# 1. Financial Performance ## A. Key Figures * **Other Income Change:** **–INR25–26 Cr** (reversal of prior +INR14–15 Cr forex gain) * **Investment Book:** **~INR1,000 Cr** * Capex Projects: INR350 Cr technical textiles · INR395 Cr Process Line 4 ## B. Revenue Growth * **Tariff Sharing Neutral:** No material financial impact observed in the current quarter from tariff sharing arrangements. ## C. Gross Margin Trends * **Margin Expansion Driven by Cotton:** Gross margin improvement in spinning directly benefited from falling cotton prices; fabric segment saw indirect gains via lower input costs and higher utilization. * **Operational Leverage Intact:** Yarn price declines cascaded into cost advantages for integrated fabric operations, enhancing value chain efficiency. * **Core Margin Focus:** Management emphasized analysis of gross margins excluding other income to assess underlying operational performance. ## D. Other Income Impact * **Forex Volatility Hit:** Sharp decline in other income due to rupee depreciation of **INR3** against the dollar, reversing prior gains. * **Normalized Level Expected:** Other income projected to stabilize around **INR70–80 Cr**, subject to exchange rates and investment portfolio dynamics. ## E. Depreciation Outlook * **Rising Depreciation Trajectory:** New capex to lift quarterly depreciation to **over INR130 Cr**, up from current **INR114 Cr**, with 10% annual depreciation rate applied. --- # 2. Capacity & Production ## A. Key Figures * **Fabric Capacity Increase:** **~30%** (projected, subject to market conditions) * **Synthetic Plant Capacity:** **15 lakh meters** * **Indian Acrylics Capacity:** **~38,000 tons** (30–40% utilization) * **Pasupati Capacity:** **32,000–33,000 tons** (100% utilization) * Spindle Capacity Rationalization: **11 million spindles** shut down across **almost 1,000 units** ## B. Fabric Plant Expansion * **Near-Term Commissioning:** Vardhman performance fabric plant on track for quarter completion, with sample development imminent and production ramp-up set for Q3. * **Long-Term Spindle Growth:** Strategic land acquisition of **200 acres** in MP’s PM MITRA Park supports future spindle capacity expansion. * **Structural Export Opportunity:** Limited spinner capacity in India may enhance export potential if raw material and duty challenges are resolved. ## C. Synthetic Line Commissioning * **New Synthetic Capacity:** Synthetic plant under commissioning to be capitalized in Q3, adding **15 lakh meters** of high-value fabric output. ## D. MP Facility Ramp-up * **Capacity Ramp-Up Underway:** Additional fabric line in Madhya Pradesh expected operational by mid-November, contributing to the broader 30% capacity expansion. ## E. Utilization Rates * **Strong Fabric Utilization:** Fabric segment maintains **90% capacity utilization**, reflecting resilient demand and effective pricing management with no material profit impact. * **Divergent Acrylic Performance:** While Vardhman Acrylics runs at full capacity despite margin pressure, Indian Acrylics operates at only **30–40%**, indicating ongoing challenges in that asset. * **Industry Consolidation:** Closure of **1 crore spindles** across small, unviable units reinforces structural tightening in spinning capacity. --- # 3. Cost & Input Trends ## A. Key Figures * **Cotton Landed Cost:** **$76–$78/lb** Vietnam/Indonesia · **$80–$84/lb** India (duty-relaxed) * International Yarn Margin: $0.70–$0.80/kg vs. significantly lower in India * Electricity Rate: ₹4.5/kWh MP PM MITRA · ₹4–5/kWh Odisha * **Expense Increase:** **₹30 Cr** total (₹10 Cr plant/machinery, ₹7–8 Cr admin, ₹4–5 Cr selling) * **Forex & Hedging Impact:** **₹7 Cr** forex · **₹4–5 Cr** cotton hedging * **INR/USD Rate:** **₹88.75–88.80** as of Sept 30 · **₹87.80** at call date ## B. Cotton Procurement Cost * **Persistent Cost Disadvantage:** Indian mills face higher raw material costs despite duty relief, with CCI pricing at a premium to global benchmarks, pressuring domestic competitiveness. * **Margin Resilience via Proactive Sourcing:** Strong cost management, including strategic imports during favorable conditions, has offset narrowing spreads and supported margins. * **Urgent Pre-Expiry Procurement:** Management to accelerate cotton imports before the **December 31 duty exemption expires** to lock in cost advantages. ## C. Import Parity Disadvantage * **Structural Competitiveness Risk:** Indian spinners remain at a disadvantage versus global peers; unaligned domestic pricing could distort import parity if trade policies shift. ## D. Power & Admin Expenses * **Regional Cost Optimization:** New facilities in **Madhya Pradesh and Odisha** benefit from competitive power tariffs, supporting operating cost efficiency. * **Broad-Based Cost Pressures:** Other expenses rose meaningfully across manufacturing, admin, and selling functions, with **₹30 Cr total increase** reflecting operational scaling. * **Rupee Volatility with Limited Upside:** Recent depreciation provided partial margin relief, but future forex impact is uncertain due to hedging positions and derivative exposure. --- # 4. Demand & Export Dynamics ## A. Key Figures * **US Order Delays:** **30–45 days** · **20–25% volume reduction** * Yarn Exports to Bangladesh: 100–120 million kgs/month total · ~50% to Bangladesh · ~50 million kgs/month recent average * **Spinning Capacity Utilization:** **90–95%** * **US Import Duty Impact:** **Minimum 20% duty** on textiles ## B. US Order Delays * **Resilient Fabric Performance:** Fabrics division maintained prior-year levels despite **significant order delays and volume reductions**, supported by customer partnerships and operational agility. * **Demand Elasticity Pressure:** Elevated US import duties have dampened consumer demand, with India facing **disproportionate impact** due to market positioning. * **Risk of Structural Shift:** Prolonged tariff pressures beyond six months could trigger **customer re-evaluation of US market viability**, though no order cancellations reported. * **Yarn Resilience:** Yarn order book remains robust with **full utilization and zero cancellations**, contrasting cautious fabric demand. ## C. Bangladesh Export Stability * **Stable Export Volumes:** Indian yarn exports to Bangladesh remain steady amid broader uncertainty, with **no supply disruptions** despite shifts in transport mode. * **Portfolio Diversification Benefit:** Stable performance underpinned by balanced exposure across domestic and non-US export markets. ## D. EU & UK Customer Engagement * **Strategic Market Diversification:** Vardhman actively redirecting focus to EU, UK, and other alternative markets, leveraging **accelerated delivery timelines** to improve competitiveness. * **Engagement Amid Headwinds:** Customer outreach ongoing despite **challenging macro conditions** in Europe linked to war, energy costs, and weak economic activity. ## E. Hand-to-Mouth Purchasing * **Buyer Behavior Shift:** US customers adopting **hand-to-mouth purchasing** with smaller, frequent orders to manage policy-related uncertainty. * **Domestic Yarn Demand Intact:** No notable softness in local demand despite external pressures, supporting stable operations. * **New Export Opportunity:** Declining cotton and yarn prices have reopened the **China market** for Indian spinners, helping sustain export volumes. --- # 5. Product & Segment Performance ## A. Key Figures * India Cotton Production: 310 lakh bales (flat YoY) * Yarn Price Range (30s count): $2.75 to $3 per kg * **Acrylic EBITDA (Normal Years):** **₹30–50 Cr annually** * **Current Garment Output:** **6,000–7,000 shirts/day** * **Fixed Cost per Shirt:** **₹35–40** (~6%–8% of total cost) ## B. Yarn vs Fabric Margins * **Resilient Core Business:** Yarn and fabric divisions maintained strong performance despite global headwinds from elevated US tariffs and sector-wide margin pressure. * **Margin Management:** Fabric division strategically absorbed cost impacts to retain export share, while innovation and diversification underpinned operational resilience. * **Pricing Pressure:** Recent 2–3% decline in yarn prices reflects oversupply dynamics and import duty changes, contributing to sector-wide margin compression. ## C. Acrylic Business Challenges * **Structural Decline:** Acrylic segment has shifted to break-even due to persistent demand erosion from **70% price gap vs polyester**, driving substitution. * **Industry Consolidation:** Only three players remain in India’s acrylic market, with **over 80% of idle capacity unlikely to return**, signaling long-term structural contraction. ## D. High-Value Yarn Mix * **Margin Resilience via Premiumization:** Strategic shift toward **melange, cellulosic, sustainable, and performance yarns** has insulated margins despite commodity weakness. * **Innovation Focus:** Expansion into functional and circular yarns targets high-growth activewear and lifestyle segments, aligning with global trend shifts. ## E. Garment Capacity Plans * **Expansion Amid Uncertainty:** Company is moving forward with plans to **double garment manufacturing capacity** to achieve viable scale and reduce fixed cost burden. * **Cost Pass-Through Dynamics:** Garment players are passing on ~100% of 25% duty impact via ~17–18% price reductions, supported by upstream partners. * **Cautious Outlook:** Despite recent improvement, management remains non-committal on full-scale rollout, citing unresolved industry challenges. --- # 6. Risks & Raw Material Policy ## A. Key Figures * Cotton Imports: **~3 million bales** expected (Oct–Dec) (~10% of annual consumption) * Crop Output: ~31 million bales projected (normal yield despite regional rains) * **CCI Procurement:** Expected to source **70–80%** of cotton from market * **Subsidy Differential:** **INR 5,000/month/worker** in Odisha vs. MP’s **18–20% capital subsidy only for garmenting** ## B. CCI Pricing Uncertainty * **Elevated Domestic Prices:** Persistent cost pressure on spinners due to **8% MSP hike** and likely dominant CCI procurement, threatening industry competitiveness. * **Import Buffer Winding Down:** Duty-free imports have eased near-term supply constraints, but favorable conditions have ended, increasing reliance on CCI pricing. * **Call for Market Alignment:** Industry advocates automatic price stabilization linking CCI prices to import parity to ensure equilibrium and prevent import surges. ## C. Duty-Free Import Expiry * **Monopoly Risk:** Industry urges extension of duty-free access from Brazil, Australia, and Africa to counter CCI’s growing control and maintain competitive input pricing. * **Sustainability Concerns:** Domestic pricing tied to import parity with duties may become unviable, threatening margin stability in H2. ## D. US Tariff Dependence * **Customer Resilience:** US buyers absorbing tariff-related margin pressure, anticipating resolution within **3–6 months**, supporting order continuity. * **Mitigation Framework:** Vardhman responding to order delays and inventory buildup with strategic focus on diversification, innovation, and customer retention. * **Offshore Production Leverage:** Some Indian exporters mitigating US tariff impact via overseas manufacturing footprint. ## E. Cotton Subsidy Gaps * **Regional Disparity:** Odisha offers significantly more attractive incentives than Madhya Pradesh, including broad-based worker subsidies, influencing investment decisions. --- # 7. Guidance & Outlook ## A. Key Figures * **Capex Spend:** **₹300 Cr** for synthetic plant · **₹200 Cr** for Madhya Pradesh line ## B. Capex Completion Timeline * **On-Track Expansion:** Modernization and expansion projects set for completion by **December–January**, with operational benefits and spread improvement expected from **Q4**. ## C. Spread Normalization View * **Q4 Recovery Expected:** Spread normalization anticipated in Q4, supported by project completion, potential US trade deals by **November**, and raw material price stabilization. * **Margin Recovery Conditional:** Return to historic margins depends on a **favorable US duty deal** and **continued cotton duty exemption**, with margin risks persisting without raw material cost parity. ## D. FY26 Market Stabilization * **Expansion on Hold:** Future spindle additions deferred pending resolution of **US tariffs** and raw material pricing uncertainties. * **Customer Retention Focus:** Company actively supporting strategic customers amid temporary industry headwinds. ## E. FTA Implementation Impact * **Improved Global Positioning:** Finalized **UK FTA** and advancing **EU FTA** expected to boost India’s competitiveness, with tangible benefits likely in the next financial year.