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Healthy outlook continues! Spinning

Spinning companies delivered a resilient 1QFY27, with ~15–20% revenue growth, 98–100% capacity utilization, and improving cotton-yarn spreads. Yarn demand remained healthy, particularly from China, supported by lower domestic cotton availability. Most spinning companies expect cotton prices to remain elevated, supported by lower cotton production going forward. Overall, spinning margins (~16-18%) are expected to remain healthy but moderate from their 1Q peaks, with leading players indicating sustainable EBITDA margins of ~14-15% depending on product mix and integration. Polyester yarn players such as Sanathan delivered a strong performance, supported by new capex, though elevated raw-material costs remained a key margin headwind.

Apparel

The apparel industry delivered a strong 1QFY27 (+20% revenue growth), with demand and order visibility improving across major players despite elevated input, wage, and freight costs. Companies are accelerating capacity additions in low-cost regions such as India and Africa, alongside asset-light partnerships to improve cost competitiveness and reduce capital intensity. Margins have improved on a low base; however, wage inflation, higher freight, and raw-material costs remain key challenges going forward. Our coverage companies (KPR, Arvind, Pearl Global and Gokaldas) delivered strong growth, with revenue/EBITDA/PAT increasing 20%/28%/22%, respectively, led by Pearl Global as the key outperformer

Home Textiles

Strong growth momentum was also evident in the home-textile segment, with India emerging as a key sourcing beneficiary as customers increasingly diversify away from Bangladesh, Vietnam, and Pakistan, supported by India's tariff competitiveness in the US and potential benefits from the UK/EU FTAs. Within our coverage, Welspun (+26%) has outperformed the growth of the home-textile sector, while Indo Count’s growth momentum has been observed in its new business (3x growth). Most companies reported ~70bp YoY margin expansion to ~11.5–12%, while maintaining a cautious margin outlook and mid-teens revenue growth guidance for FY27.

Outlook & Valuation

The textile sector outperformed the broader market in 1QFY27, delivering ~18% YoY growth, supported by a favorable low base and higher order execution. Margins also improved, aided by lower tariffs. We expect the sector to sustain its outperformance, with ~18–20% growth and gradual margin recovery as cotton prices stabilize. The key monitorable include cotton prices, government export incentives, freight and fuel costs, the import-duty deadline on cotton, and incremental order flows from the US and Europe. Historically, the textile sector has traded at a 10-year mean of 24x P/E and 14x EV/EBITDA (our coverage universe), with topline, EBITDA, and PAT growing just 6%, 4%, and 3% respectively over the last decade. Given improved visibility, we expect our coverage to grow 14%, 27%, and 38% respectively over FY26-28. We have therefore assigned a 7-10% premium to the mean EV/EBITDA & P/E multiple. We prefer Gokaldas Export, and Arvind, from the apparel space, and Indo Count Industries from the HT space.

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