GHCL Textiles Ltd - May 2025 Earnings Call Transcript Analysis

Earnings Call Transcript Analysis Report #

Financial Performance #

Key Financial Metrics #

• Q4 FY25 Revenue: INR 285 crores (flat compared to previous periods).
• Q4 FY25 EBITDA: INR 32 crores (increase of 9% YoY, 24% QoQ).
• Full Year FY25 Revenue: INR 1,168 crores (growth of 10% over FY24).
• Full Year FY25 EBITDA: INR 117 crores (up 31% YoY).
• Full Year FY25 PAT: INR 56 crores (up 123% YoY).
• EBITDA Margin (Q4 FY25): Approximately 11.2% (32/285). Double-digit EBITDA margin was achieved.
• Cotton Yarn Spread (Current): INR 119.
• Cotton Yarn Spread (Q4 FY25): Implied to be around INR 119.
• Cotton Yarn Spread (Q3 FY25): INR 109.

Comparison with Previous Periods #

• Q4 FY25 revenue was flat, but EBITDA increased YoY and QoQ.
• Full year FY25 showed significant growth in revenue (10%), EBITDA (31%), and PAT (123%) compared to FY24.

Revised Guidance or Forecasts #

• FY26 Revenue Growth: Projected at 14% to 15% higher than FY25.
• Long-term Revenue Outlook: Aiming for 2x of current turnover in 3-4 years.
• Long-term EBITDA Margin Target: 17% to 20%.
• FY26 Peak Debt: INR 128 crores.

Areas of Growth or Decline #

• Growth: Full year revenue, EBITDA, PAT. Share of revenue from fabric increased from 6.5% (FY24) to 7.8% (FY25). Share of exports increased from 15% (FY24) to 16% (FY25).
• Decline/Flat: Q4 FY25 revenue was flat. Kaveri section incurred a loss of INR 2 crores in FY25 before discontinuation.

Strategic Initiatives & Business Updates #

Major Strategic Announcements #

• Introduction of Mr. Marshal Sonavane as CEO Designate.
• Strategic shift towards value-added products (fabric, knitting).
• Investment plan of INR 1,000 crores on track, INR 500 crores deployed.
• Future investments focused on weaving and knitting.

New Products, Services, or Markets Discussed #

• Knitting: Initiated a new project to install 40 knitting machines (INR 38 crores capex). Phase 1 (10 machines) underway, expected to commence by September ‘25. This is a forward integration to produce value-added products using own yarn.
• Weaving and Die Fabric: Long-term strategic vision includes investing in weaving and die fabric capabilities to offer ready-to-cut fabric solutions.
• Technical Textiles/Manmade Fiber: Focus is on ready-to-cut fabric (cotton and synthetic), no other technical textile plans currently.

Significant Operational Changes #

• Discontinuation of production at the Kaveri section at the end of March FY25, which was incurring losses (approx. INR 2 crores in FY25). Some machines were repurposed.
• Improved working capital management: Released INR 54 crores in FY25 due to better inventory management.
• Manufacturing facilities operated at optimum utilization levels.

Ongoing or Completed Projects #

• New Spindles Expansion: Addition of 25,000 new spindles progressing as scheduled, operations expected to commence by June ‘25. Incremental revenue expected: ~INR 250 crores.
• Capex Deployed: INR 158 crores towards growth capex in FY25, mainly on new spindles. Total INR 500 crores deployed out of INR 1,000 crores plan.
• Knitting Project: Phase 1 (10 machines) underway.
• PM MITRA Park: Awaiting its start for installing a processing unit.

Market & Competitive Landscape #

Insights about Industry Trends #

• Textile sector continued to face sluggish demand during Q4 FY25.
• Cumulative cotton arrivals for the current season at 273 lakh bales (vs. 258 lakh bales previous year).
• CCI procured ~100 lakh bales as of March ‘25 (up from 33 lakh bales last season).
• Domestic cotton prices stable around INR 55,000 per candy; international prices also steady. Expected to remain range-bound.
• Recent US tariff adjustments introduce unpredictability but may offer India a strategic advantage.
• Potential for removal of import duties on cotton by the Indian government.
• Consolidation in the industry, with marginal/small players exiting.

Competitive Positioning Statements #

• GHCL well-positioned to lead in the evolving landscape due to strong balance sheet, low leverage, and clear strategic priorities.
• Resilience attributed to deep customer relationships, cost discipline, and operational excellence.
• Cost structure management: power cost well-managed, labor cost at 6%, efficient cotton procurement.

Market Challenges or Opportunities Mentioned #

• Challenge: Sluggish demand.
• Challenge: Unpredictability from US tariff adjustments and potential for recessionary environment.
• Opportunity: US tariff adjustments may shift business to India. Inquiries have started.
• Opportunity: Potential removal of cotton import duties by India could improve competitiveness.
• Opportunity: Vertical integration into knitting and weaving to enhance margin profile.
• Opportunity: Consolidation in the industry benefits stronger players.

Comments about Market Share or Positioning #

• Strategic reduction of exports to Bangladesh.
• Aiming to supply ready-to-cut fabric to garment manufacturers.

Risk Factors & Challenges #

Concerns or Challenges Acknowledged by Management #

• Sluggish demand in the textile sector.
• Unpredictability stemming from evolving international trade and tariff dynamics, especially US tariff adjustments.
• Volatility in the market due to geopolitical issues and US tariff situation, making margin predictions difficult.
• A 90-day pause period by the US is causing delays in order conversion.

Regulatory Issues Mentioned #

• US tariff adjustments.
• Potential removal of Indian import duties on cotton (viewed as a positive development if it happens).

Supply Chain or Operational Constraints #

• No significant constraints mentioned; facilities operated at optimum utilization.
• Cotton availability is not an issue due to CCI’s procurement and potential duty removal.
• No evacuation issues for wind power in Tamil Nadu currently.

Statements about Market Uncertainties #

• Uncertainty due to US tariffs and their impact on global trade.
• Difficulty in predicting margin improvements due to market volatility.

Forward-Looking Statements #

Outlook and Future Projections #

• Revenue Growth FY26: 14-15% projected.
• Long-Term Revenue: Aim to 2x current turnover in 3-4 years (target ~INR 2300-2400 crores).
• Value-Added Products Share: ~30%