Active Clothing Co Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Margin dip on American disruption, not demand: EBITDA margins fell as the American market disruption rippled through the industry, even though Active’s own US exports were minimal and demand stayed strong across all segments.
• India’s first knit-to-shape smart factory announced: A long-term partnership with Ningbo Shipping will add 600 advanced machines to the existing 352, creating a zero-waste, 3D seamless knitting factory with no need to raise capital: the supplier funds the machinery on five-year deferred payment.
• Revenue growth slowed, not stalled: Top line increased but not substantially, held back by the American market overhang; the company expects to cross Rs.100 Crores in exports this year and targets Rs.700 Crores total revenue once the full machine rollout is complete.
• Employee costs ran ahead of revenue: Employee benefit expenses grew 8% versus 1.65% revenue growth as the company retained people for expansion; management expects this temporary effect to absorb once the American market opens.
• What to watch next quarter: Whether Primark and Marks & Spencer clear their audits and come on board in the next 3–4 months, and whether the Rs.60 Crores capex goes operational on schedule to introduce new customers.

Margin & Cost Structure

• American disruption, indirect hit: The American market disruption affected the whole industry, increasing competition as players looked for alternative avenues; Active’s own exports to the US were very less so they are not hit, but growth plans are slowed down.
• Employee cost spike: Employee benefit expenses grew 8% against 1.65% revenue growth because the company had to retain people for expansion and be operational; 8–10% annual increments are treated as the cost of inflation to retain workers.
• Absorption tied to US reopening: The temporary effect of higher employee costs should be absorbed as soon as the American market opens, making margin recovery contingent on a geopolitical outcome the company does not control.
• Partner-brand margin protection: Margins with partner brands are fixed year-on-year; leftover stock goes back to the brand, and every garment is manufactured against order, insulating that portion of the business from inventory risk.

Rajesh Mehra: "Our exports to American market were very less. So we are not hit actually. Our growth plans are slowed down, but we are not hit."

The Knit-to-Shape Smart Factory

• 600-machine partnership: Active entered a long-term partnership with Ningbo Shipping Company Limited, the world’s largest manufacturer of computerized flat knitting machines, to add 600 advanced machines to the existing fleet of 352 units.
• India-first positioning: The rollout creates India’s first knit-to-shape smart knitting factory, built around 3D seamless knitting, automation, and zero-waste production.
• Supplier-funded, no dilution: The machinery supplier will provide the machinery on five-year deferred payment, so the company does not need to raise capital; as of now, management is not looking into any capital raise.
• Phased rollout: The first phase goes live at the end of the first half of FY2026–27, with 100 machines every six months and 200 annually; the full 600 machines will be installed over three years.
• Capacity and revenue target: Every six months will increase capacity by 15%; once the full 600+ knitting machine rollout is complete, total company revenue is targeted at around Rs.700 Crores.

Rajesh Mehra: "Under this agreement, we will add 600 advanced machines to our existing fleet of 352 units, marking the creation of India's first knit-to-shape smart knitting factory."

Demand & Customer Base

• Demand strong, revenue lagged: Demand has been very good across all segments, but top-line growth was not substantial because of the American market situation.
• No new clients, deeper existing relationships: No new client was added in the last six months; the company expanded the number of countries supplied with existing clients and now ships to 38 countries.
• Levi’s and Agilitas wins: Around Rs.15 Crores of orders came from Levi’s San Francisco team and Agilitas in the last six months; sampling work is already processed and a manufacturing agreement with Agilitas is signed.
• Mass-market customer pipeline: The company is tying up with mass-market customers like Primark and Marks & Spencer for the new smart knitting capacity; the audit process is ongoing and they are expected on board in the next 3–4 months.
• Sampling for summer 2026: Sampling is in process for summer 2026 orders with Agilitas, positioning the company for the next seasonal cycle.
• No new product categories: Management confirmed they are not evaluating new product categories right now, expanding only within current product categories.

Export & Geographic Mix

• Export revenue milestone ahead: The company expects to cross around Rs.100 Crores in export revenue this year, though management did not disclose the current export figure or percentage when asked.
• European market push: The company is trying to explore more of the European market and recruiting more people to tap it, a diversification move away from American dependency.
• American market optimism: Indications being received are very positive; management believes that once things settle between both countries, trade should be good, and if American markets open, the company should grow the way it has been growing.
• No seasonality drag: The company is not affected by season as it caters to exports to Europe, America, and different countries in a continuous process.

Balance Sheet & Cash Flow

• Cash flow turned positive: Cash flow from operations was positive in H1 FY2026, driven by improving margins, improving sales, and better volumes; the company is in a very good financial position.
• Receivable days stable: No change in receivable days; same customers, same business agreements, and payments are received accordingly.
• Inventory increase is scale-driven: The increase in inventory and receivables in FY2025 is due to business scaling up; the day cycle is approximately the same as last year at 210–240 days.
• Crisil ratings: The company received Crisil ratings for Rs.102 Crores bank loan facilities with a BBB stable long-term rating and an A3 plus short-term rating.

Operating Model

• Virtual design now mandatory: Big brands now require everything in 3D designing before a physical sample; the company has adopted virtual design and 3D sampling to shorten turnaround times, and without this capability it cannot satisfy customer requirements.
• Marketing vertical run independently: The marketing and distribution vertical is run by a separate team, separate offices, and separate warehousing, with no mix between the two business verticals.
• 200 touch points, no expansion target: The company partners with brands across 200 touch points currently; management described the model as stable with no specific target to reach 400 or 500, though tier-2 and tier-3 markets present opportunity and expansion will happen wherever the right space and business partner are found.
• Real-time sales tracking: The company has software for real-time tracking of sales across its touch points.

Rajesh Mehra: "Everything is protected. All the leftover stock, whatever it would be, that goes back to the brand. And in this manufacturing, whatever we are selling, it is all against order. We are not manufacturing a single garment without any order."

Guidance & Commitments

Key Metrics