next textile machinery exhibition and event in surat, gujarat, india

Textile News   >     16-01-2018 - Tuesday

  • Textile exporters: benign financial metrics make wait for business recovery worthwhile
  • Home textile exporters had a tough 2017. Shares of several companies languished for most of the year as structural readjustments in the US retail industry—the largest market—hurt revenue growth and profitability. To this was added the impact of the adverse currency movement and rise in raw material costs.
  • But as clients in the US and the companies adapt to new procurement cycles, industry participants expect growth to re-emerge in FY19. “Usually clients keep inventories on the lower side at the year end. However this time the inventory reduction was more than usual. Expect this process to reach normalcy by Q4 and growth to return in Q1 (of next fiscal),” says Pawan Jain, director, corporate affairs, Trident Ltd.
  • According to a Credit Suisse note on Welspun India Ltd, destocking at US retailers may not continue beyond one more quarter as the stock in the retail channel cannot fall more than a certain level. So a recovery should be reflected in the second half of the fiscal year. But the reduction in the government’s duty drawback and rebate of state levies schemes (offsets input tax) can optically lower revenue growth in the second half of the current fiscal year, Credit Suisse said in a note on Welspun India.
  • Even then if the new purchase cycles were to take off, earnings of the home textile exporters can see a notable recovery in FY19, partly aided by a favourable base. Further, as Icra Ltd points out, the credit profile of domestic textile companies is stable, indicating financial health. According to the ratings agency, the aggregate debt of the domestic textile industry is declining as the industry reduced debt-funded expansion.
  • Barring Himatsingka Seide Ltd, which is vertically integrating, none of the companies are in major expansion mode now. In fact Trident and Welspun India says they have enough capacity to deliver double-digit growth for the next two fiscal years. Indo Count Industries Ltd has just completed its first phase of capacity augmentation.
  • Of course, the quantum and the quality of the business recovery is a big if. Also a strengthening of the Indian rupee and cotton prices remain risks to profitability. But as industry data show, US imports of cotton textiles continues to rise with India’s share expanding.
  • That said, beyond the cyclical recovery, the challenge for the Indian companies is to hold on to the customers by building relevant products, brands and being competitive. “I think the requirements for corporates to grow in this segment will be more than just capacities, companies will have to have promising IP (intellectual property) portfolios relevant for our global clientele and that adds value to their offering,” Shrikant Himatsingka, managing director and chief executive officer of Himatsingka Seide, said in a post-September quarter results conference call.

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