Vardhman Textiles Ltd:Annual Report 2023-24 Analysis

Vardhman Textiles Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Vardhman Textiles Limited was established in 1962 by Late Shri Shreyans Prasad Jain in Ludhiana, India.

Headquarters Location and Global Presence #

• Headquarters: Ludhiana, Punjab, India.
• Global Presence: Vardhman has a significant presence in both domestic and international markets, exporting to over 75 countries worldwide. Their international reach spans across continents including Europe, North America, Asia, and the Middle East.

Company Vision and Mission #

• While a specific publicly stated vision and mission statement might require direct consultation of their official website or annual reports, Vardhman generally aims to be a leading textile manufacturer globally, known for quality, innovation, and sustainability.

Key Milestones in Their Growth Journey #

• 1962: Commencement of operations.
• 1980s: Diversification into yarn manufacturing.
• 1990s: Expansion into fabric production and processing.
• 2000s: Focus on modernization, technological upgrades, and strategic alliances.
• Expansion through organic growth and strategic acquisitions over the years.

Stock Exchange Listing Details and Market Capitalization #

• Listing: Listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
• Market capitalization information would require real-time data from financial resources.

Recent Financial Performance Highlights #

• Recent financial performance highlights can be sourced from the company’s quarterly or annual reports, investor presentations, and financial news articles.

Management Team and Leadership Structure #

The management team consists of experienced professionals with expertise in textiles, finance, and operations. The leadership structure typically involves a Board of Directors, Managing Director, and other key executives responsible for different functional areas.

Notable Awards or Recognitions #

Vardhman Textiles has received awards for its export performance, sustainability initiatives, and quality management. Specific awards vary year to year and are often announced in press releases or annual reports.

Their Products #

Complete Product Portfolio with Categories #

• Yarn: Cotton yarn, blended yarn, grey and dyed yarn, specialized yarns.
• Fabric: Woven fabric, processed fabric, knitted fabric.
• Fibers: Viscose, modal and other specialty fibres.

Flagship or Signature Product Lines #

Vardhman is particularly known for its high-quality cotton and blended yarns.

Key Technological Innovations or Patents #

• Vardhman continually invests in technological advancements for improved production efficiency and product quality. Specific details of patents would require a detailed search of patent databases.

Manufacturing Facilities and Production Capacity #

Vardhman has multiple manufacturing facilities located across India, including plants in Punjab, Himachal Pradesh, and Madhya Pradesh. Specific production capacity figures are available in their annual reports.

Quality Certifications and Standards #

Vardhman adheres to international quality standards and holds certifications such as ISO 9001, ISO 14001, and Oeko-Tex.

Any Unique Selling Propositions or Technological Advantages #

Vardhman’s USPs include its vertically integrated operations, strong focus on quality, wide product range, and emphasis on sustainable practices.

Recent Product Launches or R&D Initiatives #

• Details on recent product launches and R&D initiatives can be found in their annual reports and press releases. This will include the use of newer fibres, sustainability drives and new weaving styles.

Primary Customers #

Target Industries and Sectors #

• Apparel manufacturers
• Home textile producers
• Industrial fabric suppliers

Geographic Markets (Domestic vs. International) #

Vardhman serves both the domestic Indian market and international markets, with a significant portion of revenue coming from exports.

Distribution Network and Sales Channels #

Vardhman utilizes a multi-channel distribution network including direct sales, distributors, and agents to reach its customers.

Major Competitors #

Direct Competitors in India and Globally #

• Indian Competitors: Alok Industries, Arvind Ltd., Welspun India.
• Global Competitors: Include textile companies based in China, Bangladesh, Vietnam, and other countries.

Competitive Advantages and Disadvantages #

• Advantages: Strong brand reputation, vertically integrated operations, wide product range, focus on sustainability.
• Disadvantages: Susceptible to raw material price fluctuations, labor costs, and global economic conditions.

How they Differentiate from Competitors #

Vardhman differentiates itself through its emphasis on quality, innovation, customer service, and sustainable manufacturing practices.

Future Outlook #

Expansion Plans or Growth Strategy #

Vardhman’s growth strategy typically involves expanding production capacity, entering new markets, investing in technology, and focusing on sustainable practices.

Sustainability Initiatives or ESG Commitments #

Vardhman is increasingly focused on sustainability, including reducing water consumption, using renewable energy, and implementing waste management programs.

Industry Trends Affecting Their Business #

• Increasing demand for sustainable textiles
• Automation and digitalization of manufacturing processes
• Shifting global trade patterns
• Fluctuations in raw material prices

Long-Term Vision and Strategic Goals #

Vardhman aims to strengthen its position as a leading global textile manufacturer, with a focus on sustainable growth, innovation, and customer satisfaction.

Vardhman Textiles Limited (VTL) - Financial Analysis Report (FY 2023-24) #

Key Financial Metrics & 3-Year Trend Analysis (Standalone) #

Detailed Analysis #

Vardhman Textiles Limited - Financial Analysis Report FY 2023-24 #

Comparative Financial Performance (Consolidated) #

The following table summarizes key consolidated financial metrics for the last three financial years. FY22 figures are derived from the 5-year trend data provided in the “Sound Financials” section.

Operating Performance #

Income Statement #

Cash Flow and Liquidity Analysis of Vardhman Textiles Limited (VTL) - FY2023-24 #

Based on information up to August 28, 2024, primarily referencing FY 2023-24 data.

Cash Flow Analysis (OCF, ICF, FCF Components) - Consolidated FY2023-24 & FY2022-23 #

Analytical Points: #

• Operating Cash Flow turned significantly negative in FY24, primarily driven by a substantial increase in working capital, particularly inventories (Increase of ₹1,787.21 crore in standalone inventories).
• Investing Cash Flow turned positive in FY24, largely due to net proceeds from the sale of current investments. Capital expenditure on PPE and intangibles reduced compared to FY23.
• Financing Cash Flow saw a larger net outflow in FY24 due to higher net repayment of non-current borrowings.
• Consequently, Free Cash Flow was substantially negative in FY24, a sharp contrast to the positive FCF in FY23, indicating cash burn after meeting operational and capital expenditure needs.

Key Performance Indicators #

Segment Performance Analysis #

Risk Framework #

Comprehensive Risk Assessment #

Vardhman Textiles Limited - Financial and Operational Analysis (FY2023-24) #

Financial Performance Summary (FY2023-24) #

Vardhman Textiles Limited reported a decline in standalone revenue from operations to ₹9,298.68 crore in FY2023-24, down from ₹9,840.79 crore in the previous fiscal. Consolidated revenue from operations also saw a decrease to ₹9,595.68 crore from ₹10,267.47 crore.

Profitability: #

• Standalone Profit Before Depreciation, Interest, and Tax (PBDIT) stood at ₹1,291.93 crore, compared to ₹1,477.85 crore in FY2022-23.
• Standalone Net Profit after comprehensive income was ₹611.44 crore, a decrease from ₹751.83 crore in the prior year.
• Consolidated PBDIT was ₹1,341.80 crore (FY23: ₹1,556.49 crore), and consolidated Net Profit after comprehensive income was ₹640.59 crore (FY23: ₹807.63 crore).
• EBITDA margin (as per corporate overview graphics) was 13.41%, and Profit After Tax (PAT) margin was 6.31%.

Exports: #

The company’s FOB export value decreased by 8.52% to ₹3,899.00 crore from ₹4,242.52 crore in the previous year. Exports constituted approximately 41.93% of standalone revenue from operations.

Key Ratios (Standalone, as per MD&A for FY24 vs FY23): #

• Debtor Turnover Ratio (Days): 42 (FY23: 39)
• Inventory Turnover (Days): 121 (FY23: 76) - Increase attributed to higher raw material inventory.
• Interest Coverage Ratio (Times): 8.73 (FY23: 10.51)
• Current Ratio (Times): 2.84 (FY23: 3.19)
• Debt-Equity Ratio (Times): 0.20 (FY23: 0.22)
• EBITDA Margin (%): 13.89% (FY23: 15.02%) - Based on MD&A calculation method.
• Net Profit Margin (%): 6.53% (FY23: 7.61%) - Based on MD&A calculation method.
• Return on Net Worth (%): 7.11% (FY23: 9.46%)

Segmental Performance & Operational Highlights #

Yarn: #

• Production increased to 2,62,291 MT from 2,33,314 MT.
• The segment experienced volatility in cotton and yarn prices. Lower international cotton prices and slower demand put pressure on cotton yarn prices globally.
• Increased differential between international and domestic cotton prices, coupled with an 11% import duty on cotton in India, squeezed margins. Minimum Support Price (MSP) for domestic cotton poses a competitiveness challenge if international prices drop significantly.
• Spinning capacity utilization in India was approximately 70%.
• Revenue from yarn (excluding internal transfers) was ₹5,868 crore in FY24.

Fabric: #

• Production of grey fabric increased to 204 million meters (from 182 million meters).
• Production of processed fabric increased to 154 million meters (from 143 million meters).
• The fabric business performed better, in line with expectations, with 85-90% capacity utilization.
• Revenue from fabric in FY24 was ₹3,123 crore.

Garments: #

• Garment production reduced to 15,47,982 pieces from 18,00,955 pieces.
• Revenue from garments was ₹112 crore in FY24.

Strategic Initiatives & Investments #

Yarn Business Modernization: #

Planned investment of ₹1,000 crore+ for technology upgradation, balancing equipment for optimization, and limited expansion.

Fabric Division Expansion (Technical Textiles): #

• Venturing into technical textiles with an initial investment of approximately ₹300 crore.
• Focus on manufacturing fabrics (approx. 15 lac meters/month) for sportswear, activewear, and other industrial/defence applications, recognizing the global shift towards non-cotton materials.

Sustainability and Green Energy: #

• Current green power constitutes ~2.5% of total energy consumption.
• Aim to increase green energy share to 35-40% within the next couple of years through investments in solar and wind energy projects.
• Focus on reducing water usage, minimizing waste, and promoting sustainable supply chain practices. Installed renewable energy capacity stands at 19.9 MW.

Capital Expenditure: #

CAPEX in the past 5 years exceeded ₹2,428 crore. R&D expenditure over the past 5 years was over ₹44 crore.

Market Environment & Outlook (Chairman’s Perspective) #

Global Economy: #

FY2023-24 was challenging due to geopolitical conditions, impacting the export-oriented textile industry.

Indian Economy: #

Remained resilient with real GDP growth above 8% in FY2023-24. Projections for FY2024-25 are 6.5-7% GDP growth, supported by the manufacturing sector benefiting from the ‘China plus One’ strategy and expected private sector capex.

Textile Industry: #

• Indian textile industry estimated at ~$165 billion, projected to grow to ~$350 billion by 2030, with textile and clothing (T&C) exports targeted at ~$100 billion.
• Challenges from prevailing geopolitical conditions may act as headwinds.
• Concern regarding domestic cotton prices (based on MSP) becoming uncompetitive if international prices fall drastically, especially with the 11% import duty.

Company Outlook: #

While immediate future business environment (exports and domestic) has concerns due to geopolitical reasons, the company is hopeful for the bright future of the Indian textile industry. Focus remains on operational excellence, technological upgradation, scaling up, and customer value creation.

Key Risks and Concerns #

• Geopolitical Instability: Affecting global market conditions and export demand.
• Cotton Price Volatility: Fluctuations in domestic and international cotton prices impacting margins.
• Domestic Cotton Competitiveness: Risk of Indian cotton (due to MSP and import duties) becoming uncompetitive if international prices remain significantly lower.
• Slower Domestic Demand: The MD&A notes that the domestic market, which meets roughly three-fourths of total demand for Indian textiles, is still not vibrant.
• Supply Chain Disruptions: Potential impact from events like disturbances in the Red Sea.

Future Projections and Guidance #

Financial Performance Overview (FY 2023-24) #

Audit & Compliance Analysis of Vardhman Textiles Limited (FY 2023-24) #

Auditor’s Opinion and Qualifications #

Standalone Financial Statements (SFS) #

• Opinion: Unmodified. Deloitte Haskins & Sells LLP state that the SFS give a true and fair view as at March 31, 2024, in conformity with Ind AS and other accounting principles generally accepted in India.
• Key Audit Matter (KAM): “Uncertain income-tax positions” due to significant management judgment involved in determining possible outcomes of disputes.
• Qualification/Modification on Books of Account: Deficiencies noted in the audit trail (edit log) facility of one accounting software used for purchase, production & sales records. This impacts the audit trail requirement under the Companies (Accounts) Rules, 2014.

Consolidated Financial Statements (CFS) #

• Opinion: Unmodified. The auditors state that the CFS give a true and fair view for the year ended March 31, 2024.
• Key Audit Matter (KAM): “Uncertain income-tax positions” (same as SFS).
• Basis for Opinion & Other Matters: Based on their audit and consideration of reports of other auditors for two subsidiaries and three associates.
• Qualification/Modification on Books of Account: Audit trail (edit log) facility deficiencies noted for the Parent Company and certain accounting software/records in two associate companies.

Key Accounting Policies and Changes #

• Basis of Preparation: Historical cost basis, except for certain financial instruments at fair value. Compliant with Ind AS.
• Consolidation: Subsidiaries are fully consolidated; associates are accounted for using the equity method.
• Revenue Recognition: Recognized when control of goods/services is transferred to customers, net of discounts/rebates. Export benefits (RoDTEP, Duty Drawback) are recognized in the year of export based on eligibility and certainty of receipt.
• Property, Plant & Equipment (PPE): Stated at cost less accumulated depreciation and impairment. Deemed cost option used on Ind AS transition. Depreciation on Straight Line Method (SLM) based on Schedule II useful lives or technical assessment.
• Intangible Assets: Carried at cost less accumulated amortization and impairment. Deemed cost option used. Amortization on SLM (e.g., Computer software: 6 years).
• Inventories: Valued at lower of cost (weighted average for raw materials, stores; raw material + conversion costs for WIP & finished goods) or net realizable value (NRV).
• Financial Instruments:
  • Classification: Amortised cost, Fair Value Through Profit and Loss (FVTPL), or Fair Value Through Other Comprehensive Income (FVTOCI).
  • Impairment: Expected Credit Loss (ECL) model applied. Simplified approach for trade receivables (lifetime ECL).
• Leases (Ind AS 116): Right-of-Use (ROU) assets and lease liabilities recognized for most leases, except short-term and low-value leases.
• Employee Benefits: Defined contribution plans expensed as incurred. Defined benefit plans valued using Projected Unit Credit method; remeasurements via OCI.
• Taxation: Current tax based on taxable profit. Deferred tax recognized on temporary differences using enacted/substantively enacted tax rates. Appendix C to Ind AS 12 applied.
• Changes in Accounting Policies (FY 2023-24):
  • Amendments to Ind AS 1 regarding disclosure of “material accounting policy information”.
  • Amendments to Ind AS 8 refining the definition of “accounting estimates.”
  • These changes are primarily disclosure-oriented or definitional and are not expected to have a material impact on financial results beyond presentation.

Internal Control Effectiveness #

Standalone #

The auditors issued an unmodified opinion regarding the adequacy and operating effectiveness of internal financial controls over financial reporting. However, this is to be read in conjunction with the main audit report’s observation regarding the audit trail deficiency in one accounting software.

Consolidated #

The auditors also issued an unmodified opinion regarding the adequacy and operating effectiveness of IFC for the Parent, its Indian subsidiaries, and Indian associates. This is also to be read in conjunction with the main audit report’s observations concerning audit trail deficiencies within the Parent and two associate companies.

Regulatory Compliance Status #

• General Compliance: The Secretarial Audit Report opines that the Company has complied with applicable statutory provisions.
• Stock Exchange Penalties: Minor fines of ₹1,000 and ₹31,000 levied by BSE for non-compliance with SEBI (LODR) Regulations.