Metrics raised 4
- Garment capacity target raised to 4.5 million shirts by June 2027 (from 2.2 million shirts current capacity); peak revenue potential ₹300–350 crore.
- Synthetic fabric line utilization target set at 70–80% within six months (from 15–20% current utilization), supported by two brand approvals and production starting August.
- Spinning margin outlook raised to conversion spread settling around $0.85–$0.90/kg (from $0.60–$0.70 trough); directionally 13–14% margins.
- Open-end capacity addition target of 55–60 tons/day online in ~10 months (construction started).
Metrics cut 1
- Committed capex timing deferred: ~₹800–900 crore of the ₹3,600 crore capex now spills into FY28; open-end project and residual modernization may slip to Q1 FY28.
Event Participants
Executives
4 Neeraj Jain, Rajeev Thapar, Sushil Jhamb, Varun Malhotra
Analysts
7 Anil Kumar Sharma, Awanish Chandra, Falguni Dutta, Monish Ghodke, Prerna Jhunjhunwala, Roshan, Shirish Pardeshi
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Overall financial performance | Improved YoY and QoQ | Management noted improvement in absolute and percentage terms; no specific P&L figures were disclosed on the call. |
| Cotton yarn spread (market) | ~$0.90/kg in Q1 | Historical normal range is $0.85–$1.00/kg; the last 2–3 years had sunk to $0.60–$0.70/kg. |
| India cotton yarn exports | ~110 million kg/month vs ~95–97 million earlier | Net increase of ~15 million kg/month, primarily from China; China + Bangladesh absorb ~60% of Indian yarn exports. |
| Spinning capacity utilization | Full (near 100%) | Supported by firm yarn prices, Chinese buying and limited industry capacity additions. |
| Fabric business | Comparable to Q1 FY26; ~3–4% below Q4 FY26 | Impacted by missed U.S. season sampling due to tariffs; also a new line added in March was not fully utilized. |
| Synthetic fabric capacity | 15 lakh meters/month; utilization 15–20% | New filament-based line; two large brand approvals received with production starting in August; target 70–80% utilization in six months. |
| Garment capacity | 7,000 shirts/day; doubling from 2.2 million to 4.5 million shirts | Expansion targeted by June 2027; expected peak revenue ₹300–350 crore; mix 70% domestic/30% export. |
| Order book visibility | Exports ~3 months; domestic ~45–50 days | In line with five-year average; Q2 should reflect April–May yarn price increases. |
| Committed capex | ₹3,600 crore; ~₹800–900 crore to spill into FY28 | Majority on modernization and power (biomass, solar, wind); open-end project and residual modernization may slip to Q1 FY28. |
| Open-end capacity addition | 55–60 tons/day | Construction started; expected online in ~10 months. |
| Cotton prices | International ~$0.80/lb; Indian CCI ~₹64,000/candy | Indian prices now aligned globally ($0.87–$0.88 vs Cotlook $0.91–$0.92); MSP hike of 6–7% implies next-season floor of ₹65,000–₹66,000/candy. |
Geographic & Segment Commentary
Spinning: Full utilization with strong demand, led by China; yarn sales split roughly one-third export, one-third domestic, one-third captive. Market cotton-yarn spreads were ~$0.90/kg. Industry tailwinds include permanent closure of 12–13 million spindles and minimal new capacity additions (0.5 million spindles last year; 0.7–0.8 million expected this year).
Cotton Fabric: Q1 results comparable to Q1 FY26 but ~3–4% below Q4 FY26; U.S. orders were missed because sampling for a season was skipped due to tariffs. Only 60–70% of yarn price increases have been passed on; U.S. business is expected to improve over the next 2–3 months.
Synthetic Fabric / Technical Textiles: New standalone filament-based line with 15 lakh meters/month capacity; utilization only 15–20% but two major brand approvals received, production starting August. Management expects 70–80% utilization in six months and believes per-meter margins/ROCE can be better than existing fabric lines once scaled.
Garmenting: Current 7,000 shirts/day is too small to be viable; doubling to 4.5 million shirts by June 2027 with minimal incremental overhead. Mix is ~70% domestic and 30% export; peak revenue potential ₹300–350 crore.
Cotton & Raw Material: Global supply tightening – Brazil area down ~5%, Australia crop expected at ~3.5 million bales (possibly ~2.5 million next year), West Texas drought, and China reducing cotton area. Indian sowing is ~1–2% below last year, with El Niño/erratic rains raising quality and crop-size concerns. MSP hike of 6–7% puts a floor of ~₹65,000–66,000/candy on Indian cotton.
Export Markets: China demand looks sustainable – Chinese reserve cotton is selling at ~$1.15–1.16/lb (over $1 ex-VAT) versus world prices of ~$0.89–0.90; China’s spindle base has fallen from ~116–117 million to ~84–85 million. India and Egypt are among the few countries adding spinning capacity; UK/EU FTAs create a two-year window for Indian textile exports.
Company-Specific & Strategic Commentary
Capacity & Modernization: ₹3,600 crore committed capex is mostly online; one biomass boiler started in Baddi, another in Madhya Pradesh expected in ~a month; solar and wind power benefits will accrue over the next six months; open-end project (55–60 tons/day) is under construction.
Dhar / PM MITRA Park: Land is expected by December; power is not expected before June 2027. Construction will only begin after power visibility is confirmed; first phase is likely spinning, with Dhar positioned as a multi-year growth platform.
Customer & Industry Shifts: Fashion cycles are shortening; customers demand faster delivery (yarn ~20 days, fabric ~44–45 days, garments ~60–70 days), lower inventory, product innovation, recycled fibers, green energy and strong ESG compliance. Scale and organized-sector capability are becoming advantages.
Import Strategy: Management is evaluating cotton imports daily while the duty-free window lasts; imported cotton is being bought where prices are attractive versus an Indian floor of ₹65,000–66,000/candy next season.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Spinning margins | Q2 FY27 better; moderation after Q2 but above past lows | Low-cost cotton inventory will benefit Q2; conversion expected to settle around $0.85–$0.90/kg versus $0.60–$0.70 trough. Directionally 13–14% margins, though not a formal guidance. |
| Synthetic fabric utilization | 70–80% in next six months | Currently 15–20%; two large brand approvals support ramp-up from August. |
| Open-end capacity | 55–60 tons/day in ~10 months | Construction started; will add top-line growth. |
| Garment capacity | 4.5 million shirts by June 2027; full utilization in ~1 year | Peak revenue ₹300–350 crore; negligible incremental overhead should improve standalone margins. |
| Dhar project | Land by December; power by June 2027; construction after power clarity | Not included in announced ₹3,600 crore capex; construction will start only with power visibility. |
| Cotton prices | Firm to higher; global production below consumption | Expected 2–3% crop decline vs 2–3% demand growth creates a 3–4% supply-demand gap for 1–2 years; Indian cotton floor ~₹65,000–66,000/candy on MSP. |
| U.S. fabric orders | Improvement expected in next 2–3 months | Sampling gap from the tariff-affected season is being corrected; fabric utilization should improve. |
Risks & Constraints
| Risk | Context |
|---|---|
| Margin normalization | Q1 margins included low-cost cotton inventory and trading gains; management explicitly said margins “surely will moderate” as inventory is consumed. The extent of moderation is uncertain. |
| Cotton supply/quality risk | El Niño, erratic rains and regional variation threaten Indian crop size and quality; Brazil, Australia, U.S. and China all face supply reductions. Higher cotton prices could squeeze margins if yarn prices lag. |
| Fabric price pass-through lag | Only 60–70% of yarn price increases have been passed on to fabric customers; if volumes do not pick up, fabric margins remain under pressure. |
| U.S. tariff disruption | Missed a full season of U.S. sampling due to tariffs; fabric utilization recovered only partially. Improvement is expected but depends on order resumption. |
| China demand dependence | China accounts for |
| Geopolitical/input cost volatility | U.S.-Iran conflict pushed crude to ~$100/bbl; polyester and acrylic prices rose sharply. Further escalation would raise fiber and energy costs. |
| Cotton import window | Duty-free cotton import window is available only for next 2–3 months; if not adequately utilized, Indian mills could again face a raw-material cost disadvantage. |
| Dhar execution delay | Land expected by December and power only by June 2027; any slippage postpones the next major growth phase. |
Q&A Highlights
Spinning order book and margin trajectory
- Question: Prerna Jhunjhunwala asked about current order book and whether Q2 will capture April–May price increases; Awanish Chandra asked whether strong margins would sustain beyond Q2. (Prerna Jhunjhunwala, Awanish Chandra)
- Answer: Export order book is ~3 months and domestic ~45–50 days; Q2 will reflect price hikes. Margins will moderate as low-cost cotton inventory is consumed, but should not return to $0.60–$0.70/kg conversion lows; $0.85–$0.90/kg is a reasonable level. Directionally, 13–14% margins are possible versus 10–11% in the downturn. (Neeraj Jain)
Synthetic fabric / technical textiles ramp-up
- Question: Prerna asked about progress, expansion and margin profile of the new synthetic fabric business; Awanish asked whether it is integrated with the cotton fabric lines. (Prerna Jhunjhunwala, Awanish Chandra)
- Answer: It is a separate filament-based line, not linked to cotton. Capacity is 15 lakh meters/month with 15–20% utilization; two large brand approvals were received, production starting August. Target is 70–80% utilization in six months; per-meter margins/ROCE should be better than existing lines, but this will be clearer in another six months. (Neeraj Jain)
Garmenting expansion economics
- Question: Roshan asked about doubling garment capacity from 2.2 million to 4.5 million shirts, customer tie-ups and margin impact; Shirish Pardeshi asked peak revenue and timeline. (Roshan, Shirish Pardeshi)
- Answer: Current 7,000 shirts/day is too small; doubling makes the unit viable with minimal overhead increase. Mix is ~70% domestic/30% export. Capacity should be ready by June 2027 with full utilization in about a year; peak revenue ₹300–350 crore. A larger entry will be decided based on standalone margins. (Neeraj Jain)
Cotton outlook, imports and spreads
- Question: Prerna asked about importing cotton at current duty-free prices; Awanish asked about post-Q2 margin moderation; Falguni Dutta asked Q1 cotton yarn spread. (Prerna Jhunjhunwala, Awanish Chandra, Falguni Dutta)
- Answer: Cotton prices are unlikely to fall; MSP hike implies ₹65,000–66,000/candy floor next season. Management is evaluating imports daily while the duty-free window lasts. Q1 market spread was ~$0.90/kg versus historical $0.85–$1.00 and the $0.60–$0.70 trough; Q2 should benefit from inventory gains, then moderate. (Neeraj Jain)
China demand and global spindle capacity
- Question: Prerna asked why China is buying yarn again, whether it is sustainable, and whether new spindle additions globally threaten margins. (Prerna Jhunjhunwala)
- Answer: Chinese cotton prices are $1+ (reserve sales ~$1.15–1.16) versus world prices of ~$0.89–0.90; importing yarn also avoids Xinjiang cotton risk. China’s spindle base has fallen from ~116–117 million to ~84–85 million; Vietnam, Indonesia, Turkey and Bangladesh are not adding capacity. Only India and Egypt are adding; China demand looks sustainable. (Neeraj Jain)
Demand trends and customer behavior
- Question: Roshan asked about demand trends across domestic/export markets and changes in customer ordering patterns. (Roshan)
- Answer: Demand is good; UK/EU FTAs create a genuine two-year opportunity for the Indian textile chain. Customers want shorter cycle times, minimum inventory and faster delivery (yarn ~20 days, fabric ~44–45 days, garments ~60–70 days). New products, recycling, green energy and ESG compliance are increasingly important; scale is becoming an advantage for organized players. (Neeraj Jain)
Capex deployment and Dhar project
- Question: Shirish asked about the split of ₹3,600 crore capex between FY27 and FY28 and the Dhar project; Awanish asked whether new capacities will drive top-line growth. (Shirish Pardeshi, Awanish Chandra)
- Answer: Only ~₹800–900 crore spills to FY28; most modernization and power projects are completing this year. Dhar has no capex in the announced figure – land is expected by December and power by June 2027; construction starts only after power clarity. Dhar will be the growth vehicle for the next 3–5 years. (Neeraj Jain)
ROCE and long-term strategy
- Question: Anil Kumar Sharma asked where the company will be in five years and how low ROCE/ROE can improve. (Anil Kumar Sharma)
- Answer: Large idle investments earmarked for future expansion are diluting ROCE; deploying them in the right projects will improve returns. The operating-business return is reasonably okay. Meaningful ROCE improvement is a five-year horizon, not 2–3 years. (Neeraj Jain)
Recycled cotton yarn opportunity
- Question: Monish Ghodke asked about the opportunity in recycled cotton yarn, feasibility at scale and ROCE. (Monish Ghodke)
- Answer: The trend is driven by Europe’s sustainability and landfill-reduction agenda, not primarily ROCE. Mechanical recycling is mature – up to 30–40% recycled fiber can be used with virgin fiber on ring spinning and more via open-end. The demand should continue until saturation. (Neeraj Jain)
Key Takeaway
Vardhman Textiles reported improved Q1 FY27 results with spinning at full utilization and market cotton-yarn spreads near $0.90/kg versus a $0.60–$0.70 trough, aided by Chinese demand and limited global spindle additions. Fabric remained weak – comparable to Q1 FY26 but 3–4% below Q4 – after U.S. tariff-related sampling gaps, though U.S. orders are expected to recover over the next 2–3 months. Management guided that Q2 margins will benefit from low-cost cotton inventory but will moderate thereafter, likely settling around $0.85–$0.90/kg conversion (directional 13–14%). Key strategic targets include 70–80% utilization of the new 15 lakh meters/month synthetic fabric line, 4.5 million shirts garment capacity by June 2027 (₹300–350 crore peak revenue), and 55–60 tons/day open-end capacity in ~10 months. Watch points include El Niño cotton quality, unfinished fabric price pass-through, China demand dependence, and Dhar’s power timeline.