Active Clothing Co Ltd

[stargazer1]

My first post on VP on this Co that conducted its 1st conf call in Feb. I had posted that here.
Co just did their 2nd conf call and transcript is now available
.
I am going to try to summarize about the Co from the conf call introduction below and follow up with important highlights from conf calls.

Here’s the shareholding from screener

Co is run by Mr. Rajesh Mehra. My interest in the Co is because of 3 factors
1 Co has had major wins with US cos like Adidas, Puma last FY and is already a supplier to Levis
2 Co is expanding capacity by ~70% in the upcoming quarters and targeting consistent revenue growth as mentioned by promoter in conf call
3 Possibility of India US trade deal giving more traction to the co

Co is using internal accruals and has taken on debt to fund expansion - so that’s something to track about the Co. @vatsal10 has been discussing about the co with me over DM; so will ask him to post more discussion points here.

I have been investing in the co since the first conf call and have transactions in the past 3 months. I will provide snippets from the conf call in a follow up post.

[stargazer1]

I started following the co post their Oct announcement of supplying to Puma and Adidas and the expansion announcement. They have a video of their facility on youtube as well.

The Feb conf call was quite useful to know their trajectory.

June 2025 conf call snippets…

They also did a QIP to the sons of a large stockholder Subhash Rathod in March but got cancelled in April most likely as QIP price was much higher than CMP at that point (need to verify)

Overall, the Feb conf call provided more insights; June conf call wish there were more questions about the timeline of capacity expansion coming online. A key monitorable would be how they can manage their debt since business is capital intensive. Mr. Mehra has mentioned 300 cr rev for FY25 which they achieved, 500 cr over next 2-3 FYs with the 70% planned capacity expansion which should be ready soon… Working capital is going to increase, so QIP+more debt will be needed…

If I could list pros and cons briefly

Pros

• Expanding Co with experienced promoter with tailwinds (US-India FTA, China+1)
• P/S < 1. Margins expected to increase if co can achieve 50:50 Domestic:international contribution in sales (current 75:25)
• Supplying to global brands and recent tie-ups and meetings with leading sportswears brands

Cons/Monitorable

• Long cash conversion cycle requiring high debt
• Susceptible to possible tariff tantrum (maybe less of a worry since DJT doesn’t want to make low end goods in the US)
• How quickly can capacity expansion come online to service debt

@vatsal10 had pointed to a couple of issues. I would ask him to add those to the discussion here.

I have been investing in the co since the 1st conf call. Suprised no one asked in detail about exact status and timeline of expansion in 2nd conf call. I will try to write to company IR to check. Would be happy to have more inputs on this co.

[stargazer1]

Interesting press release by company on establishing smart knitting factory. Wonder if this is part of the expansion.

Disclosure: Invested

[hitesh_gangwani]

Any reason for price for price fall from 137 to 104

Not panicking just trying to find answers

I will be still holding long term

Discl : invested 45k ( one lot bought at 137 , second bought at 105 avg price 117.81 , 390 shares)

[stargazer1]

Seems to be a tariff related issue to me. All textile cos have been under pressure over the past 6 months. Gokaldas and Kitex have shown sharper declines. Let’s watch out for their results today and tomorrow alongside Active… And hope the trade deal with the US gets finalized soon.

Disclosure: Invested and holding.

[meekinvestor]

Any explanation for the negative cash flow of -21.02 cr?

[Gaurav_Bhandari]

Anyone explanation by the company for the recent GST show cause notice received worth 4 cr?

[Ghonarbochon]

@meekinvestor No point in worrying over a single year of negative cash flow .OCF and cash flow conversion should be looked as a 5 year average .
However, the company has a high working capital business ..and working capital days are 220 days and its not by accident. They need to buy raw material and keep stock for the stores well in advance .
I would suggest to read up the Crisil report from september 25 ,available in screener.It gives good idea about the businesses financial setup.

@Gaurav_Bhandari Its subjudice ..right ? Why would anyone try to explain it ?Company obviously feels its an error by the GST authorities ,thats why they appealed in court. Faulty GST claims are not uncommon at all.

Disc: small position taken recently.

[stargazer1]

All great points here. Company has really high working capital as mentioned by promoter in the 1st conf call (snippets posted previously). They just did another one this month - just reading transcript.

One interesting thing promoter mentioned is they currently don’t have large US exposure, so tariff issue may get resolved by the time they start exporting with IndoUS trade deal… they are also looking to expand in Europe. Also, their expansion in the knitting factory will go on for the next 3 years; so capacity should rise.
Will posts transcript snippets shortly.

Disclosure: Invested and holding.

[GrowthValueInvester]

What special things you see in this company compared to comparators ? Like

Management?
Production qty/quality?
Why can’t others supply to puma/adidas? do they have any moat?
And also can you throw some more colour on their retail side sir?
Can I compare them with pearl global in terms of business nature and product?

Just asking your opening,I will consider your inputs for my decision not solely on your opinion

[stargazer1]

Please go through my intial posts with details from conf calls - am posting a couple of highlights below.

Management (Mr. Mehra) seems to be walking the talk - expanding as mentioned in conf calls. They are also reaching out to US cos. Also, holding regular conference calls is a big plus. Mr. Mehra seems to be quite forthright in his answers.

Can’t comment on production quality but based on the clients they have, it should be good.

Technically, anyone can supply but if it was this easy, any textile manufacturing co could become Kitex or Gokaldas. So the moat maybe the relationship Active has cultivated over many years.

Valuation wise, co seems to be quite attractively placed.
With planned capacity expansion, should improve further.
Currently, exports are small, and with the size of Active, it could easily grow quite fast.

That said, with such a small marketcap, share price seems to be quite volatile. Please to through the conf calls for more clarity.

[hitesh_gangwani]

After capex is complete,

Management said :

Once this is everything is complete, we will be looking after total and complete company’s revenue around Rs. 700 Crores

Company current market cap is 182 cr with sales
300 crores

Clearly there will good growth in this company

Also mentioning the cons :-

1. Business has affected due to America tariffs
   They export a little but future growth they were expecting is not happening to due to tariffs

They are exploring European markets

2. Business is seasonal you can see variation in sales from one quarter to another

3. Debt to equity is around 1.32 which is high for value investors

If you can digest all this and you should think about investing this company

It will take 3 4 years to reach 700 cr

Do your own research before investing I am not sebi registered analyst

Discl : invested

[hitesh_gangwani]

@GrowthValueInvester please look at the product portfolio and clients

I was impressed they had good relations with Levi’s for decades I think this is business moat

[hardik_shah1]

More than 20-40 companies in India supply to Levis, Benneton, other brands etc.

There is no competitive edge in Apparel Manufacturing apart from pricing, maintaining quality and deadlines.

There are probably 100 companies in India that operate in range of 50 cr - 200 cr turnover at extremely low margins. It’s all a game of keeping the factory running and machine operating so that

Now Active may execute and achieve all business targets. I am not denying that.

But no apparel manufacturer in India has a moat. Actually, no apparel manufacturer in the world has a moat unless they do luxury clothing and work on niche fabrics and highly differentiated designs.

[hitesh_gangwani]

@hardik_shah1 thanks for sharing your insights

But in listed space , no companies are available in small cap

Only 5-6 companies are that are also in 1000cr market cap

As per ChatGPT results ,

Company	Approx Market Cap (₹) / Notes
Nitin Spinners Ltd.	~ ₹1,850–₹2,210 crore
Kitex Garments Ltd.	~ ₹2,100–₹4,200 crore (depending on data source)
Pearl Global Industries Ltd.	~ ₹5,800–₹7,800 crore (recently ~ ₹7,400–₹7,800 Cr)
Siyaram Silk Mills Ltd.	~ ₹3,300–₹3,600 crore

What I like about active focusing on advance technology which they are telling in their concalls

ChatGPT answer :-

Active Clothing has announced a tie-up with Ningbo Cixing Co. Ltd. (China) to launch what they call India’s first “KNIT TO SHAPE Smart Knitting Factory.” According to public statements, this factory will use “state-of-the-art automation, precision engineering and zero-waste production technologies,” aiming to transform traditional knitwear manufacturing into a “futuristic, sustainable, digitally enabled process.” 
• The new facility promises 3D seamless knitting technology, enabling enhanced design flexibility and durability, along with automation-driven production lines and minimal material wastage. 
• On its website and in filings, Active Clothing says it uses computerized knitting machines from reputed global suppliers (e.g. Stoll — Germany; Shima Seiki — Japan; and other modern garment-manufacturing equipment) across a variety of gauges and multigauge formats. This gives it a claim to “state-of-the-art garment technology” among Indian apparel manufacturers. 
• According to their recent Q3 FY25 earnings update, Active Clothing’s management states that by “leveraging AI-driven design, smart manufacturing and data-backed marketing,” they are optimizing operations, improving efficiency, and expanding global supply-chain presence. 

So yes — from public filings and press releases, Active Clothing is explicitly claiming advanced production technology, often framing itself as more modern/automated than traditional garment manufacturers in India.

[hitesh_gangwani]

Rest depends On your conviction and risk taking capacity
That what is end point while analysing you want to invest or not

I am mentally prepared to face company ups and downs

[hardik_shah1]

@hitesh_gangwani

But in listed space , no companies are available in small cap

Does the buyer care whether company is listed or not.

@hitesh_gangwani

• The new facility promises 3D seamless knitting technology, enabling enhanced design flexibility and durability, along with automation-driven production lines and minimal material wastage. 

None of this is exclusive. None of this is something only Active can do.

How Modern Machines and Innovations are Transforming India’s Knitting Industry - The Textile Magazine

Comapnies will claim XYZ. As a investor one has to look beyond PPTs to really understand the landscape of the business. I am sorry but textiles is a ridiculously competive business.

I am saying this as someone who 18 yrs back used to have an Levi Franchisee and later an apparel store of my own. I was a visitor to Tiruppur and Banglore factories once a quarter.

I again repeat Active may very well turn out to be a great company and good investment but that will be because of great execution on the ground, efficient WC and other traditional business dependencies. Not due to one fancy tech they claim.

Discl: Have traded it before. May trade it again. But with eyes open that it has zero moat.

[hitesh_gangwani]

Added more 126 shares at 94.76 Rs

Discl : currently holding 516 shares average price 111₹

( please do your own research before investing I m not sebi registered analyst)

First bought at 147

First average 117

Second average 94.76

[hitesh_gangwani]

Got time to do Second Research

Company Promoters has two daughters

One has fashion degree and another daughter is also Part of the company (VP) and mother is also part of the company

Promoter has built good business and

future generations daughters are also helping and can lead company for next generation

There is CFO , CEOs and other important members working in this company from long term

hope this team will help this two daughters mange different challenges and business constraints

Please correct if I am wrong

Main Picture is

Company has short term debt of 80- 85 % short term debt and 20% long term debt

Company uses 89-90 crores to funds its operations over 3 4 months

Until these big brands pay up

Bid Brands has bargaining to ask for more credit days like 110 days

Their suppliers take 65-85 days for demanding payment

That’s why company uses bank help to to fund their short term and pay them around 11 crore in interest to manage it

Asset value to share price is 180 Rs and

If u pay liabilities first and then to shareholders it is 53 Rs share price

Not studied previous concalls

I m will be watching next concall for more insights how these conditions will be better

It is pure small cap play

Pasts 5 years returns are 722%

Company is over edge using its debts

(This is major constraint)

Will company will able to repeat it let’s see

Let’s wait for how company performs

I will be still holding for long term do your own research before investing I am not sebi research analyst

Discl : invested

[manomagg3]

Check at the cash balance of the company, out of 23 cr cash, 13 crores are cheques in hand and another 7 crore cash in hand, practically no cash