Textiles: In the reckoning - 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: 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

GRASIM Announces Quarterly Results (3QFY20); Net Profit Down 6.2% (Quarterly Result Update)

Feb 17, 2020 | Updated on Feb 17, 2020

For the quarter ended December 2019, GRASIM has posted a net profit of Rs 10 bn (down 6.2% YoY). Sales on the other hand came in at Rs 192 bn (up 4.3% YoY). Read on for a complete analysis of GRASIM's quarterly results.

WELSPUN INDIA Announces Quarterly Results (3QFY20); Net Profit Up 49.9% (Quarterly Result Update)

Feb 17, 2020 | Updated on Feb 17, 2020

For the quarter ended December 2019, WELSPUN INDIA has posted a net profit of Rs 751 m (up 49.9% YoY). Sales on the other hand came in at Rs 17 bn (up 1.5% YoY). Read on for a complete analysis of WELSPUN INDIA'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

Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 (The 5 Minute Wrapup)

Mar 30, 2020

This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...

The Biggest Trading Opportunity of 2020 is Here...

Mar 26, 2020

India's #1 trader, Vijay Bhambwani, talks about a hugely profitable trading opportunity which you must know about today!

A Big Trading Opportunity is Coming Your Way Soon (Fast Profits Daily)

Mar 25, 2020

I see a big opportunity to make fast profits on the horizon.

Coronavirus Sell-off Is a Perfect Time to 'Lockdown' this 'Crorepati' Stock (Profit Hunter)

Mar 24, 2020

Coronavirus crisis and panic selling has brought this quality smallcap to multiyear lows, making it a great bargain.

One Stock that is All Charged Up for the Post Coronavirus Rebound (The 5 Minute Wrapup)

Apr 1, 2020

A stock with strong moat is currently trading near 5-year lows.

More

How to Trade the
Coronavirus Crash

Coronavirus Crash
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