Vardhman Textiles Limited — Q3 FY26 earnings call

Call held 21 Jan 2026

Management summary

Vardhman Textiles reported a Q3 FY26 EBITDA margin of 15%, a slight dip from the previous quarter, amidst a challenging operating environment marked by elevated Indian cotton prices and tariff-related disruptions. Despite these headwinds, the company maintained high capacity utilization in both yarn and fabric, commissioned new fabric capacities, and announced plans to double its garmenting capacity. Management highlighted the structural disadvantage of Indian cotton prices and the impact of import duties on competitiveness.

Highlights

  • EBITDA margin for Q3 FY26 was broadly in line with the previous quarter at 15%.

  • Yarn capacity utilization remained strong at around 95%.

  • Fabric capacity utilization was robust at about 89-90%.

  • Vardhman Performance Fabrics and fabric expansion at Budhni were commissioned, with scale-up expected from Q1 next financial year.

  • Indian yarn exports improved to 115 million kgs in December, up from an average of 100 million kgs.

Concerns

  • EBITDA margin for Q3 FY26 was 15%, a decline from 16% QoQ.

  • Indian cotton prices are elevated and structurally more expensive, creating a $0.03-$0.04 per pound cost disadvantage compared to global benchmarks.

  • The 11% import duty on cotton puts India at a disadvantage to competing countries like Bangladesh and Vietnam.

  • Estimated supply deficit of nearly 30 lakh bales of cotton for the current season.

  • Fabric utilization was 10% lower than last year's Q3 due to cautious sourcing by U.S. buyers.

Key financials

  1. EBITDA Margin 15%

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.

Capital allocation

medium confidence
  • Capex Capex disclosed
    • Garmenting capacity doubling (6,000-7,000 shirts)
    • Spinning business modernization
    • Fabric side expansion (Budhni)
    Yes, we are working on it. I think it's a small capacity, 6,000, 7,000 shirts. And whenever we start the project, it will take us about 8 months-or-so to complete that. But it's not really a major CAPEX. So, the major CAPEX was in the Spinning business on modernization, and one of our small expansions at (Inaudible), but the bigger capital expenditure was planned on the Fabric side. That's going on as per schedule only, all the expenditures, whatever was planned last year, that's almost on line.

Guidance & targets

Other

  • Green Power Share Other · FY27 · High confidence 49-50%

    From 9% today

    9% of our total demand is green power. And in FY '27, we are in line to increase this to about 49%, 50%.

    — Management

Capacity

  • Vardhman Performance Fabrics Scale-up Capacity · Q1 next financial year · High confidence Building scale
    We will start building scale from Quarter 1 of next financial year.

    — Management

  • Fabric Expansion at Budhni Momentum Capacity · Q1 next financial year · High confidence Gaining momentum
    In parallel, the fabric expansion at Budhni on our existing cotton blend lines has also been commissioned, and it is expected to gain momentum from Quarter 1 next year.

    — Management

  • Garmenting Capacity Capacity · Within 8 months-or-so · Medium confidence Double current capacity
    We intend to make it to the double from the current capacity.

    — Neeraj Jain

  • Performance Wear Capacity Utilization Capacity · Full next financial year · High confidence Upwards of 60%
    So, in next financial year for the performance wear, we are targeting capacity utilization upwards of around 60% for the full year.

    — Sagrika Vir

What to watch in Q4 FY26

Green Power Share

FY27
Current 9%
Target Progress towards 49-50%

Why it matters

Indicates progress on sustainability goals and potential cost savings from renewable energy.

9% of our total demand is green power. And in FY '27, we are in line to increase this to about 49%, 50%.

Risks & concerns

  • Elevated Indian cotton prices and cost disadvantage

    high

    Indian cotton is structurally more expensive due to an 8% MSP increase, creating a $0.03-$0.04 per pound cost disadvantage compared to global benchmarks.

    Management acknowledged

  • 11% import duty on cotton

    high

    The reinstatement of an 11% import duty on cotton disadvantages Indian mills against competitors like Bangladesh and Vietnam, who enjoy duty-free imports.

    Management acknowledged

  • Tariff-related disruptions and cautious buying by U.S. customers

    high

    U.S. buyers are adopting cautious and selective sourcing approaches due to the tariff war, leading to increased competitive intensity, elongated decision cycles, and a 10% reduction in fabric capacity utilization.

    Management acknowledged

  • Continued capacity closures in the Indian yarn industry

    high

    11-11.5 million spindles have already closed permanently in India, with potential for this figure to reach 15 million in the next year if raw material prices are not corrected, due to old technology and high costs.

    Management acknowledged

  • Cotton supply deficit and CCI's market intervention

    medium

    An estimated 30 lakh bales supply deficit, coupled with CCI procuring 50% of arrivals and lacking a transparent selling framework, constrains open market availability and supports higher prices.

    Management acknowledged

  • Excess global capacity and soft domestic demand for yarn

    medium

    The yarn business faces a mixed environment with excess global capacity, cautious buying behavior, and soft domestic demand, putting pressure on margins.

    Management acknowledged

Q&A highlights

6 direct, 1 evasive
Inventory loss due to cotton price decline in Q3 vs Q2 Direct
No, for us, fortunately, it was not there because Quarter 2 and we didn't have much of a cotton available to us. And whatever we bought, I think we bought at the right prices. So, for us, there was no inventory loss to that extent.

Addresses a potential concern about inventory write-downs given cotton price volatility, indicating the company managed its inventory effectively.

Asked by Awanish Chandra

Current fabric capacity after expansion Direct
So, our earlier capacity used to be about 145 lakh meters per month, and I am talking about processed capacity. And so now this has increased to 185 lakh meters per month and additional 15 lakh meters in the performance there, in technical textile. So, total 200 lakh meters per month.

Provides specific figures for expanded fabric capacity, indicating the company's growth potential and investment in new product categories.

Asked by Awanish Chandra

Reinstatement of cotton import duty exemption Partial
So, yes, we have been talking to the government, both the Textile Ministry as well as Agriculture Ministry also. So, therefore, yesterday also CITI had a conference with the Ministry of Textile, Secretary Textiles. They listened to our issues and concerns, but let's see what happens.

Highlights ongoing industry lobbying efforts for a critical policy change that impacts raw material costs and competitiveness, but indicates no immediate resolution.

Asked by Awanish Chandra

Separate EBITDA margins for Yarn and Fabric businesses Evasive
As a company, we share the textile, we consider it as a Textile division only. Generally, we don't share that number.

Indicates a lack of transparency on segment-wise profitability, which could be useful for investors to assess performance drivers.

Asked by Monish Ghodke

Rethinking garmenting expansion given EU FTA Direct
Of course, there are thoughts going on what should be done on the garmenting division... I think there's one instance which has changed that we are likely to enhance the capacity of Garment division. We intend to make it to the double from the current capacity.

Signals a strategic shift towards expanding garmenting capacity, potentially driven by new market opportunities like the EU FTA.

Asked by Monish Ghodke

Outlook for industry margins given expensive Indian cotton Direct
No. It looks like in today's situation, the improvement may not happen in a bigger way. But of course, we are also looking at the repercussions of these are already seen in the country, where last 2, 3 years, we have seen almost 12 million, 13 million spindles have been closed permanently. There's no expansion happening. So, ultimately, the demand supply will take care of it.

Provides a candid assessment of the challenging margin environment for the Indian textile industry, highlighting structural issues like capacity closures.

Asked by Monish Ghodke

Impact of tariffs on revenue and EBITDA, and customer pressure Direct
So, tariffs have definitely had a negative impact on our business... But in fabric if you compare last year this quarter, we had 100% capacity utilization. And this year, we are at 10% capacity utilization less. So, you can see the impact on volumes from that.

Quantifies the direct impact of tariffs on fabric capacity utilization (10% lower), indicating pressure on volumes and revenue.

Asked by Prerna Jhunjhunwala

Further capacity closures in the Yarn business Direct
Yes, it will continue to happen. Lots of capacity in India is very old and their costs are also high because they are not modernized... I think personally, if you ask me, when 11 million, 11.5 million spindles are already closed, so figure reaching to 15 million spindles in the next 1 year, unless the raw material prices are corrected, it can happen.

Reinforces the severe structural challenges in the Indian yarn industry, with potential for significant further capacity rationalization if raw material costs remain uncompetitive.

Asked by Prerna Jhunjhunwala

2 min read 5 chapters

Detailed narrative

Overall Performance and Margin Trends

Vardhman Textiles reported an EBITDA margin of approximately 15% for Q3 FY26, a slight decrease from 16% in the previous quarter. On a year-to-date basis, the EBITDA margin stood at 15%, compared to 17% in the prior year. The operating environment was challenging, marked by cost volatility, demand disruptions, and global trade uncertainties, but the company maintained overall business stability through disciplined execution.

Cotton Price Dynamics and Import Duty Challenges

Indian cotton prices remained elevated, trading at $0.75-$0.78 per pound in Q3 and rising to $0.79 in January 2026, primarily due to an 8% increase in MSP. This makes Indian cotton structurally more expensive, creating a $0.03-$0.04 per pound cost disadvantage compared to global benchmarks. The reinstatement of an 11% import duty on cotton further disadvantages Indian mills against competitors like Bangladesh and Vietnam, who enjoy duty-free imports.

Capacity Utilization and Strategic Expansions

The company maintained strong capacity utilization, with yarn at approximately 95% and fabric at 89-90%. A key strategic milestone was the commissioning of Vardhman Performance Fabrics, focused on performance wear, with scale-up expected from Q1 next financial year. Additionally, fabric expansion at Budhni was commissioned, and the company plans to double its garmenting capacity, a project estimated to take about 8 months, though it is not considered a major CAPEX.

Yarn and Fabric Business Environment

The yarn business faced a mixed environment, with pressure from tariff-related disruptions and cautious buying behavior. Domestic demand remained soft, though exports showed selective improvement, particularly in contamination-free yarns, with December exports reaching 115 million kgs, up from an average of 100 million kgs. The fabric business operated in a challenging external environment, with U.S. buyers adopting cautious sourcing, leading to a 10% reduction in fabric capacity utilization compared to the previous year.

Green Initiatives and Market Diversification

Vardhman Textiles is committed to green initiatives, with 9% of its total demand currently met by green power. The company aims to significantly increase this to 49-50% by FY27. To mitigate tariff risks and reduce dependency on the U.S. market, the company continues to diversify into non-U.S. markets such as the EU, U.K., Australia, and Canada, expecting these efforts to yield results in due course.

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