Textile Q1 results preview: Spinning cos to see positive margin trends on raw material tailwinds, says Elara

  • Q1 results preview: Elara Capital's Q1FY25 textile industry preview highlights varying margins: spinning companies to gain from low-cost cotton, garment businesses to face pressure, and home textiles firms to see improved margins. Arvind Ltd expected to outperform.

Dhanya Nagasundaram
First Published11 Jul 2024, 04:12 PM IST
Q1 results preview: Elara Capital predicts revenue growth of 1.4% YoY for textile businesses, with Arvind Ltd expected to lead.
03/08/2010.photo:pradeep gaur/mint
Q1 results preview: Elara Capital predicts revenue growth of 1.4% YoY for textile businesses, with Arvind Ltd expected to lead. 03/08/2010.photo:pradeep gaur/mint

Q1 results preview: Q1FY25 (April-June) margins will be better for spinning companies, driven by improved demand and low-priced cotton inventory; margins for garment companies will remain under pressure; and margins for home textiles firms will improve due to raw material tailwinds, according to brokerage firm Elara Capital. Domestic demand remained modest during the period. Cotton price movement, local and export demand, and the disclosure of capex plans are all important indicators to follow.

Also Read | Real estate sector likely to see net profit growth of 27% YoY in Q1FY24

Elara Capital, claimed in its quarterly preview (Q1FY25) of the textile industry that its universe of textile businesses may report revenue growth of 1.4% YoY and down 5.9% QoQ in Q1FY25E, led by volume increase from improved demand. The average realisation is projected to fall as raw material costs fall. The brokerage predicts Arvind Ltd to top the group, with the largest YoY gain of 4.7%. The brokerage's textile universe also includes KPR Mill and Vardhman Textiles.

“We retain our positive stance on the sector in the long term. Our top pick is Arvind,” the brokerage said.

The brokerage went about explaining that it expects spinners to be in an advantageous position and post somewhat greater margins as a result of lower-cost cotton procurement. It also expects garment businesses' margins to rise, driven by a strong increase in export orders as western retailers diversify away from China with restocking, while domestic demand remains modest in the April-June period (Q1 FY25).

“During January-May 2024, India saw improved market share of US imports in cotton sheets and towels while market share declined in apparels. EBITDA may grow 3.6% YoY and down 14.9% QoQ, led by favourable cost structure compared to Q1FY24. APAT may improve 2.9% YoY and down 19.0% QoQ in Q1FY25E,” the brokerage said.

Elara Capital stated that it anticipates Vardhman Textiles to record an EBITDA margin of 13.2% due to favourable input costs. KPR Mill's margin may be 18.2%, driven by volume increase in the garmenting industry.

Also Read | FMCG companies stare at healthy margin growth in Q1FY23; demand to gain traction

Arvind Ltd

The brokerage anticipates that the replenishing of inventories for the spring/summer season in the US and EU countries would drive the garment volume to reach 9.6 million pieces, up 29.2% YoY.

The factory strike's increased costs are expected to cause the textile margin to drop to 8.1% from 10.1% in Q1FY24. YoY growth in the Advanced Material Division section is anticipated to be 18%. The labor strike may cause a 171bp YoY reduction in the consolidated EBITDA margin to 8.0% due to cost disadvantages. The adverse effect of operational leverage is expected to cause APAT to decrease at a rate of 38.7% YoY.

KPR Mill Ltd

Elara projects that the textiles industry will expand 6.4% YoY due to increased yarn and clothing production. It anticipates 39.6 million articles of clothing in volume sales, up 5.1% YoY. The textiles segment’s EBITDA margin is expected to increase by 60bp year over year, driven by an increase in gross margin due to favourable input costs in the yarn sector.

Vardhman Textiles Ltd

The brokerage anticipates that the fabric category will rise by 30.4% YoY. Yarn volume is predicted to drop 3.3% YoY as a result of increased internal consumption. A 0.8% YoY reduction in revenue is expected due to declining realisation. Due to a better product mix and higher cotton prices, EBITDA margin might increase by 391bp year over year.

 

Also Read | Auto sector margins to expand in Q1FY24 driven by softening commodity costs

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.

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First Published:11 Jul 2024, 04:12 PM IST
HomeCompaniesCompany ResultsTextile Q1 results preview: Spinning cos to see positive margin trends on raw material tailwinds, says Elara

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