Stocks

Consumption gives textile cos recovery push

Gayathri G. Chennai | Updated on March 11, 2011 Published on March 10, 2011

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It's been a roller-coaster ride for the Indian textile industry since 2007, when it was scarred by rising rupee and then by the global slowdown. Then came soaring cotton prices and the export restrictions. But as India's exports start gaining traction, textile companies are on a recovery path, and are likely to deliver better returns.

As consumption picks up in developed nations – the US and EU – exports of cotton yarn, fibre and garments are set to increase by over 5 per cent compound annual growth rate between 2010 and 2014.

Advantage India

As demand for yarn and cotton increases, India will be one of the biggest beneficiaries.

Of the Asian textile quartet – India, China, Pakistan and Bangladesh – India is more likely to emerge as the winner in the export arena.

China, which used to be the largest exporter, is slowly converting itself into a net importer on growing domestic demand. While flood has ravaged Pakistan's cotton crop prospects, Bangladeshi textile industry is plagued by power and labour issues.

However, in India, production has increased and is likely to rise further due to higher area under cultivation, expanding yields and increase in minimum support price of cotton.

A McKinsey report states that global textile trade is expected to grow from $510 billion in CY-09 to $1,000 billion in CY-20. During the same period, the report adds, the Indian textile sector will more than triple from $70 billion in 2009 to $220 billion by 2020, at an annual growth rate of about 11 per cent.

Cotton prices, which are increasing since April last year, are likely to remain firm on the back of dwindling production from the main producer countries and an ever-buoyant demand. Yarn prices too will gain — in 2010, Indian raw cotton prices rose 30 per cent whereas yarn prices surged 50 per cent y-o-y — resulting in an expansion of operating margins of spinners.

Yarn makers such as Vardhaman Textiles (the largest yarn manufacturer), Rajasthan Spinning and Weaving Mills, and Suryavanshi Spinning Mills stand to gain.

On the apparel front, garment makers are in the limelight for their protest over the 10 per cent excise duty imposed on branded garments in the Budget. However, they are set to pass on price hikes to consumers. Industry captains say that brand-savvy consumers can easily absorb this price hike.

Shares of Alok Industries, Bombay Rayon and Arvind Ltd – among the largest integrated textile and apparel apparel companies — are to be watched.

Published on March 10, 2011
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