historically attracted fresh capacity additions, what gives management confidence that spreads will remain healthy for a longer period? A: (Chairman & Director) We maintain a long-term guidance of 15% margins once the new project comes in, which is a safe number. We see an upward bias due to significant industry consolidation and the widening margin gap between small and large players. We haven't seen many new projects announced despite the good market, and large players benefit from compliance requirements (we've spent almost ?100 crores on compliance in the last three years), which is difficult for smaller players. While 18-20% margins may not be sustainable long-term, we expect them to be healthier than the last two to three years.
Q: Could you elaborate on the strategic rationale behind the proposed acquisitions of Marvel Dyers and Subhagya Sales, and by when do you expect these businesses to start contributing meaningfully to revenue and profitability? A: (Chairman & Director) These are businesses we've been in for 30-35 years but haven't scaled up. With the FTA signings and opportunities in the country, we see huge potential. The acquisition gives us a foray into downstream businesses, and our financial strength will help hire better talent and create a growth roadmap. We expect these businesses to contribute 8-10% to our top-line and similar to our bottom line next year, with a detailed vision shared in the next six to eight months.
Q: What was the cost of procurement of cotton in Q1 and realizations for your products? A: (Chairman & Director) We don't share specific cost numbers, but the overall spread was ?133 per kg this quarter, compared to ?107 last quarter. Since we maintain a 90-day order book and cotton prices have risen 10-11% in the last quarter, the spread will increase as the order book reflects higher prices.
Q: Of this 18.8% EBITDA margin, what can be attributed to the temporary cotton import duty, and is this margin sustainable in the long run? A: (Chairman & Director) The import duty has no contribution to these numbers as it just happened when we had already procured our raw material. For sustainability, we expect to be around these percentages for the next two quarters. The Odisha plant will provide a lift once fully operational next year, and while percentage margins may fluctuate, absolute EBITDA numbers should trend higher next year.
Q: How much are we investing in the Greenfield project, and what is the capacity target for the next two to three years? A: (Chairman & Director) We have announced an investment of ?1,975 crore, which will be completed by the end of this financial year. We have land to triple our capacity at Odisha. Future spending will depend on our balance sheet and the leverage we are comfortable taking.
Q: With improved realizations, how much growth are we targeting for this year and FY28? A: (Chairman & Director) Last year's top-line was around ?2,500 crores. This year we expect around ?3,000 crores, which is 20% up. Next year, with the new plant, we expect this to go up to more than ?4,000 crores.
Q: What is the expected contribution from the Odisha phase one in Q3, and what is the EBITDA margin profile once the plant reaches optimal utilization? A: (Chairman & Director) We plan to start the plant in the next quarter and expect it to take five to six months to fully ramp up. By March end, we should be at about 90% capacity utilization. The plant has many embedded incentives, so we expect margins to be at least 300-400 basis points higher than our old plants.
Q: Has the competitive intensity from Bangladesh, Vietnam, and China changed in key export markets, and are you seeing market share gains due to supply diversification? A: (Chairman & Director) China has been the tipping point, with increased demand for Indian yarn exports. Bangladesh continues to be steady. China's cotton prices are higher than international prices, creating an arbitrage incentive to import yarn. A lot of consolidation has happened, and we see this competitiveness staying. We expect this to be the worst quarter, yet demand remains extraordinary.
Q: Regarding the solar power plant, how much of the guided annual savings has been realized this quarter, and what is the annual run rate? A: (Chairman & Director) The saving was marginal last quarter as it was operational for only 10 days. This quarter it will be much more. The annual cost saving should be around ?15 crores.
Q: What is the visibility on the recent cotton import duty exemption, and do you expect it to be extended? A: (Chairman & Director) The exemption is until October 31st, and we have planned accordingly. We are in talks with the government to extend it, and we hope for a favorable solution. Removing the import duty would help us source competitive cotton going forward and allow us to choose from wherever we want to buy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
