S P Apparels Ltd Management Discussions

Global Economy and Outlook

The global economy demonstrated resilience in FY 26-27, supported by continued investments in technology and infrastructure, although growth moderated amid heightened uncertainties. The year was characterized by escalating trade tensions, tariff imposition, and geopolitical conflicts, particularly in the Middle East, which contributed to volatility in energy markets and global supply chains. Uncertainty around key trade routes, such as the Strait of Hormuz, resulted in fluctuations in oil prices, freight costs, and insurance premiums, affecting global business sentiment. According to the International Monetary Fund (IMF), global growth is projected at 3.1% in 2026, with a marginal improvement to 3.2% in 2027 under a contained conflict scenario. Despite these near-term challenges, continued investments in artificial intelligence and sustained public spending on infrastructure, energy security, and transportation networks are expected to support economic stability and long-term growth.

Source: International Monetary Fund Indian Economic Overview and Outlook

Indias economy maintained a strong growth trajectory in FY 25-26, supported by favorable domestic conditions such as easing inflation, monetary policy support, and sustained public capital expenditure. Inflation remained well contained throughout the year, providing a key pillar of macroeconomic stability, supported by favorable food price dynamics and adequate agricultural output. While inflation is expected to firm modestly towards the latter part of the fiscal year due to base effects, underlying price pressures are assessed to remain muted.

As per PIB, real GDP growth is estimated at 7.4% in FY26, driven by robust consumption and investment demand, reaffirming major economies. Manufacturing and service sector remained key growth drivers, with manufacturing expanding by 8.4% in the first half of FY26. For the textile sector, steady domestic demand and policy support aided performance, as Indias textile exports increased by 2.1% to Rs. 3.2 lakh crore in FY26 amid global trade uncertainty. Looking ahead, Indias FY27 growth outlook remains positive with GDP projected in the range of 6.8%–7.2%, driven by increasing domestic demand, public capital expenditure, and ongoing structural reforms.

Source: International Monetary Fund Press Information Bureau Textile Global Textile Industry

The global textile industry remains a key pillar of the international manufacturing ecosystem, supported by strong linkages with the apparel, home furnishing, and industrial sectors. The sector has demonstrated steady growth and is expected to expand from USD 660.1 billion in 2025 to USD 703.0 billion in 2026, growing at a CAGR of ~7% to USD 919.1 billion by 2030.

This growth is driven by rising disposable incomes, urbanization, and evolving consumer preferences, particularly in the Asia-Pacific region, which accounts for nearly half of global textile consumption and production. However, the industry has faced heightened volatility due to macroeconomic pressures and shifting global trade dynamics. Ongoing geopolitical tensions, between the United

States and China, have led to tariff impositions on textile and apparel products, prompting global brands to diversify sourcing away from traditional hubs. This shift as resulted as India, indiversification

Bangladesh, Indonesia, Thailand, and Sri Lanka gaining prominence as alternative manufacturing bases. Despite near-term challenges from tariffs and trade disruptions, long-term outlook remains positive, supported by favourable demographics, rising per capita consumption, and continued technological advancements.

Source: The Business Research Company Indian Textile Industry

Indias textile industry remains a key manufacturing sector, driven by a large domestic consumption base, diversified product portfolio and a growing presence in global trade. The Indian textile market recorded a ~6% CAGR over FY22–26, driven by robust growth in the apparel segment and steady domestic demand. The sector contributes ~2% to Indias GDP and is expected to nearly double its share to ~5% by 2030.

While the year began with healthy export growth, tariff changes in August reshaped the global competitive landscape, however, India sustained its position in key export markets, supported by its established manufacturing capabilities and continued policy support. Government initiatives such as export incentives (RoDTEP and RoSCTL), GST rationalization and infrastructure development through initiatives like PM MITRA Parks continue to strengthen industry competitiveness. Further, the allocation of Rs. 5,279.01 crore to the Ministry of Textiles under the Union Budget FY26–27 is expected to support the industry. According to IMARC, the India textile market is projected to reach USD 213.75 billion by 2034. With a favorable policy environment, and growing focus on scale and efficiency, the industry is well positioned for sustained long-term growth.

Source: India Brand Equity Foundation (IBEF) and Wazir Report Exports

Indias textile industry continues to demonstrate strong export performance, supported by rising global demand, competitive production costs and a diversified across international markets. During FY26 (April December 2025), Indias textile and apparel exports stood at USD

27,312.7 million, with growth recorded across more than 100 global destinations.

Indias textile exports have reached Rs. 3 lakh crore and the government aim to triple exports to Rs. 9 lakh crore by 2030 by strengthening domestic manufacturing capabilities and expanding Indias global reach. The sector is also expected to benefit from the "China Plus One" strategy, as global buyers increasingly diversify sourcing destinations.

Trade agreements are expected to further enhance Indias export competitiveness. The India-UK FTA, signed in July 2025, provides duty-free access for Indian textile exports, helping remove the 10 12% tariff gap with competing exporters. This is expected to boost Indias textile exports to the UK from

USD 1.79 billion to up to USD 5 billion, benefitting labor-intensive categories such as garments and home textiles, while supporting traditional clusters and export hubs such as Tirupur.

Source: India Brand Equity Foundation (IBEF) Apparel & Retail Global Industry

The global apparel industry witnessed modest growth over the past decade, with exports increasing from USD 470 billion in 2014 to USD 546 billion in 2025. Apparel remains the dominant segment contributing nearly 60% of the global textile and apparel trade. The US and Europe continue to lead as the largest consumption markets, while countries such as Poland and the Netherlands are emerging as fast-growing regional distribution and re-export hubs within Europe. The global apparel sourcing landscape is undergoing a structural shift, as brands diversify supply chains beyond China to enhance resilience and manage rising compliance and geopolitical considerations. This has created opportunities for emerging manufacturing hubs including Bangladesh, Vietnam, India, and Indonesia. Countries with favorable trade agreements, strong manufacturing infrastructure and efficient supply chains are well-positioned to benefit. Over the medium term, strategies such as "China Plus One" and increasing preference for reliable, large-scalepresence vendors are expected to drive growth in alternate sourcing destinations.

India, in particular, is expected to benefit from capacity expansion and upcoming trade agreements with key markets.

Source: Motilal Oswal Thematic Report Indian Market

In FY26, Indias textile and apparel industry witnessed a gradual shift from volume-led growth towards value-added categories, supported by rising domestic demand and shifting trade dynamics. The Indian textile and apparel industry is valued at USD 194 billion in FY26, including exports of USD 37 billion. On the exports front, India exports to 100+ countries, with the US,

EU, and UK being the top three importers. Major textile and apparel export destinations for India are the US and the EU, with around 47% share in exports. While India currently accounts for ~4 5% of global apparel trade, this indicates significant headroom for market share expansion as global brands diversify sourcing beyond China and increasingly prefer large-scale, compliant suppliers.

Additionally, India has signed trade deals with the US, UK, and UAE, which are likely to boost exports in the future by providing a competitive edge over other exporting countries. Looking ahead, the Government of India has set an ambitious target to scale the textile market to USD 350 billion by 2030 from USD 194 billion in FY26, implying a CAGR of ~13%, driven by strong export growth of ~22% CAGR and steady domestic demand.

Source: Motilal Oswal Thematic Report Source: Ministry of Textiles, MOFSL

Company Overview

S.P. Apparels Ltd (SPAL) is a leading manufacturer and exporter of knitted garments, with a strong focus on sustainability and operational excellence. The company operates a vertically integrated manufacturing model spanning spinning, dyeing, processing, and garmenting, enabling consistent quality, cost efficiency, and supply chain reliability. SPAL core business is anchored by its garment division, which specializes in infant wear and childrens apparel for global markets. The company caters to a diversified international customer base across the US, Europe, and the UK, supported by long-standing relationships and high compliance standards. Beyond its core export business, SPAL has acquired Young Brand Apparel which enabled its entry into the intimate wear category, while SP Apparels UK (SPUK) provides design-led sourcing and enhances access to UK and European markets. In the domestic market, SPAL Retail operates established brands such as Crocodile and Angel & Rocket, expanding its retail footprint. In FY26, SPAL focused on strengthening its manufacturing capabilities and global footprint. The company commenced manufacturing in Sri Lanka, marking a key strategic milestone in diversifying its production base. This expansion enhances SPALs ability to optimize costs, mitigate for exports to key markets such as the UK and Europe.

Employee Welfare

SPAL is committed to promoting employee well-being, continuous learning, and workplace diversity. The company supports personal and professional growth through structured upskilling programs and wellness initiatives. By fostering an entrepreneurial culture, SPAL empowers employees to take ownership, drive innovation, and contribute meaningfully to organizational success.

Risks and Concerns Raw Material Risks:

Cotton remains the key raw material for the textile industry, and fluctuations in cotton prices can impact realizations and profitability. The Company mitigates this risk through prudent sourcing practices, efficient inventory management, and continuous operational improvements.

Inflation risk:

India has seen variable inflation trends historically. While fluctuations in inflation rates can present challenges in forecasting and managing our costs, they also encourage us to enhance our financial strategies and cost management practices. If there is an uptick in the cost of raw materials due to inflationary trends, or a rise in employee benefit payments driven by inflation in India, we are committed to implementing innovative measures to absorb these costs effectively. Our goal is to minimize the impact on our customers and maintain the integrity of our business operations.

Safety risk:

Ensuring a safe and healthy working environment for everyone is vital for boosting productivity and nurturing organisational development. We at SPAL equip the workplace with the necessary safety equipment and keep all the machinery in good working order through regular maintenance and safety inspections.

Finance and credit risk:

We evaluate and manage credit risk on the basis of assumptions and factors influenced by market conditions. To mitigate credit risk, we diligently track the creditworthiness of debtors through internal systems that are configured to define credit limits of customers.

Exchange risk:

SPAL faces exposure to foreign exchange rate fluctuations as considerable portion of its revenue is from other countries. To mitigate the risks associated with foreign exchange fluctuations that affect our commercial dealings and recognized foreign currency assets and liabilities, we strategically employ forward contracts and engage in hedging activities as needed. Additionally, we have a skilled team of professionals for managing forex concerns, ensuring that our approach to foreign exchange risk is both effective and informed.

Regulatory Changes:

Adjustments to regulations and government incentives present opportunities for the company to adapt and innovate, potentially enhanci ng its business and profitability. The

Indian government has historically supported the textile sector with incentives such as RoSCTL and EPCG fostering production and export growth. While these incentives may evolve, the company is poised to leverage its operational strength to maintain and improve its market position.

Financial Performance

Performance on a Standalone basis:

In FY26, your company has recorded revenue of Rs. 11,134.4 Mn as against Rs. 9,816.2 Mn in FY25. Adj. EBITDA stood as Rs. 1,813.4 Mn as against Rs. 1,643.1 Mn in FY25. PAT was Rs. 878.42 Mn as against Rs 835.3 Mn in FY25. EPS for FY26 was Rs. 35.0 as against Rs. 33.3 in the FY25.

Performance on a Consolidated basis:

In FY26 your company has recorded a consolidated revenue of Rs. 15,786.4 Mn as against Rs. 13,951.3 Mn in FY25. EBITDA stood as Rs. 2,178.1 Mn as against Rs. 1,878.1 Mn in FY25. PAT was Rs. 1,009.5 Mn as against Rs. 951.0 Mn in FY25. EPS for FY26 was Rs. 40.2 as against Rs. 37.9 in FY25.

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 efficiencyand 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 continuously recalibrated on the basis of these findings.

Material Developments in Human Resources / Industrial Relations Front

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.

Key Ratios

As per provisions of SEBI Listing Regulations, 2015, the significant below:

Key Financial Ratios	2025-26	2024-25	% Change	Explanation
Debtors Turnover	10.26	10.44	1.72%	Marginal decrease due to increase in average trade receivables during the year
Inventory Turnover	1.48	1.27	16.54%	Improved due to better inventory management and reduction in average inventory levels
Current Ratio	1.42	1.48	-4.05%	Marginal decrease due to increase in current liabilities, mainly working capital borrowings and other current obligations
Interest Coverage Ratio	5.36	6.59	-18.66%	Decreased due to higher finance cost during the year
Debt to Equity Ratio	0.29	0.27	7.41%	Increased due to higher borrowings, mainly working capital loans and term borrowings
Operating Profit Margin (%)	13.21%	13%	1.62%	Marginal decrease due to increase in operating expenses
Net Profit Margin (%)	8.0%	8.5%	-5.88%	Decreased due to higher finance cost and depreciation during the year