SP APPARELS LTD (SPAL) Q1 FY23 Earnings Concall Transcript

SP APPARELS LTD (NSE:SPAL) Q1 FY23 Earnings Concall dated Aug. 12, 2022

Corporate Participants:

P. Sundararajan — Chairman and Managing Director

V. Balaji — Chief Financial Officer

Analysts:

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Unidentified Participant — — Analyst

Prerna Jhunjhunwala — Elara Securities Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to SP Apparels’ Q1 FY’23 Earnings Conference Call, hosted by Elara Securities Private Limited. 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. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma’am.

Prerna Jhunjhunwala — Elara Securities Private Limited — Analyst

Thank you, Lisa. Good evening, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to the Q1 FY’23 Post Results Conference Call of SP Apparels Limited. Today, we have the Senior Management of the company including Mr. P. Sundararajan, Chairman and Managing Director; Mrs. S. Latha, Executive Director; Mr. S. Chenduran, Executive Director; Mrs. P.V. Jeeva, Chief Executive Officer; and Mr. V. Balaji, Chief Financial Officer of the company.

I would now like to hand over the call to the senior management of the company for initial comments. And thank you, and over to you, Sir.

P. Sundararajan — Chairman and Managing Director

Thank you. Good evening, everyone. A very warm greetings to all of you present on the concall to discuss our Q1, FY’23 performance. I hope and wish that all of you and your loved ones are healthy and safe. I would like to update you all on the buyback where due to certain regulatory process that needs to be fulfilled, the Board will deliberate on the buyback plan after the regulatory content fulfilled in a couple of weeks’ time. As you are aware about the performance of the company during this quarter, we have performed well. Our margins in terms of value have been the best performance so far.

Let’s review the performance division-wise. Garment division. Our Garment revenue for this quarter stood at INR223 crores versus INR116 crores for Q1, FY’22, which is at a growth of 93% year-on-year. Total exported quantities stood at 14.8 million pieces. Adjusted EBITDA of the Garment division stood at INR48.2 crores in the current quarter, as against adjusted EBITDA of INR29 crores year-on-year. Our current order book stands at around INR400 crores. We are in the process of adding two more customers, new customers from Q3 onwards.

Regarding Free Trade Agreement, FTA, for the UK, it’s a long-awaited one, and our Commerce and Industries Minister has indicated that it would happen very soon in the near future, on account of the 75th Independence anniversary. If this happens, it will be a great advantage and opportunity to India, as we would be on the same level-playing field with our — other competitor countries like Bangladesh, Sri Lanka, et cetera. This will also improve the orders inflow to our country. With regards to capacity utilisation, it is around 75%, and this is expected to increase by around 10% to 15% more, going forward. As we have informed earlier, our new factory in the down south is under process and is expected to be completed by the end of June ’23.

Regarding Spinning, now we have invested into 1-megawatt of solar plants in our spinning plant as part of our sustainability strategy program. And going forward, we propose to increase 1-megawatt every year. The plant has commenced only during the month of July, and is expected to contribute to the margins, going forward. Further, the cotton prices are very volatile, and the fluctuations in the yarn price are not in correlation with the cotton prices. We have reduced our yarn production during the month of July and August until the price stabilises. We expect the cotton prices to decrease during November. We are expecting a reduction in spinning margins during Q2, due to the hike in cotton prices and the fall in the yarn prices.

With regards to the Fabric Processing division, inspite of shortage of coal availability and the raise in the input cost, our processing division was able to perform well with a good utilisation level, and contributing to margins effectively. Regarding SP-UK. It had seen a lot of disruptions in supply chain, majorly due to the third wave in the UK and Europe. Non-availability of adequate containers has interrupted the supply chain severely and disturbed the revenue for the current quarter. Revenue for the quarter stood at GBP1.21 million as against GBP1.12 million last year. SP-UK has made a loss of GBP33,000 as against a loss of GBP8,000. I’m confident that SP-UK will be able to come out of the crisis and will be able to do well going forward from Q3 ’23 onwards.

With regards to SP Retail Ventures Limited. As planned, we have hired out the retail division into a separate company, and we have added two more brands under this Retail portfolio. We have added a children’s brand known as Angel and Rocket, it is a premium brand under SP Retail Ventures Limited. We have also added one more brand under the Retail Ventures portfolio, which is an international brand which is well known for pennies [Phonetic] and skiing, has given license to SP Retail Ventures Limited to manufacture and sell apparel and footwear goods in India, under the brand HEAD. This brand comes under the athleisure segment.

Currently, we have 59 stores under all brands. We have opened two new stores for Angel & Rocket in Bangalore, which are doing well. We have also opened stores for HEAD, which is doing well. We are confident that with brands like Crocodile, HEAD, Angel & Rocket, and Natalia, it will do very well, and we’ll be able to get this company listed at an appropriate time, separately. Financial performance of SP Retail Ventures: Total revenue for Retail stood at INR17.1 crores, and we had a positive EBITDA of INR50 lakhs, and we had a loss of INR40 lakhs for the first quarter. Current liquidity. Our liquidity position is strong, and

We have serviced all the debts up-to-date.

Now I pass on the financials by Mr. Balaji, CFO, and thank you.

V. Balaji — Chief Financial Officer

Thank you, sir. Good evening, everybody. I’ll just run through the financials of the company by listing the presentation. We have a total revenue of INR252 crores against INR131 crores year-on-year, which is a 92% increase, and we have an adjusted EBITDA of INR48.45 crores against INR27.83 crores year-on-year, which is an increase of 74%. We have our PBT at INR35.45 crores as against INR16.82 crores year-on-year, which is a 111% increase, and we have our PAT margins at INR25 crores — INR25.8 crores as against INR11.55 crores year-on-year, which is an increase of 123%.

Garment division made a revenue of INR223 crores as against INR116 crores year-on-year, which is a 93% increase. EBITDA margins of the garment division stood at 21.6%, as against 26% last year. And our revenue from retail operations stood at INR17.1 crores against INR4.5 crores last year, and the EBITDA margins for the retail division stood at positive 2.9% as against negative 53%, last time. And UK stood at INR12 crores as against INR11 crores last year and the EBITDA margin for retail is at minus 1.9% as against a positive 0.3% year-on-year. In our current debt position is, we have a gross debt of INR199 crores and net debt of INR171 crores. Our working capital — as part of working capital, we have INR238 [Phonetic] crores as inventory, INR78 crores as receivables and INR59 crores as payable for the current quarter. This information is available in the presentation, and we can get into the question-and-answer session right away. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions]. The first question is from the line of Shikha Mehta from Equitree Capital. Please go ahead.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Hello, sir. Congratulations on a great set of numbers. I just had a couple of questions. On the Retail side, we’ve done very well. So, is this the run rate we can consider going forward for the rest of the year? Also, could you throw some light on what strategy has worked for us, what changed, et cetera?

V. Balaji — Chief Financial Officer

In terms of the run rate, going forward, I guess, we have already explained the growth — that comment. You can definitely look forward for the same set of numbers, going forward.

P. Sundararajan — Chairman and Managing Director

It’s regarding retail, right?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Yes.

V. Balaji — Chief Financial Officer

You are talking about retail?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

On the retail side, yes.

P. Sundararajan — Chairman and Managing Director

See, in the Retail side, see, as I mentioned to you now, we have announced three brands under this umbrella. And Natalia is also in the pipeline, which is our own brand. So currently, we have Angel & Rocket in our premium kids segment, our own brand, company’s own brand. I mean, SP Retail’s own brand. And Natalia is also our own brand. Crocodile is a licensee brand that we have been doing for the past 15 years. And this HEAD is the one in which we got the license just before the first COVID lockdown, so this is the current scenario.

And with regards to the performances, because all these retails have taken a big hit during these continuous COVID lockdowns. And again, in Tamil Nadu, many — for weeks Saturdays and Sundays are not open, so we had a big hit. Now everything is back on track now. So, Crocodile is doing extremely well, and we have about a number of — 50.

V. Balaji — Chief Financial Officer

59 stores.

P. Sundararajan — Chairman and Managing Director

59 EBO stores. In addition to distribution channels and the shop-in-shop like large format stores. So, Crocodile definitely has turned around and is doing extremely well.

With regards to Angel & Rocket, our own brand, so this is — after the COVID lockdown that now only we are taking aggressive steps now. We have a presence in Shoppers Stop, Lifestyle, Central, which is a Reliance Central and so on. And also with, we have opened our own two stores in Bangalore, Angel & Rocket, which are doing very well. So, it will take about another few quarters to breakeven and to be able to make profits.

With regards to HEAD, HEAD I think, everyone knows it’s a famous brand globally. Originally, it’s from the US, and now it’s been owned by Austrian owners. So, we have got India’s license for India for athleisure apparel and footwear for India, under the name HEAD. So now we have one store open at Chennai, and we have three more stores in the pipeline of EBO stores.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Right.

P. Sundararajan — Chairman and Managing Director

And we already have a presence in Central, HEAD, and we are talking — there is a discussion going on with the Central Reliance, where there is a possibility of getting a presence in about 50 to 60 stores. So, this is a brief about the retail business model.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

All right, sir. Sir, also on the volume front, as shown on Slide number 9 I think, we are still — as in FY’22, we are still not doing the same volumes we did pre-COVID. And if we continue at the run rate we’ve done this quarter, we should just about touch our pre-COVID volume number. So, can you explain why that is? Is that because we’re seeing slower demand? Or can you explain that?

And as part of the same question, our total turnover has been higher than pre-COVID levels. So, is that because of raw material hikes, because of which we had to take price hikes? Or is there another component to it as well?

V. Balaji — Chief Financial Officer

You’re talking about the EBITDA margins, right?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Sir, I’m talking about our volumes.

P. Sundararajan — Chairman and Managing Director

Volumes.

V. Balaji — Chief Financial Officer

Volumes, actually comparing last year, year-on-year quarter, we have definitely moved 20% ahead in terms of volume.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Yes. So, this year, means our volumes, if we go at the same run rate, will be the same as they were in FY’19 approximately, correct?

V. Balaji — Chief Financial Officer

Correct, correct. FY’19 was a different story, where we had some issues postponed to FY’20, and there our projects were delayed. If you look at the call transcript FY’20, you would understand. So, expecting the projects to be completed, we took orders, and we were not able to complete the orders in-house. We have to outsource it and complete it. So that is FY’20. So I guess you should not look at —

P. Sundararajan — Chairman and Managing Director

I think FY’21, that is during the COVID, there was a partial lockdown FY’21. So, the sales had dropped. So for ideally, we should compare with FY’19, where you know, that was a year there it was no interruptions during the whole year. So, if you compare like-for-like from FY’19 to FY’23, I think we are affirm and slightly more. And this is — your question is because of the raw material increase or something? That is only playing partly in this number. But there has been a growth in the capacity also, in the sense, in FY’19, we had about 3,300 machines running, and now it’s about 3,400 machines, on average. So that is one reason, and a little bit of increase in the raw material prices. But let us just not compare with FY’20 and FY’21.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

No, sir, I’m asking about FY’19 only. FY’19 and FY’23 volume should be flat, if we go at the same run rate as we have in Q1. Though the topline number, the total revenue number will be much higher. So is the number — is the revenue number higher due to raw material hikes, and hence, we’ve taken price hikes? Or is there something else as well?

P. Sundararajan — Chairman and Managing Director

No. The material increase is about 5% to 10%, not much, it is only because of the real increase in the production and the sales booking. Because FY’19, there was a small disturbance with one of our major customers. So, there was a drop in the order book during that period for about four, five months’ time. So now we have revived everything, we are back on track. And now, in Q1 and Q2, we are back to normal. There is going to be a natural increase in the topline.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

All right. And sir, how much of the raw material price hike have we been able to pass on?

P. Sundararajan — Chairman and Managing Director

It’s about 5% pass on to customers. Around 5%, 10%. Up to 10%. But it depends on customer-to-customer, 5% to 10%, we were able to pass on.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

All right, sir. And we said in our opening remarks that we assume cotton would be cooling off, we assume in November. So post that, do we need to correct our finished goods prices as well? Or how does it function?

P. Sundararajan — Chairman and Managing Director

Yeah. Definitely there will be a reduction in the sales price and unit price because customers are waiting for the right time to get back to normal. So in fact, they mentioned that when the cotton price comes down, we should be in a position to contribute to some extent, to be competitive.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

And sir, are we seeing incremental business coming from the Middle East and Australia post the FTA?

P. Sundararajan — Chairman and Managing Director

Yes. There is a possibility, but we have dropped looking at the Middle East area, Middle East countries.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

All right. And sir, could you also shed some light on the status in the UK? It seems that there has been some sort of demand slowdown. So, are we experiencing that in our products as well?

P. Sundararajan — Chairman and Managing Director

Yes. Definitely there is a recession in all over Europe and the UK due to this Russia-Ukraine war. So definitely there is recession. And as we always said, with regards to babies and kids, we are not very much affected. But there is kind of a competition with other countries like Sri Lanka and Bangladesh because everyone is in need of orders. So that is the challenge we are facing. But we are able to manage so far by being competitive to some extent, where there is a what you call Nordics [Phonetic] has been very tight now. However, we are working internally to see how we can mitigate this reduction in margin and get back to the same position in terms of margin.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Right. And sir, also, our interest cost has gone up a significant amount this quarter. So, is that due to an increase in debt? Or how should we look at that? And is that again the run rate to consider for the rest of the year?

V. Balaji — Chief Financial Officer

No, I think the interest costs have gone up just by some INR40 lakhs, INR50 lakhs. And it is purely because of the material costs going up. Carrying cost on the inventory is also going up. So, the utilisation level is also going up. So going forward, I don’t see that there will be a big increase in interest cost.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

All right, sir. And the last question, if I may. Could you also tell me what our profit number would be adjusting for the ForEx gain and loss? In your presentation, I think on Slide number 10, there are two line items. One is gain on ForEx currency and then below that, and there is M2M gain. So, if you could just explain?

V. Balaji — Chief Financial Officer

So, ForEx gain is the difference between the spot and the realisation, M2M is a notional number which is pertaining to the outstanding forward contracts. So that’s it.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

All right, sir. All right. Thank you so much.

V. Balaji — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions]. We’ll move on to the next question. That is from the line of Niraj Mansingka from White Pine Investment Managers Private Limited. Please go ahead.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Yeah, hi. Good evening, gentlemen. I just wanted to ask two questions, one on manufacturing and one on employees. Can you tell me what the capacity of machines is right now and how it will move forward in the next two to three years, like when will the capacity get added, and how — from the step-up second [Phonetic] table?

P. Sundararajan — Chairman and Managing Director

Yeah. So currently, we are running close — so we have a total of about 5,100 machines install capacity. And currently, we are using about 75% of it, which comes close to around 3000 — I mean, close to 4,000.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Right.

P. Sundararajan — Chairman and Managing Director

And in the next three month’s time, we are expecting this to go up to 80%, 85% by November-December, for utilization, which means it will cross about 4,200 machines. We hope to cross. And so in the future, probably in 12 months from now maximum, in the next one year time, we are expecting an increase of another about 15% to 20% increase in the machine capacity from current scenario. So which will fetch in the growth of 15% to 20% additional business.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay. So, 20 months from now, we will get a capacity revision, not before that.

P. Sundararajan — Chairman and Managing Director

Sorry?

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

How many months from now will you add 20% machines?

P. Sundararajan — Chairman and Managing Director

So, it will be what around 500 to 700 machines.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

In how many months from now?

P. Sundararajan — Chairman and Managing Director

12 months.

V. Balaji — Chief Financial Officer

12 months.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay, 12 months. And till 12 months period, your number of machines will remain at 5,100. Only utilisation will increase. Is it right to say?

V. Balaji — Chief Financial Officer

12 months from now, we will add another say, 700 or 800 where we should be very close to 6,000. And our utilisation level should be increasing, going forward.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

I am sorry I could not hear the last line. When will you add 700 to 800?

P. Sundararajan — Chairman and Managing Director

See, by next year by now, there will be — see, there are two methods of increasing the production not physical machines alone, because we will be adding on another about 300 to 400 machines next year by now. Also in addition to that, we are increasing the existing capacities. Still, we have room for increasing in all our existing factories. So, all those idle machines will be filled, that’s the second thing.

And the third one is, as we have been mentioning in the last few con calls, that we are planning for two factories starting with the second shift. So already we have started in one factory with second shift about the two lines. So gradually in every quarter, we will be increasing two to three lines in the second shift. So, by all these combinations, we will be able to increase our production capacity by about 600 to 700 machines.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay. Got it. The physical machines will add only add in 12 months from now. But by using more and more double shifts, you will add utilization of those machines in the next one year from now. Is it right to say that?

P. Sundararajan — Chairman and Managing Director

Correct. Correct.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Got it. And this other thing is on the number of employees. How many employees do you have right now?

V. Balaji — Chief Financial Officer

Around 12,500. Because we are backwards-integrated. So, all put together, we should have close to 12,500 employees.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay. And can you give some colour on how you’re planning to hire and retain? Because that has been the biggest slowdown or you can say that was the biggest important factor for your growth in the past?

V. Balaji — Chief Financial Officer

We have strategized in terms of those employees, how.

P. Sundararajan — Chairman and Managing Director

Yes, see this is — I have been informing all these on con calls that there is a challenge in mobilizing the man power workforce.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Yeah.

P. Sundararajan — Chairman and Managing Director

As I mentioned last time, we are nearly able to come out of this issue. Yes, now I would proudly say that we are out of this challenge — problems and we are able to mobilize the workforce the way we want it. So henceforth, this was the only constraint this company was having for the growth. But now on, this has been — once this has been turned around now, we are in a position that we can increase the workforce easily by 15%, 20%, and it will not be a bottleneck. Hopefully, we say that it should not be a bottleneck hereafter.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Can you give me some color, how you tick — how do you overcome the challenge of your company [Phonetic]?

P. Sundararajan — Chairman and Managing Director

See that is our internal restructuring [Phonetic] subject, I don’t think we have enough time to talk about it now.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Okay.

P. Sundararajan — Chairman and Managing Director

See, like in the sense, we had made attempts in different channels to get the people mobilized. A lot of networking we have done, the big team is working here. So that’s a big subject anyway. But we have done it now.

Niraj Mansingka — White Pine Investment Managers Private Limited — Analyst

Got it. Thank you very much, sir.

P. Sundararajan — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Rakesh Wadhwani from Monarch Networth. Please go ahead.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Hi, sir. Thank you for the opportunity. Sir, can you just repeat — can you just explain a bit on the point you mentioned in your opening remarks regarding the FTA agreement that’s going to be implemented from 15th August? I just didn’t get the point properly. Can you please help me with that?

P. Sundararajan — Chairman and Managing Director

No, no. I mentioned that as a part of 75th Independence anniversary, the government is very keen to get this FTA done with the United Kingdom, UK. It was just an indication. But I’ve been reading in the newspapers and getting a lot of information officially from the associations that our Commerce and Industries Minister has said yesterday that we are working very hard and any moment. I think they have done 82nd sitting or something like that.

They have, several rounds of sitting they discussed and more or less done, so we expect any moment, maybe in the next two, three months’ time, FTA should be through. This is what you know, I guess. So if that comes through, then it’s a very good opportunity for India because we will be at par with duty-free countries like Sri Lanka, Bangladesh, Pakistan and other countries. So, there will be the same level playing field, and we can take more orders at competitive prices. And definitely, if the FTA is announced, and the European and I mean, UK customers having the preference to place the orders to India first.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Okay. Thank you, sir. And sir, one more question. We are reading that in Bangladesh. Bangladesh as a country is witnessing power shortage problem. Can you please talk about that? And are we getting some orders because of that?

P. Sundararajan — Chairman and Managing Director

See, definitely, many buyers were interested [Phonetic] in the UK, just ten days ago, so everyone has said that they want to divert. See last year, the customers were talking about diverting their business from China. I don’t know, suddenly this time, they want to divert some of the business from Bangladesh for two reasons. One is the over-dumping of orders to Bangladesh, which is too risky for them.

And secondly, the raw material costs, the power problems, power issues and uncertainties on deliveries. So, this is a worrying concern — it’s a big concern for the buyers. So, they want to play with a safer country, so that’s one of the reasons again, that they prefer India. So obviously, we are getting some even regular [Phonetic] businesses, which are supposed to be produced in Bangladesh, is coming to us now.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Okay. And sir, one more question regarding the buyback. Is there any amount that the company has thought to do buyback, like because we have lesser cash on the books as far as the recent presentation? Any amounts we have thought of?

V. Balaji — Chief Financial Officer

See, the Board has not deliberated anything into the amount. As of now, there is no comment to talk about the buyback.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Okay, okay. Thank you. If I have further question, I’ll comeback back in the queue. Thank you.

Operator

Thank you, ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Yeah. Good afternoon, sir. Thanks for giving me the opportunity and congrats for good set of numbers. Sir, my question is again on the demand front. You just mentioned that you are not witnessing any slowdown in demand due to the recessionary environment in the European countries. Sir, can you explain us why so? And if that is the case, then what is the replenishment cycle in the kids where like that is what is helping you out? Or as you just mentioned, some of the customers want to shift from Bangladesh and Sri Lanka to India for a much stable supply. That is the reason why you’re saying that this recessionary environment will not lead to lower demand for you?

P. Sundararajan — Chairman and Managing Director

The first question is you know, yes, there is a recession all over Europe, the US and the UK as well. And definitely, there is no doubt about it. But as I always mentioned, the babies and kids wear, if given an opportunity to spend, the customers will spend first for the children’s garments. So that is one reason. And the second one is also see all these years, what I assume from the way they input to me, they have not been comfortable with Bangladesh for whatever reason. So given a choice, they would always like to move to India.

Because of this recession, so they really don’t need to depend so much on Bangladesh. Now they got a room for this and time to shift some of the businesses to India because their requirement is less now than compared to previous reasons. So that is one of the second reasons why they are coming to India. So, this is the right time for them and keeping in mind the FTA also. So, they want to set up their factories in India. By the time FTA comes, they will be comfortable in the competition.

Operator

Mr. Pawaskar?

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Yeah.

Operator

Are you done with the questions?

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

I just have another question, second question, if I can ask.

Operator

Sir, please proceed.

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Yeah. So, the second question is related to the first question. You just mentioned in your initial comments that two more customers are also getting added by quarter three. So, should we expect that these two customers will add on to your revenues from FY’24 and not from the second half of the year, because that is how it works for you?

P. Sundararajan — Chairman and Managing Director

So the business, I mean, the shipment will be done in Q3 in these two customers. It will start.

Operator

Mr. Pawaskar, we are unable to hear you. Mr. Pawaskar, we are unable to hear you.

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Hello? Yeah, my questions are done. Thank you.

Operator

Thank you, sir. We’ll move on to the next question, that is from the line of Yog Mehta [Phonetic] from Skand Capital [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Good evening, sir, and congratulations on a good set of numbers. Sir, my question is, you talked about the solar plant which is started in July. Sir, can we talk about how much electricity it will generate? And compared to how much electricity demand we have given? Sir, many smaller players than us have completely backward captive power supply, sir.

V. Balaji — Chief Financial Officer

It’s a 1-megawatt solar plant, and we are expecting 5,000 units to be generated a day.

Unidentified Participant — — Analyst

Okay, sir. And given, sir, what is the number, like approximate number of units we require for our operations, sir, number of units of electricity requirement is huge. So for us, we need a 8-megawatt to 10-megawatt of a solar power, in case we all go for solar. So, we have a huge headroom to go into solar. So that’s why in the opening remarks, the Chairman spoke about increasing the solar 1-megawatt every year.

P. Sundararajan — Chairman and Managing Director

See, there are two things. One is, gradually we should also get the support you know, to support the margin, so we need the solar power, I mean, energy thing, which will also help us in — improve the bottom line. And the second thing is also it’s in the kind of requirement of the day for sustainability, so natural renewable energy is important, all the customers are expecting as against the global warming. [Technical Issues]. So, we have already taken steps year-on-year, minimum of 1-megawatt to a maximum of two to three megawatts year-on-year. So that in the next five years’ time, we will be self-sufficient with our own renewable energy. That’s the plan.

Unidentified Participant — — Analyst

You said because — I asked because, sir, 15, 20 times smaller companies than us in the textile sector, sir, they have completely backward-integrated, sir, power supply system. So I thought maybe we should because power is one of the critical components in our industry, sir. And another question, sir, given for another big component of our P&L, sir, heating requirements, sir, we use coal right now. Given, sir, the elevated prices in coal, are we looking at shifting to alternative heating generators like burn gas oil, or propane, or petroleum coke, as other textile manufacturers have done, sir?

P. Sundararajan — Chairman and Managing Director

Yes. See, with regards to our own captive energy, yes, we used to have them before we had the wind mill energy. But in between, we sold those wind energies about seven, eight year, ten years back. So now I mean, coming back to the backup of our own energy — renewable energy, that’s one thing. There again, it’s a question of investment. You see, we have to also in mind the return on, ROCE, is also important. So we cannot put — it might go on about INR100 crores to INR150 crores all of a sudden.

We don’t want to invest, as such our margins are reasonably good. So what we plan is at the same time, we had — somewhere we need to start this thing, renewable energy, for sustainability purpose also, so that’s how we started. Over a period of five years, we will be self-sufficient. And with regard to coal, yes, alternatively, we are using good firewood boilers.

Unidentified Participant — — Analyst

Okay, sir. Thank you, sir. Thank you for taking my question, sir. Best of luck, sir.

Operator

The next question is from the line of Shikha Mehta from Equitree Capital. Please go ahead.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Hello, sir. I just had a couple of follow-up questions. To one of the participants earlier, we spoke about the additional capacity we were adding plus the second shift, so all of that put together, how much revenue will we be able to add at optimal utilization?

P. Sundararajan — Chairman and Managing Director

See optimal utilization will be, as we mentioned, around 80% to 85%, and the growth we expect is about 15%, 20%.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Sir, I meant all our new capacity plus the second shift, all of that put together how much revenue can we add?

P. Sundararajan — Chairman and Managing Director

15% to 20%.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

15% to 20%? Okay. And sir, I had another question, if you could give us what percentage we are in all our top five brands, wallet share?

P. Sundararajan — Chairman and Managing Director

Sorry, can we come again on the question?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

What wallet share do we have in percentage terms in the top five brands we supply to?

P. Sundararajan — Chairman and Managing Director

What is that?

V. Balaji — Chief Financial Officer

Wallet share.

P. Sundararajan — Chairman and Managing Director

Our wallet share of what? Customers, you mean?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Right, right.

P. Sundararajan — Chairman and Managing Director

Yeah, see one customer is about 40%, and the second one is about 25%, and then another is 15%, and the remaining all about are around 5% to 10%.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Sir, I mean as in their books? Out of their total supply, how much would we be supplying to them?

P. Sundararajan — Chairman and Managing Director

That way. From their books you mean?

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Right.

P. Sundararajan — Chairman and Managing Director

See, one customer, about 80%, 82%, and another customer is another about, say about 30%, 40%. The third one is they are quite big and, I mean, it’s too early to know the exact share of our investment [Phonetic]. Then the remaining volume was just starting, so not much.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

But sir, for our top five customers, we are 82% of their total suppliers and 40% of their total suppliers.

P. Sundararajan — Chairman and Managing Director

Yes.

Shikha Mehta — Equitree Capital Advisors Private Limited — Analyst

Okay. That’s great. Thank you so much.

Operator

Thank you. The next question is from the line of Rakesh Wadhwani from Monarch Networth. Please go ahead.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Hi, all. Hello? Am I audible? Hello, am I audible?

Operator

SIr, please go ahead.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Yeah. Thanks for the opportunity once again. Sir. I wanted to understand a little bit more or further about Bangladesh competitiveness compared to us. Can you just talk or give us just an example, explain the competitive advantage Bangladesh has with respect to cost and why it is coming down?

P. Sundararajan — Chairman and Managing Director

See, they are competitive because of their low labour costs and they are duty-free to the importing country. But because of the uncertainties in delivery and these ethical factory compliances is still in question. Then, the over-dumping into Bangladesh because of the competition among the retailers, everyone wants cheaper imported growth, so everyone wanted to place more orders in Bangladesh, but they had no other choice, so now — which means that by port basis on 1554 [Phonetic] we had to place more orders in to Bangladesh.

At the same time, they felt hijacked because of the uncertainties in deliveries and uncertainties in ethical compliances, and et cetera. So now that India is becoming very strong and FTA is expected, and there is a recession in the Europe, the UK and the US, so they are using this — the reduced buying. They want to first give to India and then to Bangladesh. So that’s the strategy, it looks like.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Sir, I just wanted to confirm that FTA, more like if India is also included in the FTA, will be a big change towards India from Bangladesh?

P. Sundararajan — Chairman and Managing Director

Yes, we are keeping that also in mind hoping that if they stop placing the orders out, they are hoping by the time we ship from India landed to UK or Europe or maybe the UK now, so there is a good chance of getting them duty-free.

Rakesh Wadhwani — Monarch Networth Capital Ltd. — Analyst

Okay. Thank you, sir. That’s it from us. Thank you.

Operator

Thank you. The next question is from the line of Kaustubh Pawaskar by Sharekhan by BNP Paribas. Please go ahead. Mr. Pawaskar, your line is on the top most priority [Phonetic].

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Yeah. Thanks for giving the opportunity. My question is on the margin front. Sir, in your initial comment, you’ve mentioned that in the second quarter, you will continue to fill the hit on the margins. And from the second half, there would be a gradual improvement in the margin, so is it a right understanding?

P. Sundararajan — Chairman and Managing Director

Yeah, that’s correct. What we gave you the guideline last time also, the same thing we are doing now. The Q1-Q2, the Q1 results are what we have declared is better than we anticipated because we have done a lot of internal things to improve the margins and things. But it was uncertain when we were talking to you during the FY’22 results. Same with Q2 also that, it’s again, we have to undergo these difficulties because of the yarn — the cotton prices are on the high side cotton stock rate everyone has now, and the yarn price is coming down. So, this is a completely different direction. So that is one challenge is there, and most of the garment manufacturers have booked the orders at the lower yarn price, but the yarn price has gone up.

During the yarn price increase, everyone has covered the yarn. So, there are going to be tough numbers in Q2. However, as far as SP Apparels is concerned, we are confident that we should be in a position to maintain the same as in Q1.

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Okay, sir.

P. Sundararajan — Chairman and Managing Director

Maybe a little 1% or 2% less also. I mean, it’s too early to say that.

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Right. And my second question is, once the capacity utilization goes up to around 80%, 85%, You know, what — incrementally, how much will it add to your margins? As you said, that 15% to 20% will also be added to your revenues, in terms of margins because of the efficiencies, how much it help us, too?

P. Sundararajan — Chairman and Managing Director

The percentage may not be the same. But in value terms, there should definitely be an increase.

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Okay, okay.

V. Balaji — Chief Financial Officer

See, we have been guiding for a margin of 18%, and we would like to stick to that, in spite of an increase in cotton prices, we would like to stick to the guidance which we have given already, that we will maintain at least18%.

P. Sundararajan — Chairman and Managing Director

Minimum.

V. Balaji — Chief Financial Officer

Yeah, at least 18%.

Kaustubh Pawaskar — Sharekhan, BNP Paribas — Analyst

Okay, sir. Thank you. Thanks for that.

V. Balaji — Chief Financial Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.

P. Sundararajan — Chairman and Managing Director

Okay. Thanks for everyone’s participation and thanks for the various questions you all asked. And I am sure that I hope I have been able to answer all your questions to the point. And as I always say that, we are very confident about our business model. And me and the entire team is working so hard to ensure that we continuously improve in terms of the topline and the bottom line, which we have consistently proving to the shareholders.

And we see a great future in the next few quarters. It is very visible. Very visibly obvious that the order book is now 400 crores, the capacity is going to go up, and FTA is on the way. And so a lot of positive things are happening, so we are confident that we should be doing great numbers in the coming future. Thanks. Thank you.

Operator

Thank you. Ladies and gentlemen, on behalf of Elara Securities Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.