Ladies and gentlemen, good day and welcome to Vardhman Textiles Q3 FY26 earnings conference call hosted by Batlivala & Karani Securities India Pvt. Ltd. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Aradhana Jain from Batlivala & Karani Securities India Pvt. Ltd. Thank you, and over to you, ma'am. Thank you, Ikra. Good evening, everyone. 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; Mrs. 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. Thank you for joining the Quarter 3 analyst call, earnings call for Vardhman Textiles. Our overall performance for the quarter remained broadly in line with the corresponding period last year and similar to year-to-date basis. The EBITDA margin for the quarter was at about 15% compared to 16% quarter-on-quarter. On a year-to-date basis, EBITDA margin was around 15% versus 17% last year. The operating environment during the quarter was marked by cost volatility, demand disruptions, and global trade uncertainties. However, disciplined execution and operational focus helped us maintain overall business stability. At the capacity utilization front, yarn utilization was at around 95%, and fabric utilization was at about 89-90%. This is regarding cotton. The quarter continued to be impacted by elevated Indian cotton prices. During Quarter 3, cotton traded at about $0.75-$0.78 per pound, rising further to around $0.79 per pound in January 2026. This has been driven primarily by an 8% increase in MSP. This has made Indian cotton structurally more expensive if we compare to global benchmarks. In the current cotton season, CCI has procured approximately 8.5 million bales out of total arrivals of 17.5 million bales. This accounts for 50% of arrivals. In the present scenario, CCI is absorbing about 75-80% of daily arrivals. This has constrained open market availability and supports higher prices. The absence of a transparent selling framework by CCI continues to add uncertainty for mills. The duty-free import window from August to 31st December 2025 resulted in higher cotton imports because imported cotton was relatively cheaper. However, from 1st January, the 11% import duty has been reinstated. This puts us at a relative disadvantage to competing countries like Bangladesh and Vietnam, which continue to enjoy duty-free imports. During the quarter, New York futures traded at about 63-65 cents per pound, translating to a landed cost of about 72-75 cents per pound. For mills in Vietnam and Indonesia, if we compare this to Indian mills, they are at 75-78 cents, creating a 3-4 cent per pound cost disadvantage even before accounting for quality and contamination differences. Additionally, this year, cotton crop is estimated at 29.2 million bales. This is below last year's 29.7 million bales and significantly lower than domestic consumption of around 32.2 million bales. This implies a supply deficit of nearly 3 million bales, which will need to be met through imports. The yarn business experienced a mixed environment during the quarter. While the first half of the year was relatively stable, Quarter 3 saw pressure due to tariff-related disruptions, both in garment exports and home textiles. There was also excess global capacity and cautious buying behavior. Domestic demand remained soft, while exports showed selective improvement, largely driven by specific product categories. Indian yarn exports improved in December to around 115 million kg. If we compare this to an average of 100 million kg, we can see an improvement. This is driven primarily by contamination-free yarns. Yarn prices, therefore, have improved by approximately 15 cents per kg, especially over the last 30 days. However, this has not fully offset elevated cotton costs. As a result, margins remain under pressure despite stable utilization. Our focus continues to be on disciplined capacity utilization, selective price recovery, and increasing value-added yarns. On the fabric business front, we operated in a challenging external environment during Quarter 3. Expectations of an early resolution of the tariff war have not materialized, and U.S. buyers continue to adopt a cautious and selective sourcing approach. This has increased competitive intensity and elongated decision cycles. Despite these headwinds, fabric business delivered a resilient performance, supported by ongoing new product development, customer diversification, and strong operational execution. A key strategic milestone during the period was the commissioning of Vardhman Performance Fabrics, which is focused on performance wear. We will start building scale from Quarter 1 of next financial year. We've already begun servicing select domestic orders, and our focus remains on developments for international customers. In parallel, the fabric expansion at Budni on our existing cotton blend lines has also been commissioned, and it is expected to gain momentum from Quarter 1 next year. This enhances our ability to service larger programs, improve responsiveness, and support premium fabric categories. We continue to diversify in non-US markets to mitigate tariff risk. We are focusing on countries like EU, U.K., Australia, Canada, and we are confident that our efforts will bear fruit in time. A quick update on our green initiatives. We are currently at 9% of our total demand is green power. In FY2027, we expect we are in line to increase this to about 49-50%. We now open the floor to questions. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touch-tone 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. Participants, if you wish to ask a question, you may press star and one. The first question is from the line of Awanish Chandra from SMIFS Limited. Please go ahead. Thanks for this opportunity and congratulations management team on a moderate performance despite difficult situation. In the opening remark, you have already talked about the pressure on the margin, and structurally, we are having higher cotton prices. My question is, if I look at average cotton price in Quarter 2 in India and Quarter 3, there was a quite substantial decline on the average basis between Quarter 3 and Quarter 2. I understand the point you have talked about a structurally thing, but was there any inventory loss because of this decline in the cotton price versus Quarter 2 in India? No, for us, fortunately, it was not there because quarter two, we did not have much of a cotton available to us. And whatever we bought, I think we bought at the right prices. For us, there was no inventory loss to that extent. Okay. We never had this advantage of declining cotton price on an average basis in India in quarter three because on a spot, if I look at a spread, it looks like margins would be improving, but that did not happen in the numbers. No, that's true because in India, we had a different situation. The U.S. tariff, this was applicable from 27th of August. Though our cotton prices to some extent came down, at the same time, the advantage could not be realized because the yarn prices or the fabric prices came down because there was relatively lesser demand in India from our customers who were ultimately sending goods to the U.S. in terms of home textiles or the garments. That advantage could not be realized by the Indian spinners or the Indian fabric producers. Okay. Sir, in the opening remark, ma'am talked about capacity enhancement in fabric. What is the current capacity after expansion on a yearly basis of our new capacity in woven fabric? Our earlier capacity used to be about 145 million meters per month, and I'm talking about processed capacity. Out of this, this has increased to 185 million meters per month and an additional 15 million meters in the performance wear in technical textiles. Okay. On the gray basis? That's 200 lakh meters per month. Okay. On the processed side, on the gray basis, what the number would be? On the gray, we haven't increased any capacity. Whatever processed capacity we have, we keep some additional for servicing. It's more than the processed capacity. Okay. On a yearly basis, the gray, we used to talk about 2,300-2,400 lakh meters. That remains as it is. No change. Okay. Okay. Sir, last thing, a lot of people were expecting that this import duty will be continued, but it never happened. Any indication from the government whether this import duty exemption will be reinstated? Any talk from the government side? Yes, we have been talking to the government, both the Textile Ministry as well as Agriculture Ministry also. Therefore, yesterday also, CITI had a conference with the Secretary of Textiles. They have listened to our issues and concerns, but let's see what happens. Okay, sir. Okay, I will come back in the queue. Thank you very much. Thank you. Those who wish to ask a question, you may press star and one. Participants, to ask a question, you may press star and one. The next question is from the line of Monish Ghodke from HDFC Mutual Fund. Please go ahead. Yeah. Thank you for the opportunity. You said that your cotton inventory at the end of Q2 was minimal. If I see the half-yearly balance sheet disclosure, the inventory is around INR 37 billion as of September 25. If I compare it to the previous year, September 24, it is INR 27 billion. It was higher than normal. What were the key reasons for the same? No, it's not only the, I mean, the inventory we were talking of on the cotton basis. Was there any loss on the cotton? I said, there was no loss on the raw cotton, whatever was available to us, because that inventory was relatively lower on 30th of September. Since our capacity inflations have increased, overall business levels have improved. The total inventory includes the finished goods, WIP, everything together. Okay. So I mean, there was no larger than normal cotton inventory as of September end? No, it was slightly higher because on 30 September, we had started importing cotton. It was duty-free region by that time. So those inventory could be a little more than the last year, but there was no inventory where the losses would have happened. The higher cost inventory was relatively lower to us. Okay. Sir, could you share EBITDA margin for yarn and fabric business separately? As a company, we share the textile. We considered it as a textile division only. Generally, we do not share the company. Yes. Okay. Sir, now this EU FTA is in final stages. I mean, six months back, no one was expecting that it will happen so soon. Is there any rethought about getting into garmenting now? Of course, there are thoughts going on what should be done on the garmenting division. Earlier at this time was whether we really want to continue with the business or not. I think there is one instance which has changed that we are likely to enhance the capacity of the garment division. We intend to make it double from the current capacity. Again, it will be very, very minuscule looking at the total company size. Once we are in a position to do this, I think it is only beyond that we look at whether we should really expand it in a big way or not. The earlier stance is surely changed today where we are enhancing the capacity. We are doubling the capacity, at least whatever we have today. Sir, I mean, if I see your pre-COVID margins, I mean, it used to, at an aggregate level, it used to be around 18-19%. As you have rightly said multiple times that Indian cotton used to be cheaper as compared to NY Futures, but now it has become expensive. I mean, what is the way out here for the industry to improve margins? I'm talking about spinning side. Will it continue like this in the medium term? No, it looks like in today's situation, the improvement may not happen in a bigger way. Of course, we are also looking at the repercussions of these, which are already seen in the country. The last two to three years, we have seen almost 12-13 million spindles have been closed permanently. There is no expansion happening. Ultimately, the demand-supply will take care of it. Eventually, if another 5-7 million spindles get stopped in the country, I think then the demand would start improving, and then again, the margins will start improving. Two, in any case, unless our raw materials are available to us at the international parity, I do not think on a basic commodity anyone can really make money if your raw materials are expensive. That decision the government will have to do sooner or later. Third part is your cost initiatives and the product mix of the customer mix, which is in our control. There is lots of work going on both in the yarn and the fabric division to that extent. I am sure that has given us these kind of results also. We are still working very aggressively on these ideas. Fortunately, the EU FTA will happen, so there will be more opportunities for the Indian garmenters to do better over there. I think we have some pockets which are available, which are controllable. We are working, trying to look at what best could be done out of that. Okay. Okay. Last question, how much cotton did we import in Q3? Yeah, we have imported lots of cotton. Okay. Quantity, I think, let's not share that. Okay. Okay. Thank you, sir. Thank you. The next question is from the line of Prerna Jhunjhunwala from Elara Securities. Please go ahead. Thank you. We just wanted to get some clarity on how tariffs have impacted this quarter. In terms of revenue, EBITDA, if you could share something for both yarn and fabric businesses, and how you're dealing with the pressure coming in from customers in the current scenario. Yes. Tariffs have definitely had a negative impact on our business. First, let's talk about the overall picture. When it comes to our customers, especially in the U.S., the sentiment is poor. Most of our customers are not willing to take long bets. Some are delaying the decision-making cycles. Some are recalibrating prices. Some are recalibrating supply chains. Of course, now with the current geopolitical risks which have been added, they definitely make the situation worse. That's on the macro front. Now, it will be very difficult for us to share exactly how much the impact it has had on EBITDA. On a case-to-case basis, we have supported some of our customers because we've had to, we've prioritized securing long-term relationships with them. It has a marginal impact, not a big impact. If you compare in fabric, if you compare last year this quarter, we had 100% capacity utilization. This year, we are at 10% capacity utilization less. You can see the impact on volumes from that. Okay. How has been the domestic market in both yarn and fabric businesses for us, apart from the U.S.? I mean, leaving aside U.S. business. The domestic market has been stable. Some pockets are doing well. Some large-format retailers have had some inventory optimization that they have conducted. Overall, domestic has remained stable. As for yarn, domestic prices have remained soft. We have seen export market improve more on the yarn front. Domestic has remained a bit soft. Okay. Exports, where are we seeing some green shoots? Because anyways, U.S. is not that positive. Which markets are seeing some traction, which is helping you say that exports is doing better? You are talking about yarn? Both the markets, yarn and fabric. Fabric, you mentioned that exports is doing much better than domestic. No, it has been soft. No, no. That was for yarn. On the yarn side, I think it's the Indian garmenter where the concern is more. When it comes to Bangladesh, Vietnam, Sri Lanka, or China, they are doing pretty good. In fact, last one month, there's been lots of demand from China for the yarn again because of maybe some concerns on Bangladesh, etc., etc. We are finding the yarn prices have started improving since last one month. There is at least improvement of 10-15 US cents per kg of yarn, thanks to the fresh demand from China. That's interesting. Do we see profitability improve going forward, given that there was a decent period for us to import cotton and the prices were lower? Near-term looks somewhat stable than in the past? I mean, I can talk of the industry average only. Whosoever has the imported cotton, maybe there could be some gain coming to them in maybe next two, three, four months, whatever cotton stocks you have. Unfortunately, the Indian cotton prices are again very high. In this period, CCI has been buying most of the cotton. They are virtually today the monopolistic stockist as of now. The new sale policy, which they have decided day before yesterday, they have come up with a price range of INR 56,900 for Shankar. If I convert it into US cents, it is almost 80 US cents per pound. With the New York future of 64-65 cents, the Brazilian is available at 72-73 cents to most part of the world. We are again higher by about 8 cents per pound. To that extent, I think on the incremental basis, I don't see the margins improving unless the yarn prices increases further. If I look at from the New York future or a Brazilian cotton available to a Vietnamese, today their margin would be as on today, they would be touching almost 90 cents to $1 conversion margin today, which used to be, I mean, which is seen after a long time. India, since our cotton is almost 78 cents per pound expensive, so I convert it into per kg basis, we still have a disadvantage of about 20 US cents per pound to that extent. Our margin will be in the range of about 70-80 US cents. Whereas for the other countries, it would be touching almost close to $1 today. Oh, that's a big difference. Yeah. Sir, are you seeing further capacity closures in the industry, in the yarn business? It will continue to happen. Yeah, it will continue to happen till the time we can. Lots of capacity in India is very old, and their costs are also high because they are not modernized. When we are talking of 70 cents, 75 cents, we are talking of good efficient mills. All these capacities, which are relatively in the semi-organized sector or with a higher cost, non-automatic technologies available to them, their cost will be surely higher than this. For them to survive in these circumstances, it continues to be very, very difficult. I think personally, if you ask me, there could be a possibility another two, three, four, when 11, 11 and a half million spindles are already closed, figure reaching to 15 million spindles in next one year, unless the prices, unless the normal prices are corrected, it can happen. Okay. It will be unfortunate, but it can happen. Yeah, makes sense. Sir, a few questions on CapEx. You mentioned about garment capacity to double. By when do you expect it to double? We're working on it. I think it's a small capacity, 6,000-7,000 shirts. Whenever we start the project, it will take us about eight months or so to complete that. It's not really a major CapEx. The major CapEx was in the spinning business on modernization and one of our small expansions at Melanges. The bigger expenditure, capital expenditure, was planned on the fabric side. That's going on as per schedule only. All the expenditure, whatever was planned last year, that's almost online. That will get commissioned by Q4, by the end of this quarter. Yeah. Okay. How do we expect it to get utilized over a period of time? Because given the current geopolitical situations that are there, especially for the new business, the synthetic fiber business, I just wanted to know the efforts that you've taken to sell it when it gets operationalized. In. Any time. In next financial year for the performance wear, we are targeting capacity utilization upwards of around 60% for the full year. Okay. Any targets and all being done to ensure this number gets achieved? We want to maintain a healthy balance between domestic and export, especially given geopolitical dynamics. We would like to have a strong domestic base and also well-diversified export base. Current focus is on developments. Some developments are coming from our existing customers because they also have this product portfolio. A lot of new customers, which are focused on sports and outerwear, they are also being added. No long-term tie-up, but we have had partnerships with these customers over the years. You can expect strong collaboration with those customers. That is fantastic, Sagrika. Thank you and all the. Thank you. The participants who wish to ask questions, you may press star and one. Those who wish to ask a question, you may press star and one. As there are no further questions, I would now like to hand the conference over to the management for closing comments. To conclude, the operating environment remains demanding with persistent cost pressures, trade disruptions, and evolving global sourcing patterns. However, actions taken over the past few years have strengthened the foundation of our business. We continue to focus on controllable levers like portfolio premiumization, operational efficiency, cost discipline, and a customer-centric approach. Strategic investments in fabric capacity, performance textiles, and yarn modernization position us well for the next phase of growth. While near-term visibility remains limited, we hope and pray that global trade conditions will stabilize. Our integrated capabilities and diversified customer base should create meaningful differentiation. Thank you so much for your faith in our organization and have a good day. On behalf of Batlivala & Karani Securities India Pvt. Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.