NEWS

Textiles shares rally on improved outlook; Sangam, Vardhman hit new highs

Jan 3, 2022

Shares of textile companies continued their northward movement on improved outlook. Vardhman Textiles and Sangam India hit their respective record highs, while Cantabil Retail touched a 52-week high on the BSE in Monday’s intra-day trade.

In the past one month, Vardhman Textiles, Trident, Alok Industries, Himatsingka Seide and Cantabil Retail have seen their market price risen between 20 per cent and 25 per cent. In comparison, the SP BSE Sensex was up 2 per cent during the same period.

According to rating agency CRISIL, the domestic textile industry, which had seen demand slump in fiscal 2021 owing to onset of the Covid-19 pandemic, is firmly on course to recover in fiscal 2022 on the back of reopening of businesses, educational institutions and retail outlets with increase in the vaccinated population. Sanctions on Chinese textiles have boosted Indian textile exports as well.

Government announcements such as the Production Linked Incentive scheme, setting up of mega textile parks, and extension of the Rebate of State and Central Taxes and Levies scheme are also supporting the sector, the rating agency said.

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Meanwhile, the Goods and Services Tax (GST) Council on Friday decided to defer the hike in tax rate on textiles from 5 per cent to 12 per cent.

"The Indian Textile and Apparel (TA) production market is $106 billion as of FY21 with around 70 per cent of the demand being driven by the domestic market. India’s TA exports, which were steady at $36-38bn since FY15, are anticipated to reach an all-time high of $44bn in FY22 ̶ a source of excitement of late for the sector. We believe the sector can grow at 16 per cent CAGR over the next 5 years led by higher exports and stable domestic market demand", analysts at Spark Capital said in an initiate coverage report of the sector.

The Covid pandemic has altered the global TA supply chain with several apparel brands preferring more than one sourcing destination. Further, the US-China trade war and the subsequent imposition of additional duties on Chinese TA imports have led to importers in USA scouting for other destinations such as India. We observe that Made-ups sale in India has been a huge beneficiary of this trend and has witnessed robust offtakes over the past 18 months, the analysts said.

Based on conversations with players across the spectrum, they said that there is an ambiguity over whether the current cotton prices and the subsequent yarn-cotton spreads are sustainable, prompting several buyers to be cautious during the current cotton harvest season. "With export demand set to prevail and supply increase being limited, we believe that cotton prices can hold firm over the near-term", an analyst added.

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