Textiles Sector Analysis Report 

Don't Miss: Key Information for Long-term Investors

• The Indian textile industry is among the oldest industries in the country dating back several centuries. The industry contributes 7% to the total industry output and 2% to the GDP. It also contributes 12% to export earnings and holds 5% of the global trade in textiles and apparel.
• The Indian textiles industry is also the second largest contributor towards employment generation, after agriculture, contributing 10% to the country's manufacturing, owing to its labor-intensive nature. India also enjoys a comparative advantage in terms of skilled manpower and cost of production relative to major textile producers.
• The Indian textile and apparel industry can be broadly divided into two segments - yarn and fiber, and processed fabrics and apparel. The industry is extremely varied, with the hand-spun and hand-woven textiles sectors at one end of the spectrum and the capital intensive sophisticated mills sector at the other end of the spectrum. The decentralized power looms/ hosiery and knitting sector form the largest component of the textiles sector.
• The industry is also highly sensitive to the cotton market as over 70% of its output is based on cotton - unlike globally where articles made of man-made fibers account for a larger share.
• India is the second largest producer and exporter of textiles after China and fourth largest producer and exporter of apparel after China, Bangladesh and Vietnam. Superior quality makes companies in India a leader in export- almost two-thirds of India's export of textiles is to US and UK.
• India is also a key growth market for the technical textiles sector due to the cost effectiveness, durability and versatility of technical textiles. Technical textile industries major service offerings include thermal protection and blood absorbing materials, seatbelts and adhesive tapes. Healthcare and infrastructure sectors are the major drivers of the technical textile industry.
• Increased penetration of organized retail, favorable demographics, and rising income levels are likely to drive demand for textiles.
• In order to attract investment in the industry, the Government has introduced various schemes such as the Technology Up-gradation Fund Scheme (TUFS) and the Scheme for Integrated Textile Parks. Under Union Budget 2020-21, the government of India has proposed a National Technical Textiles Mission for the period FY21 to FY24 at an estimated outlay of Rs 14.8 billion.
• 100% FDI is allowed under the automatic route in the Indian textile sector. The industry (including dyed and printed) attracted Foreign Direct Investment (FDI) worth US$ 3.46 billion from April 2000 to September 2020.

• Supply
• Despite some pick-up in demand from both global and domestic markets, most new capacities in the apparel and home textile segments are not operating at full capacities.
• Demand
• High for premium and branded products due to increasing per capita disposable income.
• Barriers to entry
• Superior technology, skilled and unskilled labor, distribution network, access to global customers.
• Bargaining power of suppliers
• Low, as there is an excess of available suppliers giving them a weak bargaining power. In addition, the suppliers lack switching costs and have a low level of product differentiation.
• Bargaining power of customers
• Domestic customers - Low for premium and branded product segments. Global customers- High due to presence of alternate low cost sourcing destinations.
• Competition
• High. Very fragmented industry. Competition from other low cost producing nations is likely to intensify.
• Threat of Substitutes
• The indian textile industry faces a threat from low cost producing countries like Pakistan and Bangladesh (as labour cost is 50% cheaper)

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• Despite several global macro headwinds, the Indian textile industry reported healthy revenue growth with a significant margin decline. A sharp hike in cotton prices and sluggish demand in overseas markets seem to be the primary reasons that affected the industry during the year.
• The price rise impacted smaller players more because large companies benefitted from cost savings due to bulk purchases. The flat performance can also be attributed to the debt funded capex undertaken by most companies in the first half of the financial year.
• Domestic sales remained sluggish due to high costs and cheap garment imports. Domestic sales were sluggish despite solid growth in the overall economy because of high costs and cheap imported garments.
• Manufacturers found it difficult to pass on the cotton price surge to consumers. Smaller players were forced to postpone their operations to manage operating losses.
• Exports slowed due to the global geopolitical conflict, high inflation, and the potential for an impending recession in important markets like the US and Europe. After a boom in FY21 and FY22, the overall textile exports from India contracted by 13.4% YoY at US$ 23.1 billion during April-November 2022. Exports fell for five months - declining by over 15% YoY in November to US$ 3.1 billion.
• The textile ministry selected 61 companies, including Arvind to enjoy benefits under its US$ 1.3 billion (Rs. 106.8 bn) production-linked incentive (PLI) scheme for the labour-intensive textiles and garment sector.
• The companies pledged to invest US$ 2.32 billion (Rs 190 bn) over five years under the scheme, which will lead to an incremental turnover of US$ 22.55 billion (Rs 1.85 trillion) and direct employment generation for 240,000 people.
• In the Union Budget 2023-24, the government announced various initiatives to aid the textile and apparel sector across its value chain from raw materials to manufacturing.
• The government announced special focus on Extra-Long Staple (ELS) cotton with the adoption of a cluster-based and value chain approach through public private partnerships (PPP).
• The focus on enhancing the yield of ELS cotton would help increase the manufacturing of value added garments and also to reduce the import of ELS cotton. The government also identified five new HS codes for cotton for further classification of cotton as per staple length.
• It also announced an increased outlay of funds to textile-centric schemes like RoDTEP, RoSCTL and the Amended Technology Upgradation Fund Scheme (ATUFS).
• Besides this, it announced the PM Mitra Park Scheme under which it plans to invest over Rs 700 bn to set up mega textile parks. It recently approved an investment of `Rs 44.5 bn under this scheme for the creation of seven mega textile parks that would streamline multiple verticals from spinning, weaving and dyeing to printing and garment manufacturing.

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• The future for the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade.
• High economic growth has resulted in higher disposable income which has led to a rise in demand for products creating a huge domestic market. Rising industrial activity is expected to support the growth in per capita income.
• Increased penetration of organized retail is likely to drive demand for home textiles whereas growth in building and construction is expected to drive demand for non-clothing textiles.
• Opportunities in product and design innovations can help address the changing preferences of young vibrant India. E-commerce is expected to lead the way for growth.
• The Government plans to create Centres of Excellence (CoE) aimed at creating testing and evaluation facilities as well as resource and training facilities for the textile industry. The existing four CoEs would also be upgraded in terms of development of incubation centres and would provide support for the development of prototypes. Fund support would also be provided for appointing experts to develop these facilities.
• The Central Silk Board has set targets for raw silk production. To achieve these targets, alliances with the private sector especially major agro based industries in pre cocoon and post cocoon segments are being encouraged.
• The Integrated Wool Development Programme (IWDP) was approved by Government of India to provide support to the wool sector, starting from wool rearer to end consumer, with an aim to enhance quality and increase production. Under the Union Budget 2019-20, US$ 4.1 million was allocated to this programme.
• The Ministry of Textiles has announced US$ 106.6 million for setting up 21 readymade garment manufacturing units in seven states for development and modernization of Indian textile sector.
• The new textile policy aims to achieve US$ 300 billion worth in textile exports by 2024-25 and create an additional 35 million jobs. By 2022, the Indian textile sector will require an additional 17 million work force.
• The Directorate General of Foreign Trade (DGFT) has also revised rates for incentives under the Merchandise Exports from India Scheme (MEIS) for two subsectors of Textiles Industry - readymade garments and made-ups - from 2% to 4%, which will prove beneficial for the sector.
• The textile and apparel trade is predicted to grow at a CAGR of 3.7% during the period 2018-28. During this period, the increase in apparel trade is expected to be at a CAGR of 4.5% and textiles at a CAGR of 2.5%.
• The technical textile industry is expected to reach US$ 32 billion by FY23, growing at a CAGR of 12.2% over FY18. The industry is supported by various flagship schemes initiated by the Government to promote its full potential.

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When is a good time to invest in the textile sector?

As the demand for textiles is closely linked to the economy - domestic and global, textiles stocks are usually riskier - their fortunes are prone to economic booms and busts. For this reason, they are often called cyclical stocks. Generally considered an offensive tactic in investing, cyclical stocks can be used to generate high returns when the economy is doing well.

Therefore, the best time to buy such stocks (textile stocks) is during an economic slowdown or when there is overcapacity in some segment of the industry. However, before selecting a stock, one must check whether the industry is due for revival or not.

Where can I find a list of textile stocks?

The details of listed textile companies can be found on the NSE and BSE website. However, the overload of financial information on these websites can be overwhelming.

For a more direct and concise view of this information, you can check out our list of textile stocks.

Which textile stocks were the top performers over the last 5 years?

Grasim Industries and Lux Industries were the top textile performers over the last 5 years in terms of sales and profit growth.

Grasim Industries' growth can be attributed to its sound fundamentals characterized by a robust business model in its core business segments, high bargaining power with suppliers and customers, strong distribution network and healthy profitability.

Lux Industries has done well on the back of the established brand presence, experienced management, and healthy financial risk profile of the company.

To know which other companies performed well over the last 5 years, use Equitymaster's stock screener.

What kind of dividend yields do textile stocks offer?

There is no consistent trend of dividends across the industry, with different companies having different dividend policies.

For more details, check out our list of top textile stocks offering high dividend yields.

Which are the textile stocks with the highest return on capital employed (RoCE)?

Return on capital employed (ROCE) is a financial ratio that can be used in assessing a company's profitability and capital efficiency by determining how well the management is able to allocate capital for future growth. An RoCE of above 15% is considered decent for companies that are in an expansionary phase.

Kama Holdings and Arvind Fashions are the top textile stocks right now on the Return on Capital Employed (RoCE) parameter.

To know which other textile stocks offer great return on capital employed, you can check out the top textile stocks offering the best RoCE here.

Which are the best textile stocks to invest in currently?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

• Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

  To find stocks with favorable P/E Ratios, check out our list of textile stocks according to their P/E Ratios

• Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

  To find stocks with favorable P/BV Ratios, check out our list of textile stocks according to their P/BV Ratios