SP Apparels Ltd (SPAL), an integrated garment company based in Avinashi, Tamil Nadu, for the first time crossed the ₹1,000 crore consolidated revenue mark in a fiscal by reporting ₹1,078 crore for the year ended March 31, 2023. This is a 25 per cent increase compared with ₹860 crore in the corresponding year.

Net profit for the fiscal slid 3 per cent to ₹82 crore (₹85 crore) due to higher employee expenses at ₹239 crore (₹190 crore).

Garment exports

The performance in the last fiscal was boosted due to strong growth in garment exports to ₹960 crore (₹742 crore). Revenue from the retail segment increased to ₹80 crore (₹48 crore). However, ‘SPUK’ — incorporated in 2014 to explore additional marketing opportunities and engage in trading activities with new customers in the UK, Ireland and other European countries — saw a decline in revenue to ₹58 crore (₹76 crore), according to data provided in the investor presentation.

For the fourth quarter ended March 31, 2023, the company reported a net profit of ₹20 crore as against ₹25 crore in the previous year, a 19 per cent decline. This was mainly due to an increase in employee expenses to ₹61 crore (₹53 crore). Revenue rose by 8 per cent to ₹275 crore (₹254 crore).

Founded in 1989, SPAL is India’s biggest manufacturer and exporter of knitted clothes for infants and children. It went public in 2016, and expanded the Crocodile brand in various States and cities in India.

On SPAL, ICRA in a report three days ago said, “ratings reaffirmation ([ICRA]AA- (Stable) reaffirmed) factors in the company’s strong financial profile, characterised by a conservative capital structure, healthy coverage metrics and a strong liquidity position and expectation of steady operational and financial risk profiles in the medium term.”

Slowdown in demand

Despite the slowdown in demand from the key exporting nations due to inflationary pressure and recessionary concerns, the company is estimated to have reported a healthy revenue and earnings growth in FY23. The company’s presence in the niche segment of infant wear aided it to achieve healthy revenues as infant wear demand is relatively less affected, ICRA said.

The Stable outlook reflects ICRA’s expectation that SPAL’s operational and financial performances will continue to benefit from its established presence in the industry, long relationship with its key customers aiding in repeat orders, ongoing measures towards new customer additions, improving operating efficiencies and comfortable capitalisation levels.

Liquidity position

ICRA said that SPAL’s liquidity position is expected to be strong over the coming quarters, supported by the anticipated growth in earnings and adequate unutilised lines of credit. Free cash and bank balances and the buffer available in working capital limits together stood at around ₹173.3 crore as on February 28, 2023. The average working capital utilisation stood at around 60 per cent during the last 12 months ended February 2023. Against the expected capital expenditure requirements of around ₹40-50 crore in FY24 and low debt repayment obligations of ₹11.5 crore, SPAL’s cash flows are expected to be supported by cash profit generation of around ₹147 crore, apart from the cash buffer enjoyed by the company.

On the BSE on Thursday, the SP Apparels share closed at ₹367.25, which was ₹12.85 (3.38 per cent) lower than the previous close.