Vardhman Textiles has a clean audit record on its face, with an unqualified opinion in the latest consolidated report and two Key Audit Matters reported in that opinion, and no director disqualifications across any year reviewed. But the record carries a large and growing stack of contingent liabilities, recurring audit-trail exceptions at the database level, and a cash flow that has been volatile and cumulatively weak relative to earnings. Governance also deserves attention: public institutional shareholders have repeatedly voted against promoter-related resolutions, and the group's most valuable entities sit outside direct majority ownership.
Key findings
- EPCG duty obligation and tax appeals leave a large contingent stack
Major- Standalone income-tax contingent liabilities for claims not acknowledged as debts stood at ₹227.56 crore as of March 31, 2026, against ₹250.19 crore a year earlier, with ₹227.91 crore and ₹225.39 crore deposited respectively. Income tax appeals at the High Court involve ₹173.26 crore, including ₹143.72 crore where grounds of appeal had not yet been received, but these matters were decided in the company's favor. The EPCG duty-saved obligation against outstanding licences rose from ₹342.99 crore in March 2020 to ₹1,032.93 crore in March 2026, with an obligation to export six times the duty saved. - Clean audit opinions, but recurring audit-trail exceptions across entities from FY2024 onward
Major- Deloitte issued an unqualified opinion on the consolidated FY2025-26 statements dated May 07, 2026, and reported two Key Audit Matters. The auditor reported that one subsidiary's SAP S/4 HANA software had no adequate SOC report coverage, and one associate's software did not have the audit trail feature enabled at the application or database level for certain tables/fields. Similar audit-trail gaps were reported for the parent in FY2023-24 and FY2024-25, for a subsidiary in FY2024-25, and for an associate in FY2024-25. - Operating cash flow is volatile and cumulatively weak relative to earnings, despite continued large capital deployment
Major- Cumulative CFO of ₹6,614 crore was only 0.61x cumulative EBITDA of ₹10,920 crore over the ten-year history. CFO swung from ₹1,853 crore in FY23 to negative ₹1,055 crore in FY24, then recovered to ₹1,644 crore in FY25 and ₹1,108 crore in FY26. Free cash flow was negative ₹1,329 crore in FY24 and negative ₹579 crore in FY26, with positive ₹675 crore in FY25, while ROCE declined from 11.19% in FY25 to 8.47% in FY26. - The group's most valuable entities are held at low stakes, with control through trust arrangements and contractual rights
Major- Vardhman Yarns and Threads, held at only 11%, generated standalone net profit of ₹205.42 crore in FY2024-25, and Vardhman Special Steels, held at 23.76%, generated ₹92.81 crore. Mahavir Share Trust holds 10,65,822 equity shares of Vardhman Special Steels on behalf of the company as of March 31, 2026, valued at cost in other current assets rather than investments. A 50%-held associate, Vardhman Spinning & General Mills, reported no revenue from operations in FY2024-25, continuing a pattern of near-zero activity. - Promoter family members hold multiple board and executive positions, with rising remuneration and repeated public institutional dissent
Major- Public institutional shareholders voted 55.82% against the re-appointment of Mr. S.P. Oswal as Managing Director in a postal ballot ended 10 March 2024, and 51.42% against the re-appointment of Mr. Sachit Jain as director at the AGM held 20 September 2024. Mr. S.P. Oswal's remuneration rose from ₹923.86 lac in FY2020-21 to ₹4,341.17 lac in FY2021-22, then fell to ₹2,061.09 lac in FY2022-23 and ₹1,740.14 lac in FY2023-24, before rising to ₹2,277.95 lac in FY2024-25. Two granddaughters of S.P. Oswal hold board positions: Ms. Sagrika Jain was appointed Executive Director on 6 August 2022, and Ms. Soumya Jain was appointed Non-Executive Non-Independent Director on 3 May 2025. - Revenue recognition is routine and customer concentration is low, but the FY26 channel mix shifted sharply
Minor- Purchases from trading houses rose to 56% of total purchases in FY 2025-26 from 25% in FY 2024-25, with the number of trading houses used rising to 1,848 from 22. The maximum credit period for exports was extended to 180 days in FY 2025-26 from 120 days in FY 2024-25. No single customer contributed 10% or more to revenue in FY 2025-26 and FY 2024-25. - Regulator actions are limited to small BSE fines and a pending PPCB environment compensation demand
Minor- BSE levied fines of ₹1,000 for FY2022-23 and ₹31,000 for FY2023-24 for non-compliance with SEBI (LODR) provisions pertaining to listed NCDs, with no other penalties from any statutory authority in the last three years. The Punjab Pollution Control Board imposed Environment Compensation of ₹13,20,000 on the Ludhiana unit for the period 01.07.2024 to 13.08.2024, per PPCB letter dated 3-Jan-2025. Certificates dated 21 May 2022 through 7 May 2026 confirmed no directors were debarred or disqualified by SEBI, MCA, RBI or any statutory authority. - Accounting-policy choices are routine and consistently applied, with modest one-time items
Minor- Tax expense for FY2025-26 was reduced by ₹16.98 crore due to reversal of income tax provision of previous years following settlement of certain tax litigations. The Labour Codes notified on November 21, 2025 resulted in a past service cost of ₹32.48 crore recognised in standalone employee benefit expenses, plus an additional ₹8.90 crore due to salary structure changes, totalling ₹41.38 crore. The amalgamation of two group companies with Vardhman Textiles became effective May 14, 2022, with standalone FY2021 profit restated higher by ₹16.33 crore and OCI higher by ₹0.17 crore.
What to watch
- High Court tax appeals. Outcome of department appeals involving ₹173.26 crore for AY 2001-02 to AY 2007-08 and AY 2009-10 to AY 2014-15, including ₹143.72 crore where grounds of appeal had not yet been received as of the FY2024-25 reporting period.
- Bonus Act writ petition. Outcome of the Punjab & Haryana High Court petition contesting retrospective applicability of the Payment of Bonus (Amendment) Act 2015, with ₹8.21 crore differential bonus unprovided as of the FY2025-26 reporting period.
- PPCB consent renewal. Adjudication of the appeal against PPCB's return of the Consent to Operate renewal application, and PPCB's decision on the fresh application with PERT Chart submitted 25-Dec-2024, both pending as of the FY2024-25 reporting period.
- TUFF subsidy recovery. Recovery of the government grant receivable, against which an ECL provision was recognised as at March 31, 2026.
- Capex completion. Commissioning of the open-end project with 55-60 tons per day capacity, expected in about 10 months from the Q1 FY27 transcript dated June 2026, and full operational status of doubled garment capacity expected by June 2027.
Bottom line: This is a company with a clean audit record, routine accounting policies, and no material regulatory enforcement. The risk sits in three places: a large and growing contingent liability stack, a cash flow that has not consistently converted earnings into cash despite heavy capital spending, and a governance structure where significant value sits outside direct ownership and public institutions have repeatedly dissented on promoter resolutions. Watch the High Court appeals, the PPCB matter, and whether the EPCG obligation and cash conversion improve as the capex programme completes.