Slowing exports, rising cost likely to limit profitability of home textile cos to 13 pc in FY23: report

Lower export demand and a sharp increase in raw material and transportation costs are likely to result in moderate operating profitability for home textile makers at around 13 per cent in this financial year, according to a report.

“Slowing exports growth and high cotton prices will hit the operating margins of home textile exporters by 150-200 bps or around 13 per cent this fiscal. The rupee's depreciation against the dollar and sustenance of the China+1 policy by global buyers will cushion the hit on profitability to some extent,'' Crisil Ratings Senior Director Mohit Makhija said.

The second half of this fiscal should gradually restore demand momentum and market share for Indian home textile exporters as freight and raw cotton costs moderate, and ease pressure on profitability, he added.

Exports account for 60-70 per cent of the Indian home textile industry's revenue, of which over 58 per cent shipments are sent to the US, according to the Crisil Ratings report.

The report stated that global demand for home textiles is expected to be impacted in the near-term by inflationary headwinds, with big-box retailers pruning inventory and consumers cutting down on discretionary spends.

A slowdown in the sales of key US retailers in the past 3-6 months has led to an on-year decline of 5-6 per cent in overall home textile exports from India between January and April 2022, it noted.

Adding to the demand challenge, the price of raw cotton, a key input in home textiles, has more than doubled year-on-year in May to Rs 1,00,000 per candy (about 356 kg), it said.

This will remain a challenge for exporters till the new cotton crop arrives starting October, the report said.

Supply-chain disruptions leading to volatility in ocean freight rates will also impact profitability, it added.

Overall, the report said that the Indian home textile industry's revenue is expected to grow 11-12 per cent this fiscal, primarily because of higher price realisations.

Domestic demand (comprising 30-40 per cent of Indian home textile industry's revenue) is expected to grow at a healthy 13 per cent, driven by sharp demand recovery in the domestic hospitality industry and continued focus on health and hygiene, it said.

Growth in export demand will moderate to 10 per cent from 25 per cent last fiscal due to slower recovery in the international travel and hospitality segments globally, it opined.

Capex spends would be pruned this fiscal as current capacity utilisation levels of 75 per cent affords sufficient headroom to accommodate any increase in demand, the report added.