Textile Sector: From Crisis to Recovery by Q3FY24

 

The textile sector is weaving a new story after a tough year in FY23. Textile companies had to face low demand, high inventory, limited supplies and rising cotton prices due to the pandemic and other factors. However, they are now hoping for a revival in demand by the third quarter of FY24 as global retailers reduce their inventories and start placing orders for their Summer/Spring 2024 collections.

What are the factors driving the turnaround?

According to analysts, there are several factors that are contributing to the positive outlook for the textile sector. Some of them are:

• Improving exports: India’s textile exports have been growing steadily in the past few months, especially in cotton and made-up apparel segments. India has also gained market share in key destinations such as the US and Europe, where it competes with countries like China, Bangladesh and Vietnam. The government’s production-linked incentive (PLI) scheme and other policy measures have also boosted the export competitiveness of Indian textile players.

• Attractive valuation: Textile stocks are trading at attractive valuation levels compared to their historical averages and peers. Analysts believe that the sector is ripe for a re-rating as robust export opportunities give strong and sustainable earnings visibility. They also expect margin expansion due to operating leverage, cost rationalization and favorable product mix.

• Structural shift: The textile sector is witnessing a structural shift as global retailers are looking for more diversified and reliable sourcing partners in the post-pandemic world. India has an advantage over other countries due to its large domestic market, integrated value chain, skilled workforce and raw material availability. India can also benefit from the rising demand for sustainable and organic products, where it has a strong presence.

Which are the stocks to watch out for?

Analysts have recommended some of the leading textile companies that are expected to benefit from the turnaround in the sector. Some of them are:

• Fine Organic Industries: The company is a leading manufacturer of specialty chemicals used in textiles, personal care, food and other industries. It has a strong product portfolio, diversified customer base, high entry barriers and consistent financial performance. It is also expanding its capacity and entering new segments such as home care and agrochemicals.

• One 97 Communications: The company is the owner of Paytm, India’s largest digital payments platform. It also has interests in e-commerce, gaming, cloud services and financial services. It is expected to launch its initial public offering (IPO) soon, which could be one of the largest in India’s history. It has a huge user base, strong brand recognition, innovative products and strategic partnerships.

• 360 ONE: The company is a leading online fashion retailer that offers apparel, accessories, footwear and lifestyle products from various brands. It has a loyal customer base, wide product assortment, efficient supply chain and data-driven merchandising. It is also investing in technology, personalization and omnichannel capabilities.

Conclusion

The textile sector is seeing a turnaround from Q3FY24 as demand recovers from global retailers and exports improve. The sector also has attractive valuation, structural shift and growth potential. Investors can look at some of the top textile stocks that are expected to outperform in the coming quarters.