After declining 15 per cent in the last financial year, India’s home textile industry’s revenues are expected to rise 7-9 per cent in the current fiscal. It is mainly due to the sector regaining global share following a correction in domestic cotton prices and restocking by big-box retailers in major overseas markets.
A report of Crisil Ratings, based on analysis of 40 companies which accounts for 40-45 per cent of the sector’s revenue, said that the operating profitability of the industry will improve 150-200 basis points to 14-14.5 per cent this fiscal, due to lower raw material cost and better operating leverage, but will still hover below the pre-pandemic levels.
The revenue of about 70-75 per cent of the industry’s revenue is from exports, with the US, its biggest market, accounting for more than half of it.
It further said that the credit profiles will continue to be stable, with the ongoing capital expenditure (capex) cycle in its last leg this fiscal, and healthy cash accrual — driven by improved revenue growth and profitability — keeping leverage in check, as per the report.
Domestic cotton prices, which had risen past international prices and reached Rs. 1 lakh per candy in May 2022, have now retracted to Rs. 55,000, helping India regain competitiveness.
Moreover, orders from big-box retailers in the US will increase this fiscal as the inventory piled up last fiscal depleted on easing global supply-chain challenges, and the gradual sales recovery being seen over the past few months.
“With domestic prices of raw material gaining competitiveness vis-à-vis international levels, restocking by big-box retailers in the US, and sustained China+1 policy of global buyers, revenue to rebound for export-oriented Indian home textile makers this fiscal — albeit on a low base. This is reflected in the recent increase in India’s share in home textile imports by the US (including key home textiles products exported by India) to 47 per cent during January-June this year after falling to 44 per cent in CY2022 from 48 per cent in CY 2021,” says Mohit Makhija, Senior Director, CRISIL Ratings.
But capacity utilisation will improve only slowly because of the recent large capacity addition amid moderate demand growth. That will continue to keep operating margins below pre-pandemic levels.
The industry is in the midst of Rs. 4,000 crore capex, planned to be completed between fiscals 2022 and 2024, as per the report.
