RSWM Ltd Q4 FY2026 Concall Summary

Key Takeaways

• Turnaround is internal, not cyclical: RSWM moved from negative to positive PAT in FY26, with gross margin expanding 246 bps to 38.1%, driven by product mix optimisation, cost management, and working capital discipline rather than market tailwinds.
• Revenue declined 5.6% YoY as weak demand, US tariff disruption, and the closure of Chhata operations (≈₹250 cr impact) weighed on the top line, though exports showed an 11.4% QoQ recovery in Q4.
• A ₹92 cr knitting expansion and a GreenPET project in Ratlam are the two growth capex bets; the GreenPET project has secured ₹300 cr in debt financing and targets Q1 FY28 operations.
• Gas cost and Gulf disruption are the near-term margin risk for denim: availability returned in April but at significantly higher cost, and the lag in passing through to customers will pressure spreads until the Gulf normalises.
• What to watch next quarter: Whether denim utilisation climbs toward the 85–90% target despite elevated gas costs, the pace of US order book recovery, and any quantification of the Adani power tie-up savings flowing through.

The Turnaround: Internal Levers, Not a Market Recovery

• Product mix overhaul: Management reduced low-contributing products and developed new ones with better volumes, while optimally utilising value-added product lines; the Chhata spinning operations were curtailed because they could not clock required margins.
• Working capital tightened: Lower stock availability and better customer collections contributed to the improved financial position, alongside a 9.2% YoY reduction in finance costs.
• Cost discipline delivered: Raw material cost declined 9.5% YoY, power and fuel costs fell 3.4% YoY (₹17.6 cr reduction), and other expenses dropped 8.3% YoY, reflecting energy optimisation and operational efficiency.
• Value-added is a moving target: Products developed in the last 2–3 years commoditise quickly once most spinners have them, so continuous innovation is required to sustain margin premiums.
• Other income and tax helped the PAT swing: Other income grew 74.5% YoY from sale of non-value assets, and the adoption of the new concessional tax regime (25.17%) from FY27 reduced deferred tax liability by ₹22.66 cr.

Rajeev Gupta: "The year under consideration has been really very tough for us as well as for the entire textile industry. Whatever could have been uncertainties prevailed in the world have prevailed in this year as a whole. So, the year was tough, and the turnaround which we are seeing is more because of internal operations than market-led."

Demand Environment & Export Recovery

• Q4 was brutal for textiles: US tariffs, the Iran-Israel Gulf conflict disrupting gas supply and freight, and dye and chemical cost increases made Q4 "really, really challenging" for the entire industry.
• US tariff impact is indirect but persistent: RSWM's direct US sales are limited; most products go to garmenters, weavers, and knitters who then export. When those customers lost orders to alternate countries during the 3–6 month disruption, product development suffered, and the recovery cycle is long. Management expects another two quarters for normalcy.
• Export recovery began in Q4: Exports grew 11.4% QoQ, an early signal, though the full-year export figure was still down 8% YoY. Domestic revenue fell 4.5% YoY.
• New geographies and customers added: In yarn, RSWM added two European markets and customers from Sri Lanka, targeting niches where competition is on quality rather than price. In denim, two US customers were added during the year, and domestic volume to brands increased.
• FTAs as a catalyst: Management sees the expected UK, EU, and New Zealand FTAs as a significant opportunity for Indian textiles, particularly if the geopolitical situation settles.

Rajeev Gupta: "India still is predominantly a spinner which is catching up in downstream like knitting, weaving and processing. But in garmenting, we still have a major gap."

Margin Structure & Near-Term Pressure

• Gross margin expanded 246 bps to 38.1% and EBITDA margin expanded 231 bps to 7.1% for FY26, supported by better raw material cost management and improved second-half spreads.
• Denim margin is under pressure from gas: Gas cost, dyes and chemicals, freight, and yarn prices have all increased costs for denim. Passing through to customers takes time because orders are booked in advance, creating a lag that will weigh on near-term spreads.
• Gas availability returned in April, but at a cost: The March disruption from the Gulf war is resolved on availability, but prices have "significantly gone for upward revision" and will remain elevated until the Gulf normalises.
• Spread picture is mixed: Business-to-business spreads are improving, and spreads in other businesses are "kind of maintained," but denim is the outlier due to gas.
• Power cost tailwind building: The Adani round-the-clock renewable tie-up is expected to deliver ₹1 per unit reduction, saving 3–5 lakh units per day or approximately ₹1 cr monthly. Consolidated power cost already benefits from BG Wind Private Limited.

Growth Capex: Knitting Expansion & GreenPET

• Knitting expansion (₹92 cr): Adding printing as a new segment, under execution now, with the full product intended to be implemented in Q3 FY27. Management expects it to add EBITDA in Q3 and Q4 of FY27.
• GreenPET project (Ratlam, MP): Originally explored by Bhilwara Energy Group, moved to RSWM because RSWM already produces polyester fibre from recycled PET bottles, creating synergy. Land acquired, consent to establish received, construction starts mid-May, machines finalised.
• GreenPET financing: ₹300 cr loan approved (70% of project cost), with the remaining ₹127 cr from a mix of equity and holding company loans. Targeted operational date is Q1 FY28.
• Modernisation capex also underway: Certain modernisation spend across all plants to replace old assets, complementing the two growth projects. No further closure of spindles or looms is envisaged.
• Capital allocation philosophy: Disciplined, with a focus on projects offering 1–3 year payback periods, particularly in modernisation and productivity improvement that enhance cost competitiveness.

Rajeev Gupta: "Our approach is that capital allocation would remain disciplined, with a strong focus on capital expenditure projects that offer shorter payback periods of one to three years, particularly in the area of modernisation and productivity improvement, which helps us in the management of cost and also creates more competitiveness for us."

Utilisation & Volume Recovery Targets

• Denim utilisation: Can improve to 85–90%, up from Q4 levels that were depressed by the March gas disruption and production downtime.
• Mélange utilisation: Expected to return to 85–90%, "maybe within this quarter or early next quarter," after running below capacity.
• Knit utilisation: Can reach +85%, with the new FTAs (UK, EU) and US tariff settlement likely to improve the knit business and enhance EBITDA.
• Overall utilisation improvement: Management expects utilisation across denim, knit, and mélange to improve 7–10% in coming quarters versus Q4 levels.
• Revenue sacrificed for profitability: Wherever it made more sense, operations were run for less volume but profitable revenue; the focus was on earnings quality over top-line growth.

Balance Sheet & Financing

• Preferential warrant issue: Board approved infusion of ≈₹36 cr through 24.7 lakh convertible warrants to LNJ Textile Advisory, LLP (Promoter Group), strengthening the equity base.
• Term loan repayment underway: Loans are being repaid year-over-year; management expects the current loan outstanding to be "minimised" over the next 3–4 years.
• Tax regime shift: Adoption of the new concessional corporate tax regime at 25.17% from FY27 resulted in a ₹22.66 cr deferred tax liability reduction, providing a one-time PAT benefit.
• Renewable energy mix at ~70%: The Adani tie-up for round-the-clock power brings the sustainable energy share (wind and solar) to approximately 70% of the total energy mix.

Guidance & Commitments

Key Metrics