Vardhman Textiles Q1 FY27 Earnings Call: Doubles Garmenting Capacity to 4.5M, Targets 13-14% EBITDA Margin (VTL)

Vardhman Textiles Ltd held its Q1 FY27 earnings call on July 30, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Key Financial Metrics from the Quarter

• Cotton yarn spread of ~90 US cents per kg in Q1 FY2026-2027, calculated on market prices of cotton and yarn (Segment 7).
• Q1 FY26-27 results improved aided by higher yarn prices and partial trading gains from earlier raw material purchases; fabric business utilisation was lower due to US tariff-related sampling disruptions (Segment 2).
• Management targets a 13–14% EBITDA margin as the "right way of looking at it", recovering from previous lows of 10–11%, with yarn conversion of 80–85–90 cents/kg (Segment 6).
• Spinning conversion margins expected at 85–90 US cents for the remainder of FY 2026-2027, recovering from 65–70 US cents in the prior two years, supported by better demand-supply dynamics (Segment 4).
• Fabric business margins remain pressured by raw material pass-through lag of only 60–70%, though improving volumes are expected to restore margins (Segment 2).

Demand Visibility, FTAs and Garmenting Expansion

• Export order book of 90–95 days (sold for ~3 months) and domestic order book of 45–50 days; price improvements seen in Apr–May 2026 will reflect in Q2 FY2026-2027 results (Segment 3).
• MD expects "far better times" ahead for India’s textile sector, citing available future opportunities and describing the current period as the "right time for India's textile sector" (Segment 11).
• Government FTAs with UK and EU positioned as a "genuine opportunity" for Indian manufacturers over the next two years (FY26-27–FY27-28), with management reporting decent demand in garmenting and exports (Segment 5).
• Doubling garmenting capacity from 2.2M to 4.5M annual shirts; the current 7,000 shirts/day unit is too small, resulting in high costs and low margins — doubling with minimal overhead increase is expected to improve margins (Segment 5).
• Shorter ordering cycles emerging — customers require yarn delivery in 20 days, fabric in 40–45 days, and garments in 60–70 days, driven by working capital reduction and obsolescence risk (Segment 5).
• Chinese buying of Indian yarn reached ~110 million kg (from under 100 million kg), with China as the primary driver; China and Bangladesh collectively take 60% of India’s yarn exports (Segments 2, 6).

Global Supply Constraints and China’s Role

• Global cotton supply expected to lag consumption for the next 2–3 years (FY26-27 to FY28-29), supporting prices; acreage declines in Brazil (~5%), Australia (crop ~3.5M bales), USA (West Texas drought), and China (designed reduction) were cited (Segment 2).
• Neeraj Jain attributed Chinese buying of Indian cotton yarn to "China’s strategy to reduce cotton sowing areas", rising costs in South China, Xinjiang capacity shutdowns, and the need to avoid Xinjiang cotton risk for garment exports to the US — viewing this trend as sustainable (Segment 9).
• China has reduced spindle capacity from a peak of 116–117 million to 84–85 million spindles; India is the only country adding spindles while Indonesia, Vietnam, Turkey, and Bangladesh are not adding capacity (Segment 9).
• 12–13 million spindles closed permanently in India, with only ~0.5–0.8 million spindles of new capacity expected in FY26-27, limiting supply (Segment 2).
• Government announced a 6–7% MSP increase for cotton; management expects Indian cotton not to fall below Rs.65,000–Rs.66,000 per candy in FY2027-2028 (Segment 3).
• Indian cotton prices have aligned with international levels at ~87–88 US cents/lb (Rs.64,000 per candy), removing the prior discount; China’s domestic cotton is priced at ~115–116 US cents/lb (Segment 2).

Ongoing Investments and Future Growth Projects

• Rs.3,600 Cr CAPEX underway with only ~Rs.800–900 Cr spilling into FY2027-2028; power projects completing in 3 months and modernization largely done within FY2026-2027 (Segment 6).
• Dhar PM MITRA Park project "under consideration" — construction unlikely to start until the government confirms power availability, expected no earlier than June 2027; implementation would take 10–12 months from start. The Dhar CAPEX is excluded from the Rs.3,600 Cr figure (Segment 6).
• New synthetic fabric business at 15–20% utilisation (15 lakh metres/month capacity); two big brand approvals received, production starting August 2026, targeting 70–80% utilisation by ~Feb 2027 (Segment 3).
• Open-end project (55–60 tons/day) to be operational in ~10 months; biomass boiler started in Baddi, another in MP in ~1 month; Dhar land expected by December 2026, with first spinning project to follow (Segment 2).
• Technical textile capacity is a separate synthetic filament-based line, not integrated with cotton yarn or fabric operations; customer overlap is possible but not production integration (Segment 4).
• Major top-line growth anticipated over 3–5 years from the PM Mitra Park project, where multiple new capacities are planned subject to business conditions; ongoing capex is for modernization and power, not top-line growth (Segment 4).

Conversion Spreads and Margin Trajectory

• Spinning conversion margins expected at 85–90 US cents for the remainder of FY2026-2027, recovering from 65–70 US cents in the previous two years, supported by better demand-supply dynamics including Chinese demand (Segment 4).
• Management targets 13–14% EBITDA margin with yarn conversion of 80–85–90 cents/kg, recovering from previous lows of 10–11% (Segment 6).
• Historical normal range for spreads is 85 cents to $1 per kg, except for the last 2–3 years when spreads fell to 60–70 cents for the Indian market (Segment 7).
• Q1 FY27 margins benefited from lower-cost cotton inventory; Q2 FY27 may benefit further, but management expects moderation as inventory advantage fades unless yarn prices rise (Segment 4).
• Fabric business margins remain pressured by raw material pass-through lag of only 60–70%, but improving volumes are expected to restore margins (Segment 2).
• Raw material stabilized at 78–81 US cents/lb internationally; management sees no large decline in cotton prices and a potential increase due to the supply-demand gap, though uncertainty is acknowledged (Segment 2).

Outlook, Opportunities and Key Caveats

• MD expects "far better times" ahead for the Indian textile industry, describing the current period as the "right time for India's textile sector", but cautioned that outcomes are dynamic and may differ from opinions shared (Segment 11).
• Next two years (FY26-27–FY27-28) positioned as a genuine opportunity for Indian manufacturers, driven by government FTAs with the UK and EU and rising domestic consumption (Segments 5, 8).
• Management expects overall ROCE to improve meaningfully within 5 years as major investments reduce idle cash on the balance sheet; business-level ROCE is described as "reasonably okay" currently (Segment 8).
• Fabric business recovery expected in 2–3 months after US tariff-related sampling disruptions affected utilisation; management expects improving volumes to restore margins (Segment 2).
• Cotton price outlook supportive — management sees no large decline and a potential increase due to the supply-demand gap; the government allowed duty-free cotton imports for 4 months, but management is requesting more sustainable long-term visibility on raw material costs (Segments 2, 9).
• Downside risks acknowledged — management noted that outcomes are dynamic (Segment 11); fabric margins remain pressured by pass-through lags (Segment 2); and Dhar project timing depends on government power availability (Segment 6).