Indian textile industry making a strong comeback as orders grow

Indian Textile has made a strong comeback after a long-drawn-out with the economic recovery, especially the US economy playing the key role and China’s high cotton costs and rising labour rates. The textile manufacturers in India have started getting more orders. Also the comeback has been attributed to the pick-up in growth of some European regions. Moreover, rupee fall has improved the competitiveness of exporters vis-a-vis China, Bangladesh and Vietnam.

According to analysts at India Ratings and Research, the US and Euro-zone would continue to drive the order book of exporters in 2014-15 for the textile industry.

A Sakthivel, president, Tirupur Exporters’ Association said that they are getting more orders as the US economy has picked up. EU economies have also started to improve. The US and EU are the biggest markets for textile exports and account for more than 50% of the shipments. The rupee depreciation has also helped in improving exports.

Exports have also improved as garment manufacturers have tapped new geographies such as Middle East, Latin America, Japan, Russia and Australia, analysts tracking the industry said. Most exporters are running on full capacity and are also outsourcing manufacturing on a job work basis as order books are growing.

Continuing rupee depreciation and the country’s improving position as a preferred supplier for value-added garments would aid growth in exports during 2014-15 as well, observers said.

The strong demand for cotton yarn both in the domestic market as well as overseas market has boosted the prospects of spinning mills, which were among the worst hit by the demand slump arising out of the slowdown. While cotton yarn production increased 10.5% y-o-y during April-November 2013, weighted average cotton (hank) yarn realisations improved 7.7% yo-y to Rs. 239 per kg in December 2013.

The net leverage of investment grade textile companies is expected to reduce to 2.7 times in 2013-14 from an estimated 2.9 times in 2012-13 due to an 80 bps (0.8%) increase in EBITDA (earnings before interest, taxes depreciation and amortisation) margins, India Ratings stated.

High cotton prices however could hit the growth of the industry, observers said. Though cotton production is likely to remain flat, prices are ruling high and could make textile products uncompetitive in the global market.

Textile exports grew 14.7% year-on-year (y-o-y ) to $21.46 billion (provisional) during April-November 2013. Provisional data showed that the growth in rupee terms was much higher—at 26.3% y-o-y. Apparel exports from India grew 15% y-o-y to $8.2 billion during April-October 2013.