VTL - Vardhman Textiles Limted Share Price

In the Q1 FY26 earnings call of Vardhman Textiles, the management provided a cautious yet optimistic outlook. They acknowledged the challenging environment for the spinning industry, particularly due to Indian cotton trading at a premium. Cotton prices have increased, with the minimum support price (MSP) for the upcoming season raised by nearly 8%, making Indian cotton even more costly. The management reported that Indian mills have significantly increased their cotton imports, expecting around 35 to 40 lakh bales this season, well above the typical range of 15 to 18 lakh bales annually.

Key forward-looking points include:

1. Expansion Efforts: The management confirmed that the fabric expansion is on schedule and expected to contribute to both top and bottom lines from Q3 FY26. Additionally, the capacity expansion in the ReNova mechanical recycling plant has successfully commenced operations in July 2025.

2. Diversified Revenue Streams: They highlighted that while the U.S. market is facing uncertainties due to new tariffs and softening retail demand, diversified markets such as the UK, EU, Japan, and domestic Indian markets continue to perform well, aiding in healthy capacity utilization.

3. Capacity Utilization: The spinning and fabric businesses are operating at nearly full capacity. There are also plans for future capacity enhancement, such as the addition of 17,000 spindles.

4. Market Adaptation: Despite pricing pressures and trade disruptions, the company aims to optimize costs and improve operational efficiencies, with a focus on modernizing operations and refining the product mix.

5. Outlook on Cotton Pricing: The management expressed that future margins are uncertain due to rising cotton prices and trade tariff ambiguities. They hope for potential supportive policies from the government to allow duty-free cotton imports, which could alleviate some pricing pressures.

Overall, while management is navigating through challenges, they remain optimistic about their strategic positioning and growth potential. They are focused on capitalizing on opportunities as the external environment stabilizes.

Q&A Section of Vardhman Textiles Limited Earnings Call

Question 1: Considering VTL accounts for approximately 50% of India's total yarn exports to Bangladesh and Bangladesh currently shifting its yarn imports from India to China, what can be the potential impact of the same and how are we planning to mitigate it?

Neeraj Jain:
It's about 30%-35% for Vardhman, not 50%. We haven't observed any major shift from Bangladesh to China as of now. Concerns remain over Chinese cotton's acceptance in markets like Europe and the USA. We're monitoring the situation closely but currently don't see any significant impacts on our business.

Question 2: Are there any triggers which you potentially see that can help to rectify the pricing difference of Indian versus American cotton?

Neeraj Jain:
The industry has requested the government to allow duty-free imports of cotton, which seems to be the only viable option to normalize costs. If this occurs, it could help us compete with international pricing and stabilize margins.

Question 3: What is the current yarn demand and pricing situation, and are they improving?

Neeraj Jain:
Demand has remained stable without any significant improvements or deterioration. Prices have fluctuated within a 5% band. Margins are under pressure because of rising cotton prices, which could impact profitability in the upcoming quarters.

Question 4: What is your order book position and demand given the uncertainty?

Neeraj Jain:
Demand is slightly lower as brands are hesitant to place orders until tariff structures are clear. Retail sales in the US are strong, but the uncertainty in tariffs is leading brands to adopt a cautious approach.

Question 5: What is the current cotton inventory and average cost?

Neeraj Jain:
I can't disclose exact numbers, but our season typically starts in October or November. We do have more cotton than usual this year resulting from a combination of domestic and imported sources.

Question 6: Can you elaborate on how power costs have changed and their impact?

Neeraj Jain:
Solar power initiatives have started yielding some minor cost benefits, while major advantages from energy initiatives will materialize over the next year. Overall, we're expecting improvements in power costs in the coming quarters.

Question 7: What is the current capacity utilization?

Neeraj Jain:
We are currently operating at full capacity for both yarn and fabric. Future expansions may require a few quarters to fully utilize.

Question 8: Do you see the trend of improving margins continuing?

Neeraj Jain:
Margins could face pressure due to rising cotton prices unless the government facilitates a system to allow duty-free imports, which is essential for normalizing our cost structure and margins.

Question 9: What is your total cotton import proportion?

Neeraj Jain:
We usually import about 3%-4% of our total cotton needs, but this year that may rise to approximately 20% unless local prices stabilize.

Question 10: What is the average realization per kg for yarn and per meter for fabric?

Neeraj Jain:
For Q1, the average realization for yarn is around USD 3 per kg, while fabric margins typically hover between 17%-18%.