VTL - Vardhman Textiles Limted Share Price

In the earnings call for Q4 FY'26, Neeraj Jain, Managing Director of Vardhman Textiles, provided an optimistic outlook for the company and the industry. He highlighted several key factors influencing performance and future prospects:

1. Market Recovery: The removal of U.S. tariffs has led to a resurgence in garment exports, with utilization rates for exporters reportedly reaching 90-100%. This recovery has cascaded demand down the supply chain for yarn and fabrics.

2. Raw Material Prices: Cotton prices have risen significantly. International cotton prices increased from around $0.61-$0.63 to approximately $0.82-$0.83 per pound, while Indian cotton rose from INR 52,000-53,000 to INR 67,000-68,000 per candy. This has affected costs but also improved margins since Indian cotton prices have aligned better with global prices.

3. Improved Spreads: The average spread for yarn has reportedly improved from around $0.60-$0.65 to approximately $0.90-$0.95, signifying a 40-50% increase. This has been attributed to a reduction in operating spindles in the industry (down from 53 million to 41-42 million).

4. Demand Dynamics: With improved demand from the U.S. (notably a 10% increase in retail for major brands), the prospect for future orders looks positive. Additionally, there is a growing demand from China, which has increasingly sourced yarn from India.

5. Capex Plans: Vardhman has made significant strides in capital expenditures, focusing on modernization and expanding capacity in performance fabrics. With a substantial portion (90%) of modernization completed, the company expects to enhance flexibility and quality, which should support future growth.

6. Sustainable Growth: Looking forward, Jain emphasized that the combination of better cotton pricing, reduced spinning capacity, and increasing demand positions the company favorably for future profitability.

In conclusion, Vardhman Textiles is positioned to capitalize on favorable market conditions, improved profitability, and increased demand, projecting a more thriving future ahead.

Major Q&A from Vardhman Textiles Limited Q4 FY'26 Earnings Transcript

Question 1: "How has the alignment of Indian cotton prices with international prices impacted the demand for yarn, and have you been able to pass this on to customers?"

Neeraj Jain: The yarn prices are determined by the international cotton market. Even if Indian cotton is expensive, we bear the cost. Currently, with better overall demand and rising cotton prices, we have been able to pass some of these costs onto customers without significant resistance.

Question 2: "What does the current demand landscape look like in light of the U.S. reopening, and how is the fabric market responding?"

Neeraj Jain: Demand for yarn is strong, particularly from U.S. brands, who report retail sales growth between 4% and 10%. As for fabrics, while there's a lag in price increases, we are actively pushing for adjustments to reflect rising raw material costs.

Question 3: "Can you quantify the spread improvement you've observed post-tariff changes?"

Neeraj Jain: Currently, Indian cotton prices are at approximately $0.87 to $0.88, translating to spreads of about $0.90 to $0.95. This is a significant improvement from previous lows, reflecting about a 40-50% increase in spread.

Question 4: "How long do you expect these improved spreads to sustain?"

Neeraj Jain: While it's difficult to predict long-term price movements in cotton, the current situation suggests that these spreads can sustain for a few quarters, especially as demand from China remains strong.

Question 5: "What percentage of your revenue came from exports in this quarter, and how does it compare year-on-year?"

Neeraj Jain: Our export percentage has remained consistent at around 44%-45% of total revenue, which is in line with prior year figures.

Question 6: "Can you elaborate on the impact of the recent foreign exchange losses on your operating profits?"

Neeraj Jain: We accounted for a one-time loss of approximately INR 57-58 crores due to mark-to-market adjustments in foreign exchange due to rupee fluctuations. This impacted our operating profits but should normalize as we move forward, benefiting from the current dollar-rupee rate.

Question 7: "What are the implications of the government's new cotton productivity mission?"

Neeraj Jain: While this mission aims to improve cultivation practices, reaching U.S. productivity levels is challenging due to smaller land holdings in India. However, any improvement in productivity can positively affect farmer incomes and industry costs.

Question 8: "What future capex plans do you have given the current positive industry outlook?"

Neeraj Jain: We plan to restart halted projects and have also secured land for future expansions. We will evaluate the sustainability of current market conditions before finalizing new capex initiatives.

These insights reflect the ongoing challenges and opportunities faced by Vardhman Textiles in the evolving market landscape.