Sportking India Limited

Sportking India reported a strong Q1 FY26 with revenue from operations at INR 585.80 crores. Gross profit increased by 2.1% year-on-year to INR 157.2 crores, with the gross profit margin expanding by 254 basis points year-on-year and 21 basis points quarter-on-quarter to 26.8%. Operational EBITDA stood at INR 70.5 crores, achieving a 12% EBITDA margin, which expanded by 40 basis points year-on-year and 22 basis points sequentially. Profit after tax grew by 10.5% year-on-year to INR 35.2 crores, with the PAT margin expanding by 98 basis points yearly and 26 basis points quarterly to 6%.

The company announced a significant Greenfield Capacity Addition Program with a CAPEX of approximately INR 1,000 crores. This investment aims to increase spindle count by 150,000, representing a 40% expansion over the existing 3.8 lakh spindles. The new spinning unit will be located in Odisha, marking Sportking's first diversification outside Punjab, and is expected to commence commercial production within 12-15 months. This expansion is projected to generate INR 1,000-1,200 crores in revenue and improve the overall company's EBITDA by 200-300 basis points due to better incentives, geographical advantages, and new technology.

Exports remained robust, contributing INR 341 crores to revenue, increasing the export mix to 58% in Q1 FY26 from 47% in Q1 FY25, with overall exports growing approximately 18% year-on-year. Over 50% of exports are directed to Bangladesh, with the remainder spread across China, Latin America, and European countries. Exports to Bangladesh are conducted under Letters of Credit (LC), ensuring timely payments. The company does not export directly to the UK or USA, but benefits indirectly from increased orders for Indian apparel manufacturers.

Sportking faces challenges from rising Indian cotton prices, influenced by high inventory with the Cotton Corporation of India, lack of fresh supplies, and minimum support prices. International cotton prices are at a discount to Indian prices, further aggravated by an 11% import duty, placing Indian textile players at a disadvantage. The recent 25% US tariff on Indian goods, with an additional 5% differential compared to other Asian players, is expected to adversely affect pricing, though Sportking has limited direct exposure. Management expects clarity on tariff talks and market normalcy within 2-3 months.

The company is committed to integrating its apparel manufacturing and dye house facilities within the next 6-8 months. This merger is anticipated to increase the top line by approximately INR 200 crores in the first year and contribute to better EBITDA. Management expects to double the revenue of these merged entities within the next 2-3 years with minimal CAPEX, by preparing for exports and targeting big buyers, including doubling government business within the same timeframe.

For the INR 1,000 crores CAPEX, funding will be a mix of internal accruals and term loans. Sportking aims to maintain its long-term debt below INR 700-800 crores over the next 2-3 years, with current long-term debt at approximately INR 300 crores. The company targets a debt-equity ratio of 0.5-0.7 maximum. The average cost of debt is around 7%, and similar rates are expected for the new project, complemented by various subsidies available in Odisha.