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Textiles Sector Analysis Report 

[Key Points | Financial Year '20 | Prospects | Sector Do's and dont's]

Emerging Opportunity: India's Best Lithium Stocks

  • The Indian textile industry is among the oldest industries in the country dating back several centuries. The industry contributes 7% to the total industry output and 2% to the GDP. It also contributes 12% to export earnings and holds 5% of the global trade in textiles and apparel.
  • The Indian textiles industry is also the second largest contributor towards employment generation, after agriculture, contributing 10% to the country’s manufacturing, owing to its labor-intensive nature. India also enjoys a comparative advantage in terms of skilled manpower and cost of production relative to major textile producers.
  • The Indian textile and apparel industry can be broadly divided into two segments – yarn and fiber, and processed fabrics and apparel. The industry is extremely varied, with the hand-spun and hand-woven textiles sectors at one end of the spectrum and the capital intensive sophisticated mills sector at the other end of the spectrum. The decentralized power looms/ hosiery and knitting sector form the largest component of the textiles sector.
  • The industry is also highly sensitive to the cotton market as over 70% of its output is based on cotton - unlike globally where articles made of man-made fibers account for a larger share.
  • India is the second largest producer and exporter of textiles after China and fourth largest producer and exporter of apparel after China, Bangladesh and Vietnam. Superior quality makes companies in India a leader in export- almost two-thirds of India’s export of textiles is to US and UK.
  • India is also a key growth market for the technical textiles sector due to the cost effectiveness, durability and versatility of technical textiles. Technical textile industries major service offerings include thermal protection and blood absorbing materials, seatbelts and adhesive tapes. Healthcare and infrastructure sectors are the major drivers of the technical textile industry.
  • Increased penetration of organized retail, favorable demographics, and rising income levels are likely to drive demand for textiles.
  • In order to attract investment in the industry, the Government has introduced various schemes such as the Technology Up-gradation Fund Scheme (TUFS) and the Scheme for Integrated Textile Parks. Under Union Budget 2020-21, the government of India has proposed a National Technical Textiles Mission for the period FY21 to FY24 at an estimated outlay of Rs 14.8 billion.
  • 100% FDI is allowed under the automatic route in the Indian textile sector. The industry (including dyed and printed) attracted Foreign Direct Investment (FDI) worth US$ 3.46 billion from April 2000 to September 2020.

How to Research the Textiles Sector (Key Points)

  • Supply
  • Despite some pick-up in demand from both global and domestic markets, most new capacities in the apparel and home textile segments are not operating at full capacities.
  • Demand
  • High for premium and branded products due to increasing per capita disposable income.
  • Barriers to entry
  • Superior technology, skilled and unskilled labor, distribution network, access to global customers.
  • Bargaining power of suppliers
  • Low, as there is an excess of available suppliers giving them a weak bargaining power. In addition, the suppliers lack switching costs and have a low level of product differentiation.
  • Bargaining power of customers
  • Domestic customers - Low for premium and branded product segments. Global customers- High due to presence of alternate low cost sourcing destinations.
  • Competition
  • High. Very fragmented industry. Competition from other low cost producing nations is likely to intensify.
  • Threat of Substitutes
  • The indian textile industry faces a threat from low cost producing countries like Pakistan and Bangladesh (as labour cost is 50% cheaper)

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Financial Year '20

  • Sales of clothing and apparel saw modest growth at an overall level. While the momentum in sales for the sector started to build-up by Q3FY20, the sudden collapse in March 2020 impacted the overall volumes for several leading players.
  • The Indian government on its part continued to be engaged constructively with the textile sector. In the recent budget for FY21, several industry friendly measures were announced including removal of anti-dumping duty from PTA, set-up of National Technical Textile Mission and review of Rules of Origin in FTAs to ensure that industry interests are not compromised.
  • The government also decided to walk out of the contemplated Regional Comprehensive Economic Partnership (RCEP) treaty, a free trade agreement with South East Asian countries which brought much needed relief to the sector.
  • Cotton prices saw sharp swings during FY20. By middle of the financial year, cotton prices had softened to 60 cents, to bounce back to 70 cents level by Dec-Jan and soften again to 60 cents by April 2020. Players with very high exposure had to suffer large mark-to-market losses as a result during price downturns. Cotton production in FY20 is estimated to have reached 32.3 million bales.
  • In July 2020, the Flipkart Group bought a minority stake in Arvind Youth Brands, a subsidiary of Arvind Fashions for Rs 2.6 billion.
  • In August 2020, the Department of Promotion of Industry and Internal Trade (DPIIT) proposed incentives for the textile sector for product diversification of the top forty apparel and home textile goods and the top ten technical textile goods that are traded globally. The long term suggestion is to have a Rs 400 billion textile fund to encourage investment in the identified textile segments.
  • In September, 2020, the Union Cabinet approved signing an MOU between textile committee, India and M/s Nissenken Quality Evaluation Centre, Japan, for improving quality and testing Indian textiles and clothing for the Japanese market. This India-Japan pact on cooperation in textiles will facilitate Indian exporters to meet the requirements of Japanese importers as per the latter’s technical regulations.
  • In October 2020, the Cabinet Committee on Economic Affairs chaired by Mr. Narendra Modi approved mandatory packaging of 100% food grains and 20% sugar in jute bags. Under the Jute Packaging Materials (Compulsory Use in Packing Commodities) Act, 1987, the government is required to consider and provide for the compulsory use of jute packaging materials for supply.

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  • The future for the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade.
  • High economic growth has resulted in higher disposable income which has led to a rise in demand for products creating a huge domestic market. Rising industrial activity is expected to support the growth in per capita income.
  • Increased penetration of organized retail is likely to drive demand for home textiles whereas growth in building and construction is expected to drive demand for non-clothing textiles.
  • Opportunities in product and design innovations can help address the changing preferences of young vibrant India. E-commerce is expected to lead the way for growth.
  • The Government plans to create Centres of Excellence (CoE) aimed at creating testing and evaluation facilities as well as resource and training facilities for the textile industry. The existing four CoEs would also be upgraded in terms of development of incubation centres and would provide support for the development of prototypes. Fund support would also be provided for appointing experts to develop these facilities.
  • The Central Silk Board has set targets for raw silk production. To achieve these targets, alliances with the private sector especially major agro based industries in pre cocoon and post cocoon segments are being encouraged.
  • The Integrated Wool Development Programme (IWDP) was approved by Government of India to provide support to the wool sector, starting from wool rearer to end consumer, with an aim to enhance quality and increase production. Under the Union Budget 2019-20, US$ 4.1 million was allocated to this programme.
  • The Ministry of Textiles has announced US$ 106.6 million for setting up 21 readymade garment manufacturing units in seven states for development and modernization of Indian textile sector.
  • The new textile policy aims to achieve US$ 300 billion worth in textile exports by 2024-25 and create an additional 35 million jobs. By 2022, the Indian textile sector will require an additional 17 million work force.
  • The Directorate General of Foreign Trade (DGFT) has also revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textiles Industry - readymade garments and made-ups - from 2% to 4%, which will prove beneficial for the sector.
  • The textile and apparel trade is predicted to grow at a CAGR of 3.7% during the period 2018-28. During this period, the increase in apparel trade is expected to be at a CAGR of 4.5% and textiles at a CAGR of 2.5%.
  • The technical textile industry is expected to reach US$ 32 billion by FY23, growing at a CAGR of 12.2% over FY18. The industry is supported by various flagship schemes initiated by the Government to promote its full potential.

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FAQs on the Textiles Sector

When is a good time to invest in the textile sector?

As the demand for textiles is closely linked to the economy - domestic and global, textiles stocks are usually riskier - their fortunes are prone to economic booms and busts. For this reason, they are often called cyclical stocks. Generally considered an offensive tactic in investing, cyclical stocks can be used to generate high returns when the economy is doing well.

Therefore, the best time to buy such stocks (textile stocks) is during an economic slowdown or when there is overcapacity in some segment of the industry. However, before selecting a stock, one must check whether the industry is due for revival or not.

Where can I find a list of textile stocks?

The details of listed textile companies can be found on the NSE and BSE website. However, the overload of financial information on these websites can be overwhelming.

For a more direct and concise view of this information, you can check out our list of textile stocks.

Which textile stocks were the top performers over the last 5 years?

Grasim Industries and Page Industries were the top textile performers over the last 5 years in terms of sales and profit growth.

Grasim Industries' growth can be attributed to its sound fundamentals characterized by a robust business model in its core business segments, high bargaining power with suppliers and customers, strong distribution network and healthy profitability.

Page Industries has done well on the back of its strong operational profile with a leading share in the domestic innerwear market, underpinned by its access to a pan-India multi-channel distribution network. This, coupled with the company's hold over design and manufacturing, continues to support healthy revenue growth while maintaining a strong profitability.

To know which other companies performed well over the last 5 years, check out our entire list of top performers.

What kind of dividend yields do textile stocks offer?

There is no consistent trend of dividends across the industry, with different companies having different dividend policies.

For more details, check out our list of top textile stocks offering high dividend yields.

Which are the textile stocks with the highest return on capital employed (RoCE)?

Return on capital employed (ROCE) is a financial ratio that can be used in assessing a company's profitability and capital efficiency by determining how well the management is able to allocate capital for future growth. An RoCE of above 15% is considered decent for companies that are in an expansionary phase.

Page Industries and Kitex Garments are the top textile stocks right now on the Return on Capital Employed (RoCE) parameter.

To know which other textile stocks offer great return on capital employed, you can check out the top textile stocks offering the best RoCE here.

Which are the best textile stocks to invest in currently?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

  • Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

    To find stocks with favorable P/E Ratios, check out our list of textile stocks according to their P/E Ratios

  • Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

    To find stocks with favorable P/BV Ratios, check out our list of textile stocks according to their P/BV Ratios