Textile Industry : Spins A Profitable Story

In India, the domestic apparel and textile industry comprises approximately 2 per cent of the country’s GDP and 7 per cent of industry output in value terms. The share of textile, apparel and handicrafts in India’s total exports stood at 11.4 per cent in FY21. India contributes 4 per cent share of the global trade in textiles and apparels and is known as one of the largest producers of cotton and jute in the world. Also, India is the second-largest producer of silk in the world where 95 per cent of the world’s hand-woven fabric comes from India. The country is the second-largest garment manufacturer in the world and has a textile industry that dates back centuries and comprises a variety of sectors, including hand-spun and hand-woven, as well as mills.

Approximately 100 million people have been employed by the industry, producing a huge range of goods. Ancient skills and cultural traditions have made the Indian textile industry one of the most distinctive in the world. A considerable decline was seen in the industry as a result of the pandemic. However, as the effect of the pandemic cools down, the textile market is on the verge of recovery and is expected to advance at a CAGR of 10 per cent between 2019 and 2026 to reach USD 190 billion. In 2021, the industry witnessed a surge in the export of cotton, handloom and yarn goods beyond 50 per cent, portraying an upward trajectory for the domain.

Trends in Textile Sector

We still continue to witness the effects of the pandemic amidst which the textile industry has evolved new trends. The textile business is making its footprint in the modern era by implementing new methods of production and distribution. The future of the textile industry and its impact on the global economy depend on these inclinations. Following are the most significant trends observed worldwide in the textile business :

― There is an increasing demand for natural fibres. Owing to their durability and widespread availability, natural fibres have become a fashionable choice. Some examples of these fibres include animal fur, plant matter and mineral compounds.
― Synthetic materials are now being chosen over woven ones. That is because synthetic materials have an inherent quality of adaptability that has made these fabrics attractive in recent times. These non-woven materials can be used for a wide variety of purposes from car parts to farm covers. The main contributors are automotive and personal hygiene segments in this shift.
― Non-woven fabrics are being chosen in the transportation sector. Showing no signs of reduction, the need for non-woven materials in the transportation sector is set to increase. On an extensive basis, transportation employs non-woven materials ranging from vehicles and buses to planes and trains.
― In recent years, digital printing processes have gained popularity in the textile sector and the trend is predicted to increase. There is an improvement in digital printing’s efficiency and profitability due to designers’ persistent innovation.

Out of the 15 stocks considered here, Kewal Kiran Clothing has delivered returns of more than 100 per cent on an YTD basis after which Raymond was the top stock delivering returns of 98 per cent. Kewal Kiran Clothing reported strong revenue performance and registered its highest ever quarterly revenues in Q1FY23. The company bears a decent margin profile compared to its peers and also has a healthy balance-sheet. Taking into account the other textile stocks, the following table highlights the top textile stocks of 2022 which have been in a sweet spot for the textile stock holders with their returns soaring as high as 1,800 per cent.

On a one-year basis, the returns given by textile stocks touched a range of 9,000 per cent. Raj Rayon Industries is one of the attractive multi-bagger Penny Stocks with returns of 9,219 per cent in just a year. The table below shows the top 10 performing textile stocks over the past one year:

Another factor to consider is that the extreme weather conditions and lower crop yield have led to a sharp rise in cotton prices. In fact, the production of cotton has taken a hit on a global basis. A lower production scale is predicted for the US, which is the world’s largest producer of cotton. This is likely to put margin pressure on textile companies in the coming term but the ones with steady inventories can take advantage of the same in the long run. Seeing the bright potential in the future, Indian textile companies have already lined up investments for future capacity expansion.

Companies like Trident, Welspun India, KPR Mills, Indo Count, Phoenix Mills, Century Textiles and Mafatlal Industries have announced significant investments in areas like home textiles, denim and garmenting. On the other hand, large Indian players such as Arvind Mills, Welspun India, Raymond and Alok Industries have established themselves as high-quality producers in the global market. This recognition would further enable India to leverage its position among global retailers. Given the current market status and the predictions of growth for this sector, the export market is also likely to present new opportunities.

Performance of Textile Companies

The top three companies according to market capitalisation include Page Industries, KPR Mills and Trident Ltd. Page Industries has delivered a positive 25 per cent return on an YTD basis. The apparel manufacturer reported a multi-fold jump in net profit during Q1FY23 at ₹207 crore from ₹10.9 crore during Q1FY22. The revenue from operations during the quarter under review was ₹1,341 crore, up over two-fold compared to a lower base of the pandemic-impacted Q1FY22. The revenue of KPR Mills shot up 70.8 per cent on a YoY basis from ₹939.64 crore to ₹1,604.97 crore in Q1FY23.

Net profit was reported at ₹226.69 crore, zooming 34.88 per cent as compared to ₹168.07 crore. On an YTD basis, the shares of Trident Limited have fallen by 32.43 per cent. Trident is one of the largest players in the home textile segment in the country. The company’s quarterly net profit in June 2022 stood at ₹129.35 crore, declining 40 per cent compared to the same period last year. The table alongside summarises returns of the top 15 companies according to market capitalisation on an YTD basis.

Out of the 15 stocks considered here, Kewal Kiran Clothing has delivered returns of more than 100 per cent on an YTD basis after which Raymond was the top stock delivering returns of 98 per cent. Kewal Kiran Clothing reported strong revenue performance and registered its highest ever quarterly revenues in Q1FY23. The company bears a decent margin profile compared to its peers and also has a healthy balance-sheet. Taking into account the other textile stocks, the following table highlights the top textile stocks of 2022 which have been in a sweet spot for the textile stock holders with their returns soaring as high as 1,800 per cent.

On a one-year basis, the returns given by textile stocks touched a range of 9,000 per cent. Raj Rayon Industries is one of the attractive multi-bagger penny stocks with returns of 9,219 per cent in just a year. The table below shows the top 10 performing textile stocks over the past one year:

Another factor to consider is that the extreme weather conditions and lower crop yield have led to a sharp rise in cotton prices. In fact, the production of cotton has taken a hit on a global basis. A lower production scale is predicted for the US, which is the world’s largest producer of cotton. This is likely to put margin pressure on textile companies in the coming term but the ones with steady inventories can take advantage of the same in the long run. Seeing the bright potential in the future, Indian textile companies have already lined up investments for future capacity expansion

Companies like Trident, Welspun India, KPR Mills, Indo Count, Phoenix Mills, Century Textiles and Mafatlal Industries have announced significant investments in areas like home textiles, denim and garmenting. On the other hand, large Indian players such as Arvind Mills, Welspun India, Raymond and Alok Industries have established themselves as high-quality producers in the global market. This recognition would further enable India to leverage its position among global retailers. Given the current market status and the predictions of growth for this sector, the export market is also likely to present new opportunities.

Outlook

India is working on major initiatives to boost its technical textile industry. The government is supporting the sector through funding and machinery sponsoring. Top players in the sector are adopting sustainability in their products by manufacturing textiles that use natural recyclable materials. With accelerated consumerism and disposable income, the retail sector has experienced rapid growth in the past decade with the entry of several international players. The future for the Indian textile industry is predicted to be promising on the back of increasing domestic consumption as well as export demand. Under the aegis of the recent Union Budget, the central government has allocated ₹12,382 crore for the textile sector.

The government has also allocated funds of ₹17,822 crore between FY 2016 and FY 2022. Not only this, the government has also allowed 100 per cent foreign direct investment (FDI) in the sector under the automatic route. The highest contributors to FDI in the textile sector of India from April 2016 to March 2021 include Japan, Mauritius, Italy and Belgium. Some of the macro tailwinds that the textile sector is expected to experience in the medium term include an increase in exports from India, a ban on Xingjiang (China) cotton by the US (the origin of 80 per cent of China’s cotton), decentralisation and consolidation trends along with the China Plus One strategy. The pandemic has led to a redistribution of global trade shares and China Plus One sourcing, providing a crucial opportunity for Indian textiles to perform a turnaround and recover a leadership post as a top exporting economy

With the adoption of the China Plus One strategy, textile companies now have the ability to create a supply chain structure that not only answers the current pragmatic needs but also establishes proactive measures to meet internal and external expectations for upcoming and in-demand products. To promote exports, the government has drafted several policies for the textile sector. For the export of handloom products, the Handloom Export Promotion Council (HEPC) is participating in various international events with handloom exporters to expand their global reach. India’s home textile exports grew at a healthy rate of 9 per cent in FY21 despite the pandemic.

The government has also approved 61 applications of companies with an investment potential of over ₹19,000 crore under the Production-Linked Incentive (PLI) Scheme for textiles products like manmade fibre (MMF) apparel, MMF fabrics and products of technical textiles for enhancing manufacturing capabilities and boosting exports with an approved financial outlay of ₹10,683 crore over a five-year period. Expectations of huge domestic buying in the coming festive season and export opportunities emerging from the crisis-ridden textile sectors in neighbouring countries such as Bangladesh and Sri Lanka may help India’s textile industry battle the declining global demand.