Pioneer Embroideries H1 FY23 Revenue up 10%, Inflationary pressures play spoilsport

Pioneer Embroideries Limited (PEL), continued to experience margin pressure in its Specialized Polyester Filament Yarn (SPFY) business even in the second quarter, resulting in overall lower EBIDTA levels for the Company. During the quarter, as part of its ongoing consolidation exercise, PEL sold assets at its Coimbatore Embroidery Unit, including certain equipment, and the gains from the same aided the Company to report increased PAT during the period.

Key Financial & Operational Highlights for the H1 FY23:

During the 6-month period ending Sep, 2022, SPFY business contributed ₹ 1,340 mn as turnover, up about 5.4%. Though the demand in the high-margin upholstery and floor covering segment was lower, the Company was quick to divert its produce to the apparel segment, in both exports and domestic markets. In exports, as the demand from high-yielding EU and US markets reduced, PEL re-directed its products to Africa and South America. Share of exports in overall SPFY sales improved by 800 basis points to about 21%. Company managed to keep its SPFY sales volume intact despite multiple headwinds, increasing slightly by over 2% to 8,124 MT during H1 FY23.

The shift in product demand was evident as the share of value-added component in SPFY business reduced from 65% to 59% in tonnage and from 74% to 67% in value terms during the current H1 period, compared to corresponding previous period. The domestic market also witnessed pressure due to import of Chinese-made products at aggressive pricing. Consequently, EBIDTA margins of the overall SPFY business reduced to about 5.2%.

While demand shift and input costs pressure did affect the working in the current period, the comparison to the corresponding previous period is also not fully justified as the same had witnessed above-normal resurgence following the easing of Covid-pandemic impact.

Meanwhile, for the Embroidery & Laces (EL) business, Company reported 46% higher revenues to ₹ 213 Mn, with both domestic market and export demand picking up notably. During the second quarter, Company sold off the land and building and embroidery equipment at its Embroidery and Laces setup at Coimbatore. The Bobbin Lace machines were re-installed to PELs existing setup at Sarigam. Sale of assets yielded about ₹ 112 Mn as exceptional profits for the Company (Sale proceeds were at ₹ 130 Mn). Coimbatore unit accounted for about 20% of EL business turnover, and closure affected the sales in almost the entire second quarter. This should get reinstated shortly on account of relocation and outsourcing of manufacturing activity.

The Company is in the process of modernising and consolidating its EL manufacturing assets at Shree Ganesh Textile Park, Degaon, Dhule, at a cost of about Rs 50 cr. Appropriate credit facilities have been tied up, and import orders for equipment have been placed. The new set up should start contributing increasingly from the next financial year, and with better product quality, speed of operations and low labor costs should result in significant rise in gross margins, which currently are in low, single-digits.

SPFY business scenario is expected to remain tough for another 1-2 quarters, although the volatility is slowing down. Factors like the high input prices (crude oil, freight costs, colorants, packing material, etc.), rising inflation, hike in interest rates and slowdown concerns across geographies need to ease out, along with inventory rationalization, for demand and profitability to return to normalcy. On a more company-specific level, PEL by then should most likely be completing its ongoing expansion in the SPFY facilities, adding on another 8,000 MT of annual capacity to its existing 18,000 MT capacity. The fresh capacities are expected to go on stream by April-May 2023. The inroads made by PEL in the apparel segment in various markets in these tough times would help the Company to easily ensure offtake of its increased production.

Shares of Pioneer Embroideries Limited was last trading in BSE at Rs. 44.05 as compared to the previous close of Rs. 44.40. The total number of shares traded during the day was 472 in over 26 trades.

The stock hit an intraday high of Rs. 44.45 and intraday low of 43.75. The net turnover during the day was Rs. 20746.00.

Source : Equity Bulls

Keywords

PioneerEmbroideries INE156C01018 H1FY23 ResultUpdate