SUTLEJTEX - SUTLEJ TEXTILES & INDUSTRIES LIMITED Share Price

Management's outlook for Sutlej Textiles and Industries Limited emphasizes a strategic recovery and growth trajectory for FY27, following a challenging FY26 marked by significant macroeconomic headwinds. The CEO, Ashish Srivastava, indicated that FY27 is anticipated to be a transformative year, with a focus on transitioning from a margin recovery story to one of profitable growth and deleveraging.

Key forecast highlights include:

1. Profitability Goals: The company expects EBITDA to expand significantly from the FY26 base, aiming to achieve profitability for the first time in two years. Specific margin targets were not explicitly detailed, but there is a strong indication of efficiency improvements across their operations.

2. Debt Reduction: Management indicates that debt metrics will improve materially as cash generation strengthens, reflecting better financial health.

3. Yarn and Home Textile Operations: The yarn division is currently operating at over 93% utilization, and the home textile segment is projected to see a quick scale-up, driven by a robust order book with a visibility of 180 days. The division saw EBITDA rise from a negative INR3.5 crores to a positive INR8.4 crores year-on-year.

4. Product Mix Shift: Sutlej aims to convert approximately one-third of its yarn portfolio into value-added segments in the coming year, a shift that is expected to support margin improvements.

5. Sutlej Green Fiber: This sustainable initiative has shown strong potential, running at over 100% utilization and serving as a long-term growth driver.

6. Technical Textiles Growth: The management plans to enter the technical textiles market, starting with protective textiles, which is forecasted to yield higher margins between 12% and 15%.

7. Capex Strategy: The capex for the current year is described as milestone-driven, focusing on strategic fit rather than growth for growth's sake.

Overall, Sutlej Textiles is positioning itself for a recovery phase characterized by improved margins, increased capacity utilization, and a diversified market approach, which is expected to foster sustainable growth moving forward.

Question 1: "There has been news reports coming in that yarn prices have gone up since March. So can you give how much percentage"”throw some light on what percentage of the yarn prices increased compared to March? And how much bottom line will increase because of this yarn prices improvement?"

Answer: "The increase in yarn prices correlates directly with rising raw material prices, such as polyester, which has risen by 30%. Currently, there's no surplus contribution to spindles; it's about margin protection at this point. Therefore, while we're seeing price hikes, it's essentially a pass-through effect, and we aren't expecting a significant bottom line improvement directly attributable to this."

Question 2: "My second question is regarding the Nesterra brand. Usually, when the brand is launched, the growth per annum should be more than 20% or 30%. However, in the last 4 or 6 quarters, our top line has stagnated a bit. Could you throw some light on that?"

Answer: "Our approach to the Nesterra brand is strategic and calibrated, emphasizing a working capital-efficient model. We're focusing on design strengths and working with large format stores rather than pursuing an aggressive retail presence right now. As our home textiles business expands, we'll have more flexibility to grow Nesterra, but currently, growth is aligned with our planned strategy."

Question 3: "Could you clarify the inventory losses? Inventory losses usually occur when prices are falling, but prices have been rising lately. Are we expecting further inventory losses this year?"

Answer: "We don't have inventory losses in our India operations; rather, these losses stem from our U.S. subsidiary, American Silk Mills, which we've decided to downsize. The remaining losses relate to this holding, and our India operations remain strong with no inventory issues."

Question 4: "How is the profitability changing in terms of various types of yarn, like blended versus cotton? What is your inventory storage policy in the current environment when raw material prices are increasing?"

Answer: "In terms of profitability, our cotton melange yarn is the most profitable, followed by PV dyed and 100% cotton. We maintain cautious inventory policies"”about 30 to 45 days for cotton, and 15 to 20 days for other fibers"”focusing on capital efficiency during volatile raw material pricing."

Question 5: "Do you foresee that these margins are returning, or where are we in that recovery journey?"

Answer: "While I cannot provide specific numbers, we're correcting margin dips caused by outdated machinery and energy costs. Our strategy includes transitioning to value-added products, and we aim to improve margins year-on-year, but achieving double-digit margins will depend on market and raw material behaviors."

Question 6: "What capex commitment do you have for the year?"

Answer: "Our capex plan is milestone-driven. Last year, we spent roughly INR 70 crores, and while our budget for this year is higher, specific amounts will depend on quarter-on-quarter performance. We'll provide clearer numbers in upcoming quarters as our plans materialize."

Question 7: "What margins are we expecting from technical textiles compared to our current business?"

Answer: "In technical textiles, particularly protective textiles, margins typically range from 12% to 15%. This segment has strong margin profiles and sustainability over time, making it a key focus for our growth strategy."

Question 8: "What industries are you specifically targeting for protective textiles?"

Answer: "We are targeting industries such as oil and gas and steel for protective textiles. With recent global shifts, we expect demand to grow in these areas, so we're keen to ensure we can deliver the necessary products effectively."