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S P Apparels Ltd Management Discussions

Jul 22, 2024|12:59:55 PM

S P Apparels Ltd Share Price Management Discussions


The global economy is gradually recovering from the impact of pandemic and is at the same time facing new challenges emerging from Russias invasion of Ukraine. Tightening of monetary policy by most Central Banks is expected to have a positive impact. Despite monetary tightening, inflation is persistent in many key economies and it is anticipated that global inflation will fall from 8.7% last year to 7% this year and settle at around 5% in the year 2024.


The Indian Economy continues to show resilience amid Global Uncertainties. Despite significant challenges in the global environment, India was one of the fastest growing economies in the world. Indias overall growth remains robust and is estimated to be 6.9% for the financial year 2022-23. Growth was driven by strong investment activity augmented by the governments capex push and buoyant private consumption.

V-shaped economic recovery is due to mega vaccination drive, robust recovery in the services sector and growth in consumption and investment. This is being demonstrated in high frequency indicators such as power demand, rail freight, GST collection etc. Almost all emerging economies are reeling under external shocks, but Indias underlying economic fundamentals are strong and despite the short- term headwinds, the impact on the long-term outlook is expected to be marginal.

Inflation remained high, averaging around 6.7% in FY 2022-23 but the current-account deficit narrowed in Q3 on the back of strong growth in service exports and easing global commodity prices. Dwelling on the outlook for FY2023-24, the Economic Survey 2022-23 issued by Ministry of Finance projects that, Indias recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment. It further affirms that aided by healthy financials, incipient signs of a new private sector capital formation cycle are visible and more importantly, compensating for the private sectors caution in capital expenditure, the government raised capital expenditure substantially.

Strong domestic demand amidst high commodity prices will raise Indias total import bill and contribute to unfavourable

developments in the current account balance. These may be exacerbated by plateauing export growth on account of slackening global demand. Should the current account deficit widen further, the currency may come under depreciation pressure. Also, entrenched inflation may prolong the tightening cycle, and therefore, borrowing costs may stay ‘higher for longer. In such a scenario, global economy may be characterised by low growth in FY24. However, the scenario of subdued global growth presents two silver linings – oil prices will stay low, and Indias CAD will be better than currently projected. The overall external situation is expected to remain manageable for India.


Global Textile Industry

The global textile market grew from about $573 billion in 2022 to about US$ 610 billion in 2023 at a compound annual growth rate (CAGR) of 6.6%. The Russia- Ukraine war has led to an increase in commodity prices and supply chain disruptions, causing inflation across goods and services impacting economies across the globe. The textile market is however expected to grow to about US$ 755 billion in 2027 at a CAGR of 5.5%. The COVID-19 pandemic and the Russia – Ukraine war had challenged the textile industry drastically which is now on a recovery stage. Increasing demand for apparel from the fashion industry coupled with the growth of e-commerce platforms is expected to drive the market growth over the next few years. The textile industry is an ever-growing market, with key competitors being China, the European Union, the United States, and India. China is the worlds leading producer and exporter of both raw textiles and garments. India is among the top five textile manufacturing country and is responsible for more than 6% of the total textile production, globally. The rapid industrialization in the developed and developing countries and the evolving technology are helping the textile industry to have modern installations which are capable of high- efficient fabric production.

Indian Textile Industry

India is the worlds second-largest producer of textiles and garments. It is also the sixth-largest exporter of textiles spanning apparel, home and technical products. The Indian textile and apparel industry is expected to grow at 10% CAGR

from 2019-20 to reach US$ 190 billion by 2025-26. India has a 4% share of the global trade in textiles and apparel. The textiles and apparel industry contribute 2.3% to the countrys GDP, 13% to industrial production and 12% to exports. The textile industry has around 45 million of workers employed in the textiles sector, including 3.5 million handloom workers. Indias textile and apparel exports (including handicrafts) stood at US$ 44.4 billion in FY22, a 41% increase YoY. Total textile exports are expected to reach US$ 65 billion by FY26.

The Textile and Apparel market is poised to grow, led by boost in demand and the government support in form of attractive schemes such as Production Linked Incentive (PLI), Mega Investment Textile Parks (MITRA) will further drive the way for the US$ 250 billion target. Another step taken by the Ministry of Textiles towards positioning India as a global leader in technical textiles manufacturing is the invitation of Research proposals for Funding for Design, Development and Manufacturing of Machinery, Tools, Equipment, and Testing Instruments under NTTM.


Global Industry

The market is expected to grow from US$ 1.7 trillion in 2022 to approx. US$ 2 trillion by 2025, growing at a CAGR of 6% from 2022. Consumers globally are increasingly asking for sustainable products since the pandemic began which has led to an increase in conscious clothing demand. The Apparel business is considered to be one of the most challenging businesses as factors such as short product life cycle, volatile fashions, unpredictable market trends and impulse purchase nature of the customer, are of utmost importance to the industry players to sustain themselves in this industry. The Apparel industry may face challenges due to inflation impacting consumer demand. The industry is expected to generate considerable revenue and employment globally.

Indian Market

The total Apparel market pegged at USD 65.6 billion in FY 22 is expected to grow at 10.7% CAGR by 2025. The industry also benefited from the return of festivals and weddings to their pre-pandemic levels, as during these periods there exists higher demand for categories such as ethnic and other occasion-based apparel. Although people have returned

to offices, they are still working in hybrid mode, which is continuing to benefit the casualisation trend. Apparel sales are set to rise with rising disposable incomes and social media to act as a major catalyst to influence Gen Z and Gen Alpha who form majority of the population in India.

Despite the global economy experiencing recessionary headwinds, it is projected that India will experience minimal impact compared to its global counterparts, due to countrys favourable economic condition.


SPAL is one of largest apparel exporters fashioning the future with sustainability. With the large network of factories, the Company serves as a sourcing, manufacturing and supply chain platform with a market growth headed by children and kids wear.


SPAL committed to promoting employee well-being, learning and diversity. We recognise that happy and healthy employees are more productive and engaged. We continue to support their personal and professional growth by offering upskilling opportunities and prioritising employee happiness and well-being. We encourage employees to think outside the box, take calculated risks, and continuously adapt to changing market conditions. An entrepreneurial model in the workplace leads to increased competitiveness, growth and success for the company and its employees.

By nurturing an entrepreneurial culture, we are empowering our employees to take ownership of their work and drive performance to new levels. Through a focus on innovation, our employees are well positioned to deliver exceptional value to our customers and contribute to the Companys continued success.


Raw Materials Risks:

India is one of the largest producers of cotton yarn in the world. The margins of the Indian textile industry are impacted by the fluctuations in cotton prices. In 2022-23 cotton price volatility was highest in the decade, and cotton prices are still higher than the pre-covid level.

Technological risk:

In the face of growing competition, in order to maintain quality and productivity, SPAL had always pushed for greater automation. To ensure production of high quality goods and to maintain high levels of customer service, your company regularly updates its production facilities with machinery incorporating the latest advances in technology.

Logistics risk:

SPALs strategic Logistic team is able to source and supply products as per plans in spite of raising fuel costs and multiple policy changes. Through skillful management of logistics your company had been able to mitigate the impact of high transportation and freight costs and avoid disruption of supply chain.

Safety risk:

Proper implementation and updation of safety policy equips employees with skills needed to handle emerging issues and effectively prevent disruptive events. The properties of the Company are insured against natural risks like fire, earthquakes, etc. with periodical review of adequacy, rates and risks covered.

Finance and credit risk:

Budgets and cashflows are prepared periodically and put up to the Audit Committee and Board to ensure proper and effective utilization of funds. Operational and other expenses are regularly monitored and reviewed by the management.

For mitigating the credit risk, appropriate recovery management systems and vigorous follow up mechanics are followed by the company.

Exchange risk:

Exchange rate fluctuations could cause imbalances between transactional costs and corresponding revenues. To manage our foreign exchange risk arising from commercial transactions and recognized forex assets and liabilities, we use forward contracts and selectively enter into hedging transactions. To manage forex related matters we have a competent team of qualified and experienced personnel.

Cyber risk:

Cyber security encompasses technologies, processes, and

methods to defend computer systems, data, and networks from attacks. Your company has put in place measures for periodical monitoring and strengthening of the security systems


Performance on a Standalone basis:

In FY 2022-23 your company has recorded a total revenue of Rs. 9623.20 Mn as against Rs.7764.21 Mn in FY 2021-22. EBITDA stood as Rs.1716.42 Mn as against Rs 1584.15 Mn in the previous year. PAT was Rs. 918.13 Mn as against Rs 832.00 Mn in FY 2021-22. EPS for FY 2022-23 was Rs. 36.02 as against Rs.32.38 in the previous year.

Performance on a consolidated basis:

In FY 2022-23 your company has recorded a total revenue of Rs.11008.91 Mn as against Rs. 8689.22 Mn in FY 2021-22. EBITDA stood as Rs. 1655.36 Mn as against Rs. 1612.30 Mn in the previous year. PAT was Rs. 825.12 Mn as against Rs.

846.93 Mn in FY 2021-22. EPS for FY 2022-23 was Rs. 32.37 as against Rs. 32.96 in the previous year.

Internal control system and adequacy

The companys internal control systems for financial reporting are robust and are commensurate with its size and its industry sectors. These systems ensure efficiency and productivity at all levels, while safeguarding your companys assets. Stringent procedures are in place to ensure high accuracy in recording and providing consistent financial and operational support. Business operations are closely monitored by the internal team and the Management. The Board is promptly notified in case of any deviations. To ensure seamless growth, risk identification & assessment and mitigation strategies are designed and continuously recalibrated on the basis of these findings.


During the year under review, industrial relations at our plant locations remained harmonious. Your Company emphasizes on the safety of people working in its premises. Structured safety meetings were held and safety programs were organized for them throughout the year.


As per provisions of SEBI Listing Regulations, 2015, the significant financial ratios (calculated on standalone basis) are given


Key Financial Ratios

(Explanations for significant change i.e. change of 25% or more as compared to the Immediately previous financial


Key Financial Ratios 2022-23 2021-22 % of change Explanation for the change
Debtors Turnover 18.03 10.32 74.68 Due to increase in turnover
Inventory Turnover 1.43 1.02 39.50 Due to increase in turnover (and better inven-

tory control

Current Ratio 1.68 1.82 -7.70 -
Interest Coverage Ratio 8.83 11.03 -19.97 -
Debt Equity Ratio 0.28 0.32 -13.33 -
Operating Profit Margin (%) 0.15 0.16 -9.04 -
Net Profit Margin (%) 0.10 0.11 -9.91 -

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