India's textile sector is poised for a significant upswing during the second half of the current financial year (FY25), highlighted a report by Systematix Institutional Equities. The report added that the growth is driven by improved demand momentum and volume growth, which is expected to gradually outpace inventory levels. This positive outlook is attributed to easing inflation, normalised channel inventory, improving supply chain dynamics, and anticipated cuts in interest rates.
"We expect the demand momentum to improve in 2H FY25 and volume growth to gradually outpace inventory on easing inflation, normalised channel inventory, improving supply chain trends and expected cuts in interest rates" the report noted.
The sector's resurgence as per the report is further bolstered by global shifts in supply chain strategies, particularly in light of the China +1 policy and the ongoing political crisis in Bangladesh.
"Due to the China +1 policy and ongoing Bangladesh political crisis, global brand owners are re-evaluating their reliance on Bangladesh and are looking at other countries such as India" said the report. These factors have prompted global brand owners to reconsider their reliance on Bangladesh, leading them to explore alternative sourcing options in countries such as India, Vietnam, Cambodia, and Sri Lanka.
The report also mentioned that in the spinning industry, there are signs of recovery as both domestic and export demand show moderate improvement. However, the industry has faced challenges, particularly in exports, due to disruptions in the Red Sea region, which have caused significant supply chain disruptions and increased logistics costs.
Despite these challenges, demand for yarn has seen a slight improvement in both the export and domestic markets, particularly in segments such as weaving and denim. Retail demand has also been encouraging, leading industry management to anticipate a stronger demand environment in the second half of the fiscal year.
The financial performance of textile companies in the first quarter of FY25 reflected positive signs. The companies reported robust year-on-year growth in key financial metrics, with revenue increasing by 18 per cent, earnings before interest, taxes, depreciation and amortisation by 32 per cent, and net profit by 41 per cent. The growth was largely driven by higher volumes and lower raw material costs. Topline growth was particularly strong, supported by double-digit volume growth, even though realisations remained muted.
The report added that the gross margins of spinning companies benefited from soft cotton prices, which declined by 4 per cent year-on-year and 1 per cent quarter-on-quarter, as well as stable yarn prices. However, the Indian textile industry is facing some headwinds due to rising domestic cotton prices, which have become more expensive, reaching Rs 58,000 to 60,000 per candy as the harvesting season concluded and the Minimum Support Price (MSP) increased by 7 per cent.
This rise in cotton prices has rendered the Indian industry less competitive on the global stage, especially as international cotton prices have fallen to Rs 54,000-55,000 per candy. Despite these challenges, garment sales volumes saw an 11 per cent year-on-year increase in the first quarter of FY25, as global retailers experienced a recovery in demand, aided by the liquidation of a significant portion of their inventory.
Overall, the outlook for India's textile sector remains positive, with expectations of continued growth and recovery in the coming quarters as demand conditions improve both domestically and internationally. (ANI)
