Detailed Narrative
Challenging Q2 Amidst Global Headwinds
RSWM Ltd faced a challenging Q2 FY26, with revenue from operations declining 1.4% YoY and 1.6% QoQ to ₹1,150 crores. This downturn was primarily attributed to the imposition of a 50% US tariff on textile goods and broader geopolitical uncertainties. The situation created significant stress for garmenters, leading to stuck shipments, heavy discounts on orders, and an overall impact on the supply chain characterized by high inventories, low orders, and tight liquidity.
Profitability Turnaround Driven by Operational Efficiency
Despite the revenue pressure, RSWM achieved a notable profitability turnaround. Gross profit increased 4.1% YoY to ₹445 crores, with the gross margin expanding 195 bps YoY to 38.4%. EBITDA surged 85.6% YoY to ₹79 crores, and the EBITDA margin improved sharply by 318 bps to 6.8%. This operational efficiency culminated in a profit after tax of ₹6.3 crores, a significant turnaround from a loss of ₹21 crores reported in Q2 FY25.
Strategic Shift to Green Energy and Cost Rationalization
The company is making a substantial strategic pivot towards renewable energy, investing ₹60 crores in a group captive model with Adani Green Energy Solutions. This initiative is projected to meet 70% of RSWM's total energy consumption from renewable sources. Management anticipates this will lead to an energy cost saving of almost ₹1 per unit, translating to annual savings of ₹30-40 crores, thereby enhancing cost rationalization and supporting sustainability goals.
Forward Integration and Product Mix Enhancement in Knit Division
RSWM is investing ₹92 crores in the modernization and upgradation of its knit division, aiming to increase capacity from 700 tons to 900 tons per month. A key component of this expansion is the addition of a new printing facility, which will contribute 120 metric tons of printed fabric capacity. This investment is designed to broaden the product mix, offer more options to customers, and move the company further up the value chain from fiber to fabric, expecting to improve overall margins.
Aggressive Working Capital and Debt Management
The company demonstrated strong financial discipline by reducing its total finance cost to ₹30.6 crores, an 11.5% YoY reduction. This was achieved through careful financial planning, including negotiating interest rates, utilizing vendor financing, and increasing invoice discounting. Effective working capital management also played a crucial role, with inventory reduced by 16% (₹121 crores) and total receivables by ₹51 crores compared to March 2025, significantly improving liquidity.
Impact of Cotton Import Duty Removal and Market Dynamics
The removal of import duty on cotton had a negative impact on profitability in Q2. Cheaper international cotton led to a fall in Indian cotton prices, negatively affecting mills with existing stock. This, combined with increased supply from integrated spinners due to US tariffs, resulted in a 5-6% drop in cotton yarn prices. While a welcome step for long-term competitiveness, it created short-term margin pressure.
Jammu Project Abandonment and Capital Reallocation
The previously planned Jammu project was abandoned due to significant delays in subsidy approvals, adverse changes in GST rationalization (reducing viability from 12-18% to 5%), and evolving geopolitical conditions in J&K. The funds initially earmarked for this project are now being reallocated to new projects through LNJ Greenpet, a subsidiary, reflecting a pragmatic approach to capital deployment.