Demand outlook remains strong for Indian textile sector: Report

New Delhi [India], February 19 : Although domestic cotton prices remain higher than international prices, the overall demand scenario seems to be improving according to a report by Systematix Institutional Equities Research.
It can recover spread in the coming quarters to support the profitability and operational efficiency of Indian textile companies.
The report says the demand outlook remains strong for the Indian textile sector because of the normalizing channel inventories at the global retailer level, likely tariff hike by the US on China, rising labour costs in Vietnam, and ongoing political instability in Bangladesh.
The report however raised concern about the capacity constraints of the Indian garment manufacturers, which could limit their ability to take full advantage of the expected surge in demand.
It however noted that driven by stable cotton prices, favourable forex rates, and continued focus on operational efficiency the profitability of Indian manufacturers will improve in the coming quarters.
Indian textile companies recorded healthy (YoY) performance with revenue grown by 11 per cent EBITDA growth of 11 per cent and profit after tax (PAT) growth of 28 per cent on an YoY basis. The subdued cotton prices which were down 10 per cent (YoY) and stable yarn prices aided gross margin expansion for spinners.
The Union Budget 2025-26 also focuses on strengthening the textile sector through cotton productivity initiatives, duty restructuring on fabric, and supporting domestic manufacturing.
Earlier the Government had increased allocation for the textiles sector to Rs 52.7 bn from Rs 44.2 bn in Budget 2024-25.
The government's focus on the Productivity Linked Incentive (PLI) scheme, manmade fibre, 5-year mission to facilitate productivity improvements, sustainability of cotton farming and the technical textile (TT) market will boost the growth of the Indian textile sector.
An increase in customs duty in the union budget 2025-26 on the import of fabrics will be advantageous to India's technical textile producers.
The Cotton Association of India (CAI) has lowered the cotton production forecast for the 2024-25 season (October-September) by 7.8 per cent (YoY) to 30.17 million bales (170kg per bale) in its January 2025 report from 30.4 million bales in its December 2024 report.
Domestic consumption may stay unchanged at 31.5mn bales in the current season (2024-25). CAI expects a closing stock of 2.59 million bales at the end of the season vs. 3.02 million bales in the last season. However contrary to this, the ICAR-Central Institute of Cotton Research (CICR) forecasts production at 32.0 million bales.
This figure exceeds earlier estimates ranging between 29.9 million bales and 30.4 million bales.
International cotton prices however have steadily declined and currently hover at USD 0.67- 0.68 per pound vs. USD 0.70 in 2QFY25.
Indian cotton prices have slightly firmed to Rs 54,000-55,000/candy (USD 0.80 per pound) from Rs 52,000- 53,000/candy in 2Q and continue to quote at a premium to international prices.
With a likely reasonable cotton crop, the prices are likely to remain at the lower end of the above range, ensuring predictable input costs in future.