Vardhman Textile

Vardhman Textiles achieved a 15% EBITDA margin in Q1 FY25, a level not seen in several quarters. This was primarily driven by a strategic decision to cover cotton requirements during the season at ₹54,000 to ₹55,000 per candy, while current market prices have risen to nearly ₹59,000. However, management was cautious about sustaining this level, noting that high Indian MSPs relative to global cotton prices (New York Futures at $0.70-$0.71) create a competitive disadvantage for Indian spinners. They indicated that while fabric margins are more sustainable, spinning margins remain under pressure due to low industry-wide utilization of around 75%.

The company has revised its capex guidance upward from ₹2,000 crores to ₹2,500 crores. A significant portion of this increase, approximately ₹400 crores, is dedicated to biomass boilers and green power systems. This is part of a larger ₹440 crore allocation aimed at increasing green power consumption to 25-30% of total requirements within the next 18 months. Other capex components include ₹100 crores for open-end spinning expansion and ongoing modernization and debottlenecking projects across their plants to enhance flexibility and reduce costs.

Management defended a significant increase in inventory levels (up ₹1,600-1,700 crores YoY), characterizing it as a return to 'normal behavior' after an exceptional previous year. By securing 7-8 months of cotton stock by March 31st, the company locked in quality and price before the off-season spike. They noted that while international prices have recently dipped, Indian prices remain high due to government support (MSP), which currently acts as a floor for domestic pricing at approximately ₹60,000 per candy equivalent.

Management expressed strong conviction that the 'China Plus One' strategy is now a tangible reality, with global brands increasingly looking at India as a primary vendor base. To capitalize on this, VTL is focusing on improving delivery lead times—aiming for 3-4 weeks for spinning and 6 weeks for fabric. They emphasized that while quality and price are prerequisites, the ability to handle smaller, immediate orders and a wider variety of fibers will be the key differentiator for winning this shifting global business.

The fabric segment is currently a standout performer, running at maximum capacity utilization. VTL plans to expand its fabric capacity from the current 180 million meters to 200 million meters by FY26. This expansion includes an 8-9% increase in solid dye capacity and a 15-20% increase in yarn-dyed fabric capacity. Management highlighted that the fabric business is better positioned to sustain margins compared to spinning, as it benefits from a diversified customer base and higher value-addition.