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    Vardhman Textile

    VTLMixed
    Textiles·23 Oct 2025
    Management Summary

    Vardhman Textiles delivered a resilient Q2 FY26 performance despite significant global challenges, including elevated US tariffs and a cost disadvantage in domestic cotton. The company is maintaining high capacity utilization and aggressively pursuing a 30% capacity expansion. Management is cautiously optimistic about a recovery in spreads by Q4 FY26, contingent on US trade negotiations and continued cotton duty exemptions.

    Highlights

    7

    • Revenue for Q2 FY26 stood at ₹2,468 crores, a slight decline from ₹2,565 crores in the previous year.

    • EBITDA margin remained resilient at 15.5% despite higher operating costs and global headwinds.

    • Yarn and fabric business sustained robust performance with utilization levels at 90-95% for spinning and 90% for fabric.

    • Total capex of ₹500 crores underway: ₹300 crores for a new synthetics plant and ₹200 crores for line expansion in Madhya Pradesh.

    • Management expects a 30% increase in overall production capacity once current expansion initiatives are completed.

    • Indian cotton prices faced a disadvantage of $0.04-$0.06 per pound compared to international levels due to high MSP.

    • Depreciation increased to ₹114 crores this quarter and is expected to rise to ₹125-130 crores per quarter post-commissioning.

    Concerns

    2

    • US Import Tariffs

    • Cotton Price Disparity

    Key financials

    Single quarter

    04 metrics
    1. 01Revenue₹2,468 Cr-3.8%YoY
    2. 02EBITDA Margin15.5%
    3. 03Depreciation₹114 Cr
    4. 04Yarn Realization (30s count)2.85 $/kg-2.5%QoQ

    Segment breakdown

    Spinning
    92.5% Capacity Utilization110 Mn Export Volume
    Fabrics
    90% Capacity Utilization
    Vardhman Acrylics (Subsidiary)
    100% Capacity Utilization22,000 tons Annual Capacity
    List

    Guidance & targets

    4
    CategoryTargetPriority
    Margin
    Normalization of spreads
    Historical levels
    		Medium
    Capacity
    Overall production capacity increase
    30%
    		High
    Capex
    Synthetics Plant Investment
    ₹300 crores
    		High
    Volume
    Synthetics plant capacity utilization
    20-30%
    		Medium

    Risks & concerns

    4
    RiskSeverity

    US Import Tariffs

    The 50% US import duty is diverting orders to Bangladesh and Vietnam, forcing Indian exporters to cut prices. — Both acknowledged

    high

    Cotton Price Disparity

    Indian cotton is $0.04-$0.06/lb more expensive than global prices due to MSP, creating a cost disadvantage for Indian spinners. — Management acknowledged

    high

    CCI Monopoly Pricing

    If duty-free imports are not extended beyond Dec 31, CCI could become a monopoly supplier, potentially keeping domestic prices high. — Management acknowledged

    medium

    Areas of Evasion(1)

    • Specific revenue contribution from new capex was avoided, citing market conditions.

    Q&A highlights

    3

    “Unless these two things are resolved to, we'll never be in a position to reach the historic margin. So these are the two preconditions that there -- we should not have any duty disadvantage. And also the cotton should be -- the raw material should be available to us at the international parity basis.”

    Investors are focused on when the current margin compression will end; management clarified it depends on external policy factors.

    asked by Riddhesh Gandhi

    2 min read5 chapters

    Detailed Narrative

    01

    Resilient Margins Amidst Raw Material Disparity

    Vardhman maintained an EBITDA margin of 15.5% despite Indian cotton prices trading at a significant premium to international futures. Management successfully navigated this by importing duty-free cotton before the window closes on December 31, 2025. However, they warned that if the 11% import duty is reinstated and CCI maintains high prices, Indian spinners will face severe competitiveness issues against Vietnam and Indonesia.

    02

    Aggressive 30% Capacity Expansion

    The company is nearing the completion of a ₹500 crore expansion program. This includes a ₹300 crore synthetics plant (15 lakh meters) and a ₹200 crore line expansion in Madhya Pradesh. While the synthetics plant will start with low utilization (20-30% in Q4), the total initiative is projected to increase overall production capacity by 30%, positioning the company for a demand recovery.

    03

    US Tariff Headwinds and Sourcing Diversification

    The 50% US import duty has caused a 20-25% reduction in order volumes from US-based customers and a 30-45 day delay in order placements. To mitigate this, Vardhman is supporting strategic customers by sharing tariff costs and diversifying into non-US markets like the EU, UK, Australia, and Canada. Management noted that Indian exporters are viewing this disruption as temporary but are being forced to readjust pricing to retain clients.

    04

    Acrylics Segment Under Pressure

    The Vardhman Acrylics subsidiary is facing intense pressure, currently just breaking even at the EBITDA level. This is attributed to a 70% price premium of acrylic over polyester, leading to significant fiber substitution. Additionally, cheap imports from Thailand have forced the company to lower prices to maintain 100% capacity utilization, sacrificing margins to protect market share.

    05

    Financial Outlook and Depreciation Headwinds

    Other income saw a sharp drop this quarter due to a ₹25-26 crore reversal of previous forex gains as the rupee fluctuated. Looking ahead, investors should factor in higher depreciation costs, which are expected to rise from ₹114 crores to approximately ₹130 crores per quarter as new projects go live. Management remains 'banking upon' a US trade deal by November to trigger a broader recovery in the sector.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.