India Textile Sector Q4 Results Preview - Cooling Raw Material Price Pressure To Spur Revival: Systematix

Systematix Research Report

Textile stocks within our coverage may continue to face margin pressure YoY on high-cost inventory and subdued export demand. However, margins could improve QoQ, as cotton prices softened during the quarter. Readymade garment demand in export markets such as the UK and U.S. may stay subdued due to inflationary pressures and high inventory.

We expect Vardhman Textiles Ltd.’s yarn segment to post lower YoY and flat QoQ revenue, as cotton yarn prices have begun to cool. Readymade garment players like KPR Mill Ltd. and Gokaldas Exports Ltd. could perform relatively better, as they operate on cost pass through basis for their contracted garments.

Cotton prices have cooled from ~Rs 1,00,000/candy to ~Rs 63,000/candy, letting yarn players access to cheaper inventory. We believe readymade garment manufacturers and exporters would be relatively better placed.

We remain positive on the sector due to the acceleration in volume shift from China to India and vendor consolidation by global retailers.

We expect growth to recover in the H2; any announcement of free-trade agreement during this period could open a huge market for Indian garment exporters.

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