Vardhman Textile

The company reported a significant improvement in yarn market conditions, driven by the removal of US tariffs and increased demand from China. Yarn demand from China surged from an average of 7-8 million kg to a consistent 30 million kg per month. This led to a substantial increase in yarn spreads, which jumped by approximately 50% from $0.60-$0.65 US cents to $0.90-$0.95 US cents. Yarn prices for 30s combed cotton rose from a low of $2.65-$2.70 in Nov-Dec to $3.30-$3.35 currently.

Cotton prices experienced significant volatility, with New York futures rising from $0.61-$0.63 to $0.82-$0.83, and Indian cotton increasing from INR 52,000-53,000 to INR 67,000-68,000 per candy. This was attributed to weather concerns in the USA and reduced crop sizes in Australia and India. However, Indian cotton prices, currently around $0.87-$0.88, have aligned with international prices, resolving a previous disadvantage where Indian cotton was more expensive.

The textile spinning industry is undergoing consolidation, with an estimated 11-12 million spindles (out of a peak of 53 million) permanently ceasing operations, leading to a current operational capacity of 41-42 million spindles in India. This consolidation, particularly the exit of smaller, less efficient players, is expected to benefit organized players like Vardhman. Management believes this structural shift will contribute to more sustainable profitability.

Vardhman completed almost 90% of its spinning modernization capex during the period, aiming to enhance flexibility, quality, and cost efficiency. Green power projects are slated for commissioning in the next 1-2 months (June/July), expected to provide cost reduction benefits. The performance fabrics plant, commissioned last fiscal year, is targeted for full utilization within 6-9 months. The company is also restarting an open-end project and expects to receive land in the PM MITRA Park by December-January for future expansion.

While yarn market conditions improved, the fabric and garment segments experienced a lag in passing on increased raw material costs. Management noted that customers are resistant to price increases, creating a 2-3 month delay in realization. Despite this, they anticipate that prices will eventually adjust, leading to improved margins in these segments in the coming quarters. A one-time^📎 foreign exchange loss of INR 57-58 crores also negatively impacted Q4 margins.

The industry, including Vardhman, is actively advocating for the government to allow duty-free import of cotton to address potential shortages and ensure raw material availability at international competitive prices. With an Indian cotton crop size projected at 29 million bales against an estimated consumption of 33-34 million bales, duty-free imports are seen as crucial for maintaining competitiveness, especially with potential growth from FTAs.