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Robust growth led by yarn; margin expansion continues

Vardhman Textiles (VTEX)’s revenue grew 15.5% YoY to INR28.7b in 2QFY27, led by strong growth in the yarn portfolio (+26% YoY), driven by higher realizations (+24% YoY) and stable volumes. Gross margin expanded by a robust 460bp YoY to 49.8%, while EBITDA margin improved 610bp YoY to 19.6%. Spinning utilization remained close to 100%, supported by improving domestic and export demand. Management expects gains from lower-cost cotton inventory to moderate as fresh procurement takes place at higher prices. Further, fabric demand remained subdued due to lower export volumes, pricing pressure and higher input costs. Management expects fabric performance to improve over the next 6-9 months

Yarn segment drives revenue; fabric business faces near-term challenges

VTEX’s revenue grew 15.5% YoY to INR28.7b in 2QFY27, driven by the yarn portfolio, while fabric revenue remained weak. Yarn revenue increased 26% YoY to INR20.6b, driven by 24% YoY growth in realizations to INR295/kg, while volumes grew 1.5% YoY. Spinning utilization remained close to 100%, supported by improving demand over the past six months. Fabric revenue declined 5% YoY to INR8b, as realizations declined 2% YoY and volumes remained subdued. Fabric performance remained challenging due to lower export volumes, domestic pricing pressure and higher input costs (+20% YoY). The order pipeline has started improving, with management expecting better demand over the next 6-9 months. Further, the open-end spinning project of ~50 tonnes/day is expected to be operational over the next 6-7 months, adding ~8% incremental capacity.

Higher yarn realizations, lower-cost cotton inventory drive margins

In 2QFY27, gross margin expanded 460bp YoY to 49.8%, supported by higher yarn realizations and gains from lower-cost cotton inventory procured last year. EBITDA grew 67.8% YoY to INR5.6b, with EBITDA margin expanding 610bp YoY to 19.6%. Management expects these inventory-related gains to moderate as fresh cotton procurement takes place at higher prices. Meanwhile, fabric profitability remains under pressure due to higher yarn costs and limited pricing pass-through. Management expects long-term EBITDA margins of 16-20%, supported by higher value-added products, operational efficiencies and modernization.

Valuation and view: Reiterate Neutral

We expect VTEX’s yarn business to scale up and clock a ~10% CAGR over FY26-28, led by higher realizations, while the garment segment is expected to clock a ~50% CAGR over FY26-28, led by the ongoing capacity expansion. We believe VTEX's margins are likely to improve in FY27, supported by a favorable cotton-yarn spread. However, we do not expect VTEX to sustain this spread benefit in FY28. We expect revenue/EBITDA/APAT to clock a CAGR of 10/24/27% over FY26-28. We revise our earnings estimates and reiterate our Neutral rating on the stock with a revised TP of INR570, valuing VTEX at 9x FY28E EV/EBITDA (earlier TP INR600). Key risksinclude high dependence on the cotton-yarn spread and a delay in announced capex (refer to our IC note dated Jun’26).

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