VTL - Vardhman Textiles Limted Share Price

During the Q2 FY26 earnings call, management highlighted a resilient performance amid significant global challenges, including high US tariffs and excess spinning capacity. Total sales for the quarter were stable at INR 2,468 crores compared to INR 2,565 crores in the same quarter last year, with an EBITDA margin of 15.5%.

Key forward-looking points discussed include the expectation of market stabilization by Q4 FY26, supported by strategic diversification into EU, UK, Australia, Canada, and other non-US markets. Despite a cautious approach from US customers, who have delayed orders by 30-45 days and reduced quantity by 20-25%, the Fabrics division has maintained capacity utilization around 90%.

The management anticipates continued challenges due to elevated cotton prices and import duties. Global cotton prices are between $0.65 and $0.68 per pound, with Indian mills facing costs up to $0.84 per pound. However, recent relaxation of the 11% import duty is noted as a supportive measure. The expected cotton production for the year is about 31 million bales, similar to the previous year.

On expansion efforts, the Vardhman performance fabric plant is set to commence operations in Q3, aiming for about 20-30% capacity utilization in Q4. Overall production capacity is projected to increase by approximately 30% due to ongoing expansions.

Management also indicated a cautious optimism regarding potential US trade deals by November, which could help normalize pricing disparities and stabilize profits. They stressed the importance of operational agility and strategic partnerships in navigating current market disruptions. Overall, the company's focus is on innovation and customer engagement, positioning itself for future growth despite ongoing challenges.

1. Question: "You had indicated that you expect a normalization of spreads to potentially start from Q4 this year. What's leading us to believe that that's going to happen?"

   Answer: "We're banking on US trade deals happening by November, based on media reports and governmental interactions. The two main factors are the tariffs causing concerns and raw material pricing. The recent duty-free cotton imports have helped mills, but strategies from the CCI regarding pricing remain uncertain. Our expansions will complete by early next year and should start showing impact. So, we hope to see normalization in Q4."

2. Question: "Sir, with respect to the yarn and cotton prices, what were the prices during quarter 2?"

   Answer: "Yarn prices were in the range of $2.75 to $3 per kg for 30s count. For cotton, New York futures were about $0.65 to $0.66 per pound, with Indian prices affected by CCI's pricing being higher than market levels, leading to increased costs for Indian mills."

3. Question: "With the recent export restrictions to Bangladesh, is there an excess inventory building up in the industry?"

   Answer: "Yes, cotton inventory has increased due to sizable imports but not solely due to restrictions on exports to Bangladesh. Cotton was supplied mainly by CCI at higher prices, allowing more imports before the duty exemption. We have sufficient cotton stock, both imported and domestic."

4. Question: "Can you elaborate on your capex plans and when will they commence?"

   Answer: "In fabric, we are working on a synthetics plant, expected to be operational in Q3, and the second line in Madhya Pradesh will be operational mid-November. The synthetics plant has a capex of approximately INR300 crores, while the new line in MP is about INR200 crores."

5. Question: "What is the reason for the underperformance of Vardhman Acrylics as compared to competitors like Pasupati?"

   Answer: "Acrylic demand in India has decreased, leading to Vardhman Acrylics struggling despite running at full capacity. The growing price gap between acrylic and polyester has driven demand toward polyester, causing margin pressures. Other competitors have been able to sustain their profitability by possibly operating at a larger scale."

6. Question: "Regarding the US cotton spread, is it contingent on favorable deals with the US and continued duty exemption for cotton?"

   Answer: "Absolutely. Normalization in spreads relies on two elements: resolving the duty disadvantages and securing raw materials at competitive prices. Without these, recovering historic margins won't be feasible."

7. Question: "What impact do you foresee from the tariffs on business and margins?"

   Answer: "Tariffs have prompted US customers to adopt a wait-and-watch approach, reducing order quantities by 20-25%, effectively impacting demand. While we support our customers during this phase, an increase in retail prices due to tariffs may further reduce demand."

8. Question: "Could you provide insight into the increase in other expenses this quarter?"

   Answer: "Our other expenses rose by about INR30 crores, attributed to increased costs across manufacturing, administration, forex impacts, and selling expenses. Key components include added costs from new plant machinery and adjustments in administration expenses."