Low exports, rising cost to hurt profitability of home textile firms, says CRISIL
Jun 29, 2022
New Delhi [India], June 29 Operating profitability of home textile makers is seen moderating 150-200 basis points (or 1.5-2.0 percentage points) to 13 per cent during this financial year 2022-23, weighed down by lower export demand and a sharp increase in raw material and transportation costs, says financial research and rating agency CRISIL.
Home textile is essentially the textiles used for home furnishing.
Credit outlook for the sector will, however, remain stable, the agency said in a report, adding that balance sheets, strengthened by healthy cash generation and debt reduction over the past two fiscals will lend support.
Exports account for 60-70 per cent of the Indian home textile industry's revenue. The US, the world's largest market for home textile, accounts for a sizeable 58 per cent of the total exports.
Global demand for home textiles is expected to be impacted in the near-term by inflationary pressures, with big retailers cutting down on inventory and consumers cutting down on discretionary spendings, said the report.
"A slowdown in the sales of key US retailers in the past 3-6 months has led to an on-year decline of 5-6 per cent in overall home textile exports from India between January and April 2022," it added.
Further, adding to the demand challenge is the price of raw cotton, a key input in home textiles. Its price has more than doubled year-on-year to Rs 100,000 per candy (1 candy = approx. 356 kg), which will remain a challenge for exporters till the new cotton crop arrives starting October.
Supply-chain disruptions leading to volatility in ocean freight costs will also impact profitability, it said, adding that exports have become less competitive as domestic cotton prices have soared past international levels.
"...The second half of this fiscal should gradually restore demand momentum and market share for Indian home textile exporters as freight and raw cotton costs moderate, and ease pressure on profitability," said Mohit Makhija, Senior Director at CRISIL.
Overall, Indian home textile industry's revenue is expected to grow 11-12 per cent this financial year, primarily because of higher in price realisations. Domestic demand for home textile is expected to grow at a healthy 13 per cent, driven by sharp demand recovery in the domestic hospitality industry and continued focus on health and hygiene.
Growth in export demand will moderate to 10 per cent this year as against 25 per cent last financial year due to slower recovery in the international travel and hospitality segments globally, the report added.
Lastly, it said input prices in the new cotton season, resolution of supply-chain issues and global inflationary pressure, however, will be key factors over the medium term.
