Teejay Lanka PLC (TJL), a regional fabric manufacturer listed on the Colombo Stock Exchange, is expected to maintain operational resilience despite a projected drop in capacity utilization to 85% from the previously anticipated 90%. According to First Capital Research (FCR), while a global economic slowdown and reciprocal tariff changes are likely to soften demand, the company’s manufacturing footprint across Sri Lanka, India, Egypt, and Indonesia provides flexibility to manage evolving trade dynamics.
India accounts for approximately 53% of TJL’s production capacity, and current US tariffs on Indian fabric imports are capped at 26%. This allows TJL to prioritize Indian operations for exports to the US and Japan, supporting volume stability. According to FCR’s analysis, TJL’s facilities have duplicated, non-product-specific capabilities that enable cost-efficient reallocation of production across its locations, reducing dependency on any single export corridor.
TJL’s ongoing capacity expansion in Egypt supports near-shoring to African markets and provides additional insulation from traditional export risks. Meanwhile, Indonesia offers low-cost subcontracted production that can be scaled up or down depending on short-term fluctuations in demand. These operational levers enhance the company’s ability to adjust its cost base and supply chain in response to external shocks.
The company’s integration with large apparel exporters such as MAS Holdings and Brandix, which also have operations in India, is expected to strengthen its responsiveness to shifting trade flows. FCR notes that these client relationships may allow TJL to coordinate production strategies and maintain order volumes across markets affected by tariff volatility.
While TJL’s management expects to absorb some new tariff costs by reducing the average selling price of cotton and synthetic fabrics, its margins are forecast to decline modestly. FCR attributes this to stabilizing cotton prices and expectations of lower crude oil prices, which support input cost control, particularly for synthetic yarns.
According to the US Energy Information Administration, crude oil prices are projected to decline through 2026, which could ease upstream cost pressures for TJL’s synthetic fabric portfolio. In addition, cotton prices are expected to remain flat, reducing volatility in raw material sourcing.
With approximately 80–90% of the cost of sales denominated in US dollars and most revenues also booked in dollars, TJL benefits from a natural hedge against exchange rate risks. FCR’s base-case scenario projects an exchange rate of Rs310 per dollar in 2025, suggesting that the potential depreciation of the Sri Lankan rupee could offset margin compression.
TJL will also continue to benefit from preferential access to the European Union through Sri Lanka’s inclusion in the GSP+ scheme. The preferential trade status, recently extended to December 2027, reduces duties on Sri Lankan exports to the EU and helps maintain competitiveness in key apparel markets.
FCR forecasts a 4–5% decline in TJL’s revenue over the next two years, driven by price adjustments rather than a collapse in volume. While the IMF recently downgraded global growth projections for 2025 to 2.8%, down from 3.3% in January, FCR argues that TJL’s structural positioning enables it to manage near-term volatility without significantly impairing profitability.
Although the full cost of tariffs may not be passed on to end consumers, FCR indicates that the burden will be distributed across the textile supply chain. By absorbing a portion of this cost and using its flexible regional operations, TJL aims to preserve capacity utilization and operational continuity.
TJL’s diversified exposure and scalable production systems position it to adapt to prolonged uncertainty in the global apparel trade. While revenue and utilization levels may soften in the short term, the company’s geographic dispersion, client integration, and hedging capacity reduce the likelihood of sharp earnings erosion.
In its results for the quarter ending December 2024, TJL reported a profit after tax of Rs1.9 billion, up 234% compared to the same period in the previous year, driven by a combination of strategic execution, cost rationalization, and operational flexibility afforded by its multinational footprint, the company said in a note to shareholders.
Group revenue for the period reached Rs49.8 billion, reflecting a 10% year-on-year increase on the back of improvements in the sales mix, higher demand, and a shift in global sourcing patterns, including the reallocation of orders to Sri Lanka and India under the China Plus One strategy, despite currency-related challenges from the appreciation of the rupee.
Gross profit rose to Rs5.4 billion, a 57% improvement over the corresponding quarter of the previous year. Favourable yarn prices and an optimized product mix contributed to margin gains and topline growth. Distribution and administrative expenses increased by 10% and 20%, respectively, in line with the rise in order volumes.
The company closed the December 2024 quarter with a cash balance of Rs8.4 billion and reported net assets of Rs30.9 billion, equivalent to Rs42.78 per share.
Teejay Lanka PLC continues to embed innovation into its operations to respond to shifting demands in the global fashion supply chain. Facing pressure from buyers to deliver faster and at lower cost, the company has prioritized digital transformation at both operational and customer-facing levels. At the factory level, this includes deploying smart quality control systems and integrating IoT technologies to improve efficiency and accuracy across production lines.
Customer engagement has also evolved, with digital platforms like the company’s Digital Fabric Library offering faster sampling and design validation, reducing lead times and improving responsiveness. These initiatives are part of a broader effort to align internal processes with the changing expectations of clients while maintaining production agility.
Teejay’s innovation centre, INSCOPE, is a dedicated product development unit focused on translating research into commercially viable fabric solutions. The group collaborates with academic institutions and industry experts to explore new yarn, fibre, dyes, and chemical treatment applications. R&D investments are directed toward process improvements and product innovation, emphasizing maintaining competitiveness through technical capability rather than scale alone. This approach allows the company to adapt to both incremental and disruptive changes in the apparel sector.