Vardhman Textiles Q1 FY27 earnings call

Vardhman Textiles reported an overall improvement in its Q1 FY27 numbers, both in percentage and absolute terms. The spinning business demonstrated strong performance with full capacity utilization, good margins, and robust demand. In contrast, the fabric segment's improvement was less pronounced due to past impacts from US tariffs and missed sampling opportunities, which led to lower utilization for a new line added in March. However, the company anticipates better business for fabrics in the coming 2-3 months from US customers.

International raw material prices for cotton have stabilized in the range of USD 0.78-0.81 per pound. Indian cotton prices, previously a disadvantage, are now aligned with international rates at approximately USD 0.87-0.88 per pound. Management highlighted potential global supply reductions due to factors like El Nino, varied rain patterns in India, and reduced cotton sowing in China and Australia, which are expected to support cotton prices and prevent a significant decline.

The spinning business is operating at full utilization with healthy margins, benefiting from strong overall demand. Notably, total yarn exports from India have increased to about 110 million kg, up from 95-97 million kg, primarily driven by sustained demand from China. This Chinese demand is attributed to their reduced domestic cotton sowing, rising costs in South China, and a preference for non-Xinjiang cotton from India and Vietnam to mitigate supply chain risks.

The fabric business, which saw lower utilization (15-20%) for its new line due to past market challenges^🌐, is now showing signs of recovery. The company has secured two significant brand approvals for its new synthetic fabric products, with production commencing in August. Management aims to achieve 70-80% capacity utilization for this new line within the next six months, expecting better margins compared to existing product lines.

Vardhman Textiles is actively pursuing its capex plans, with approximately INR 800-900 crores allocated for FY27. This includes significant investments in modernization and power projects, such as biomass boilers in Baddi and Madhya Pradesh, and solar/wind power installations, all expected to be completed within the next three months. An open-end project with a capacity of 55-60 tons per day has commenced construction and is anticipated to be operational within the next 10 months. The company also plans to double its garment capacity from 2.2 million to 4.5 million units, targeting a peak revenue of INR 300 crores when fully utilized by Q1 FY28.

The ambitious new site at Dhar, under the PM MITRA Park scheme, is currently awaiting land and power availability from the government. Management expects the land to be available by December and power not before June 2027. Construction for this project will only commence once these critical infrastructure elements are secured, with project implementation estimated to take 10-12 months thereafter.

The textile industry is experiencing evolving trends, including shorter fashion cycles, a preference for minimum inventory, and a growing emphasis on sustainability (recycling, green energy, ESG compliance). These trends, coupled with India's natural advantages and Free Trade Agreements (FTAs) with regions like the UK and EU, are creating significant opportunities. Organized players like Vardhman, with their scale and capabilities, are well-positioned to capitalize on these shifts and meet the diverse demands of customers.