India’s home textile industry is expected to record a revenue growth of 6-8 per cent this fiscal, following a 9-10 per cent rebound during the last fiscal, stated a report by CRISIL Ratings. The growth, it added, will be driven by resilient demand from the US, which is the key export destination, and also the expansion in the domestic market – and notwithstanding some lingering logistical challenges.
CRISIL Ratings analysed 40 companies, accounting for 40-45 per cent of the industry revenue, to release the findings. It said that the credit profiles of home textile companies will remain stable, supported by healthy cash accrual and moderate capital expenditure (capex) plans on the back of deleveraged balance sheets.
The home textile industry derives 70-75 per cent of its revenue from exports, with the US alone accounting for 60 per cent, and the remaining 25-30 per cent from the domestic market.
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Mohit Makhija, Senior Director, CRISIL Ratings, said, “Three factors will drive growth of the home textiles industry this fiscal. One, resilient consumer spending and normalised inventory levels at major retailers in the US will spur exports, though container availability bears watching. Two, the industry’s continued focus on expanding domestic presence will aid growth. Third, the domestic prices of cotton, the key raw material, are likely to remain close to international levels, resultantly retaining the competitiveness of domestic companies. Therefore, for the home textiles exported by India, the country’s share in US imports will remain steady this fiscal — in January-August 2024, it was ~30 per cent, same as in calendar year 2023.”
International cotton prices had plummeted below the domestic prices between June and September 2024, driven by a surge in cotton supply from Brazil and the US. However, with the commencement of cotton season in India, the gap between domestic and international cotton prices is expected to narrow, protecting India’s export competitiveness.
CRISIL further maintained that with the domestic raw material prices remaining close to international prices, the operating margin is likely to remain stable at 14-15 per cent this fiscal, in line with last fiscal. The margin will remain insulated from the recent volatility in freight cost as most exports are on a free-on-board basis, it added.
On the capex front, the home textile companies had invested approximately Rs 8,500 crore to add capacity over fiscals 2019 to 2024. With revenues scaling up gradually, the industry’s capacity utilisation is expected to remain at 60-70 per cent this fiscal.
While most companies are now looking to optimise utilisation this fiscal, a few large ones are planning capex, but on deleveraged balance sheets.
Pranav Shandil, Associate Director, CRISIL Ratings, said, “With steady operating performance and moderate capex in fiscal 2025, the interest coverage1 for home textile companies should remain stable at 5-6 times (~5.5 times last fiscal). Healthy cash accrual is likely to reduce dependence on external debt for working capital, which will keep the total outside liabilities to tangible net worth ratio low at 0.6-0.7 time this fiscal (0.7 time last fiscal).”
That said, CRISIL concluded, any significant slowdown in the US or a surge in domestic cotton prices compared with international prices will be monitorable.
From: financialexpress
Financial News
