Demand outlook remains strong for Indian textile sector: Report
- IBEF
- February 20, 2025
According to a report by Systematix Institutional Equities Research, despite domestic cotton prices being higher than international prices, the demand outlook for the Indian textile sector remains strong. Factors such as normalizing channel inventories at global retailers, a possible tariff hike by the United States (US) on Chinese imports, rising labour costs in Vietnam, and political instability in Bangladesh are expected to support Indian textile companies. However, the report raises concerns about capacity constraints among Indian garment manufacturers, which may limit their ability to fully capitalise on the growing demand. Nevertheless, stable cotton prices, favourable foreign exchange (forex) rates, and continued focus on operational efficiency will likely enhance profitability in the coming quarters. In the financial YoY performance, Indian textile companies reported an 11% revenue growth, an 11% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA), and a 28% rise in profit after tax (PAT), aided by a 10% decline in cotton prices and stable yarn rates.
The Union Budget 2025-26 prioritizes strengthening the textile sector through initiatives to improve cotton productivity, restructuring fabric duties, and supporting domestic manufacturing. The government's increased budget allocation from Rs. 4,420 crore (US$ 508.8 million) in 2024-25 to Rs. 5,270 crore (US$ 606 million) reflects its commitment to this sector. Additionally, the Productivity Linked Incentive (PLI) scheme, a five-year mission for cotton productivity improvements, sustainability efforts in cotton farming, and the growth of the technical textile (TT) market are expected to drive sectoral expansion. As proposed in the budget, a higher customs duty on fabric imports will further benefit Indian technical textile producers. Meanwhile, the Cotton Association of India (CAI) has lowered its 2024-25 cotton production estimate by 7.8% YoY to 30.17 million (mn) bales (170 kg per bale), while the ICAR-Central Institute of Cotton Research (CICR) estimates a higher production of 32.0 mn bales. International cotton prices have declined to Rs. 58.21-59.08 (US$ 0.67-0.68) per pound from US$ 0.70 in Q2FY25, whereas Indian cotton prices have firmed to Rs. 54,000-55,000 (US$ 621-633.07) per candy Rs. 69.50 (US$ 0.80) per pound. With a stable cotton crop, prices will remain within this range, ensuring predictable input costs for Indian textile companies.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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