RSWM Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Margin turnaround despite revenue decline: EBITDA margin reached 7.4% (up from 4.8% YoY) even as revenue contracted, driven by deliberate shedding of unprofitable products, favorable mix, and cost discipline.
• Trade policy tailwinds are materializing: The India-EU FTA (concluded January 2026) and an interim India-US framework (February 2026) structurally improve the export playing field, with EU tariffs heading from 8–12% toward zero.
• GreenPET and knit expansion anchor the growth story: The LNJ GreenPET acquisition targets a ₹500 Cr revenue opportunity, while the knitted fabric expansion adds 20% capacity and entry into printed knits, a 30–35% market segment.
• Double-digit EBITDA is the explicit medium-term ambition: Management intends to reach that threshold in 6–8 quarters, with trade agreements potentially accelerating the journey.
• What to watch next quarter: Whether the 7.4% margin holds as guided, volume recovery in knit/mélange/denim, and any concrete timeline on the EU FTA’s implementation (targeted January 2027).

Profitability & Cost Structure

• EBITDA margin walk: Improved to 7.4% in Q3 FY26 from 4.8% a year ago, supported by favorable product mix, stable raw material costs, improved operating leverage through optimum capacity utilization, and continued process efficiencies. The quarter faced headwinds from US tariff-related lower demand for knit, denim, mélange, and cotton yarn.
• Gross margin expansion: Strengthened to 39.2%, up 78 bps QoQ and 310 bps YoY, supported by disciplined cost reduction initiatives and focus on business quality.
• Finance cost reduction: Declined by approximately ₹4 Cr YoY in Q3, driven by improved liquidity, lower borrowing cost, repo rate reduction from 6.5% to 5.2%, optimized working capital, lower inventory levels, effective receivables management, and improved trade payables management with invoice discounting.
• PAT turnaround: 9M FY26 PAT improved to ₹17 Cr from a loss in the corresponding period last year; Q3 PAT stood at ₹4 Cr after a one-time exceptional expense of approximately ₹10 Cr related to labor code linked service cost.
• Renewable energy cost shield: 70% of power consumed now comes from renewable energy, and all boilers have shifted from fossil fuel to biofuels, strengthening cost stability. Solar behind-the-meter (9.6 MW) and Adani group captive (60 MW RTC) are expected to save ₹1–₹1.5/unit, improving competitiveness versus peers in Rajasthan after a DISCOM tariff increase of ₹1.02/unit.

Rajeev Gupta: "This EBITDA margin is definitely sustainable because the current quarter, the Quarter 3 in discussion, was not an easy quarter or there was no abnormal conditions in the market, rather the challenges of U.S. tariff and the lower demand as a result of that, particularly for knit, denim, mélange, and to some extent, cotton yarn were challenging during this period."

Revenue Strategy: Profitability Over Top Line

• Deliberate revenue contraction: 9M and Q3 revenue were lower than the previous year because management consolidated and reduced unprofitable products, focusing on profitability over top line. EBITDA for both the quarter and 9M improved as a result.
• Product mix optimization in motion: Management is continuously reviewing low-margin, low-contribution products, trying to increase higher-margin products and reduce or eliminate low-margin ones. This was implemented fully in some businesses where market sentiment allowed, but could not be done effectively in knit, mélange, or denim businesses.
• Concrete spindle shift: 20,000 spindles moved from PV grey to PV dyed at Kharigram Unit 9, shifting volumes from low-margin to high-margin products. The product mix journey is expected to take 3–4 more quarters.
• Capacity utilization split: Yarn already at high 90s%; major underutilization exists in knit, mélange, and denim, and these segments will be the focus for improvement. No further negative revenue growth is expected. [17–18]
• Non-core asset cleanup: The Chhata spinning unit, an outdated and low-margin asset, was disposed of with usable parts redeployed to other units. An old coal-based thermal boiler replaced by biofuel boilers is now being disposed of. No other non-core redundant assets remain.

Rajeev Gupta: "The growth has not been there in these nine months because we consolidated and worked more on the profitability than on revenue. In fact, we consolidated a few of the products which were not yielding profit, we reduced it."

Trade Policy & Export Tailwinds

• India-EU FTA concluded: In January 2026, India and the EU concluded negotiations on a comprehensive FTA, a significant structural shift for Indian exports, particularly in value-added and man-made fiber segments. Tariffs are coming from 8% to 12% to almost zero, creating a level playing field versus Bangladesh, Pakistan, Sri Lanka, and Vietnam. Likely to become a reality by January 2027.
• India-US interim trade framework: Announced in February 2026, the framework aims to reduce the tariff variance to 18% from the previously increased 50%, laying the foundation for a broader bilateral agreement.
• UK FTA in discussion: May pass in 2–3 quarters, further leveling the competitive field.
• Bangladesh yarn import dynamic: Bangladesh has limited spinning capacity that was not utilized, and Bangladeshi spinners were pressuring their government to impose additional import duties or remove advantages for using their own yarn, a competitive factor management is watching.

Growth Projects: Knit Expansion & GreenPET

• Knitted fabric expansion: A ₹92 Cr capex project is progressing in phases, expected to be fully operational in the first half of FY27. Post expansion, total knitting capacity will increase by 20% from 750 MT to 900 MT. Introduction of printed knit product lines will enable entry into a fashion-intensive segment accounting for 30–35% of the knitted fabric market.
• Birla Advanced Knits plant acquisition: Acquired for ₹54 Cr (part of the total ₹92 Cr knit park expansion). The plant had European machines, including a printing setup, that were almost new and unused. Will provide 120 tonnes/month printing capacity, enabling entry into kids wear and lady nightwear segments. Machines are also being used to modernize the Chhata and Mordi plants.
• LNJ GreenPET acquisition: Strengthens position across the recycled PET value chain. Upcoming facilities in Madhya Pradesh will produce food-grade recycled resin, expanding presence in the packaging segment. 44 acres in Ratlam, MP already secured; technology finalized with washing line and pelletizing line vendors selected, the pelletizing line from European brand Starlinger.
• GreenPET financial trajectory: Facility targeted to become operational within 12 to 15 months. First-year revenue expected around ₹70–75 Cr, with full potential of ₹500 Cr to be harnessed over two to three years.
• Knit park full benefit timing: Entire expansion, including printing setup and modernization, to be closed by the first half of 2027; full benefit expected in the second half of 2027.

Capex, Modernization & Sustainability

• Modernization capex run-rate: Approximately ₹50 Cr per year for the next 2–3 years, based on cash flow and payback period of 12–24 months. No fixed annual allocation was committed beyond that indicative figure.
• Biofuel transition complete: In this financial year itself, the company will move from fossil fuel to biofuel for all boilers.
• Zero liquid discharge: Company is 100% compliant, does not discharge any polluted water.
• Industry 4.0 partnership: Tie-up with Green Stitch, a SaaS-based organization, to automate business responsibility and sustainability reporting using AI. The first report will be published this year using that tool. R&D investments include digital tools for sample preparation and new product technology development. [14–15]

Rajeev Gupta: "Our thought in RSWM is, we give back to society what we take. So, sustainability is really at the core of all the operations we do in RSWM."

Guidance & Commitments

Key Metrics