Active Clothing Co Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Revenue visibility is the headline: Management has a 15-month forward order book and explicitly guided to INR400 crores in FY26 and INR500 crores in FY27, backed by booked orders for the new capacity.
• Capacity expansion unlocks the next leg: A new facility adding INR150–200 crores of turnover is commissioning in ~4 months, with orders already allocated to new global customers.
• Margins are a show-me story: The target is 5% net profit post-tax, driven by operating leverage on bigger volumes and a mix shift to value-added products, but interest costs and professionalization expenses are current drags.
• Competitive positioning rests on vertical integration: The company claims to be the only Indian player offering design, in-house manufacturing across categories, and T1 supplier status with Adidas and Puma under one roof.
• What to watch next quarter: Commissioning of the new facility, conversion of the Puma T1 relationship into the guided INR10–15 crores Year 1 outerwear business, and any quantification of the margin walk toward the 5% target.

Demand & Revenue Visibility

• 15-month locked-in visibility: At any point, the company sees 15 months of business because the concept-to-delivery cycle with brands starts that far ahead. All designing for FY26 is done and brand forecasts are in place, giving management confidence in the INR400 crores FY26 number.
• Order book for new capacity: Orders are already booked for the uncommissioned facility, a direct result of the 15-month lead time. Month-wise production and delivery schedules are set.
• Entry strategy for new brands: The company wins new accounts by developing products the brand is not currently sourcing or that existing vendors cannot make, rather than competing on incumbents' existing programs.
• Export tailwind from geopolitics: Management sees India as a net beneficiary of current tariff regimes, noting that brands are shifting orders from China and Bangladesh to vendors their India offices already work with. Active claims an edge because those India offices are existing relationships.

Rajesh Mehra: "So, at any given point of time, we have a visibility for the next 15-month business. So, we have a clear visibility that in FY '26, we'll be doing a turnover of INR400 crores."

Capacity Expansion & Capex

• New facility timeline: A 1,50,000 sq ft building is in final paint stages; machinery installation follows, with commissioning expected in roughly 4 months.
• Revenue contribution: The expansion is expected to add INR150–200 crores of turnover, taking the existing facility's peak revenue to INR500 crores.
• Funding mix: Total capex of INR60 crores, funded via INR32 crores of bank debt and the balance from internal accruals.
• Path to INR1,000 crores: The INR1,000 crore aspiration requires land acquisition and an additional ~INR150 crores of capex for land, building and machinery. A papered expansion plan will be presented at the end of FY26.
• Customer allocation: New capacity is earmarked for several global customers currently in negotiations, with audits and evaluations underway.

Customer & Product Development

• T1 supplier status: Awarded T1 status by both Adidas and Puma, which deepens direct relationships and order flow.
• Puma ramp-up: Expects INR10–15 crores of business in Year 1 from Puma for outerwear.
• New category development: For Adidas, developing denims, beanies and gloves as new categories. New developments for Puma are also under process.
• Shoe uppers portfolio: Adidas represents 75% of shoe upper capacity; other customers include Skechers, Reebok and US Polo.
• Design as a moat: The company is the only approved factory in India for the winter wear category for certain brands. Its design team's forecast accuracy converts into strong retail sell-through for those brands.
• 3D design capability: First presentation to brands is on 3D, eliminating physical samples. Brand design teams in the UK and US use the same software and make corrections simultaneously on pan-tone calibrated screens, cutting lead times.

Rajesh Mehra: "If I am making a product and they are already sourcing a product, then why they want me to be there. So, I have to make some product which they are currently not sourcing or their existing vendor is not able to make that kind of a product. Only then I will get the entry."

Manufacturing & Cost Structure

• Fully integrated in-house production: The company buys yarn and delivers finished garments. Knitting, washing, laundry, garment dyeing, printing and embroideries are all in-house, driven by brands' strict compliance requirements that preclude subcontracting.
• Material cost variability: Raw material cost as a percentage of revenue varies widely by product (25% to 70%) depending on design and style. The recent decline in material cost percentage reflects a mix shift toward value-added products like sweaters, t-shirts and jackets.
• Employee cost rising with professionalization: The business was historically promoter-driven; a top-tier professional team is now in place, and the shift to more value-added products increases salary and wages cost.
• Operating leverage not yet visible: The business is capex-heavy (land, building, machinery), and interest cost is a material factor reducing net profits. The margin improvement thesis rests on spreading fixed overheads across bigger turnovers.
• Energy efficiency step: A solar power plant commissioned last month covers 15% of current contract demand.

Distribution Business

• Scale and margin: The distribution and marketing segment generated INR75 crores of revenue at an 8–9% gross margin, covering Punjab, Himachal Pradesh, J&K and Chandigarh.
• Margin gap vs manufacturing: Manufacturing gross margin (12–15%) runs roughly 5–6% higher than distribution gross margin (8–9%).
• Growth role: Distribution will grow organically, but manufacturing is the primary growth driver.
• Stock and trade: INR45 crores of stock and trade purchases includes goods bought for distribution (not manufactured in-house) plus WIP and finished goods.

Balance Sheet & Working Capital

• Cash conversion cycle: The industry norm is 200–220 days, comprising 90–120 days of credit extended to brands plus a 90–120 day manufacturing cycle depending on product complexity.
• Leverage reflects the cycle: Short-term borrowings of INR92 crores against equity of INR72.8 crores are a function of this long working capital cycle, not distress.
• Seasonality: September is a heavy quarter because brands take deliveries from March/April onward for their coming seasons; the US autumn-winter season follows a separate calendar.

Competitive Positioning

• One-roof claim: Management asserts no other Indian company offers the full suite of design, sourcing and multi-category manufacturing under one roof. Competitors are fragmented across individual services or single categories.
• Automation backbone: All machinery is fully computerized and linked on a LAN, controllable from a single room. The latest machinery from Stoll (Germany) and Shimazaki (Japan) enables remote monitoring of every machine's status from anywhere in the world.

Rajesh Mehra: "We assume that Active won't have any competitor within -- no company in India is offering all services under one roof. Someone is offering only design, someone is offering only sourcing and someone is doing one category. Here, we are doing different, different categories."

Guidance & Commitments

Key Metrics