RSWM Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Losses narrowed, not yet reversed: EBITDA rose 2.6x YoY and the quarterly loss shrank to ₹8 crores, but PAT stayed negative as finance costs on ₹1,600 cr of debt continued to weigh on the bottom line.
• Demand is two-speed: Export demand is recovering while the spinning business remains under pressure from Indian cotton prices that sit above international levels, a cross-industry challenge management cannot price around.
• Cost control is doing the heavy lifting: The EBITDA jump came from capacity utilization, product mix, power cost reduction and flat employee costs, not from a structural margin recovery in the core spinning segment.
• No capital raise, no consolidation: Management explicitly ruled out raising funds and declined to consolidate units in the near term, betting instead on internal cash generation and off-balance-sheet financing to reduce finance costs.
• What to watch next quarter: Whether the promised Q4 improvement materializes, the pace of debt reduction, and any stabilization in cotton price spreads as international prices tick up toward Indian MSP levels.

Demand & Volume Recovery

• Export momentum returning: Strong recovery in export demand drove the 22.3% YoY revenue growth, and management flagged Bangladesh uncertainties as a potential tailwind shifting orders toward Indian players.
• Mélange improving, spinning still strained: Mélange yarn demand showed slight improvement with better capacity utilization expected in Q4, but the spinning segment continues to face pricing pressure from Vietnamese and Chinese competition.
• Fabric segment resilient: The fabric business remained steady and continued to drive positive momentum through the quarter.
• Capacity utilization the first priority: Management's stated number-one goal is to push utilization above 90%, with the product mix shift toward profitable articles coming second.

Rajeev Gupta: "primarily is to clock full capacity utilization that is the one priority that we have. Second is working on the product mix and try to see if we are working on certain articles which are not yielding the required value generation to shift that to the products that can generate some profit and third making an organization that is agile, effective and able to live on the modern"

Cotton Price Disadvantage

• The structural gap: Indian cotton prices remain higher than international prices because MSP sets a floor domestically while overproduction in the US and Brazil keeps global prices low, with international cotton operating around 67–68 cents. This is a cross-industry challenge affecting all spinning mills.
• No quantified mitigation: Management acknowledged the disadvantage but did not provide specific hedging details or quantified offset strategies when pressed.
• Stability expected: Cotton prices are expected to become more predictable, and the government's five-year mission on extra-long staple cotton productivity aims to reduce import dependence over time.

Rajeev Gupta: "Indian cotton prices as of today for the first time we have experienced this in the last couple of months now international prices of cotton are operating at the highest level of 67, 68. So there is a lot of overproduction in international cotton, especially in the US and Brazil, reflecting the cotton prices are at the lower level internationally, whereas in India, because of MSP being a reality, the prices are not coming below a level."

Cost & Operational Levers

• Power cost cut substantially: A significant reduction in power cost from Q2 to Q3 contributed directly to the EBITDA improvement.
• Employee costs held flat: Payroll has been constant for five years, with increments kept at inflation-matching levels and no real growth in the wage bill.
• Biofuels delivering now and later: Around 50% of the biofuels initiative will be implemented in the current quarter and visible in Q1 FY26, delivering lower operational and steam costs plus sustainability compliance that customers increasingly require.
• Ginni Filament knitting stabilized: The acquired knitting operations have added new customers and improved capacity utilization, though the spinning portion of the acquisition remains under stress from the same cotton price and competition headwinds.

Rajeev Gupta: "around 50% of that will be implemented in the current quarter and we will see that in the first quarter of next year. The second benefit is that many of our customers know from the social compliance part of the view that sustainability initiatives put this as a condition, so to fulfill that and serve those customers, you need to have fuel that is sustainability driven."

Balance Sheet & Capital Allocation

• Debt at ₹1,600 cr, reduction underway: The total includes ₹700 cr in term loans with a repayment plan, and QoQ finance costs are declining as debt reduction efforts yield results.
• No fundraise, no consolidation: Management explicitly ruled out raising funds and said it is not targeting unit consolidation in the short to medium term, citing the large capex such activity would require while PAT remains negative.
• Off-balance-sheet shift: The company is moving toward factoring, channel financing and vendor financing to reduce on-book debt and finance costs, which it expects will improve return on capital employed.
• Capex limited to maintenance: Only normal capex for machine health and efficiency is planned, with no major modernization program while the company is loss-making.

Nitin Tulyani: "No, we do not have any plans to raise the funds. We are channelizing our existing businesses, making them profitable and we are focusing on the very stringent cash flows to maintain the working capital."

Industry Tailwinds & Structural Positioning

• Trade flows shifting toward India: Higher US tariffs on Chinese goods are redirecting trade and investment flows, while easing recessionary fears and resolving supply chain disruptions improve the global trade backdrop.
• Integrated sourcing consolidation: A structural shift in buyer preference toward integrated sourcing is driving industry consolidation, which management argues benefits larger, more efficient players like RSWM.
• India textile GDP ambition: The sector is positioned to double its GDP contribution from 2.3% to approximately 5% by 2030, supported by government initiatives on cotton productivity and advanced farming technologies.
• Technology investments underway: RSWM is deploying Industry 4.0 tools, AI-driven commodity procurement forecasting, machine learning and agile supply chain tools, though these are early-stage and not yet quantified in financial impact.

Guidance & Commitments

Key Metrics