Ladies and gentlemen, good day and welcome to the Vardhman Textiles Limited Q2 FY2026 earnings conference call hosted by Batlivala & Karani Securities India Pvt Ltd. As a reminder, all participant lines will remain 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 the conference call, please signal the operator by pressing star then zero on your touch-tone telephone. Please note that this conference is being recorded. I will now hand the conference over to Ms. Aradhana Jain from Batlivala & Karani Securities India Pvt Ltd. for opening remarks. Thank you and over to you.
Thank you, [audio distortion]. Good evening, everyone, and welcome to Q2 FY2026 earnings conference call of Vardhman Textiles Limited. On behalf of B&K Securities , I welcome all participants and the management of Vardhman Textiles to the call. From the management, we have Mr. Neeraj Jain, Joint Managing Director; Ms. Sagrika Jain, Executive Director; Mr. Sushil Jhamb, Director of Raw Materials; Mr. Rajeev Thapar, CFO; Mr. Mukesh Bansal, Head of Fabric Marketing; and Mr. Varun Malhotra, Head of Finance. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we can open the floor for the Q&A session. Thank you and over to you.
Good afternoon, everyone, and thank you for joining Vardhman Textiles Limited quarter two FY2026 earnings call. We are pleased to report a resilient quarter. Despite significant global headwinds, from elevated U.S. tariffs to excess spinning capacity, our yarn and fabric business has sustained robust performance. Overall, quarter two sales have remained stable at INR 2,468 crore against INR 2,565 crore last year. Despite marginally higher operating costs, the overall profitability is moderated, with EBITDA margin at 15.5%. The U.S. 50% import duty has prompted brands to explore lower tariff sourcing destinations such as Bangladesh, Vietnam, Cambodia, and Sri Lanka. Consequently, exporters face order postponements and diversions, while spinners contend with higher inventories and margin compression. In response, we have activated a comprehensive mitigation framework that involves diversification, innovation, deep customer engagement, strategic partnerships, and operational agility.
On the raw material front, the Indian spinning industry is facing significant challenges due to persistently high domestic cotton prices compared to global levels. This is driven largely by the elevated Minimum Support Price. With MSP announced for 2025-2026 showing a further 8% increase, it is likely that CCI will need to purchase even more cotton as private ginners will struggle to buy at these higher prices. Global cotton prices on the New York futures range from $0.65- $0.68 per pound, resulting in landed costs of about $0.76, $0.78 for mills in regions like Vietnam or Indonesia, whereas for us Indian mills, they faced $0.80- $0.84 per pound, which is a cost disadvantage. This cost disadvantage is now eased by the government relaxing the 11% import duty for the time being. We welcome this supporting gesture from the Government of India.
This year, overall cotton production level has been estimated to be around similar levels compared to last year at about 310 lakh bales. Yarn prices declined by 2%- 3% in the past month with import duty relaxation, and it also reflects surplus spinning capacity. This widening gap between raw material cost and realized prices has compressed margins across the sector. Indian export volume is maintained in the range of 100 million kgs- 120 million kgs per month. Now, we hope and we anticipate further market stabilization by quarter four FY2026. Our diversified portfolio spanning domestic and non-U.S. export markets has provided critical stability with utilization in the range of 90%- 95% for spinning. Strategic focus on high-value segments such as melange, cellulosic, compact, sustainable, and performance yarns has helped protect reasonable margins. We have also introduced functional performance and circular yarns for evolving activewear and lifestyle segments.
U.S.-based customers have been very cautious in placing their orders, and their orders are delayed by about 30- 45 days, and also the quantity has been lowered by about 20%- 25%. Despite these market disruptions, the fabrics division has delivered performance at par with previous years. The resilience in financial performance is backed by closer customer partnerships, engagement, operational agility, and innovation. Indian exporters have, in fact, managed this disruption with great strategic maturity, viewing the environment as temporary. For us, our multi-dimensional response includes targeted diversification to EU, U.K., Australia, Canada, Bangladesh, and Sri Lanka, and also accelerated delivery timelines to differentiate our value proposition. However, we are anticipating some impact in quarter three and quarter four , which are historically export-heavy months. Despite substantial market disruptions, fabric has sustained 90% capacity utilization, validating our strategic positioning and operational agility.
Selective price adjustments to strategic customers have been carefully calibrated and have not materially impacted profitability. On the expansion front, our expansion roadmap is progressing well with the Vardhman Performance Fabric Plant currently under erection and expected to be commissioned within this quarter. Once operational, the plant will begin sample development and eventually bulk order processing, initiating production in quarter three with capacity utilization anticipated to reach about 20%- 30% during quarter four. In addition, the line expansion at our MP location is also underway. Together, these expansion initiatives are projected to increase our overall production capacity by about 30%. Of course, this will depend on market conditions. With this, we will now leave the floor open for question and answer. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Riddhesh Gandhi from Discovery Capital. Please go ahead.
Hi, sir. I just want to understand. You had indicated that you expect the normalization of spreads to potentially start from Q4 of this year. Just wanted to understand the drivers that's leading us to believe that that's going to happen.
Neeraj? Neeraj?
Yeah. Hello.
Hello, can you answer the question?
Can you please repeat the question?
Sure. In your initial remarks, you had indicated that you expect normalization of spreads to happen by Q4 of this year. Just wanted to understand what's leading us to believe that Q4 should hopefully normalize in terms of spreads.
Basically, I think we are still banking upon that the U.S. trade deals should happen by November or so, which is the expectation going by the media reports and our various interaction at the various government levels. First, we require, there are two factors we require to look at. One is the impact because of the tariffs, which is giving us a big concern today. Second is the raw material pricing. Fortunately, there has been a period of about a few months where the government allowed duty-free import of cotton, so most of the mills have imported cotton. As a result of that, the closing stock of cotton is in the country. Of course, we require to look at and understand what strategy will the CCI be following in terms of their pricing. Our basic feeling is that, two factors.
One, all our expansion modernizations will be completed by December, January, so we expect the impact of that will start happening in the fourth quarter. We are also banking upon one bigger deal is through, probably the normalization will start happening on that front also. Third, which is still a question mark or a concern, is more related with the raw material prices, which is all depending upon the government policies. Over there, the question mark is still there. Hopefully, one is controllable in terms of modernization and expansions, which is surely we are sure about that. Second is the expectation in terms of the U.S. tariffs. Third is still a concern.
Sir, just wanted to understand, is there anything you guys are hearing with regards to extension of the import free of the cotton from the U.S.? Is that expected to continue or be extended?
It's not only the U.S. I think the industry is talking of the import should be allowed duty-free, irrespective of whether it's U.S. or Brazil or Australia or Africa. We are saying if the right price parity is required in country, because otherwise, CCI will become the monopoly supplier, and maybe the price parity of the Indian spinners have to pay a higher price will not be competitive at all. Our request to the government is that to have the right price discovery, if the import is allowed, automatically the domestic prices being offered by the CCI will be aligned too so that the import doesn't happen in India. The automatic price stabilization or equalization will keep happening. That's what we are requesting or suggesting to the government. That is up to the government how do they want to take a view on that.
Got it, sir. I'll rejoin for a few other questions.
Okay. Okay.
Thank you. We take the next question from the line of Raman KV from Sequent Investments. Please go ahead.
Hello, sir. Can you hear me? Hello?
Yes, please go ahead.
Hello. Sir, I have a few questions. One is with respect to the yarn and cotton prices. What was the prices for yarn and cotton during the quarter two?
The yarn prices have been hovering in the range of about $2.70- $3 for 30 scones.
Per?
From $2.70 to about $3.
This is per kg, right?
Per kg. Per kg. The cotton prices, if you convert, I mean, look at the New York future. Most of the time, the New York future was in the range of about $0.65- $0.66. Taking a spread of $0.10- $0.12 for the international markets, the prices were about $0.74- $0.75 per pound. Whereas in India, the prices have been a little higher because in this period, the majority of the cotton was supplied only by CCI. Normally, our formula is that New York future plus 800 to 900 basis points for the cotton, whereas most of this period, CCI sold the cotton at New York future plus almost $0.13- $0.14. To that extent, the Indian cost was expensive, but the yarn prices get determined by the international prices.
Going by $0.74- $0.75 per pound prices and almost $2.80 -$2.90, I think internationally, the spread was available to the extent of $0.70- $0.80 per kg of yarn, which in Indian.
$0.70- $0.80 per kg?
Per kg of yarn, which in the Indian context was much less because our raw material prices were much higher.
Okay. This is with respect to the U.S. cotton spread?
No, the U.S. cotton spread is not. I'm saying the international cotton spread, be it U.S., be it.
International. Okay. Sir, my second question is, with the recent export restriction to Bangladesh, is there an accessibility building up among the industry with respect to cotton?
No, I think the cotton inventory definitely has increased in a big way. Nothing to do with the export of cotton not happening to Bangladesh. It's more of lots of import of cotton has happened in this period. As I mentioned to you earlier, since the CCI was selling cotton at a much more expensive price, lots of cotton had come in India against the export obligation even before the duty exemption was not there. After that, once the government allowed the duty exemption, still more cotton is coming to India before 31t of December . As a result of that, there's more than sufficient stock of raw cotton in India, be it imported or be it Indian cotton.
Okay. Sir, are we still seeing any, in respect to the supply of yarn in the market, are we seeing any excess inventory building up? My understanding is the majority of the yarn which we export or Indian manufacturers export are to Bangladesh. Is there any supply disruption?
No, not really. The Bangladesh, if you look at the last two months, three months, yarn export figures also, it is almost in the range of about 50 million kg or so. India is exporting close to about 100 million kg, 110 million kg now. Practically about 50% has been going to Bangladesh, and that trend continues. There's no disruption to that account.
Okay, sir. My last question is, with respect to your CapEx, can you elaborate your CapEx plans and when will they commence?
[Foreign Language] fabric [Foreign Language] spinning [Foreign Language]
Right. In fabric, we had the following CapEx plant. One was the synthetics plant, and it is currently under, it has been erected, and it is under commissioning. We should be expecting capitalization in quarter three. That is about 15 lakh meters. Another line we were putting up in Madhya Pradesh, that will be operational by mid-November. Same as the earlier, it will be capitalized in Q3.
How much revenue will this add?
It depends on market conditions. As of now, the new line expansion, we are not expecting it to be realized till market improves. It is very difficult. Whereas for the synthetics plant, because it is a new project, we are anticipating by March, the capacity about [audio distortion] .
With respect to the synthetic plant and new line in Madhya Pradesh, what's the CapEx?
Can you repeat again?
What is the CapEx?
CapEx spend on the synthetic plant and the new line in MP .
The synthetics plant is up to about INR 300 crore, and the new line, the additional line, is about INR 200 crore.
Thank you. Thank you, ma'am.
Thank you. We take the next question from the line of Keshav Garg from Counter Cyclical Investments. Please go ahead.
My first question was regarding our subsidiary Vardhman Acrylics. Sir, I see that this subsidiary used to do around INR 30 crore-INR 50 crore EBITDA in a normal year, but since the past two financial years, this company is practically just breaking even on EBITDA levels. Sir, what is the reason? I am comparing it with our competitor, Pasupati Acrylon. Sir, their profitability is intact. They are still doing the INR 50 crore EBITDA annually, which they used to do. Sir, what exactly is happening with Vardhman Acrylics?
Neeraj sir?
You know, the acrylic demand in India has been coming down only. I mean, if you look at it, there are only now three players left in India. One is Indian Acrylics, second is Pasupati, and third is Vardhman Acrylics. Let's look at the overall business scenario because the other three plants over the last 15- 20 years have been stopped one by one. Indian Acrylics today is running at only about, I understand from the market, only about 30%- 40% capacity utilization, which is the biggest plant in India. As far as Vardhman Acrylics is concerned, we are running 100%, but of course, there is a pressure on the margins. Pasupati, I can't comment upon their profitability, but yes, they are running the full capacities. Our capacity is close to about 22,000 tons.
Pashupati is close to about 32,000 tons- 33,000 tons, and Indian Acrylics capacity, rated capacity, is about 38,000 tons or so. Now, in India, there are lots of imports happening from Thai and other industries. There are two factors. One, the overall acrylic demand has been coming down because the price gap between acrylic and polyester has been increasing in the last couple of years. I look at even the pricing today. Practically, acrylic fiber is almost double the price compared to, if not double, at least 70% higher than the prices of polyester. As a result of that, there's been lots of substitution, which has happened over a period of the last one decade, where more and more demand of acrylic is moving to the polyester side. That puts pressure on companies like Thai Acrylic, which is where our technology and their technology is the same.
We are all excellent technology. They have been exporting, or India has been importing lots of fibers from Thai. To avoid that, we have been looking at how the pricing should happen so at least we can continue to run our full operations. We don't require, or we don't allow the imports to happen to India. That's the reason this industry is under pressure. In any case, going by the Indian Acrylics or the other one, I think the overall industry situation is not very positive as of now. I think that's what the situation is on this front as of now.
Okay, sir. Understood. Sir, regarding the yarn spread, is what you alluded to in the beginning that by fourth quarter, you expect the historical spreads to come back. Is that contingent upon, firstly, some favorable deal happening with the U.S. and continued duty exemption for cotton?
Of course, yes. Unless these two things are resolved, we've never been in a position to reach the historic margins. These are the two preconditions: we should not have any duty disadvantage, and the cotton or the raw material should be available to us at the international parity basis. Unless one of them is not there, it's not going to be possible to restore the margins.
Right, sir. Sir, now that we are expanding in MP , some peers are expanding in Odisha. I just wanted to understand what kind of subsidy package the MP government is giving as compared to the Odisha government?
Both the statements we have studied, both the comments, and of course, I can tell you on a policy matter. Of course, they can give higher subsidies to any companies on a case-to-case basis. On a policy matter, Madhya Pradesh, where we have applied for the land in PM Mitra Park, the electricity duty, electricity rate is fixed at about INR 4.5. Whereas for Odisha, also the electricity is almost in the range of about INR 4- INR 4.5, all inclusive cost. The Odisha government is giving subsidy, or capital subsidy, which is a little higher, in the range of about 30% compared to 18%- 20% which the Madhya Pradesh government offers. Also, the Odisha government gives you INR 5,000 per person per month subsidy for five years for all the workers you are engaging.
Primarily, it is on the garmenting, but they are extending it to the textile producers also. This subsidy is not there in Madhya Pradesh. Rather, this subsidy is available in Madhya Pradesh only on account of garmenting. On the textile products, they are not giving the subsidy. At the same time, the fourth big difference is that the Madhya Pradesh government is giving the interest subsidy on the loans, whereas the same is not available in Odisha. If I look at the overall scenario in both the states, I think maybe there can be some small difference where Odisha could be available in terms of subsidy, but not really any big difference.
Sir, finally, sir, now if assuming that both these things happen, that favorable duty from the U.S. and continued duty exemption for cotton, sir, something like 15%- 20% of the yarn capacity domestically is shut. Sir, will that capacity not again come back on stream? If it does, do you expect the spreads to, I mean, stay at elevated levels despite so much capacity coming on stream?
Yeah. One, I think all the capacities which have been shut down are very, very small units. The industry estimation is about 11 million spindles have got stopped. If you look at the number of units which have got stopped, it is almost 1,000 units. Practically, all this capacity is with an average capacity of about 10,000 spindles. There will be a few more which can be bigger, but the average is 10,000 spindles. For that industry to come back or to revive is practically very, very difficult. A small quantity can still, small numbers can still be back, but I think our feeling is more than 80%- 90% may not come back even if the scenario becomes better. Today, what is happening because of the disadvantage India has, India is not expanding at all. Wherever these opportunities are there, the other countries are expanding.
As well as the raw materials, practically, it looks like Indian spinners may need to expand the capacity a little bit, which will be exportable in a bigger way. Even if once our raw material is in place and we do not have a duty disadvantage, we already have a UK FTA available to us. We are likely to have the EU FTA also. I do not think really that then will be a big issue. In any case, if you look at last before these two or three years, we have been competing with the world, and I do not think that is really any big concern. Unfortunately, the last four years, because of the duty and our government, our policies, we are suffering more. If it is an open market, anyone competing, anyone expanding, I do not think that is really a big issue.
Great, sir. Thank you very much and best of luck.
Yeah.
Thank you. The next question comes from the line of Awanish Chandra from SMIFS Limited. Please go ahead.
Congratulations, management team, on a good set of performance, especially on the margin side. Sir, my first question on the margin, I mean, when we look at the spread and all quarter on quarter, for the last two quarters, it has been declining, but great to see on a quarter on quarter basis our margin was very resilient if so further income. What went into this, and our margin remained at the same level as last quarter? Can you explain this?
No, I think it's only the raw material management because this was a period where we imported lots of cotton, and as a result of that, it was okay. Two, I think there are some of the businesses where it is the brand businesses which were doing a little better compared to the commodities. Third, in this period, we also got a little advantage in terms of the depreciation of rupee, where a part of the cost could get compensated. A part of the disadvantages could get compensated with a better dollar rupee margin. I think it's nothing special for us only, but my feeling is anyone who's been importing cotton probably could manage their cost reasonably well in this period.
Of course, now that the period is over and the CCI will be buying the cotton, majority of the cotton this year, it all depends upon how they want to put the pricing of the cotton which they buy to the market or to the spinner. That'll be more meaningful for us to look at whether we can really be competitive or we have a huge disadvantage compared to the rest of the world, especially against Vietnam, Bangladesh, Indonesia.
Okay, sir. Second, sir, related question. Now since our cotton season will start and still duty exemption is there till 31st December and other things are uncertain, these two things are certain. What will be our cotton procurement strategy? Because that strategy worked and our margin remained resilient. We will procure more cotton at whatever cost we are getting today.
We have tried to cover whatever best could have been possible because the window was 31st December arrival has to be there for cotton in India. Unfortunately, there are lots of bottlenecks in Brazil and other countries in terms of the shipment, etc. It's not only we as a country, we expect almost 3 million bales will be coming in this period of October, November, December, which will be almost 10% of our total consumption of India. It's not only Vardhman. I think there are lots of trade, lots of spinners are trying to buy cotton so that that shipment could reach India before 31st of December. Let's see how much can it come and what does this pricing strategy be. Of course, as Vardhman, we have tried whatever best we could get. We have also tried to cover it.
Okay. My last question on the size of the cotton crop you are expecting this year, whether it will be similar to last year. On the CapEx side, you have explained and you are already executing your CapEx, but over the next two, three years, will we be adding a spindle and all? In our CapEx plan, most of the things are either modernization or CapEx in the fabric segment. On the spindle side, anything new will happen or any new?
Ladies and gentlemen, we have lost the line of Neeraj Jain. Please stay connected while I rejoin our Nidhart sir. Thank you. Ladies and gentlemen, we have the line of Mr. Neeraj Jain connected. Awanish, if you can please repeat your question.
Okay. Sir, my last question on two parts. One, on the CapEx side, you have explained everything in the presentation and you are executing well. Most of the things are on the spindle side. It is in modernization and other CapEx are related to fabric. Any meaningful addition on a spindle you are planning or you will be announcing in the future first? Your view on cotton crop price in India for this year versus next year?
First, let me complete the question on the cotton crop. Our expectation of cotton crop is likely to be in the range of about 31 million bales or so, which will be a normal cotton. Of course, there have been very heavy rains in the country as of now, and there are some crops in the country or North India. Having said that, the rains by and large have been good.
The crop has delayed a little bit, but it looks like as of now, not a major concern on the crop numbers. We still expect maybe 31 million bales could be available in India. In any case, as I mentioned earlier, since India has imported lots of cotton in the last six months, including the last three months and the next three months up to 31st December, in terms of cotton availability or stock, there should not be a concern in India. Two, on the CapEx, we have lots of ideas in our mind, which are on the drawing board. First, we have to look at our concerns getting sorted out as a country or as an industry. One, the U.S. tariffs. Two, on the raw material pricing. We still believe that those things will get resolved soon.
In Madhya Pradesh, PM Mitra Park, we have taken almost 200 acres of land there. There are lots of ideas in our mind. It may not be appropriate for me to disclose it as of now, but modernization has been the only part that during this period, we keep looking at our costs and we keep creating more flexibility and robust software so that we can serve the market. That's not the only thing we are looking at. We have plans, but I think that can be rolled over only once our basic issues get resolved. Once that's there, I think we'll start announcing because this piece of land which has been taken is again with the idea of expanding our company in the next one decade or so.
Okay, sir. Thank you very much and all the best.
Thanks.
Thank you. We take the next question from the line of Rajesh Jain from RK Capital. Please go ahead.
Yes, sir. Thanks for the opportunity. I have five, six short questions. Sir, in the context of the new CapEx that is already live and some of which is going to go live in a few months, how much depreciation should we factor in per quarter going forward?
Depreciation is normally at the rate of 10% per year. CapEx for these two new projects, as far as the technical textile project is currently around INR 350 crore, and process line four is INR 395 crore, around INR 400 crore. We can just get the estimated depreciation at the rate of 10% per year.
Yeah. For example, this quarter, your depreciation was INR 114 crore this quarter in the September quarter. On a monthly run rate, now if I take that 75 or on a quarterly run rate, are we saying that the depreciation is going to increase to INR 125 crore, INR 130 crore per quarter, something like that?
When the projects will become operational, apart from that, there is the modernization program also going on, which is yet to be completed. Some additional depreciation may come on that count also.
Okay. Okay. So a little north of INR 130 crore?
That amount I cannot calculate right now. It's just estimated.
Okay. Fine. My next question is on the UK FTA. When can we see the ground impact, and any significant business figures so far as our business is concerned?
Yes, UK FTA has definitely happened, and we have also seen the news that EU FTA also, there are positive signs. Realistically, it will take a few months for on-ground impact. However, we have already started engaging with our customers and other additional potential customers. We also have to see that both UK and EU markets are not booming as of now. They are also depressed due to the Russia war and the turbulent prices. The economy there is also not doing too well. There are a whole host of factors which are impacting markets. That being said, we want to, and we are very keen on entering these markets. Let's hope that maybe in the next financial year, we should be able to see more traction there.
Okay. What has been the reason for the sharp drop in other income in this quarter?
Actually, we just compared this quarter two with quarter one. In quarter one, there were Forex gains to the extent of INR 14 crore-INR 15 crore, which has got reversed in this quarter. The impact is reflected to the extent of INR 25 crore to INR 26 crore in this quarter because the income has got reversed because there's depreciation in rupee, dollar-rupee by INR 3 during this quarter. To end, we see the 30th June dollar-rupee rate versus 30th September dollar-rupee rate. That is the main impact if we compare other income with Q1 versus Q2. Also, investment income has also come down because in Q1, we see the yield had come down from March level. The LPM gains were booked in Q1, which is not there in Q2. That is the cumulative effect.
Okay. Going forward, you have been consistently clocking INR 70 crore- INR 80 crore on the other income for the last few quarters. Can we expect that to happen going forward?
It largely depends upon the rupee and also investment book which we'll carry because right now, if we are having an investment book of INR 1.00 billion, sometimes in quarters when cotton stock is not there, we are having a higher book of investment. Income could vary to that count. Normally, if you say INR 700 million, INR 800 million, that is, I think, normalized amount we can always say.
Okay. My next question is to Neeraj sir. I think you made a comment that Q3, Q4 are export-heavy quarters, and they may see some slight impact. We are still exporting to Bangladesh, right? My understanding was that only the mode of transport got changed, right? We are still exporting to Bangladesh, right? Why should Q3, Q4 get impacted?
In terms, I mean, when we say the Q3 and Q4 are more export-oriented, it's more for the fabric. On the spinning side, it's a full year almost same, but the fabric seasonality favors in terms of the export for the third and fourth quarter always.
Okay. So this.
Rajesh, I would request you to please join back the queue, as there are others waiting for the chance.
Thank you.
Thank you. We take the next question from the line of Prerna Jhunjhunwala from Elara Securities. Please go ahead.
Hello. Congratulations, sir, on a good set of numbers. The first question is to understand the impact of cotton. How is the profitability in yarn and fabric? Whether we should allocate the entire profitability increase to yarn because this is largely improvement of cotton? Or is there any difference in opinion?
Rajesh, can you reply to this?
Hello. Am I audible?
Can you reply on the other income part?
No, no. Without other income, I'm talking about gross margin, you can say.
Sorry?
Without other income, we are asking.
Prana, can you repeat your question without other income?
Sir, without other income, basically, your cotton prices have come down, which has led to gross margin expansion. Should we allocate this entire increase in profitability to yarn segment or will fabric also be positively impacted with this? What should be the extent of this increase? Industry-wide, things should be good.
It will be in both the businesses. The impact of cotton improvement will go directly 100% to the spinning business only. At the same time, since this year has come, the prices of yarn have been coming down only. To that extent, some benefit will go to the fabric division because their raw material prices come down. Whenever the raw material prices come down, everyone will try to utilize the full capacity. To some extent, the yarn prices come down. Indirect advantage always goes to the fabric also. Of course, any raw material movement will be primarily impacting the spinning business only. A part of that will go either way to the fabric also. My generally historic experience is you can say 70% will always, good or bad, go to the first business. 30% will go to the second business. That's the historic perspective.
Okay. Understood. Sir, how are the tariffs impacting our business? In the sense, are we sharing any cost with the customers, any tariffs with the customers? If there is a reduction in demand, I'm just trying to understand how is it impacting and how is it likely to impact in the future till the tariffs are there?
There are a couple of factors as it can be. One, the U.S.-based customers, most of the garmenters or the home textile players, they have to retain the customer. They have tried to pass on the margins so that at least they can sustain the customers because everyone has a belief that this seems to be a temporary arrangement. Ultimately, things will be sorted out. Otherwise, if you lose the customer from the country, then probably they'll never come back. All the garmenters or all the home textile players, they're trying to readjust their pricing so that at least they retain the customer for three to six months' time. If things don't work out, then they'll have to look at whether it makes sense for them to continue with them or not.
Two, they've also requested the vendors to support them because they are passing on their entire margins or they are sometimes taking the hit also. We have also, as a company, decided that we should support our customers. To that extent, our fabric division definitely has supported all their customers wherever they are directly based upon the U.S.A. so that at least as a country, we don't lose the business. That's the second part. Third part is with every country now at least having some duty, 20% being the lowest in the U.S.A. The prices of retail in the U.S.A. have increased definitely. To that extent, there always will be some reduction in the demand because of the elasticity of demand. To that extent, every country is going to suffer, India being more.
That's the third part which will be slowly come to know in the next two, three, four, six months. Definitely, there seems to be some lesser demand. Even if all the garmenters and all the home textile players pass on the entire benefit of 25% to the customer, still the demand is low because of the elasticity of demand. It's impacting us in all the ways. Wherever this is possible, depending upon our margins, we are definitely trying to support. Probably Sagrika can throw more light on this because it's more of a fabric business which is passing on this to the customer to support them. Sagrika, can you add on to what I've suggested?
Yes, sir. Adding to what has already been said, when we look at the U.S. customers' buying pattern, there is a delay in order flow. If somebody was placing an order in September, they have delayed it by, they have pushed it to mid-October. That is a delay of about 45 days. In addition, the quantum which was there last year has also reduced by 20%- 25%. We can see that the U.S. customers are taking a very wait-and-watch approach. They are also doing buying more hand-to-mouth. They are not going for long orders. They are going for small and more frequent orders so that in case there is any change in policies, they can respond appropriately to that. That is also another impact.
As mentioned, we have assessed the situation and we have tried our best to support our strategic customers because we believe that the situation is temporary. We want to retain business. We don't want the business to go away. In some areas, some of our Indian garmenters have factories outside. In that case, business has been impacted to a lesser degree. In some cases, we have had to ship the fabric to garmenters outside, maybe Vietnam, Indonesia, Bangladesh, Sri Lanka, again for the same U.S. customers.
Okay. What will be the impact of this tariff sharing on our current quarter numbers? Or going forward, how should we see the impact on profitability of our company?
It depends from customer to customer.
On an average basis, this will help you.
Yeah, but it was having minimal effect. Actually, we have given a note also below our quarterly returns. We see that we are not having any, I would say, major impact on our financials for the quarter. For the times to come also, the situation is evolving. Like U.S. tariff is again under negotiation, so we cannot say what kind of impact will be there on the results in the times to come.
Okay, sir. Sir, the last question is on other expenses. Other expenses have increased meaningfully in this quarter. What would be the primary reason behind this increase? Should we assume that this cost will continue to increase going forward or remain the same?
Expenses actually have a composition of manufacturing expenses, administration expenses, selling expenses, and power tools also. If we just compare it with Q1, it has increased by about INR 30 crore, I would say. It is having five components. Some plant and machinery repairs have increased by close to INR 10 crore. Forex, as I explained, that some part was in the reversal of other income and around INR 7 crore-INR 8 crore is a part of administration expenses, which is coming under other expenses. Some setting expenses, INR 4 crore-INR 5 crore, have increased. It is four or five components under that. Not a big amount, I would say.
Okay. Okay. There is no component of any hedging or anything like that in the quarter?
Forex is there INR 70 million. Some part is of cotton hedging also, about INR 40 million or INR 50 million.
Okay. Okay. Understood. Thank you so much, sir, and all the best.
Thank you.
Thank you.
Thank you.
Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to two questions per participant. The next question comes from the line of Tanishk from Antique Stock Broking Limited. Please go ahead.
Thank you for the opportunity. My first question is on the yarn demand. Whether we have seen any significant decline in the demand of yarn post the higher tariffs in the domestic market?
No, the domestic demand continues to be normal. There's no issue on that.
Okay. My second question is, can we see any impact on the margins going forward in the third and fourth quarter?
I've already shared. In case the duty doesn't get resolved, this is definitely going to impact more and more every quarter. If our raw materials are expensive because now the new season of cotton is starting, CCI is going to prefer practically 70%- 80% from the market. It all will depend upon how they price the product or in case they want to bid on with the imports parity, including duty, then the industry will not be in a position to bear that. We have two uncertainties, both on tariff as well as the cotton policy. We are only hoping that the CCI, we are talking to the government that what should be the strategy and policy. Again, it's a final call that has to be taken by the government only. We can only suggest what do they feel about it.
Okay. Understood. Thank you.
Thank you. We take the next question from the line of Cheragh Sidhwa from Bajaj AMC. Please go ahead.
Thank you so much for the opportunity. Sir, as you indicated for the yarn industry, where we saw nearly 11 million spindles going out of the market, just ballpark, or if you could highlight the similar for the garmenting industry, have you all seen kind of units go out of the market? Just ballpark quantum, how much would that be in a Thirupur cluster or so?
The expectation of U.S. customers is that 25% will still bear with you. Of course, the competing countries are at 19% or so. Most of the U.S. customers have said 25%, they will be up to 25%, they'll bear that. The remaining 25%, which is there only in India, has to be bound by the Indian garmenters. Now, if we convert this 25% to the duty, the garmenter has to reduce their price by 16% to nullify this 25% because on 100%, if you reduce 17%, the duty will be on 83%, the 25%, which becomes about 17%, 18%. Practically today, if you look at most of the garmenting, the margins are in the range of about 13%- 14%, rather 10%-1 4% only. To that extent, they are passing on 100%.
In any case, they are taking some support from the fabric or from their vendors also so that this difficult time, in case we can pass through this, as I mentioned, by retaining because for a few months, we still hope that that time the duty impact or the deal will happen between U.S.A. and India and things should be normalized.
Sure. Just as there have been closures in spindles, at the moment, we have not seen much of closures in the garmenting units currently.
Yeah, to that extent, I think nobody is going to expand till the time we find a final solution to these issues.
Sure. Got it. Got it. Sir, despite these challenges, it's really credible that we have operated at 90% utilizations. In the current quarter, have we seen any of the large fabric players sort of delaying the orders or canceling the orders on the yarn side?
Fagrika, please.
has been no cancellation of orders so far, but yes, there are some postponements and some delays.
This is on the yarn segment, right?
I meant on the fabric side.
On the yarn segment, the yarn segment, the order book continues to remain strong. Similar utilization.
is also no cancellation on the yarn side in any case.
Got it. Got it. Sir, just finally, the current, say, yarn or spreads as current spot trends versus Q2, have we seen a decline in the yarn prices or it's similar to the Q2 levels at the moment?
No, the prices have come down surely. Of course, it's been coming down as the cotton prices came down. Lots of Indian spinners bought the cotton, and we also started supplying to China, which earlier we were not in a position to do because of the higher cotton prices. Practically, if you look at the yarn export numbers, that's maintained in spite of all these issues and difficulties. To maintain that, of course, prices have come down.
Got it. Got it. Sure. Sure. Okay, sir. Thank you so much.
Thank you. We take the next question from the line of Krunal Shah from ENAM Holdings. Please go ahead.
Yeah. Hi. This is Krunal from ENAM Investments. Thank you for the opportunity. I have one question. In the annual report, you mentioned that you know we are doubling the garment manufacturing capacity that we currently have. I understand that it is on a very small base, but does that indicate any change in our stance towards garment manufacturing in the longer run? Hello?
Neeraj sir?
Sorry, I couldn't hear the question. Can you repeat the question, please?
Yeah. Hi. My question is on the garment business. In the annual report, we mentioned that you know we are doubling our capacity. I know that it is on.
No, no, we are going with that. We are not rethinking on that. A U.S. is a very small part of the business. In any case, to make this business viable, we have to have a decent size. As of now, it passes close to about 6,000, 7,000 shirts per day. We are doubling it in any case.
Okay. No, the point is that does that indicate you know we had a stance that you know we didn't want to go too much into garmenting because of the labor issues involved around it? Does this indicate you know that?
The business has definitely done better. We feel to still not very sure whether we can take it up as a full business or not. Right, definitely taste it, try it. INR 6,000 is too small a capacity. Almost INR 35, INR 40 is a fixed cost per shirt, which is almost like 6%, 7%, 8% of their capacity. In case we are in a week double that capacity, the fixed cost will be practically zero. Additional will be practically zero per shirt basis. I think it makes sense to make viable this unit at least. Final call we'll take a little.
Okay. Okay. Got it. Great. Thank you. That's it.
Thank you. We take the next question from the line of Rajak umar Vaidyanathan from RK Invest. Please go ahead.
Good afternoon. Can you hear me?
Yes, please go ahead.
Yeah. Sir, the first question is this rupee depreciation against the U.S. dollar. We have not seen the full impact in this quarter because seeing your other income and I also see in the cash flow that there were some derivative losses there. I just want to know, should we assume that there will be some upside in the coming quarter if the rupee depreciation stays?
Yes, close that around INR 88, INR 75 as of 30th September. For the, if you just see rupee today, it's I think INR 87.80. It has appreciated by INR 1 from 30th September. It depends what kind of situation will be at the end of, say, 31st December or the second quarters. On that basis, it will be worked out what kind of these maintains gains or losses are there.
Okay. Got it, sir. Sir, just one more housekeeping question. This is with reference to your associate Vardhman Yarn and Threads. I just want to know whether that associate is also able to maintain the margin compared to June and September.
Can you repeat it, please?
Sir, this is with reference to associate company Vardhman Yarn and Threads Limited.
Yes.
I just want to know whether the profitability of this associate is also kind of resilient between June and September, or it has seen deterioration in the next quarter?
I think it is maintaining almost the kind of profitability they were having in the June quarter and September quarter. It's in the same range, not much variation.
Okay, sir.
As far as having only 11% stake in that company, to that extent, the profitability is coming in consolidation.
Okay, sir. Got it, sir. Thank you so much.
Thank you. Ladies and gentlemen, we take that as the last question and conclude the question and answer session. I now hand the conference over to the management for their closing comments.
Thank you for your participation and continued trust in Vardhman Textiles . The past two quarters have, in fact, tested the global textile industry. We remain committed to driving innovation and modernization, broadening our customer and product base, and enhancing operational efficiency. The resilience in our results stems from these focused efforts. Looking ahead, we are still cautiously optimistic. Encouraging signals from the Indian government regarding U.S. trade negotiations reinforce our belief that India's competitiveness will strengthen. Despite near-term uncertainties, our strategic positioning remains strong, supported by initial orders from diverse geographies across existing and value-added segments. The festive season and its translation to actual demand, along with GST rationalization, has brought a positive sentiment in the domestic Indian market. Our market presence, operational efficiency, and unwavering commitment to quality will remain the pillars of our resilience and future growth. Thank you once again for your partnership and your support.
Thank you. On behalf of Batlivala & Karani Securities India Pvt Ltd, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.
Thank you.