Ladies and Gentlemen, good day and welcome to the Vardhman Textiles Limited Q1 FY 2026 Post Results Earnings Conference Call, hosted by Batlivala & Karani Securities India Pvt. Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Roshan Nair from Batlivala & Karani Securities India Pvt. Ltd. Thank you, and over to you, sir. Thank you, and over to you, sir.
Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the floor to Mr. Neeraj Jain and Ms. Sagarika Jain for their opening remarks, post which we can have a Q&A session. Thank you, and over to you, sir.
Good afternoon, everyone. Welcome to the Q1 Earnings Call of Vardhman Textiles. We have declared the results for this quarter, and I'm pleased to share with you that the operational performance has been at par or slightly better than the previous quarter, of course excluding some extraordinary items. It continues to be a very challenging period for the spinning industry. Indian cotton is still trading at a premium to international cotton, so it ranged between $0.80-$0.82 per pound during this quarter, and it has further increased to around $0.85 in July 2025 due to a higher MSP, and the MSP for the upcoming cotton season has already been announced, with an increase of nearly 8%, making Indian cotton even more expensive in the future. The CCI has been the largest buyer of Indian cotton. They have bought about 30% of total cotton produced this season.
While this definitely improves availability of cotton, price remains a challenge. So CCI has increased cotton prices by about INR 2,500-INR 3,000 per candy in the past month alone. So, this has made Indian cotton among the most expensive cotton in the world if we compare it to other equivalent qualities. As a result, Indian mills have more than doubled their cotton imports. Imports are expected to reach about 35 lakh-40 lakh bales in the current cotton season, compared to the typical 15 lakh-18 lakh bales annually. However, unlike competing countries like Bangladesh, Vietnam, Indian spinners on top of this face an 11% import duty, which puts them at a further disadvantage.
During this period, cotton traded in the range of $0.66-$0.68 per pound on the New York futures, and the landed cost of this is about $0.78-$0.80 for mills in Vietnam and Indonesia. If we compare this to our Indian situation, that is about $0.82-$0.83, highlighting a cost disadvantage of about $0.03-$0.04 per pound. And if we put on top of this some quality variation and quality distinctions between Indian and international cotton, this disadvantage further increases. So these are some structural challenges that we are facing in the Indian spinning industry. This quarter also began with what is arguably the biggest global trade disruption in the recent times, which is the imposition of new U.S. tariffs on textile imports. Initially, India appeared to be relatively better positioned compared to China, Bangladesh, and Vietnam.
However, the policy continues to shift, and we are still waiting for the dust to settle and some clarity to prevail. This has led to a lot of volatility and confusion. As a result, U.S. buyers adopted a more cautious stance, delaying new orders while working on tariff mitigation strategies and adjusting inventory levels amid softening retail demand due to inflationary pressures. So this has led to a visible slowdown in new order placements from the U.S. market during this quarter. That said, because we are a diversified company with a diversified geographic exposure, so this acted as a strong buffer for us. Markets such as U.K., EU, Japan, South America, Egypt, Australia, and our domestic Indian market remain relatively stable, enabling us to maintain healthy capacity utilization.
I'm also pleased to report that our yarn and fabric sales during the quarter remained broadly in line with the corresponding quarter last year, which is an achievement well worth noting amid global headwinds. While external headwinds continue to persist, we remain a long-term believer of growth and of the growth potential of this industry. That's precisely why we're making significant investments both in spinning and fabric. Our fabric expansion is progressing as per schedule, and we can expect it to begin contributing meaningfully to our top line and bottom line from quarter three onwards. Additionally, our capacity expansion in our mechanical recycling plant, ReNova, has successfully begun operations in July, and also, the expanded capacity of 14,000 spindles in melange yarn is now operational. Thank you, and we now open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and Gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vaishnavi from Craving Alpha Wealth Fund. Please go ahead. Ms. Vaishnavi, your line has been muted.
Hello.
Yes, ma'am, your line is unmute.
Hello, hi. Am I audible?
Yes, ma'am.
Yeah, good afternoon, ma'am. My first question is regarding the Bangladesh and yarn exports. So considering retail accounts for approximately 50% of India's total yarn exports to Bangladesh, and Bangladesh currently shifting its yarn imports from India to China, what can be the potential impact of the same, and how are we planning to mitigate it?
Yes, from India, there's lots of export of yarn to Bangladesh, but for us, Vardhman, it's about 30%-35% instead of 50%. To whatever customer base we have, whatever products we have, we are not finding any shifting of that happening from China or other places. Rather, there's a challenge and a concern everywhere that since there is a Chinese cotton is under question mark, especially from Europe and USA. So there's no, apparently, there's no direct shifting of the yarn sourcing from India to China as of now. I think everyone is looking at what eventually this duty structure would be, one, directly to the USA, two, for the material to be shifted from one country to the other. I think as of now, there is not much of difference happened as of now in the Bangladeshi imports.
But yes, we are looking at it carefully, and once these things are announced, only then we could look at what could be our next course of action. But as of now, for Vardhman, I don't find any difference or any issues as of now.
Sure, thank you. Thank you, sir. My second question is regarding the tariffs that have been imposed on Bangladesh by U.S. Hello.
Again, it's not the tariff which has been imposed. They have only given a statement that the tariff is likely to be earlier. They said 37%, then they said 35%. But I think still the official announcements, whether this is applicable, is made applicable or not, is yet to be done. But yes, in case it is 35% plus whatever customs duties were there earlier, in case it becomes 50%, definitely the other countries, wherever the tariff would be lower, would be in a position to take advantage. But I think we'll have to wait for maybe another some more days before the entire world situation gets cleared on the tariffs.
Right. If I can follow up on that question, sir, if the tariff takes place, so by any chance, VTL is planning to take or anticipate any medium-term opportunity for VTL by exporting to USA?
The USA buys final products, which is either garments or home textiles. We are not into that business as of now. Our business is the yarn and the fabric, so we will be supplying the material to all the players who would be doing the garment export or the home textiles export. For example, the Indian garmenters, if they get the opportunity and they want to export to the USA, we will become supplier to these garmenters. For Vardhman directly, nothing can be exported to the USA because USA doesn't do much of garmenting or home textiles. They buy the final product only, which is not our line, but yes, if the business increase in India, Vardhman will have the great opportunity to serve to the Indian players so that the final products could go to USA.
Okay, okay. That's it from my side. Thank you so much, sir, for taking my question.
Yeah.
Thank you, ma'am. The next question is from the line of Riddhesh Gandhi from Discovery Capital. Please go ahead.
Hi, sir. You know there's a difference between Indian cotton and the American cotton. Obviously, it's been continuing for a number of quarters now, and we've been cautiously optimistic that it's going to turn around, and obviously, it isn't in our control. Just wanted to understand from your perspective, are there any triggers which you potentially see that can help to rectify this and bring us back to our normalized margins?
Yeah, so the industry has been requesting the government to allow the duty-free import of cotton, and we understand the textile ministry is trying for the same, so that seems to be the only option as of now. If they allow the duty-free import, probably then we will also be in a position to import the cotton at an international parity. Two, I think that will also bring down some parity for the domestic selling prices also, so government textile ministry has written to the finance ministry, but we are not sure. It's been almost two months now. I think that's the only way where the long-term cost could come to be normalized in India, and the industry may start looking at the normal margins again.
Right, but are there any potential implications on the farmers if they reduce this duty? And also, in case we do reach a trade agreement and the duties are removed, would it help us? Just wanted to understand. It is two separate questions, sorry.
But two different. Both the aspects are absolutely different.
Yes.
So one, the government has to support the farmers. That process is through the minimum support price. That's in any case, and it's not only for cotton. Wherever the government has committed the minimum support price, they'll keep buying those products from the farmers at the minimum support price, and they'll keep selling in the market at the market-related prices. So that's one mechanism. Be it wheat, be it rice, be it cotton, that mechanism is on. The second is the import of raw cotton duty-free, which was implemented only in February 2021. This was imposed. It was never there before. So we are asking the government, it's important for everyone to support the farmers so that the cotton crop is there. At the same time, industry should be given an opportunity or should be allowed to import if the local prices are higher. So both the mechanisms are separate.
Farmer is 100% secured by a minimum support price, which is what the government is doing through the CCI, and there's not any impact on them with the duty crop.
Got it. So what was okay. Okay, I'll come back in soon. Thank you.
Thank you, sir. The next question is from the line of Vansh Solanki from RSPN Ventures. Please go ahead.
Hello, sir. Very good sets of numbers. So first of all, my question being on the yarn demand and pricing. Our GP margin is increased a little bit from March quarter. So does this mean that the demand has also started going up? And is there on-ground demand for yarn setting? And also, I want to understand the prices of the yarn. Are they stable or going up? What kind of scenario is there on-ground?
On the demand side, there is not any improvement, but at the same time, not any deterioration also. It's almost the same. On the prices also, last almost six months, the price band has been in the range of plus minus five. Either on the demand side or on the yarn pricing side, our only concern is since the margin is not very good. With the pricing going up in India, the situation can actually deteriorate in the second and third quarter, which is written to the government. Under the duty-free import of cotton, the raw material price to us is compared to international prices. Margin can actually come under more than.
Okay, sir. The second one is that our margin also improved very much from the March quarter because the international issues of the Red Sea and all may be going to stabilize. So can we assume that the 14% margin will now range and this can come through the full year 2026?
It's very difficult because today, the market is absolutely very dynamic. What happens to the duty structures, what happens to the prices, what happens whether our cotton will continue to be expensive or not, so anything on the spinning side today is a motive. Since the strategy was to move to stability, relatively good. Except if the trade becomes very stable, a different major thing hit. I think we'll have to wait for some more time, so one uncertainty of tariff, if it is clear, we can be moved to. I think directors have told you the concern. Look at how do they want to have the raw material parity in India, but yes, going by today's situation, I think it continues. We have much more volatility and uncertainty as of now for maybe a couple of weeks.
Okay, okay. Thank you, sir. I will come for a follow-up question if needed. Thank you.
Thank you, sir. The next question is from the line of Prerna from Elara Capital. Please go ahead.
Hello. Congratulations, sir, on improvement in margins. So just wanted to understand how much cotton would you have in inventory now, and what would be the average cost, and how much of it would be imported?
Prerna, numbers only may share Karshakta, but I can only say normally our season starts in the month of October or November, and generally we have the cotton up to that period. But this time, definitely we have a little longer cotton compared to that. Both Indian and imported together.
Okay. And sir, how much of this will be imported, and if you have hedged any? I just wanted to understand that.
Bravo, bravo. Yeah, no, no, my response is bravo.
Okay, okay. And sir, in this Q1Q improvement in gross margins, what really helped actually? Is it better cotton price in the system or better mix of yarn, like more value-added yarn being sold? I mean, just trying to understand what helped improvement in gross margins on a Q1Q basis.
First quarter, when I showed you my prices of cotton were lower, so it's like an advantage there was. So it's like that.
Sometimes there are some companies that have cotton in the second quarter, maybe that can continue. But at the same time, in any case, second quarter, we'll have to buy cotton from the market also because of the future requirements. Now, that's the concern that even though the margins were a little better in the first quarter, company as a whole, but if this continues the way prices have moved in the last three weeks in India, I'm sure unless the yarn prices improve, the margins cannot sustain at these levels.
Okay, okay. Understood. And sir, if I just want to understand the trade right now, you've spoken that there is not much clarity, but what we hear from the trade community is that these tariffs are being asked to be shared by the supply chain partners. Has any of sharing being done by you for your partners or any such thing has come to you which could also strain margins in future?
So on the spinning side, we've got a couple of requests, but considering our margins, we could explain to our partners that it's really not possible for us to share in the spinning. On the fabric side, some static customers, we have done some small adjustments, but that's really very, very insignificant compared to the overall size of the organization. It was a one-time request. We have accepted that since our customer was in trouble. But I can surely say that amount was so small that it's not likely to impact that particular part. It's not likely to impact the overall margins going forward.
Okay, okay. Understood, sir. And the last question from my side on power. Has a power cost started coming down because of green investments being done in the last one year? And what would they be? What kind of benefit would have occurred in this quarter for the same?
So there are a couple of aspects of the power. One, we have put in some small capacities on our roofs in the plants. That capacity, by and large, is operational, but that's a very minuscule capacity, so that advantage has started coming in. We also entered into an agreement with a third party where we created the SPV, and that power has to be supplied to us. That advantage will start coming in maybe next two months. Next one or two months, it will start, and I think we'll keep building it up in the next one year. But as of now, that advantage is not coming. Third is we are also looking at the possibilities for some initiatives for our energy conservation within the operation, both spinning and on the fabric side.
We've taken lots of initiatives on their side also, which I think will complete in the next six months' time. And fourth is we are going in for the biomass-based boilers where the cost of steam and the cost of power should come down. Those things will be applicable only once we complete the project, which will be close to about a year from today. The major benefit is not coming though. The investment has started happening, but the major benefit, I think, will start going in the next three, four months, and it will take us about a year or so to start taking the full benefit of that.
Okay. Understood. Understood. And any CapEx that you see, any incremental cost that has come in P&L instead of balance sheet in this quarter?
No, not really.
Not really. Okay, sir. Thank you, sir. I'll come back to the question queue again. Thank you.
Yeah.
Thank you, ma'am. The next question is from the line of Falguni Dutta from Mansarovar Financial . Please go ahead.
Yeah, good evening, sir. Sir, I missed your answer on the cotton yarn spread. In absolute terms, what are they now, and what kind of a decline do you see in the coming quarters?
So the yarn prices are almost $3 as of now, and it was the same a year or so. So considering this price, considering the New York future of $0.6768, the international spread for cotton yarn is in the range of about $0.85-$0.90. But since the Indian cost is higher, so the Indian spinner margin as of now is close to about $0.70. But the way Indian cotton prices have increased last three weeks, we have seen the price increasing by almost INR 2,500-INR 3,000 a candy. So I'm sure unless the yarn prices improve, this will come down by another $0.08-$0.10 for the yarn spread.
Okay. Sir, I have one more question, which is on what is the landed cost of cotton now for us in India from the U.S.?
The landed cost, normally US cotton is available on a basis of 1,200-1,300, 1,200-1,400 basis points over New York futures. But India is importing regional cotton, which is available at about 800-900 basis points over New York futures.
Sir, we would be importing cotton from the US?
No, we are importing from the U.S. We are importing from Australia. We are importing from Brazil also. We are importing from all three countries.
Okay. Sir, could you just clarify what was that you said is 1,200 basis points higher versus?
New York futures.
1,200.
The New York future is at $0.68 as of now. So the cotton which you buy from anyone buys, it covers the rate cost, it covers the local transportation, it also covers the commission and the trade partners' cost. So U.S. cost generally is available in India on a basis of 1,200-1,400 basis points over and above the New York future. So the New York future today is $0.68. The cotton will be available in India at about $0.80-$0.81 or so.
Okay.
The Brazilian cotton is available on a basis of about 800 basis points, so it's at $0.68. The New York future will be available in India at $0.76.
Okay. Okay. Thank you, sir. That's all from my side.
Thank you, ma'am. To ask a question, please press star and one now. Participants who wish to ask questions, may please press star and one at this time. Before we take the next question, we would like to remind participants that you may press star and one to ask questions. The next question is from the line of Prerna from Elara Capital. Please go ahead.
Thank you for the opportunity. So just wanted to understand the order book position and the demand in both yarn and fabric businesses given the uncertainty in our customers today?
A little lower. I'll say not significantly lower, but definitely a little lower because all the brands, they are talking to us for the business. At the same time, they want to place the business only once the tariff clarity is there because nobody knows which country will have what kind of tariffs. So though everyone is talking about the business because the retail sale in the U.S. is good and the pipelines are not being filled up, so there could be a possibility of a sudden demand rising. But again, since the tariff is not clear which country will have what, so the brands are trying to go only hand-to-mouth. So to that extent, the future order position is a little lower compared to what it used to be.
Okay. And the same goes for fabric. I mean, any different?
Yeah, yeah, yeah. Both businesses. Both businesses.
Both. Okay. And sir, how much would be our exposure for U.S., Europe, and U.K.? I mean, in terms of customers to whom we are supplying the product that is going to U.S., Europe, and U.K., so that at least we know that if U.S. is uncertain, at least U.K. or Europe could still be better off from our.
So there are two parts of the business. One is the direct business with the U.S. brand. Second is our business in India or other countries where we are supplying yarn or fabric, and they would be doing the U.S., which we would not be doing. So I can have data only of our direct sales to the U.S. brands, which we know where the material could be going to Vietnam or Bangladesh or wherever where the business has been done by us directly with the brand, and then the garmenting would be happening anywhere they want, be it India, be it other countries, be it Sri Lanka, be it Bangladesh, or Vietnam. So I think on the spinning side, whatever export we do, almost 30%-35% is to the U.S. brands finally.
Of course, if I'm supplying lots of that material, it will be going to Vietnam or to Bangladesh. And now, in the trade tariffs, eventually, whatever tariff is for those countries, that will be applicable on them, not on us.
Correct.
On the.
On the fabric `side, our sales to U.S. is about 40%-45% of total fabric business.
Okay, and what would be Europe and UK? Will it be a balance or balance of exports?
I can tell you that it's in the single digits as of now. But given the situation, I think we are now taking significant steps to more diversification so that we have a more well-balanced portfolio. The U.S. historically has been the largest consumer economy. It's also been one of the most profitable markets, which is why, of course, we had a lot of opportunity there. That being said, our domestic sales continues to be about 30%. That is our geographical makeup as of now.
Okay. And how has been the demand in India? Whether that also facing some hindrances or it's still stable?
The Indian demand, I don't think there's any impact. The local demand is normalized. There's no issue on that.
Okay. Is it improving, sir? Just to see whether it's offsetting some of the impact from U.S.?
It's neither improving nor deteriorating, so it's just going as normal.
As normal. Okay. Thank you so much, sir, for this clarity. This is really helpful. All the best, sir.
Yeah.
Thank you, ma'am. The next question is from the line of Veena Kaseja, an individual investor. Please go ahead.
Yeah, hi. Thank you for taking my question. I actually have a couple of questions. I wanted to ask, can you help me understand what is the spindle capacity for 2025? Does the 17,000 spindles being completed, the expansion of that, included in FY 2025? And how do we see it? What do we see the capacity to be like in FY 2026 and 2027? The second question, sorry, I missed earlier because of the audio quality. An earlier participant asked about margin expansion. Is it likely to continue? Could you just repeat that or help me understand that? Do we see that trend to continue going forward? Thank you.
On the spinning side, our capacity today is close to about 1.3 million spindles, and there's not much of expansion happening except some two small projects of 17,000, 18,000 spindles each. But at the same time, we are doing some deep automating on the business side also. I hope our overall production, which used to be about 710-720 tons, would increase to about 750 tons or so. That means a total of about 6%-7% growth on the production side on the sales side. On the fabric side, sorry.
On the fabric side, we are currently at 145 lakh meters per month process capacity. And in the next three to four years, this will go up to about 210 lakh meters per month. So this will include expansion of existing line and also addition of our new synthetic line which is coming up.
Okay. Thank you. Just an approximate number on FY 2026, 2027 capacity?
It will be a little difficult to comment on this right now because there are different timelines. Also, it will take some time for us to achieve 100% capacity, like 90% plus capacity utilization. So it will be difficult to give the exact breakup. I think next three to four years is the horizon we are seeing.
Okay. Understood, and on the margin side, do we see the trend to continue?
I mentioned on the margin side that going by the normal situation, probably the margins can continue, so we have two uncertainties as of now in our hand. One is the trade barrier, so the trade tariffs, which we are not sure of what's likely to happen, and then we will have to wait till the time the U.S. decides finally which countries have which kind of a tariff, and then accordingly, the margins could be differentiated. In India, on the spinning side, the margins could actually come down as our cotton prices have started increasing in the last two, three weeks, and the next year, going by the next year MSP, the prices are likely to increase only, so unless the government looks at allowing the cotton to be imported duty-free, I think the margins are likely to come down only in this situation.
Or the CCI wants to preserve the cotton and sell it on the international parity, which they are not doing as of now. So we are not very sure what their policy will be the next year. As of now, they are selling cotton at a much higher price than the international prices, which is the reason the Indian spinners are not in a position to make money. So I think on the spinning side, going by the today's situation, it will be more challenging to maintain the margins unless the government comes to the rescue where they decide that the local spinners should get the cotton at the international parity, which is not the case as of today.
But company overall, as we increase investments in the textile part of the business, the margin of the company will certainly improve from our current margin.
Okay. Understood. Thank you so much. Thank you.
Thank you, ma'am. The next question is from the line of Lakshmin arayan from Tunga Investments. Please go ahead.
Thank you. You mentioned that there is the import and local cotton prices are different. Now, in case you import and you get any setup benefit in case you actually export, so I think you import around 20% of your total yarn, I mean, cotton requirement. And in case you actually, is there a benefit you get in case you export more?
So, in case the normal duty in case of import of cotton is 11% in India. We can import the cotton under Advance License for export of yarn, but it has two disadvantages. One, we lose on the Duty Drawback, which is about 1.9%, and also the RoDTEP amount is lower than the normal RoDTEP . So, in totality, the effective duty in case of Advance License will be about 4.5%. But that's only in case of you want to export the yarn. So, our yarn export is one-third of the total production we do. The remaining two-thirds is sold in India, both to the market as well as to the fabric division. So over there, for the domestic consumption, we can't import cotton under Advance License.
So practically, best-case scenario for us to import cotton with a concessional duty of 4.5% would be about 25%-30% in the best-case scenario.
Got it. Got it. Got it. This is helpful, and you're actually adding capacity, and you also talked about capacity utilization. Question is, are you seeing enough demand for the yarn, and usually, what is the organic what kind of growth you are actually expecting from a yarn output which you can actually sell in the market?
There's absolutely no issues in terms of the demand of the yarn. It's reasonably good, and we never had the issue for selling of material in the yarn market. So there's enough demand to that extent.
Because what I also hear is that there are suboptimal units are willing to close down, or they are unable to run it because of power cost, availability of manpower, and availability of raw material. Are you taking market share from smaller players who are maybe sub two lakh spindles, etc.?
There are different reports which are compiled by the industry, different organizations, different associations. We understand as of now that the total last two, two and a half years, almost nine-9.5 million spindles have been stopped permanently, especially the smaller ones. The effective spindleage available in India today is estimated. It was earlier about 54-55 million spindles, which now is estimated close to about 44-45 million spindles. These are all industry estimates. There is no authentic or government data which supports this. Yet, the studies done by the private players or by the different associations, I think the information seems to be quite reliable and good that in India, almost 9.5-10 million spindles have stopped permanently in the last two, three years.
As of now, the demand in India is not increasing because the export viability, because of the cost, etc., is not increasing. But at the same time, there is definitely indirect consolidation happening in India. And I think the long-term players may get an advantage in the long term if the capacity of the system is kept indirect. Amount of consolidation surely is happening.
Got it. One question related to the yarn profitability. How are you actually optimizing on yarn profitability? Have your mix of counts actually coarse count, fine count has actually changed? And if you can just shed light on in the last three years, how your yarn mix has changed towards higher profitable yarn versus lower profitable yarn?
In terms of count, etc., I don't think there's any major change happened. Our average count used to be about 28. It is still 27-28 only. There's not much of change in the last two, three years. But definitely, our customer profile has changed significantly in the last four, five years. Just to give you an idea, we used to have about 8%-10% business, which was the direct brand business, which today is on the yarn export side. Today it increased to maybe about 35%-40%. I think on the customer profile, definitely there's an improvement. And all those customers which are coming in, they are bringing in the more value-added products also. That's the only way, that's the only area where the margin could still be managed even in this kind of difficult times.
But yet, on the overall, the count-wise or the yarn count, etc., there's not really much of change.
That's an interesting thing which you talked about, brands directly soliciting from you. So in general, when you actually sell through the agents versus selling directly to the brands, what is the margin difference you actually get?
Two, three things. One is the margin. Second is the stability of the business. First, I'll say the stability of the business remains far better because these brands generally will not change the vendor base only for two, three, five cents. Whereas for the trader, every one cent is important, and whosoever supplies them one cent, half cent cheaper, they'll move on to that. These brands have a lot of issues, concerns, audits, ESG, and their compliance issues. Normally, these brands will never change the vendor base for two, three, five cents or so and so on. One is the stability of the business. Two, when these brands come in, definitely, most of the time, the margin will be a little better compared to on the basic products, a little better compared to the trade business.
But more important third, which is more important is that they bring in lots of specialized products, be it a particular cotton, be it a particular value-added product, where the margins can be significantly higher. So I think looking at all these three aspects, we try to move more and more towards brand business. The stability of the business, profitability, and the overall reliability of the system definitely improves in a big way compared to a trade business.
Got it. Got it. Thank you, sir. I'll get back to you.
Thank you, sir. To ask a question, please press star and one now. Participants who wish to ask questions may please press star and one at this time. The next question is from the line of Falguni Dutta from Mansarovar Financial . Please go ahead.
Hello.
Yes, ma'am.
Hello.
Yes, sir. So I just wanted to check on this. What is our total export of yarn, you said?
Total export is almost 30% of our total capacity.
30%. And export of fabrics to U.S. was how much? Was also mentioned?
Around 40%-45%.
Okay. And so just wanted a request. This audio quality for since a few quarters is not that great. So if you could just do a bit about it, then many repetitive questions can be avoided.
Sure. We'll ask the organizers to re-look at that because I think it's organized by BNK. I'll definitely BNK, Roshan, kindly look at it for the future calls.
Okay. Thank you, sir.
Thank you, ma'am. The next question is from the line of Vaishnavi from Craving Alpha Wealth Fund. Please go ahead.
Hello. Hi, sir. Thank you for taking my question again. My question was regarding the capacity utilization. What was the capacity utilization for this quarter? And any ballpark figure you can give for the estimated capacity utilization for FY 2026?
On the spinning side, we were running full capacity. Even on the fabric side, we were practically running the full capacity. So there's not much of expansion except some small expansion on the spinning stage where we feel as and when it comes in, we should be in a position to utilize it 100% the month it comes in. On the fabric side, Sagarika mentioned, whenever we add a new capacity because in the fabric side, we do only make to-order kinds of products. So it may take us maximum two to three quarters before the 100% capacity utilization comes in. And especially, this is a period where we will be adding the synthetic fabric also, which is a new product line for us, though we are hopeful that we should be in a position to utilize it very fast. But at the same time, there's always some learning curve.
We have to understand the business. We have to understand the customers, their requirements, and needs. So generally, our experience is on the fabric side. Whenever we add marginal capacity, we are in a position to fully utilize it in about three quarters maximum.
Sorry to interrupt, sir. I did not get your answer due to audio quality issue. Can you please repeat the FY 2026 yarn and fabric capacity is full?
So the yarn as of now, both the businesses, the capacity utilization is full. And then future going forward, whatever is on the spinning increase, we will be in a position to utilize in the first month itself. On the fabric side, normally it takes two to three quarters before we are in a position to utilize full capacity. So generally, fabric requires two to three quarters.
Okay, and what was the current capacity for this quarter?
It was all 100% utilized.
For both yarn and fabric?
Yeah.
Okay. Thank you. Thank you, sir.
Thank you, ma'am. The next question is from the line of Nagraj Chandrasekar from HDFC. Please go ahead.
Hi. Good evening. Could you give me a sense of global market?
Sorry to interrupt you, sir. So can you please use your handset?
Hello.
Yes, sir. You are loud and clear now.
Hi. Good evening. Could you give me a sense of global cotton prices and your view on how they might be likely to move given global acreage changes, yields in the major cotton exporting countries, and given this view that you would make in the next few months or so before November, how would that make your cotton buying decision? Are you likely to buy a lot of inventory from what is available, or are you likely to buy through the year?
The overall area in the world, there's not really much of change. And we are likely to look at addition of stock in the next financial year, in the next cotton season, also by 500,000 tons to about 1 million tons, which means the possibility of increasing the cotton price in a big way doesn't look like possible because there will be net-net addition of cotton in the world stocks unless some dramatic change happens on the consumption side. So going back into this situation, all three agencies, USDA or the other two agencies, are showing an increase in the projected increase in the cotton stocks next year. Now, on the procurement part, we are looking at the international markets. We are looking at the domestic markets also. And depending upon whichever makes us more sense commercially, we'll be buying that.
But just for the information for all of you, normally, we used to import about 3%-4% of our total consumption of cotton from outside India, which this year, I think we have already done close to about 20% or so. And unless the Indian price comes down, we may continue to buy more imported cottons.
Understood. Thank you.
Thank you, sir. The next question is from the line of Lakshmin arayan from Tunga Investments. Please go ahead.
Thanks again. Just wanted to understand how do you look at profitability on various segments, yarn, fabric, and other? Because some of them look at cash profit, some of them look at EBITDA, some of them look at EBITDA per spindle or yarn. So just want to understand how, as an organization, they will look at how do you define the unit of profitability in these things?
For us, we look at EBITDA per spindle per shift. We also look at EBITDA to sales as a percentage and EBITDA to capital employed. These are the three terms which are used for the spinning business. For the fabric business, it is EBITDA per meter, EBITDA percentage to sales, and EBITDA percentage to the capital employed.
Got it. And if you look at EBITDA per spindle, how it has actually moved in the last five years?
It used to be in the range of about INR 5 a spindle shift as a benchmark. It is still in the range of about INR 5 per spindle per shift.
Okay. Okay.
It is still in the range of about INR 3-INR 4 for the value-added or INR 5 for the value-added product. For the basic products, definitely, it is much lower. But EBITDA as a percentage to sales used to be about 14%-15% in the spinning business, which as of now is in the range of about 10% or so.
Got it. Got it. And the EBITDA per spindle for the branded business would be much higher than the INR 5?
No. Not from the INR 5, from the normal, from the trade-related business.
Sorry, from the? Sorry, I didn't hear it.
From the normal trade-related business, it will be higher. So, INR 5 is including the brand businesses, etc., etc. But otherwise, if you go by the basic products today, there would be hardly any EBITDA per spindle per shift on the basic products.
Got it. Got it. This is very helpful, sir. Thank you so much.
Thank you, sir. Ladies and gentlemen, to ask a question, please press star and one now. Participants who wish to ask questions, may please press star and one at this time. The next question is from the line of Jayesh from ValueQuest. Please go ahead.
Hi. Good evening, sir. Hello. Am I audible?
Ye s, sir.
Yes.
I just wanted to ask a few questions for the business and how it has changed over the past couple of years. So, it is a rather large expense. I just want to understand a bit more about that.
Sorry to interrupt you, sir. Your voice is very low. Can you please use your handset?
Sure. I am on my handset. I just wanted to ask a bit about the power and fuel expenses for the business in FY 2025 and how it has been for this last quarter, sir.
Sorry, I'm not clear on the question.
Yeah. I just wanted to understand more on the power and fuel expenses for the business for the quarter and for FY 2025, sir?
So, power. I already mentioned that there is some small advantage which has come to us by the internal solar power we had on our rooftops. But the major advantages of power will be available and start coming in next one quarter or so. And it will take us maybe about one and a half years to have the full advantage of whatever initiatives have been taken till now. We are further looking at some more arrangements and agreements to be done so that our power cost keeps coming down. So, I think every quarter, you will find some improvement on the power cost for the next one and a half years.
Got it. Thank you, sir.
Thank you, sir. The next question is from the line of Monish Ghodke from HDFC Mutual Fund. Please go ahead.
Sir, could you share average realization per kg for yarn and for fabric per meter in Q1?
Normally, international parity is $3 for a 30-count as the average realization in this period.
Okay. And sir, you said the yarn margins were 17% in Q1. So, what were the fabric margins?
17%-18%. It's usually around 17%-18%.
Okay. Okay. Thank you.
Thank you, sir. Ladies and gentlemen, in the interest of time, that was the last question. I now hand the conference over to the management for closing comments.
Thank you all for your participation and continued trust in the company. We've been very transparent about the challenges that we are facing, especially over the last two years, which has been extremely difficult for the textile industry globally. However, within what is controllable, we are fully focused on driving modernization, refining our product mix, launching new product lines, optimizing costs, and improving operational efficiency. The improvements we are seeing in our results are a reflection of these efforts. We believe that policy anomalies and trade barriers will eventually correct, so our goal continues to be to be well-prepared so that we can fully capitalize on the opportunities once the external environment improves. Looking ahead, we remain cautiously optimistic. Despite uncertainties in the U.S. market, we are strategically well-placed, and we will continue to diversify geographically further.
And we also are excited and enthusiastic for our new synthetic line, which will be upcoming in quarter three. We will continue to focus on profitable growth, agile customer servicing, and innovation-led offerings. Our strong market presence, emphasis on operational efficiency, and unwavering commitment to quality will remain the pillars of our business and future growth. Thank you for joining us. See you next time.
Thank you, ma'am. On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.