Resilient quarter amid tariff uncertainty
Vardhman Textiles reported a decent performance with YoY margin expansion. Revenue degrew just ~1% on YoY basis while grew by ~4% on QoQ basis, despite pressure on realizations. Margin contracted by just 17bps QoQ to 13.5% in Q2FY26, despite several challenges both on demand side and RM costs disparity. Margins got support from imported cotton, rupee depreciation and the growth of branded products. Utilization in both spinning and fabric segments are near peak levels as woven fabric industry doing good. Despite the prevailing uncertainty, the company delivered a resilient performance during the quarter. Overall demand is yet to reach its normal levels due to continued geo-political tensions and tariff war situation. Rather than any new big capacity addition, currently management is focusing on modernization and debottlenecking to improve product profile, cost savings and have some additional capacity. The company is currently executing a capex plan of ~Rs 35bn on various projects, with 28bn to be completed by FY26. With this whole capex, additional capacity of 56,744 spindles and new capacity of 18mn meter/annum of technical textile & 31mn meter/annum of woven fabric will come on stream. Rather than additional big revenues, this huge capex will help the company to cater to several business requirement and improve margins. With positive view on textiles sector, along with the hope of US-India trade deal in near future, we maintain similar target price of Rs555 per share (14x Sep’27e EPS) for Vardhman Textiles. Maintain BUY.
Decent performance with improvement in textile margin
During Q2FY26, the company posted slight growth in Yarn production volume front as it is already at full utilization, up 4.2%/1.9% on YoY/QoQ basis. Grey fabric production was down ~3% YoY, and the Processed fabric production was down ~4.4% YoY.
Revenue de-grew ~1% on YoY. With cotton price stabilizing at lower level, realization has come down for the products. Cotton is almost down ~3.7% on YoY basis in Q2FY26.
Textile demand should be on track, but profitability still a near term concern
The Indian textile industry was on recovery path especially on exports front, but geo-political issues and tariff war have created near term uncertainty. However, demand environment is good enough to sell the products at good utilizations levels, but profitability is below normal.
India cotton prices have corrected a lot and now stabilised at lower levels. After recent correction, international cotton prices also remained low during Q2FY26, continuing unfavourable parity issue. However, temporary removal of import duty is expected to partially offset this disadvantage until Dec’25.
Outlook and Valuation
We expect decent earnings growth, led by margin improvement, considering expected improved situation in sector, better product mix and foraying into technical textiles.
We introduce FY28E earnings projections and assign 14x PE multiple to Sep’27e earnings and arrive at a target price Rs555 per share, offering ~27% upside from current levels. BUY.
Vardhman Textiles Ltd – Q2FY26 Result Update – SMIFS Institutional Research
