Detailed Narrative
Strong Q2 FY26 Performance Across Divisions
S.P. Apparels reported a robust Q2 FY26, with all divisions including SPAL Garment, Young Brand Apparels, SPUK, and Retail delivering strong performance. Consolidated revenue grew 9.2% YoY to INR 427 crores, while consolidated EBITDA increased 28.1% YoY to INR 63.7 crores, achieving a 14.9% margin. The Garment division's exports saw a 24% YoY growth, reaching 18.9 million pieces in the quarter.
Turnaround in SPUK and Retail Segments
Both the SPUK and Retail divisions achieved positive EBITDA in Q2 FY26, marking a significant turnaround. SPUK reported INR 1.1 crores in positive EBITDA, while the Retail division posted INR 53 lakhs, a substantial improvement from a loss of INR 88 lakhs in Q2 FY25. This turnaround is attributed to strategic decisions like exiting the bleeding Head brand franchisee and optimizing operations and inventory for Angel & Rocket.
Strategic Capacity Expansion in Sri Lanka
The company is actively strengthening its Sri Lankan operations, which shipped INR 16-17 crores in H1 FY26 from one factory. With two more factories added, revenue is expected to reach INR 25-30 crores in Q3+Q4 FY26, targeting over INR 100 crores in FY27. This expansion aims to leverage Sri Lanka's cost-effective manufacturing, duty-free access to Europe and the UK, and abundant skilled labor, with a goal to scale up to 2,000 machines by FY27.
Impact of US Tariffs and Mitigation Strategies
The prevailing US tariff situation (50%) has led to a reduction in capacity utilization at the Sivakasi facility from 100-150 machines to 30-35. The Salem expansion has also been deferred until tariff clarity emerges. To mitigate this risk, S.P. Apparels is actively onboarding new European and UK customers for the Sivakasi facility and diversifying its customer base, with plans to fill the capacity by April.
Future Growth and Margin Outlook
Management is committed to achieving a consolidated top line of INR 2,000 crores by FY27 and guiding for a consolidated EBITDA margin of 15%. The company plans to reach a full capacity of 100 million export pieces with 90-93% utilization by FY27. While FY27 will focus on stabilizing operations after rapid growth, a 15-20% capacity addition (1,000-2,000 machines) is planned for FY28.
Retail Brand Trajectory and Funding
The Crocodile brand is expected to grow organically from INR 75 crores to INR 100-125 crores, potentially INR 200 crores in 3-5 years. The D2C brand Angel & Rocket, currently generating INR 50 lakhs to INR 1 crore per month, has the potential to reach INR 4-5 crores per month, requiring investment in digital marketing and store expansion. The company is actively seeking a strategic or financial investor to support Angel & Rocket's growth.
Product Mix Shift for Improved Realization
The company is strategically shifting its product mix from primarily babies and kids wear to include adult products (men's and ladies wear). This shift, which will constitute 10-20% of the mix over time⏳, is expected to improve realization per piece, as observed in Q2 FY26 due to higher-value items like American men's wear and European ladies wear pajamas.