Vardhman Textiles Limited — Q1 FY26 earnings call

Call held 22 Jul 2025

Management summary

Vardhman Textiles delivered a resilient operational performance in Q1 FY26 with full capacity utilization, though profitability in the spinning segment is under pressure from high domestic cotton prices and an 11% import duty. The company is aggressively expanding its fabric capacity and synthetic lines to diversify its portfolio. While US tariff uncertainty has slowed order placements, VTL's diversified geographic exposure and shift toward direct brand business (now 35-40% of yarn exports) provide a strategic buffer.

Highlights

  • Capacity utilization remained at 100% for both yarn and fabric segments despite global headwinds.

  • Spinning EBITDA margins compressed to ~10% compared to historical levels of 14-15% due to cotton price disparity.

  • Fabric segment maintained healthy EBITDA margins of 17% to 18%.

  • Indian cotton traded at a premium of $0.03 to $0.04 per pound over international prices, creating a structural disadvantage.

  • MSP for the upcoming cotton season increased by nearly 8%, further impacting future cost structures.

  • Fabric processing capacity is targeted to reach 210 lakh meters per month in 3-4 years, up from the current 145 lakh meters.

  • Yarn exports to the US (direct and indirect) account for approximately 30-35% of total spinning sales.

  • Mechanical recycling plant (ReNova) and 14,000 additional Melange yarn spindles became operational in July 2025.

Concerns

  • Cotton Price Disparity

Key financials

  1. Spinning EBITDA Margin 10%
  2. Fabric EBITDA Margin 17.5%
  3. Capacity Utilization 100%
  4. Average Yarn Realization 3 USD/kg
  5. EBITDA per Spindle Shift ₹4

What they filed

Q1 FY27: revenue up 13.3%, net profit up 51.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,502 2,465 2,509 2,386 2,480 −1%2,505 +2%2,498 −0%2,703 +13%
EBITDA315 313 287 326 334 +6%284 −9%294 +2%474 +45%
Net profit197 212 238 208 188 −5%168 −21%189 −21%315 +51%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Spinning
    10% EBITDA Margin30% Export Share of Capacity37.5% Direct Brand Business Share
  • Fabric
    17.5% EBITDA Margin42.5% US Market Exposure145 lakh meters Current Monthly Capacity

Guidance & targets

Capacity

  • Fabric Processing Capacity Capacity · next 3 to 4 years · High confidence 210 lakh meters per month

    From 145 lakh meters per month today

    On the fabric side, we are currently at 145 lakh meters per month process capacity. And in the next 3 to 4 years, this will go up to about 210 lakh meters per month.

    — Sagrika Jain, Executive Director

Volume

  • Overall Production Growth Volume · FY26 · Medium confidence 6-7%
    I hope our overall production, which used to be about 710, 720 tonnes would increase to about 750 tonnes or so. So that means a total of about 6% to 7% growth on the production side.

    — Neeraj Jain, Joint Managing Director

Profitability

  • Power Cost Improvement Profitability · next 1.5 years · Medium confidence Quarterly improvement
    I think every quarter, you will find some improvement on the power cost for next 1, 1.5 years.

    — Neeraj Jain, Joint Managing Director

Revenue

  • Fabric Expansion Contribution Revenue · Q3 FY26 onwards · High confidence Meaningful contribution
    Our fabric expansion is progressing as per schedule and we can expect it to begin contributing meaningfully to our top line and bottom line from quarter three onwards.

    — Sagrika Jain, Executive Director

Risks & concerns

  • Cotton Price Disparity

    high

    Indian cotton is $0.03-$0.04/lb more expensive than international cotton, and CCI has recently hiked prices by INR 2,500-3,000 per candy.

    Management acknowledged

  • US Tariff Uncertainty

    medium

    New US tariffs are causing volatility and leading brands to adopt a 'hand-to-mouth' ordering strategy, slowing down order books.

    Both acknowledged

  • MSP Inflation

    medium

    An 8% increase in MSP for the upcoming season is expected to keep Indian cotton prices elevated.

    Management acknowledged

Areas of evasion (1)

  • Specific inventory cost figures were withheld as per standard policy.

Q&A highlights

3 direct
Bangladesh Yarn Export Exposure Direct
From India, there's lots of export of yarn to Bangladesh. But for us, Vardhman, it's about 30%, 35% instead of 50%... we are not finding any shifting of that happening from China.

Clarifies that VTL has lower concentration risk in Bangladesh than the industry average and isn't currently losing market share to China.

Asked by Vaishnavi, Craving Alpha Wealth Fund

Cotton Price Parity and Import Duties Direct
The industry has been requesting the government to allow the duty-free import of cotton... that's the only way where the raw material cost could be normalized in India.

Highlights the critical structural headwind of the 11% import duty which prevents Indian spinners from achieving international cost parity.

Asked by Riddhesh Gandhi, Discovery Capital

EBITDA per Spindle and Product Mix Direct
EBITDA as a percentage to sales used to be about 14%, 15% in the spinning business, which as of now is in the range of about 10% or so.

Quantifies the significant margin compression in the core spinning business due to raw material cost pressures.

Asked by Lakshminarayanan, Tunga Investments

2 min read 5 chapters

Detailed narrative

Cotton Cost Headwinds and Structural Disadvantage

Management highlighted a challenging environment for the spinning industry, with Indian cotton trading at a $0.03 to $0.04 per pound premium over international prices. This disparity is exacerbated by an 11% import duty in India, which puts domestic spinners at a disadvantage compared to competitors in Vietnam and Bangladesh. The recent 8% hike in MSP and CCI's aggressive buying (30% of total crop) have further pushed domestic prices up by INR 2,500-3,000 per candy in just one month.

Fabric Segment as a Margin Accretive Growth Engine

While spinning faces pressure, the fabric segment remains robust with EBITDA margins of 17-18%. VTL is aggressively expanding this segment, targeting a capacity increase from 145 lakh meters to 210 lakh meters per month over the next 3-4 years. This expansion includes a new synthetic fabric line, which is expected to begin contributing to the top and bottom lines starting in Q3 FY26.

Strategic Shift to Direct Brand Business

VTL has significantly improved its customer profile over the last 5 years, shifting from trade-based sales to direct brand relationships. Direct brand business now accounts for 35-40% of yarn exports, up from 8-10% previously. This shift provides better margin stability and higher profitability through specialized, value-added products that are less sensitive to minor price fluctuations than commodity trade business.

Operational Resilience and Capacity Utilization

Despite global trade disruptions and a slowdown in US order placements due to tariff uncertainties, VTL maintained 100% capacity utilization in Q1. The company's diversified geographic exposure—spanning the UK, EU, Japan, and South America—acted as a buffer against the US slowdown. Management expects overall production volume to grow by 6-7% in FY26, reaching approximately 750 tonnes.

Energy Cost Optimization Strategy

To combat rising operational costs, VTL is implementing a multi-pronged energy strategy. This includes small-scale rooftop solar (already operational), a third-party STV power agreement starting in 1-2 months, and biomass-based boilers expected to be completed in a year. Management anticipates these initiatives will lead to sequential improvements in power and fuel expenses over the next 1.5 years.

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