Home textile exporters are set for a big order boost from the biggest shopping season in the Western market and push their topline by around 20 percent, said a credit rating agency, which has also upgraded the industry outlook to positive. Exporters of home textiles are set to weave 20 percent revenue growth this fiscal, and therefore growth this fiscal, and therefore achieve a higher global market share, Crisil NSE -0.31% said in a note based on the analysis of 50 companies that account for over 60 percent of such revenue indicates.
The report said the projected growth is riding on three tailwinds — strong retail sales in the US and a better outlook for the upcoming festive season in other export markets; the continued focus on health and hygiene; and the ‘China plus one’ sourcing strategy adopted by large customers.
Exports account for 60 percent of the Rs 55,000-crore domestic home textiles industry, which comprises terry towels, bed sheets/spreads, pillow covers, curtains, rugs, and carpets. Domestic sales account for the balance, according to the agency.
Home furnishing retail sales in the US, the key export market accounting for 55 percent of the total export revenue pie, jumped 42 percent year-on-year in the first half of 2021, compared to 15 percent growth in the same period in 2019.
Also, China plus one strategy is clearly playing out, which is visible from the sharp increase in the country’s share of US imports of cotton bed-sheets and terry towels to 51 percent in the first eight months of 2021 as against 46 percent in 2020, while that of China has come down to 16 percent from 20 percent.
Not surprisingly, the average capacity utilization of three large listed home textile players in the bed linen segment rose to 87 percent in the first quarter this fiscal compared to 68 percent in the pre-pandemic level; and for the bath linen segment to 75 percent from 66 percent.
Accordingly, the operating profitability is expected to improve 200-250 bps to 18 percent this fiscal.
Extension of the rebate of state and central taxes and levies scheme till March 2024 and better coverage of fixed costs from higher capacity utilization will help offset the sharp increase in prices of cotton, the key raw material, the report said.
While the increase in revenue and profitability will improve cash flows, current high capacity utilisation and healthy demand outlook will encourage capacity expansion in the near to medium-term, resulting in higher debt levels.
Improvement in operating profit will offset the impact of higher debt and the resultant positive bias to credit quality and their interest coverage ratio to improve to 6-6.5 times over the medium term from 5.5 times in fiscal 2021, the report concluded.