Summary
Vardhman Textiles Limited - Q3 FY26 Earnings Call Summary Wednesday, January 21, 2026, 4:00 PM
Event Participants
Executives 6 Mukesh Bansal, Neeraj Jain, Rajeev Thapar, Sagrika Vir, Sushil Jhamb, Varun Malhotra
Analysts 3 Aradhana Jain, Awanish Chandra, Monish Ghodke, Prerna Jhunjhunwala
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| EBITDA Margin | 15% | -100 bps QoQ and -200 bps YoY due to elevated cotton costs and soft demand. |
| Yarn Capacity Utilization | 95% | Remained stable despite global capacity excess and cautious buying. |
| Fabric Capacity Utilization | 89% - 90% | Down from 100% in the prior year due to U.S. tariff-related sourcing delays. |
| Fabric Processed Capacity | 200 lakh meters/mo | Increased from 145 lakh meters; includes 15 lakh meters for performance fabrics. |
| Inventory | ₹3,700 crores | Increased from ₹2,700 crores YoY (as of Sept '25) due to duty-free cotton imports and WIP. |
| Green Power Share | 9% | Current mix; management aims to scale this significantly by FY27. |
Geographic & Segment Commentary
- Yarn Segment: Performance was mixed with domestic prices remaining soft while exports showed a December uptick to 115 million kgs. Margins are under pressure as a $0.15/kg price recovery in the last 30 days has not fully offset the $0.07-$0.08/lb Indian cotton premium over global benchmarks.
- Fabric Segment: Operational environment was challenged by U.S. tariff uncertainties and elongated decision cycles by buyers. The company is diversifying into the EU, UK, Australia, and Canada to mitigate U.S.-specific tariff risks.
- Cotton Market (India): CCI has procured 50% of arrivals (85 lakh bales), absorbing 75-80% of daily arrivals. This has created an artificial supply constraint, keeping Indian prices at $0.80/lb vs. Brazilian cotton at $0.72/lb.
Company-Specific & Strategic Commentary
- Vardhman Performance Fabrics: Newly commissioned unit focused on sports and outerwear; scale-up expected in Q1 FY27 with a target utilization of 60% for the full year.
- Garmenting Expansion: Shifted strategy from potential exit to doubling capacity (from current 6,000-7,000 shirts/day) to capitalize on the upcoming EU FTA.
- Budhni Expansion: Fabric expansion on existing cotton blend lines commissioned and expected to gain momentum in Q1 FY27 to service larger programs.
- Renewable Energy Focus: Strategic shift to increase green power demand from 9% to approximately 50% by FY27.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Performance Fabrics Utilization | >60% for FY27 | Based on servicing existing customer portfolios and adding new international sports brands. |
| Cotton Supply | 30 lakh bale deficit (FY26) | Total crop estimated at 292 lakh bales vs. 322 lakh bales consumption, requiring imports. |
| Industry Consolidation | 15 million spindles closed | Management expects further permanent closures of inefficient mills if raw material parity isn’t restored. |
Risks & Constraints
| Risk | Context |
|---|---|
| Raw Material Parity | Indian cotton is structurally $0.03-$0.08/lb more expensive than global benchmarks due to MSP and import duties, placing Indian mills at a $0.20/kg disadvantage vs. Vietnam. |
| Regulatory/Trade | Reinstatement of 11% import duty on Jan 1, 2026, removes the cost advantage previously enjoyed during the duty-free window. |
| Geopolitical/Tariffs | Ongoing U.S. tariff uncertainties have caused 10% lower utilization in the fabric segment and elongated customer decision cycles. |
Q&A Highlights
Cotton Inventory and Margins
- Question: Was there any inventory loss in Q3 given the decline in average Indian cotton prices? (Awanish Chandra)
- Answer: No material inventory loss occurred as the company did not hold excessive stocks in Q2 and bought at appropriate price points as duty-free imports began (Neeraj Jain).
Garmenting Strategy
- Question: Is there a rethink on garmenting given the upcoming EU FTA? (Monish Ghodke)
- Answer: Yes, the stance has changed; the company now intends to double its garmenting capacity, though it remains a small portion of total revenue (Neeraj Jain).
Regional Competitive Advantage
- Question: How do Indian margins compare to international competitors currently? (Prerna Jhunjhunwala)
- Answer: Vietnam/Indonesia mills see conversion margins near $1.00/kg using $0.72/lb Brazilian cotton, while Indian mills are limited to $0.70-$0.80/kg due to $0.80/lb domestic cotton (Neeraj Jain).
New Fabric Segment
- Question: How will the new performance fabric capacity be utilized given geopolitical risks? (Prerna Jhunjhunwala)
- Answer: Targeting 60%+ utilization in the first full year by balancing domestic demand with exports to existing long-term partners in the sports and outerwear categories (Sagrika Vir).
Key Takeaway
Vardhman Textiles delivered a stable Q3 FY26 with EBITDA margins at 15%, despite a challenging environment where Indian cotton prices remain structurally higher than global benchmarks by $0.07-$0.08/lb. While yarn utilization remained high at 95%, fabric utilization dipped to 90% as U.S. buyers delayed orders due to tariff uncertainties. Strategically, the company is pivoting toward premiumization, commissioning a new Performance Fabrics division and planning to double its garmenting capacity to leverage the anticipated EU FTA. Management expects a domestic cotton supply deficit of 30 lakh bales and continued industry-wide capacity consolidation of up to 15 million spindles. Looking ahead, the focus remains on scaling new capacities in FY27 and increasing green energy usage to 50% while navigating raw material price disadvantages through better product mix and cost discipline.
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