S P Apparels Ltd Management Discussions.


Indian as well as the global cotton output is expected to decline in CY21 (Global Cotton Year ending July 2021). As the demand is likely to rebound on recovery from the pandemic impact, cotton stocks are expected to decline. However, despite moderation, absolute cotton stocks as well as the cotton stock-to-use ratio are expected to remain high, owing to sizeable carryover stocks brought forward from the previous year. Notwithstanding the recent increase in cotton prices amid improving demand and higher MSP (minimum support price), and the moderation likely in cotton stocks in CY21, continued high cotton stocks may create a downward bias in prices towards the end of the harvest season, as the recovery trajectory moves towards normalcy. Nevertheless, as the domestic prices are also guided by MSP, this may continue to act as a price floor.

Yarn Prices and Contribution Margins supported by export demand, even as demand from domestic downstream segments may recover at a slower pace. Yarn realisations and contribution margins are expected to remain at comfortable levels in FY2022. Profitability will also be driven by cotton stocking policy of companies, as downward movement in cotton prices could bring down realisations, while cotton gets stocked at relatively higher prices prevailing at present. With improved demand from the downstream segments, fabric production is also likely to revert to growth in FY2022. Within fabrics, cotton knitted fabrics and blended knitted fabrics are likely to perform better, given the shift being witnessed in consumer usage and preferences, in favour of casual/active/lounge wears.


The global apparel trade witnessed ~13% contraction in CY2020, due to the pandemic-led disruptions and consequent impact on apparel demand. Apparel imports by the EU recovered at a faster pace than the US in H2 CY2020. With a controlled impact of the pandemic, China reported a marginal uptick in its share in global apparel trade in CY2020, after four consecutive years of decline. Among other leading suppliers, share of India, Bangladesh and Italy contracted, while that of Vietnam, Germany and Turkey improved. Indias share in both the US and the EU markets has remained stagnant at ~4-5% over the past few years. Besides internal challenges such as transition to GST and uncertainty on export incentives, exporters are facing increasing competition, with peers enjoying preferred access. Indias apparel exports declined by ~25% YoY in 11M FY2021 due to the pandemic. While the exports fell steeply by ~65% YoY in Q1 FY2021, recovery during H2 FY2021 helped partially offset the decline. Monthly apparel exports have averaged close to pre-Covid levels in recent months. While apparel exporters in ICRAs sample reached ~85% of pre-Covid revenue level in Q2 FY2021 itself and sustained that in Q3 FY2021, recovery to this level for domestic retailers came in Q3 FY2021. Amid lockdown restrictions, domestic players had reached about 50% level in Q2 FY2021. Trend is likely to have reversed in Q4 FY2021 favoring domestic players vis-a-vis exporters, with fresh lockdown restrictions imposed by the EU region starting Nov-2020, which affected order book positions for exporters. With cost rationalisation initiatives, profitability of apparel players reached near pre-Covid levels in recent quarters, facilitating an improvement in coverage metrics.


Indias Textile and Apparel exports reached US$ 33.5 billion in 2019- 20. Due to the impact of Covid-19, Indias T&A exports are expected to fall around 15% to reach US$ 28.4 billion in 2020- 21. Indias exports of T&A are expected to grow to US$ 65 billion by 2025-26, growing at a CAGR of 11%.

Apart from trends in international retail markets and recovery in buying power of consumers, the demand prospects in the export market are also likely to be driven by evolving dynamics of the global trade, including FTAs etc. Assuming status-quo on export incentive structure, the extent of recovery in operating margins may be constrained by heightened competition in global markets and likely discount negotiations by large buyers

India exported fabric worth US$ 5,066 million in 2019-20, which has grown at 1% CAGR since 2015-16. Woven fabric comprised 92% of the total fabric exports of 2019-20. However, exports of knitted fabric has grown at 15% CAGR since 2015-16.

India exported garments worth US$ 15,509 million in year 2019-20, declining at a CAGR of 2% since 2015-16. Made-ups exports on the contrary grew at 2% CAGR from 2015-16 to reach US$ 6,941 million in 2019-20.

Indias exports of Technical Textiles in 2019-20 was worth US$ 2,423 million, which has grown from US$ 1,528 million at a CAGR of 12%. Indias exports of Technical Textiles from April to November 2020 has been US$ 1,370 million.


Due to the pandemic, all economic activities except for the essential goods and services came to a standstill. The textile and apparel industry was no exception to this.

Manufacturing Shutdown: The industry faced a complete shutdown for around 30 days, while a few manufacturers who dedicated their production systems for PPE manufacturing were permitted to function. However, most of the units operated at suboptimal utilization levels for next several months.

Logistics Suspended: Disrupted logistics and frozen external trade caused due to the pandemic affected the entire value chain alike. Indias April and May 2020 net trade were around 50% lower month-on-month compared to that of the previous year.

Slump in Physical Retail Sales: Lockdown restrictions across the country resulted in a slump in the retail sales of apparel for at least 4-5 months. Moreover, the festive and wedding season sales were deeply impacted.

New Consumer Trends Emerged: Indias e-commerce sale of goods and apparel saw a steep rise in 2020, thanks to an increased market. Work-From-Home drove the demand for casual wear apparel over formals.


SPAL is one of the leading manufacturers and exporters of knitted garments for infants and children in India. Also preferable vendor through long standing relationship with reputed international brands etc. Currently operating 21 factories having proximity to key raw materials, skilled labors with advanced manufacturing machineries with latest technology and automation, demonstrated ability to set up integrated facilities to scale-up operations.


1. Increasing Cost of Raw Materials:

Cotton prices remain high and have been increasing steadily. This apart, dyes, Chemicals, Packing Materials & Other materials in the supply chain are increasing due to Covid impact.

2. Increase in Labor Cost:

Due to the inflation worries there is an increase in labor cost also which is a risk in the future in case the labor cost increases considerably

3. Competition from neighbouring Countries:

Indias competitiveness in the global apparel trade is challenged by lack of scale in garment manufacturing, seasonality (manufacture only certain product categories), inadequate capability in the MMF value chain, limited number of preferential trade agreements, etc.

China has retained its top ranking and is far ahead of its competitors with major share of international apparel trade. China, Bangladesh, Vietnam, Sri Lanka, Cambodia, Indonesia and India are the key exporters of Garments. The opportunities for sourcing orders are reduced due to trade agreements and preferential status enjoyed by other competing Countries.

5. Withdrawal of Government Grants:

Government Grants and subsidies for exports and imports are always subject to risk. Withdrawal of subsidies by the Government will have a negative impact on the bottom line of the Company.

6. Pandemic effects:

The uncertainties around the pandemic is still high and any interruptions on the Retailers and factories lock downs will have a negative impact to the margins.


Your company had recorded total revenue of Rs. 6536.91 Mn, EBITDA of Rs. 1057.22 Mn and PAT of Rs. 431.72 Mn in FY 2020 - 21.


The Company has a proper and adequate internal control system to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and those transactions are authorised, recorded and reported correctly.

Key Financial Ratios

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

Key Financial Ratios 2020-21 2019-20 % of change Explanation for the change
Debtors Turnover 0.16 0.14 14.62 % Not applicable
Inventory Turnover 0.41 0.31 29.93 % The Turnover was disturbed due to Pandemic
Current Ratio 1.74 1.57 11.09%o Not applicable
Interest Coverage Ratio 0.20 0.35 - 42.55% Not applicable
Debt Equity Ratio 0.33 0.41 - 20.99% Not applicable
Operating Profit Margin (%) 11.36% 8.35 % 40.75% The Turnover was disturbed due to Pandemic
Net Profit Margin (%) 6.72% 5.81 % 15.77% Not applicable