Key Highlights

Net sales grew by 14% in Dec 18 quarter. However much of the growth was due to the acquisition of brand and was inorganic led. The organic growth was around 2% YoY.

Revenue from brands was at Rs 1650 crore for 9 months ended Dec 18 and was at Rs 570 crore for Dec 18 quarter.

Does not expect any further increase in cotton prices. However the delta between cotton yarn and cotton improved in Dec 18 quarter and looks sustainable.

Tax rate higher due to non availability of Deferred tax benefits in subsidiaries.

There has been increase in Government receivables. This together with increase in borrowings due to capital expenditure has lead to overall debt at Rs 2700 crore. Net debt stands at Rs 2470 crore. The debt will further increase in Mar 19 quarter as capex of Rs 250 crore comes into operational which will be towards towel plant.

However post this capex, management sees no more capex in near term and improvements in working capital which will drive free cash flows going forward.

HS has taken the global rights for Calvin Klein brand. The impact on revenues at present will not be meaningful that much. The brand was focused on the North American market earlier.

HS did highlight that growth does remain tough to come by. It has also decided to expand spinning capacity from 46mn mtrs to 61mn mtrs and this incremental capacity will cater to a lower price point compared to the current manufacturing portfolio. The realisation was stable in Dec 18 quarter. While the utilization will go up in Mar 19 quarter, realisations will come down due to lower product mix.

Fully integrated production supported by a newly-commenced spinning plant will reduce third-party RM dependence by 50%.

Towel unit commissioning is on course. The construction of the Greenfield Terry Towel facility is progressing as per schedule and the plant is expected to come on stream during HI FY20. The facility will have an installed capacity of 25,000 Tonnes pa.

Strong growth from existing brands, sheeting capacity addition, and newly-acquired brands to drive a 10-12% growth in revenues. Gross margins to improve further as backward integration benefits and increase in synergies from acquisition of brands come into play. With net debt nearing to peak, free cash flows will also increase going forward for the company.