RSWM (NSE:RSWM) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good evening, and welcome to the RSWM Limited Q2 and H1 FY 'twenty seven Earnings Conference Call hosted by Rig Capital. As a reminder, all participant lines will be in the listen only mode, and you will have the opportunity to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Ms. Rija Singh from Rig Capital for management introduction. Thank you, over to you. Thank you, Yashashree. Good evening, everyone. Today from the management, we have Mr. Rajiv Gupta, Joint Managing Director Mr. Manoj Kansur, Chief Transformation and Risk Officer Mr. Nitin Dulyani, President and CFO Mr. Sarendra Gupta, Chief Compliance Officer and Company Secretary.

0:54 Before we begin, I would like to remind everyone that today's discussion may contain forward looking statements. These statements are based on company's current expectation, assumptions regarding future events are subject to various kinds of risks and uncertainties. Actual results may differ materially from those expressed or implied in these statements. We encourage participants to refer to company's filings with Stock Exchange for detailed discussions for the risk factor. I would now like to hand over call to Mr. Rajiv Gupta for his opening remarks, followed by Mr. Nitin Kuliani for financial performance for the quarter. Thank you, and over to you, sir. Good evening, everyone. So I welcome you all to our Exhibliums Quarter two H1 FY 'twenty seven Earnings Calls.

1:49 Today, I'll briefly discuss the economic environment, key developments in Indian textile industry during the quarter and half year ended December 30 and important developments at RSWM. During Q2 FY twenty seven, the textile industry continued to face challenges arising from geopolitical tensions in West Asia, including U. S, Israel, Iran conflict. These developments created uncertainty in the international trade and the disruptive supply chains, higher ocean freights and fluctuations in energy prices added pressure to transportation and manufacturing costs. At the same time, rising cluster prices increased the input cost for synthetic yarn and fabric manufacturing, while ability to pass these increases to the customers remained limited, putting pressure on our margins.

2:42 Export markets also experienced a disturbance in order flow, making order planning and shipment schedules more challenging. For H1 FY twenty seven, India's textile and apparel exports recorded moderate growth supported by cotton and manmade textile products, while apparel exports is experiencing slowdown in demand, reflecting uneven performance across the value chain of textile. These trends highlight the importance of managing export competitiveness, diversifying markets and responding to the changing demand conditions. Going forward, round tail price movements and developments in key export markets will remain important factors influencing the textile industry performance.

3:29 The Indian economy remains resilient during quarter two or FY twenty twenty seven despite geopolitical tensions, inflationary pressures and uncertainty in international markets. These factors continue to influence overall global trade, commodity prices and business segments. In India, economic activity remains supported by the strong domestic consumption, manufacturing and service sectors. Reserve Bank of India's projected GDP growth of 7.1% for FY 'twenty seven, while the domestic economy... I'm sorry to interrupt, sir. There's some disturbance and you're sounding distant. Can you come closer to the microphone, please? During the quarter, RSWM continued its transformation journey, 2.0, to strategize its ports to domestic stations, remain agile and sustained performance in spite of challenges.

4:37 There has been a focus on the following directions to ensure improved performance in quarter two. A key focus has been on prioritizing profitability over the volume led expansions that we discussed during the last call also. The company has rationalized products which were not generating adequate returns and its focus on high value segments continued. The better utilization of existing performance assets of manufacturing, productivity improvements, tighter working capital management are also the central of this transformation journey. RSWM's diversified portfolio across synthetic, cotton, blended and Milan yarns, denim and knitted fabric help us better different customers' requirements in the different market segments.

5:27 Investments in automation, digitalization, manufacturing modernizations are aimed to improve the process visibility as well as the visibility for operational efficiencies. All these initiatives have helped the company to improve its asset utilization and profitability as reflected in quarter two results, wherein we could register 15% revenue growth in this period and EBITDA grew at 47% to INR215.9 crores, while the PATH increased to INR24.5 crores from INR6.3 crores in quarter two last year. Now if you look at the future outlook, RSWM and sustaining this momentum currently.

6:15 The RSWM 2.0 transformative program, which is built around people, process, planet and profit will remain the center of company's activities in this phase of growth. The focus is on improving utilization, existing capacities, particularly in knitting and melange, while expanding the value added textile and downstream manufacturing. The new product development, sustainable and recycled fibers are differentiated fabric offerings that expect to create more additional opportunities for us. The global supply chain diversification and improving the trade access largely through FTAs present a great opportunity for Indian textile manufacturers. However, geopolitical developments, export uncertainties, raw material volatilities and competition will continue to require a calibrated approach throughout the quarter three and four.

7:13 Our major objective is to build a stronger, more agile, profitable organization rather than pursuing only the revenue growth at any cost. Further, as a part of strategic growth initiative, RSWM entered into a strategic venture with the Spain based NDS nine to establish LNG NDS nine Global Private Limited. RSWM holds 74% stake in this company, while NDS holds 26%. This entity will be a subsidiary of RSWM and will focus on premium denim and knit garments manufacturing for the international clients. In the Phase one, we'll be having the investment of INR $20.08 crores. This partnership combines RSWM's manufacturing capabilities with the NDS design expertise and the international market reach, supporting the company's focus on value added approach and we will be having the full textile value chain exposure after this expansion.

8:17 Now our focus continues in the coming quarters to improve our capacity utilization and operational excellence across all the manufacturing facilities. We'll continue to work on strengthening our product mix and increase contribution on the value added offerings. We execute the ongoing expansion projects and the new projects which we are discussing now in this quarter will also be taking shape. LNG Greenpac, which is already ongoing project, is likely to be commencing the commercial production in the first quarter FY twenty twenty eight. The broader focus remains on consolidating core operations while building the new growth opportunities through forward integration and allied businesses.

9:07 With this, I would now like to hand over to Mr. Nitin Koliayan, our CFO, to discuss the company's financial performance on quarter two and H1 twenty seven. Over to you, Nitin. Thank you. Good evening, everyone, and thank you for joining us today. I will take you through the RSWM Limited financial and operational performance for the quarter and half year ended 09/30/2026, covering our revenue performance, profitability and key operational priorities. Moving to our financial performance for Q2 FY 'twenty seven. Revenue for operations increased by 13.9% sequentially to INR $10.22 crore from INR $11.61 crore in Q1 FY 'twenty seven.

9:53 On a year on year basis, revenue grew by 15%. Domestic sales increased by 12.5 quarter on quarter and 16.5% year on year, while export sales grew by 17.2% quarter on quarter and 11.6% year on year. This reflects growth in both domestic and export sales during the quarter. During Q2 FY 'twenty seven, EBITDA increased by 23.2% quarter on quarter to crore, with the EBITDA margin moderating slightly to 8.7% from 8%, expanding by 66 basis points quarter on quarter. On a year on year basis, EBITDA grew by 47.1 and the margin improved by 191 basis points.

10:45 Finance costs remained broadly stable at INR 31.5 crore. Profit before tax increased to INR 35 crore from INR 24 crore in Q1 FY 'twenty seven, while profit after tax rose to INR 25 crore from INR 17 crore in previous quarter. Compared with Q2 FY 'twenty six, profit after tax increased from INR 6 crore to INR 25 crore. For the first half of FY 'twenty seven, revenue from operations increased by 7.1% year on year to INR 2,484 crores. Domestic sales grew by 8.2% to INR $17.53 crores, while export sales increased by 4.5% to INR $7.50 crores.

11:32 Both domestic and export markets contributed to the growth in revenue, with domestic sales recording a higher growth rate during the period. For H1 FY 'twenty seven, EBITDA grew by 31.4% to INR $2.10 crore, while the EBITDA margin expanded by 156 basis points to 8.4%. Profit before tax increased to INR 59 crores from INR 20 crores in H1 FY 'twenty six, while profit after tax rose to INR 41 crores from INR 13 crores. Overall, the half year results remain reflect improved profitability compared with the corresponding period last year. Our EPS has increased to 8.76 from 2.81% in H1 FY 'twenty six, reflecting a 3.1x year over year growth.

12:20 Our operational priorities remain focused on equipment modernization, cost control and efficient utilization of resources. During H1 FY 'twenty seven, power and fuel cost decreased by INR 16.9 crores, while finance cost reduced by INR 1.3 crores compared with the corresponding period last year. Return on capital employed improved from 5.1% in FY 'twenty six to 6.5% in H1 FY 'twenty seven, reflecting an improvement in the reported measure of capital efficiency. Other equity of the balance sheet increased from $13.25 crore in FY 'twenty six to $15.31 crore in H1 FY 'twenty seven, an increase of INR $20.06 crore.

13:08 This was primarily attributable to an unrealized fair valuation of gain on 181 recognized in the other comprehensive income. The gain arose from the fair valuation of the equity investment received pursuant to the composite scheme of arrangement involving HET Limited, HET Graphite Limited, Elvara Energy Limited and other listed entity shares, which we hold in our balance sheet. During the quarter, the company recognized a onetime exceptional provision of INR 11.5 crores towards the electricity duty on captive solar power generation, following the adverse Rajasthan High Court judgment. The company has challenged the judgment before the Honorable Supreme Court by filing the SMP.

13:54 And also INR 7.42 crore has been deposited under protest, which is pending debt litigation. We continue to monitor raw material procurement, inventory levels and working capital response in requirements in response to changing input costs and supply chain conditions. Under the RSWM 2.0 transformation strategy, our focus continues to remain on manufacturing efficiency, product mix, operational process and maintaining the financial discipline. To conclude, we remain focused on operational efficiency, cost management and disciplined execution in response to the prevailing business environment. We'll continue to monitor market condition and focus on the efficient use of the resources. I would like to thank our shareholders, customers, business partners, lenders and employees for their continuous growth.

14:46 With this, we now move on to the question and answer session. Thank you. Thank you very much. We will now begin the question and answer session. We'll take our first question from the line of Avinash Nahata from Parami Financial Services. Please go ahead. Hello. Am I audible, please? Yes. Please go ahead. Yes. Thanks. Congratulations to the team for a good set of numbers.

15:34 Sir, my first question pertains to the Fabric division. On a three subsequent three back to back quarters, we are seeing no meaningful profit and this time it was the PBIT number was negative INR 6 crores. Please explain on the denim side and knit because one of the players in denim is doing phenomenally well. So on the fabric side, denim knit and objectively what is that we are trying to do, so INR 90 crores of CapEx and it may. So please explain us objectively what kind of benefit can come and by when? Thank you, Vinash, for putting a very relevant question.

16:19 So let me first respond to the current performance, and then I'll share about the project status. So currently, the fiber prices, cotton, as you know, have improved by almost INR 16,000 per candy. INR 16,000 per candy would mean almost INR 16 per kg increase in fact on the cotton yarn prices. Similarly, crystal prices have increased in the last six months from 96 to INR 146. So again, an increase of INR 50. And then gas and diesel and chemical prices increased in addition to the freight cost increased cost. Overall, this cost push which has come despite of the dynamic market being good and utilization being fairly high.

17:06 So profitability is impacted to a large extent. So that is the first cause if we talk about for dynamic profitability. Similarly, in net, the utilization has improved in this quarter over previous quarter. At the same time, profitability was under lot of pressure because of the cost push and not able to pass on the entire increase in the cost to the customer. So this is a temporary issue, which we are experiencing. Now discussions for the next season for the pricing to brands and to domestic is going to be taken accordingly. Now if you talk about the project which is underway for implementation, so this INR92 crores of expansion would be completed by December.

17:54 The printing as well as two fifty metric ton of additional netted production will be available in the fourth quarter. So accordingly, we should expect higher revenue as well as EBITDA from netted business in fourth quarter. So project so far is in line with the timelines and cost and we are likely to finish this as per expectation. Sir, despite near 100% utilization, we are not able to make money because of higher yarn prices. So I mean but we have seen the trend. We've been following the company So fabric till 2017, 'eighteen, we there was again this yarn cycle is there every three, four years, but we have made money.

18:49 I mean, I'm not able to understand the industry 100% the profits could be down, but I mean, we are not able to do positive contribution. I'm not able to understand that. It is not a contribution challenge. This is positive. Probably, let me just let me pass on whatever is the see, one is we are able to pass on 25%, 50%, but this suggests that whatever raw material escalation, price inflation is there, we are not able to pass on anything. Okay. So this is the figure you are referring to probably is PVIT. In terms of contribution, we are not selling anything which is in net contribution.

19:38 The figure 5.24% you are saying because part of the new CapEx is implemented. So interest and depreciation of that is starting impacting, whereas impact of that is yet to come. So and the part of cost push prices, which you are saying, are also taking shape. Normally, you have order booking to the tune of thirty to forty days, both in retail and direct. And cost increase, normally, we are not able to pass on immediately. So there has been an increase in the prices, sales prices also of both denim and nib. But unfortunately, equivalent to the cost price, it has not been done. Sir, are you confident you will be able to turn around by end of quarter four or Q1?

20:27 I can only assure you the best of the efforts. So we expect at least in fourth quarter we will be better off and first quarter definitely we are looking much brighter than what we have this quarter in February. Things are improving because of this capacity expansion, which is also impacting some amount of current utilization will also be better off. And both the marketing teams of mid pandemic are trying to push the prices led by the cost increase. Sir, my second question is, sir, right now we are doing an EBITDA run rate of INR400 crores, INR450 crores. So even if we assume that there's a interest pay around INR125 crores and there is something which goes towards maintenance CapEx.

21:17 So, surplus INR 200 crores to INR $2.50 crores of surplus, what is the management thinking? What is the So we are aware of Phase one please go ahead. Okay. Okay. So you said out of this likely EBITDA post our interest, whatever we are getting in terms of cash profit, one most important utilization of that is the repayment of current loans. So once that is done, then our normal CapEx and then we have two ongoing projects with at hand. One, B2B project where company is infusing our equity stake and second is a new government project which we are having. So the company is on growth phase and both these new projects will involve equity participation to the extent that we are trying to do it from our operations.

22:21 Sir, your Phase one INR $20.08 crores or LNG green equity contribution RSWM balance sheet? Approximately INR 46 crores. Sorry? Approximately INR46 the new venture which you are doing, LNG, NDL? LNG 46 crores out. And LNG Green? Approximately 62 crores out of which we have already infused INR 29 crores. How much is done? INR29 crores. Okay. It is already in the balance sheet, INR29 crores is already drawn.

23:10 So we also have preferential issue of shares coming Okay. Sir, one last question. Amari balance sheet, HEG Advanced or HEG Limited shares, can you just quantify post this restructure of Vimalaya? We have done our disclosure in our Note two account also. It's clearly mentioned here. Do Because we were already holding and through this restructuring, we have also got from our analysts. I can explain you the swap ratio.

24:08 For... Because swap quantity RSWM Limited, 15 lakh 91,000. You can refer to the note number to... Yes. Just wanted to verify so your numbers are matching. Thank you and all the very best. Thank you. Next question is from the line of Jatin Damania from Swan Investments. Please go ahead. Sir, thank you for the opportunity. Sir, just wanted to carry on to the earlier participant question. As you indicated that this quarter, since you capitalized about the machinery expansion, what was the incremental depreciation and the interest that came to the quarter during this quarter?

25:10 So you are asking about the incremental depreciation? Yes, I'm asking. I'm sorry, your voice is breaking. Can you repeat, please? I'm sorry. You're still sounding muffled. Ma'am, it's audible? Yes. Yes. So I just wanted to check because if you look on the fabric front, our revenue has increased sequentially, but there is hardly any contribution on the bottom on the EBIT level. So as you indicated that because of the capitalization of the asset, there were increase in the depreciation and interest during the quarter. So can you quantify that? So there is only an element of interest.

25:55 Application has not yet started because the project is yet to be sufficient. Okay. But in case of the overall pricing benefit, because as we have seen the yarn prices get passed on with the lag effect. So how do we see a pricing monetary on the fabric front in the coming quarters? And with a new expansion coming in from the Q4 onwards, how shall one estimate the growth prospect on the net team going out from the current quarter? So this current quarter, you cannot expect really very quantum difference from this. Of course, it is improving and both in denim and we have initial sales over where we had booked orders and price increase of yarn have been much sharper than pass on to customer. So there will be definitely improvement, but this expansion will give impact in last quarter partially where we'll have the printing, sampling being done and the order of printed sampling will start pouring in. Full impact of this expansion of knitting will be visible in the first quarter next year.

27:14 But definitely third and fourth quarter would be better in terms of price passing for both value and the market. Okay. And in terms of the YaN, how do we see now how the industry is panning out? And how do we see the spread? What was in Q2? And what are the spreads currently? So in yarn, fortunately, as I mentioned, cotton prices increased and fiber prices of polyester also increased substantially. Fortunately, we were able to pass largely to customers, but that has created more issue with the fabric and such as, so overall textile is struggling with this price increase of around PVL.

28:05 As a spinner, most of the spinners have been able to pass on largely. And secondly, cotton, as you know that you stopped for some period, so that also helped us to save through that period. So sir, now with this, if you look at the last Q2 numbers, our 26% of the revenue came from the fabric. With the expansion coming in, I mean, not the JV one, but with the knitting expansion coming up INR 92 crores starting from Q4, what sorts of overall fabric contribution one can see starting from Q4 or probably FY 'twenty eight? I think ultimately, it will go to twothree, onethree kind of position in Q1, where from threefour, it will come to twothree yarn and from onefour, it will come to onethree for CapEx.

29:03 That's the likelihood change of balance sheet revenue composition in last year in comparison to the current half year, which we are reviewing. So with this 5% increase more of the contribution and passing of the higher yarn cost and with the increasing of the Milans coming in, how do we see our operating performance? Because as a company, we have taken a cost initiatives as well, which is visible in the current quarter performance. So going ahead, what sorts of EBITDA margin one should assume on the Fabric division? So we should target double digit as EBITDA in Fabric division, both that and that. So overall, the company, if we talk about from the current level of eight point seven days we are, so we should be doing numbers around or better than this hopefully in the coming quarter.

30:03 Okay. And in terms of the ROCE, because since now, majority of the CapEx on the stand alone books will be over, the JV will be there, where part of the expansion have already kicked in. So on the ROCE front, on the stand alone, I mean, if you exclude the Denim business, what should be the ROCE once you look on the stand alone business, including the Denim JV? You are talking about garment project? Yes. So current yarn and the knitting knitting after knitting expansion and the yarn business that we are currently in, on that business, what will be the ROC one should assume it? So it definite... It will... It is going to definitely increase from our existing level. You're asking about the stand alone ROC, right? Yes, yes, yes, stand alone ROC.

30:56 Right. We'll definitely improve from the existing level. Is there any level? Because you were at 6.5% in this as per your presentation, you were at around 6%, 6.5%. So how shall one look at it expand that front? So it will be difficult to share a number, but it is going to going in the right direction if you look at the last three, four quarters. So it will be this or slightly better than this. Okay. And the last question on the debt. Now with the INR1700 odd crores of the gross rate on the book, what will be the peak debt once the expansion is completed? And how shall one look at the annual repayment of the debt? So if you talk about our stand alone money, the debt stands at INR 100 and crores, out of which INR 95 crores has to go in this half year.

31:52 Okay, 95 crores. And going ahead, annual repayment will be what, INR150 crores to INR100 crores or it will be INR95 crores to INR100 crores only? So next year, it would be somewhere around INR180 crores, if we talk about next financial year. 180 crores. Okay, sir. That's all from my side. Thank you. All the best and wish you and your team a happy Diwali and a prosperous New Year. Thank you, Nitin. Same to you. Wish you also happy Diwali. Thank you. Thank you. Next question is from the line of Saket Kapoor from Kapoor Company. Please go ahead. Yeah..

32:39 Hello? Yes, sir. Sorry, I joined a bit late. Yeah. Thanks. Yeah. Thank you, sir. I joined a bit late in the call. So sir, just firstly, the reiteration that these are all operational numbers that we have posted for the quarter and there is no one off inventory gains or things that have been brought into the activity? Or can you clarify what how should we read this number for the quarter? So number for the quarter, we are a company which is diversified. So our revenue comes from synthetic yarn, Milan yarn, cotton yarn, denim and knit fabric. So the trading or the inventory gain largely happens to the cotton yarn business, where you have stocking of cotton and you got trading gain on that cotton.

33:34 In our business, cotton yarn business contributes less than one fifth of our total turnover and thereby the impact of this gain would also be limited. And we have a policy of uniform continued purchase throughout the year. So of course, this gain on the sudden increase in cotton prices for a couple of weeks definitely has been reflected, but that is part of the operations. When cotton goes down, that also reflects as a buying strategy that we do. We do not, as a company, work on additional stocking or less stocking. We only maintain what is required for the adequacy of workflow in the organization. So we are not a trading business, we are largely into operation business manufacturing of yarn.

34:23 That point is well taken. Sir, you just mentioned that it is only 1% that is the cotton part, so not a large part frozen. No, not 1%. We have onefive. Onefive, okay. Less than onefive of the turnover comes from cotton, yes. Sir, taking into account how the quarter and exit of the quarter, how are the current spread for us and moving into H2, what should be the likelihood trajectory in terms of our margins, utilization levels? What do we expect going ahead, sir? Poojee, if you look at the last four, five quarters, we have been trying to work on the internal efficiencies where we could improve.

35:10 So, one, that approach continues. We still have certain plans for us to work on. Second agenda that we are driving is moving up the value chain. That means eliminating the products which are not contributing and adding to the products which will make more sense, so thereby augmenting our product mix. That's the second journey we are going around. And third is overall shifting in the product mix, going to better markets, going to better products, focus more on the new product development and making sure that everybody in the organization is contributing the required value from him. So looking at all these internal steps in spite of external environment being challenging or uncertainties around the export markets, we expect the performance continues to be at the current level and slightly better if you compare the half year with the possible next half years. Of course, this is more like estimate or projection at this point of time. It will be difficult to share any number, but second half should be better than the first half that we have reported so far.

36:27 Sir. Okay, In case of any follow-up on one to one discussion, I will come again in the queue. Sure. You are most welcome. Thank you. We'll take our next question from the line of Adesh Sharma from Spring Tree Investor. Please go ahead. Yes. Adesh, can you use your handset mode, please? Your audio is not clear. Hello. Yes. Please go ahead. Adesh, we can hear you. Please go ahead with your question. Hello?

37:16 Yes, Adash, we can hear you. Please go ahead with your question. Looking at competitive textile industry, what are the main strategy management is planning to grow revenue over the two, three years? So, the strategic direction of the company first is consolidating ourselves and continue to work in terms of improving our product mix and ensuring that we are in the right product in each segment of the product that we have. The second aspect of strategic direction is growth. So, where we have three projects already indicated or started, but net expansion is likely to complete in next quarter. Our B2B project, which is part of our subsidiary LNG Green Pet is likely to take two more quarters. In the first quarter next year, it will be operational.

38:12 Third is about our LNG, NDS-nine global private limited denim and mid garment project, which is just starting and will take more than twelve months to complete. So maybe in the last quarter of next fiscal or the first quarter of twenty twenty eight, twenty nine, it will be on. So this will be the three projects which we are working on and focus remains to consolidate and grow both in one. Okay, sir. The second question is how will the how the LNG Greenpac project contribute to the company overall to any new and profitability?

38:59 See, LG and APAC, we do B2B, that is the bottom of food chips. So as we mentioned, probably we're expecting the commencement of this project in the first quarter next year. So the total revenue we're expecting from this is almost INR400 crores. So that is going to add to our turnover. So that we expect in the next year. Sir. Thank you. Since it is 100% subsidy, so 100% of the profit as well as the revenue will be added to our consolidated financials. Okay. Thank you, sir. Thank you. Thank you. As there are no further questions, I now hand over the call to management for closing comments. Over to you.

39:47 Yes, Sumit, please. Sure. So I would like to thank our employees, stakeholders and business partners for their continued cooperation and contribution. Their support remains important as we work towards improving operational performance, strengthening our business capabilities and creating long term value. Going forward, we will continue to focus on operational priorities, responding to evolving market conditions and pursue our business objectives with discipline and commitment. Thank you, and have a nice evening ahead. Thank you, members of the management team. On behalf of RSWM Limited, that concludes this conference. Thank you all for joining us today. You may now disconnect your lines.