RSWM Ltd Q4 FY2023 Concall Summary

Key Takeaways

• FY23 hit by margin compression, Q4 shows life: Consolidated EBITDA fell 27% YoY to ₹340 Cr. on weak exports and high raw material costs, but Q4FY23 income rose 15.3% QoQ and EBITDA jumped ~3.1x sequentially, signaling a demand trough may be passing.
• Cotton price collapse is the central swing factor: Prices fell below ₹60,000 per candy, defying management's earlier ₹62,000 floor, and 40% of supply is still to arrive, creating both a near-term headwind for realizations and a potential tailwind once prices stabilize.
• Knits business remains a drag with a H1FY24 fix promised: The knitting plant could not be stabilized in FY23 and failed to reach target production; management now targets full capacity of 400 metric tons by September or early October.
• Full-capacity operations signal confidence, not just demand: From January 2023, all plants were proactively run at full capacity, with denim and yarn businesses sustaining that level, a bet that volumes will absorb the output.
• What to watch next quarter: Whether cotton stabilizes near the predicted ₹57,000 floor, whether the Q4 sequential recovery sustains into Q1FY24, and whether the knitting plant shows measurable progress toward its 400 MT target.

Cotton Price & Raw Material Dynamics

• Price floor repeatedly broken: Management expected cotton would not fall below ₹62,000 per candy; that prediction proved wrong as prices dropped below ₹60,000, with a further ₹1,000–2,000 softening possible before stabilization.
• Stabilization thesis rests on a June timeline: Management feels prices should stabilize around ₹57,000 per candy and that by 7 June everything should settle, though it admits the outlook is genuinely unpredictable.
• 40% supply overhang: Nearly half the cotton crop is yet to arrive in the market, which may push prices down further, though management believes the downside is limited to ₹1,000–1,500–2,000 from current levels.
• Customer behaviour amplifies the downdraft: Buyers are holding back orders, expecting further cotton price reductions that would give them better negotiating power, creating a self-reinforcing demand pause.
• Realization follows raw material mechanically: When raw material prices fall, yarn realizations fall; when they rise, realizations rise, a dynamic management describes as "the whole story of this yarn market."

Avinash Bhargava: "Cotton prices are unpredictable. These are coming down even below ₹60,000 now. If we will take the market feedback it may go down further for ₹1,000 or ₹2,000 and then we feel that these prices should stabilize around ₹57,000 per candy."

Q4 Recovery & Demand Environment

• Year-end push drove the sequential rebound: Q4 is traditionally the strongest quarter in textiles as marketing teams reduce stock levels to the minimum; the team tried to maintain profitability at Q1FY22–23 levels and, while falling short, still achieved a meaningful recovery.
• Export markets remain subdued: Cotton yarn exports fell 47.9% YoY in Q4 due to weakening global demand and Indian cotton trading at a premium, though they rose 51.3% sequentially as spinners benefited from a relatively favorable cost structure and the Turkey earthquake disruption.
• US home textile share gains offer a structural bright spot: India's market share in US imports of cotton sheets rose 769 bps and cotton towels rose 688 bps in January–February 2023, attributed to recovering export demand and US retailers optimizing inventory.
• Operational income still below prior peaks: Q4 operational income was not as good as it was previously, but it was much better than Q3, consistent with a gradual rather than sharp recovery.
• Optimism for FY24 is conditional on the Q4 trend holding: Management described Q4 as showing encouraging signs of recovery and expressed optimism that the positive trend will continue throughout FY24, though this rests on demand materializing beyond the seasonal year-end push.

Avinash Bhargava: "You know that last quarter always in textile remains very good that is why all marketing persons try to reduce their stock levels to the minimum that was the only reason and we as a team tried a lot to maintain our profitability to the level of at least Q1 FY22-23 we could not, but yes we could achieve in a big way."

Segment & Operational Performance

• Denim and yarn running full, knits lagging: From January 2023, the company proactively decided to run all plants at full capacity; denim and yarn businesses are sustaining that level with no shutdowns, while the knit business could not reach the desired production level in FY23.
• Knits stabilization is a H1FY24 deliverable: Management is targeting to produce 400 metric tons, the plant's full capacity, and hopes to achieve this by September or from the first of October, making H1FY24 the proving window for this underperforming asset.
• Mélange yarn pivot reflects prudence: With mélange yarn underperforming across the country, RSWM opted to shift its 30,000 spindles from polyester cotton mélange to cotton mélange, an adaptive move that acknowledges market reality.
• Plant operating model is 60:40 order-to-commodity: Plants run approximately 60% based on order booking and 40% based on commodity, a mix management says is unavoidable in textiles where no one can run purely on order booking.
• Yarn realizations broadly declined QoQ: Except for Cotton Grey yarn, which rose from ₹241 to ₹253, prices for Grey yarn, Dyed yarn, Denim, and Mélange yarn all declined sequentially in Q4, consistent with the raw material price downdraft.

Avinash Bhargava: "Actually, this Knit business we could not stabilize in this FY23, but we are targeting that we should be able to produce 400 metric ton production which is the plant capacity of this knitting plant."

Margins & Profitability

• FY23 margin compression was severe: Consolidated EBITDA margin declined to 9% in FY23 from 12.2% in FY22, driven by higher raw material prices and lower export demand, partially mitigated by cost management.
• Q4 margin still below prior-year levels: Q4FY23 EBITDA margin was 9.28% compared to 12.67% in Q4FY22, showing that the sequential volume recovery has not yet restored profitability to historical norms.
• Full-capacity operations are the margin recovery lever: Management expects improved margins across yarn, fabric, garments, and home textiles segments because of enhanced operating leverage and sequentially improved gross margin from increased utilization.
• Insurance claim provided a one-time other-income boost: ₹13.60 Cr. of other income relates to insurance claims for fire damage at the Denim unit, representing the differential between the claim received and the written-down value of the damaged asset, a non-operational uplift.

Strategic & Structural Developments

• Ignite 2026 signals internal planning rigor: RSWM hosted a two-day leadership program with the CMD, JMD, business heads, COOs, CFO, CHRO, CIO, and Marketing Head for strategic brainstorming, and developed a progress-tracking system to measure and monitor quarterly progress on agreed action plans for each leader.
• BG Power acquisition is a cost-arbitrage play: RSWM acquired 100% of BG Power for ₹5 Cr. to capture benefits under a state government circular allowing incentives in power rates for having a captive power plant; management stated the consolidation of BG Power's debt will not impact the balance sheet because there are offsetting assets and repayment follows a waterfall mechanism.
• Sustainability positioned as strategy, not a function: Activities include purchasing PET bottles and converting them into fiber, using that fiber in fabric, zero-discharge effluent treatment plants, water conservation, and 25–30% women recruitment in workforce and staff.
• BRSR adopted a year early: RSWM adopted BRSR reporting one year prior to its mandatory implementation, a voluntary disclosure move.
• Mumbai office reclassified as investment property: An office previously used by RSWM, found to have excess capacity, has been let out and reclassified as investment property valued at ₹30 Cr.; no new property was purchased.

Avinash Bhargava: "Sustainability is not a function it is a kind of strategy and it is a concept that how you want to take your organization forward for future and how much you are concerned with the society."

Unanswered Questions & Pushback

• Management declined to provide yarn and cotton spreads: When asked for typical base-grade spreads, exit-quarter spreads, and historical peak/worst/average data, management stated it could not talk about spreads and would only discuss market prices, not company-specific spreads.
• Un-allocable expense breakup deferred: An analyst asked for the breakup of ₹42.77 Cr. in un-allocable expenses within the segmental P&L; management declined to answer on the call, stating the explanation would be detailed and they would reply by mail.
• CWIP capitalization timeline went unanswered: An analyst asked when the ₹183 Cr. of capital work in progress would be capitalized and what incremental turnover is expected; the call ended before this was addressed due to time constraints.
• Capacity utilization percentage not provided by division: When asked for the specific percentage of capacity utilization for manmade fiber and denim divisions, management responded "full 100% capacity utilization" without providing the numerical breakdown by division.

Guidance & Commitments

Key Metrics