Vardhman Polytex Ltd Management Discussions

ECONOMIC OVERVIEW

Global Economy

The global economy remained resilient in 2025, registering growth of 3.4 per cent despite persistent trade and geopolitical uncertainties. Growth was supported by technology-led investments, accommodative financial conditions, and continued fiscal and monetary policy support. Global inflation moderated to 4.1 per cent from 5.8 per cent in the previous year, although elevated services inflation remained a concern. Global trade volumes recovered, driven by front-loading of shipments and robust technology exports, even as the global fiscal outlook weakened. Financial markets continued to experience volatility amid geopolitical tensions and valuation concerns, with uncertainty intensifying following the outbreak of the West Asia conflict in March 2026. The US dollar, after remaining weak through much of 2025, strengthened in 2026 as investors sought safe-haven assets. Sovereign bond yields, which had softened during 2025, came under upward pressure due to higher energy prices and renewed inflation concerns arising from the geopolitical conflict. (Source: RBI Annual Report 2025-26)

Indian Economy

The Indian economy remained on a strong growth trajectory in 2025-26 despite heightened global uncertainties, including the imposition of higher US tariffs and escalating geopolitical tensions. Real GDP growth accelerated to 7.6 per cent, up from 7.1 per cent in the previous year, making India the fastest-growing major economy. Growth was primarily driven by robust private consumption and sustained investment, supported by buoyant services and improving industrial activity. The impact of global trade disruptions on domestic growth remained limited, with net exports exerting only a marginal drag. Headline inflation moderated during the year, aided by lower food prices and favourable base effects, while macroeconomic fundamentals remained resilient. Deposit and credit growth continued to register double-digit expansion, reflecting healthy financial sector activity. The central government maintained its fiscal consolidation path while sustaining its emphasis on capital expenditure to support long-term growth. The external sector remained resilient, with the current account deficit staying well within sustainable levels and foreign exchange reserves remaining adequate. Looking ahead, although geopolitical tensions, global trade uncertainties and energy price volatility pose near-term risks, strong corporate and banking sector balance sheets, continued public investment and expanding trade partnerships are expected to sustain Indias growth momentum. (Source: RBI Annual Report 2025-26)

INDUSTRY STRUCTURE & DEVELOPMENTS

Global Textile Industry

The global textile industry in FY 2025-26 is expected to see a cautious recovery with moderate growth, driven by apparel demand, e-commerce, and ongoing structural shifts toward sustainability and value-added products. The global textile market size is estimated around USD 1.2 trillion in 2025-26, with most major forecasts indicating mid single to high single digit annual growth through the early 2030s. Growth is supported by steady expansion in clothing, home furnishings, and technical textiles, alongside the continued rise of organized online retail channels across key markets. Asia Pacific, led by China, India, Bangladesh, and Vietnam, remains the dominant production and export hub, accounting for roughly half of global textile market share.

Industry surveys for early 2026 indicate business sentiment, order intake, and capacity utilization have improved versus 2025, though all remain below long term averages and the recovery is described as fragile. Demand weakness, high raw material and energy costs, and geopolitical risks continue to weigh on margins, particularly for upstream and capital goods segments. At the same time, brands and manufacturers are accelerating investment in automation, digitalization, and nearshoring to improve efficiency, resilience, and responsiveness to consumer demand. (https://www.fortunebusinessinsights.com/textile-market-103879)

Indian Textiles Industry

The Indian textile industry in FY 2025-26 remains a cornerstone of the national economy, marked by resilient export performance, strong domestic demand, and ongoing policy support for long-term growth. Indias textiles and apparel market is estimated at around USD 190-195 billion in 2025-26, with about 80% driven by domestic consumption and the balance by exports. The sector continues to contribute roughly 2% to Indias GDP and provides employment to millions across spinning, weaving, garmenting, handlooms, and handicrafts, with a significant share of jobs in rural and semi-urban areas. India remains among the leading global textile and apparel exporters, supported by strengths in cotton textiles, readymade garments, man-made fibers, and traditional handloom and handicraft products. (https://wazir.in/report/indian-textile-apparel-industry-2026-wazir-advisors/)

Total textile exports, including handicrafts, increased from about Rs. 3.10 lakh crore in FY 2024-25 to Rs. 3.16 lakh crore in FY 2025-26, registering growth of around 2.1%, reflecting steady global demand despite a challenging macro environment. Ready-made garments of all textiles remained the largest export segment, alongside stable performance in cotton yarn, fabrics, made-ups, and handloom products. Man-made yarns, fabrics and made-ups showed relatively stronger growth, underscoring the gradual shift toward synthetic and blended fabrics in global markets. (https://ddindia.co.in/2026/04/indias-textile-exports-grow-2-1-in-fy-2025-26-driven-by-global-demand-and-policy-support/)

Opportunities & Threats

The Indian textile industry presents a balanced landscape of emerging opportunities and persistent threats, shaped by policy support, changing global supply chains, and accelerating sustainability and compliance requirements.

On the opportunities side, India continues to benefit from a large and growing domestic market, a young consumer base, rising incomes, and deepening e-commerce penetration, which support steady demand for apparel, home textiles, and value-added fabrics. Global China+1 sourcing strategies and diversification by international brands are creating scope for India to capture a larger share of export orders, especially in cotton and man-made fiber-based products. Recent policy measures-such as mega textile parks, integrated textile programmes, support for man-made fibers and technical textiles, and extended export timelines-offer organized players improved infrastructure, lower logistics costs, and better competitiveness.

On the threats side, Indian manufacturers continue to face intense global competition from countries such as China, Vietnam, and Bangladesh, which often enjoy lower capital costs, more flexible labour regimes, and more integrated supply chains. Structural challenges-including fragmented production, a high share of MSMEs with limited scale, supply chain inefficiencies, and relatively high logistics and finance costs-can constrain competitiveness and timely delivery. The sector must also respond to tightening international norms on sustainability, labour compliance, and product traceability, where non adherence can lead to loss of orders or market access. (https://www.insightsonindia.com/2025/06/09/indias-textile-and-apparel-industry/)

Moreover, exposure to volatile cotton and man made fiber prices, energy costs, and currency movements continues to create margin pressures, particularly for smaller and mid sized units. Rapid shifts in global fashion cycles, the rise of ultra fast fashion, and evolving consumer expectations around quality, speed, and sustainability require continuous investment in design, technology, and agile production systems. While the push toward circularity presents clear upside, achieving commercial scale and viable economics for recycling, waste management, and green technologies remains a critical execution risk for the industry.

COMPANY OVERVIEW & ROLE

Principal activity of Vardhman Polytex Limited (Company) is manufacturing of yarn & garments and Real Estate Business. It manufactures yarns that are synonymous with the highest quality. Its range of Cotton Yarns (Carded, Combed, Organic, BCI), Cotton Polyester Yarns and Value Added Yarns (Grey and Dyed) in variable counts, hold a place of pride in the industry. By leveraging premium raw materials and cutting-edge manufacturing technology, we ensure our products consistently meet stringent global benchmarks.

Presently, the Company has its state-of-the-art production facility located in Nalagarh, Himachal Pradesh.

Bathinda Unit

In line with our commitment to asset optimization and financial prudence, the Company has progressed with its strategic plan for land at Badal Road, Bathinda Unit. Manufacturing operations at this unit were discontinued during FY 2023-24 due to economic non-viability driven by aging machinery, high production overheads, and persistent operational losses. To unlock value and augment corporate liquidity, management is actively exploring a real estate monetization plan for the underlying land. The company has received approval from Bathinda Development Authority (BDA) stating its No Objection to establish a Residential Colony subject to other regulatory approvals from Municipal Corporation and other Departments. However, pending these approvals, the land situated at Bathinda unit has been reclassified from fixed assets to inventory in December, 2024 and is valued at fair value, based on the Bathinda Tehsils collector rate list for agricultural land. This initial fair value assessment uses agricultural land rates. A full fair market valuation will be determined after the saleable area is precisely ascertained.

Ludhiana Unit

Furthering our corporate restructuring strategy, the Company ceased manufacturing operations at its Focal Point, Ludhiana unit in March 2025. This decisive step allows management to pivot toward exploring real estate monetization avenues for this prime property. Unlocking the latent value of this land is expected to significantly streamline organizational cash flows, reduce debt liabilities, and strengthen the overall financial position of the organization.

Segment-wise/Product-wise Performance

The company operates in two segments i.e Textiles and Real Estate.

Product-wise sale details are as under:

Rs. in Lakhs

Sale of products	2025-26	2024-25
Grey yarn	15,613.01	20,994.62
Dyed yarn	0.01	-
Garments	5,538.72	4,517.81
Waste sale	2,382.90	2,939.81
Trading goods (textile )	71.13	45.50
Job charges income	-	0.50
Total	23,605.77	28,498.24

Outlook

The Company will concentrate on strengthening competitiveness and restoring profitable growth through disciplined operational and financial measures. Key priorities include sustained cost optimization, productivity enhancements, waste minimization and quality improvements across manufacturing and supply chain operations to deliver more cost competitive products. Concurrently, management will pursue targeted measures to reduce debt servicing costs and improve capital efficiency.

The Company also expects to unlock value from its real estate holdings in Bathinda through phased monetization, which should provide incremental non operating cash flows to support deleveraging and strategic investments. While macroeconomic and sectoral headwinds persist, management remains cautiously optimistic about a steady recovery, underpinned by the Companys brand strength, diversified market presence and resilient customer relationships.

The Board and senior management will continue to monitor market conditions closely and adjust strategic priorities as required, balancing short term liquidity and cost control with investments in capability building and product differentiation to ensure sustainable, long term value creation.

Management perception of Risk & Concerns

The management recognises that the textile sector operates in a dynamic environment where commercial, operational, regulatory and reputational risks can materially affect business outcomes. For FY 2025 26, the Companys risk assessment focused on: raw material price volatility, energy and freight cost fluctuations, supply chain disruptions, competitive pressure, currency movements affecting export realisations, and accelerating regulatory and buyer requirements on sustainability, traceability and labour compliance.

To address these concerns the Company has strengthened its risk management framework and governance. Key measures include diversified procurement, active treasury management and natural hedging to manage foreign exchange and commodity exposure, and periodic stress testing of working capital and cash flow scenarios. Operationally, management continues investing in process automation, energy efficiency projects, waste reduction initiatives and predictive maintenance to improve capacity utilisation, reduce unit costs and enhance delivery reliability.

Governance and oversight have been reinforced through a Risk Management Policy approved by the Board, periodic reviews by the Audit Committee, and a central cross functional meetings that monitors key indicators and prescribes timely mitigation actions. Management emphasises continuous capability building - upskilling teams and refining internal audit processes - to ensure early identification and effective response to emerging risks.

In summary, while external uncertainties persist, the Companys proactive, integrated risk management approach aims to protect stakeholder value, preserve liquidity, and enable disciplined, sustainable growth in FY 2025 26 and beyond.

Internal Control System & their adequacy:

The Company maintains a robust internal control framework covering financial, operational and compliance functions across all locations, supported by documented policies, SOPs and clear responsibility matrices. Financial controls are reviewed by statutory auditors and an independent Internal Audit function that reports directly to the Audit Committee. The Audit Committee, chaired by an Independent Director, meets regularly to review audit findings, control effectiveness and remediation progress. Risk based audit planning targets material controls and high risk processes, with follow up to ensure timely closure of observations. Segregation of duties, authorization hierarchies and access controls reduce fraud and error risk. Management implements time bound corrective actions where gaps are identified. Based on internal and statutory audit inputs for FY 2025 26, the Board is satisfied that controls are adequate and operating effectively for the Companys size and complexity. Continuous improvement efforts are in place to further strengthen controls and ensure reliable reporting and regulatory compliance.

Discussion on Financial Performance with respect to Operational Performance

The Company previously operated three manufacturing facilities located at Nalagarh (Himachal Pradesh), Ludhiana (Punjab), and Bathinda (Punjab) for the production of yarn. At present, only the manufacturing facility at Nalagarh is operational.

During FY 2025-26, the Company recorded revenue from operations of Rs. 23,670.39 lakhs, compared to Rs. 28,498.24 lakhs in FY 2024-25, reflecting a decline of 16.94%. The reduction in revenue was primarily attributable to lower and irregular production activities at the Nalagarh manufacturing unit during the year.

Consequently, the Companys Profit Before Tax (PBT) stood at Rs. 768.13 lakhs for FY 2025-26, as against Rs. 1,492.40 lakhs in the previous financial year. The decline in profitability was primarily driven by the reduction in operating revenues and the impact of lower production levels.

Over the past few years, the Company has operated in a challenging business environment, which has required continued focus on operational resilience and financial discipline. Liquidity remained under pressure during the year, impacting the Companys operational performance. To strengthen its financial position and improve liquidity, the Company is actively evaluating opportunities for monetization of the real estate potential of its land parcels situated at Bathinda and Ludhiana. The proceeds from such initiatives are expected to support the Companys cash flows and enhance its financial flexibility.

The management continues to focus on improving operational efficiency, optimizing resource utilization, and strengthening the Companys financial position. Subject to favourable business conditions and successful implementation of its strategic initiatives, the management remains optimistic about improving the Companys operational performance and creating sustainable value for all stakeholders.

Resource utilization:

The Companys gross fixed assets as at 31 March 2026 stood at Rs. 28,816.86 lakhs, compared to Rs. 35,697.77 lakhs as at 31 March 2025. The reduction in gross fixed assets was primarily on account of the reclassification of certain land parcels from Fixed Assets to Inventory (Stock-in-Trade) in accordance with the applicable accounting standards, pursuant to the Companys plans for monetization of these assets. The net block of fixed assets as at 31 March 2026 stood at Rs. 11,795.22 lakhs, as against Rs. 11,334.10 lakhs in the previous year.

Inventories as at 31 March 2026 amounted to Rs. 7,856.05 lakhs, compared to Rs. 4,376.34 lakhs as at 31 March 2025. The increase in inventory was primarily attributable to the transfer of the aforesaid land parcels from fixed assets to stock-in-trade, together with inventories held for operational requirements. Total trade receivables as at 31 March 2026 stood at Rs. 851.49 lakhs, as against Rs. 955.29 lakhs as at 31 March 2025.

Financial condition & liquidity: Rs. in Lakhs)

Particulars	2025-26	2024-25
Cash & cash equivalents
Beginning of the year	43.65	111.00
End of the year	28.21	43.65
Net cash provided(used) by:
Operating Activities	(3034.41)	(9827.66)
Investing Activities	2019.41	3064.49
Financing Activities	999.56	6695.81

Human Resources Development:

The Company recognizes its human capital as a key driver of sustainable growth and organizational success. As on 31 March 2026, the Company had a workforce of 473 employees. Industrial relations across all its operations remained cordial and harmonious throughout the year.

The Company continues to focus on attracting, developing, and retaining talent by fostering a performance-driven work culture. Its human resource policies are designed to promote employee engagement, capability development, performance excellence, and alignment with the Companys strategic objectives. Continuous learning, skill enhancement, and employee well-being remain integral to the Companys people management practices.

Health & Safety Measures:

The Company is committed to providing a safe, healthy, and conducive work environment for all its employees. It continues to strengthen its occupational health and safety framework through preventive measures, regular monitoring, and adherence to applicable statutory and regulatory requirements.

Occupational health and medical facilities are made available to employees to promote their overall well-being. The Company also undertakes periodic safety audits, risk assessments, safety awareness programmes, and employee training initiatives to reinforce a strong safety culture across its operations. Continuous improvement in health and safety standards remains a key focus area, with sustained efforts towards maintaining safe and efficient workplace practices.

Significant key financial ratios

Particulars	FY 2025-26	FY 2024-25
(i) Debtors Turnover Ratio (Days)	13.13	12.24
(ii) Inventory Turnover Ratio (Days)	121.14	56.05
(iii) Interest Coverage Ratio	1.85	2.06
(iv) Current Ratio	0.80	0.58
(v) Debt Equity Ratio	-0.28	-0.22
(vi) Operating Profit Margin (%)	7.04	10.18
(vii) Net Profit Margin (%)	3.17	5.33
(viii) Return on Net Worth (%)	0.038	0.067

Cautionary Statement:

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking, considering the applicable laws and regulations. These statements are based on certain assumptions and expectation of future events. Actual results could, however, differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include finished goods prices, raw materials costs and availability, global and domestic demand-supply conditions, fluctuations in exchange rates, changes in Government regulations and tax structure, economic developments within India and the countries with which the Company has business contacts. The Company assumes no responsibility in respect of the forward looking statements herein, which may undergo changes in future on the basis of subsequent developments, information or events.