Vardhman Holdings Q2 Results: Net Sales Up 34.59%, Profit Rises 12.56% YoY
Company Overview
Vardhman Holdings Limited (formerly known as Vardhman Spinning & General Mills Ltd) was incorporated in 1962 and began production in 1965. Promoted by V.S. Oswal and R.C. Oswal, it is part of the Vardhman Group, which includes notable entities like Mahavir Spinning Mills and Vardhman Polytex. Initially focused on textile manufacturing, the company has evolved into an entity engaged in lending and investing activities, with a significant presence in the capital markets.
In November 1992, the company raised Rs. 47.82 crore through a Rights Issue of 14% PCDs to fund expansion and meet long-term working capital needs. Historically, its portfolio included cotton and worsted blended yarn, cotton yarn, and fabric, serving both domestic and international markets such as the UK, Spain, Germany, Italy, Hong Kong, Indonesia, Japan, the US, and African countries. Vardhman became an Export House in 1990-91 and earned ISO 9002 certification for its textile mill, demonstrating its commitment to quality.
Key milestones include the sale of its steel unit in Faridabad to Mahavir Spinning Mills in 1995 and the commencement of Auro Textiles at Baddi, Himachal Pradesh, in 1999, in collaboration with Tokai Senko of Japan, achieving an annual capacity of 30 million meters. The company expanded further by commissioning a 100% EOU Spinning Unit in Ludhiana in 2002 and modernizing its dyeing unit at Baddi, enhancing capacity to 9 tons per day.
A pivotal transformation occurred in 2004-05 through a Scheme of Arrangement and Demerger, which transferred the textile business to Mahavir Spinning Mills Limited. The remaining assets comprised investments in group company shares, leading to its rebranding as Vardhman Holdings Limited in March 2006. Shareholders received 8 equity shares of Mahavir Spinning Mills and 2 equity shares of Vardhman Holdings for every 10 shares held. As of now, Vardhman Holdings operates primarily as an investment company, leveraging its robust financial history and strategic restructuring to deliver sustained growth and value creation.
Industry Outlook
Vardhman Holdings, as an investment and lending entity, is strongly tied to the financial health of its group companies in the textile sector and the overall investment landscape. The Indian financial and investment industry is expected to grow at a CAGR of 12-14% by FY25, supported by rising capital market participation, digitalization, and increasing institutional investments. Simultaneously, the textile industry, a core focus of Vardhman’s portfolio, is projected to grow at a CAGR of 10-12% by FY25, driven by global demand, government incentives like PLI, and a shift towards sustainable, value-added textiles. Vardhman Holdings’ low debt, efficient capital allocation, and strategic investments in high-growth segments like technical textiles and branded apparel position it well for long-term sustainable returns. Moreover, with India’s textile exports projected to contribute significantly to the industry’s target of $350 billion by FY30, Vardhman Holdings stands to benefit from portfolio diversification and growth in domestic and international markets, aligning with the broader trends in the financial and textile ecosystems.
Business Segments
Vardhman Holdings Limited (VHL) primarily operates in the investment and lending domain, managing its portfolio through two major segments:
- Investment Activities: VHL’s core business involves managing its investments, primarily in group companies like Vardhman Textiles, Vardhman Polytex, and other entities in the Vardhman Group. These investments form a significant part of its asset base. The company’s strategy revolves around long-term capital appreciation through its stake in companies engaged in textiles, yarn production, and fabric manufacturing, sectors that are integral to India’s economy. Returns from these investments are a key contributor to the company’s profitability and stability, driven by dividends, interest income, and capital gains.
- Lending Activities: VHL also engages in lending operations, providing short-term and long-term loans to group companies and external borrowers. The lending activities support the working capital requirements and expansion needs of its portfolio companies, ensuring smooth operations and growth. This segment generates interest income, offering a stable and predictable revenue stream to complement its investment returns.
Key Subsidiaries and Their Information
VHL has a strategic relationship with associate companies primarily within the Vardhman Group, which focus on various aspects of the textile and yarn manufacturing ecosystem. Below are the key entities and their contributions:
- Vardhman Textiles Limited: It’s a flagship company of the Vardhman Group, it is one of India’s largest integrated textile manufacturers. Produces and exports cotton yarn, synthetic yarn, and woven fabrics for global and domestic markets. A major contributor to VHL’s investment portfolio, providing consistent dividend income and value appreciation.
- Vardhman Spinning and General Mills Limited: Itspecializes in spinning high-quality cotton and blended yarns for the textile industry. Supplies yarns used in knitwear and woven fabrics, complementing the operations of Vardhman Textiles. Enhances VHL’s exposure to the upstream segment of the textile value chain.
- Vardhman Special Steels Limited: It focuses on manufacturing specialty steel products for automotive, engineering, and industrial applications. Supplies critical steel components to automobile OEMs and precision engineering firms globally. Diversifies VHL’s portfolio beyond textiles, leveraging growth in the automotive and industrial sectors.
- Vardhman Acrylics Limited: It is engaged in manufacturing acrylic fiber and blends used in textiles, home furnishings, and industrial fabrics. Supplies high-performance fibers with applications in winter clothing and upholstery fabrics. Strengthens VHL’s footprint in specialized textile segments with growth potential.
- Vardhman Polytex Limited: It manufactures yarns and fabrics and caters to domestic and export markets. Produces a variety of yarns used in textiles, such as blended, dyed, and grey yarns. A niche player that supports the group’s vertical integration strategy within textiles.
These subsidiaries and associates form a diversified portfolio for VHL, allowing it to capitalize on the growth potential of the textile and specialty material industries while maintaining a low-risk, steady-income approach.
Q2 FY25 Highlights
In the quarter ended September 2024, Vardhman Holdings reported a net profit decline of 20.26% YoY, standing at ₹49.38 crore, compared to ₹61.93 crore in September 2023. The company experienced a significant sales decline of 75.55% YoY, with revenue dropping to ₹7.40 crore from ₹30.27 crore in the same quarter last year.
The Operating Profit Margin (OPM) contracted sharply, falling from an exceptionally high 97.56% in September 2023 to 65.95% in the current quarter. Similarly, Profit Before Depreciation and Taxes (PBDT) and Profit Before Tax (PBT) both declined by 10% YoY, from ₹68.87 crore to ₹62.09 crore.
Key Takeaways:
- Sales Drop: The sharp decline in sales reflects weaker performance in core revenue-generating activities.
- Profit Resilience: Despite reduced revenue, profitability remains relatively strong, supported by efficient cost management and investment returns.
- Margin Compression: The decrease in OPM indicates lower operating efficiency or one-off impacts during the quarter.
Overall, while investment income has helped sustain profits, the significant sales decline underscores potential challenges in operational performance or market dynamics, requiring close monitoring of upcoming quarters.
Financial Summary
| INR in Cr. | Q2FY25 | Q1FY25 | Q2FY24 | Q-o-Q (%) | Y-o-Y (%) |
| Total Income | 7.4 | 6.6 | 30.27 | 12.1% | -75.6% |
| Operating Expenses | 2.52 | 1.28 | 0.74 | 96.9% | 240.5% |
| Operating profit | 4.88 | 5.32 | 29.53 | -8.3% | -83.5% |
| Other Income | 0.48 | 0.44 | 0.51 | 9.1% | -5.9% |
| PBT | 62.09 | 74.4 | 68.87 | -16.5% | -9.8% |
| Tax | 12.71 | 1.27 | 6.94 | 900.8% | 83.1% |
| Net Profit | 49.38 | 73.13 | 61.93 | -32.5% | -20.3% |
| Basic EPS (Rs.) | 154.73 | 229.24 | 194.03 | -32.5% | -20.3% |
SWOT Analysis
Strengths:
- Backed by a Strong Parent Group, ensuring stability and trust.
- A Diversified and Robust Investment Portfolio offering steady returns.
- Maintains a debt-free status, enhancing financial resilience.
- Strategic alliances that provide growth opportunities and market access.
Weaknesses:
- Limited revenue streams, reducing diversification.
- High vulnerability to market volatility affecting performance.
- The absence of a global presence limits international reach.
- Declining sales pose challenges to growth.
Opportunities:
- Potential for Expansion into Financial Services to Diversify Income.
- Leveraging the Growth of India’s Textile Sector for Increased Business.
- Rising Global demand for Textiles creating export opportunities.
- Opportunities in green investments aligned with sustainability trends.
Threats:
- Heavy market dependency increases risk exposure.
- Economic uncertainty impacts business stability.
- Frequent regulatory changes pose compliance challenges.