Detailed Narrative
Q2 FY26 Financial Performance Overview
GHCL Textiles reported a robust Q2 FY26, with revenue reaching INR339 crores, marking an 11% year-on-year growth. This performance was primarily driven by the highest-ever quarterly yarn production volume. EBITDA for the quarter stood at INR38 crores, demonstrating a significant 31% year-on-year increase, while PAT was reported at INR16 crores. The company attributed these results to strong operational discipline and the successful execution of its expansion strategy amidst challenging market conditions.
Capacity Expansion and Utilization
The company successfully commissioned its new 25,000 spindles unit, which is now operating as per expectations and contributed significantly to the volume growth in Q2 FY26. This new capacity contributed approximately INR30-35 crores to Q2 revenue, operating at around 50% utilization. Management expects this unit to reach full utilization by Q3 FY26, providing a full benefit to the company's performance in the upcoming quarter.
Vertical Integration Progress
GHCL Textiles is actively advancing its vertical integration roadmap. The expansion of knitting machines is underway, with Phase 1 of 15 machines anticipated to be completed in Q3 FY26. This strategy has already yielded results, with revenue from fabric reaching its highest-ever level at over 11% of total revenue. The complete project, encompassing yarn and fabric, is expected to generate incremental revenue of INR275-300 crores.
Strategic Capital Allocation and Future Targets
Out of a committed investment plan of over INR1,000 crores, approximately INR600 crores have already been deployed towards capacity enhancement and vertical integration. The remaining INR400 crores will be invested in knitted fabrics, woven fabrics, processing, and an additional 13 megawatts of renewable energy. The company aims to become a premium ready-to-cut fabric manufacturer, targeting a top line of INR2,000 crores, a double-digit ROCE, and an EBITDA margin of 15-18% over the next three to four years.
Raw Material and Margin Outlook
Domestic cotton prices eased slightly to around INR54,500 per candy mark, and the company utilized duty-free imports to stock cheaper cotton. While yarn prices at the industry level have declined, GHCL's value-added yarns maintained prices similar to Q1. Management expects cotton prices to remain stable or slightly decrease in the next quarter. Spread improvement is anticipated by Q4 FY26 or Q1 FY27, contingent on demand revival and benign cotton costs, with H1 FY26 yarn EBITDA at approximately 11%.
Green Energy Initiatives
The company's commitment to operational excellence is supported by its 62-megawatt green energy capacity, which currently meets over 70% of its power needs, up from 60% last quarter. An additional 13 megawatts of renewable energy (rooftop and ground solar) is planned with an investment of INR43-45 crores, projected to yield annual cost savings of INR7.5-8 crores. This initiative helps control power costs and enhances the company's sustainable footprint.
Market Dynamics and Export Strategy
Yarn demand remained muted in Q2, with customer off-take largely limited to urgent short-term needs, particularly in the challenging knitted segment. While exports did not increase in Q2, the company noted no order cancellations and is encouraged by potential positive outcomes from the US-India trade agreement and developments in UK and EU FTAs. Bangladesh and Europe remain key export geographies, with 30-40% of total output going to top brands, ensuring a steady pipeline of orders.