GHCL Textiles Limited — Q3 FY25 earnings call

Call held 4 Feb 2025

Management summary

GHCL Textiles reported strong Q3 and 9M FY25 results, with significant revenue and EBITDA growth despite ongoing demand headwinds in the textile sector. The company is actively pursuing value-added product integration through strategic capex, including new knitting and spinning capacities, funded by internal accruals and conservative debt. Management expressed optimism for future growth, citing positive budget impacts and increasing export inquiries.

Highlights

  • Revenue for Q3 FY25 increased by 16.9% year-on-year, reaching INR 288 crores.

  • EBITDA for Q3 FY25 came in at INR 26 crores, up 30% from INR 20 crores in the same quarter last year.

  • For the 9-month period, revenue grew 14% to INR 883 crores, and EBITDA increased 42% to INR 84 crores.

  • The company maintains a robust balance sheet with a net cash surplus of INR 25 crores.

  • Gross margins improved from 31% in the previous quarter to almost 32.5% in Q3 FY25.

Concerns

  • The sector continues to operate under demand headwinds.

  • The yarn market has remained subdued for almost two years.

  • Sequential power costs increased from INR 15 crores to INR 21 crores due to seasonal wind power generation.

Key financials

3 periods

Headline

  • Net Cash Surplus
    ₹25 Cr
  • Fabric Revenue Share
    7.8%
  • Export Share
    18%

Q3 FY25

  • Revenue
    ₹288 Cr
    YoY +16.9%
  • EBITDA
    ₹26 Cr
    YoY +30%
  • Gross Margin
    32.5%

9M FY25

  • Revenue
    ₹883 Cr
    YoY +14%
  • EBITDA
    ₹84 Cr
    YoY +42%

What they filed

Q1 FY27: revenue up 52.6%, net profit up 178.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue305 285 284 268 338 +11%349 +22%364 +28%409 +53%
EBITDA27 23 31 30 37 +37%32 +39%41 +32%69 +130%
Net profit21 9 14 14 16 −24%13 +44%28 +100%39 +179%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex ₹1,000 Cr internal accruals and bank financing
    • Previous year deployment (40,000 spindles and solar energy) ₹350 Cr
    • 25,000 new spindles (current year) ₹215 Cr
    • 40 knitting machines (current year) ₹38 Cr
    • Weaving and dyed fabric (future, 3-4 years)
    We are committed to investment of over INR1,000 crores, of which INR350 crores have already been deployed. The addition of 25,000 new spindles is progressing as per schedule with operations expected to commence by June 2025. We have undertaken a new project to set up 40 knitting machines in our existing location at a capex of INR38 crores. ... So that INR350 crores is separate. In addition to that, INR215 crores, we are spending on this 25,000 spindles Rieter project in this year, June 2025, it will be over. And another INR38 crores will be towards the knitting project, which will be completed by December '25. ... Going forward, our plan is to have to use both internal accruals as well as bank financing.
  • Debt Net cash ₹25 Cr
    • Repayment Debt repayment during 9-month period ₹61 Cr
    Our balance sheet remains robust with a net cash surplus of INR25 crores. ... See, as of now, if you look at our balance sheet, we are a debt-free balance sheet.
  • Returns FYTD ₹5 Cr
  • Liquidity Cash ₹25 Cr Net cash surplus available.
    Our balance sheet remains robust with a net cash surplus of INR25 crores.

Guidance & targets

Capacity

  • 25,000 new spindles operational Capacity · FY25 · High confidence June 2025
    The addition of 25,000 new spindles is progressing as per schedule with operations expected to commence by June 2025.

    — Raman Chopra

  • 40 knitting machines completed Capacity · FY25 · High confidence December 2025
    We have undertaken a new project to set up 40 knitting machines in our existing location at a capex of INR38 crores. ... And another INR38 crores will be towards the knitting project, which will be completed by December '25.

    — Raman Chopra

Revenue Mix

  • Revenue from value-added segment Revenue Mix · 2029-30 · High confidence 30-35%
    So the idea is by 2029, '30, we have almost 30% to 35% of our revenues coming from the value-added segment.

    — Raman Chopra

  • Overall revenue mix (spinning vs. fabric/value-added) Revenue Mix · Post capex completion · Medium confidence 70% spinning, 30% fabric/value-added
    See, as I said earlier, overall, still, I would say, 70% of the revenue will come from spinning and around 30% of the revenue will come from the fabric and the value-added segment.

    — Raman Chopra

Profitability

  • ROCE on new knitting investment Profitability · Post commissioning · High confidence 13.5%
    Our ROCE on the new investment, which we have just got approval will be around 13.5%.

    — Ravi Jalan

  • Extra margin from new knitting investments Profitability · Post commissioning · High confidence 3-4%
    And our margins should be in the range of around 3% to 4% extra margin will get generated out of this number of these new investments.

    — Ravi Jalan

Value Addition

  • Incremental value addition from INR 38 cr knitting investment Value Addition · Post commissioning · High confidence INR 14 crores
    approximately INR14 crores will be the incremental value addition that we'll get.

    — Raman Chopra

  • EBIT from INR 38 cr knitting investment Value Addition · Post commissioning · High confidence INR 7 crores
    On an EBIT level, approximately INR7 crores will be the value that we get on the incremental basis on this INR38 crores investment.

    — Raman Chopra

  • Overall value from 25,000 spindles unit (transferred to knitting) Value Addition · Post commissioning · High confidence INR 200-215 crores
    Overall value from that unit will be approximately INR200 crores INR215 crores kind of number that will be there.

    — Raman Chopra

What to watch in Q4 FY25

25,000 new spindles commissioning

June 2025
Current Progressing as per schedule
Target Operational

Why it matters

This is a significant capacity expansion expected to contribute to yarn production and internal consumption for value-added products.

The addition of 25,000 new spindles is progressing as per schedule with operations expected to commence by June 2025.

Risks & concerns

  • Demand headwinds in the textile sector

    medium

    The sector continues to operate under demand headwinds, impacting overall market conditions.

    The sector continues to operate under demand headwinds.

    Management acknowledged

  • Subdued yarn market

    medium

    The yarn market has been sluggish for almost two years and remains subdued.

    So -- and this is probably the longest period of sluggishness in yarn market that we are seeing, almost now 2 years. And even now, the market remains a little subdued, as I have mentioned in my opening remarks, then this is the longest period.

    Management acknowledged

  • Conversion of export inquiries into firm orders

    low

    While export inquiries are increasing, their conversion into confirmed business is still pending.

    We are closely looking at that. As and when it gets converted into business only, that is what -- when we can say that, yes, it has started turning around.

    Management acknowledged

Q&A highlights

6 direct
Impact of revised import duty on knitted fabrics and margin outlook Direct
See, this is a very positive move, because there was some kind of dumping which was happening on the knitted fabric in India. So with this duty increase, we see that there will be an improvement in the offtake because the demand should increase. And it will give impetus to the domestic fabric industry, Indian knitted fabric industry, which indirectly will benefit the spinning industry as well.

Analyst sought clarity on a new policy's impact; management confirmed a positive outlook for domestic industry and potential margin improvement.

Asked by Jatin Damania

Knitting capacity commissioning timeline and yarn utilization Direct
The first phase, there are 40 machines that we are putting up. First phase will come by June '25, 24 machines, and the second phase will be completed by December 2025. ... 80% of our own yarn, which we are going to be producing in our new spinning facility will be utilized towards this knitted fabric.

Provided specific timelines for new capacity and clarified the strategic internal consumption of yarn from new spinning facilities for value addition.

Asked by Jatin Damania

Industry outlook, yarn spreads, and margin improvement Partial
So as and when the market improves, probably we'll see the improvement in margins. But at the same time, as you know, we are very clearly focused on our strengths and the steps which we took -- started taking almost 5 years ago towards some of the strategic initiatives have really helped us in navigating this tougher period of last 2 years.

Analyst pressed on future margin improvement given stable prices; management acknowledged subdued demand but highlighted internal strengths and export inquiries as potential drivers.

Asked by Jatin Damania

Increase in power costs despite renewable energy focus Direct
See, if you look at -- this is purely an accounting thing because, as you know, the season of wind power generation is May to September. So as per accounting, whatever gets generated during the first 2 quarters, the benefit of that is accounted for in those first 2 quarters. And in this quarter, the generation is significantly lower. And that is why you are seeing this differential.

Addressed a perceived contradiction in cost trends, clarifying that the increase was due to seasonal accounting for wind power generation, not a failure of renewable strategy.

Asked by Jatin Damania

Details of remaining capex plan and funding sources Direct
INR350 crores, we have already spent in the previous year, 40,000 spindles and solar energy investments we had made in the previous year... In addition to that, INR215 crores, we are spending on this 25,000 spindles Rieter project in this year... And another INR38 crores will be towards the knitting project... Going forward, our plan is to have to use both internal accruals as well as bank financing.

Provided a detailed breakdown of current and future capex plans, including funding strategy, which is crucial for understanding growth trajectory and financial health.

Asked by Aditya Sen

Margin profile difference between fabric and yarn segments and capex justification Direct
No, because see, we are that will be additional product basket. And when we use our own yarn and on the market, you will be getting an additional incremental value addition in the value addition journey. So what we are visualizing and this is the business that we are doing on the fabric side, we believe that it can be a value add and it can get an additional margin to us. So basis our estimates, probably the incremental capital will give us almost 13% to 14% ROCEs on going into the knitted fabric.

Challenged management on the rationale for capex if margins were similar; management clarified the value-addition and ROCE benefits of forward integration.

Asked by Amit Khetan

Book value of non-core assets Partial
At this point of time, I don't have the number right now, Amit Ji. Probably we'll try -- find out and let you know.

Analyst sought specific financial data for non-core assets; management acknowledged the question but could not provide the exact figure immediately.

Asked by Amit Khetan

Additional revenue from new knitted fabric segment and 25,000 spindles Direct
approximately INR14 crores will be the incremental value addition that we'll get. On an EBIT level, approximately INR7 crores will be the value that we get on the incremental basis on this INR38 crores investment. ... No, that will be transferred here. So the overall value from that unit will be approximately INR200 crores INR215 crores kind of number that will be there.

Clarified the financial contribution from the new knitting and spinning capacities, distinguishing between value addition from knitting capex and the overall value of yarn produced by new spindles.

Asked by Aditya Sen

2 min read 6 chapters

Detailed narrative

Robust Q3 and 9M FY25 Performance Amidst Headwinds

GHCL Textiles delivered strong financial results for Q3 FY25, with revenue increasing by 16.9% year-on-year to INR 288 crores and EBITDA growing by 30% to INR 26 crores. For the nine-month period, the company reported a 14% YoY revenue growth to INR 883 crores and a 42% YoY EBITDA increase to INR 84 crores, surpassing previous full-year EBITDA levels. This performance was achieved despite persistent demand headwinds in the textile sector, demonstrating operational resilience and optimal utilization.

Strategic Shift Towards Value-Added Products and Forward Integration

The company is aggressively pursuing a strategy of forward integration into value-added products. A new project for 40 knitting machines, with a capex of INR 38 crores, is underway and expected to be completed by December 2025. This initiative is designed to utilize 80% of the yarn produced from the new 25,000 spindles (expected to be operational by June 2025) for internal knitted fabric manufacturing. The long-term goal is to derive 30-35% of revenues from the value-added segment by 2029-30, enhancing overall margins.

Significant Capex Plans and Conservative Funding Strategy

GHCL Textiles has committed over INR 1,000 crores in investments for capacity expansion and value addition. INR 350 crores were already deployed in previous years for 40,000 spindles and solar energy. Current year capex includes INR 215 crores for the 25,000 new spindles and INR 38 crores for the knitting project. The company plans to fund these substantial investments through a combination of internal accruals and bank financing, while maintaining a healthy balance sheet with a target debt-equity ratio of not more than 0.5:1.

Operational Efficiency and Renewable Energy Focus

Despite a sequential increase in power costs from INR 15 crores to INR 21 crores in Q3 FY25, attributed to seasonal wind generation patterns, GHCL Textiles maintains competitive power costs. Approximately 70% of the company's energy requirements are met through renewable sources, a key factor in cost management. This focus on operational efficiency also contributed to a sequential improvement in gross margins from 31% to almost 32.5%.

Positive Industry Outlook and Government Support

Management expressed optimism for the textile industry, citing the long-term positive impact expected from the 2025-26 union budget, including measures like tax rebates and an allocation of INR 500 crores for cotton up-gradation. While the yarn market remains subdued, the company is observing increasing export inquiries and signs of revival in key textile hubs like Tiruppur, suggesting potential demand growth in the near future.

Strong Balance Sheet and Prudent Capital Allocation

The company boasts a strong, debt-free balance sheet with a net cash surplus of INR 25 crores. During the 9-month period, GHCL Textiles generated INR 80 crores in cash inflows and released INR 84 crores in working capital. This liquidity was strategically utilized for INR 75 crores in growth capex, INR 61 crores in debt repayment, and INR 5 crores for dividend payments, reflecting a disciplined approach to capital allocation.

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