Spinning stronger margins ahead…
About the stock: Sportking India (SKL) is a leading yarn manufacturer in India with 2 spinning units (3.79 lakh spindle capacity) and 1 dyeing unit in Punjab. The company has diverse product base ranging from cotton yarn to acrylic, blended and polyester yarn. The company’s annual total yarn production capacity is ~88000 MT with capacity utilisation of 95-96% across both units. The company is expanding its operations with a new greenfield facility in Odisha (1.5 lakh spindles which is expected to commission in H2FY27.
Investment Rationale
Indian yarn manufacturers in sweet spot – higher demand and increased utilisation to drive higher yarn spreads in the near term: Demand for Indian cotton yarn has picked up from countries such as China, Bangladesh and Vietnam following the disruption in global logistics after the break-out of war in West Asia resulted in delays in shipments from US and Brazil. The Indian yarn manufacturing companies based in western part of India are witnessing 40% increase in the order book and are operating at utilisation rate of 95-100%. India cotton yarn exports grew by ~7% over Sept,25-Feb,26 to 5,84,233 tonnes. Increase in demand from key textile manufacturing countries resulted in 31% spike in the yarn prices between Oct-25 to May-26 trading to Rs290 per kg. Industry cotton yarn spread has increased to R114 per kg in May,26 from Rs74 per kg in Oct,25 (an increase 55% over the same period). Industry expects yarn spreads to remain high over the next two to three quarters on back of favourable industry dynamics. This will provide strong boost to the profitability of the domestic yarn manufacturers in the near term.
SKL to expand capacity by 40% sensing large domestic and international opportunity: SKL is undertaking a ~Rs.1,000cr capex to expand its yarn manufacturing capacity by ~40% to ~5.3 lakh spindles through a new Odisha facility, expected to commence operations by H2FY27. With existing facilities operating at ~95-96% utilisation, the expansion provides strong headroom for future volume growth across domestic and export markets. The Odisha plant is also expected to be structurally margin accretive, supported by lower power costs, government incentives and logistical advantages, which could make the facility 4- 5% margin accretive than existing Punjab operations at optimal utilisation. Further, proximity to textile and garment hubs along with export markets such as Bangladesh and Vietnam is expected to strengthen long term competitiveness. With new Odisha facility achieving optimal utilisation by FY28E, we expect revenues to grow at a CAGR of 24% over FY26-28E.
EBIDTA margins to expand by ~600bps over FY26-28E: SKL’s volumes are expected to grow at a CAGR of 18.6% over FY26-28E driven by optimal utilisation levels in new Odisha facility. Its yarn spread is expected to witness CAGR of 8.3% over FY26-28E to Rs.114.5/kg in FY28E. Further, SKL’s continued investments towards solar power in Punjab coupled with power subsidies in Odisha is expected to lead to Rs.14-15cr annual savings in power cost over the next 2 years. Additionally, its new Odisha plant is expected to achieve optimal utilisation in FY28E and is expected to have 4-5% better margins than existing facilities. Hence, we expect EBITDA margins to expand by ~600bps to 17.3% in FY28E. Its EBITDA and PAT are expected to grow at a CAGR of 53% and 64% respectively over FY26- 28E.
Rating and Target Price: We recommend BUY with a price target of Rs.200 valuing the stock at 8x its FY28E EPS of Rs.25.1.
