Himatsingka Seide

Stock Opportunities
50

KEY NOTES FEOM Q2 FY 2025 CONCALL
### Business Update:

  • Q2 FY '25 total income decreased by 6.4% due to a recalibration of the brand portfolio.

Capacity utilization reported as follows:

  • Spinning division: 99%
  • Sheeting division: 61%
  • Terry Towel division: 67%
  • The recalibration process is expected to impact operations for another 4 to 6 months.

### Strategic Initiatives:

  • The company is reassessing its brand portfolio to balance value proposition against revenue and costs.
  • Aim to add new clients and explore new markets as part of the recalibration strategy.

### Domestic Market Performance:

  • Significant improvements in revenue from India during the first half of FY '25 compared to the same period last year.
  • Targeting to grow India’s market to approximately ₹1,000 crores over the next 5 years.
  • Currently operating with three brands in India: Himeya, Liv, and Atmosphere, across multiple product segments including bedding, bath, drapery, and upholstery.
  • Distribution presence expanded to over 460 cities with more than 3,000 points of sale.

### Financial Developments:

  • Successfully completed a ₹400 crores Qualified Institutional Placement (QIP), with proceeds primarily aimed at repaying term debt, which will significantly reduce net debt.
  • Net debt as of September 30, 2024, was ₹2,679 crores, marginally up from ₹2,671 crores at the end of June.
  • Operating cash flow has averaged approximately ₹300 crores over the last few years.

### Margin Guidance:

  • Current EBITDA margins are hovering around 20%, with management indicating they can fluctuate between 18% and 22% due to product mix and inflationary pressures.
  • Management remains optimistic about maintaining margins despite cost pressures from container costs and high cotton prices.

### Export and Textile Demand:

  • Outlook for exports remains buoyant, with ongoing efforts to enhance market share.
  • The management anticipates increased interest from U.S. retailers due to shifting sourcing strategies (China Plus One) and geopolitical factors.
  • Other jurisdictions (EU, UK, Middle East, India) are also expected to contribute significantly to growth.

### Challenges and Headwinds:

  • The recalibration of the brand portfolio is causing short-term revenue impacts, particularly in the Sheeting division.
  • Management acknowledges that some revenue streams may be subdued in the near term due to this strategic repositioning.

### Future Outlook:

  • Management expects to achieve a revenue run rate of ₹4,000 crores at full capacity within the next 18 to 24 months.
  • The domestic business is projected to grow to ₹300 crores to ₹400 crores over the next two years, aligning with overall EBITDA margins.

### Brand Portfolio Insights:

  • Approximately 30% of revenue currently comes from branded products, down from around 40-50% two years ago.
  • The company is actively working to optimize its brand portfolio, focusing on brands that provide a viable value proposition.

### Working Capital Management:

  • The company is addressing increased debtor days, cash conversion cycle, and inventory days, with an aim to improve working capital cycles by the end of FY '25.
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