Good afternoon everyone. Thank you for joining the quarter three analyst call, earnings call for Vardhman Textiles.

Our overall performance for the quarter remained broadly in line with the corresponding period last year, and similar to year-to-date basis. The EBITDA margin for the quarter was at about 15% compared to 16% quarter on quarter.

On a year-to-date basis, EBITDA margin was around 15% versus 17% last year. The operating environment during the quarter was marked by cost volatility, demand disruptions, and global trade uncertainties.

However, disciplined execution and operational focus helped us maintain overall business stability. At the capacity utilization front, yarn utilization was at around 95% and fabric utilization was at about 89-90%.

This is regarding cotton. The quarter continued to be impacted by elevated Indian cotton prices.

During quarter three, cotton traded at about 75-78 cents per pound, rising further to around 79 cents per pound in January 26. This has been driven primarily by 8% increase in MSP.

This has made Indian cotton structurally more expensive as we compare to global benchmarks. In the current cotton season, CCI has procured approximately 85 lakh bales out of total arrivals of 175 lakh bales.

This accounts to 50% of arrivals, and in the present scenario, CCI is absorbing about 75-80% of daily arrivals. This has constrained open market availability and supports higher prices.

The absence of a transparent selling framework by CCI continues to add uncertainty for mills. The duty-free import window from August to 31st December 2025 resulted in higher cotton imports because imported cotton was relatively cheaper.

However, from 1st January, the 11% import duty has been reinstated. This puts us at a relative disadvantage to competing countries like Bangladesh, Vietnam, which continue to enjoy duty-free imports.

During the quarter, New York futures traded at about 63 to 65 cents per pound, translating to a landed cost of about 72 to 75 cents per pound for mills in Vietnam and Indonesia. If we compare this to Indian mills, they are at 75 to 78 cents, creating a 3 to 4 cent per pound cost disadvantage, even before accounting for quality and contamination differences.

Additionally, this year cotton crop is estimated at 292 lakh bales. This is below last year's 297 lakh bales and significantly lower than domestic consumption of around 322 lakh bales.

This implies a supply deficit of nearly 30 lakh bales, which will need to be met through imports. The yarn business experienced a mixed environment during the quarter.

While the first half of the year was relatively stable, quarter three saw pressure due to tariff-related disruptions, both in garment exports and home textiles. There was also excess global capacity and a cautious buying behavior.

Domestic demand remained soft, while exports showed selective improvement, largely driven by specific product categories. Indian yarn exports improved in December to around 115 million kgs.

If we compare this to an average of 100 million kgs, we can see an improvement. This has been driven primarily by contamination-free yarns.

Yarn prices therefore have improved by approximately 15 cents per kg, especially over the last 30 days. However, this has not fully offset elevated cotton costs.

As a result, margins remain under pressure despite stable utilization. Our focus continues to be on disciplined capacity utilization, selective price recovery, and increasing value-added yarns.

On the fabric business front, we operated in a challenging external environment during quarter three. Expectations of an early resolution of the tariff war have not materialized, and U.S.

buyers continue to adopt a cautious and selective sourcing approach. This has increased competitive intensity and elongated decision cycles.

Despite these headwinds, fabric business delivered a resilient performance, supported by ongoing new product development, customer diversification, and strong operational execution. A key strategic milestone during the period was the commissioning of Vardhman Performance Fabrics, which is focused on performance wear.

We will start building scale from quarter one of next financial year. We have already begun servicing select domestic orders, and our focus remains on development for international customers.

In parallel, the fabric expansion at Budni on our existing cotton blend lines has also been commissioned, and it is expected to gain momentum from quarter one next year. This enhances our ability to service larger programs, improve responsiveness, and support premium fabric categories.

We continue to diversify in non-U.S. markets to mitigate tariff risk.

We are focusing on countries like EU, U.K., Australia, Canada, and we are confident that our efforts will bear fruit in time. A quick update on our green initiatives.

We are currently at 9% of total demand. 9% of our total demand is green power, and in FY27, we are in line to increase this to about 49-50%.

We now open the floor to questions.

No, for us fortunately it was not there because quarter 2, we didn't have much of a cotton available to us, and whatever we bought, I think we bought at the right prices. For us there was no inventory loss to that extent.

Okay. We never had this advantage of declining cotton price on an average basis in India in quarter 3, because if I look at its trade, it looks like margins would be improving, but that didn't happen in the numbers.

No, that's true because in India we had a different situation. The U.S.

tariff, this was applicable from 27th of August. Though our cotton prices to some extent came down, but at the same time the advantage could not be realized because yarn prices or the fabric prices came down, because there was relatively lesser demand in India from our customers who were ultimately sending goods to USA in terms of home textiles or the garments.

That advantage could not be realized by the Indian spinners or the Indian fabric producers. Okay.

Sir, in the opening remarks, ma'am talked about capacity maintenance, fabric. What is the current capacity after expansion on a yearly basis, our new capacity in woven fabric?

our yearly capacity used to be about 145 lakh meters per month, and I'm talking about processed capacity. Out of this, now this has increased to 285 lakh meters per month and an additional 15 lakh meters in the performance wear in technical textiles, totally 200 lakh meters per month.

On the process side? On the gray basis, what the number would be?

On the gray, we haven't increased any capacity. Whatever processed capacity we have, we keep some additional for servicing.

It's more than the processed capacity. On yearly basis, the gray, we used to talk about 2,300-2,400 lakh meters, that remains as it is?

No change. Okay.

Sir, last thing, a lot of people were expecting that this import duty will be continued, but it never happened. Any indication from the government whether this import duty exemption will be reinstated?

Any talk from the government side? So

yes, we have been talking to the government, both the Textile Ministry as well as the Agriculture Ministry also. Therefore yesterday also we had a conference with the Ministry of Textiles, Secretary Textiles.

They listened to our issues and concerns, but let's see what happens. Sir.

I will come back in the queue. Thank you very much.

Yeah. Thank you for the opportunity.

You said that your cotton inventory at the end of Q2 was minimal, but if I see the half-yearly balance sheet disclosure, the inventory is around 3,700 crore as on September 25, and if I compare it to the previous year, September 24, it's 2,700 crore. It was higher than the normal.

What were the key reasons for the same?

It's not only the inventory we were talking of on the cotton prices. Was there any loss on the cotton?

There was no loss on the raw cotton, whatever is available to us, because that inventory was relatively lower, 30th of September. Since our capacity utilization has increased, overall business levels have improved, the total inventory includes the finished goods, WIP, everything together.

There was no larger than normal cotton inventory as on September end?

No, it was slightly higher because on 30th September we had started importing cotton. It was duty-free regime by that time.

Though the inventory could be a little more than the last year, but there was no inventory where the losses would have happened. It was the higher cost inventory was relatively lower for us.

Okay. Sir, could you share EBITDA margin for yarn and fabric business separately?

As a company, we share the textile, we consider it as a textile division only. Generally we don't share the company.

Okay. Sir, now this EU-FTA is in final stages.

Six months back no one was expecting that it will happen so soon. Is there any re-thought about getting into garmenting now?

Yeah.

of course, there are thoughts going on what should be done on the garmenting division, and earlier the stand was whether we really want to continue with the business or not, but I think there is one instance which has changed, that we are likely to enhance the capacity of garment division. We intend to make it to double from the current capacity, but again that will be very, very minuscule looking at the total company size.

Once we are in a position to do this, I think it's only beyond that we look at whether we should really expand it in a big way or not. The earlier stance is surely changing today, where we are enhancing the capacity.

We are doubling the capacity, at least whatever we have today.

sir, if I see your pre-COVID margins, it used to, at an aggregate level it used to be around 18-19 percent, and as you have rightly said multiple times that Indian cotton used to be cheaper as compared to NY future, but now it has become expensive. What is the way out here for the industry to improve margins?

I'm talking about spinning side, or it will continue like this in the medium term?

No, it looks like in today's situation the improvement may not happen in a bigger way. Of course, we are also looking at the repercussions of these are already seen in the country.

Last two, three years, we have seen almost 12-13 million spindles have been closed permanently. There's no expansion happening.

Ultimately the demand supply will take care of it. Eventually, as another five-seven million spindles gets stopped into the country, I think then the demand will start improving, and then again the margins will start improving too.

In any case, unless raw materials are available to us at the international parity, I don't think on a basic commodity anyone can really make money if raw materials are expensive. That demand will have to come sooner or later.

Other part is your cost initiatives and the product mix or the customer mix, which is in our control. There's lots of work going on both in the yarn and the fabric division to that extent, and I'm sure that has given us these kind of results also, and we are still working very aggressively on these ideas.

Fortunately, the EU agreement has happened, there will be more opportunities for the Indian garmenters to do better over there. I think there are some pockets which are available, which are controllable, and we are working, trying to look at what best could be done out of that.

Okay. Last question, how much cotton did we import in Q3?

We have imported lots of cotton.

Okay.

Quantity, I think let's not share that.

Okay. Thank you, sir.

Thank you. I just wanted to get some clarity on how tariffs has impacted your quarter, this quarter, and in terms of revenue, EBITDA, if you could share something for both yarn and fabric businesses, and how you're dealing with the pressure coming in from customers in the current scenario.

Yes. Tariffs has definitely had a negative impact on our business.

First let's talk about the overall picture. When it comes to our customers, especially in the U.S., the sentiment is poor, and most of our customers, they are not willing to take long bets.

Some are delaying the decision-making cycles, some are recalibrating prices, some are recalibrating supply chains. Of course now with the current geopolitical risks which have been added, they definitely make the situation worse.

That's on the macro front. Now it will be very difficult for us to share exactly how much the impact it has had on EBITDA.

On a case-to-case basis, we have supported some of our customers because we've had to, we've prioritized securing long-term relationships with them. It has a marginal impact, not a big impact.

If you compare in fabric, if you compare last year this quarter, we had 100% capacity utilization, and this year we are at 10% capacity utilization less. You can see the impact on volumes from that.

Okay. How has been the domestic market in both yarn and fabric businesses for us, apart from the U.S., leaving aside U.S.

business?

The domestic market has been stable. Some pockets are doing well.

Some large-format retailers have had some inventory optimization that they have conducted, but overall domestic has remained stable. As for yarn, domestic prices have remained soft.

We've seen export market improve more on the yarn front. Domestic has remained a bit soft.

Okay. In exports, where are we seeing some green shoots?

Because anyways U.S. is not that positive.

Which markets are seeing some traction, which is helping you say that export is doing better?

You're talking about yarn?

Both the markets, yarn and fabric. Fabric you mentioned that exports is doing much better than...

No, no. That was for yarn.

So

on the yarn side, I think it's the Indian garmenters where the concern is more. When it comes to Bangladesh, Vietnam, or Sri Lanka, China, they are doing pretty good.

In fact, last one month there has been lots of demand from China for the yarn again because of maybe some concerns on the Bangladesh, etc., etc. We are finding the yarn prices have started improving since last one month, and there is at least an improvement of 10 to 15 U.S.

cents per kg of yarn, thanks to the fresh demand from China.

that's interesting. Do we see profitability improve going forward, given that there was a decent period for us to import cotton and the prices were lower?

Near term looks somewhat stable than in the past.

So, I can talk of the industry average only. Whosoever has been imported cotton, maybe there could be some gain coming to them in maybe next two, three, four months, whatever cotton stocks you have.

Unfortunately, the Indian cotton prices are again very high. In this period, CCI has been buying most of the cotton, and they are virtually today the monopolistic stockist as of now.

The new sale policy which they have decided day before yesterday, they have come up with a price range of 56,900 rupees for Shankar, and if I convert it into U.S. cents, it's almost 80 U.S.

cents per pound. Where with the New York future of 64-65 cents, the Brazilian is available at 72-73 cents to most part of the world.

We are again higher by about 8 cents per pound. To that extent, I think on the incremental basis, I don't see the margins improving unless the yarn prices increases further.

If I look at from the New York future or Brazilian cotton available to a Vietnamese, today their margin would be, as on today, they would be touching almost 90 cents to $1 convergent margin today, which is seen after a long time. India presence, our cotton is almost 78 cents per pound expensive.

I convert it into per kg basis. We still have a disadvantage of about 20 U.S.

cents per pound to that extent. Our margin will be in the range of about 70-80 U.S.

cents, whereas for the other countries it would be touching almost close to $1 today.

That's a big difference.

Yeah.

sir, are you seeing further capacity closures in the industry in the yarn business?

It will continue to happen till the time we can. Lots of capacity in India is very old and their costs are also high because they have not modernized.

When we are talking of 70 cents, 75 cents, we are talking of good efficient mills. All these capacities, which is relatively in the semi-organized sector or with a higher cost, non-automatic technologies available to them, their cost will be surely higher than this.

For them to survive in these circumstances is going to continue to be very, very difficult. I think personally, if you ask me, there could be a possibility, another two, three.

When 11.11 million spindles are already closed, we are reaching to 15 million spindles in the next one year, unless the prices, unless the commodity prices are corrected. It can happen.

Okay.

It will be unfortunate, but it can happen.

Makes sense. Two questions on capex.

You mentioned about garment capacity to double. By when do you expect it to double?

We are working on it. I think it's a small capacity, 6,000-7,000 shirts, and whenever we start the project, it will take us about eight months or so to complete that.

It's not really a major capex. The major capex was in the spinning business on modernization and one of our small expansion at Melanges.

The bigger expenditure, capital expenditure, was planned on the fabric side. That's going on as per schedule only.

All the expenditures, whatever was planned last year, that's almost on line.

That will get commissioned in by Q4 by the end of this quarter.

Yes.

Okay. How do we expect it to get utilized over a period of time?

Because given the current geopolitical situations that are there, especially for the new business, the synthetic fiber business, I just wanted to know the efforts that is taken to sell it when it gets operationalized. So

in next financial year, for the performance, where we are targeting capacity utilization upwards of around 60% for the full year.

Okay. Any tie-ups and all being done to ensure this number gets achieved?

So

we want to maintain a healthy balance between domestic and exports, especially given geopolitical dynamics. We like to have a strong domestic base and also well-diversified export base.

Current focus is on development. Some developments are coming from our existing customers, because they also have this product portfolio, and a lot of new customers, which are focused on sports and outerwear, they are also being added.

No long-term tie-ups, but we've had partnerships with these customers over the years. You can expect strong collaboration with those customers.

That's fantastic, Sagrika. Thank you and all.

to conclude, the operating environment remains demanding with persistent cost pressure, trade disruptions and evolving global sourcing patterns. However, actions taken over the past few years have strengthened the foundation of our business.

We continue to focus on controllable levers like portfolio premiumization, operational efficiency, cost discipline, customer-centric approach. Strategic investments in fabric capacity, performance textiles and yarn modernization position us well for the next phase of growth, while near-term visibility remains limited.

We hope and pray that global trade conditions will stabilize. Our integrated capabilities, diversified customer base should create meaningful differentiation.

Thank you so much for your faith in our organization, and have a good day.