Sportking India’s yarn spreads and Odisha expansion support stronger earnings growth

Investment View and Company Overview

ICICI Securities has retained a BUY recommendation on Sportking India Ltd with a target price of Rs 273, compared with the current market price of Rs 217. The August 4, 2026 result update highlights a strong start to FY27, led by higher yarn realisations and significantly improved cotton-yarn spreads.

Sportking India is a leading Indian yarn manufacturer with two spinning units comprising 3.79 lakh spindles, one dyeing unit in Punjab, annual yarn capacity of about 88,000 MT and utilisation of 95-96 per cent across its spinning units.

Strong Q1FY27 Operating Performance

Actual Q1FY27 revenue increased 20.1 per cent year-on-year to Rs 703.7 crore. The growth was driven by approximately 20-21 per cent growth in yarn realisations and 1 per cent growth in yarn volumes to 20,492 MT.

Gross margin expanded as improved yarn realisations and stable cotton costs lifted the cotton-yarn spread. EBITDA growth was supported by the stronger spread and operating performance, while adjusted PAT was also aided by lower interest costs.

Demand Environment and Near-Term Outlook

Management said demand remained healthy in both domestic and export markets. China has emerged as an incremental buyer because of higher domestic cotton prices and lower crop availability. Demand from Bangladesh also remains healthy despite challenges in its domestic spinning industry.

Management expects domestic demand to benefit from festive-season consumption. It identified global supply-chain diversification, retailer inventory normalisation, consolidation of spinning capacity, India's cotton availability and trade agreements as supportive industry factors.

• Sportking India maintains a 70-90 day order book, supporting revenue visibility and near-term yarn pricing.
• Management expects inventory gains to become more evident over the next two quarters.
• New-crop arrivals from October are expected to moderate domestic cotton prices.
• Q2FY27 EBITDA margin is expected to be similar to or marginally better than Q1FY27.

Odisha Expansion and Other Growth Initiatives

Management has guided for FY27 revenue of about Rs 3,000 crore, representing approximately 20 per cent year-on-year growth, and expects revenue to exceed Rs 4,000 crore in FY28.

The Rs 975-1,000 crore, 1.5 lakh-spindle Odisha greenfield project is expected to begin Phase-I production in Q3FY27 and contribute 30-40 per cent of its peak revenue potential in Q4FY27. Odisha utilisation is targeted at about 90 per cent by March 2027 and 96-97 per cent by early FY28.

The project is eligible for a 30 per cent capital subsidy without an upper cap, a Rs 2.5 per unit power subsidy, land subsidy and employment incentives. Its proximity to Bangladesh is also expected to provide logistical advantages.

The solar project commenced late in Q1FY27, with its full benefit expected from Q2FY27. It is expected to generate annual power-cost savings of about Rs 15 crore.

The delayed merger of the downstream fabric and garment businesses is expected within the next quarter. These businesses are expected to contribute 8-10 per cent of FY28 revenue, or about Rs 250 crore, with limited cash outflow of Rs 20-30 crore.

Earnings Estimates and Margin Outlook

Management has retained its long-term sustainable EBITDA margin guidance of about 15 per cent. ICICI Securities expects structurally better margins from solar savings, operating efficiencies and EBITDA margins that are 300-400 basis points higher at Odisha.

The broker revised FY27E PAT and EPS upwards by 23.9 per cent, reflecting higher incremental volumes, realisations and cotton-yarn spreads. Its forecasts are as follows:

Valuation and Key Risks

ICICI Securities' target price of Rs 273 is based on 11 times FY28E EPS of Rs 24.8.

Key risks to the outlook include weather conditions or geopolitical instability raising input costs, and global uncertainty affecting export revenues.