Sportking India Ltd.
Business Overview
The company produces yarn, with 85.3% of revenue coming from yarn sales, 11.3% from waste, and the remaining 3.4% from other income.
In terms of geography, 58% of revenue is export-driven, while 42% comes from domestic sales.
Yarn Manufacturing
Yarn manufacturing is a commoditised business. The government deliberately pushes for smaller players in the textile industry, given that it is a large employment generator. For this reason, there is no single or significant player dominating the yarn manufacturing space.
Since yarn manufacturing is commoditised, manufacturers are price takers. There is some limited pricing power in specialised types of yarn, but broadly, the industry operates without pricing control.
Raw Material Volatility
The key raw materials in yarn production are:
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Cotton (for natural yarns)
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Petroleum-based derivatives (for synthetic yarns)
Both inputs are highly volatile, leading to wide fluctuations in profitability. For instance, gross margins have ranged from as low as 22% to as high as 40%.
Other significant costs include employee expenses and power. To reduce power costs, the company has recently invested in a special purpose vehicle (SPV) — M/s Evincea Renewable Seven Pvt. Ltd., acquiring a 26% equity stake for ₹14.1 Cr. Once operational (~15 months from now), the company expects 10–12% savings in power costs.
Currently, Sportking is running at 95% capacity utilisation (Q1FY26).
To expand, it has announced a ₹1,000 Cr capex programme, funded through a mix of internal accruals and long-term debt. This project will add 1.5 lakh spindles in Odisha, a ~40% increase over its existing 3.79 lakh spindles. The expansion is expected to be completed in 12–15 months.
Future Outlook
The company is exploring forward integration. It has received in-principle approval for the merger of M/s Marvel Dyers and Processor Pvt. Ltd. and the manufacturing facilities of M/s Sobhagia Sales Pvt. Ltd. with Sportking India Limited.
Sobhagia Sales is engaged in the manufacturing and retailing of readymade garments. While this appears to be a step towards vertical integration, I don’t think the merger will unlock much value. Reasons:
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Fabric manufacturing is itself a low-margin, highly competitive business.
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B2C retail is a completely new vertical for Sportking — one that is notoriously difficult to crack, with entrenched competition and deep-pocketed players.
Adding to that, the entity being merged (Sobhagia Sales) is not performing well. According to a CRISIL credit report:
“Fluctuating scale amid intense competition: The company has a strong presence in the Punjab, Haryana and Jammu markets. However, operating income has remained volatile (₹176 crore in fiscal 2019 and ₹116 crore in fiscal 2024). Furthermore, the readymade garments industry is highly fragmented, with many players in the market. The resultant competition, along with low product differentiation, limits the bargaining power of entities against customers.”
This clearly shows the retail subsidiary has its own structural weaknesses.
Summary
Sportking operates in a fragmented industry where no player enjoys significant competitive advantages. Customers demand long credit periods, and to reduce raw material price volatility (especially cotton), the company must procure bulk inventory, leading to high working capital requirements.
All these factors make the company a cyclical play. It can deliver decent returns when yarn demand picks up and cotton prices soften. But this is not sustainable in the long run, because:
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It’s relatively easy to set up new spindle capacity.
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Whenever demand rises, new supply quickly enters the market, pushing prices down again.
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Manufacturers are then forced to offer extended credit to buyers, squeezing margins further.
The only real way out of this cycle is to become fully vertically integrated and sell directly to consumers. But that is far from easy, and the performance of Sportking’s existing B2C subsidiary (Sobhagia Sales) doesn’t provide any positive signals either