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Indian cotton sheet/terry towel exports to US declined 13.1%/1.2% MoM in Feb’23. Market share across a) cotton sheet stood at 58% in Feb’23 up 5.1ppt MoM b) terry towel stood at 47% in Feb’23 up 2.6ppt MoM. Our Industry checks suggest that the more painful part of global de-stocking in the home textile space is behind us and demand recovery could start trickling in by end 2QFY24. Indian home textile companies will also benefit from lower cotton prices (down 9% QoQ and ~39% from May’22 highs) which will likely aid margins going forward. The apparel companies also remain hopeful of market conditions improving from CY24 (resulting in improved order book from 2HFY24), in time for spring’24 collection. The textile sector continues to be well placed given a) relatively subdued cotton price outlook b) GOI’s focus on developing the textile ecosystem c) likelihood of market size increase via FTAs with UK/EU over time d) market share gains as world looks for an alternate production base other than China. Gokaldas Exports remains our preferred pick in the space, while Welspun India stands to benefit from lower cotton prices and likely pick up in demand.

* Home textile demand likely to bottom in the coming quarters: Global cotton sheet export volumes to the US decreased MoM by 14.2% (-33.7% YoY) to 51mn sq mtrs in Feb’23. Terry towel volumes decreased MoM by 12.1% (-5.5% YoY) to 23mn sq. mtrs. In Feb’23, India’s volume share in Cotton sheet / Terry towel exports to the US stood at 44% (+5.2ppt MoM; 4.5ppt YoY) / 38% (+2.9ppt MoM; +0.9ppt YoY) respectively.

* India’s share in US imports of cotton sheets stood at 58% in Feb’22: India’s cotton sheet export vols. to the US decreased by 2.7% MoM (-26.2% YoY) in Feb’23 to 22mn sq mtrs. Export value declined 13.1% MoM (-35.3% YoY) at USD46mn in Feb’23.  India’s market share (in value terms) stood at 58% in Feb’23 (+2.0ppt MoM; +3.8ppt YoY).

 India’s share in US imports of terry towels stood at 47% in Feb’23: India’s export volume of terry towels decreased by 4.7% MoM (-3.2% YoY) to 9mn sq. mtrs in Feb’23. Exports in value terms decreased by 1.2% MoM (+3.8% YoY) to USD69mn. India’s market share (in value terms) stood at 47% in Feb’23 (+2.6ppt MoM and +3.7ppt YoY).

* India’s total home textile exports to the US at USD195mn in Feb’23: India’s home textile exports to the US (sum of all products) decreased 15.8% MoM (-25.2% YoY) to USD195mn in Feb’23. India’s markets share (in value terms) for Dec’22 stood at 38%, flat MoM (+0.1ppt YoY).

* Cotton surplus expected for India in 2022-23: The USDA projects 2022-23 global cotton production to marginally decrease 1.2% YoY to 24.9mn tons while global consumption is estimated to decline 5.8% to 24.1mn tons. For China, cotton production is expected to increase by 6.3% YoY to 6.2mn tons while consumption is expected to increase 2.9 % to 7.8mn tons. This should lead to a 1.6mn tons deficit. For India, production is estimated to increase by 4.5% YoY to 5.6mn tons while consumption is expected to decline 10% to 4.9mn tons, leading to a surplus of 0.7mn tons vs deficit of 0.1mn tons in CY22.

* Cotton – yarn spread witnesses decline: Cotton prices have increased 1.2% MoM in Apr’23 to INR171/kg but remain ~39% below highs of May’22 (INR281/kg). India cotton prices remain expensive compared to US cotton prices (refer exhi. 4). Yarn prices decreased 0.9% MoM in Apr’23 to INR250/kg and remains ~30% below highs of May’22 (INR359/kg). Yarn – cotton spread decreased 5.3% MoM to INR79/Kg in Apr’23.

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