RSWM Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Profitability turned around sharply: PAT swung to a ₹7 crore profit from a ₹13.7 crore loss YoY, while EBITDA jumped 50.6% to ₹81 crore, driven by better product mix and cost optimization.
• Gross margin expanded meaningfully: Gross margin hit 37.3%, up 152 bps YoY and 307 bps QoQ, reflecting a deliberate shift away from low-profit products and improved operational efficiency.
• Knitting is the growth bet: A ₹92 crore CAPEX plan will expand knitting capacity 20% and add a previously missing printing capability, with management targeting an 18–20% ROI and a ~5-year payback.
• The balance sheet is being defended: Management pledged no net debt increase this year, with new project debt matched by repayments, while also exploring asset monetization to reduce leverage.
• What to watch next quarter: Whether the knitting CAPEX stays on its nine-month timeline, the pace of margin progression toward management’s double-digit EBITDA ambition, and any clarity on the J&K subsidy approval.

Profitability & Margin Recovery

• Gross margin levers: The 307 bps QoQ jump came from better cost optimizations and a deliberate product mix improvement, with management focusing on higher-value segments and exiting low-margin business.
• EBITDA growth drivers: Operational efficiency gains and a strategic shift in customer, product and market mix supported the 50.6% YoY EBITDA growth, taking the margin to 6.9%.
• Power cost tailwind ahead: Per-unit power costs are expected to fall by nearly ₹0.30 as renewable energy investments come online, with the green energy footprint rising from 74 MW to 124 MW.
• Finance cost management: The company tied up with the TReDS platform to discount MSME vendor bill payments, capturing an interest arbitrage of 1% to 1.5% that helped contain overall finance costs.
• Double-digit EBITDA ambition: Management acknowledged double-digit EBITDA is the target the company is working toward, but declined to commit to a specific timeline for achieving it.

Rajeev Gupta: "I agree with you, double-digit is the target that every company has to work on, and we are working in that direction only."

Knitting Expansion & CAPEX

• The ₹92 crore knitting plan: Board-approved CAPEX will modernize and expand knitting operations at Mordi and Chhata, adding printing capability that was previously a missing product offering and balancing cotton knitted fabric capacity.
• Capacity and revenue impact: Knitting capacity rises from 750 to 900 metric tons per month, with the project expected to add 250 MT of production and approximately ₹220 crore in additional revenue once fully ramped.
• Timeline and funding: Implementation is targeted over nine months, funded through internal accruals and debt, with partial revenue expected in FY26-27 and full revenue thereafter.
• Return expectations: Management projects an 18–20% ROI on the knitting investment, with a payback period of around five years.
• CAPEX conservatism: The company is striking a balance between desired and affordable CAPEX, maintaining a strong balance sheet, and the prudence of going slow on CAPEX will continue for a couple more quarters.

Rajeev Gupta: "This upcoming investment of ₹90 to ₹95 crore in our knitting modernization, as well as the enhancements and adding the new products, which is printed into this, we expect this to clock around 18% to 20% of ROI, and as a result, we will have had payback around five years for this."

Demand & Export Environment

• Revenue headwind from exports: The 3.2% YoY revenue decline was primarily on account of subdued export demand, though denim utilization held at around 90% versus an industry average of 70%.
• US tariff indirect exposure: RSWM does not export directly to the US as a B2B player, but management acknowledged the company is not insulated because its customers are impacted, creating an indirect drag.
• UK FTA opportunity: Management sees the removal of 9–12% duties on garments and textiles to zero as leveling the playing field with Bangladesh and Pakistan, opening substantial opportunities for Indian exporters.
• Denim and knit outlook: Denim continues to perform well, while management expects most future growth to happen in the knit area, where India is likely to see significant expansion.

Rajeev Gupta: "So, as I mentioned in my opening remarks, we are not directly exporting to the US, because we are not in the finished goods segment... But if you say we are isolated or insulated from this impact, my answer would be, no. My customers are impacted, and thereby I am indirectly impacted."

Operational Restructuring

• Chhata spinning exit: The spinning unit at Chhata, acquired with old and inefficient machinery, had been bleeding continuously despite improvement efforts. Management decided to exit spinning there while continuing and modernizing the knitting division at the same location.
• Spinning strategy shift: India holds over 20% of world spinning capacity, and RSWM’s focus is on sweating existing assets better with a different product mix rather than adding spindles. Modernization, not capacity growth, is the priority.
• Yarn business defense: Management stated yarn remains a strength and the company does not want to de-grow it, even as knitting expands. Strategies to counter cotton yarn spread pressure include certified and sustainable cotton, contamination-free yarns on imported cotton, and better product mix.
• RSWM 2.0 repositioning: The company is repositioning toward high-yield segments with stronger export potential, focusing on specialty yarn with advanced technical attributes and a broader high-value product offering.
• Garmenting as the missing link: RSWM has fiber, spinning, knitting, denim fabric and processing. The only missing link for a full package offering is garmenting, an area management is open to discussing once the balance sheet can take the load.

Rajeev Gupta: "The advantage that RSWM has is, we are having fiber, we are having spinning, we are having knitting, we are having denim fabric, processing both for knitting and denim, logically for a full package to deliver to the customer, the only missing link is garmenting. So, that is another area that once our balance sheet becomes capable of taking this load. So, we should be open for these discussions."

Balance Sheet & Capital Allocation

• Debt neutrality pledge: Management committed that additional debt raised for projects will be equivalent to repayments made during the year, so there will be no additional net burden on the balance sheet and ratios will be maintained.
• Asset monetization underway: The company is exploring internal sources of funds, focusing on certain blocked assets, and planning liquidation of non-usable assets to reduce debt burden.
• Working capital discipline: Management targets maintaining the same momentum in working capital management, consistently tracking inventory levels of raw material and finished goods, and governing receivables and credit limits.
• Equity raise not addressed: When an analyst asked whether the company had considered raising equity to pay off debt instead of adding more, management did not directly address the equity option, instead pointing to internal sources and asset liquidation.

Nitin Tulyani: "we are not going with any additional debt. Our repayments will be equal to the additional debt we will be taking."

Renewable Energy Investment

• 50 MW renewable expansion: The company placed an order for 10 MW of solar and is in final discussions to expand to 50 MW total capacity through a combination of behind-the-meter and group captive open access, with a ₹50 crore investment.
• Cost and timeline: The renewable energy projects will be commissioned over the next eight months, with per-unit power costs expected to fall by nearly ₹0.30.
• Sustainability and regulatory drivers: The investment is driven by sustainability goals and a change in law allowing up to 200% of connected load as renewable energy. Management intends to add more solar every year as permissible.
• Current renewable share: Management clarified that the 45% figure sometimes referenced is for renewable energy specifically, not captive power, which is a combination of behind-the-meter and group captive sources.

Guidance & Commitments

Key Metrics