Rating agency ICRA expects four big players to report a 7-8% year-on-year increase in revenues to Rs 215 billion for FY2024, with an expected recovery in demand conditions and restocking by big retailers from the US market to realign their inventory levels. The four listed home textile companies in ICRA’s sample are Welspun, Trident, Himatsingka and Indo Count, accounting for about 35–40% of domestic textile exports.
KK Lalpuria, Executive Director & CEO, Indo Count Industries, says they are optimistic about the prospects for demand recovery and a significant uptick in FY 24. “The sustained 58% share in the US market during the initial months of FY 24 indicates a continued strong foothold. This consistency is a positive indicator, hinting at a stable demand trajectory,” he says.
Lalpuria anticipates premium and sustainable home textile products would be poised for brisk business in the upcoming period. Conversely, they foresee more moderate sales in conventional, mass-produced textile products. “While there will always be a market for standard offerings, the discerning consumer base is showing a greater inclination towards unique, value-added products. Hence, focusing on differentiated and environmentally conscious products allows us to stay ahead of market trends and cater to changing consumer demands,” he adds.
India’s home textile exports reported a double-digit decline of 18% and 12% in FY2023 and 4M FY2024, respectively, amid high raw material expenses and energy inflation, coupled with a muted demand scenario in the US and the EU markets. The US remains the largest market for Indian home textile exports, with a 56% share in FY2023 and 58% share in 4M FY2024. Given the high dependence on the US market, the strength in retail sales there remains a key demand driver for Indian exporters.
The US retail inventory levels for furniture, home furnishing, electronics and appliance stores have come down from CY2022 levels, with destocking being almost over for the big retailers. ICRA, thereby, expects retailers to start buying in the subsequent months to restock their inventory and improve the home textile players’ order book position as well as revenues for FY2024.Kaushik Das, Vice-President & Co-Group Head, Corporate Sector Ratings, ICRA, says, “As our channel checks indicated, with the festive orders coming in from Q2 FY2024, the order book position is estimated to have improved for home textile exporters. The long-term growth prospects of the sector are encouraging, with the Government of India’s promotional steps (including the proposed FTAs with the UK and the EU, along with the FTA agreements signed with Australia and the UAE) and the longer-term benefit of China Plus One shift in textiles sourcing by big retailers.” According to ICRA, the product-wise breakup of the home textiles exports indicates that value-wise, bed, table, toilet, kitchen linen remains the largest product category in exports with 32-33% share in FY2023 and 4M FY2024, followed by carpets & floor coverings with 31% share in FY2023 and 4M FY2024.
Moreover, the credit rating agency says as raw material costs account for 55-60% of the total operating cost for home textile exporters, the increase in yarn prices has exerted some pressure on their profitability in FY2023. “Indian cotton yarn prices had averaged 19% higher in FY2023 compared to the past five-year average. However, between April and September 2023, average cotton yarn prices were 25% lower than the average cotton yarn prices in FY2023. This has eased cost side pressures for home textile exporters,” it states.
Overall, the agency expects 250-350 bps improvement in home textile exporters’ operating margins, to 14.5-15.5% in FY2024, with rationalisation in raw material costs and benefits from a higher scale trickling in.
Attesting to such trends, Lalpuria says the recent trend of a 25% decrease in average cotton yarn prices between April and September 2023, as compared to the elevated levels witnessed in FY2023, is expected to alleviate cost-side pressures for home textile exporters within the industry. He, however, advises that this development be seen more prudently. “Other contributing factors such as transportation costs, global trade dynamics, and any potential fluctuations in demand also need to be kept in consideration. While the decrease in cotton yarn prices is a positive signal, navigating the overall cost landscape requires a holistic strategy that considers various elements impacting the industry,” he adds.
