Textiles Sector Update : Time to light the cannons by Emkay Global Financial Services Ltd
We initiate coverage on the textiles sector with BUY on Arvind, Nitin Spinners, and Sanathan Textiles. India has, traditionally, been a textile powerhouse but lost market share in the global apparel trade, which has been stagnant at 3-4% over the past 15Y. However, we believe India is at an inflection point to regain its lost glory, led by i) a strengthening domestic MMF ecosystem via PLI schemes, PM MITRA parks, petchem capacity adds, etc; ii) free trade agreements (FTAs) with major economies like EU, UK, Australia, etc; iii) 7-8% US tariff gap vis-à-vis China; iv) favorable regulatory taxes (import duties/GST rate); v) robust corporate balance sheets; and vi) the fastest-growing domestic apparel market. Accordingly, we estimate our coverage universe to log revenue/EBITDA/APAT CAGR of 21/34/45%, respectively, over FY26-28E.
Resilience to withstand blows
Indian textile and apparel manufacturers have largely emerged unscathed from multiple shocks like the pandemic (CY20/21), Russia-Ukraine war (CY22), hostile US tariff rates (CY25), etc. We believe the ongoing West Asia crisis, too, will have short-term impact on margins (higher energy, logistics costs), which should see a sharp recovery on attaining normalcy. Backed by a robust domestic market, favorable USD-INR rate, and strong balance sheet, we believe domestic players would be able to absorb future shocks too
Spinners – An attractive category
Per USDA, global cotton demand will outpace supply in the upcoming season, as cotton production is likely to be hit by the El Niño effect, lower water reservoir levels, etc. Prices of domestic cotton fiber/yarn (Count-30) have already increased ~15%/29%, respectively, in CY26TD, while the premium of domestic cotton to US cotton prices has reduced to only 4-5pp (including the logistic and insurance cost) from ~20pp (Q4FY26 average). Given the likely global cotton shortage, we expect yarn spreads to at least be rangebound at current levels in the near term; this augurs well for cotton spinners. Meanwhile, a sharp rise in PTA and MEG prices (crude oil derivatives) led to polyester spreads falling to negative 1SD. However, we see spot spreads bottoming out, as any signs of easing Middle East (ME) tensions will release pressure on PTA/MEG prices. Also, addition of ~2.5mtpa domestic PTA capacity in 2HCY26 will cut import dependency.
Technical textiles – The sunrise segment
Technical textiles find applications in packaging materials, defense uniforms/equipment, auto interiors, industrial ropes/nets, etc, and enjoy superior operating margins (15- 30%). Technical textiles’ domestic market size saw 7-8% CAGR over FY20-26P; we expect this to increase to early-double digits over the next 5Y, mainly on the back of
1) Multiple FTAs
2) Tariff differential vs China
3) Ecosystem boost led by PLIs and PM MITRA parks
4) GST cuts on MMF fibers and yarns to 5% (from 12%).
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