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Sportking India Ltd

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Brief Company Introduction

Sportking India Limited, a part of the Sportking Group, is a textile manufacturing company engaged in the production of Yarns (Cotton Yarn, Synthetic Yarn, Blended Yarn), fabrics and garments. The Co. owns 3 manufacturing facilities in Ludhiana and Bathinda.Sportking India has a vertically integrated business model, encompassing spinning, knitting, dyeing, processing, and garment manufacturing. It has state-of-the-art manufacturing facilities located in various parts of India, including Punjab, Himachal Pradesh, and Madhya Pradesh. In terms of market presence, Sportking India has an extensive distribution network comprising exclusive brand outlets, multi-brand outlets, and large format retail stores across India. It also exports its products to several countries, contributing to its global reach.

Q4FY23 Updates

Financial Highlights & Results

Detailed Results:

  1. Revenue for the FY 23 is INR 2,205 crores, a growth of 2% year to year. For quarter four of FY 23, revenue increased by 4% on a quarter-to-quarter basis to INR532 crores.
  2. EBITDA for FY 23 is INR279 crores with a margin of 13%. EBITDA for quarter four, increased by 39% on a quarter-to-quarter basis to INR56 crores.
  3.  Margin for quarter four Increased to 100 basis point to 10%.  
  4. Profit after taxes for the quarter four , increased by 71% on quarter-to-quarter basis to INR31 crores. 
  5. Net cash from operating activities for FY 23 is INR 520 crores, up from INR96 crores for the last financial year 21-22. 
  6. Also there is substantial reduction of short term borrowings by INR265 crores as on 31st March 23 as compared to the last year 31st March 22.
  7. The average realization for quarter four is INR 260.86.
  8. Average cost of debt right now is about 5% to 7%.
  9. The capacity utilisation was around 96%. which would be amongst the top in the industry. A lot of industry had gone for 50% to 60% capacity cuts.
  10. Depreciation in this quarter was around INR14 crores.

Investor Conference Call Highlights 

  1. The company has successfully commissioned two additional capacity projects in the last one year. This has taken the overall production capacity of the company to 3,78,576 spindles.
  2. On the industry side, the company is witnessing some green shoots in export demand and decline in input cost inflation. 
  3. There is some better demand from China after a long time, and the loading of the premium of domestic cotton over international cotton prices are some positive indicators that will support the domestic sector in competing internationally. 
  4. The management stated that they are yet to see sufficient rationalization in raw material input costs, and are monitoring it closely. 
  5. The management informed that the production quantity as a whole as a company for last year FY 21-22 was 59,855 metric tons which increased to 61,769 metric tons in the last one year. And the quarter four volume was about 17,390 metric tons vis-a-vis quarter three of this year at 15,761 metric tons.
  6. The management expressed its opinion that the demand has not fully recovered compared to one year ago, particularly from Europe and America. Destocking is still ongoing, but there have been benefits for the Indian cotton industry due to issues faced by competing nations. The Indian market has improved significantly in the past couple of years, and it is expected that demand will pick up in the next three to four months as the destocking period nears its end.
  7. The management stated that the textile companies have faced significant challenges with raw material due to two main reasons. Firstly, there was a crop failure leading to a shortage of cotton and minimal closing stock. Secondly, the imposition of a 10% import duty has increased the cost of cotton, making it relatively more expensive compared to previous years. This has resulted in a higher premium for Indian cotton.
  8. The management of Sportking India Ltd disclosed their capital expenditure (capex) plans for FY ’24, with a significant portion allocated to the construction of a solar plant. They mentioned that approximately 50% of the planned expenditure for the solar plant has already been utilized.
  9. The management explained that the decision to initiate a buyback despite having debt on the balance sheet is driven by the absence of dividend distribution. Recognizing this, they deemed it appropriate to reward shareholders through the buyback program. Furthermore, the company’s debt and debt-equity ratios are comfortably below 0.5, ensuring their ability to finance the buyback.
  10. The management expects their run rate from 17,390 tons to increase to around 21,000 metric tons.
  11. Last quarter capacity utilization was 97.3%.
  12. The management has indicated that the proportion of captive generation currently stands at approximately 67%, with expectations for it to increase to approximately 11% to 12% of their total consumption following the addition of the new plant.
  13. The management stated that during the fourth quarter, cotton prices witnessed a moderation to INR 179, while the overall average was recorded at INR 163.51.
  14. The capital expenditure (capex) cost per spindle for the initial period was reported at INR 40,000, while it increased to approximately INR 46,000 per spindle. Moreover, for the latter period, the capex cost per spindle rose to around INR 48,000.
  15. The company’s sales composition reveals that cotton yarn constitutes a significant proportion, exceeding 50% at 52%. Additionally, cotton blended yarn accounts for approximately 40% of the sales, while synthetics contribute approximately 10% to the overall sales.
  16. The company produces a wide range of value-added yarns, including slob yarns, dyed yarns, and melange yarns. However, their realization is relatively low, approximately 60 or below. This can be attributed to the inclusion of some lower-grade yarns, which brings down the average. The company primarily focuses on coarse counts, ranging from 8s to 40s, which could contribute to their overall lower realization.
  17. The management stated that the subsidy from Bhatinda plant is going to be with them for the next 13 years.
  18. The management stated that this year’s cotton arrival pattern has deviated significantly from historical norms, marking an unprecedented occurrence. Farmers have exhibited resistance towards delivering cotton in the same volume and scale as observed in the previous year.
  19. Around 31, March, 50% of the crop was still to come. So the company had to change their buying cycle according to the arrivals.
  20. The management anticipates a reduction of approximately INR 70 crores to INR 100 crores in long-term debt in the foreseeable future.
  21. The company procures 100% polyester from domestic suppliers. Cotton is sourced from, from within India and from international markets also for specific yarn requirements.
  22. The management thinks that one of their USPs is cost efficiency.
  23. The management stated that Bangladesh continues to be their number one destination  for their exports. The company exports almost 50% of their exports to Bangladesh.
  24. Value added proportion is around 10 – 15 %.

Analyst’s View

Sportking, a prominent textile conglomerate in India, has solidified its position as a leader in the industry over the past three decades. The textile sector in India is poised for significant growth and transformation, primarily driven by various factors. The government’s proactive efforts to establish Free Trade Agreements (FTAs) with key economies such as the EU, UK, Canada, and others will undoubtedly contribute to this positive trajectory. Additionally, the economic crisis in Pakistan has inadvertently generated some demand, further stimulating the industry in recent quarters.

The ongoing global shift in supply chains, characterized by the “China plus one” strategy, is another crucial factor that continues to shape the landscape. This strategic adjustment presents substantial opportunities for companies like Sportking. As a result, an improvement can be anticipated in the company’s performance and overall industry growth in the coming quarters.

Moreover, the government has launched several initiatives to bolster the textile sector, making it more competitive on the global stage. These efforts aim to uplift the industry and provide it with ample opportunities for growth. Therefore, we expect the company’s margins and spreads to remain stable in the next couple of quarters.

While the textile sector faces challenges related to demand and supply over the past six to eight months, competition does not pose a significant threat at the moment.