IGI Logo

Indian textile sector has witnessed an increase in exports market share to the tune of ~400bps YTD across cotton sheets and terry towels. Reduced inventory on shelves of global retailers and likely mean reversal of inventory to sales ratio over time is expected to lead to a stronger 2HFY24 demand outlook. Reduced cotton prices (down over 40% in 12M) coupled with improving scale in 2H could lead to a material margin boost. With UK FTA (US$1bn additional opportunity for India) in the horizon and possibility of “China+1” picking pace can significantly re-rate earnings and multiples for the space. GOI’s focus on the overall textile ecosystem (PLI’s / stable duties) is an additional plus. Gokaldas Exports (huge addressable market size / top-notch execution) remains our top pick in the sector. Welspun India remains a key beneficiary of the said theme

* India’s share in US imports of cotton sheets stood at 56% in Apr’23: India’s cotton sheet export vols. to the US decreased by 23.6% YTD to 91mn sq mtrs. However, despite challenges, Indian exports have reported an increase in market share to 57% (up 4.3% YTD) at the expense of China & Pakistan. Export value declined 3.3% MoM to USD49mn in Apr’22. India’s market share (in value terms) stood at 56% in Apr’22 (-3.5ppt MoM; -3.7ppt YoY).

* India’s share in US imports of terry towels stood at 44% in Apr’23: India’s terry towel export vols. to the US decreased by 17.0% YTD to 33mn sq mtrs. However, Indian exports have reported an increase in market share to 44% (up 4.6% YTD) at the expense of China. Exports in value terms increased by 7.5% MoM to USD61mn. India’s market share (in value terms) stood at 44% in Apr’23 (+6.0ppt MoM and +4.6ppt YoY).

* Cotton prices witness significant correction over 12M: Dull demand outlook and approaching monsoons continue to weigh on cotton prices as new stock hits the market. Cotton prices are now down by over 40% in the last 12 months. Cotton prices have declined 3.4% MoM in June’23 while yarn pries decreased 2.9% MoM in June’23. This has resulted in Yarn – cotton spread decreasing 1.8% MoM to INR74/Kg. Cotton production for India is estimated to increase by 4.5% YoY to 5.6mn tons while consumption is expected to decline 2% to 5.3mn tons, leading to a surplus of 0.7mn tons vs deficit of 0.1mn tons in CY22. This should ensure cotton prices remain muted at current levels. For China, cotton production is expected to increase by 0.8% YoY to 5.9mn tons while consumption is expected to increase 7.2% to 8.2mn tons leading to a 2.3mn tons deficit

* UK FTA to offer an additional US$1bn opportunity: UK imports USD$21bn in apparel with India’s share a mere USD$1.1bn. In contrast, UK imports UD$3bn from Bangladesh and US$ 4.5bn from China. Indian players have lower market penetration in UK due to tariff disadvantages vs Pakistan, Turkey, and Bangladesh. China, despite a higher duty structure of 11.5% vs ~9.5% in case of India has been able to export significantly to UK. However, FTA with UK will allow duty free exports to UK, improving India’s competitiveness. A ~20% market gain from China over the next 3-4 years is required to help India near double its exports to UK. Effective implementation of UK FTA could provide a clear runway for double digit revenue CAGR in case of Indian textile exporters over the coming decade. More FTAs like this could lead to further multiple re-rating of Indian textile exporters from a longer term perspective.

* Demand improvement likely from 2HFY24: Reduced inventory on shelves of global retailer and likely mean reversal of inventory to sales ratio over time is expected to lead to a stronger 2HFY24 demand outlook. RMG exports of all textile categories in India are showing signs of recovery in May post 17% decline in April. Volumes of trade are expected to improve further in 2HFY24 as global retailers start giving orders for Summer/Spring’24

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer