RSWM Limited (NSE: RSWM) Q2 2025 Earnings Call dated Nov. 13, 2024
Corporate Participants:
Nitin Tulyani — President and Chief Financial Officer
Rakesh Jain — General Manager, Corporate Finance
Analysts:
Tanush Mehta — Analyst
Madhu Sharma — Analyst
Rahul — Analyst
Saket Kapoor — Analyst
Rohit Ohri — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the RSWM Limited Q2 and H1 FY’25 Earnings Conference Call. We have with us today from the management, Mr. Nitin Tulyani, President and CFO; Mr. Rakesh Jain, General Manager, Corporate Finance; Mr. Surendra Gupta, VP Legal and Company Secretary. [Operator Instructions]
Before we proceed with this call, I would like to take this opportunity to remind everyone about the disclaimer related to this conference call. Today’s discussion may be forward-looking in nature based on management’s current beliefs and expectations. It must be viewed in conjunction with the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what may be expressed or implied by such forward-looking statements.
I now hand the conference over to Mr. Nitin Tulyani for opening remarks. Thank you, and over to you, sir.
Nitin Tulyani — President and Chief Financial Officer
Thank you for the introduction. Good evening, everyone. Thank you for joining us for the RSWM Limited Q2 and H1 FY’25 earnings call. I am Nitin Tulyani, newly appointed President and CFO of RSWM Limited, and I’m pleased to walk you through our financial performance for the period.
Trust, you have reviewed the investor presentation and press release we shared yesterday, which are available on stock exchanges and our website. I will begin with highlighting some of the key financial highlights for the quarter and the first half of financial year ’25, followed by our strategic imperative to navigate the current market landscape and build a stronger foundation for sustained growth.
We are pleased to report the company’s positive operational and financial performance for this quarter with solid revenue growth and improvements in operational efficiency despite ongoing industry challenges. For Q2 FY’25, RSWM achieved a revenue growth of 15.7% year over year, reaching INR1,166 crores. This growth reflects our commitment to continue to optimize the product mix and expand the fabric division, which posted an impressive 22% increase year over year. Strong demand in both domestic and international markets for our high-quality fabric has supported the momentum.
Gross profit grew by 17.8% thereby contributing INR65 crores to margins. Our EBITDA rose by 41.7%, achieving a margin of 3.6%, totally driven by effective cost-saving measures and operational efficiency. However, our PAT is showing a loss of INR21 crores primarily due to the higher depreciation and finance costs. We are taking an effective measure to reduce the financial costs. We are working on the liquidation of the stock and realization of the debtors that has been increased.
For H1 FY’25, we saw revenue increase by 24.4% year over year, reaching INR2,374 crores as of 30th September. This growth was supported by our favorable product mix, although we continue to address the pricing pressures in the yarn division. EBITDA for H1 FY’25 rose by 75.3%, achieving a margin of 4%. However, PAT reported a loss of INR35 crores compared to the previous years. Higher finance costs in Q2 FY’25 compared to Q2 FY’24 has led to a INR17 crores impact on our Profit before tax.
Additional investments in the 50,000 spindles in the Banswara Lodha project launched in October ’23 and challenges related to the integrations of an acquired unit, while we continue to strengthen our operations and expand our product reach. These results will reflect both the opportunities and the challenges associated with our growth strategy. We are confident in our team’s capability to navigate these challenges and position RSWM for solid progress in the quarters ahead.
So, this was about financial highlights, and now coming to the strategic imperatives for sustainable growth. To drive growth and diversify revenue, RSWM is exploring new markets with strong demand reducing reliance on specific regions. This expansion not only widens our global presence but also reinforces our position as a reliable supplier, ready to meet diverse customer’s needs worldwide. RSWM is also scaling its operation to achieve greater economies of scale, helping in the strategic imperative to enhance production capabilities alongside efficient supply chains, fortify this approach and keep RSWM competitive while delivering increased value to the client.
In response to changing market demand, we are expanding our product range with new offerings in sustainability products. At RSWM, we continue to keep focus on ESG and accelerate renewable energy adoption by investing in on-site power generation and utilizing government incentives, focusing on marketing and increasing brand visibility. We started with the latest campaign for all reasons, for all seasons, which reflects RSWM’s commitment to being a trusted partner for our customers year-round.
RSWM is working on embracing industry 4.0 technology to enhance operational efficiency. AI-driven forecasting will be integral in the commodity procurement, such as cotton that will support us in inaccurately anticipating the right raw material pricing trends and refining our purchasing strategies for optimum financial management. This proactive approach enables us to adapt the market change with resilience, where machine learning and agile supply chain tools will elevate flexibility across the organization. With artificial intelligence, we are focusing on enhancing the demand planning strategies, supply planning and forecasting techniques with a focus on better inventory management.
Thank you all for joining us today. We have covered a lot of ground from our financial performance to strategic imperative. We want to increase our commitment to driving growth and delivering value to our shareholders. We are excited about the opportunities ahead and confident in our abilities to navigate challenges.
Thank you once again for your trust and confidence in our company as our valued shareholders. We appreciate your ongoing support and we will look forward to our next meeting. Shall be happy to take up specific questions you may have. Thank you.
Questions and Answers:
Operator
Thank you. Ladies and gentleman, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Tanush Mehta from JM Financial. Please go ahead.
Tanush Mehta
Hello. Thank you for the opportunity, Sir. If you can highlight how are we planning to reduce the inventory?
Nitin Tulyani
Okay. So, on the inventory plan, our business team is working consistently on exploring the avenues where we are selling the inventory at a competitive price. Our team is working on it and you will see the improvement in the upcoming quarter numbers.
Tanush Mehta
Okay. And any plans for the capex in the future?
Nitin Tulyani
So, given the current environment, we are approaching future capital expenditures very cautiously, so we have to revisit our expansion plan once there is a shift in the demand outlook. So, we are not exploring any capex other than the routine maintenance capex.
Tanush Mehta
Okay. Understood. And Sir, how do you see the sector in second half? Is there any demand revival or green shoots we can see?
Nitin Tulyani
With so many geopolitical crisis going on, the future is really unpredictable. But still the situations are improving day by day. We have seen the cotton prices getting stable now. So since this is forward-looking, so we should not be able to comment accurately.
Tanush Mehta
Okay, Thank you, Sir. That’s it from my side.
Operator
Thank you. [Operator Instructions] The next question is on the line of Madhu Sharma from SK Capital. Please go ahead.
Madhu Sharma
Hello?
Nitin Tulyani
Yes.
Madhu Sharma
Good afternoon, sir, and thank you for the opportunity. Sir, my first question is, what were the main drivers for the 15.4% increase in total income on a YoY basis?
Nitin Tulyani
Okay, so when we are talking about the revenue increase, it has primarily increased because of the new unit which went live last year, that is the Kapaas unit at our Lodha location plus the new acquisition we did at Chhata, that has also added the increase in the revenue.
Madhu Sharma
Okay sir. And sir, the next one is, what area would you recommend the company’s focus on improving to achieve greater profitability?
Nitin Tulyani
So, like I mentioned in the opening remarks also, we are working on industry 4.0 technologies. So, I am myself leading that project on artificial intelligence and bringing in digital transformation through which we will be able to bring in cost optimization and will improve the demand planning as well as the supply chain process.
Madhu Sharma
Okay, Yes sir. Thank you, sir.
Operator
Thank you. [Operator Instructions] The next question is on the line of Tanush Mehta from JM Financial. Please go ahead.
Tanush Mehta
So, sir, I want to ask that if — you said that AI is being used, so if you can elaborate on that?
Nitin Tulyani
Okay. So, on the artificial intelligence, I would like to elaborate, let’s say cotton is the primary raw material for the yarn industry and we are implementing a cotton forecasting tool which will help us to be more accurate in terms of the — at what level and at what price and what quantity of cotton needs to be purchased, so the tool is yet under evaluation phase and we will be sharing an update later on the same. Through this, we intend to bring in cost optimization with respect to the procurement of raw materials.
Tanush Mehta
Okay, so this will also affect the EBITDA margins in the bottom line also?
Nitin Tulyani
Yes definitely, because our margins are going to improve.
Tanush Mehta
Yeah. Thank you. Thank you for the explanation.
Operator
Thank you. The next question is from the line of Rahul from F&O Tatva. Please go ahead.
Rahul
Good afternoon, Sir. Thanks for the opportunity. I would like to know about your polyester yarn division. I think for the last two years it’s not performing as per the expectations, is it? Is there any reason behind it?
Nitin Tulyani
So, you are asking about the polyester yarn division.
Rahul
Yeah.
Nitin Tulyani
So, if we talk about the grey and the dyed yarn, we have a little bit of challenges with respect to the price realization. And in order to overcome this, the recent management restructuring has happened. We have appointed a dedicated Chief Technical Officer who is working dedicatedly on technological upgradation for improving the quality as well as productivity across all the yarn units. He has been given the target to improve efficiency in the Yarn business, so we are working on it.
Rahul
Okay sir. And sir, the polyester yarn division getting impacted by the overall market scenario or due to some internal…
Nitin Tulyani
It’s primarily because of the geopolitical crisis.
Rahul
But sir, it has been more than two years, I think from the last two years it is not performing as per the expectations.
Nitin Tulyani
We are running on improving the productivity and the quality part also, so you will see the improvement.
Rahul
Okay, sir. Thank you, sir.
Operator
Thank you. The next question is on the line of Saket Kapoor from Kapoor Co. Please go ahead.
Saket Kapoor
Yeah. Namaskar, sir, and thank you for the opportunity. Sir, when we look at our employee cost line item, we have seen an increase to INR137 crores for this quarter and that was the number for the sequential quarter also, June. So what has led to this increase?
Nitin Tulyani
You’re talking about the increase in the employee benefit expenses?
Saket Kapoor
Yes.
Nitin Tulyani
Okay. And what number you are looking at, last year versus the current?
Saket Kapoor
Sir, I am looking at — the last quarter’s number was also INR138 crores, this quarter also INR138 crores, whereas last year it was INR118 crores. So, what has led to currently this 15%-18% increase? The markets have not improved, have we increased our staff strength or what has led to this increase, because as a percentage of sales, that is more than 11%-12% today with depressed margins or with lower margins?
Nitin Tulyani
Okay. So, the one increase is because of the addition of manpower to run the two newly acquired units. One is the Kapaas unit as I mentioned earlier and another is the Chhata unit. So, the manpower is primarily increased because of that only.
Saket Kapoor
Okay. What has been the contribution from the newly acquired asset from Ginni filament, I think which you just referred to as the Chhata unit? How has that contributed? What are the utilization levels?
Nitin Tulyani
We are tracking it as a part of our yarn business. So as a part of our strategy, it is being clubbed into yarn business only.
Saket Kapoor
Correct, Sir. But only to understand how have things gelled with our existing units, how is the new unit performing?
Nitin Tulyani
So, we are working on bringing in the synergies across the spinning unit. In the knit unit, we have been able to bring in the synergies. But we are working on the spinning unit, primarily we are focusing on cost optimization via raw material engineering.
Saket Kapoor
So, what we remember earlier was, we were informed that we need to change some machines also and some capital investment was needed to bring the efficiency which you are just speaking about. So, what kind of capex is in the pipeline or we have done after?
Nitin Tulyani
It is in the pipeline and we are working on it.
Saket Kapoor
How much are we going to spend sir?
Nitin Tulyani
That is still under management discussion.
Saket Kapoor
Okay. And sir, what are our net debt numbers, our long-term debt and the working capital requirement?
Nitin Tulyani
I believe we have shared that in the presentation.
Saket Kapoor
Right, sir. Can you just spell it out, sir, for the benefit?
Nitin Tulyani
You’re looking for the overall debt — total debt.
Saket Kapoor
Yes. Total debt number and the split up between long-term and short-term. I see the long-term borrowing at a consol level at INR683 crores and our short-term borrowing at INR1,000 crores at a consol number.
Nitin Tulyani
Okay. Rakesh, would you be able to answer this question, about the split between the long-term and the short-term debt?
Rakesh Jain
Yes, sir. As of 30th September, the long-term debt is at INR596 crores and the short-term debt is INR1,025 crores.
Saket Kapoor
Right, sir. What is the cost of funds, currently blended cost of funds and what are our current maturities?
Rakesh Jain
Our current maturities are around INR157 crores for the next 12 months, I think from 1st October to 30th October.
Saket Kapoor
Okay, sir. And the cost of funds?
Rakesh Jain
[Foreign Speech]
Saket Kapoor
[Foreign Speech]
And next question is about the current utilization levels for our yarn business and how is the fabric division performance going to be for H2, if you could throw some more light?
Rakesh Jain
Benefit — considering the benefit of incentives and expansions, the interest rate on long-term debt is 5.75% and on short-term there is no such incentive and the overall rate is 8.60% around.
Saket Kapoor
Correct. And sir now on the fabric division performance, Q-o-Q we have seen improvement. So, what factors first led to it? What are our utilization levels for the fabric division?
Nitin Tulyani
Okay. So the fabric division primarily includes our denim business and we have been able to reform this business now and it is expected to deliver profit in Q3 as well as Q4. It has given profit in Q2 also, and in Q3 and Q4 also the profitability is going to improve.
Saket Kapoor
So, did the denim market improvement that has led to the same, if you could give some color on how the prices have been, what has led to this improvement?
Nitin Tulyani
So, it is primarily that we are getting more orders and we are fulfilling those orders with the quality standards and we are adding more and more brands to our portfolio. So, we are getting orders from more brands which is going to add to the more profitability.
Saket Kapoor
Sir, post our September quarter exit, can you give some color on how the business environment is shaping up for the current quarter in terms of the demand and the price trends for yarn prices, some color on the same?
Nitin Tulyani
See, the price realization is still the challenges. We are expecting the Bangladesh market to improve upon and then hopefully there are chances of business being revived.
Saket Kapoor
And sir, utilization levels that I missed your point, what are our current utilization levels for our yarn and the fabric business?
Nitin Tulyani
When you are saying utilization, you are talking about efficiency utilization or you are talking about working capital?
Saket Kapoor
I’ll come again sir. I am talking about capacity. What else utilizations you can provide, sir?
Nitin Tulyani
You’re talking about the existing capacity level?
Saket Kapoor
Yes. Yes sir. Yes.
Nitin Tulyani
I would like to pass this question and our Investor Relations team will be in touch with you for this answer.
Saket Kapoor
For the capacity utilization levels?
Nitin Tulyani
So, we are working at full capacity. We have not shut down any spindles. This is what I am saying. We have 6,30,000 spindles for the yarn business and they are running at the full capacity.
Saket Kapoor
Correct, sir. And sir…
Operator
Sorry to interrupt Mr. Kapoor. May we request that you return to the question queue. There are participants waiting for their turn.
Saket Kapoor
Yes, yes Madam. Thank you.
Operator
Thank you, sir. The next question is from the line of Rohit Ohri from Progressive Shares PMS. Please go ahead.
Rohit Ohri
Hi Sir, I am new to the company so there are a couple of questions which I have. The first one being, you did touch up a little bit on the total debt. So, my question is, what efforts are made to reduce the same? And if we see that we are running at somewhere around INR35 crores, INR36 crores kind of a run rate, how do you intend to optimize the same and reduce the same so that the profitability of the company at the bottom line increases?
Nitin Tulyani
Okay. So, what we are doing is we are working on the off-balance sheet financing, primarily the vendor supply chain financing as well as the TReDS financing, which has been approved by RBI. So, we are planning to shift some of our vendors to off-balance sheet debt financing so that our borrowings will be shown as reduced and our working capital stress will be reduced a little bit.
Rohit Ohri
Sir, when we say that you are trying to improve your margins, maybe on the EBITDA margin front, so what are these factors that you are slightly confident about that you say that the margins will improve going forward?
Nitin Tulyani
Okay. Like I talked about, optimization of the cost. And second, what we are doing is we are focusing on reducing the finished goods stock level so that it will have a direct impact on our finance cost.
Rohit Ohri
Sir, any guidance on the margins profile you would like to share as a range if you would like to share maybe like 5% to 6% is your ambitious target to achieve that EBITDA margin level?
Nitin Tulyani
As of now it is very difficult to comment, but we are working on the strategy to turn around the EBITDA.
Rohit Ohri
Not an issue, sir. Sir, so we grew at somewhere around 15%, 16% this quarter around if we do a Y-o-Y basis. Sir, is it possible that going forward we will be able to sustain this growth rate?
Nitin Tulyani
Yes, definitely we have a plan.
Rohit Ohri
Okay.
Nitin Tulyani
Like I mentioned that we are getting export orders and we are also adding new customers as well as new products in our portfolio.
Rohit Ohri
Since you mentioned the export orders, that brings the Tirupur association into the picture. Sir, how are they faring and any issues or any positive triggers that you are seeing from the Tirupur association and the others?
Nitin Tulyani
Not as such.
Rohit Ohri
Okay. So, we this — looking at this growth avenue which is related to Jammu, and we have this land and you were looking at some INR740 crore kind of an investment. Sir, any information that you would like to share on the same?
Nitin Tulyani
So that project is still under discussion and we are working on it.
Rohit Ohri
Sir, any thoughts or any rough work that you have done on how will you fund this investment? Are you looking at rights issues or some sort of placement or some QIP or something like that?
Nitin Tulyani
So, nothing as such now. So, we are working on a profitable financial model.
Rohit Ohri
Okay. So by when do you think, maybe in next quarter or maybe two, three quarters how much time will you take to kind of plan it out?
Nitin Tulyani
So, we will do it after 31st March 2025 only, not before that. Considering the current quarter, we would like to do it in the upcoming financial year.
Rohit Ohri
Okay. Sir. my last question is, when you speak about industry 4.0 as well as AI-related processes, sir what sort of employee account are you looking at? Are you looking at reducing these employees, maybe the ones which are permanent or the ones which are on a daily wage basis?
Nitin Tulyani
We are focusing on increasing the bandwidth of the employees to handle a particular task by bringing in the technology. Like I mentioned earlier, one area is cotton forecasting and cotton trading where artificial intelligence is going to be very fruitful because it has a direct impact on the cost of raw material procurement.
Rohit Ohri
Sir, so these employees that we had somewhere around 18,600 for the entire consolidated business, do you think that the headcount would reduce going forward, so probably we will get some more profitability?
Nitin Tulyani
No, there is no plan to reduce the headcount.
Rohit Ohri
Okay. Sir, one last question. I know you do not have a crystal ball with you, but do you anticipate that the current financial year for us will end in black or do you think that there will be some redness in the bottom line?
Nitin Tulyani
Definitely there will be improvement in the bottom line. Let us wait for two more months for the market for perform.
Rohit Ohri
Okay, because last year we had some exceptional items which that saved the bottom line to a greater, greater extent. So, we are just trying to gauge if we have some exceptional item or something that can probably bring the bottom line in black color.
Nitin Tulyani
As of now there is no.
Rohit Ohri
Okay, sir. Thank you. Thanks a lot for answering my question. Thanks a lot.
Operator
[Operator Closing Remarks]