What textile sector saw in FY2018

Rising cotton prices following the pink bollworm infestation in the cotton crops, has affected margins to major textile players by ~150 bps this year. The textile sector, which contributes ~4% to India’s GDP, is one of the largest source of employment generation in the country and it accounts for ~14% of exports

Players like Vardhman Textile Ltd started hedging on Multi Commodity Exchange of India Ltd. (MCX) to cope up with the persistent volatility in cotton prices

The Union Budget 2018 announced to increase MSP prices of Kharif crops to 1.5x of cost of production. However, we do not expect any significant impact of the rise in cotton MSP on the textile industry, as current cotton prices are at the same level. Cotton prices witnessed volatility of ~19% (annualized) and with physical market size of cotton estimated at around Rs 68,000cr, the cotton industry faced annualized price risk of over Rs13,000cr during FY18

The average USD INR stood at rupees 64.48US$ which is lower by ~3.7% compared to rupees 66.97US$ in FY17. This affected revenues of textile players negatively as for many of them, a major chunk of revenue comes from exports. In FY18, rupee has seen some appreciation

Factors such as higher cotton prices, rupee appreciation, higher MSP affected the textile industry this year