Textile-related stocks such as Gokaldas Exports, Himatsingka Seide, Arvind Limited, Vardhman Textiles, and KPR Mills have experienced a rally of 4 percent to 12 percent in the past week. KPR Mill, in particular, has garnered increased attention following Fidelity's acquisition of a 1 percent stake in August 2023. There are numerous factors that have contributed to the excitement surrounding these stocks, so let's list a few.
1. Global retailers have continued efforts to reduce excess inventory of books.
TJX, Nike, Walmart and Target have been able to achieve lower inventory. Additionally, other large retailers have reduced their inventory levels due to their cautious approach towards fresh procurement.
2. Outlook mixed though Walmart has revised guidance
The demand outlook remains mixed, with Walmart increasing its full-year guidance to reflect Q2 performance in expectations for Q3. TJX also anticipates overall comparable store sales to rise by 3 percent to 4 percent for FY24. Meanwhile, Target expects its comparable sales to experience a wide range, with a mid-single-digit decline projected for the rest of the year.
3. Indian textile players expect demand revival from the second half of FY2
Indian textile industry leaders are optimistic about a resurgence in demand starting from the second half of FY2, as conveyed in their recent commentaries:
Gokaldas: "Looking at third-quarter bookings, we are very encouraged by the discussions that we are having with the customers"
Welspun India: "Quarter 2 definitely has an upside owing to the festive season, due to events like Black Friday and Christmas across the globe."
Himatsingka Seide: "Demand environment remains stable."
Indo Count: "In the current Q2, we are witnessing incremental business, and our order book's position continues to improve. Despite a 5 percent volume increase in Q1, we expect to achieve double-digit growth in the next three quarters, thus meeting our volume guidance of 85 to 90 million meters for FY '24."
4. FTA discussions picking pace:
FTA discussions are gaining momentum as India plans to engage in talks with the United Kingdom, Canada and the European Union on the sidelines of the G20 Summit. Should an FTA with the UK be established, it would enable duty-free exports to the UK, thus enhancing India's competitiveness. Presently, the UK presents a $21 billion opportunity in the apparel segment, yet India's current share is merely $1.1 billion. In contrast, the UK imports $3 billion worth of goods from Bangladesh and $4.5 billion from China. The primary factor behind this discrepancy is that Indian businesses face lower market penetration in the UK due to tariff disadvantages when compared to Pakistan, Turkey, and Bangladesh.
5. Advantage INDIA!
India's share in the United States' imports has increased in a couple of categories, such as cotton sheets and terry towels. In the case of cotton sheets, India's share in US imports has risen from 52 percent in 2022 to 59 percent in 2023, while India's share in US imports of terry towels has grown from 39 percent to 45 percent. India has gained at the expense of China.
6. Decline in cotton prices gives hope that spreads will improve from here on
India yarn/cotton prices
| CY22 | Rs.86/kg |
| YTD23 | Rs.77/kg |
| Current | Rs.63/kg |
Risks persist as a recession in the US remains a concern, while cotton yarn spreads are weak as of now. Additionally, the possibility of recovery being delayed beyond Q3 is also a potential concern.
| FY25 | PE |
| Gokaldas Exports | 17.3 |
| Trident | 20.1 |
| Welspun India | 13.1 |
| Indo Count Industries | 11.7 |
| Himatsingka Seid | 7.9 |
| Arvind Ltd | 8.6 |
| Vardhman Textiles | 9.3 |
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