The New Indian Textile Boom: 3 Stocks for Your Watchlist

26 February was a big day for India's textile industry. Prime Minister Narendra Modi inaugurated the Bharat Tex Expo at Bharat Mandapam (IECC), New Delhi.

It was touted as the world's largest textile event. More than 3,000 exhibitors and 3,000 buyers, 40,000 visitors from over 100 nations participated.

The PM encouraged farmers, entrepreneurs, big textile houses, and MSMEs, to take the next big leap in the global textile market. More than 50 MoUs and agreements were signed at this grand event.

The government's vision for the sector is clear. India should have a focused and ambitious approach to claim a sizeable chunk of the global textile market which is valued at nearly US$ 1 trillion (tn).

This will happen only if the approach is also holistic in nature. This means government, industry, and even individual artisans will have to work together. The government has given it a name: Farm-to-foreign via fibre, fabric and fashion.

There is no doubt that the Indian government has helped the textile sector a lot over many decades. After all, it's a labour-intensive sector i.e. a single textile plant can create hundreds of jobs.

However, the end product is price sensitive. Thus, the country with the lowest labour cost has an advantage. This is why India has lost market share to countries like Bangladesh and China.

Sure, there are other reasons as well, like tariff agreements, slow adoption of modern technologies, and an inefficient supply chain. But these problems can be overcome. In fact, in spite of these, the Indian textile industry has grown from under Rs 7 tn in 2014 to about Rs 12 tn (US$ 145 bn) today.

The government has implemented various policies to provide incentives, attract investments, and enhance skill development in the sector. Many regulations have been simplified. MSMEs have received much focus. Infrastructure and supply chains have also been strengthened.

The PM MITRA scheme has been launched to quickly set up 7 mega integrated textile parks will generate employment, bring in large investments, including FDI, and bring together the entire textile value chain at 7 specific locations across the country.

The government also has a PLI scheme for the sector. Last year 64 companies were selected as beneficiaries with a proposed total investment of almost Rs 200 bn and a projected turnover of Rs almost Rs 2 tn.

However, with the global textile industry expected to grow at a modest 4% annually, Indian textile companies cannot depend on the government all the time. They too will have to step up their game if India is to achieve its lofty ambition of a US$ 350 bn textile industry by 2030.

In this editorial, we will examine 3 companies that have a great chance to capture a bigger share of the global textile market and create value for shareholders.

#1 Arvind Fashions

Arvind Fashions operates in the branded apparels, beauty and footwear space. It has a portfolio of several owned and licensed global brands across different segments.

The company operates several brands across casual and formal segments including Calvin Klein, Tommy Hilfiger, US Polo Assn, Sephora, Arrow, Aeropostale.

After posting a loss in the first quarter of FY24, the company has recovered well and looks set to achieve its highest ever EPS in the upcoming quarters.

The company reduced its debt by over 80% in two financial years FY22 and FY23. It also began paying a dividend in FY23.

For more details, see the Arvind Fashions company fact sheet and quarterly results.

#2 Raymond

Raymond Ltd is one of the leading players in the suiting business with a market share of over 60%. It is also the largest branded fabric player in the organised shirting segment.

As suits are a wedding staple, the company stands to benefit from India's young demographics. As the number of weddings increase, so does the company's revenue. The company is adding 150 outlets in the financial year 2024.

Further, Raymond is also a beneficiary of China plus one megatrend. The company claims to have a healthy export order book.

With input cotton prices on a decline, among other reasons, textile sector is set for a strong comeback which could keep Raymond in steady waters.

Raymond has also forayed into a high growth sector to diversify its business.

For more details, see the Raymond company fact sheet and quarterly results. For a sector overview, read our textiles sector report.

#3 Trident

Trident Ltd mainly operates under three segments: yarn, home textiles, and paper. In the home textiles segment, the company manufactures terry towels and bed linen.

Back in 1992, when the company commenced its business, it was mainly into yarn and paper production.

The company has successfully transformed itself from a yarn manufacturer to a vertically integrated home textile player which would help the company to garner higher margins and de-risk its business profile.

It's the second largest player in home textiles and the third largest player in yarn manufacturing in India. It has a global presence in over 150 countries and a reputed client base such as Amazon, Wal-Mart, Target, and IKEA.

The company is capitalising on the 'China plus one' strategy by expanding its product base by adding new products and expanding the capacities of existing products. With the company setting up its own power plant for captive use, it aims to lower the cost of production.

For more details, see the Trident company financial factsheet and quarterly results.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...