HomeNewsSlowing exports, rising cost to crimp profitability of home textile cos

Slowing exports, rising cost to crimp profitability of home textile cos

Operating profitability1 of home textile makers is seen moderating 150-200 basis points (bps) to 13% this fiscal, hemmed in by lower export demand and a sharp increase in raw material and transportation costs.

Yet, credit outlook for the sector will remain stable. Balance sheets, strengthened by healthy cash accrual and debt reduction over the past two fiscals, will lend support, a CRISIL Ratings analysis of 60 companies that account for over 60% of the sector revenue, shows.

Exports account for 60-70% of the Indian home textile industry’s revenue. The US, the world’s largest market for it, accounts for a sizeable 58% of these exports.

Global demand for home textiles is expected to be impacted in the near-term by inflationary headwinds, with big-box retailers pruning inventory and consumers cutting down on discretionary spends. A slowdown in the sales of key US retailers in the past 3-6 months has led to an on-year decline of 5-6% in overall home textile exports from India between January and April 2022.

Adding to the demand challenge is the price of raw cotton, a key input in home textiles. Its price has more than doubled on-year in May to Rs 100,000 per candy2. This will remain a challenge for exporters till the new cotton crop arrives starting October. Supply-chain disruptions leading to volatility in ocean freight rates will also impact profitability. With domestic cotton prices soaring past international levels, exports have become less competitive. Consequently, India’s share in the US import basket moderated 700 bps in the four months ended April 2022, on-year.

Overall, Indian home textile industry’s revenue is expected to grow 11-12% this fiscal, primarily because of higher in price realisations. Domestic demand (comprising 30-40% of Indian home textile industry’s revenue) is expected to grow at a healthy 13%, driven by sharp demand recovery in the domestic hospitality industry and continued focus on health and hygiene. Growth in export demand will moderate to 10% from 25% last fiscal due to slower recovery in the international travel and hospitality segments globally.

Subscribe to our newsletter

To be updated with all the latest news from Sawdust

reports

moves

tenders

latest news