Home textiles revenue is expected to increase by 7-9 per cent this fiscal after a fall of ~15 per cent last fiscal, with India regaining global share following a correction in domestic cotton prices and restocking by big-box retailers in major markets abroad, said a report by CRISIL Ratings. It said that the operating profitability of the segment will improve 150-200 basis points to 14.0-14.5 per cent, on the back of lower raw material cost and better operating leverage. However, CRISIL added that it will still hover below pre-pandemic levels.
According to the report, credit profiles will continue to be stable with the ongoing capital expenditure cycle in its last leg this fiscal, and healthy cash accrual, on the back of improved revenue growth and profitability. The findings are based on an analysis of 40 companies by CRISIL Ratings, which account for 40-45 per cent of the sector’s revenue. It added that around 70-75 per cent of the industry’s revenue is from exports with the US accounting for more than half of it.
“With domestic prices of raw material gaining competitiveness vis-à-vis international levels, restocking by big-box retailers in the US, and sustained China+1 policy of global buyers, revenue to rebound for export-oriented Indian home textile makers this fiscal — albeit on a low base. This is reflected in the recent increase in India’s share in home textile imports by the US (including key home textiles products exported by India) to 47 per cent during January-June this year after falling to 44 per cent in CY2022 from 48 per cent in CY2021,” said Mohit Makhija, Senior Director, CRISIL Ratings.
But capacity utilisation will improve only slowly due to the recent large capacity addition amid moderate demand growth. This, CRISIL said, will continue to keep operating margins below pre-pandemic levels. The home textiles industry is in the midst of ~Rs 4,000 crore capex planned to be completed between fiscals 2022 and 2024.
“With only ~25 per cent of the capex remaining to be completed this fiscal, debt is unlikely to increase substantially. That, along with improved operating performance and cash accrual will keep debt metrics stable in the current fiscal. Consequently, gearing is seen improving to 0.70- 0.75 times as on March 31, 2024, as against 0.8 times a year earlier. Interest coverage will improve to 4.8-5.0 times this fiscal versus ~4 times last fiscal 2023,” said Gautam Shahi, Director, CRISIL Ratings.
That said, CRISIL said that the key monitorables for the industry will be any significant slowdown in the key export market of the US and surge in domestic cotton prices compared with international prices.