Hello Sir,

Hope you are doing well.

It is believed that no matter what, parents don't generally reduce expenses related to kids or even if they do, it's one of the last things they cut their expenses on.


In line with the above philosophy, in this mail we have shared notes from the Q2 FY 23 con-call of S P Apparels which is one of the leading manufacturer and exporter of knitted garments for infants and children.

Hope you find the insights useful for your own investments or to add the stock to your watch list.


Before that, recently, we released our New Stock Recommendation for Alpha and Alpha + Members

It's a food processing company, virtually debt free, compounded profits at 20% + consistently, maintained returned ratios like ROE and ROCE at 20% +, doubled its market share in exports in its segment in the last 6-7 years and yet available at less than 7 times Pre-tax earnings.

You can get it along with other recommendations, by subscribing HERE


S P Apparels - Notes from Q2 FY 23 concall

Garment division?

  • Our garment division revenue for this quarter stood at Rs 269 crore versus Rs 183 crore for Q2 FY '22, which is a growth of 47% YOY
  • The total exported quantity stood at 16.37 million pieces
  • The adjusted EBITDA of the garment division stood at Rs 48 crore for the current quarter versus the adjusted EBITDA of Rs 40 crore year-on-year
  • Capacity utilization as of today is around 75% and is expected to increase by around 10% to 15% going forward

SPUK division?

  • SP UK has seen a lot of disruptions in the supply chain, majorly due to the third wave in the UK and Europe
  • Revenue for this quarter stood at GBP 2.12 million as against GBP 1.24 million QOQ
  • SP UK has made an EBITDA margin of 2.9% as against a loss QOQ
  • I am confident that SP UK will be able to come out of this crisis, and we'll be able to do well going forward

Why low margins in Q2?

  • This time, the margin pressure came from spinning plants, where if you have heard the Chairman's opening remarks, he said that we had EBITDA negative margins in the spinning plant because of high cotton prices and low yarn realization
  • Last three months, spinning production was reduced due to the high cotton price and low yarn realization rate. Hence, margins from the spinning plant were negative at the EBITDA level during the quarter
  • Further, cotton prices have corrected, and now we hope that cotton prices will be steady. The spinning plant shall contribute to the margins going forward


  • There has been an increase in the average unit price due to two reasons. One is the raw material cost increase. And the second one is the product mix has changed. So, we are doing some high-value products also. So, both put together, there is an increase of about 10% to 12%
  • Going forward, there will be a reduction in the unit value realization (due to reduction in raw material prices)

Order book?

  • So now we have INR 350 crores as against INR 400 crores of last quarter
  • There is an absolute recession in the retailers. There is no doubt about it. But as we always say, we are in the niche segment for babies and kids. The inflow is always there in business
  • During this recession time, all the retailers strategically are planning to consolidate the number of suppliers, so this is the right time for them, and it is a good opportunity for them to consolidate

FTA (free trade agreement)?

  • We are looking for the FTA to be signed by the end of December
  • Once FTA is through, definitely the customers will take the benefit out of it because they would like to increase the business in India
  • Because of FTA, there will be a lot of orders coming in

No. of machines and utilization?

  • It's 5,100 and our utilization is close to around 3,700
  • Through the night shift or the second shift, approximately per quarter, we'll be able to add about 50 machines. So, gradually, in one year's time, there will be about 200 machines added in 2nd shift
  • Already, we have hostel facilities in certain plants, and we are trying to expand our hostel facilities in specific plants, so that we can accommodate for the second shift
  • We are planning by the end of March 2024 we should have 200 machines in the second shift


  • Our new factory at Sivakasi is under process and is expected to be completed by the end of Jun'23


  • We are looking at 25% YOY growth for FY '23 as a whole
  • Between 10% to 20% (medium to longer term)
  • Everyone is expecting the recession to continue for 6 months, where, again as I said, there is a consolidation going on in terms of the supplier base. So, we stand to gain the maximum advantage from our existing customers. So, we will get our order filled for our capacity
  • Margins guidance - We still stick on this 18% to 20% (garments division)




Disclaimer: This is not a recommendation to buy/sell SP Apparels. These notes are as announced by the companies on exchanges and only for the purpose of information and education.


Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/


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