Sangam (India) Ltd

Ladies and gentlemen, good day, and welcome to Sangam India Limited Q2 FY '26 Earnings Conference Call hosted by Go India Advisors LLP. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Ms. Garima Singla from Go India Advisors. Please go ahead. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. I'm Garima Singla, and it's my pleasure to welcome you on behalf of Sangam India Limited. Thank you for joining us today for the quarter 2 financial year '26 earnings call. This call is being hosted by Go India Advisors. Please note that today's discussion may include certain forward-looking statements. Therefore, they must be viewed in conjunction with the risks that the company faces.

Today on the call, we are joined by Mr. Anurag Soni, the Managing Director. I now invite Mr.

Anurag Soni to present the company's business outlook and performance, after which we will open the floor for Q&A. Thank you, and over to you, sir.

Good afternoon, everyone, and a warm welcome to Sangam India Limited's Quarter 2 FY '26 Earnings Call. Thank you for joining us today and for your continued interest in the company.

Our results and earnings presentations have been uploaded on the exchanges, and I hope you've had the opportunity to go through them.

The second quarter reflects a steady progress and operational discipline as we continue to strengthen Sangam's foundation across all businesses. Even in a mixed external environment, we have seen healthy demand in our key segments, supported by our integrated model and focus on efficiency.

In quarter 2, our revenue stood at INR785 crores, reflecting a 16% year-on-year growth, driven by higher volumes and an improved product mix. EBITDA has increased by 32% year-on-year to INR76 crores, with margins expanding by 120 basis points to 9.6%, underscoring improved cost control, operational efficiencies and better realizations. Net profit for the quarter was INR23 crores, reflecting the strength of our operating performance.

During the quarter, the Board has also approved a revision in the company's depreciation policy to align the estimated useful lives of assets with the actual economic life and industry benchmarks. This change is supported by an independent technical evaluation and provides a fairer representation of our profitability without any impact on cash flows.

Looking ahead, our focus remains on building a stronger, more efficient and profitable business.

We are taking measured steps to enhance productivity, reduce costs and maximize the share of high-margin and profitable products across our portfolio.

At the same time, we continue to strengthen our sustainability framework by improving energy efficiency, expanding renewable sourcing of energy and increasing the use of recycled materials in manufacturing. These efforts are aimed to -- at improving long-term profitability while ensuring that growth remains responsible and value accretive for all stakeholders.

With that, I would like to conclude my remarks and open the floor for your questions. Thank you.

Thank you very much. The first question is from the line of Raman KV from Sequent Investments.

Yes. So, my first question is, I just want to understand in the opening commentary, you mentioned the 2 things. One was the growth was led by higher volume growth as well as better product mix. Can you elaborate the second part of it, better product mix in terms of how the product mix helped in revenue growth? Second is, can you also throw light on the realization, which during the quarter, which helped in margin expansion?

Thank you for your question. So the company actually gone through extensive capex cycle over the last couple of years, and we've kind of completed at the end of that cycle. So all the capacities are up and running as on date. So that has enabled us on the volume growth. And also, if you -- on our presentation, you will see that capacity utilizations have gone up across all our verticals.

So that is actually enabling us on the growth for the sales.

And as far as the product mix is concerned, that is a continuous process. We are always looking for producing those products, which are yielding higher margins and maybe producing those products lesser, which are not so profitable. So that is a continuous process. There's nothing that I have to add on that, any particular product that is leading to this. It is the overall business and across all the verticals, we are working on the product mix that is enabling these -- the growth.

And sir, with respect to the realizations?

So, realizations, I think again, if you see the -- on a quarterly basis, the prices of our key raw materials or even, for example, cotton fiber and the yarn side, they've been on a declining trend for about 8 to 10 quarters now continuously. So we see that, that has bottomed out. And probably there is some uptick on that front. So that's why the realizations are getting better. The -- basically the downward cycle has bottomed out. So that's what is enabling better realizations.

So, you're basically saying the yarn prices have bottomed out? Yes, that is correct.

So, if you don't mind, can you just give the yarn prices during the quarter, Q2 versus Q1 and the cotton prices also? Just one second--

Sir, I wanted to ask that for this quarter, the PAT is up for 317% and it looks impressive. But how much of this, that is sustainable versus driven by one-offs or base effect?

Thank you very much for your question. So I'll just update on the last question. I was just looking at the data on the yarn prices. So about Q1 to Q2, there's about a 2% to 3% increase in the prices.

That is to answer the question earlier, sorry.

Your question regarding the PAT margins. So the current quarter reflects the onetime impact of the change in depreciation policy. How sustainable it is going forward? We feel that currently, I think if you see our EBITDA margins are expanding over the last 4 quarters, if you see, we are growing on the EBITDA margin front.

I do feel that even going forward, that should continue. So this onetime gain of depreciation may be offset by the growth in EBITDA margin. So we do feel that this is a sustainable number. So in the coming -- at least the second half of the year, I do feel that this PAT should be sustained.

Okay. And sir, gross margin, when we see that has also expanded sharply. So how much comes from the lower raw material cost versus operating leverage versus the product mix?

See, it's a mix of everything. Gross margin, it's difficult to actually point out that it is due to a particular cost coming down or -- because, see, we are consolidating 3 or 4 verticals. That's the denim business, the cotton yarn business, PV yarn business, synthetic fabric business. So I would say that the margin expansion is an effort of all the factors that the company is working on and majorly the capex cycle being completed.

So today, our -- the capacity utilization is higher and also all the new machines that we have -- the new capex that is coming in the company, I think that is more cost efficient compared to the older plant and machinery. So all that is factoring the margin expansion.

Okay. And my last question would be, sir, that the textile division margin has been volatile. So how do you see the spread between cotton and blended yarn trending in H2?

I think it has been stable for some time now. As I said that the prices on the downward cycle have bottomed out. So I do feel that the margins that we are reporting today, I think that is a sustainable number. I think we should see a couple of points going up from here in the coming quarters again.

The next question is from the line of Deepesh Sancheti from Manya Finance.

Yes. Are you seeing any pricing pressure from the Chinese or the Bangladesh suppliers in your key export markets?

No, I don't think so. There's -- see, Bangladesh is actually a big market for us. So no, to answer your question, on the competition front, no, we don't face any pricing pressure from Bangladesh.

So we are actually exporting a lot of yarn to -- yarn and our denim fabrics to Bangladesh. That's actually one of our customers, not the competitor.

Okay. And what about the American market? How much is your exposure on the American market for the total sales?

So American market is probably, I think, about less than 1% of our total sales comes from the U.S. market. So -- and we've also put up a slide on our presentation, the investor presentation showcasing that we are not -- as a company, we're not very affected by any kind of the tariffs from the U.S. markets.

No, not even indirectly because in your clientele, you have Walmart as well as a lot of American clients also. So I mean, even the customers whom we are supplying in India and they are giving to America, I mean, they are exporting, even that is not affected?

So -- for a lot of these clients, actually goods get shipped via Bangladesh or via a couple of African nations. So there, the tariffs are pretty competitive. So to answer your question, for our business, we are not really affected by the American market directly or indirectly.

And given the volatile raw cotton scenario, how are you securing consistent quality and pricing?

Well, that is the nature of the business with regards to the cotton pricing movements. So we do from time to time when we do feel that the cotton prices are probably low, there is some stocking that we do or there's also always some kind of order book always in place. So at best, any kind of cycle affects us for maybe a month or 2.

Any kind of further movement gets factored in either yarn prices or on the raw material side. So at best, I think 30 to 45 days risk is something that we may carry. Otherwise, the prices on the either side take care of themselves. And what is the cost of debt right now?

So the cost of debt it's roughly around 6.75%, below 7%.

Below 7%. Now I was going through your ROE. So ROE is below your cost of debt also. Now how do you actually -- because -- so I mean, if you say -- I mean, the ROE is significantly below the cost of debt also. So how are we managing the entire aspect? And how -- where do you see going forward, what is your target for the ROE to come?

See, the ROE is low because the PAT margins have been low for a period of time now. However, last couple of quarters, there's an uptick on the absolute EBITDA number. And subsequently, PAT has started going up. And we do see that margin to sustain going forward. So I think ROE will take care of itself. I don't -- I'm not much worried about the low ROE today. I think that is in the past now.

Because even the kind of PAT margins and PAT you have shown is mainly because of the depreciation policy being changed. Now going forward, we see the same depreciation policy, so your PAT numbers will be similar to what you have shown?

In the current quarter, there is a onetime impact of about, I think, INR9 crores on the PAT from the previous quarter. But we -- as I mentioned earlier on the call, I think we do have -- see expansion of about up to a couple of points on the EBITDA margins over the next -- in the current quarter and then probably the March quarter. So I think the PAT margin will not go down from here.

Because historically, your depreciation was always in the range of around INR28 crores to INR30 crores, okay. This time, the depreciation has come to around INR10 crores. Your PAT, net profit I see is INR23 crores. So if I just do the simple math of INR20 crores being saved on your depreciation and that shifting to the PAT to the net profit margin. I mean, then it leaves me around at INR3 crores of net profit. Would that be a fair assessment that INR20 crores out of the INR23 crores, INR20 crores has actually come from the depreciation?

No, that will not be a fair assessment because we have to factor in the tax impact also on that.

So if we see this, that see that we have -- I see the tax impact also, then also it will be around INR15 crores.

So as I mentioned again, that because of the depreciation onetime gain of about INR9 crores from the previous quarter, that will not come in the current quarter now. But I do see -- we'll add something on the EBITDA, and that will take care of the onetime gain that has come in the quarter. So let us say, if our EBITDA is improving by 1%, that adds about INR8 crores to the margins again. So we do see at least an expansion possibility of 1% to 2% in the current quarter and the next quarter coming in.

Now just my last question actually. What is the reason of changing the depreciation policy?

Effectively, you're paying more tax. okay? And your cash profit, I mean, it's affecting your cash profit rather than keeping it as a depreciation and having more cash into the company, we are actually giving that extra cash to the tax department. Just wanted your views on it.

No, as I mentioned in my opening statements, it is just a fairer representation of our profitability, and it has 0 cash flow impact because tax calculation from an income tax point of view, depreciation calculation is a different calculation versus the calculation on the books of accounts.

So that difference will remain. So there is no cash outflow on the tax front.

So currently, there is no additional cash outflow on the tax front? No, there is nothing on the front.

The next question is from the line with Disha from Sapphire Capital.

So sir, you mentioned that all our, like we have been going through an extensive capex cycle and since now all our capacities are up and running. So how much revenue growth do you forecast for this year?

Yes. I think we have on a run rate of about 16% revenue growth for the half year ended September, and that should continue for the full year. And we expect to grow anywhere between 12% to 15% on the revenue lines. Sorry, sir, couldn't get you.

We do expect to grow about 12% to 15% on the revenue front.

And sir, your export share is currently, this quarter is around 37%]. Do we expect this percentage of revenue like or this percentage of exports to continue or do we want to increase it further?

See -- if you see our historical data, our exports actually range anywhere between 35% to 40%.

That is where we have been historically. I think that is the number that will remain in the future.

I don't see any significant change on that front.

Yes. So like around 40% is something that we can expect. Yes, yes. Absolutely. Yes.

The next question is from the line of Nikhil Porwal from Perpetual Capital.

My first question is on, so the gross block has -- I mean, you've done an extensive capex moving from INR900 crores odd in gross block to almost INR1,800 crores closing FY '25. So in general, in terms of capital allocation, what kind of payback do you all expect on this capex?

What kind of payback do we expect on the...

Expecting yours. When I'm asking that in terms of years in how many years do you all expect to recoup this capex?

So normally, in our industry, whatever capex we do is planned around anywhere between 5 to 7 years of payback.

And in the current presentation, you are reporting 4 divisions. The capacity utilization for 3 of them is almost at optimal level or close to full capacity, while garment is the one, where the utilization is lower. So how do you plan to scale this up? And are there any further levers for

these other divisions, where the growth can come maybe via additional capex or a change in product mix?

Right. Thank you. See, our yarn division is basically about 90% plus. I think there is another scope of 4%, 5% capacity utilization there. On the fabric front, both denim and the PV fabric division, I think there is still scope of about 10%, 15% addition in capacity utilization.

On the garment front, if you see the capacity utilization was actually falling prior to this quarter, continuously over 4 quarters. This is actually the first quarter, where we have increased our utilization. So from 25%, we've gone up to 35%.

I think there's a substantial scope of improving the utilization here. And we have a decent order book in place today that we have worked upon over the last 6 months. And I do feel that these capacity utilization should touch about 60%, 65% maybe by next quarter.

Just a general observation. So while the capacity utilization has improved on a Q-on-Q basis, it doesn't reflect in the top line.

So the like-to-like comparison is probably at INR720-odd crores in Q1 vs 786, right? Yes. That is correct. Right.

One question is also, can you explain a bit about the difference in margin profile of these 4 divisions and also the asset turn and working capital cycle in all these 4 businesses? Just want to understand how can that change over the next few years with higher utilization.

Right. See, I think as far as the margin is concerned, the overall company margin is about 9.5%, 10% for the quarter, so close to 10%. The range between the different businesses would be anywhere between 8% to 12% so on the EBITDA margins.

As far as the working capital question is concerned, on the yarn side, the working capital involvement is lower. As you move up the chain, both on the inventory side and the receivable side, the working capital requirement gets more than the raw material side. So I would say that I think about 30 to 45 days of additional working capital is required for the fabric division compared to the yarn division.

And so the assumption is you are talking about 12% margin, which is primarily in the garment division because the rest of them are like a feedstock to it.

Right. So you can say that, as I mentioned, that about whatever the company average is, between 8% to 12% is where all the divisions land.

One last question is on -- so export versus domestic split, why does this matter? Is the margin profile different for both the -- I mean, for exports, is it higher versus domestic?

That's not necessarily true. I think margins are similar either on the domestic or the export side.

It is just a representation given in the presentation that this is the export -- this much revenue comes from the export. However, for us as a business, it does not really matter.

The next question is from the line of Rohit Ohri from Progressive Shares PMS.

Sir, a couple of questions from my side. The first one being the 12-megawatt captive renewable power tie-up that we have in Rajasthan, which is expected to be completed soon. What is the savings that you expect in rupee terms or maybe on a quarterly basis?

So with this 12 megawatt, the annual projected saving is about INR10 crores. And this is supposed to start our power consumption, the delivery will start from the month of December itself.

Anurag, if you can share the current price for electricity that we pay in the state of Rajasthan currently?

See currently, with the new tariff in place, I think the tariff is anywhere about INR8.25 to INR8.5 at least for the grid -- power from the grid.

The next question is that in this current cycle of maybe 2, 3 years of probably growing textile industry, do you think that you will be able to reduce the debt to probably half and give a booster to the return ratio, maybe the return on equity, which will happen on its own and the return on capital employed?

See, our debt repayments are about INR100 crores and INR120 crores annually. So let us say -- you did mention over a 2-year period, right? 3 years, yes, that's okay.

Yes. Over a 3-year period, we may be able to reduce debt by about INR350 crores. That is assuming that no new capex comes in. We have gone through a heavy extensive capex cycle. So there is nothing in plan in the near future.

But as you would know that in manufacturing and once capacity utilizations ramp up and margins are in place, the only scope of growth that can come in is via further expansions. It is - - so that is something that the cycle will always remain. However, it will not be as extensive as we have incurred in the last couple of years.

So yes, to answer your question, I would not commit on the 50% debt level from today. However, there is no -- not anything major planned at least over the next 12 to 18 months on the capex side. We want to first build on what we've already incurred and maximize the profitability on that.

True. So do you think that you will try to reach somewhere like 12% or maybe 14% kind of ROCE in next 3 years or so?

Yes. I think ROCE next 3 years, no, that will be a longer time. I think I think probably we may be able to reach that number maybe I think, 12 to 18 months' time.

Secondly, on this completion of the capex, do you think by FY '28, '29, you will reach a top line of maybe INR4,000 crores with sustainable margins of maybe 14%, 15% kind of a range -- EBITDA margins?

I do feel, I think this year, we are on track to do about INR3,200 crores to INR3,300 crores of top line. So I think about 12% to 15% growth annually, that may take us close to the number you're mentioning.

A few more questions that are related to the technology automation, which you mentioned in the opening remarks and the smart manufacturing or digital integrations that are happening. So what sort of payback period do you expect from these initiatives? And do you anticipate any decrease in the employee cost or in the headcount going forward due to automation?

See, I think paybacks, I already mentioned on the capex incurred earlier on -- in the textile industry, I think we are looking at paybacks anywhere between 5 to 7 years of time. However, any kind of automation and modernization that we may incur going forward.

I think we are looking at a shorter time duration now that anything that we pick up would be, that's anywhere between 3 to 4 years exactly something that we would probably evaluate.

However, having said that, there's nothing big on the table as of today. There may be small changes here or there that may keep coming up, but nothing major.

And how much do you intend to spend on this maintenance capex or the upgrades on a yearly basis?

I think on a gross block of our size, maybe we may expect anywhere between INR50 crores to INR70 crores of modernization capex or maintenance capex as we may put. That is something that will keep ongoing.

The next question is from the line of Saransh Gupta from SVAN Investments.

So I have a few questions. So like our yarn realizations have improved. So is this because of the demand or normalization?

See, there is not much from the -- if we are talking about any kind of market tailwinds, the answer would be no. That there is not much movement from the markets. Whatever improvements in the margins have come in is due to the capacity being utilized better at our end.

Can we expect the optimal utilization to be going ahead?

I think this is a number that we can benchmark what we have done in the current quarter, and we'll improve from here. I had mentioned in the call earlier that yarn, I think there's another possibility of improving by 3% to 5%. On the fabric and denim side, I think there is still a scope of 10% -- 10% to 12% improvement on the utilization. And garment, there's a substantial possibility.

And my second question is that we -- are we getting any hope on the import duty that was -- that has been extended till -- one quarter that has been extended till 31st December. Like is there any news on that? Or are we getting any news?

No, there is no -- there is no further update on that. So currently, as we stand, the duty is exempted until the 31st of December.

My last question is what is our mix for cotton in the imports and how much do we source locally? That's my last question.

See, normally, the share of imports in our consumption is very low. However, for this current period of time because the cotton crop comes in actually from October month onwards, the new crop. So for currently, we are about 30%, 35% on imported cotton and balance on domestic cotton. But historically, majorly what we use is domestic cotton.

So like historically, what would be the sustainable number like we can look forward?

On consumption of import versus domestic cotton? Correct. Correct.

Well, it may remain around the levels today. See, it depends on what kind of product we are making. So there is some kind of yarn for that we need cotton to be imported. So this is a dynamic number. Hard to say what is it that we can expect.

The next question is from the line of Meet from Mahavir Enterprise.

So my question is on the long-term sustainable margins for our company. So first of all what we envisage in terms of sustainable EBITDA margins? And as a long-term shareholder, it is important for me to understand how are we going to fund the further capex, if at all, we are going to do. I just wanted to understand the terminal value of our company and what the company is thinking in terms of long term value. That's my first question.

Sorry, what was the last part? Long term?

Long-term value for the shareholders. I just wanted to understand the terminal value of our company. So how are we envisaging the growth of our company going forward for at least 2 to 3 years.

So I think what I would say that on the revenue front, I answered this that about 12% to 15% growth is something that we can expect over the next couple of years. And on the margin front, again, there's a scope of improving about at least a couple of points in the margin. So what we are at 10% today, we'll see about improving by to 11% to 12% by maybe in a couple of quarters.

And what is the regular capacity utilization for our company to achieve the mentioned turnover of INR4,000 crores, which you have already mentioned?

At what utilization levels that will come in?

Yes. That would be about 90% utilization.

And sir, with power and fuel costs moderating industry-wide, why haven't we've seen sharper improvement in our EBITDA margins. So can you throw some light on that?

So the power costs -- sorry, actually, you were not clearly audible. What I could understand is you're asking about reducing power costs and that will...

Fuel cost. Fuel cost. How much that will bring to EBITDA margin?

So we are working on going as much renewable as possible. We've already done a captive power purchase agreement for about 12 megawatts with a developer that will come in from December.

And we see annual savings about INR10 crores from that front. There are further work that is going on, on this front.

And I'll probably have something more to share over the next quarter. The target is to get about 70%, 75% renewable from about 15%, where we are today. So over the next probably 15 to 18 months, that is what the company is envisaging.

And sir, do you see any pricing pressure from other domestic peers as many companies are expanding and doing capex in textile. So how do you see the supply side dominance going forward? Do you see any pricing pressure against your peers?

So there was a big capex cycle in textile. Probably I think today, as we speak, there is not much capacity getting added. So I think we are well placed on that front. No, I don't see any much pressure from our peers on the pricing front.

And sir, any markdowns or inventory adjustments aimed to simply that could distort current quarter profitability?

Nothing substantial. I think this is something that always keeps on going in a business of our nature. So there will be some kind of inventory that gets stuck that you have to liquidate at lower prices, but no, nothing substantial.

And sir, one last question. Do you see any macro, which could negatively affect margins or put pressure on our capacity utilization?

No, as on date, I don't -- I don't foresee any such challenges or risk in the near future.

The next question is from the line of Manoj Jethwa from KSA Securities.

Sir, my first question is relating to the Europe and U.S. markets. How do you see the rebound in both the markets? Any thought process on that, sir, please?

See, U.S. markets currently as an industry -- see, as a company, as I had mentioned earlier that we are not much affected by the tariffs. However, as a textile industry, the apparel side, whatever business is happening in the U.S. is challenged today because of the tariffs, 50% is a big number.

So unless there's something happens on that front at the government level, I would say that there will be challenges remaining for the textile garment business.

However, on the European side, I think business is growing there as far as India is concerned.

We don't do much garments. So I would not be in a position to actually answer much in detail.

But I do feel that our buyers, the fabrics or yarns that we are selling to, I think European side, they are more hopeful than the U.S. business.

Sir, my second question is pertaining to the asset turnover for the new assets, which we have added in the recent capex we have done so far. What could be the asset turnover from that?

Asset turnover -- what would that yield to our overall revenue of the company? Is that what you're trying to ask?

No, no, no. Asset turnover of the new capex, which we have done it, sir.

I don't think that's what you're asking. So asset turnover... I'm not -- I don't have the data ready with me. So I'll have to check on that.

Due to time constraint, that was the last question for today's conference. I would now like to hand the conference over to management for closing comments. Over to you, sir.

Thank you, everyone, for joining us today and for your continued engagement with Sangam. We appreciate your time and interest in understanding our performance and future directions. As we

move forward, our focus will remain on operational excellence, disciplined capital allocation and sustainable profitability.

We are confident that the actions we are taking today will position Sangam for stronger, more stable growth in the years ahead. If there are any further questions, please reach out to our Investor Relations partners at Go India Advisors. Thank you once again, and have a great day.

On behalf of Go India Advisors LLP, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.