The ratings agency India Ratings and Research (Ind-Ra) has said that the second wave of the deadly pandemic might slightly impact the textile sector’s supply and demand dynamics primarily in the first quarter of FY22.
The agency, however, added that, a sustained export demand, learnings from the first wave, stronger balance sheet and liquidity compared to Q4 of FY20 will enable the sector to remain stable in FY22.
As per the agency, the supply chain has been impacted by the local lockdowns imposed at various key textile hubs such as Tirupur, Ludhiana, Surat and Bhilwara.
“The restricted movement of goods means non-availability of inputs such as yarns and fabric is likely to have a short-term impact on the finished output,” it said.
It is also pertinent to mention here that labour availability has also been impacted but moderately and at much lesser severity than that during the first wave.
The agency says, “Shop floors are likely to remain functional at a few plant sites but a restricted occupancy level. However, the first quarter of FY22 may not be a lost quarter, thanks to strong export markets.”
“Moreover, most cotton textile players will have adequate inventory given the second wave has hit us in April-May and because the fresh inventory is available during November to March,” it added.
Nevertheless, this supply chain disruption may lead to a 20-30 per cent Y-o-Y reduction in toplines in the Q1 of FY22.
“Again the recovery expectation varies depending on the sub-sector. Export-focused garments and home textiles are likely to remain resilient compared to the spinning and fabric segment.”
Beyond Q1 of FY22, Ind-Ra assumes a demand recovery across the sub-segments, driven by the unleashing of pent-up demand in H2 FY22 with the start of retail, offices, educational institutions, social functions amongst other things, moderately countered by weak household balance sheets.
The agency said “Demand recovery continues in export markets, which is at least 30 per cent of India’s total textile produce.”