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China+1 theme drives market share gains; new variant a threat

Strong global recovery backed by vaccine support and strengthening economic activity has been driving India’s textile exports. During Oct’21, Cotton sheet / Terry towel exports increased by 35.3% / 22.2% MoM and were up 10.1% / 35.4% YoY. India’s Oct’21 market share in Cotton sheet / Terry towel exports to the US increased to 58% / 46% vs 49% / 45%. YTD’21 market share increased to 58% / 44% vs 50% / 42% for the same period YTD20. Government’s endeavor to develop a robust textile ecosystem - PLI and GOI’s stance on FTA provides additional optimism. We believe structural uptick in home textile demand owing to increased ‘work-from-home’ period, higher emphasis on health & hygiene driven by pandemic, duty reimbursement by GOI and market share gain on China+1 theme will drive earnings trajectory going forward. Made-ups exports from India has been a huge beneficiary of this trend and has witnessed robust offtakes. Gokaldas exports remains our top pick in the apparel sector. Integrated home textile player – Welspun India continues to be our preferred pick. Spread between Yarn and cotton prices continue to remain high and should enable yarn producers to report strong earnings for 3QFY22. Resurgence of Covid cases in the developed world remains a key risk to our thesis.

* India’s market share in total home textile exports to the US increased YoY for Oct’21: Home textile players witnessed MoM increase in overall exports to the US for Oct’21. Global cotton sheet export volumes to the US increased MoM by 17.0% (-16.7% YoY) to 98mn sq mtrs in Oct’21. Terry towel volumes increased MoM by 21.2% (+1.7% YoY) to 32mn sq. mtrs. In Oct’21. India’s volume share in Cotton sheet / Terry towel exports to the US stood at 44% (+6ppt MoM; +1ppt YoY) / 40% (flat MoM; +7ppt YoY) respectively.

* India’s share in US imports of cotton sheets reached 58% in Oct’21: India’s cotton sheet export volumes to the US increased by 35.8% MoM (-14.3% YoY) in Oct’21 to 43mn sq mtrs. Exports value increased by 35.3% MoM (+10.1% YoY) to USD96mn in Oct’21. India’s market share (in value terms) stood at 58% in Oct’21 (+9ppt MoM; +6ppt YoY).

* India’s share in US imports of terry towels stood at 46% in Oct’21: India’s export volume of terry towels increased by 22.1% MoM (+22.6% YoY) to 13mn sq. mtrs in Oct’21. Exports in value terms increased by 22.2% MoM (+35.4 YoY) to USD82mn. India’s market share (in value terms) stood at 46% in Oct’21 (+1ppt MoM and +6ppt YoY). For Nov’21, Trident reported Bath linen volumes of 4.9mn kgs (-9% MoM; +6% YoY) and Bed linen volumes of 3.4mn mtrs (-11% MoM; +2% YoY).

* India’s total home textile exports to the US at USD326mn in Oct’21: India’s home textile exports to the US (sum of all products) increased 20.9% MoM (+16.0% YoY) to USD326mn in Oct’21. India’s markets share (in value terms) for Oct’21 stood at 42%, up by 3ppt MoM (+4ppt YoY).

* Sector witnessing structural uptick in demand: US / EU witnessed a post pandemic recovery in the home textile sector, with structural uptick in demand owing to ‘work from home’/hygiene ascribing more relevance to bed sheets/towels use. Home textile manufacturers have been operating at higher capacity as orders continue to galore.

* Deficit expected for world cotton in 2021-22: The USDA projects 2021-22 global cotton production to increase by 8.8% YoY to 26.5mn tons while Global consumption is estimated to increase by 2.8% YoY to 27.1mn tons, implying global deficit of 0.6mn tons. For China, cotton production is expected to decline by 9.3% YoY to 5.8mn tons while consumption is expected to remain flat YoY to 8.7mn tons. This should lead to a 2.9mn tons deficit in CY22E. For India, production is estimated to increase by 1.4% YoY to 6.1mn tons while consumption is expected to see an uptick of 3.2% YoY to 5.6mn tons, leading to a surplus of 0.5mn tons (down c.15.4% YoY). Ending stocks in India are expected to decrease by c.19.3% YoY to 2.4mn tons.

* Increased work-from-home and emphasis on health and hygiene to drive growth: Home textile players remain key beneficiary of higher in-home consumption due to increased work-from-home period and higher emphasis on health & hygiene driven by the pandemic. Further, revival in hospitality sector due to increased spending on travel & holidays in Euro & US region would continue to drive demand for Home textile. Duty reimbursement by GOI and market share gain on China+1 theme will drive earnings trajectory going forward. Made-ups exports from India have been a huge beneficiary of this trend and have witnessed robust offtakes. Spread between Yarn and cotton prices continue to remain high and should enable yarn producers to report strong earnings for 3QFY22. Gokaldas Exports remains our top pick in the apparel sector. Integrated home textile player – Welspun India continues to be our preferred pick.

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