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Improved demand to aid 1.4% YoY growth in Q4E revenue   

Expect Elara Textiles universe to post a revenue growth of 1.4% YoY (17.4% QoQ) in Q4FY24E, led by volume growth coming from demand improvement. Average realization may decline due to deflation in raw material cost. We expect Arvind to lead the pack, with the sharpest rise of 5.3% YoY in Q4. Also, spinners may report better margin led by improved demand and favorable Indian cotton prices benefiting exports with gain from cotton price movement.  

Margin for Garmenting players may be strained as demand is yet to return to full normalcy. A sequential improvement in volume is expected, with orders coming in from export markets, as retailers in the US/EU resume restocking inventory, while domestic demand remains subdued due to delayed winter. YTDCY24 (Jan-Feb 2024), India witnessed an improvement in market share of US imports in cotton sheets, while market share declined in towels and apparels. EBITDA may grow 14.3% YoY (up 20.7% QoQ), led by favorable cost structure compared with Q4FY23. Q4E APAT may improve 16.4% YoY (up 19.7% QoQ), percolating from EBITDA growth.          

Margin to improve led by raw material tailwind

In Q4FY24, average cotton prices declined 6.6% YoY but rose 2.2% QoQ to INR 163/kg. And average yarn prices declined 5.7% YoY but rose 4.4% QoQ. Cotton yarn spread declined 4.1% YoY but rose 8.7% QoQ to INR 101/kg. Overall demand may improve on account of sourcing for the spring/summer season from the US/EU markets. EBITDA may grow 14.3% YoY on favorable base for spinners, resulting from improved demand. We expect margin for Elara Textiles universe to improve 149bps YoY to 13.7%. Also, Vardhman Textiles may post an EBITDA margin of 11.5%, on the back of volume growth in the fabric segment and favorable input cost. KPR Mill may see 18.9% margin, led by favorable input cost, while a lower share of ethanol sales may restrict the upward move in margins in Q4.

Textiles – Long-term stance positive; Arvind our top sectoral pick

Expect improved performance in Q4 as demand for yarn and garments has slightly improved, while home textiles continue to perform. Expect Q4 margin to be better for spinning companies, led by improved demand, whereas margins for garment companies may remain under pressure. Margin for home textile players improved due to raw material-related tailwinds. Domestic demand has started improving as at end-Q4. Key monitorables are cotton price movement, domestic and exports demand, and announcement of capex plans.

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