Ladies and gentlemen, good day and welcome to the Vardhman Textiles Limited 4Q FY 2026 Earnings Conference Call hosted by 360 One Capital. 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 the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Aradhana Jain from 360 One Capital. Thank you and over to you, ma'am.
Thank you, Shailendra. Good evening, everyone. On behalf of 360 One Capital, I welcome all participants and the management of Vardhman Textiles to the 4Q FY 2026 con call. From the management, we have Mr. Neeraj Jain, Joint Managing Director; Mr. Sushil Jhamb, Director (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, sir.
Good evening, everyone. Thank you for joining the fourth quarter call. The results are available to you. There are some good and some bad news. The good news is, one, the U.S. tariffs were over. As a result of that, India became more competitive. The kind of desperation which was there for our garment exporters of the home textile, that's over, and things have started moving back to the right direction. This was a period where we started looking at new geopolitical concerns, starting with the Iran and U.S. war, which created some of the disadvantages or some of the disruptions in the system, be it logistics, be it crude, which has impact on the various businesses, including the textile business, which I'll come to a little later.
This was a period where the cotton prices started going up internationally. The New York future from $0.61, $0.62, $0.63 went to as high as $0.82, $0.83. As a consequence of that, the Indian cotton also moved from INR 52,000, INR 53,000 a candy to about INR 68,000, INR 67,000, INR 67,000, INR 68,000 a candy. Which means the cost of raw material increased in a big way in this period. There has also been improvement in the yarn prices, both on account of the raw material push as well as the better demand also, which I will come again a little later. In between, the dollar-rupee also moved, which was also beneficial as most of the textile is based on the exporting community, some advantage came because of that also.
These have been the macro level events. Now we can look at it one by one. Clearly, the U.S. tariff that's has given an advantage. I understand the utilization of exporters who were directly exporting to U.S.A. from India, be it home textile or be it the garment exporter, has come down to about 50%-60% in this period. Also, they were giving heavy discounts to the U.S. brands, to the extent at least to compensate 25% as the duty was 50%. As a result of that, their margins were affected, and many products they were losing money. As a result of that, they were shy of taking those orders, and as a result of again that, there has been major issues and concerns for those exporting community.
Since we are the textile producer and we provide the material to them, and they were not doing good, there was a pressure on the back process also. All the people who were supplying either yarn or fabric to the garment exporters, they were also under a difficult situation, either on account of a lower, both on account of the lower realization as well as the lower utilizations. As soon as the U.S. tariffs were away, slowly the business started coming back. I understand as of now, both home textile and the garment exporter to the U.S.A., they're running almost 90%, 100% capacity utilization. As a result of that, from the country, they, the overall export is better. Also since their utilization is better, the overall demand of the yarn is also better.
That's been a favorable factor in this period to start with. The second major event was the prices of raw material. If you look at the last two years, the New York future was continuously coming down. It came down to one of the historic lower levels of $0.62-$0.63. I think this was a level where the farmer are not actually earning a lot internationally, so there was a fear whether the cotton crop will come down or will increase. It was all the concerns and issues which were there in our mind.
In between, there was a weather, bad weather condition which was announced by U.S.A. in the Texas areas where it is, as of now, it is projected that 91% drought conditions are there, and it is likely the overall crop size in U.S.A. will come down. Also, the Australian crop size got reduced from 55 million bales. It was expected to be about 41 million bales. The Indian crop also came down against the last year figure of about 31.5 million bales. This year it is projected to be about 39 million bales only. The Brazilian also was not increasing. There was a possibility either the same or small reduction in that also.
As a result of that, the overall cotton stocks, which we saw increase in the closing stocks of cotton worldwide last two, three years, that got balanced, or rather it was projected that the world will be reducing the closing stock of cotton maybe to the extent of 500,000 ton to 1 million ton. The moment it was realized, this was one of the factors where the prices of cotton started going up in the international market. Two, as the tension started in Iran and U.S.A., the crude prices started increasing, which has a direct impact on man-made fibers, especially polyester. The polyester prices increased in this way in a big way. As the cost increased because of the crude, all the synthetic fiber prices started increasing.
We look at acrylic fiber , the prices increased almost by about INR 80-INR 85 a kg in this period. Polyester fiber prices increased by INR 25-INR 30 a kg. All other cellulosics also started increasing. Somewhere it looks like the cotton fiber also got a sympathetic increase on account of that also, since the synthetic prices were increasing. Somewhere I think that was a support given, which the cotton fiber got, and the prices were also strengthened to that extent. Since the demand in this period started improving. There are two factors how the demand started improving. Pre-war, I'm talking of starting in the month of October or so. The two factors on the spinning side, which had happened in last some time.
One, since the industry was not doing well, so we understand, as per the industry data estimate, that total of about 11.5 million spindles were stopped permanently into the system. I shared earlier also, our rated capacity in India was 53 million spindles. Normally, we add about two and a half million spindles every year. If we go by the normal years, our capacity this year should have been about 59 million, 60 million spindles. Against that, last three years there was hardly any expansion happening. Contrary to that, 11 million, 12 million spindles got permanently stopped into the system. Practically, the working capacity today in India will not be more than 41 million, 42 million spindles as per the industry estimate. There's no government data available, but this is the industry estimate.
Which means there was some balancing of the spinning availability or the yarn availability, came into the system, where the overall production came down. This was one factor where the surplus capacity got vanished. Two, we saw, geopolitical tensions, issues, concerns in Bangladesh six months before. Because of that, I think some of the brands or some of the orders got transferred to China also. There was local Chinese demand, there was export, Chinese demand. Some orders shifting from Bangladesh to China. China, if you look at the Chinese cotton total, they have about 80% of their consumption. They have their internal cotton, and 20% they import from outside.
Out of the 80%, which is their internal production, 80% of that comes from Xinjiang area, which is banned by the U.S.A. as of now. It looks like either the brand suggestion or the local Chinese manufacturer, they decided, rather than buying the local yarn, they started importing cotton yarn from India. From different countries, including India. The prices were low, so they started buying big quantities of yarn from India. Suddenly, starting October, November, we found the yarn demand to be very good in the export market, and the prices started going up for the yarn also. India, we normally export about 100 million kg of yarn every month. It is the average for last in three , four years. Out of that, China used to be about 7 million kg or 8 million kg only.
If you look at the last four, five months data, China is consistently buying about 30 million kg. Practically, another 20 million kg demand came to India, and Indian exports started reaching or touching almost about 120 million kg +. This became the yet another factor where the yarn prices started improving in a far better way, not only to compensate the cotton prices, but definitely beyond that, suddenly spinning margins started improving into the system. This demand of China continues even today also. I think most of the spinners, they are sold for about two to three months in forward as of now, as far as the export is concerned. To that extent, they try to cover the cotton also. Two, since on the Indian side, the Indian crop size is not likely to be more than 29 million bales.
Going by this increased activity of yarn, it is expected our full year consumption can be in the range of about 33 million bales or 34 million bales. Suddenly there was a realization that cotton is not available in India. There was the various industries, or the various industry association, they started going to the government to allow the duty-free import of cotton so that by the time we finish our existing cotton, there should not be a shortage of cotton into country. The Ministry of Textiles could understand, they took a total view with the industry, they wrote it to the Ministry of Finance and the Ministry of Agriculture and Farmers Welfare that there's likely to be a shortage of cotton going by the better activity and the better profitability of the spinning sector.
The cotton should be allowed duty-free coming to India so that there's no shortage of cotton in the month of August, September, October or so and so on. This information also spread into the system that India is likely one full time or, maybe six months. I do not know what government decision could be, whether they'll take a decision or not, we are not sure. Definitely, the market perceived the Indians will buy more cotton internationally, which also gave some strengthening to the New York Cotton Futures in this period. The third factor was, as the cotton started going up, I understand the hedge money or the speculative money also started coming to this trade.
Today, the last two, three years, where the speculators, as per the data which is available in the system, they were negative or they were short on the New York future, they started going long on the New York future. Which means the cotton, the $0.80, $0.82 level got stabilized in this period. This has a big advantage if New York future remains at $0.80, $0.82 for the Indian market. India had a peculiar situation where our cotton prices were very high because of the minimum support price. CCI was acquiring cotton, they were buying cotton, they were selling in the market. At the same time, there was a loss which was coming to the CCI in this period.
As soon as the cotton started going to about $0.80, $0.82 New York future, the Indian cotton prices became aligned to the world market. As of now, even going by our MSP, our cotton is not expensive compared to the world market. Rather, it is aligned to the long-term average, which we used to look at it always in last 15, 20 years, that we are New York future plus $0.05-$0.08 cotton, which is prevailing as of now. Suddenly all the spinners which were losing money on account of a very high cotton prices, that factor also was, that also got aligned into the system last couple of months.
As a result of that, the spinning margins were normal, which earlier was not sufficient or was not normal because we were very, very expensive on the cotton. The New York future, whether it's sustained or not, I am not very sure, but definitely if you look at the other countries. India today, our cotton prices are $0.87, $0.88. New York future with the $0.84, $0.82, $0.83, $0.84. The Brazilian cotton is available at $0.94, $0.95, which is aligned to it. The Pakistani cotton, which is inferior to Indian cotton, is again aligned to $0.85, $0.86, so which is in line with the normal relativity.
The Chinese cotton today are in the range of about $1.03-$1.04, which normally they are always higher to India by about $0.15 or so, which is also today as of now aligning to that also. Today, there's hardly any disruption as far as the long term in the cotton prices have been in this relative to future price. In this period since the cotton to Indian spinners was available at a right price, yarn demand was okay. The prices started improving. Just to give you an idea, the lowest prices of yarn in the month of November, December were ranging about $2.65-$2.70 for 30s combed. Today, the same prices are ranging between $3.30-$3.35.
Same way, the another advantage which came to India that with the rupee moving from INR 92 about INR 94, INR 95, the our cotton cost in terms of U.S. cents came down, and also the conversion was better available to the Indian textile producers, not only spinner, to the everyone who is exporting. So the operation to some extent was viable as far as the spinning is concerned, which we saw after two, three years. Going forward with the next upstream products, the fabric margins were very good before the increase in the yarn prices. I think now slowly, because the overall demand is good, even for the fabric also the demand is not bad, so everyone is trying to increase the prices.
There's always a resistance whenever the prices goes up to increase on the upstream products, and vice versa of that, whenever the yarn prices goes down, the garment or the fabric prices doesn't go down in the same fashion. The fabric also, they have increased the prices, there's always a lag of two to three months. I hope going by our position today or most of the other fabric producers, both either knitting or the woven, it looks like that, we are trying to push the system, and we would be in a position to get that increase, hopefully in the times to come. Same is situation with the garment where they are now trying to increase the prices. One, they've got an advantage because of the dollar- rupee.
They're trying to push with the brands to increase the prices, and it's always a part of negotiation we have to see. Definitely going by the total increase, it looks like the brands have started talking to increase the prices. Few brands have started giving small increases, but I think it's a time where we have to look at maybe next one, two month, you know, more clarity comes on this issue. Second on our CapEx is in between, Vardhman has taken a very big CapEx plans. On the spinning side, it was more of a modernization. I'm happy to share almost 90% of the modernization got completed in this period. Whatever is left, I think this current financial year, next six, eight months will complete.
As a result of that, we're much more strong on the top floor, both in terms of flexibility, quality, and also the cost factors. I'm sure that advantage would come to us in the future times, both in terms of the cost as well as because of flexibility, the better products which we can produce and give it to the various customers. The Fabric side, there were two major expansions we have taken. One was the performance fabric, which plant was commissioned during the last financial year. I think normally it takes about six to nine months' time for the orders to come in as it's a new venture for us. I hope next six to nine months we should be in a position to utilize it fully or better utilization will happen.
Where, we hope that this will be a new line for us where the lots of expansion or the major expansions can come in as there are hardly any players for 100% synthetic into in India. The second factor was the fourth line, which was of cotton and normal fabric production, which was also commissioned during the year. As far as soon as we commissioned that line, there was this issue of U.S. tariffs. Practically we couldn't utilize that capacity, but slowly we started building on that also. In terms of our volumes, we would be doing one of the highest today, but still we have unutilized capacity, which I expect maybe next six to nine months' time we should be in a position to complete that.
In addition to that, there's a huge expenditure we wanted to or we are doing it on green power, be it biomass, boilers, et cetera, et cetera. All those projects are likely to be commissioned in next one to two months and after that, I think June or July onwards, we should start getting advantage of that also, both in terms of green power as well as some cost reduction possibility going by these raw material differentials as of now. This is what is in this period, major changes which have happened. Now I think remaining parts we can cover in the Q&A session. Thank you.
Thank you, sir. 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 the 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 Saransh Gupta from Svan Investment. Please go ahead.
Hello, sir. Am I audible?
Yes, you are.
Hi. Thank you for the opportunity, sir, and congratulations on your decent set of quarter. I just had few queries regarding the industry and the business. Firstly, as you said around the cotton prices, earlier our cotton price, Indian cotton prices used to trade at a premium to U.S. cotton, but right now it is trading at par. How has this impacted the demand for yarn? I know you mentioned that the demand in the yarn is better, though it is also visible in the realization that if we see the realization for yarn has increased, are we able to pass it on to the customers?
The yarn prices are determined by the international cotton. Even if our cotton is expensive, we can't pass it on because that's an Indian phenomenon only. One, in any case, the yarn prices, whatever is the cotton internationally, that is determined by the international market and even if our cotton is expensive, that has to be borne by us. That's first point. Two, since the overall demand was better, both on account of the demand as well as the increase in cotton prices, that could be passed on comfortably to the customer as of now.
Okay. Okay. Understood, sir. On the demand side, sir, like, how is the demand shaping up with the U.S. has opened up right, post tariffs?
Demand is, as of now, the demand of yarn is very good. If you look at most of the U.S. brands, the first quarter numbers, there is a increase of the retail price increase from 4% - 10% of the various brands. The demand from [ZDHC] is really good and as a result of that, I think the overall textile demand as of now seems to be pretty good.
Understood, sir. Sir, if we move on to the Fabric segment, like, how is the industry situation panning up right now? Like, you said that there is a price have increased, but there is a lag. How is the customer co-conversation shaping up?
No, the customer is very clear they don't want to give any increase, but I think since the raw material price, we are increasing the intermediary product, they don't have a choice. Because nobody will like to keep it to take the losses. Everyone is trying to push the prices and some increases are happening selectively. It's not that the increases are not happening. As I mentioned, since there's always a lag and whenever you want to do a new business, there's obviously a resistance. With the every week, every month, every order, there's some price increase which we are pushing to the customers.
Okay, sir. On the thread side, sir, like, have the threads also improved, from post tariff and pre-tariff on the yarn segment?
The thread also improved.
Yes, Yarn definitely has improved as I mentioned, because our spread was less because our cotton was very expensive. Since our cotton is linked to the international market, our spreads are definitely improving.
Like, if you can quantify that in some numbers.
If you think, if you look at the Indian prices today, the cost of Indian prices is about $0.85, $0.87, $0.88. If I convert $0.87, it comes to about $2.35-$2.38 or so. With the price of $3.30 today, with this kind of a rupee, I mean, $0.90-$0.95 spread is available, which four months back was only about $0.60-$0.65.
Okay. There is a 50% jump in this spread that we can see.
From the worst to the best, because this happens slowly. The impact will come in the times to come, but yes, 40%, 50% spread improvement is there as of now.
Sir, is this sustainable? Like, can we go ahead with this number, or will there be some correction if the prices of the yarn comes down?
As I mentioned, there are two issues which are beyond our control. One, New York future will come down or not, I'm not very sure. If New York future remains at this level, practically the Indian MSP issue or our cotton price is going beyond a point, that issue can be taken care of. New York future will go up or not, it's something I can't really predict.
Okay.
On the demand side, as I mentioned, since the demand coming to China has been good in this period because they are full of orders from the various brands. I think to that extent it looks like it can be sustained for some period of time.
Okay. Mr. Saransh Gupta, we request you to join in back in the queue, sir.
Sure. I'll join them.
Okay. The next question is from Cherag Sidhwa from Bajaj AMC. Please go ahead.
Sure. For the opportunity. My first question pertains to the industry dynamics. Sir, as you indicated, close to around 11.5 million spindles are off the market. Sir, as per your experience, let's assume that these healthy spreads sustain for a longer period of time. How much period would it take for these capacities to come back into the market? Or is it more structural in nature, people are right now not investing and it might take couple of years to again come back to that 50 million-53 million spindle capacity?
You know, there are two things which have changed at this time. One.
Okay.
As per the industry estimates only again, the total number of spindles in India was 53 million. At the same time, the number of mills were close to about 3,000. We understand the 11 million spindles which are off the system, almost 1,000 factories have gone shut down. Which means the overall, indirectly, there's some consolidation of the industry happened. All these small spinning capacity, 4,000, 6,000, 8,000 spindles, which in many cases was very, very difficult to manage in today's time. I think that's one segment which is going off to the system. Two, the industry has passed through a very, very difficult time last two to three years, nobody is looking at a very big expansion to start investing. I think everyone is looking at more clarity on the board policy of government and what happens.
My feeling is in case these margins or this kind of cotton prices sustain for next three to six months, then people will start looking at more projects to come in, into the system. You go over to the machinery manufacturers, which are one of the best way to measure what is happening on the industry side, especially on the expansion side. Their utilizations are improved, but more from the modernization orders rather the expansion orders as of now. People have started talking on the expansion side. As of now, there are not really very big projects which have started working on it. I feel maybe next six, nine months' time , people will wait before they can start up or they start taking up the new projects. Two, industry definitely will be more consolidated.
Those 4,000, 6,000, 8,000 plants will never come back into the system. If it's better every organized player comes back to the system, which are more concerned, sustainable in terms of their profitability aspect, the overall structure, my personal view is will keep improving only from there onwards.
Mr. Cherag? Okay, we will take the next question. The next question is from Falguni Dutta from Mansarovar Financials. Please go ahead.
Good evening, sir. Sir, I have two questions. The first one, our operating profits are not look as good as maybe people like Nitin Spinners or GHCL Textiles . Is it because the Fabric price increase will happen with a lag and hence Q1 numbers would show more of it?
Yeah. That's likely to happen.
Okay. Sir, what was the export percentage for the quarter, export as a percentage of revenue for this quarter versus YoY same time last year?
Direct export company as a whole has always been in the range of about 44%-45%, ± 1%-2%.
Okay. This is as a percentage of revenue, right?
Yes.
This has been maintained.
No, no.
Okay. Sir, is it fair to say that we would do, like since exports have not been impacted, so with the fabric doing better, we'll do much better in Q1? Can we say that? What I mean to say, in short, our performance in Q4, was it not as much as it could have been just because of the fabric part which will, which takes a lag effect?
I mean, going by the spread improvement, which is looking like as of now, I think, most of the textile companies should do far better in the first quarter.
Okay.
Including our company. Including Vardhman.
Sir, what with these higher cotton costs which have come in, even then it should be okay, as you said, the current cost and current yarn prices, the spreads are okay. One can assume even Q2, three, assuming the current status remains, even Q2, three could be better, assuming the current spreads remain.
That's true. Assuming the current prices of yarn, current dollar rupee, and the current prices of cotton.
it will be better compared to the last year.
Okay.
Anyone, if they have cotton available to them, which is at a cheaper price, that advantage should be additional available to them.
Okay. Sir, year-end, this time we are having what, three months inventory or a bit more for cotton?
We normally ship our numbers, but our normal coverage, six to eight months we keep at year end.
Okay. Six to eight months cotton you have at year-end?
We normally keep. Year-over-year numbers I disclose-
Okay.
our general [Non-English content]
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I'm trying to tell you. The cotton in India comes in the month of October. Most of this gets vanished by March. So most of the company on March will have six to seven months in inventory. Most of the company.
Okay. Understood. [crosstalk]
Thank you.
Thank you, sir. The next question is from Prashant Rishi from Cascade Capital. Please go ahead.
Good evening, sir. Sir, I just wanted to expand on the last point that you made. Since bulk of our procurement has happened by the financial year end types, what would be the average cost of cotton that you procured? Because that will be the base for the cotton for the rest of the financial year, you know. Will it be close to that?
I will not like to give the numbers at what cost I bought, but I can give you how the market has behaved in this period. If you look at today's price of CCI selling, it is INR 67,000 a candy, they increased this price almost by INR 5,000 in last one week only. Practically the CCI price one month before was INR 57,000-INR 58,000. Eventually anyone who has an inventory available in their system will be definitely much lower than the today's price.
Which includes us.
True, sir. True.
Understood. Understood. Sir, any, I know very speculative question, but any viewpoint on how U.S. New York Cotton Futures would do considering the drought situation in the U.S.? Will it sustain at 82, 83 historically?
As I mentioned, the drought is not the only reason. I mentioned earlier also drought is one of the reason.
Yeah.
Also, the crop in India and Australia was also lower, so the demand supply got readjusted. For the first time after three years there will be a reduction in the closing stock of cotton. All these factors, and then the synthetic other prices increasing, giving the possibility of some consumption change or replacement from polyester to the cotton. All those factors have played it into this role. It's not only the drought condition of U.S., but the many factors could have played a role where suddenly people are more optimized or more optimism is there on the New York future.
Okay. Understood. That's all my questions on that. Thank you.
Thank you.
Thank you, sir. The next question is from Awanish Chandra from SMIFS. Please go ahead.
Congratulations management team on decent performance with gross margin expansion. My first question is related to this only. If you look at the number where gross margin was higher quarter-on-quarter 300 basis points, due to other expenses, margin expansion was not reflective at EBITDA levels. Sir, could you just give a good highlight on what led to a great increase in other expansion and when it will get normalized, if there is something one-off?
Okay. You know, there has been one item which has been charged to the revenue in this period from the other expenses. Whatever is the foreign exchange position we have taken, that gets mark to market on every month end. In this period the rupee had moved very sharply.
Okay.
Whatever we have been selling was our policy, whenever we book the short orders, most of the time we like to cover the rupee at the same rate. Rupee moved suddenly to INR 94.80 or so on 31st March. Whatever we have sold that was required to be normalized on the mark to market basis, and we provided a loss of about INR 57, INR 58 crore in this quarter on that. That advantage will come to us in the next quarter. All our exports will be moving at INR 94.80 or whatever the market rate will borrow it. On that one time hit, it has definitely impacted our margin in the fourth quarter.
Okay. It was roughly the number was, the hit was exact number.
INR 57 crore, INR 58 crore is provided as mark-to-market on-
Okay. That will not be there going forward, or there will be some reversal of that?
Depending upon at what, the dollar- rupee finishes. I can't say tomorrow it goes to INR 97. We might have to provide it goes to INR 90, then that advantage comes in. I can't speculate on that. Yes, whatever amount that it must mark, we have provided for that.
Okay, sir. Sir, second question, you have already highlighted that at March end everybody inventory is six to eight months. As a strategy, what would be the number at the September end, general number?
No, one, I'm not saying everyone had an inventory of six to eight months. I said most of the good textile mills, since it's a seasonal product, they try to cover their cotton normally six to eight months' time, but company to company it could be very, very different. Two, our cotton, new cotton will start somewhere in October only. By September we have to exhaust most of our stock and we have to start preparing for the buying once the new arrival comes in. As the new arrivals will come somewhere in the month of October. If we have a six to eight months, any factory has an inventory of six to eight months' time they'll be finishing in this period then eventually they'll have to buy the new cotton starting September, October, November.
Okay, fair enough. Sir, one quick question on the CapEx side. You talked about increasing your garment capacity, which is still a very small part of our overall business. Are we thinking seriously to have a major expansion in garment segment and go broaden our product profile the way you have mentioned New York facility?
Earlier we were not very sure we really want to expand the garment capacity or not. Definitely the business is whatever small capacity we are doing, we are doing good. Our costs are very high because the first step is let's make it a little viable unit, and in case we can make money on the expanded capacity also, then we'll look at it differently. As of now, the only idea is it's a good business where we are dealing with some of the brands, we are supplying the material to them, or we are giving them the final product. Just to start to that we are decided to expand this capacity so that we are more viable. Whether we'll do kind of full-fledged ventures in the future or not, there's no decision as of now on that.
The first step is we are looking at whether we can make the business viable. It's just a fresh view has to be taken by the management. As of now there's no decision that we'll be looking at it in a very, very big way. Neither yes, nor no. We'll look at it or we'll evaluate it later.
Sure, sir. Sir, what is our average realization for, per shirt? Ballpark number.
Normal? $5.
Okay, sir. Okay, sir. Thank you very much for answering my question. All the best.
Sorry. It's $7.5 .
$7.5.
Yeah.
Okay, sir. Thank you. All the best.
Thank you, sir. The next question is from Yash Jhunjhunwala, as Retail Investor. Please go ahead.
Thank you for the opportunity. Sir, can you tell me what was the average spread earned by us in FY 2026?
I can't say what was Vardhman spread, but the industry spread for the year average will not be more than $0.65.
$ 0.65. The current market conditions you were saying that the spread has increased to about INR 0.90-INR 0.95.
Correct.
Okay. My second question is that when in the last two years when cotton globally was cheaper than cotton in India because of which, and our cotton yarn realization is linked to cotton globally, I'm sure the industry must have made representations to the ministries regarding this disadvantage that Indian spinners had. What, like anything structural that has happened that to address this gap that this disadvantage that Indian spinners had?
India, most of the industry we have been going to the government and we have only one request made to them that do allow the duty-free import of cotton in India. That will have a balancing effect automatically. If CCI buys all the cotton or majority of the cotton then whatever is there. There are two ways of looking at it. One, the CCI sells it at a normal basis so that there's no disadvantage to the Indian spinners. That could be one. Two, to have a price, this right price discovery to allow the duty-free cotton to happen in India. That automatically will happen in the times to come. The industry issue is only and only we're not talking of MSP, we are not talking of increasing or we're not talking of not supporting the farmers.
The industry viewpoint is simple that the cotton should be allowed in India duty free so that the price discovery happens automatically. Textile Minister is totally aligned to that. They've already written couple of times to the Agriculture and to the Finance. No decision has happened, I'm sure at least we, our Ministry is aligned to our thoughts.
Okay. My final question is on the all the FTAs that have been signed with the U.S., with U.K., with EU. Let's say that the demand for all the textile industry from India, it improves. Because of this cost disadvantage, will we be able to compete in case cotton again, like there is duty free access, duty free import is not allowed of cotton and then again you'll fall back into that same problem of high cotton prices?
You know, there are two things we are talking to the government. One, as the demand would increase on account of the FTA, definitely we will be requiring more raw materials, be it synthetic, be it cotton. Whatever cotton we have, it may not be sufficient for us to supply it in case the garment exports or the home textile exports increase a big way from India. Both the logic we have been giving, one is on the cost side, that we should be competitive. Second on the availability of raw material, because any industry, if they put in the capacity, the raw material should be available at the international competitive price. These are the both the issues can taken care of if they allow the duty-free cotton to India. Let's see what happens.
Got it. Got it. All right.
One good thing in between what has happened is that the CCI pricing policy this year has been good, and they have been selling the cotton based upon whatever has been the long-term alignment of Indian cotton with the New York future. To that extent, there was no disadvantage for most period, last six months to nine months. That's why the industry is in a better condition. I should give that credit to CCI for that.
Okay. Understood. Understood. Thank you. Those were my questions.
Thank you, sir. The next question is from the line of Resham Jain from VVD Asset Managers. Please go ahead.
Hi. Hi, Neeraj. Good afternoon, and thanks for giving us a very detailed update. I have one question mainly with respect to the announcement which government has made yesterday, Mission for Cotton Productivity. What I could see in that is that it is not talking about the introduction of the new variety of seeds, but it is largely talking about all the farm improvement practices and stuff like that, high density planting and all. Do you think that if India has to move from 450 kg per acre to, let's say, even to U.S. level of 700-800 levels, will this be suffice? What is your thoughts around this?
Look here, on personal views different than whatever we are thinking. One is the look at the overall lesser crop in India. One is the seed quality, second is the practices, and third is the landholding, because our landholdings are also very small in India, and any kind of automation may not be possible there also. Look at the total crop in India, it's 30 million bales, and almost 6 million farms, farmers are producing that. That means average per farmer, we have only 5 bales. Whereas you go to the U.S. or to Brazil or to Australia, the number is in thousands of bales, not less than that or maybe in lakhs of bales.
Eventually, even if so, we are looking at seeds, we are looking at productivity, we are looking at processes, but the holding is also playing an important role in terms of the overall optimization. Going to a U.S. level of 700 or the Brazilian level of 2,000, I don't know. Definitely we can improve upon it from where we are. Again, going to I mean, today Brazil is at 2,000, and they're still optimizing, they're still looking at more experimentation, they're still looking at what more can be done. Our cost will definitely be expensive going by our landholdings also. Having said that, we have to start from there.
It's a good initiative which the government has taken. I'm sure if we can take this 450 to even 550, we can increase our productivity by 20%, which will give a lead to the overall cost as the MSP is dependent upon the cost to the farmer plus 50% remuneration. If their costs come down, definitely it will have an impact in their better realization and a better cost for the industry as well.
Understood, sir. Sir, the second question is given that, now the expectation for next year, overall for the industry is looking quite positive. We have already done modernization CapEx largely in the last two, three years, which will bode well for us. Beyond this, are you looking for, because you need to plan from now to utilize that incremental cash generation. From a CapEx perspective, are you planning anything?
Of course. Two things. I think, you're right, and not only us, most of the industry is waiting because the situation is a little better after a long time, so everyone is trying to look at whether it is sustainable or not. In between, one, we have taken a one open-end project, which was hold on, so we are likely to restart that. Also, we have taken a new piece of land in PM MITRA Park in Madhya Pradesh. That land is likely to be given to us, as per the government promise as of now by December or January this year. Once the land is available to us, we'll start working. We are already on the drawing boards. We are putting up some ideas, and maybe next two, three months we'll finalize those ideas also.
By that time we'll look at the sustainability of the system also. Not only we, but many players we are looking at because this FTA demand will start happening somewhere 15 months down the line. India, we have to prepare within next two to four months, we'll have to start looking at what all is required in country and all the good players have to prepare themselves so that those capacities could be put in. We are also gearing up ourselves, and I'm sure next two, three months we'll finalize our plans as well on the spinning side.
On the fabric side, we in any case have the surplus capacity, so we like to utilize it next six months, and by the time we utilize it, we'll definitely there are some ideas in our mind what to do next in the next financial year also.
Okay. In the existing set of verticals only like yarn, fabric, you have ventured into-
Yeah, as of now-
A little bit of synthetic.
as of now, yeah, as of now, we are restricting ourselves to this only, as of now.
Okay, sir. Thank you. All the best.
Thank you. The next question is from Rudraksh Gupta from Navneet Investment Trust. Please go ahead.
Hi. Very good afternoon, thanks again for the detailed explanation. I have two questions. One related to what you explained that India should have had a spinning capacity of 58 million, 59 million versus operational today at 41 million, 42 million. Given the environment where spreads are expanding, the cotton prices have actually aligned of India and international, which actually solves a big problem. A potential FTA with Europe and U.K., which is an incremental positive to play out like you're suggesting over 12 to 18 months. The incremental development in terms of, you know, if the import prices or the import duties are actually dealt with correctly by the government. This is the most promising commentary if I may say so, that I've heard in a long time.
Along with a very wide gap of required capacity versus available capacity at play. Would this really mean that a very large expansion of capacities can come through over the next three, four years if the cycle sustains, the import duties are taken out and the FTAs actually start to bring in benefits? I will bring in my second question after once I hear on this one.
Okay. I'll, I'd like to make one correction. Your all the data and facts you have given is correct, except one. When I said the capacity should have been 60 million, it should have been going by the tradition or the conventional increase which happens every year. Whether we require 60 million or not is a separate question. We were at 53 million. Normally, we were adding 2.5 million spindles every year, so we should have reached 59 million, 60 million against where we are at 41 million. Two, the Indian spinning capacity, lots of spinning capacity was very, very unviable, inefficient, which is going out of the system. If you look at the total demand in India today, 41 million, 42 million spindles are sufficient as of now for the country, and that's why our margins have become better.
Going forward, as the expansion will happen by way of more FTAs and the demand coming in, we definitely require more spinning capacity. Whether it is 60 million or 45 million or 50 million, that will depend upon how much new business we can generate with these FTAs. Definitely there is a scope for this India, for the country. With all these FTAs coming in, the demand on the garmenting and home textile increases, definitely on the spinning side we will be requiring a much bigger capacity as a country.
That's right.
The good part is all the smaller players have gone out of the system. Now the new expansion hopefully will come more in the organized hand, which means there will be a better competition compared to the very, very unorganized competition.
Fair. Sustains profitability for the industry and helps CapEx building as well. Fair.
Correct.
The second question is more related to this situation where geopolitics is what you referred to, where, you know, some countries who are also manufacturers and exporters have been having issues. Those issues, in my understanding, have worsened in the current West Asia war, if I may say so. Is that correct as an understanding? Is there a further weakening of other Asian competitors, which will give a sustained advantage to India? Is that a fair assumption or an understanding or that is something where we can see a comeback from them very quickly?
You know, if you look at the spinning sector, the five countries are taking 90% share in the spinning. China, India, Pakistan, Bangladesh and Vietnam. These are the five countries which are taking care of almost 80%-85% of the world's spinning capacity. Let's look at it one by one. China, they started reducing their spinning capacity almost 15 years back. From a peak of 112 million spindles, they are today down to 84 million spindles only, though they have announced some CapEx in the Xinjiang area where there are lots of cotton.
At the same time, the government of China this year has officially announced that we want to reduce the cotton in the Xinjiang area and we want to move more on the food articles as the country will be requiring more food grains for their consumption. Which means the cotton will come there also. If you look at last 10-15 years, as I mentioned, their peak capacity from 112 million spindles have come down to 84 million. Which means they will not be expanding, the inference could be that they will not be expanding in a big way. Second country is the Pakistan.
Pakistan again, if you look at their own issues and concerns, be it political, be it power availability, be it or any other factor, I think there is a limitation, so they will also not be expanding their business in a big way to cater to the international demand. Third is Vietnam. Vietnam already is a very small country, small population, and they have done fantastic job in the textiles, starting from spinning to the garmenting.
Correct.
As their per capita income has started moving up, there is more interest for the people to go in for the electronics and the service industry there also. With a small population, we don't feel that Vietnam will be increasing further on the spinning side. Rather, whatever is there, they can at best utilize that. Not likely that they'll be expanding the spinning business to that extent. Fourth is the Bangladesh. Bangladesh is very strong on the garmenting. After China, they are number two players, almost $54 billion-$55 billion of work of export they're doing on the garmenting side. The spinning capacity today is about 13 million-15 million spindles, and the utilization is not more than 55%-60% even as of now.
They. Since they are very strong on the garmenting, some groups have gone back to back where they're putting up spinning capacity. Spinning is a very, very large CapEx required. You reque- and they don't have cotton. They'll have to import everything. Eventually it looks like the major spinning expansion may not happen in Bangladesh also. On the garmenting side, they may continue to grow. As a result of that, they'll be requiring good quality yarn as well as the fabric from out. They may require. To that extent, they'll have to depend upon someone else. The last, out of these five is India, which is today the best place because we are number two spinning capacity in the world.
Even with the 41 million, 42 million spindles, we are the second-largest in the world today in terms of technology, in terms of cotton availability, and in terms of the overall clusters in the geopolitical. I think we are definitely better placed. I can only hope that India should be in a position to take full advantage of this situation. The only caveat I have in mind is that the raw material availability at a international competitive price, which we have been talking to the Government, and we are hopeful that the Government, looking at the overall potential, will definitely understand and look at something like this.
Thank you, sir. That's very helpful once again.
Thank you. The next question is from Sudhir Kedia from Value Wise. Please go ahead.
Yes. Good evening, sir, and thanks for the opportunity. Sir, you have outlined lots of reasons for the tailwinds for the industry. My question is more from the next season perspective. Do you think that next season cotton also get impacted because of the weather condition in the tropics?
No.
Yeah.
There are two factors. One is the physical cotton, second is the future cotton. Whatever is the weather conditions announced today, it's already captured in the future prices. Going by the situation, if things goes worsen, it can increase. If things become better or the more rain happen, it can soften also. Cotton is one product where based upon the future events which are likely to happen, it's already capturing into the market very, very well.
From cotton prices perspective, you think that is already captured in the cotton prices from international perspective, right?
As of now, yes. Definitely, one is the more news coming in based upon that, whatever condition can happen. Second is the possibility for the hedge fund or the speculative fund, which is beyond control of any one of us.
Right. The second question is that, while the trends, the spreads have increased almost by 40%, 50% from their lows, what has been the spreads, at the peak in the past, and do you think that the spreads can rise further from the current levels as you move ahead, to the next season?
Most of the times, if you look at last 20 years, except the years which could be very good or very bad, the $1 spread is always considered to be good for the spinning industry.
Okay. Okay. With rupee appreciation, that will add extra to the earnings of the spinners for the industry.
It should normally because our cotton is about 50-55% of the total finished product. Whatever with the rupee change is happening, the cotton will align to in U.S. cents very fast because anyone who's buying here will always look at New York Cotton Futures and the landed cost in India based upon the U.S. cents. Whatever is the value addition, that advantage comes in with the weaker rupee.
Sir, my next question is up to what time do you expect these spreads to sustain? Meaning, do you think this to sustain from one, two quarter perspective or maybe four, five quarter perspective? How should we look at that?
Today things are good. It's very difficult for me to say whether these raw material will remain at these prices or what will happen with the China or the wars. It's very difficult. I can say as of now things are looking nice, and there doesn't seems to be any big concern. Rest is very difficult for me to predict whether it can be for five quarters or one quarter or two quarters. As of now, I can tell you, most of the spinners from India in export market are sold for three months as of now.
No, the reason of my question was because some of these. Reasons which you highlighted, like on the spinning capacity, these are structural reasons and they are not seasonal. From that perspective.
from that perspective, definitely things could be a better place. From that perspective, it's a better place. The cotton prices or the demand structures or anything happening on the wide side, there are so many factors today that anything can say anything. Yes, in Indian context, with the closure down of part of the capacity, it can be better placed. Also we have a better situation going forward because of the FTAs and next 12, 15 months, definitely things are likely to be better only for India, Indian garment and the home textile. To that extent, we are optimized or we have a optimism to that extent as well.
Thank you, sir. Due to time constraint, we will take this as a last question. I now hand the conference over to management for the closing comments.
I think, we've tried to give based upon our judgment and our thought process, we have tried to give whatever best knowledge we have. Rest the events occurring in the across world are so far, so many that it's impossible for anyone to understand and know the impact of that on the overall industry. Definitely, as I mentioned, after two, three years, there seems to be some respite to the industry. Again, for the reason, as I mentioned that our raw material became more competitive and with the better and, with the better demand and the lesser capacity, we are definitely better balanced as of now. I hope, the next year should be better year for most of the textile companies, including Vardhman.
In the meantime, most of the industry is very has optimism based upon all the FTAs which the government has done, which could be a major growth engine for our garment and the home textile. We being the textile producer or textile material supplier to them, if they do well, definitely our company can also do well. Thank you very much for your confidence and your support always. Let's hope things will be better in the next times to come.
Thank you, sir. On behalf of 360 One Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.