Sutlej Textiles and Industries Limited (SUTLEJTEX) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q1FI27 Earnings Conference Call for Satellite Textiles and Industries Limited. The management will be sharing the key operating and financial highlights for the quarter-ended June 30, 2026, followed by a question-and-answer session. Please note that the sum of the statements made in today's discussion may be forward-looking in nature and may involve risk and uncertainties. Documents relating to the company's financial performance are available on the stock exchanges and the company's website. Rush, you have been able to go through the same. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star than zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sachin Karwa. Chief Financial Officer, thank you, and over to you, sir.

Thank you. Good evening, everyone, and welcome to the Earning Conference Call of Sutler's Textiles and Industries Limited for the first quarter ended 30th June, 2026. I will briefly cover the operating environment and then take you through financial performance in detail. Our CEO will thereafter cover the business segments and the strategic business update. The operating environment in the first quarter was mixed. Global demand remained relatively stable compared with recent quarters, but the industry continued to contend with geopolitical uncertainty, raw material price volatility, and evolving trade dynamism. Cotton prices moved upward during the quarter

while polyester and viscose trade firm on global cruise.

The policy environment for Indian textile, however, continues to improve. The free trade agreements and the diversification of global sourcing creating durable opportunities for Indian manufacturers. Coming to the results, stand-alone total income for the quarter stood at 704 crores, higher by 17% year-on-year, and marginally ahead of Q4, which were itself our strongest quarter of FY26. Gross margin came at 46.8% and expansion of approximately 370 basis points over the same last quarter, last year. Raw material consumption improved to 53.2% of the revenue from 56.9% reflecting better product mix, our integrated fiber operations, and disciplined procurement through a rising improved cost environment. The improvement extends across the cost structure. Employee costed at 16.6% of the revenue against 17.7% a year ago. This quarter absorbed the annual wage revision which takes respect in 2.1. Power and fuel improved to 11% of revenue from 12.2%. EBITDA for the quarter stood at 47.2 crore against 5 crore in Q1 F526 with EBITDA margins at 6.7% against 0.8% a year ago and 5.3% in the preceding quarter. This is the fifth consecutive quarter of margin expansion. The progression reads 0.8%, 2.7%, 3.9%, 5.3% and now 6.7%. Finance costs stood at 18.3 crores, higher than 17 crores in the preceding quarter. This principally reflects working capital deployed to support revenue growth of 17% and increase in RM pricing. Our average cost of borrowing remains lower than a year ago, followed by 40 business point improvement achieved through FY26. And our intent through the year is to bring absolute finance costs further down as operating cash generation strengthened. Depreciation stood at Rs.27.4 crore marginally lower year on year. I would highlight that this was a clean quarter. There were no exceptional items against Rs.22.5 crore of exceptional charge taken through F526. The profit reported as entirely operationally. After tax of Rs.1.5 crore, profit tax stood at Rs.2.7 crore against loss of Rs.5 crore. 25.7 crore in the corresponding quarter. On the consolidated results, we have also turned positive. On the balance sheet, our position remains disciplined. Working capital utilization remains comfortable against sanction limits. Inventory is calibrated to demand and receivable cycles are steady. Maintenance capital expenditure is proceeding as planned and there is no change to our funding position. Capital growth For the year is secured from internal accruals and existing facilities with no additional equity requirement. To summarize the quarter financially, revenue up by 17%, gross margin up by 370 basis point, a nine-fold increase in EBITDA, five consecutive quarters of margin expansion, and a return to profit at both stand-alone and consolidated levels with no exception items. The numbers now reflect the structural work of past two years. With that, I invite our whole-time director and chief executive officer, Mr. Ashish Kumar Srivastava, for business and strategic update.

Good evening, everyone. Sachin has already taken you through the numbers, so I will not repeat them. Let me instead tell you what we believe they mean, what is happening inside each of our businesses, and where we go from here. When we spoke in February on Q3 call, we said Q4 will be better than Q3. On Q4 call, we said F527 would be a year of continued sequential gains, compounding quarter by quarter, rather than a single traumatic leap. Q1 F527 is the first data point on that promise, and we want to talk you through it in detail, because we think the quality of this quarter matters more than the headline. This is our first profitable quarter after a prolonged and difficult period, and it did not happen by accident or by market luck. It happened because the transformation we have been describing to you quarter after quarter is now showing up in the reported financials. The headline is that company has returned to profit, but we want to be careful with that word. One profitable quarter does not undo the period we have come through, and we do not regard this as a destination. What matters to us is not that we made a profit this quarter. It is why we made it. This result was not produced by a market turn, a commodity tailwind, or a one-time game. It was produced by decisions taken over the past few quarters, repositioning the product book, rationalizing the cost base, integrating the platform from fiber to fabric, and refusing to chase volume at poor margins. That is why we believe this quarter is repeatable in a way that a market-driven quarter would not be. The single development we would place above all this, all others, is this. Every one of our three business clusters and our six manufacturing units, anchored in same, delivered positive EBITDA this quarter. That has not happened before in the current cycle. for the last for the In the past two years, our stronger units carried the weaker ones. That phase is over. The recovery is now broad-based, and a broad-based recovery is a durable one. Let me take you inside the businesses. In Yarn, the strategy has been consistent. Profitability through product mix, not volume. Segment revenue of 640 crores grew 16%, but the more important number is the segment EBITDA of 34.4 crores against 6.5 crores a year ago. For the improvement on 16% more revenue. That gap between revenue growth and profit growth is the mixed strategy working. Sutlash Green Fiber is the business we proudly hold because it is the proof of our entire thesis. Post-consumer PET bottles converted into certified, traceable, sustainable material that customers in regulated markets pay a premium for. When we say the journey to value addition is the engine... of this company's future, SGF is what the destination looks like. And the demand behind it is structural, written into European regulation, not a cycle that will reverse. Home textiles grew revenue 22% and held profitability against a loss a year ago. A business that was a loss making at a full year level as recently as F525 has finally turned. The quarter was softer sequentially on order phasing, not on demand. The visibility through the first half remains healthy. This business competes on design and relationships. Tariff noise affects commodity home textiles. It has not dented ours because complex design-led product is not easily resourced. Beyond the segments, let me update you on the three strategic priorities we have reported against. They remain unchanged for the past year. First, market diversification. Our export growth this quarter came disproportionately from these markets we did not serve 18 months ago, and our exposure to any single geography is lower than what it was two years ago. This is by design, not by iteration. Further, markets in Southeast Asia and Latin America remain on track for entry this financial year. The second one is on the value addition. Our commitment to move roughly one-third of the portfolio into value-added categories, and we are executing to that plan. Technical and blended yarns continue to gain share. Within the yarn book, SGF demonstrates a fully value-added end of the spectrum, and design-led home textiles demonstrate it at the fabric end. Within this, our technical textiles entry is progressing to schedule. Pro-tech business has moved from qualification into sampling, and trials are advancing. I'll be measured, though that these are F528 contributors, not F527. What matters this year is meeting milestones, and we are. Thank you. Raw material prices, geopolitics, and global demand are outside our control, and we take nothing for granted. But what is inside our control is executing the same plan that produced this quarter, and every element of that plan remains on schedule. I will close where we began. We are not declaring a turnaround complete, and the burden of proof rests with us. But We told you what we would do. And the order in which we would do it. Every unit is contributing. Every priority is on track. The capital is secured. The journey to value addition is tracking to plan. Our objective is not to maximize the quarter. It is to build a business that consistently delivers stronger margins, better returns on capital, and improved cash generation. And to create durable value for all our stakeholders. Thank you for your continued trust and support.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Himanshu Bisani from Pinpoint X Capital. Please go ahead.

Hi, am I audible?

Yes, Himanshu, you are audible.

Yeah, thank you for the opportunity and congratulations on a great set of numbers. It's very interesting and sort of opening commentary that you mentioned that, you know, this performance is more structural and, you know, it is backed by our strategy of integration and higher value added products. So, sir, can you quantify that? You know, we have been targeting 30-35% of our yarn portfolio to become value added in, you know, coming year. So, what was the wrap mix a quarter ago and what is right now?

See, okay, at this point of time, again, as I said, it's a journey. At this point of time, we are, and what happens when you get into these value-added product segments is that you do the trials, the customer tries you out, and the cycle gets completed anything between three to six months. So, at this point of time, what we have identified is a great pipeline besides what we have executed. So, as I said, this journey is ongoing. At this point of time, possibly 10 to 15 percent of our products in YAN is on that category. But what is important here to note is that we already have a pipeline and we are already having a couple of new SKUs which are currently being tested and kind of evaluated by our customers.

Understood. So, that was just on this 8-bit improvement that we have in our yarn business. So, how much of that was quantified by, you know, the spread expansion which happened in Quatern and Polywiscos, and how much of that would have been from, you know, higher value added products and integration benefits, if you can quantify that. Sure.

So, I think, you know, I mean, what we are doing is that the overall, if you look at our raw material. To the sales ratio, there is almost a reduction of 2.5%, right? And that is basically coming because we are moving up that value chain. 50% of that improvement is coming because we are moving the product categories up. And balance is, you know, obviously, the change in the bottom line is because of the operational efficiency, which we have kind of initiated.

I'll do soon. So, on that, obviously, spread would normalize, right? So, and once we have our targets of, you know, 30-33% of our business value added, 30-33% of the yarn business coming from value added, what kind of EBITDA margins this business can generate?

See, at this point of time, we will not want to kind of speculate on how it is going to come around because while moving up the yarn portfolio in 30-35%, a lot of it will also get into our own, you know, the integrated approach, you know, I mean, the fabric and then possibly the protect business which we are starting, it will kind of flow into that. So, I will refrain from wanting to give you a very clear number. In a steady state, I mean, obviously, everybody, all the textile units.

Participants who wish to ask questions may press star and 1 at this time. The next question is from the line of Raj Doshi, an individual investor. Please go ahead.

Hello, thank you for the opportunity, and congratulations on a good set of numbers. So, my question is regarding the commodity and the value added yarn. So, what is the product mix that has been evolved compared to FY26? Can you throw some light on that?

You know, as I had commented that, you know, our... Our intent is to move at least 30-35% of our yarn portfolio into more value-added. And when we say value-added, they are definitely so... I mean, if we were to look at it from the application lens, right? The yarn which primarily goes into apparel, you know, which is either for knitting or weaving, which is where the commodity yarn kind of comes into picture, the way we classify, and then there are other industry applications which will come in. The industrial yarn, which is multifold, the yarn which is going into the carpet industry or the technical yarns which have certain amount of performance which is attached. I mean, our intent is to move to 30-35%. We are somewhere midway in the journey, but... You know, I mean, there are enough products. We will further strengthen our push to get to our desired levels.

Okay, thank you for that. And also regarding the customer approvals, so specifically for the newly developed speciality, so have they progressed as expected?

So, yes. I mean, I think we are very clear on what product categories we want to, you know, kind of focus on. And for that, the customer trials and the customer... The first rounds have already kind of moved in. So, you know, the first containers have kind of gone in, they will do the testing, they will work around, and then, obviously, the repeat regular business can happen.

Okay, okay. Thank you. And apart from the product mix improvement, what are the factors that could improve the margin going forward?

So I think, you know, as we had said that, you know, one is the product mix upgradation, and it is not necessarily the yarn standalone. We are also looking at it as a vertical approach, because our home textile business, which currently is not as significant as we would like it to be, there are good work plans for that. We have also incubated the technical textile, the protective textile business, and right now we are in the investment mode there. The results of that will pass. We are on track. I mean, some of our products in protective textiles have already got qualified, so we are tracking that. So, integrated, I mean, if you ask me what is going to be our approach from the, besides upgrading our product, yarn product portfolio, it's about looking at what are the vertical opportunities, which means first going into fabric and then evaluating what kind of model we can work with our customers.

Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Amit Agarwal from Leeray Investments. Please go ahead.

Good afternoon. Hello. This is my fifth or sixth meeting in the last – I've been coming for the last five, six years, and I've been raising the same question regarding employee costs. Our employee costs are around 15, 16, 17 percent every year, and I've been pointing about this for so many years. Other peers, all are having their employee costs to the turnover below 10 percent. I think this is the major reason that we – if bad conditions, we report higher losses. In good market conditions, we just give some profitability, and in a very good boom period, we make some money and we make some dividend. I think we are the least cost-effective company in the whole industry. I'd like to have you comment and see if something is coming around in next two, three years.

So, I mean, let me just, I mean, there are two ways of kind of looking at it. I am not at all saying that our employee costs are as per what our desired levels are. We are definitely working upon it, but it's a journey, and we are going forward on that, and it will, you will see some kind of a, you know, reduction by the much desired reduction in the coming year, in this. Next few quarters. The second thing is the nature of our business is very different. So you can't necessarily compare us with the legacy yarn makers because there, unlike the legacy yarn makers, we have our speciality is melange, our speciality is dyeing, which is kind of, it's a mid-processing which happens there, and that adds to a layer of cost which is kind of working around. So, our push... And obviously, you know, as we upgrade our product mix, we realize better from the market, the percentage, if in absolute terms, if you look at, our costs have not increased in absolute terms. It is more a function of the sales price and the sales volume, so to say, what we realize. So, you are right when you say that we are, you know, and we are cognizant of the fact that we need to bring down, we are working upon it. Great. Possibly, we are also a complex yarn business and also in the home textiles. We look at, I mean, we also do a lot of... As a result, the overall... Manpower goes up.

I understand the point, but the difference is so big that it's very difficult to have a good margin business year after year. You might have one or two good years after, you know, in good market conditions. But for a long, sustainable and growth company, if you are always lower than the whole industry, then it's very difficult to make good money and save good cash and put some money into the business. Because we invested 200 crores in a bottle project five, six years back, I think that I haven't needed anything on the profitability. It might have helped you in getting the raw material, but we invested so much money, and we never increased the bottom line as well as the top line from that 200 crore project. So I think we are almost a separate zone. Nothing has been done much in our five, six years. Well, Amit, I understand that you know better than the investors, but that is my vision in all five, six years.

No, so I understand, Amit, your voice is a little unclear, it's coming a little fumbled, but, you know, I'll be happy to walk you through our independent, cluster-wise businesses, and then you can... Then you have a right to kind of compare our yarn business with the comparable yarn business. Currently, as I said, you know, we have yarn business, we have a fiber business, and we also have a home textile business. And all these three models are very different. And currently, we also agree that our costs are a little higher. It can kind of come down. But at what levels? That's the journey which we have taken. And we are also seeing, as I said, that, you know, the result of this quarter is not a result of, you know, market tailwinds or the commodity price differential. It has come because there have been definite steps which have been taken last quarter. And we are happy to kind of walk you, you know, one-to-one in the interest of time and then see. But your point is well taken.

My last question is regarding the looms. How modernizes our machines? Because I've seen some videos in China, they don't require any manpower. So how will it place in the long term?

So, again, as I said, we already have a strategic business plan in place. You have to understand we are a nine-decade-old company, right? I mean, you know, we have expanded and we have kind of worked on, so we know exactly where we are there. We obviously are nowhere close to what China is. In fact, we are nowhere close to a lot of the best in class as far as India is concerned. But as you would realize that, you know, I mean, you know, we need to earn money so that we can invest money in modernization and move forward onto this.

Okay, best of luck. Nice accepting your views and letting me give my own views regarding the company. Thank you.

Thank you so much, Amit. Thank you so much.

Thank you. The next question is from the line of Himanshu Basani from Pinpoint X Capital. Please go ahead.

Yeah, hi, I'm Audible.

You are Audible, Himanshu?

Sorry, I got disconnected earlier. I don't know if you answered it, but I'll just repeat it again. Once the spreads normalize, right, and we do achieve our targets of, you know, one-third, you know, value-added business in the yarn segment, and also with the increasing scale from home textiles and the green fiber business, what kind of EBITDA margins are we looking at?

So, as I said, you know, it will not be right to, for me to kind of give a, I mean, predict something, but like any other good textile company, we will want to be in a two-digit number, and that's what the benchmark for us in near term is.

So, what kind of scale and growth we are looking at in the home textile business?

So, in the home textile business? I mean, now that we have become profitable, we are going to chase growth, and I mean, currently we are looking at doubling this in about two years, the home textile.

Got it, got it. Sir, could you also throw some light on the green side of the business, what kind of top line we have in that, and what kind of EBITDA margins we are looking at, and what kind of growth we are looking at in that business?

So, you know, I mean, on the green fiber, which is basically the recycled polyester, if you were to look at the gross margin, I mean, the gross sales, it will be roughly about 400 crores. However, almost 70-75% of this gets consumed into our own units. What we tend to do and what we have already done is how do I move up in the portfolio rather than just looking at purely as it as a recycled polyester, how can we also add certain performance properties onto the recycled polyester so that it can be positioned very differently. And we are in discussion with various brands on how we can kind of collaborate with them and fulfill their requirements.

Understood. Sir, in the opening, you actually mentioned that you want to, you know, reduce the absolute interest amount that goes out of our P&L. What is that number, sir? So, we have been paying for our 66-67 crores for our interest costs. What would be that this year?

So, I think the interest, I'll ask Sachin to kind of just pitch in, but the interest, because, you know, we are also doing our capexes, you know. It's not that we are not looking at CAPEX. What we have said is that we have reduced our interest cost percentage by about 40 basis points. However, the outflow of interest will only increase because we also have our capacity expansion plans or the replacement plans to modernize our existing units. So, P number for this year, I mean, the last year was... Roughly about 67 crores. And I think this year we should be at about, we'll be about 75 crores.

Got it. Got it, sir. Thank you so much and all the best.

Thank you. Thank you.

Participants who wish to ask questions may press star in one at this time. The next question is from the line of Riyasha, an individual investor. Please go ahead. Vishar, your line has been unmuted. Please go ahead with the question. As there is no response, moving on to the next participant. The next question is from the line of Deepak, an individual investor. Please go ahead.

Hi, Deepak.

Hi, sir. Congratulations on a good set of numbers.

Thank you so much.

So, sir, earlier during the waterfall call, you mentioned that F527 would be an infliction year. How has the demand evolved during the Q1 across the domestic and export market, and have a customer ordering pattern improved compared to Q4?

So, you know, I mean, if you look at, I mean, obviously, Q1 has generally is very good for the legacy yarn suppliers, and this year, because of the China effect. You know, the 100% cotton, gray, yarn, people have greatly benefited from the demand. But as far as we are concerned, as I said, you know, we have deliberately moved up a little bit on the value chain. So our product portfolio remains intact. And what we are seeing this quarter, we think it will be replicable in spite of all the market headwinds. The geopolitical uncertainties which are going to be in place.

Okay. So, like, as you said, demand improved informally across all geographies or, like, certain export markets like U.S., Europe, Africa, China, South Asia recovering faster than other ones?

So, I would say that, you know, I mean, again, for different product segments, it is different. So, for cotton gray, it was China which boomed. For us, It was primarily our typical hunting grounds are Latin America and Europe. Those have been steady. Bangladesh, which was a traditional market for us, but had to kind of undergo a severe, you know, contraction in earlier times. The demand there is... It is stable, I would say. It has still not come down, come up to the levels where it was two years back, where it is stable. So what we have done is because, I mean, currently we do export to about 60 destinations. Thank you.

Okay. Understood, sir. Like, customer had started rebuilding inventories, or they are still buying cautiously?

No, sir. I think there is definitely a cautious approach, but what happens is because it had already gone down, the inventory levels had already gone down so low, now it's primarily... They are not taking large funds on this, but they are definitely rebuilding it as it goes.

And, sir, one last question. Regarding the last quarter, you indicate that the focus would remain on value-added yarn rather than a chasing volume. How much progress have you made in increasing the contribution of value-added yarn during Q1?

So, I mean, this was something which I answered earlier, and I maintained that, you know, it's a journey. Currently, we would like to, I mean, our final is that we convert 30% to 35%. To value added, at this point of time, there would be anything between 10 to 15%.

Okay. And any guidance for Q2 and Q3?

I think at this point of time, what we are saying is that let's maintain, I mean, rather than giving a very clear outlook, I mean, what we are saying is we will maintain or we will better the numbers what we have done for Q1.

So, like, we can expect Q1 numbers in Q2.

Well, that's what you are saying. I'm not saying, but yes, we will try to better that.

Okay, sir. Thank you. Thank you so much for your opportunity, and very all the best for the next quarter.

Thank you. Ladies and gentlemen, in order to ask a question, you may press star and one at this time. Participants who wish to ask questions may press star and one now. The next question is from the line of Malik Gandhi from Dolphin Management Advisors. Please go ahead.

Yeah. Hi. Good evening. Congrats on a good set of numbers. So my first question is on the line of like, how are you going to manage your debt going higher? So how is it going to be less structured? Is it going to be more of long term and less of short term or like how is the mix structured in debt?

So I think, you know, what is happening is that there is, I mean, we all know that there has been an increase in the raw material pricing, right? So for the short term, even if you were to maintain the same number of days, we will be drawing a little more for the working capital, right? I mean, that's how it is. And on the long term debt, obviously, it's a, that's more for the capex and other needs, which as we said is, at this point of time is. The call is reasonably secured for us, and we will be working around and obviously rebalancing the rate lines based on how the results move.

Okay, okay. Thank you. And my second question is on the line of raw materials. I wanted to understand your view of the market going ahead, like maybe one year down the line. How do you see cotton polyester discourse shaping up? What is your view on the raw material prices?

Okay, so I think on the cotton side, we all know that currently there is some parity which is coming between the international pricing and the Indian cotton prices. So, there we are saying that, you know, the prices will remain either at the current levels or they will go only a little up from where they are at this point of time. On the polyester, I think once, depending on the geopolitical situation, on the long term, we see that the prices might... Thank you. It is neutral to bullish.

Okay.

And with the rising, like if you are saying that cotton is going to be bullish, so like you have only stated that you will aim for a double digit EBITDA in the future. So are you still confident of achieving that despite the elevated prices?

See, I mean, if you look at our portfolio, I mean, for us, roughly 30% of our total consumption on fiber in terms of quantity is cotton. Balance 70% is primarily the synthetics, and in that we also have a recycle, which constitutes roughly about 30%. So, you know, our play is more on the value-added yarns, whether it is in the synthetics or whether it is in the Milan segment. So, we feel, I mean, at least that's the attempt that, you know, we'll kind of move around on that, and it's not, I mean, our story is more. From just being an upstream player, how can we become a full integrated supplier to our customers? And that's the journey which we have embarked. So while home textile is one of the pieces which is there midstream where we do technical textiles in a year or two, and I did not give a horizon as to where when we will get into two digits, but yes, that's what the attempt is. Okay, okay.

Yes, thank you so much. Thank you for taking my questions. All the best. Thank you.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you, everyone, for joining in, and we look forward to meeting up with you in the coming quarter. Thanks.

Thank you. On behalf of Sutlech Textiles and Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.