Textile companies weaving a bright scenario for H2FY24

The textiles sector has been grappling with numerous challenges, including dwindling demand, inflationary pressures, and global supply chain issues, resulting in a lacklustre sales performance in FY23. (Photo: Bloomberg)
The textiles sector has been grappling with numerous challenges, including dwindling demand, inflationary pressures, and global supply chain issues, resulting in a lacklustre sales performance in FY23. (Photo: Bloomberg)

Summary

  • Falling cotton prices and declining logistic costs may offer a lifeline to the sector's operating margin

Indian textile companies are poised to witness improvements in the second half of the financial year, helped by falling global inventory levels. This is despite a forecast of subdued global demand. In their latest earnings call, major retailers such as Walmart and GAP Inc. have indicated that they continue to reduce their surplus stock.

In tandem with global retailers’ commentary, Indian home textile and apparel exporters expect demand to remain muted in H1FY24 on account of excess inventory liquidation, said analysts at JM Financial Institutional Securities Ltd in a report dated 20 June. “Any normalisation of demand in CY24 amidst improved global retailers’ inventory position leaves headroom for export demand recovery by Indian exporters, implying orders pick up from 2HFY24," added the report.

The textiles sector has been grappling with numerous challenges, including dwindling demand, inflationary pressures, and global supply chain issues, resulting in a lacklustre sales performance in FY23 following a high FY22 base. However, falling cotton prices and declining logistic costs may offer a lifeline to the sector's operating margin.

Analysts at Sharekhan by BNP believe companies with robust product profiles, strong export clientele, integrated business models, and expanded capacity are primed to report robust earnings growth of 20-41% over FY2023-25E. “In view of a strong medium to long term outlook, we are upgrading our view on the textile sector to positive from neutral earlier," they said in a report.

The Indian textile sector also stands to benefit from the China+1 strategy. “China has been losing market share across the world apparel exports aided by rising labour costs and geopolitical tensions. This has led to a potential shift of exports from China towards other countries, creating new opportunities and growth in the other Asian countries for the apparel industry," added the JM report.

Investor confidence seems to be returning to the sector, as key stocks like KPR Mills Ltd, Gokaldas Exports Ltd, and Alok Industries Ltd have shown impressive gains, with each stock increasing by more than 20% this year. Future stock movements will hinge on the rate of demand revival, indicating the criticality of the upcoming half-year period for the industry.

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