Sangam (India) Ltd.: overview
The textile cycle is turning favourable. Cotton supply has tightened, with lower acreage and largely stagnant yields have constrained domestic availability.
With production falling below consumption, the market has increasingly relied on costly imports to bridge the gap.
Higher CCI procurement at MSP has further reinforced this supply tightness by absorbing a larger share of the domestic crop and keeping cotton prices firm even as production declined.
Spinning capacity is undergoing a structural correction as well. Globally, older and less efficient machinery is being phased out, while India has seen around 10–12 million spindles (~20% of capacity) permanently exit or shut down. This capacity rationalisation is reducing industry supply, improving utilisation and strengthening pricing power for efficient organised spinners.
And so, spinners have managed to come out ahead. Yarn prices have risen faster than cotton costs, resulting in a sharp recovery in yarn-cotton spreads. This improvement provides a favourable cyclical backdrop for the spinning industry and should support margins through the year.
Historically, this cycle was central to Sangam's earnings story. As a largely yarn-led textile manufacturer, profitability was closely tied to the movement in cotton-yarn spreads. In other words, Sangam's earnings were a function of where the textile cycle stood.
But Sangam is no longer building the same business.
The significance of this shift is that the current spread recovery is now acting as a tailwind to a business that is structurally becoming less dependent on that tailwind. And the first evidence of this is already visible in the numbers.
During Q1FY27, profitability expanded significantly faster than revenue, indicating that operating leverage is beginning to emerge. Gross margins expanded by more than 600 bps YoY, while EBITDA margins improved to 12.9% from 8.8%. PAT grew 20x YoY, further highlighting the sharp improvement in earnings conversion.
And this is where the larger story begins.
Today, multiple long-term growth drivers are replacing this historical dependency, setting the stage for a more durable and sustainable earnings profile.
Over the past few years, Sangam systematically reshaped the business by focusing on operational discipline and higher-quality earnings. Working capital optimisation, inventory discipline…
SKU rationalisation, investments in recycled fibre, renewable energy…
and downstream integration have collectively transformed the operating model.
This improvement is supported by a gradual shift in Sangam's business mix towards higher value-added manufacturing.
As the contribution from value-added products increases, Sangam should benefit from better realisations, lower dependence on commodity yarn cycles and structurally higher margins over the medium term. The improvement in gross margins witnessed this quarter appears to provide an early indication that this transition is already underway.
The next phase of the story is capacity-led growth.
The upcoming Rs. 1,500Cr capital expenditure programme represents the next phase of this transformation. Unlike many previous textile expansion cycles, which were undertaken during periods of excess industry capacity, Sangam's existing manufacturing facilities are already operating at approximately 90-95% utilisation.
The current capex cycle is backed by demand, not idle capacity.
The expansion is therefore aimed at relieving capacity constraints allowing the company to meet existing demand while completing its fibre-to-garment integration across both cotton and synthetic value chains. This should enable faster asset ramp-up, stronger capital productivity and improved operating leverage once the new capacities are commissioned.
Management has indicated that the announced capacity additions have the potential to generate approximately Rs. 300Cr of annual EBITDA at peak utilisation.
Combined with exports to 50+ countries, this provides both geographic diversification and a broader customer base, reducing dependence on any single market while positioning the company to benefit from India's improving global competitiveness and favourable trade agreements.
Execution risk also appears relatively well supported. The Rs. 100 Cr preferential warrant issue, which increases promoter shareholding from 70.52% to 71.54%, demonstrates promoter confidence and aligns promoter capital with the long-term expansion strategy.
Despite these changes, the market continues to value Sangam largely on its current earnings base. As the transformation becomes more visible through improving margins, higher utilisation, stronger return ratios and the commissioning of new capacities over the next three to four years, the gap between today's valuation and tomorrow's earnings potential could narrow meaningfully.
For more details, please reach out to -
Garima Singla
Sr. Research Analyst
[email protected]
Mehal Gogia
Research Associate
Disclaimer - Informational only. Not investment advice.GoIndia Advisors LLP | SEBI Registered Research Analyst | Reg. No. INH000020040 | BSE Enlistment No. - 6518