S.P Apparels Concall Summary Q3FY17

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Financial Highlights

S.P apparels Consolidated P&L Q3FY17
  • Considerable increase in the business from primark during Q2 & Q3 especially from Ireland & UK. Revenue of 76.4 million from SP Uk operations
  • EBITDA reported for 9 months is 97.1 crores. Realized gains from forex is about 12.5 crores
  • Export volumes was about 36.6 million & target will be about 55 million pieces for FY 2017 Expecting a growth of 15-20% Y-o-Y.
  • Raised around 28 crores from IPO, spend up to 70 stores which will be close to around 40 lakhs per store including the basic stock for the store. The 40 lakhs breakup : 22 lakh for interior, 8-10 lakhs for rental advances, & 8 lakh on the basic stock
  • EBITDA margin close to 21.7% on the garment front. For this quarter the EBITDA is around -2.5 crores.
  • Dividend will be 15% on PAT
  • Refund of duty drawback is around 7.5% plus ROSL of 3.05%, in total is around 11% plus MEIS of 1.85% or 2% based on the country. The ROSL is new refund & all other were existing
  • Export revenue was around 109 crores & 13% duty drawback
  • B2B sales was 5 crores & retail was 8 crores, so total revenue was 13 crores
  • Q1 & Q2 sales will be more than Q3 & Q4 because of the festival quarters.
  • Revenue per machine is around 15 lakhs annually
  • Expecting EBITDA margin improvement due to backward integration anywhere between 200 to 300 basis points
  • Average realization is around Rs 103
  • Advertising spending for next year budget is 3-3.5 crore
  • Average realization per machine in 9 months is 15 lakhs
  • Debt is 168 crores
  • Capex for spinning is around 45 crores
  • Debt equity ratio is 0.5
  • Inventory holding period is 90 to 120 days. Debtors collection period for TESCO is 60 days TT payment & for Asda it is 45 days. In total the company has 55 to 60 days of receivable in the book for garment division
S.P Apparels Financial result Q3FY17

Operational Highlights

S.P apparels Q3FY17 results
  • Witnessed a growth of 70% in retails division in last 9 months
  • Have 41 owned stores & 3 franchisee stores as of in December 2016
  • Added 200 sewing machines in the first quarter & further plan to add another 300 machines by the March
  • Five new stores to be opened in Q4, 2 in Chennai, 1 in Belgaum, 1 in Yelhanka & 1 in Coimbatore
  • Increased presence in 145 large format store outlets
  • Installed 19 knitting machines
  • Additional sewing capacity of 300 machines which in total will be about 500 machines
  • Increase in customers from 3 to 5. One Hong Kong customer which had approached the company few years back now wants to do business with the company
  • In terms of working capital for distributor the company has supported them with good amount of investment & in turn they will support the working capital with the funds which the company has already allocated
  • Strategically 2 Divisions – one is DRS or Direct Retail store and other is essential. Increasing the retail store base and presence in LFS is also growing. With respect to essentials the estimation is down in November & December
  • Expecting a capex of 20 crores this year & 20 crores next year
  • No of sewing machines equal to 4000
  • Business share of 10-15% from new customers is expected
  • The Breakup of turnover should be around 30% for basics & 70% for fashion. Going forward it will be 50:50
  • The time lag between order received to dispatch is around 3-5 months
  • For Q3 the production volumes were 11.46 million this quarter. For 9 months ending the production is 38.62 million corresponding to last year it was 25.83 million
  • The sewing machines installed were 200 & another 300 yet to be installed
  • The company is planning to integrate 42% knitting capacity.
  • Company is planning roadmap to franchise model. Next year will have 10 to 20 franchise stores. Looking for franchisee who has got space who is already in business
  • Expect to break even in the next 2 quarters & in the Q4
  • In terms of backward integration out of 40 the company has received 19 & all 19 have effectively started production. In terms of spinning the company has done a mini project wherein our existing capacity has been improved to 4800 kg per day
  • In terms of balancing of equipment the spinning is fully balanced. For expansion we have submitted the papers to government for approval
  • Margins to franchise is around 35-45% depending upon sale or return of goods
  • Goods returned are sold through other channels at discount. As the business grows the returns will be very small
  • The company is trying to break even Crocodile brand & convince the investor that business can survive
  • Possibility of children wear is also on cards

Capacity utilization

  • The total number of sewing machines for the quarter is 3760 & utilized is 2896 which is 78% and for spindles it is close to 100% utilization. Around 50% is outsourced for spindles
  • Capacity utilization for 9 months it is 88-89%. The Q4 will see upto 92%
  • Impact on capacity utilization due to following reasons
    • Festive season were absenteeism happened during Q3 due to Diwali
    • Sudden demise of chief minister Jayalalitha
    • Demonetization

    Currency Exposure & Fluctuation

    • The currency exposure is 55 – 58% to USD & 33% to pound & balance to euro
    • Over 1/3rd of UK market was impacted due to Brexit
    • Due to sharp pound depreciation in the month of june, the reference rate is 85-86 in terms of rupee to pound
    • For Q3FY17, the average pound to rupee rate is around 83
    • Depreciation of sterling pound currency has impacted our the line sales