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
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.