Financial Performance Overview

For the year ended March 31, 2026 (FY26), VTM Limited reported revenue growth of 8% year-on-year. Profit After Tax (PAT) was ₹11 crore, representing a 75% decline compared to the previous year.

Reasons for Profit Decline

The significant contraction in profitability was attributed to multiple factors:

  • US tariff-related discounts: The company provided an 18% discount on goods sold to US customers to maintain business continuity, resulting in a ₹20 crore impact
  • Additional chargeback discounts: ₹8 crore in other discounts for customer claims
  • Foreign exchange MTM loss: ₹2.3 crore mark-to-market loss on PCFC foreign currency convertible loans due to rupee depreciation (average rupee-dollar rate was 91-92 previously)
  • Gratuity provisioning: Additional provisioning required under new labor code provisions increasing basic pay to 50% of compensation
  • Raw material inflation: Cotton prices increased by 15% due to geopolitical factors, with New York cotton futures rising to 78 cents from 69-70 cents

Management stated that normalized PBT would have been ₹32 crore excluding these exceptional items.

Operational Metrics

  • Sales breakdown: ₹162 crore from greige fabrics, ₹192 crore from made-ups (home textiles)
  • Inventory turnover: 122 days, described as not alarmingly high
  • Export incentives: 4.5% benefit from duty drawback and Rodtep schemes
  • Order backlog: 6.5 million units as of May 31, 2026

Capital Structure and Corporate Actions

  • Bonus issue: Previous financial year issued 2.5:1 bonus shares
  • Dividend: Payout occurred in current financial year
  • Capex: ₹25 crore completed, with new installations expected to become operational in Q1-Q2 FY27
  • No further capex planned for current financial year

Future Outlook and Guidance

  • Revenue growth: Expected 12-14% increase in FY27 top line
  • EBITDA margin target: 10-11% (compared to 7.43% in FY26 and 19% in FY25)
  • Capacity utilization: Currently at 80% efficiency
  • Peak revenue potential: Conservative estimate of ₹420 crore for FY27, with ₹500-600 crore possible with right product mix and market conditions

Market Diversification Strategy

The company is actively exploring new markets to reduce US dependency:

  • Target markets: Japan, Europe, UK, Australia (leveraging FTAs)
  • Customer onboarding timeline: Approximately one year for new home textile customers
  • Current export mix: Approximately 10% of made-up sales (₹16-17 crore) outside US

Management Commentary

K Thiagarajan (Managing Director): Emphasized business continuity despite challenges, noting that operational efficiency and cost-cutting measures have improved. The company is focusing on geographical diversification and product mix optimization.

P Senthil Kumar (CFO): Highlighted margin pressures from economic uncertainties, geopolitical issues, and cost inflation in bleaching, job work charges, freight, and fuel expenses. Confirmed maintaining 15% volume growth with Quince despite pricing challenges.

Visalakshi Kannan (Director): Clarified that Pacific Cotton is a separate US-based entity for basic, lower-value items without corporate relationship to VTM. Explained that the 18% discount remains due to increased customer price sensitivity post-tariff era, with negotiations ongoing to reduce this burden.

Q&A Session Highlights

  • Margin sustainability: FY25's 19% EBITDA margin was pre-tariff and not considered sustainable; 10-12% is the realistic target
  • Quince relationship: Negotiations ongoing for better pricing, with some products already receiving slight increases
  • Inventory management: Implementing lean principles to reduce ₹150 crore inventory from previous ₹92 crore
  • Growth constraints: Input cost inflation and product mix differences prevent matching Quince's growth rates exactly
  • Business mix: Approximately 50% of home textiles revenue comes from commoditized products versus value-added items