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RSWM Ltd: A Turnaround Play in Textiles?

CMP: Rs.132.35

Target: Rs.192.

Introduction:

RSWM Ltd (Rs.132.25), a microcap textile player, is undergoing a strategic transformation under CMD & CEO Riju Jhunjhunwala. While recent financial struggles (declining profits, high debt, stock underperformance) raise concerns, aggressive expansion into knitting fabrics and sustainability-focused textiles presents a turnaround opportunity.

With 12 manufacturing plants and recent acquisitions, RSWM is scaling up to improve margins and market share. But is this enough to overcome its financial headwinds?

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Investment Rationale:

🧨Expansion & Capacity Boost

RSWM’s acquisition of Ginni Filaments’ Chhata Unit increases yarn production by 55 tonnes/day, adding 80,016 spindles and 720 rotors. This strengthens its spinning and knitting operations, improving economies of scale.

Entry into High-Growth Knits Market

An ₹80 crore investment in LNJ Knits positions RSWM in the $206 billion global knits market. With India’s knits share at just 4%, RSWM has strong growth potential.

Strong Manufacturing Base

Annual production includes:

✅ 1,21,000 MT Greige Yarn

✅ 24,000 MT Mélange Yarn

✅ 32,000 MT Dyed Yarn

✅ 9,000+ MT Knits Fabric

✅ 43,000 MT Green Fibre

A push toward sustainable textiles aligns with global demand.

Financial Snapshot: Strengths & Weaknesses...

📈 Revenue Growth: ₹4,057 crore in FY24, 23.67% YoY rise in Q3.

📉 Profitability Concerns: Operating profits declined at a -22.97% CAGR over five years.

⚠️ High Debt: Debt-to-EBITDA at 8.46x, raising debt servicing risks.

📊 Stock Performance: Down -25.38% YoY, lagging benchmarks.

📉 ROE: 9.09%, indicating limited returns for shareholders.

Valuation appears attractive (EV/Capital Employed at 0.8x), but risks persist.

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Technical Outlook

• As of March 14, 2025, RSWM Ltd trades at Rs.132.
• RSI: Near oversold levels, indicating weak momentum.
• MACD: Bearish crossover, confirming a downtrend.
• Support: ₹130; Resistance: ₹160.

📉 Short-Term: Weak sentiment, further downside possible.

📈 Long-Term: A breakout above ₹160 could signal recovery.

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Conclusion: Risk Vs Reward

RSWM’s expansion strategy, acquisitions, and entry into premium textiles suggest a potential turnaround. However, high debt, weak profitability, and stock underperformance remain key risks.

✔ Growth Investors: A long-term play if execution improves.

✔ Value Investors: Undervalued, but patience required.

Risk-Averse Inv Line: A high-risk, high-reward bet—a turnaround in progress, but not without hurdles.