Textiles: In the reckoning - Views on News from Equitymaster

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

  • MyStocks


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

Textiles: In the reckoning

Sep 6, 2004

After a bad FY04 (poor operating margins due to high cotton prices), textiles companies are looking forward to grab the opportunities that are expected to come in post quota regime. The table below shows the buying interest witnessed by the textile stocks in last 6 months despite indices losing ground.

  Now Then Change
Sensex 5243 5822 -9.9%
Arvind Mills 83 47 74.1%
Raymond 218 192 13.5%
Indian Rayon 280 199 40.7%
Welspun 107 89 20.2%

Cotton is the most important raw material for textile companies (around 30% to 50% of the sales). Thus, it is very important to take a view on the cotton prices before considering investment in textile stocks. In this article, let's have a look at the cotton production across the globe and analyse the likely impact on the textile sector.

World cotton cultivation area is estimated at 34.5 million hectares for FY05, up 8% from the previous season (Source: US department of agriculture USDA). Supported by other factors like better productivity and favorable monsoon conditions, the overall cotton production of the world is likely to increase by around 10% during FY05. However, the demand is likely to witness just around 1% growth, resulting in an over supply of around 0.8 million tonnes (last year, due to poor crop worldwide, there was a deficit of 0.7 million tonnes resulting into sky-high cotton prices). Coming to India, we are the third largest producer of cotton in world (China is leader followed by US) with around with around 18% of the share. As far as Indian crop for the season is concerned, the cotton arrival is expected to grow from 2.8 million tonnes to more than 3 million tonnes for the year (up 8% YoY).

How do textile companies benefit?

As we have mentioned above, cotton prices to great extent decide the performance of textile companies at the operating level. International cotton prices continued to decline, as the Cotlook-A Index (one of the benchmark indices as far as cotton prices are concerned) has fallen by 24% since the beginning of 2004.

Expansion plans:

Raymond is planning 1-m pieces of jeans manufacturing capacity, 1-m pieces of trouser capacity and 0.5 m pieces of suit manufacturing capacity at Banglore (operation commenced). With these facilities, the company will be able to become a one stop shop to its international clients. This will help Raymond improve its export potential post 2005. The company is also planning to jack up its denim manufacturing capacity by 10 million metres at a cost of over Rs 1.3 bn.

Denim major, Arvind Mills, one of the biggest denim producers in the world, has recently added 2.4-million ready-to-wear shirt capacity in Bangalore. The company plans to increase its garment manufacturing capacity from the current around 7 m pieces to 14 m pieces by the end of this year.

We would like to conclude by saying that there is a huge opportunity lying ahead for Indian textile manufacturers in post MFA era, as the markets will no longer be restricted. Though softening cotton prices will help companies to improve margins, there will be competition from countries like China, Sri Lanka and Bangladesh. But when it comes to fashion trends, we believe Indian companies will have an advantage. As far as cost competitiveness is concerned, the larger players in the Indian textile sector are well placed to compete.

Equitymaster requests your view! Post a comment on "Textiles: In the reckoning". Click here!


More Views on News

Rupa & Company Stock in Focus on Strong Quarterly Results (Views On News)

Jun 1, 2021

Here's a rundown on the latest quarterly results of Rupa and Company.

Lux Industries Stellar Results Puts Stock in Focus (Views On News)

May 26, 2021

The stock hits new high after posting strong results.

PAGE INDUSTRIES Announces Quarterly Results (3QFY21); Net Profit Up 76.6% (Quarterly Result Update)

Feb 11, 2021 | Updated on Feb 11, 2021

For the quarter ended December 2020, PAGE INDUSTRIES has posted a net profit of Rs 2 bn (up 76.6% YoY). Sales on the other hand came in at Rs 9 bn (up 16.8% YoY). Read on for a complete analysis of PAGE INDUSTRIES's quarterly results.

SRF Announces Quarterly Results (3QFY21); Net Profit Down 6.1% (Quarterly Result Update)

Jan 22, 2021 | Updated on Jan 22, 2021

For the quarter ended December 2020, SRF has posted a net profit of Rs 3 bn (down 6.1% YoY). Sales on the other hand came in at Rs 21 bn (up 16.0% YoY). Read on for a complete analysis of SRF's quarterly results.

RAYMOND 2019-20 Annual Report Analysis (Annual Result Update)

Dec 10, 2020 | Updated on Dec 10, 2020

Here's an analysis of the annual report of RAYMOND for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of RAYMOND. Also includes updates on the valuation of RAYMOND.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

Don't Break These 5 Intraday Trading Rules (Fast Profits Daily)

Jun 1, 2021

To become a better intraday trader, follow these rules religiously.

Is the RBI's 'Bubble Talk' Signalling a Market Crash? (Profit Hunter)

May 31, 2021

Is the Indian central bank correct in warning you about a market crash?

Rs 2 Trillion Stimulus Coming to a Stock Market Near You (Profit Hunter)

Jun 2, 2021

Get ready to profit from a massive stimulus that you've never seen before.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms