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    S. P. Apparels Limited

    SPAL
    Textiles·18 Aug 2025
    Management Summary

    S.P. Apparels reported strong revenue growth in Q1 FY26, both standalone and consolidated, driven by capacity expansion and the consolidation of Young Brand. However, gross margins faced compression due to various factors including new capacity ramp-up and US tariffs. The company is strategically expanding its manufacturing footprint in Sri Lanka and India, diversifying its customer base, and targeting significant topline growth by FY27, while actively managing the impact of global trade dynamics.

    Highlights

    5

    • Consolidated revenue grew by 63.3% YoY to ₹405 crores in Q1 FY26, driven by new capacity and Young Brand consolidation.

    • Standalone revenue increased by 34.5% YoY to ₹287 crores, with an adjusted EBITDA margin of 15.2%.

    • Strategic capacity expansion is underway, targeting 7,800 machines by FY26 end and ₹2,000 crores topline by FY27.

    • Diversified market presence and proactive capacity expansions, including Sri Lanka facilities, help mitigate risks from US tariff changes.

    • New customer acquisitions in Germany and UK are progressing, with orders for Sri Lanka capacities and new factories in India.

    Concerns

    4

    • Consolidated gross margins fell by 840 bps, and standalone gross margins declined from 70.7% to 64.8% due to Young Brand consolidation, increased wages, product mix, and new capacity efficiency.

    • Capacity utilization stood at 82%, a dip attributed to the addition of 700 new machines in Q1.

    • The retail business (Angel & Rocket) incurred a small pre-operative loss in Q1, though it is expected to break even this year.

    • US tariff issue has led to a 2.5-3% hit in the first quarter for US-bound products, with uncertainty on future impact sharing.

    What Changed2

    vs Q2 FY26

    Guidance items12 → 8 (-4)Risks discussed2 → 6 (+4)

    Key financials

    Single quarter

    10 metrics
    1. 01Consolidated Revenue₹405 Cr+63.3%YoY
    2. 02Consolidated EBITDA₹54.6 Cr
    3. 03Consolidated EBITDA Margin13.5%
    4. 04Consolidated PAT₹20.7 Cr
    5. 05Consolidated EPS₹8.2

    Segment breakdown

    Garment division (including Young Brand)
    ₹372.9 Cr Adjusted Revenue₹54.3 Cr Adjusted EBITDA₹404 Cr Order Book Status
    SPUK
    ₹14.8 Cr Revenue (INR)1.3 Mn Revenue (GBP)3.97 Mn Order Book Value (GBP)
    Retail
    ₹14.9 Cr Revenue
    Crocodile
    ₹13.88 Cr Revenue
    Angel & Rocket
    0.9 Mn Revenue
    Spinning
    ₹4.5 Cr EBITDA
    List

    Capital allocation

    4
    high confidence
    CategoryHeadline
    Capex

    ₹50 crores

    Debt

    Gross ₹382.4 crores · Net ₹327 crores

    M&A

    Two factories in Sri Lanka

    acquisition · pending regulatory

    M&A

    Three factories in India (Bannari, near Trichy, SIPCOT)

    acquisition · closed

    Guidance & targets

    8
    CategoryTargetPriority
    Capacity
    Dyeing capacity increase
    6 tons per day
    		High
    Capacity
    Sri Lanka machines
    2,000 machines
    		High
    Capacity
    Total group machines (including Young Brand)
    7,800 machines
    		High
    Profitability
    Angel & Rocket breakeven
    Breakeven
    		High
    Revenue
    Topline
    ₹2,000 crores
    		High
    Revenue
    Sri Lanka revenue
    ₹150 crores
    		Medium
    Revenue
    SPUK revenue
    GBP 10-12 million
    		High
    Margin
    Sri Lanka margins
    10-12%
    		High

    Sri Lanka production ramp-up and revenue contribution

    Q3 FY26 onwards
    CurrentINR 3 crores in Q1, small quantities from Q2 onwards
    TargetSignificant production and revenue from Q3 onwards, targeting ₹150 crores by March end

    Why it matters

    Successful ramp-up of Sri Lanka operations is key to diversifying capacity, mitigating US tariff risks, and achieving FY27 topline targets.

    So, you will find the quantities coming up from Sri Lanka from second quarter onwards. Maybe small quantities in second quarter and fully from third quarter onwards because, we have to get the clearance from the customer also for production. So Q3 will be the right quarter where you'll find Sri Lanka completely having enough production. (V. Balaji, Page 7)

    How to verify

    key_financials.segment_breakdown[name='Sri Lanka'].metrics[label='Revenue']

    Risks & concerns

    6
    RiskSeverity

    US tariff changes and duty hikes

    Recent duty hikes in the U.S. are causing headwinds, with a 2.5-3% impact on Young Brand in Q1, and uncertainty on future impact sharing. — Management acknowledged

    high

    Softer demand in Young Brand Apparel

    Young Brand Apparel, being more U.S focused, has seen softer demand, mitigated by pursuing opportunities in Europe. — Management acknowledged

    medium

    Gross margin compression

    Consolidated gross margins fell by 840 bps due to Young Brand consolidation, increased wages, product mix, and temporary efficiency reduction during new capacity ramp-up. — Management acknowledged

    high

    Capacity underutilization due to new additions

    Capacity utilization stands at 82% due to the addition of 700 new machines in Q1, causing a temporary dip. — Management acknowledged

    medium

    Challenges in Sri Lanka ramp-up

    Transition time, operational issues, customer approval, order booking, and efficiency are challenges for the newly acquired Sri Lanka facilities. — Management acknowledged

    medium

    Retail business profitability

    Angel & Rocket incurred a small pre-operative loss in Q1, though management expects it to break even this year. — Management acknowledged

    low

    Q&A highlights

    8

    “On the gross margin front, I think it's purely on a mix. If you look at year-on-year gross margin, which has dropped is purely because Young Brand is getting consolidated for the first time here in Q1. So, there is a change in terms of gross margins. ... Yes. The capacity utilization stands 82% is purely because we have added 700 machines during the current quarter, Q1, but our utilization level is increased by 10 bps. So, my denominator has increased by 700 machines. That's why there is a dip in the utilization level.”

    Addresses the key concern of margin decline and explains the temporary dip in capacity utilization due to new additions.

    asked by Shubhankar Gupta

    2 min read5 chapters

    Detailed Narrative

    01

    Q1 FY26 Performance Overview

    S.P. Apparels reported a strong Q1 FY26 with consolidated revenue growing 63.3% YoY to ₹405 crores, and standalone revenue up 34.5% YoY to ₹287 crores. Consolidated EBITDA stood at ₹54.6 crores (13.5% margin) and PAT at ₹20.7 crores. The garment division, including Young Brand, saw adjusted revenue of ₹372.9 crores, a 35.8% YoY growth, with an adjusted EBITDA of ₹54.3 crores. However, consolidated gross margins declined by 840 bps, and standalone gross margins from 70.7% to 64.8%, primarily due to Young Brand consolidation, increased wages, product mix, and temporary efficiency dips from new capacity.

    02

    Strategic Response to US Tariffs and Market Diversification

    The company is actively responding to recent US tariff hikes, which caused a 2.5-3% impact on Young Brand in Q1. To mitigate this, SPAL is diversifying Young Brand's customer base towards Europe and the UK, and leveraging its Sri Lanka facilities for US-bound products. Management expects to bear about one-fourth of the tariff impact🌐, with the rest shared across the supply chain. The recent UK FTA is supporting growth with stronger order volumes, and the company is actively pursuing opportunities in Europe, noting a shift in sourcing away from Bangladesh.

    03

    Capacity Expansion and Sri Lanka Operations

    SPAL is aggressively expanding its capacity, adding 700 machines in Q1, contributing to a total target of 7,800 machines by FY26 end across the group. The Sri Lanka operations are progressing as planned, targeting 2,000 machines by March 2026, with current operations at 650 machines. While Sri Lanka contributed only ₹3 crores in Q1, significant production is expected from Q3 onwards. The company is also increasing its dyeing capacity by 6 tons per day and expanding its Salem facility with 300 machines, aiming for a FY27 topline of ₹2,000 crores.

    04

    Retail Business and SPUK Performance

    The retail segment saw revenue of ₹14.9 crores in Q1, with Crocodile contributing ₹13.88 crores and Angel & Rocket ₹0.9 million. Angel & Rocket incurred a small pre-operative loss but is on track to break even this year. The SPUK business, insulated from US duties, reported ₹14.8 crores (GBP 1.3 million) in Q1, a 26.3% YoY growth. With an order book of GBP 3.97 million, SPUK is targeting GBP 10-12 million revenue for FY26, with significant contributions expected from Q3 onwards as new customers are onboarded.

    05

    Capital Allocation and Debt Position

    The company's consolidated gross debt stood at ₹382.4 crores and net debt at ₹327 crores as of Q1 FY26. Capex for FY26 and FY27 is projected at ₹20-30 crores for maintenance, with an additional ₹50 crores for new projects. The capex for the 700 machines added in Q1 was approximately ₹75-80 crores. Acquisitions include two factories in Sri Lanka (expected by Sep-Oct 2025) and three factories in India (Bannari, near Trichy, SIPCOT) to support capacity growth.

    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.