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.


There's recessionary environment in west. So, the question is, whether the demand for kids/babies garments will be impacted? What about China +1?

To know answers to above questions, we have shared notes from the Q3 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.


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S P Apparels - Notes from Q3 FY 23 concall

Industry scenario

  • As I always say that kids and babies garments are always in demand. But now there is little bit of a drop. It's not dropped, it is going very steady. The retailers are just waiting and watching to buy the next round
  • The inventory management is generally chaotic due to the post-COVID and the container issues. There has been a big mess up because they bought a lot for the last Christmas but now slowly, they are getting into the ground reality of the real picture that there is a mess in most of the retailers’ inventory, the stock
  • They really don't know which one to buy which one not to buy. That's the kind of a situation
  • For example, one of our customers suddenly said that for another two seasons no orders. Within one week to ten days, they placed 3 million pieces of order
  • Customers do not prefer these small players, small manufacturers, because most of the retailers rely on the big manufacturer. That is why now the big factories are able to manage but the small factories are not. This is one thing; in this current scenario, the retailers are trying to consolidate it
  • They want to reduce the number of suppliers and push the business to the big manufacturers. They are asking us to increase the capacity. We'll be one of our preferred factories by the retailer
  • Customers are definitely reluctant to place orders with Pakistan, Myanmar and Bangladesh because in Bangladesh there's workers unrest and they want the wages to be increased 4 to 5 times. Even if they settle it 2 times or 2.5 times, they will be expensive
  • The Myanmar, Pakistan they are politically not stable. China definitely with anti-China sentiments are still happening. In addition to that if we get FPA so all the more benefits
  • Customers also wish to us to increase our department to men’s and ladies as well

Garment division

  • Our garment division revenue for this quarter stood at 219 crore versus 219 crore of Q3 FY22, which is flat year-on-year
  • This quarter we saw some pushback from the retailers mainly due to the inventory pileup with the retailers because of the container issue that happened during the month of October 2022
  • Capacity utilization as of today is around 74% and is expected to increase by around 10% to 15% going forward. Next financial year we should be at around 80% to 85% in terms of utilization
  • We have started working with two new customers, one out of the US and another one out of Russia. We expect traction with these customers in the coming quarters
  • Adult segment revenue contribution - Current percentage is about the maximum 7% to 8%-10% and we anticipate around 20% by end of next year
  • Margins in adult wear will be lower - But we'll have more of a fashion in baby wear and the kid’s wear, so we'll get better margin. The overall we'll be able to maintain that say 18% to 20%


  • It has seen lot of disruptions in supply chain due to the container issues and is yet to recover. It is recovering now. Revenue for the quarter stood at GBP 1.12 million as against 2.14 million for same quarter

SP Retail Ventures

  • SP Retail Ventures made a revenue of 21 crores and an EBITDA loss of 1.8 crores for the current quarter
  • Company has been making profits continuously; however, the new brands that we have added and their fixed overheads are pulling down margin
  • We are looking at 120 crores of revenue next year where we should be in a position to do 8% of EBITDA for the whole year

Capacity Utilization

  • We have 5,100 machines
  • Currently we are working with 3,400 machines on average so with last quarter we were at 3,400 and by March we should be at 3,900-3,800
  • We still have a good headroom to improve by another 20% of capacity utilization and second also is that we are working on a second shift basis where we can look at say 500 machines of utilization on a second shift also is possible
  • So, next year we feel that effective utilization in terms of the capacity could give us a growth of 15% to 20% along with capacity addition also


  • FY 23 - We expect to complete 25% to 30% for the current financial year
  • FY 24 - We still feel that 15% to 20% should be possible




Disclosure: This is not a recommendation to buy/sell S P 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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