Home textiles market growing at faster pace

The Indian Rupee appreciation and firm cotton prices undermine home textile exporters’ profitability, but investors are attaching little importance to these emerging risks

A firm rupee, higher raw material prices (cotton) and subdued demand in the key export market (US) are doing little harm to home textile exporters’ stocks. Even as the rupee appreciated 3.8% against the US dollar in the last three months and cotton prices rose 20% from a year ago, shares of Indo Count Industries Ltd., Trident Ltd., Himatsingka Seide Ltd., and Welspun India Ltd., gained 20-40% in the last three months.

The rupee appreciation and firm cotton prices undermine home textile exporters’ profitability. JM Financial Institutional Securities Ltd warns that cost pressures can impact India’s competitive advantage. “Higher Yuan depreciation vs. INR (Indian rupee) appreciation and reduced cotton price spread between India and China is impacting the Indian advantage,” adds JM Financial.

First and foremost, many see the cost pressures as transitory and not risky yet. One analyst says the situation can turn adverse if the rupee continues to appreciate, say around 5-6% from hereon. Pawan Jain, president (corporate affairs) at Trident, says that while cotton prices remained firm on tight supplies, as the new crop arrives he expects the cotton prices to turn range bound.

The second and another important reason for the resilience in the home textile stocks is consolidation in the market. According to Jain, organised and large firms are gaining market share in the export market. So, even as the US market is not seeing notable growth, companies like Trident see much scope for market share gains, he adds.

Also providing growth and earnings visibility is backwards integration and capacity expansion. Himatsingka Seide expanded sheeting capacity (bed linen) and is aiming to commission spinning capacity, which helps in backwards integration, next fiscal year. Similarly, Indo Count Industries is expanding bed linen capacity and is planning to build a new plant. Analysts expect the new capacities to help these firms improve profitability and market share. Indo Count expects 10-12% volume growth in FY18. Indo Count also believes its volume growth has the potential to grow at a higher rate post FY18,” according to the information released by IDBI Capital Market Services Ltd.

 

 
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