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Indian cotton sheet exports to US decreased 2.5% YoY in Mar’22 while terry towel increased 6.9% YoY. Market share across a) cotton sheet stood at 53% in Mar’22 down 100bps MoM b) terry towel stood at 41% in Mar’22 down 260 bps MoM. Demand for home textile was impacted due to inflation in cotton prices, logistics disruption and inventory correction at retail level. Global retailers in US expect improvement in demand from 2HCY22 with easing of supply chain challenges (Target/Bed Bath & Beyond). Cotton prices have more than doubled YoY and increased 7.5% MoM in May’22 as cotton output is expected to come lower in the 2021-22 season. Yarn prices have also increased 32% YoY and 5% MoM in May’22 and is likely to put continued pressure on margins of home textile players. Conversely, apparel exports have fared better with their ability to take price increases with global retailers. Despite the near-term uncertainty, sectoral tailwinds of a) GOI focus on developing the textile ecosystem – government approves 61 applicants for the PLI scheme towards man-made fiber and technical textile which shall lead to proposed investment and projected turnover of ~INR191bn/~1,850bn b) likelihood of further increase in addressable market size via FTAs with UK/EU over time c) market share gains as the world looks for an alternate production base other than China augurs well for the space. Apparel exporter Gokaldas Exports remains our top pick in the apparel sector as the company fits twin criteria of addressable market size being huge and top-notch management leading the business

* Volumes improve on MoM basis: Global cotton sheet export volumes to the US increased MoM by 2.5% (-2.0% YoY) to 78mn sq mtrs in Mar’22. Terry towel volumes increased MoM by 15.4% (-3.1% YoY) to 28mn sq. mtrs. In Mar’22, India’s volume share in Cotton sheet / Terry towel exports to the US stood at 35% (-5ppt MoM; -9.5ppt YoY) / 36% (- 1ppt MoM; +1ppt YoY) respectively.

* India’s share in US imports of cotton sheets stood at 53% in Mar’22: India’s cotton sheet export volumes to the US decreased by 8.7% MoM (-22.8% YoY) in Mar’22 to 28mn sq mtrs. Export value decreased by 3.6% MoM (-2.5% YoY) to USD69mn in Mar’22. India’s market share (in value terms) stood at 53% in MAr’22 (-1ppt MoM; -5ppt YoY).

* India’s share in US imports of terry towels stood at 44% in Feb’22: India’s export volume of terry towels increased by 11.6% MoM (+0.3% YoY) to 10mn sq. mtrs in Mar’22. Exports in value terms increased by 19.1% MoM (+6.9% YoY) to USD79mn. India’s market share (in value terms) stood at 41% in Mar’22 (-2.6ppt MoM and -2.6ppt YoY). China’s market share (in value terms) declined 1ppt YoY but increased 2.4ppt MoM to 19%.

* India’s total home textile exports to the US at USD260mn in Feb’22: India’s home textile exports to the US (sum of all products) increased 7.4% MoM (+5.8% YoY) to USD279mn in Mar’22. India’s markets share (in value terms) for Mar’22 stood at 37%, down 1ppt MoM (-1.4ppt YoY).

* Deficit expected for world cotton in 2021-22: The USDA projects 2021-22 global cotton production to increase 6.0% YoY to 25.8mn tons while global consumption is estimated to increase 1.6% YoY to 26.8mn tons, implying global deficit of 1.0mn tons. For China, cotton production is expected to decline by 8.5% YoY to 5.9mn tons while consumption is expected to decline 3.8% YoY to 8.4mn tons. This should lead to a 2.5mn tons deficit in CY22E. For India, production is estimated to decline 7.6% YoY to 5.6mn tons while consumption is expected to see an uptick of 4.0% YoY to 5.7mn tons, leading to a deficit of 0.1mn tons vs surplus of 0.6mn tons in CY21.

* Increasing cotton prices to put pressure on margin: Cotton prices have increased substantially over CY21 and CYTD22. This is likely to impact margins of textile players. Cotton prices have more than doubled YoY and increased 7.5% MoM in May’22 as cotton output is expected to come lower in the 2021-22 season. Yarn prices have also increased 32% YoY and 5% MoM in May’22.

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