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Indian textile sector margins to normalize in H1 FY'15
Jul '14
Indian textile sector margins are expected to normalize in the first half of the current fiscal year (2014-15), says a research report released by Anand Rathi, which is a full service financial services firm with headquarters in Mumbai. 
The report says, “During FY14, India’s textile exports rose 13.9% yoy to US$41.6bn as Indian textile players leveraged higher margins from lower cost raw-material inventory, particularly cotton, and higher yarn prices during FY14 driven by Chinese demand. 
“Now the lagged effect of the currency depreciation has also been transmitted to raw-material costs. So, with lower realisations and higher raw-material costs, higher margins would normalise by 1HFY15. Normalisation would be hastened by the currency appreciation and weak China demand. 
The report expects spinning margins in 2HFY15 to stabilise, as also raw-material costs due to lower Chinese demand. 
The report also adds that the stocks that Anand Rathi tracks like Vardhman Textiles and KPR Mills, would benefit from scale and value-addition of garments and fabrics. 
The report also mentions that demand from China may slow down. Strong export demand was seen in cotton and cotton yarn as China’s cotton policy gave Indian spinners an edge in FY14. China’s new policy is long-term positive for spinners and the cotton value chain, with raw-material availability in the world (excl. China) improving as global trade shifts from cotton to yarn. But the near-term adjustment to global trade is eating into demand for yarn and cotton. 
On Vardhman, the report say, “With yarn and fabric volume growth, we expect Vardhaman Textiles to report 5.5% yoy revenue growth to Rs 12.8bn, EBITDA would be Rs 2.9bn, with 1.9% yoy growth. PAT would decline 21% yoy, impacted by the lower EBITDA. The company’s penetration strategy in new markets and its product-development roadmap for higher value-addition will fructify during FY15."
On KPR Mills the report avers, “With its steady sequential volumes, we expect KPR Mills to report Rs 5.5bn in revenue. Its EBITDA margin would decline 669bps with a 9.8% yoy decline in EBITDA to Rs 788m. PAT is expected to decline 3.1% yoy, impacted by the lower EBITDA, offset by lower interest costs due to the continuing focus on lowering debt. 
“KPR Mills is focusing on improving its customer base and product mix with better technology”, the report concludes by saying. 

Fibre2fashion News Desk - India

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