GHCL Textiles Ltd (NSE: GHCLTEXTIL) Q3 2025 Earnings Call dated Feb. 04, 2025
Corporate Participants:
Raman Chopra — Non-Executive Director
R.S. Jalan — Non-Executive Director
Analysts:
Sheetal Khanduja — Analyst
Jatin Damania — Analyst
Aditya Sen — Analyst
Resham Jain — Analyst
Amit Khetan — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the GHCL Textiles Limited Q3 FY ’25 Earnings Conference Call hosted by Go India Advisors. As a reminder, all participant lines will remain in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star then zero on your touchstone telephone. Please note that this conference is being recorded. I now hand the conference over to Ms Shital Kanduja from Go India Advisors. Thank you, and over to you.
Sheetal Khanduja — Analyst
Thank you, Rail. Good afternoon, everyone. A warm welcome to all of you who are attending the GHCL Textiles Limited Q3 and nine months FY ’25 earnings conference call. We have with us on the call today Mr R.S., Non-Executive Director; Mr Raman Chopra, Non-Executive Director; Mr R., Chief Executive Officer; Mr Gaurav B, Chief Financial Officer; and Mr Mano Jain, General Manager, Investor Relations and Finance. Please note that the discussion on today’s call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. I shall now hand over the call to Mr Raman for his opening remarks. Thank you, and over to you, sir.
Raman Chopra — Non-Executive Director
Thank you,. Good afternoon, everyone. I’m Raman Chopra. Welcome you all to our earnings call for the quarter and nine months ended 31st December 2024. Our results and investor presentation have been uploaded to the stock exchanges and company website. In today’s call, our team is joined by Mr. Jalan, Mr R. Balakrishnan, CEO; Mr Gaurav, CFO; and Mr Manu Jain from the Investor Relations team. The sector continues to operate under demand headwinds.
Despite this, our plant operated at optimal utilization level. Reflecting on our Q3 performance, revenue increased by 16.9% year-on-year, reaching INR288 crores. EBITDA came in at INR26 crore, up from INR20 crore in the same quarter of the last year. For the nine-month period, our revenue came in at INR883 crore, that is an increase of 14% over the same-period of last year. EBITDA came in at INR84 crore, up by 42% year-on-year.
Despite the continued headwinds faced by the industry, our nine-month performance in terms of EBITDA and PAT is higher than FY ’24 full year’s EBITDA and PAT levels. Our share of the revenue from fabric increased from 6.5% in FY ’24 to now 7.8%. Similarly, our share of exports increased from 15% in FY ’24 to 18% now. This resilience speaks of our operational excellence and strong customer relationships. Our balance sheet remains robust with a net cash surplus of INR25 crores.
During nine-month period, we generated INR80 crores of cash inflows, which was utilized towards 75% — INR75 crores as growth CapEx, INR61 crores as debt repayment and INR5 crores as a dividend payments. There was a release of working capital to the tune of INR84 crores. With the rival of new cotton crop, domestic cotton prices have been supported by aggressive purchase from CCI. Yarn prices have mostly remained range-bound and it is expected that the cotton prices will remain stable, which shall support the domestic textile industry. The 2025-’26 union budget has — shall have long-term positive impact on the Indian textile industry.
There are several measures aimed at enhancing competitiveness, boosting exports and modernizing the industry through various schemes and initiatives. Our expansion plans remain firmly on-track. We are committed to investment of over INR1,000 crores, of which INR350 crores have already been deployed. The addition of 25,000 new spindles is progressing as per schedule with operations expected to commence by June 2025. We have undertaken a new project to set-up 40 knitting machines in our existing location at a capex of INR38 crores. This shall forward integrate into value-added products using our own yarn. We are undertaking reorganizing — organization of some of our capacities, which will enhance the operational performance and overall margins. As per our vision, we will invest in weaving and dyed fabric to offer ready-to-cut fabric for our end-use customers. Our balance sheet remains strong with low leverage, allowing ample room for future growth. Thank you for your continued support and confidence in GSL Textile Limited, we now welcome any questions that you may have. Thank you.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Jatin Damania from Swan Investment. Please go-ahead.
Jatin Damania
Hello. Yeah, thank you, sir, for the opportunity. Sir, first, I have a couple of questions. So first one is that with the revised import duty on the knitted fabrics, what can be the margin impact on this, like how can we see the margin upcoming?
Raman Chopra
See, this is a very positive move because there was some kind of dumping which was happening on the knitted fabric in India. So with this duty increase, we see that there will be a improvement in the offtake because the demand should increase and it will you know give imputes to the domestic fabric industry, Indian fabric — native fabric industry, which indirectly will benefit you know the spinning industry as well. So in terms of the margin improvement, that probably will see once the demand offtake happens and overall market improves, the margins will improve. But this is a very positive step. And as you know that we are also setting up — we got the approval yesterday only for our knitted fabric expansion. So this will — a knitted fabric new facility. So this would also help us. This initiative will also help us in having a — this has come at a right time and this will also help GSL establish its a value addition journey.
Jatin Damania
Yesterday we bought the capex permission to set-up a new knitting in terms of the expansion. So by when —
Raman Chopra
Japan, your voice is very low. Can you come a little closer to the mic, please?
Jatin Damania
Sir, now it’s audible? Yeah. Very much. So sir, just wanted to understand by when do — when our knitting capacity will come on-stream and what will be the incremental volume that one can get — revenue — one can get from a knitting and how much yarn then will be consumed captively?
Raman Chopra
Yeah. Very valid question, Jatin. You see, the plan is to put this knitting facility in two phases. The first phase, there are 40 machines that we are putting our first phase will come by June ’25, 24 machines. And the second phase will be completed by December 2025. So this — both the things with both the up — you know phases will be — the whole facility will be operational during the current year. As you know that we are already into the fabric business. We are already outsourcing the knitted fabric as well as the woven fabric and that’s almost 7.5% of our revenue comes from the fabric. So this will be in addition to our existing fabric operations that we are currently outsourcing. And you see our new spinning facility of 25,000 spindles project is getting completed in June 2025. So the first phase of this knitting facility will be implemented along with that phase. So whatever we’ll be producing, our existing yarn, 80% of our own yarn, which we are going to be producing in our new spinning facility will be utilized towards this knitted fabric. So once both the phases are up and operational, 80% of our — our own yarn from the new 25,000 facility will be used for the needed fabric manufacturing.
Jatin Damania
Okay, because you apologize to interrupt you. Yeah, the entire existing facility of the yarn will be selling it outside, right?
Raman Chopra
Yeah. The existing facility, yarn will definitely be sold outside. From the new facility, the yarn will be used for this. Yes.
Jatin Damania
So next question, now as you indicate, the yarn prices have stapled and now cotton prices also likely to remain subdued or probably the current level. So as an industry, how do we see the industry playing out in terms of the spinning and where do we stand-in terms of yarn spreads and improvement in the margin that GHCL can get it in one or two years down the line.
Raman Chopra
But, as you know that probably in our — in the last few years, probably in last two decades, we have not seen — see the demand still remains sluggish. So — and this is probably the longest period of sluggish sluggishness in yarn market that we are seeing almost now two years. And you know, even now the market remains little subdued as I have mentioned in my opening remarks is and this is the longest period. So as and when you know the market improves, probably we’ll see the improvement in margins. But at the same time, as you know, we are very clearly focused on our strengths and the steps which we took started taking almost five years ago towards some of the strategic initiatives have really helped us in navigating this tougher period of last two years. And that is precisely the reason that despite such headwinds, we have been able to operate at closer to full capacity utilization. And as you know that some of the steps which we took like our customer serviceability, our customer focus, our journey from a — from a commodity yarn to a value-added yarn, a utilization of 99% and our focus on renewable energy. These are some of the things which has really helped GSEL, very tight focus on the cost has helped GSL navigate this tough part. So we believe that we have started seeing some inquiries from the export market. We are closely looking at that. As and when it gets converted into business only, that is what — when we can say that, yes, it has started turning around. As of now, we believe that we will operate more or less at the same levels where we are — we have closed this current nine months.
Jatin Damania
Sir, last question on my end, sir, you indicated on the renewable power thing. But if you look on a sequential basis, definitely our power cost has gone up from INR15 crores to INR21 crores, which is almost 7.3% to our net sales. So I mean, just wanted to understand how — what is our focus on the renewables, how are the things moving away or probably benefits to one or two years down the line?
Raman Chopra
See, if you look at this is purely an accounting thing because as you know, the season of wind power generation is May to September. So as per accounting, whatever gets generated during the first two quarters, the benefit of that is accounted for in those first two quarters. And in this quarter, the generation is significantly lower and that is why you are seeing this differential. And otherwise, the performance in terms of this quarter is at par with the previous quarter or slightly better than the previous quarter. And to come to it to answer your question, this — our journey or our focus on the renewable power has really helped us in the last many years and even today also where we are — there is a complete protection on cost increase. So almost 70% of our energy comes from the renewable base. And there is — because of this, our power cost has remained very, very competitive and that has really helped GSL maintain its margins.
Jatin Damania
So sir, I have a couple of more questions. I’ll come back-in the queue again. Thank you, sir. And all the best.
Operator
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and 1. The next question comes from the line of Aditya Sen from RoboCapital. Please go-ahead.
Aditya Sen
Hi, thank you for the opportunity. Sir, so can you please throw some light on the remaining capex that is roughly INR650 crores plan that we have? What are we planning to do when are the plants going to commission and all?
Raman Chopra
Yeah., very valid question. As we mentioned earlier that we are going — we have signed an agreement with Tamiladu government for putting up more than INR1,000 crore investment, INR350 crores we have already spent in the previous year 40,000 spinders and solar and energy investments we had made in the previous year and the benefits of those are being seen in this year. Another project of 25,000 spinders is on-schedule and will be operational by this year-by June. So INR215 crore. And knitting INR38 crores will be spending by the end of December. Post that, we’ll be going into other value-added journey of weaving as well as processing and that probably will take-in the next, I would say, three to four, three years time, three to four years time where this balance amount will be spent. So the idea is by 2029, 2030, we have almost 30% to 35% of our revenues coming from the value-added segments.
Aditya Sen
Okay. All right. And I’m touching this like I haven’t talked this company significantly. So I just wanted to know the source of this INR1,000 crore funding. Is it from the government or how have we sourced it?
Raman Chopra
See, as of now, if you look at our balance sheet, we are a debt-free balance sheet. So all this INR350 crore which we spent earlier as well as that has come from our own internal accruals. Going-forward, our plan is to have to use both internal accruals as well as bank financing. And we’ll maintain and we are confident because we are virtually a zero-debt company as of now, rather there is a cash surplus on the balance sheet. So both from the internal accruals plus bank finance will be able to finance this capex. But we’ll remain very much within those boundaries of — declared boundaries of debt-equity of not more than one is to one, rather we’ll maintain within harvest to one kind of number. So yes, internal accruals as well as bank finance will be used to finance this expansion.
Aditya Sen
Okay. That’s the last question. We have some significant amount of land-bank also. So we have any plans there on —
Raman Chopra
We should be using this land-bank will be using for our own expansion purposes. So — and that is — that will help us grow this business on a year-to-year basis.
Aditya Sen
All right, that’s my answer. Thank you. T
Operator
Hank you. Ladies and gentlemen, if you wish to ask a question, please press star and one. The next question comes from the line of Resham Jain from DSP Asset Managers. Please go-ahead.
Resham Jain
Yeah, hi. So one is the capex which you have highlighted INR350 odd crores where you mentioned spinning is INR215 and INR38 odd crores is for knitting. Where-is the balance capex being utilized?
Raman Chopra
Amit, basically, I mentioned INR350 crores we have already spent in our previous expansion previous year towards 40,000 spenders which we added and the solar energy which we have spent. So that INR350 crore is separate. In addition to that INR215 crore we are spending on this 25,000 spinders project in this year, June 2025, it will be over. And another INR38 crores will be towards the knitting project, which will be completed by December ’25.
Resham Jain
Okay, understood. And after your overall INR1,000 crore capex, let’s say, by FY ’28, ’29, how will the mix look like between spinning, fabric, processing?
Raman Chopra
See, as I said earlier, overall, still I would say 70% of the revenue will come from spinning and around 30% of the revenue will come from the fabric and the value-added segment. But that will be excluding our own yarn because we’ll be using — using our yarn for the internal and the fabric for the internal consumption. So excluding that, so that will be the kind of a mix of the product.
Resham Jain
Okay. Understood, sir. And sir, generally on the spinning side, you mentioned that the overall demand is sluggish. But overall, I think what we heard is that there has been some improvement, especially in the southern belt in Tirupur market and all. So are you seeing — because the order booking for — for the new export booking and all seems to be on a positive trajectory. You are — are you seeing anything on those lines?
Raman Chopra
Yes, Amit. As I mentioned earlier also, we are seeing — we are receiving inquiries, which were earlier like in the month of December, which was not at all there. We have started getting those inquiries and we are waiting for it to be — to get converted into orders. Yes, we are seeing those kind of — you rightly mentioned those kind of inquiries coming in at our end. How much it will resolve into business, let’s wait for a little more time. And we believe that this sector has remained underweight for very, very long-time, almost two years. So probably some trigger should come and this budget has been positive, as you know that government has given this relaxation of tax rebate, which we believe will put more money into the hands of the people going-forward. So some kind of in-demand growth, both from export as well as from domestic side should come.
Resham Jain
Understood. Sir, the last one, I think the previous participant asked about land, but I think few calls back we understood that there has been some non-core assets which are — which are there in the company post the merger. Are there any plans to monetize that and use it for the business?,
Raman Chopra
As of now, there is — we have not come to that — because we have not required that kind of capital. Our own internal accruals are good enough to take care of all our growth needs. As and when if we feel there is any need, we’ll look at that. But as and of there are no plans to monetize as of now.
Resham Jain
Okay, because this non-core asset has been there from quite some time, which is not yielding anything from the business perspective. So I think this is — this is what explains keeping non-core assets in the company, while it is not generating any revenue, so if you can help understanding that.
Raman Chopra
See,, as of now, we don’t need that capital. You see that is really increase in value. So it’s not that it’s not growing in value, it has grown in value. And as and when — as I said, as and when we feel that, yeah, for our future growth or if some kind of strategic opportunity comes to us and we require that monetization, we’ll surely do that.
Resham Jain
Okay, understood, sir. Thank you. Thank you.
Operator
Ladies and gentlemen, if you wish to ask a question, please press star and one. The next question comes from the line of Amit Khetan from Capital. Please go-ahead.
Amit Khetan
Hi, sir. Thank you for taking my question. So my first question is on the revenues, right? We’ve seen a marginal decline and if I look at our utilization, it’s been similar as last quarter. So it seems that yarn prices — realized yarn prices have gone down. What experienced this because most of our peers who have reported have sort of commented that yarn prices have been stable. So has there been any kind of adverse product mix change which explains this decline?
Raman Chopra
See, Amit, very valid question. It’s — you see quarter-to-quarter some devision will happen in terms of what orders you are sent supplying at what level. Small blip in the prices, but overall not much dip. If you look at our gross margins, they have only gone up from 31% to almost 32.5% compared to the previous quarter if you’re comparing with that. So it’s not — it’s basically the supplies, the sales which you — the orders which you execute. So there is not much differential rather there has been slightly slight improvement only in the gross margins. And more or less the margin at a gross level remained at the last quarter’s level, INR95 crores and INR94 crores. So not much differential.
Amit Khetan
Got it. And what is the difference in the margin — margin profile between the native fabric segment and the yarn segment?
Raman Chopra
They are broadly more or less the same. It’s not very significant differential, but more or less the same.
Amit Khetan
Okay. So there has to be some benefit for undertaking capex to do this, right? Otherwise, what is the point if you are getting the same margins as yarn?
Raman Chopra
No, no, because see we are — that will be additional product basket. And when we use our own yarn and on the market, you will be getting an additional incremental value addition in the value addition journey. So what we are — what we are visualizing and basis the business that we are doing on the fabric side, we believe that it can be a value-add and it can get additional margin to us. So basis our — our — our estimates, probably the incremental capital will give us almost 13% to 14% you know roses on-going into the knitted fabric. Anything would you like to?
R.S. Jalan
See, Amitip, let me clarify this point. I think your question is more of it that what is the value addition we are getting out-of-the knitting fabric, right? At this point of a time, we are doing the outsourcing model and in that outsourcing model, around 2%, around 1.5% to 2% is the additional margin we are generating out-of-the knitting business, knitting and knitting business. Okay. Going-forward, this number will be slightly better, as Raman said. Our ROC on the new investment which we have just got approval will be around 13.5%. And our margins would be in the range of around 3% to 4% extra margin will get generated out of this number of these new investments.
Amit Khetan
And yes, yes. And when you talk about ROCE, I’m assuming you’re talking about on pre-tax basis, right?
Raman Chopra
Yes. Yes.
Amit Khetan
Okay. Okay. And lastly, a couple of the participants had talked about the non-core assets. Just wanted to understand what is the size of this — what is the size of the book-value of these assets?
R.S. Jalan
See, let me take this question. You see, basically non-core assets when we say that is we are talking about the vacant land. And that vacant land we have strategically kept for ourselves that in the future, because the is long for the company. We would like to use these assets for our own constructions of the new infrastructure which we built-in, be it your weaving, be it your knitting or be it kind of a spinning. So for strategic purpose, we have kept that those land. And see, I would not say that the lands are not generating any — currently, we are not generating any what you call value in the business. But ultimately the appreciation of the lands also do happen. So therefore, I think this remain — this needs to be remained with the company for the future growth of the company.
Amit Khetan
No, that’s fine. I’m just trying to understand what is the book-value so that when we calculate the return ratio, we can exclude that. So just wanted to get a sense of what is the — what is it — what is the amount that is on the books right now?
Raman Chopra
At this point, but I don’t have the numbers right now, Amiti, probably we’ll find out and let you know.
Amit Khetan
Okay. Okay. Thank you and all the best.
Operator
Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and one. The next question comes from the line of Aditya San from RoboCapital. Please go-ahead.
Aditya Sen
Hi, thanks again. I was looking for some more clarity. When you said that 80% of the yarns produced from the new spindles will be used for knitted fabric. So in terms of revenue, how much additional revenue will it from the knitted fabric segment?
Raman Chopra
See, when we say that the knitted fabric will have to look at the incremental value addition as Mr Jalan has explained, the incremental return or the ROCE from this business will be around 13.5%. So we go with a value addition concept. So it will be approximately, in terms of the value, almost INR1,400 — INR14 crore will be the incremental value addition that we’ll get. On an EBIT level, approximately INR7 crores will be the value that will be get on the incremental basis on this INR38 crore investment. And that gives you around 5% of the return on that.
Aditya Sen
Okay. And so this is only for the 38th year investment and we — the that will be — yarn that will be produced from the 25K facility. That will be sold directly to the market.
Raman Chopra
No, that will be transferred here. So the overall value from that unit will be approximately INR200 crore, INR215 crore kind of number that will be there
Aditya Sen
Okay alright understood thank you
Operator
Thank you ladies and gentlemen if you wish to ask a question please press star and as there are no further questions, I now hand the conference over to the management for their closing comments.
R.S. Jalan
Thank you very much. Thank you very much for this very pertinent questions to us. As I always say that your support and your — your questions do give us a lot of thoughts. Just wanted to kind of give you a summary of our understanding about the business. We personally believe that the budget has been really a path-breaking budget and this will definitely support many other industry, including the textile. And I would like to highlight a couple of things. Some are short-term and some are long-terms. One, which is Raman rightly said about the INR101 lakh crores has been put into the pockets of the general public and that will get kind of consumed in the various area and textile is going to be one of them. And surely that will help. The second is the cotton upgradation where INR500 crores has been. The amount of INR500 crores is not important that the understanding of the government that the crop needs to productivity of the crop needs to — to be looked into, that will definitely because gradually the productivity per-acre has gone down substantially in India. So this change with this will also bring the change in the cotton seeds, which the government is planning to kind of consider. This will definitely help both ways. One, the competitiveness of the cotton into the Indian sector will improve. Farmers income will also improve and that will also help to the economy. That’s I think that’s the second thing which is very important. In addition to that, many other initiatives like your quality product drive, making India as a manufacturing hub. All those things are definitely going to help this will definitely have a big help to the textile industry as well. Somebody asked that question about the overall way we are looking at. Surely, we are seeing a sign of revival at this point of a time and like in, the activity has been — has improved. Even I would say that Bangladesh also some normalcy is being seen in some of the parts of the Banglades. So probably this will all help the spinning industry going-forward. We are very hopeful that things we’ll be looking at better because it’s too long a period in our — at least in our experience of that such a long headwind that has not been seen. So probably we will be seeing that good base going-forward. And definitely, based on our work which we have done on the cost competitiveness, on the product basket expansion, including the customized centricity approach and looking at the kind of a specialized focus on the customers’ requirements, we will be immensely getting benefit going-forward. So this is what is our understanding. We are very positive on this industry. Of course, it may take some time, but hopefully things will be looked at better soon. So thank you all of you.
Operator
Thank you. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us and you may now disconnect your lines