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    Banswara Syntex

    BANSWRAS
    Textiles·31 Jan 2025
    Management Summary

    Banswara Syntex reported a strong Q3 FY25 with total income up 11.5% YoY to INR341 crores, driven by a 32% growth in the Fabric business. EBITDA margin improved to 10.7%, and PAT increased by 18.9%. The company is transitioning its Surat unit from SEZ to DTA to improve capacity utilization and cater to both domestic and export markets, expecting 20% growth in Fabric and Garment segments over the next 2-3 years. However, the Yarn division saw a decline, and the Garment division's capacity utilization was temporarily impacted by the transition.

    Highlights

    5

    • Total income increased by 11.5% YoY to INR341 crores in Q3 FY25.

    • Fabric business revenue surged by 32% YoY to INR151 crores in Q3 FY25.

    • EBITDA margin improved to 10.7% in Q3 FY25, up from previous periods.

    • Profit After Tax (PAT) grew by 18.9% YoY to INR10.2 crores in Q3 FY25.

    • Strategic transition of Surat unit from SEZ to DTA expected to improve capacity utilization and export incentives by 3-4%.

    Concerns

    4

    • Yarn division revenue declined by 5% YoY in Q3 FY25 and 12% in 9M FY25.

    • Garment division revenue was down 15% QoQ in Q3 FY25, with capacity utilization at 41% due to SEZ to DTA transition.

    • Temporary capacity loss for 'about a quarter or so' due to the SEZ to DTA transition.

    • Margin pressure in the garment business, leading to prioritizing volume over margin in some cases.

    What Changed2

    vs Q4 FY25

    Guidance items11 → 7 (-4)Risks discussed4 → 3 (-1)
    Key financials

    Metrics

    6

    Periods

    2

    Q3 FY25

    4
    • Total Income
      ₹341 Cr
      YoY+11.5%
    • EBITDA
      ₹36.5 Cr
    • EBITDA Margin
      10.7%
    • PAT
      ₹10.2 Cr
      YoY+18.9%

    9M FY25

    2
    • Total Income
      ₹960.9 Cr
      YoY+3.3%
    • PAT
      ₹16.3 Cr

    Segment breakdown

    Yarn Division (Q3 FY25)
    ₹113 Cr Revenue79% Capacity Utilization
    Fabric Segment (Q3 FY25)
    ₹151 Cr Revenue79% Capacity Utilization
    Garment Business (Q3 FY25)
    ₹70 Cr Revenue41% Capacity Utilization
    Yarn Division (9M FY25)
    -12% Revenue Growth
    Fabric Segment (9M FY25)
    22% Revenue Growth
    Garment Business (9M FY25)
    ₹207 Cr Revenue
    List

    Capital allocation

    3
    high confidence
    CategoryHeadline
    Capex

    ₹80 crores

    not investing more than we can generate

    Debt

    Debt disclosed

    Liquidity

    Liquidity disclosed

    Company expects to generate sufficient cash to fund capex and eventually reduce debt.

    Guidance & targets

    7
    CategoryTargetPriority
    EBITDA Margin
    Overall EBITDA Margin
    at least 12%
    		Medium
    Revenue Growth
    Garment Business Growth
    20% growth year-on-year
    		High
    Revenue Growth
    Fabric Business Growth
    20% going forward year-on-year
    		High
    Business Outlook
    Yarn Business Outlook
    more flat
    		Medium
    Revenue Mix
    Fabric and Garment Contribution to Turnover
    even 70% of our turnover
    		Medium
    Turnover
    Overall Turnover
    maybe about INR1,500 crores plus turnover
    		Low
    Capacity Utilization
    Yarn Division Capacity Utilization Normalization
    everything will be gung-ho and going well
    		High

    SEZ to DTA transition completion & capacity utilization

    next quarter
    CurrentCapacity utilization at 41% in Garment due to transition, temporary capacity loss.
    TargetFull utilization in DTA across Surat and Daman.

    Why it matters

    Successful transition is key to unlocking full capacity and improving overall efficiency and profitability.

    So we will lose capacity for about a quarter or so, before the capacity is utilized in a DTA across both Daman and Surat.

    How to verify

    key_financials.segment_breakdown[name='Garment Business'].metrics[label='Capacity Utilization']

    Risks & concerns

    3
    RiskSeverity

    Temporary capacity loss due to SEZ to DTA transition

    The company expects to lose capacity for 'about a quarter or so' during the transition of its Surat unit from SEZ to DTA, impacting Q3 FY25 garment capacity utilization (41%). — Management acknowledged

    medium

    Margin pressure in garment business due to competition

    Management noted that margin can be a challenge in the garment business, sometimes leading to accepting lower margins to secure orders, hoping for future improvement. — Management acknowledged

    medium

    Inability to match prices of competitors (e.g., Bangladesh) for export orders

    Buyers from certain geographies expect prices comparable to those from countries with duty advantages (like Bangladesh), which Banswara Syntex cannot always match without sacrificing margins. — Management acknowledged

    medium

    Q&A highlights

    8

    “Right. Yes, you're right, there will be some impact on the capacity, which we already experienced in quarter 3 because when we are making the transition, we have to move the machines, and we have temporarily hired a shed of 25,000 square foot in Surat, moved some of the machines there and moved some of the machines to Daman, having lost that capacity for a while. So we will lose capacity for about a quarter or so, before the capacity is utilized in a DTA across both Daman and Surat.”

    Clarifies the temporary capacity loss and the strategic benefit of flexibility (domestic/export) and improved utilization post-transition.

    asked by Karan Mehra (Mehta Investments)

    3 min read6 chapters

    Detailed Narrative

    01

    Q3 FY25 Performance Overview

    Banswara Syntex reported a robust Q3 FY25, with total income increasing by 11.5% year-on-year to INR341 crores. This growth was primarily fueled by a strong 32% year-on-year surge in the fabric business. The company's EBITDA for the quarter stood at INR36.5 crores, leading to an improved EBITDA margin of 10.7%. Profit after tax (PAT) also saw a significant rise of 18.9% year-on-year, reaching INR10.2 crores.

    02

    Strategic Shift: SEZ to DTA Transition

    The company is transitioning its Surat garment manufacturing unit from a Special Economic Zone (SEZ) to a Domestic Tariff Area (DTA). This strategic move aims to enhance capacity utilization, which has been below par for 15-16 years, by enabling the unit to cater to both domestic and export markets. While this transition temporarily impacted Q3 FY25 garment capacity utilization (41%) and involved a temporary loss of capacity for 'about a quarter or so,' management expects overall benefits, including increased export incentives (3-4%) from DTA.

    03

    Segmental Performance and Outlook

    The Fabric segment emerged as a strong performer in Q3 FY25, with revenue growing 32% year-on-year to INR151 crores, and capacity utilization at 79%. Management projects a 20% year-on-year growth for the Fabric business going forward⏳. The Garment business, despite a 15% quarter-on-quarter decline in Q3 FY25 revenue to INR70 crores due to the SEZ transition, is also targeted for 20% year-on-year growth for the next 2-3 years. The Yarn division, however, experienced a 5% decline in Q3 FY25 revenue to INR113 crores, with management expecting it to remain 'more flat' going forward⏳, focusing on internal consumption.

    04

    Capital Expenditure and Debt Management

    Banswara Syntex plans a capex of INR50 crores for the next year, with INR45 crores allocated to the Fabric business, INR3 crores to Yarn, and INR2 crores to Garment. Including infrastructure, power, and environmental enhancements, the total capex for the next year is estimated to be INR80-100 crores. The company anticipates reaching its peak debt by mid-next year, after which a debt reduction journey is expected to commence, supported by a target of INR1,500 crores+ turnover with a 12% EBITDA margin.

    05

    Industry Tailwinds and Export Strategy

    The company sees strong tailwinds from the global trade recovery, easing supply chain issues, and the 'China Plus One' strategy, which is shifting trade and investments towards India. Challenges in Bangladesh's supply chain also create opportunities for India's textile industry. Banswara Syntex is focusing on the US market for garment exports due to India's disadvantage in trade pacts with Europe compared to countries like Sri Lanka and Bangladesh.

    06

    Product Diversification and Client Base

    Banswara Syntex is a vertically integrated player in manmade and woolen worsted fabrics, with finishing and garmenting capabilities. The company has a diversified domestic client base for its garments, including major retailers like Trent, Arrow, Van Heusen, Allen Solly, Myntra, and Flipkart. The company confirms it does not make cotton yarns but buys them externally, while it does produce worsted yarns (100-120 tonnes monthly) for internal consumption in fabrics and its brands like Simone and Fredrico.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.