RSWM Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Margin resilience in a brutal quarter: EBITDA margin jumped 318 bps YoY to 6.8% despite a 1.4% revenue decline, driven by cost discipline, a richer product mix, and lower raw material costs.
• The U.S. tariff shock is still unfolding: The 50% tariff hit knit and mélange hardest from September onward, with October equally challenging and November uncertain; management is scrambling to redirect volumes to non-U.S. markets.
• A self-help story is taking shape: Working capital fell 10%, inventory dropped ₹121 cr, term loans were pared further, and finance costs shrank 11.5% YoY, all pointing to a deliberate cash-conservation pivot.
• Green energy is the next structural margin lever: 70 MW of renewable power (10 MW behind-the-meter, 60 MW round-the-clock with Adani) promises ₹30–40 cr in annual savings once fully online next year.
• What to watch next quarter: Whether the tariff-driven order drought in knit and mélange stabilizes or deepens, the pace of further inventory liquidation, and any concrete progress in non-U.S. export markets.

The Tariff Shock: Impact and Response

• Mechanism of the hit: The 50% U.S. tariff on textile goods froze shipments mid-transit, forced garmenters to demand heavy discounts on booked orders, and cascaded into excess inventory, weak orders, and tight liquidity across the supply chain.
• Segment-level damage: Knit absorbed the worst blow, followed by mélange, then cotton yarn; knit customers are renegotiating with U.S. buyers for discounts, while mélange customers, who are knitters and garmenters serving the U.S., face the same pressure.
• Timing amplified the pain: Orders for July and August were already placed, so the impact only landed in September; October was equally challenging, and November visibility is poor.
• Cotton yarn caught a double whammy: The removal of cotton import duty, while positive long-term, pulled down domestic cotton and yarn prices by 5–6% in the quarter, compounding the tariff pressure; mills holding cotton stock suffered negative mark-to-market.
• The pivot: Management is focusing on new products and actively exploring non-U.S. export markets for knit, denim, and mélange, while building long-term strategic relationships in synthetic yarn and other less-exposed segments.

Rajeev Gupta: "In the knit business and mélange business, even retaining the existing customers is a big challenge because of the less orders we have."

Margin & Cost Transformation

• Gross margin expansion: Gross margin rose 195 bps YoY and 116 bps QoQ, led by lower raw material costs and a deliberate shift toward a more profitable product mix.
• EBITDA leap: EBITDA margin reached 6.8% versus 3.6% a year ago, driven by operational efficiency, disciplined cost management, and cost-saving initiatives.
• Low-margin activity pruned: The company reduced certain low-margin activities to focus exclusively on stringent, profitable products, a trade-off that sacrificed revenue for margin quality.
• Finance cost discipline: Finance costs fell 8.9% QoQ and 11.5% YoY through interest rate renegotiations with bankers, vendor financing and bill discounting for domestic raw material payments at lower cost, domestic factoring for receivables, and tighter borrowing control.
• Renewable energy savings: The 70 MW renewable integration (10 MW behind-the-meter plus 60 MW round-the-clock via Adani Green Energy Solutions) is expected to save ₹30–40 cr annually at current DISCOM tariffs; only four months of benefit accrue this year, with the full run-rate from next financial year.

Rajeev Gupta: "The exact savings on per unit will vary depending on the level of consumption and each unit structure is different. But overall, this will definitely reduce our energy cost per unit to the extent of almost ₹1."

Balance Sheet & Working Capital

• Working capital tightened: Average working capital utilization reduced by 10% in Q2, supported by efficient inventory management, faster customer collections, and better supply chain coordination.
• Inventory liquidation: Inventory fell approximately 16% to ₹121 cr below March 2025 levels; management sees room for further reduction but declined to quantify a target.
• Receivables improvement: Total receivables reduced by ₹51 cr versus March 2025, aided by increased use of invoice discounting, which offers better interest arbitrage compared to working capital cost.
• Term loan reduction: Term loans were reduced further during the quarter, reinforcing the commitment to deleveraging.
• CAPEX discipline: CAPEX has been controlled over the last 2–3 quarters due to cash flow challenges; the priority is maintaining positive cash flow and improving performance before undertaking modernization CAPEX.

Rajeev Gupta: "I will not be able to give any number. But I assure you, the focus and the control on inventories will continue, and there will be a possibility of further reduction from here on also."

Strategic Investments & Portfolio Moves

• Knit expansion approved: A ₹92 cr investment will debottleneck and modernize the knit division, adding in-house printing capability; capacity rises from 700 to 900 metric tons per month, with 120 tons of printed fabric. The primary aim is to capture printing margins and eliminate quality and lead-time issues from job-work printing.
• Jammu project formally withdrawn: The project was abandoned due to state government subsidy approval delays, GST rationalization that made viability unviable, and a changed geopolitical position in J&K; funds are being redirected to subsidiary LNJ Greenpet for new projects.
• Group captive renewable investment: ₹60 cr equity participation with Adani Energy Solution for round-the-clock renewable power was approved.
• RSWM 2.0 underway: The transformative journey spans five workstreams: cash conservation, product mix optimization (with special impact in synthetic yarn), forward integration in knit and denim, operational cost reduction through energy-efficient processes and alternative power sources, and strict CAPEX monitoring.

Rajeev Gupta: "The Jammu project was one of the prestigious projects LNJ Group wanted to do... the project viability numbers went for a toss. And this overall project was not coming into our payback or financial viability schemes."

Cotton & Raw Material Dynamics

• Import duty removal: short-term pain, long-term gain: In the short term, mills holding cotton stock suffered negative mark-to-market, and cheaper international cotton pulled down domestic cotton and yarn prices by ₹8–10 (domestic) and 10–15 cents (export). In the longer run, the move makes Indian spinners more competitive by providing abundant availability of all staples and less contamination, enabling contamination-free yarn.
• Price compression cannot be isolated: The combined effect of global cotton availability, import duty removal, and U.S. tariffs caused the yarn price reduction; management stated the individual factors cannot be disentangled.
• Integrated spinners added pressure: U.S. tariffs pushed integrated spinners to dump material into the Indian market, further depressing yarn prices.

Guidance & Commitments

Key Metrics