SANGAMIND - Sangam (India) Ltd Share Price

In the Q2 FY '26 earnings conference call, Sangam India Limited's management provided a positive outlook, emphasizing steady progress and operational discipline amidst a mixed external environment. Key points relevant to the company's outlook include:

1. Revenue Growth: The company reported a revenue of INR 785 crores for Q2, marking a 16% year-on-year increase, driven by higher volumes and an improved product mix. Management anticipates maintaining this growth trajectory with expectations of a full-year revenue growth between 12% to 15%.

2. EBITDA and Profit Margins: EBITDA surged 32% year-on-year to INR 76 crores, resulting in an EBITDA margin of 9.6%, reflecting an improvement of 120 basis points. Management noted that margin expansion is supported by better cost control, operational efficiencies, and improved realizations. Management expects EBITDA margins to further improve by 1% to 2% over the coming quarters.

3. Net Profit: The net profit for the quarter was INR 23 crores, a significant increase, outperforming its past quarters, attributed in part to a revision in the company's depreciation policy which presents a more favorable representation of profitability.

4. Sustainability Initiatives: The management is focusing on enhancing productivity while also strengthening the sustainability framework, with aims to expand renewable energy sourcing and increase the use of recycled materials.

5. Long-term Goals: The management targets a significant top-line growth, projecting revenues could reach around INR 4,000 crores by FY '28-29, with sustainable EBITDA margins expected in the range of 14% to 15%. They also noted an annual saving of around INR 10 crores from the 12-megawatt renewable power tie-up expected to commence in December.

Overall, Sangam's management is optimistic about sustained performance improvement, supported by operational efficiencies and a strategic focus on higher-margin products.

Major Questions and Their Answers

Question: Can you elaborate on the better product mix in terms of how it helped revenue growth? Also, can you shed light on the realizations during the quarter that assisted margin expansion?
Answer: The improved product mix is due to our continuous effort to focus on higher-margin products while reducing less profitable ones. This strategy is dynamic and applies across all verticals. Realization improved because our key raw material prices, especially cotton and yarn, have shown a declining trend for about 8 to 10 quarters and we believe they have bottomed out, leading to better pricing.

Question: How sustainable is the 317% increase in PAT for this quarter? Was this driven by one-offs or base effects?
Answer: The PAT growth reflects a onetime impact from the change in depreciation policy. While this provides a boost, I believe our EBITDA margins, which have been steadily increasing, will continue to support a sustainable PAT. In the second half of the year, I anticipate we can maintain these numbers.

Question: How much of the gross margin expansion comes from lower raw material costs, operating leverage, and product mix?
Answer: The gross margin expansion is multifaceted. It results from consolidated efforts across our business verticals, including increased capacity utilization and costly efficiencies from new machinery. It's hard to pinpoint exact contributions, but all these elements collectively enhance margins.

Question: Are you facing any pricing pressure from competitors in your key export markets, particularly in Bangladesh and the U.S.?
Answer: No, we do not see any pricing pressure from Bangladesh; rather, they are significant customers of our yarn and denim. Our exposure to the U.S. market is under 1% of our total sales, and we are not impacted significantly by tariffs, as many goods are shipped via Bangladesh.

Question: How do you manage pricing and quality consistency in volatile raw cotton markets?
Answer: We manage risk by stocking cotton when prices are low and maintain a consistent order book. Price fluctuations typically only affect us for 30 to 45 days before getting reflected in our yarn prices.

Question: What are your forecasts for revenue growth and how does the export share look going forward?
Answer: We anticipate revenue growth of 12% to 15% for the full year, aligning with our current run rate. Our exports have historically ranged between 35% and 40%, and I expect that to remain consistent.

Question: What payback period do you expect for recent capex, and how do you plan to scale up underutilized divisions?
Answer: For our industry, we expect a payback on capex within 5 to 7 years. Our garment division has recently seen improvements in utilization, and we aim to enhance this to around 60% to 65% in the coming quarters.

Question: How do you see the impact of your captive renewable power project on costs?
Answer: Our 12-megawatt project is expected to save approximately INR10 crores annually starting in December, with the current grid power cost around INR8.25 to INR8.5.

Question: What is your long-term outlook for growth and margins?
Answer: We aim for 12% to 15% growth and expect marginal improvements in EBITDA margins, potentially reaching 11% to 12% in the near future, leveraging increased capacity utilization.

These encapsulate the primary questions raised during the Q&A session and the responses provided by Anurag Soni, managing director of Sangam India Limited.