Textiles: Head-on with China... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Textiles: Head-on with China...

Aug 4, 2006

Besides population, GDP growth and infrastructure amenities, India today is competing head-on with China on other grounds as well. One of them being - targeting a larger share of the American and European consumers' wallets. With the uncertainty prevailing over the Chinese textile industry on account of the restriction on exports to the US and Europe, retailers and merchandisers in these countries are seeking to diversify their sourcing in order to avoid any sudden supply shocks. India has been one of the major beneficiaries, given its competitiveness in the global textile market.

  May'04 - Apr'05 May'05 - Apr'06 Change %
Total imports US$ bn Mkt share US$ bn Mkt share  
US imports 85.8   89.2   4.0%
India exports 4.0 4.6% 4.9 5.5% 22.5%
China exports 16.9 25.2% 22.5 19.7% 33.1%
Apparels          
US imports 66.6   68.4   2.7%
India exports 2.5 3.7% 3.2 4.7% 28.0%
China exports 10.8 21.6% 14.8 16.2% 37.0%
Non apparels          
US imports 19.2   20.9   8.9%
India exports 1.5 7.8% 1.7 8.2% 13.3%
China exports 6.1 31.7% 7.7 36.7% 26.2%
Denim          
US imports 0.2   0.1   -33.3%
India exports 0.000 0.3% 0.000 0.2% -34.7%
China exports 0.002 1.3% 0.016 13.6% 597.4%
Terry towels          
US imports 2.5   3.4   36.1%
India exports 0.4 17.8% 0.6 17.5% 34.1%
China exports 0.4 17.7% 1.0 28.0% 115.9%

A share of the pie: US and European markets dominate global textile trade, accounting for 64% of clothing and 39% of the textile market. With the dismantling of quotas, global textile trade is expected to grow (as per McKinsey estimates) to US$ 650 bn by 2010 (5-year CAGR of 10%). However, as against expectations, in the post-quota regime, the resurgence in exports to the now unregulated markets took off rather slowly.

Although China continued to have the lion's share of the addressable market, India made an appreciable attempt to catch on. Data from the US Ministry of Finance supports this view. After subdued performances in the early months of FY06, India's textile exports to the US grew by a strong 23% YoY, leading to a 90 basis points gain in market share. Terry towel and apparel exports remained the key growth drivers for India, growing at impressive 34% YoY and 28% YoY growth rates respectively in FY06. China's apparel exports, though, continued to clock a higher growth average than those of India. The country lost a significant part of its market share (fell from 22% in FY05 to 16% in FY06). This was partly due to barriers levied on China's exports to the US and partly due to a 5.8% depreciation of the Rupee versus the Renminbi (in the said period), thus improving India's relative export competitiveness. The denim segment, however, despite a small base, proved to be significantly revenue-accretive to China, while India lost its share (due to higher input costs and lesser maneuverability to a change in styles).

Nonetheless, India's overall market share at 5.5% in April 2006 is at an all-time high, while that of China's has declined over the past couple of months. Also, India's average realization per metre of exported fabric at US$ 2.1 improved by 3.7% YoY. On the other hand, China's realizations have been under pressure since the beginning of the year.

Risks at the fore
While the progress made by India in the post-quota regime is certainly not negligible, the country should not be resting on it's laurels and ignore some perilous risks to the sector's growth prospects.

    Slowing US economy: The reported 2QCY06 GDP growth rate for the US economy at 2.5% YoY against that clocked in 1QCY06 (5.3% YoY) clearly signals signs of an economic slowdown. Further interest rate hikes will only hold back further expansion. Given the reliance of the domestic textile industry on the US market, it goes without saying that the sustainability of the current growth story needs to be viewed with caution.

    Forex risks: Textiles companies across-the-board, irrespective of their industry status and operational performance, reported a tepid growth in bottomline this quarter, thanks to the losses booked due the volatility in their forex transactions. These companies, which had enjoyed profits in the last fiscal, with the appreciating rupee (against dollar), have had to now book mark-to-market (MTM) losses because of short forward cover on the steadily depreciating rupee.

Our outlook for textile companies remains divided between the industry leaders and the 'me-too' companies. While those having state-of-the-art manufacturing facilities, high capacities, a diversified revenue base, established brands and relationships with global players remain our top picks, we believe that companies that have taken optimum advantage of the domestic dynamics (e.g. borrowings through the TUF scheme offering interest subsidy of 6%) and are best hedged against forex fluctuations are also well-geared to withstand any storm. For the rest, the future lies uncertain!


Equitymaster requests your view! Post a comment on "Textiles: Head-on with China...". Click here!

  

More Views on News

GRASIM Announces Quarterly Results (1QFY21); Net Profit Down 65.6% (Quarterly Result Update)

Sep 10, 2020 | Updated on Sep 10, 2020

For the quarter ended June 2020, GRASIM has posted a net profit of Rs 6 bn (down 65.6% YoY). Sales on the other hand came in at Rs 136 bn (down 27.8% YoY). Read on for a complete analysis of GRASIM's quarterly results.

SRF LTD Announces Quarterly Results (1QFY21); Net Profit Down 4.5% (Quarterly Result Update)

Aug 25, 2020 | Updated on Aug 25, 2020

For the quarter ended June 2020, SRF LTD has posted a net profit of Rs 2 bn (down 4.5% YoY). Sales on the other hand came in at Rs 15 bn (down 15.5% YoY). Read on for a complete analysis of SRF LTD's quarterly results.

SRF LTD 2018-19 Annual Report Analysis (Annual Result Update)

Oct 18, 2019 | Updated on Oct 18, 2019

Here's an analysis of the annual report of SRF LTD for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of SRF LTD. Also includes updates on the valuation of SRF LTD.

WELSPUN INDIA 2018-19 Annual Report Analysis (Annual Result Update)

Sep 23, 2019 | Updated on Sep 23, 2019

Here's an analysis of the annual report of WELSPUN INDIA for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of WELSPUN INDIA. Also includes updates on the valuation of WELSPUN INDIA.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

COMPARE COMPANY

MARKET STATS