Building on last year’s strong 9-10 per cent rebound, revenues from India’s home textile industry are set to grow by 6-8 percent this fiscal, says the latest CRISIL Ratings’ report.
Most of this growth will be fueled by steady demand from the US, the industry’s largest export market, and an expanding domestic market, despite lingering logistical issues, the report adds.
CRISIL Ratings’ analysis of 40 key companies, representing 40-45 percent of the industry’s revenue, indicates, the credit profiles of home textile companies will remain stable due to healthy cash flows and modest capital expenditure plans, supported by reduced debt levels. Exports make up 70-75 percent of the industry’s revenue, with the US accounting for 60 percent, while the domestic market contributes the remaining 25-30 percent.
Mohit Makhija, Senior Director, CRISIL Ratings, highlights three main factors behind this growth: resilient consumer spending and normalised inventory levels at major US retailers boosting exports; an ongoing expansion of domestic market presence; and stable domestic cotton prices remaining near international levels, which will keep Indian companies competitive. India’s share in US home textile imports will stabilise at around 30 per cent, as seen from Jan-Aug’24, notes Makhija.
From June-Sep’24, international cotton prices dropped below domestic prices cotton supply from Brazil and the US increased. However, with the onset of India’s cotton season, the gap is expected to close, preserving India’s export competitiveness. Operating margins willremain steady at 14-15 percent this fiscal as most exports operate on a free-on-board basis, minimising the impact of freight cost volatility, states the report.
The industry invested approximately Rs 8,500 crore in capacity expansion from 2019 to 2024, with capacity utilisation expected to stabilise at 60-70 percent this fiscal. Most companies aim to optimiseutilisation this year, with a few large players planning capital expenditure on debt-free balance sheets.
Pranav Shandil, Associate Director, CRISIL Ratings, avers, steady performance and moderate capital expenditure will likely maintain interest coverage for these companies at 5-6 times, while strong cash accruals will maintain total liabilities-to-net-worth ratio low at 0.6-0.7 times this fiscal.
Any significant slowdown in the US or a sharp increase in domestic cotton prices could impact the industry’s growth, warns the report.
