Vardhman Textiles Concall Summary: Key Highlights and Q3 FY26 Results

Guidance & Outlook

• Margin Recovery: Management does not expect meaningful margin recovery unless Indian cotton prices move closer to global parity or further industry capacity shuts down.
• Near-term Strategy: Focus remains on holding utilization, driving selective price recovery, increasing contamination-free yarn and value-added mix, and supporting key customers selectively to protect long-term relationships.
• Yarn Outlook: Export demand has improved selectively, with recent support from China and better demand for contamination-free yarns, though current yarn price gains have not fully offset elevated cotton costs.
• Fabric Demand: U.S.-linked ordering remains cautious due to tariff uncertainty, and management continues to diversify into Europe, U.K., Australia, and Canada to reduce concentration risk.
• Performance Fabrics Ramp-up: The newly commissioned performance wear facility will begin scaling from Q1 next year, with management targeting 60%+ utilization in FY27.
• Garmenting Expansion: Management has decided to double garmenting capacity, with execution expected to take around 8 months once started.
• Green Power Mix: Renewable power share is targeted to rise from about 9% currently to 49%–50% in FY27.

Capex & New Projects

• Processed Fabric Expansion: Processed fabric capacity has increased from about 145 lakh meters/month to 185 lakh meters/month, with an additional 15 lakh meters/month in performance and technical textiles, taking total capacity to about 200 lakh meters/month.
• Grey Fabric Capacity: Management clarified there is no increase in grey fabric capacity.
• Performance Fabrics Commissioning: Vardhman Performance Fabrics has been commissioned and has already started servicing select domestic orders, while international customer development is underway.
• Budhni Expansion: The Budhni expansion on cotton-blend lines has also been commissioned and is expected to contribute meaningfully from Q1 next year.
• Garment Capacity Doubling: Garmenting capacity is set to be doubled from the current base, marking a strategic shift as EU trade developments improve the business case.
• Capex Execution: Management said planned fabric capex and modernization projects remain broadly on schedule.

Financial Performance

• Q3 Revenue / Margins: Management described Q3 performance as broadly in line with last year, with EBITDA margin around 15%, down from about 16% in Q2.
• YTD Margin: YTD EBITDA margin is around 15%, versus about 17% last year, reflecting cotton cost pressure and demand disruptions.
• Utilization Stability: Yarn utilization remained high at around 95%, while cotton fabric utilization was about 89%–90% despite market volatility.
• Cotton Pricing: Indian cotton rose to around $0.75–$0.78/lb in Q3 and further to about $0.79/lb in Jan’26, driven mainly by the 8% MSP increase.
• India Cost Disadvantage: Management estimated India remains at a $0.03–$0.04/lb disadvantage versus Vietnam/Indonesia on landed cotton cost, and more recently about $0.08/lb higher than Brazil.
• No Inventory Loss: Management confirmed there was no cotton inventory loss in Q3.
• Working Capital: Higher inventory on the balance sheet was mainly due to higher activity, finished goods, and work-in-progress rather than raw cotton losses.

Operational Highlights

• Cotton Market Distortion: CCI has procured around 85 lakh bales out of 175 lakh bales arrivals, or roughly 50%, and is absorbing 75%–80% of daily arrivals, tightening open-market availability.
• Import Duty Impact: The reimposition of 11% import duty from Jan 1, 2026 has worsened India’s competitiveness versus countries such as Bangladesh and Vietnam that continue to enjoy duty-free imports.
• Cotton Supply Gap: Management expects a domestic cotton deficit of about 30 lakh bales, based on crop estimate of 292 lakh bales versus consumption of 322 lakh bales.
• Yarn Exports: Indian yarn exports improved to about 115 million kg in December versus around 100 million kg average, helped by demand for contamination-free yarns.
• Fabric Utilization: Fabric utilization is running about 10% below last year, as Q3 FY25 had near 100% utilization and current U.S. demand remains uneven.
• Industry Rationalization: Management said about 11–13 million spindles have already shut over the last 2–3 years and sees potential for closures to reach 15 million spindles over the next year if cotton economics do not improve.
• Customer Support: The company has provided selective pricing support to certain customers, but management said the financial impact has been marginal.

Business & Strategy Updates

• Core Industry View: Management’s central message is that Indian spinning cannot sustainably earn commodity margins while raw material remains above international parity.
• Structural Risk: The biggest earnings risk remains high Indian cotton prices, worsened by CCI procurement behavior and restored import duty.
• Value-added Push: The company is leaning harder into contamination-free yarns, premium fabrics, performance textiles, and technical textiles to improve resilience.
• Export Diversification: Management is actively building non-U.S. export markets to offset tariff-related uncertainty and elongated buying cycles in the U.S.
• Performance Textiles Strategy: The new performance fabrics platform is expected to improve product mix, customer relevance, and responsiveness in sportswear and outerwear categories.
• Garmenting Shift: Though small in current scale, the decision to double garmenting capacity signals a more forward-leaning approach to downstream integration.
• Operating Discipline: Management emphasized disciplined execution and stable utilization as key defenses until cotton parity improves or supply-side rationalization restores profitability.