A report by rating agency ICRA says that India’s textile exporters are set to see a growth of 20-25 per cent during the current financial year.
The factors that have driven a sharp surge in demand for home improvement products over the past one year are expected to sustain during the remaining quarters of FY 2022, continuing the trend of the past three quarters.
The expectations of a strong festive demand this year, backed by favourable vaccination coverage across key markets, are reflected in the healthy order book position of Indian home textile exporters.
The report said that ICRA’s sample set of companies (comprising large and listed companies, accounting for 35-40 per cent share in India’s home textile exports) are projected to clock a robust double-digit growth of 20-25 per cent in FY 2022.
“For the past three quarters, sales for the sample set have averaged 25-40 per cent higher than the three-year average for the pre-Covid period. Home textile export was one of the first few textile segments to recover from the impact of the pandemic last fiscal, with companies reverting to year-on-year (Y-o-Y) growth from Q2 FY 2021 itself and reporting three consecutive quarters of double-digit growth thereafter,” said Pavethra Ponniah, Senior Vice President and Co-Group Head, Corporate Sector Ratings, ICRA.
The export demand was mainly driven by the US, the largest market, accounting for 60 per cent of India’s home textile exports.
Compared to a 9 per cent increase in India’s home textile product exports of US $ 5.7 billion in FY 2021, exports to the US increased by 14 per cent, while exports to the other major markets of the UK and the EU reported a Y-o-Y decline during the year.
Besides faster opening up, increase in exports to the US is partly attributable to the distribution model for these products, with a meaningful share accounted for by the large departmental chains that remained open even during the lockdown phase, Ponniah added.
ICRA’s channel checks suggest that the larger exporters have robust order backlog and are likely to rely more on job-work/outsourcing to fulfil delivery commitments over the next few quarters.
In terms of financial performance, improved economies of scale and softer input costs helped the companies in the sample report an improvement in operating margins in FY 2021. While benefits of operating leverage are likely to sustain in FY 2022, with expectations of a healthy sales turnover, cost pressures have intensified.
The report added that cotton yarn, a key raw material for manufacturing made-ups, has been trading at nearly 40-50 per cent higher levels.
Nevertheless, the rating agency expects operating efficiencies and re-negotiation of product prices amidst sustained cost pressures to help companies maintain their profitability at robust levels.
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