VTL - Vardhman Textiles Limted Share Price

Management Outlook & Key Points:

Outlook:

• Spinning Business: Struggling due to elevated Indian cotton prices (vs. global rates) and import duties, pressuring margins. Demand remains stable, but supply-side challenges (high MSP, 11% import duty) persist. Margins may improve only if global cotton prices rise or policies change.
• Fabric Business: Performing well with 100% utilization; expansion (45 million meters/year capacity) underway, expected by Sept 2025. Focus on value-added products and synthetic fabrics (technical textiles) for higher margins.
• CAPEX: Rs. 3,400 crores allocated for modernization, green energy, and synthetic fabric expansion. Expected completion by late 2025, potentially boosting EBITDA margins by 2-3% through cost efficiency and premium products.

Major Points:

1. Raw Material Challenges: Indian cotton prices (~Rs. 54,000/candy) remain 12 cents/lb higher than global rates, hurting spinning margins. No immediate relief expected as inventory reflects older purchases.
2. Export Dynamics: Yarn exports stable (~100M kg/month), but pricing lags due to global competition. Fabric exports poised to grow with new capacity.
3. Policy Dependency: Revival hinges on government action (reducing import duties, aligning MSP with global prices) or a rebound in NY futures (~74-75 cents/lb needed).
4. Synthetic Fabric Expansion: Targeting outerwear/technical textiles (15mm annual capacity) with blended domestic/export sales. Margins could reach 25-35% long-term.
5. Bangladesh Market: No immediate threat to Indian yarn demand; labor cost advantages keep Bangladesh competitive in garments.
6. Cotton Crop & Inventory: FY25 crop expected at ~31M bales. CCI holds 45% of arrivals, stabilizing prices.
7. Margin Optimism: Modernization and sustainability CAPEX (e.g., green power) to cut costs, offsetting near-term raw material headwinds.

Future Focus: Scaling fabric value-addition, synthetic textiles, and policy advocacy to address raw material disparities.

1. Question on Margin Improvement and Cotton Inventory
Question Text: "Sir, my first question is on the margin front... Could you just highlight this thing that whether we will have better improvement in Q4 with some delay or any other reason? ... How much cotton inventory we are carrying?"
Answer Summary: Margins did not improve sequentially because Vardhman's cotton procurement costs (~Rs.54,000/candy) remained stable from Q2 to Q3 due to prior purchases, despite spot price fluctuations. Yarn prices stagnated, limiting margin upside. Cotton inventory is targeted to reach 6"“7 months by March 2025, aligning with seasonal procurement cycles. Q4 margins are unlikely to improve unless global cotton prices rise or yarn demand strengthens.

2. Yarn Prices, Demand-Supply Challenges, and Margins Post-COVID
Question Text: "Sir, I am trying to understand... What I am trying to understand is that when will our yarn spread normalize?"
Answer Summary: High MSP and 11% import duty on cotton have raised India's raw material costs (~80¢/lb vs. global 67"“68¢). Over 6.5M spindles (15% of capacity) closed due to unprofitability. Margins depend on India's cotton aligning with global prices via policy changes (e.g., duty removal) or higher NY futures. Pre-COVID, Indian cotton was cheaper than global rates; current MSP hikes and weak futures worsen the gap.

3. Impact of Bangladesh's Market Conditions
Question Text: "Sir, how is the situation in Bangladesh? Is Indian textile industry benefiting out there?"
Answer Summary: Bangladesh's demand for Indian yarn remains stable with no significant disruptions. Exports to Bangladesh continue at full capacity, and local garment production stays robust. No immediate supply-chain shifts benefiting India are observed.

4. Yarn Exports, Fabric Utilization, and Cotton Production Outlook
Question Text: "We understand the impact of a very high cost of raw material... How is our export volume if you can share?... How is the cotton production outlook?"
Answer Summary: Yarn exports remain steady at ~100M kg/month. Fabric utilization is at 100%, with a new line (15MM synthetic fabrics) operational by September 2025. Cotton production for 2024"“25 is estimated at ~31M bales (similar to prior year). CCI holds 7.5M bales, stabilizing MSP but keeping market prices below MSP.

5. CAPEX Details and Timelines
Question Text: "Actually, I missed the part regarding the CAPEX plan... Could you just provide in detail..."
Answer Summary: Total CAPEX is Rs.3,400 crore: Rs.2,800 crore underway (spinning modernization, fabric expansion, green energy) for completion by late 2025. A Rs.500 crore open-end project is on hold pending approvals. Projects include 31MM fabric capacity, 15MM synthetic lines, and solar power.

6. CAPEX Components and Capacity Additions
Question Text: "So, the total CAPEX announced by the company is in the range of about Rs.3,400 crores... What kind of capacity do we see this post completion?"
Answer Summary: Rs.1,200 crore for spinning/fabric modernization (no capacity addition), Rs.600 crore for green power, Rs.400 crore for 31MM cotton fabric expansion, and Rs.400 crore for synthetic fabrics. Synthetic lines target outerwear (jackets), blending domestic and imported raw materials.

7. Margin Improvement from CAPEX and Cotton Spread Drivers
Question Text: "Do you expect cotton yarn spread to improve in near term? So, are there any factors which can turn favorable?"
Answer Summary: Modernization and sustainability CAPEX may improve margins by 2"“3% via cost savings and value-added products by FY27. Cotton spread recovery hinges on NY futures rising to 75¢, rupee appreciation, or duty-free imports. Current spreads (70¢/kg) remain below the $1 benchmark for profitability.

8. Yarn Spread in Q3 vs. Historical Benchmarks
Question Text: "So, what is the cotton yarn spread in Q3 versus Q2? ... Earlier you had mentioned that at $1..."
Answer Summary: Q3 yarn spread averaged 70¢/kg (Rs.60/kg), similar to Q2. Historically, $1/kg spreads enabled healthy margins. Current spreads are unsustainable, requiring global price corrections or policy relief for recovery.

9. Synthetic Fabric Pricing, Segments, and Maintenance CAPEX
Question Text: "Sir, in the opening remarks, you highlighted that polyester prices in India... What kind of a segment are we targeting...?"
Answer Summary: Synthetic fabrics (outerwear/jackets) will use imported and domestic materials, targeting higher-value technical textiles (25"“30% margins). Maintenance CAPEX (~Rs.150"“200 crore/year) supports modernization of 10-year-old spindle infrastructure, not capacity expansion.

10. Revenue and Profit Impact of CAPEX
Question Text: "Just wanted to understand what will be the revenue addition and profit addition that you're looking from this entire CAPEX..."
Answer Summary: New fabric CAPEX adds 46MM capacity (Rs.150/m realization). Synthetic margins may reach 25"“35% over time via technical textiles. Spinning CAPEX focuses on cost savings, not revenue growth.

11. Yarn Spread in INR and Bangladesh Opportunity
Question Text: "Sir, what is the current yarn and cotton spread in Indian currency term?... Is there any opportunity if Bangladesh loses market share..."
Answer Summary: Yarn spread is ~Rs.60/kg (70¢ at Rs.85/$). Bangladesh's labor cost ($100/month vs. India's $200) and duty-free EU access limit India's near-term garment export gains. Growth requires policy support or Bangladesh instability.

12. Budget Expectations for Textile Sector
Question Text: "Sir, we are hearing lot of good sound noise for textile industry in the budget..."
Answer Summary: Management refrained from speculating on potential budget measures (e.g., duty cuts, MSP reforms) ahead of the announcement.