SUTLEJTEX - SUTLEJ TEXTILES & INDUSTRIES LIMITED Share Price

In the Q1 FY26 Earnings Conference Call, management provided a cautious outlook for Sutlej Textiles, emphasizing the challenges posed by geopolitical factors, particularly the recent India-Pakistan conflict which disrupted operations at their key manufacturing facility in Jammu & Kashmir. Despite these challenges, they highlighted resilience in their diversified operations, focusing on gradual recovery and adjustments in strategy.

Key financial highlights included:

• Consolidated total income: INR 610 crores, down 8% year-on-year.
• Gross margin: 42.4%, down 165 basis points year-on-year.
• EBITDA: INR 1 crore with a margin of 0.2%.
• Reported loss: INR 30 crores.
• The yarn segment remained the primary revenue contributor at INR 562 crores, supported by stable demand, despite the operational disruptions.

Management pointed out ongoing efforts to optimize costs, maintaining a debt-equity ratio of 0.95. They are actively pursuing product diversification and technological upgrades. They noted that while domestic sales accounted for 65% of total sales, export volumes encountered delays due to regional tensions, particularly affecting Bangladesh.

Forward-looking points emphasized included:

• Focus on expanding home textile exports to the U.K. and EU, capitalizing on the India-U.K. free trade agreement.
• Pursuing growth in high-margin, value-added products and evaluating potential entry into technical textiles.
• Awareness of ongoing tariff discussions in the U.S. and an intent to mitigate risks associated with market uncertainties.

In summary, management remains optimistic about capitalizing on long-term growth potential in the textile sector while adapting to current macroeconomic challenges and ensuring operational resilience.

Q1 FY26 Earnings Conference Call: Major Questions & Responses

1. Question: How do you see the recent U.S. tariffs impacting Sutlej's exports? Answer: I believe our business model will manage the impact well. Approximately 66% of our business is domestic, with only a small segment potentially affected by U.S. tariffs. Export supplies to Bangladesh and other regions should remain largely unaffected.

2. Question: What strategic value do you anticipate from the U.K. market post-FTA? Answer: The U.K. presents significant opportunities. Brands like M&S Home are increasing their sourcing from India, which we expect to benefit from as stability in U.S. orders returns once the tariff uncertainty resolves.

3. Question: What are your plans for diversification into technical textiles? Answer: We are currently formulating a strategic business plan to explore various areas, including technical textiles, and will provide more details later this year.

4. Question: Are yarn spreads currently comfortable and profitable? Answer: There is significant pressure on commodity yarns. However, for our synthetic and value-added dyed yarns, while pressures exist, they are not as severe as in basic yarns.

5. Question: How is the PET conversion business performing? Answer: Our PET fiber conversion remains profitable. We are engaging with partners to enhance the fibers' performance through specialized finishes.

6. Question: How are you addressing the potential import shift from India to China in Bangladesh? Answer: While Bangladesh has banned land shipments of yarn, this has shifted shipments to sea routes. We believe our cotton melange and dyed yarns still appeal to Bangladesh, and we're exploring other markets to diversify further.

7. Question: What is the outlook on raw material price volatility? Answer: Polyester prices remain volatile due to crude oil; however, good crop forecasts suggest cotton prices may stabilize, with higher domestic prices expected due to minimum support price increases.

8. Question: Are margins under pressure due to higher cotton prices? Answer: Yes, Indian cotton prices are higher than international prices. We continuously explore options to source competitive cotton globally while blending materials to maintain margins.

9. Question: What percentage of raw materials is sourced domestically? Answer: About 90% of our raw materials are sourced domestically. Cotton prices rose approximately 3% from the last quarter.

10. Question: What long-term strategies are in place for reducing low-margin commodity yarn dependency? Answer: We are diversifying into higher-value segments, including industrial yarns and fire-retardant yarns. We aim to enhance product value and applications across various industries.

11. Question: What is your capex plan for this year? Answer: Our capex includes maintenance, machine upgrades, and new product investments, split into 20%, 40%, and 40% allocations. Decisions remain contingent on market conditions.

12. Question: How have capacity and utilization changed? Answer: We lost around 15-20 days of production due to operational disruptions in Jammu & Kashmir, significantly affecting capacity. However, we managed to limit sales losses to about 12%.

13. Question: What is the current cotton inventory and procurement strategy? Answer: We maintain 60-75 days of cotton stock based on market trends. Our sourcing strategy supports this by monitoring prices and forecasts closely.

14. Question: What initiatives are being implemented to improve margins moving forward? Answer: We focus on upgrading product mixes and enhancing performance through finishes. As the home textiles segment grows, we expect to see improvements in profitability.

15. Question: What is the current utilization level for home textiles? Answer: Currently, our home textiles capacity utilization is at 40%, while the remainder is allocated for job processing, which doesn't add value to our home textiles segment.