COVID-19 2nd wave to slightly impact India's textile sector: Ind-Ra

19 May '21

3 min read

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The second wave of COVID-19 might slightly impact the Indian textile sector’s supply and demand dynamics primarily in the first quarter (Q1) of FY22, as per India Ratings and Research (Ind-Ra). A sustained export demand, learnings from the first wave, stronger balance sheet and liquidity will enable the sector credit profile to remain stable in FY22.

The supply chain has been impacted by the local lockdowns at key textile hubs such as Tiruppur, Ludhiana, Surat and Bhilwara. The restricted movement of goods means non-availability of inputs such as yarns and fabric, which is likely to have a short-term impact on the finished output, the domestic rating agency said. The labour availability has also been impacted moderately and shop floors are likely to remain functional at a few plant sites but with restricted occupancy.

However, export markets are strong in Q1 FY22 and most cotton textile players are likely to have adequate inventory as fresh inventory comes during November to March, the Ind-Ra report said.

The supply chain disruption may lead to a 20-30 per cent YoY of reduction in toplines in Q1 FY22. Export-focused garments and home textiles are likely to remain resilient compared to the spinning and fabric segment. The export order book was reported to be YoY higher at the end of March 2021 with garment players. Challenges on the availability of containers and high shipping costs have been impacting profitability since Q3 FY21 and are likely to remain so in the near term.

Beyond Q1 FY22, there will be a demand recovery across the sub-segments, driven by the unleashing of pent-up demand in second half of FY22. The growth rates will also benefit from the low base effect, Ind-Ra said in the report.

The export demand will remain favourable with geo-political tensions and China, Plus One story continuing to play. Demand recovery continues in export markets, which is at least 30 per cent of the India’s total textile produce.

Though raw material prices increased in the second half of FY21, the product pricing is only now beginning to catch-up across upstream, mid-stream and downstream segments, leading to a margin expansion in FY22.

Capital investments in the sector were subdued due to uncertainty on export incentives in the last two years and pending details on production-linked incentives in the last few months. While the debt moratorium and credit guarantee scheme helped the sector to manage liquidity, Q3 FY21 and Q4 FY21 have been favourable quarters, the report added.

Fibre2Fashion News Desk (KD)

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