PRESS RELEASE

January 13, 2021

Textile sector outlook for FY2022 revised to Stable, as demand continues to

recover across segments: ICRA
• Opening up of economies and markets, improving consumer confidence levels and continued pick
up in discretionary spending to support recovery
• Growth in some segments involving discretionary spends/ aspirational buying likely to remain
lower vis-à-vis more essential product categories, given the shift witnessed in consumer usage
and preferences

The recovery in the domestic textile sector, that picked up pace in Q3 FY2021, is likely to continue in the
upcoming quarters. As per an ICRA note, the recovery will be supported by the opening up of economies
and markets, improved consumer confidence levels and continued pick up in discretionary spending.
This builds on the growth in the recent months which had been supported by pent-up demand and
onset of festive buying.

Elaborating on this, Mr. Jayanta Roy, Senior Vice President & Group Head, Corporate Sector Ratings,
ICRA, said, “Even though the recovery is in a nascent stage and impact of the pandemic continues, the
textile sector appears to be on a firm footing with the worst of the pandemic impact behind us, and
favourable progress on vaccination rollouts. As demand continues to normalise in domestic as well as
export markets, we expect the textile sector performance to recover to pre-Covid levels in FY2022 at a
broader level. Accordingly, ICRA’s textiles sector outlook for FY2022 is Stable.”

After witnessing a major setback in Q1 FY2021 following the Covid-19 pandemic and the ensuing
lockdowns, the domestic textile sector started reporting a gradual recovery from Q2 FY2021 onwards,
supported by opening up of the markets and resumption of activity across the value chain. The recovery
was seen to be faster in the export markets vis-à-vis the domestic market, as economies of key buying
regions opened up faster, facilitating better performance for spinning and apparel segments, which have
greater reliance on export markets. Though with a lag, domestic textile sales also picked up pace
supported by pent up demand, pick-up in online sale activity and reduced consumer skepticism to step
out and shop.

Commenting on this, Ms. Nidhi Marwaha, Vice President& Co-Head, Corporate Sector Ratings, ICRA,
said, “Notwithstanding the broader recovery, growth in some segments involving discretionary spends/
aspirational buying such as formal/ party wear and mid to high-value casual wear, is likely to remain
lower vis-à-vis other essential product categories such as active/lounge wear and affordable-to-medium
value casual apparels, given the shift witnessed in consumer usage and preferences. Within fabrics, the
cotton knitted fabric segment as well as blended fabrics are likely to perform better, given their higher
usage in casual/ lounge wear.”

The recovery in demand for apparels is likely to trickle down the entire value chain. For cotton spinners,
besides improvement in domestic demand with recovery in the downstream segments, competitive
domestic cotton prices are supporting export demand. Manmade yarn manufacturers are additionally
benefitting from downtrading, increased preference for low-value items and better demand for
segments such as active wear/ lounge wear, besides improved competitiveness of polyester staple fibre
(PSF) vis-à-vis cotton (as reflected in a cotton to PSF price ratio of 1.40x in 9M FY2021, vis-à-vis 10-year
average of 1.22x).

Based on an analysis for samples of large, listed players across segments, ICRA expects cotton spinning
and apparel export segments to report relatively lower contraction in FY2021 vis-à-vis other segments
(including fabrics and domestic apparels), considering higher dependence of these segments on exports.
Similarly, recovery is slated to be faster for these segments in FY2022. Revenues for the cotton spinning
and the apparel export segments in FY2022 are likely to grow by ~15-20%, following a contraction in
mid-teens, estimated for FY2021. While operating margins for spinners are likely to revert closer to pre-
Covid levels, those for apparel exporters may remain marginally lower than the pre-Covid levels amid a
competitive operating environment, wherein buyers could be expected to negotiate for steeper
discounts. While interest cover for the sample of cotton spinners is likely to improve to 6x in
FY2022from 4x in FY2021, that for apparel exporters is likely to improve to 4.2x in FY2022 to 3.5x in
FY2021. In terms of leverage, Debt/ OPBDITA for the cotton spinners in ICRA’s sample is expected to
moderate to ~2.4x in FY2022, from 3.9x in FY2021. For apparel exporters, Debt/ OPBDITA is estimated to
decline to 2.7x in FY2022 from 3.5x in FY2021.

For fabric and domestic apparel categories, the revenue growth in FY2022 is projected at 30-35% and
35-40% respectively, with these segments estimated to report steeper contraction vis-à-vis other
segments (by ~25-30% and ~35-40% respectively) in FY2021. Recovery in operating profitability is
expected to be slower for domestic apparel category amid continued steep discounting,as companies
focus on liquidating unsold, brought-forward inventories and scale remains marginally lower than pre-
Covid levels, even as fixed costs such as rentals and employee expenses revert to normal levels.
Nevertheless, with recovery, while the interest cover for the sample of fabric manufacturers is likely to
improve to 2.5x in FY2022 from 1.1x in FY2021, that for domestic apparel retailers is likely to improve to
3.1x in FY2022 from1.5x in FY2021.Debt/ OPBDITA for fabric and domestic apparel segments is expected
to decline to 4.1x and 2.5x respectively in FY2022, after touching multi-year highs of 8.5x and 5.2x
respectively in FY2021.
For further information, please contact:

Media Contacts:

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