Indian Textiles - Better Volumes, Soft Raw Material Prices Drive Profitability; Outlook Positive: Systematix

Systematix Research Report

Textile companies reported healthy all-round performance in Q1 FY25, posted 18%/32%/41% YoY growth in revenue/Ebitda/profit after tax, respectively. Higher volumes and benign raw material prices drove this growth.

Topline growth was healthy on double-digit volume growth, despite muted realisations. Soft cotton (down 4% YoY and 1% QoQ) and stable yarn prices aided the expansion in spinners’ gross margins. However, domestic cotton prices turned expensive to Rs 58,000- 60,000/candy as the harvesting season ended and as MSP rose to 7%, rendering the Indian industry uncompetitive in the global arena (international cotton prices fell to 54,000-55,000/candy).

Garment sales volumes improved 11% YoY in Q1 FY25 as global retailers witnessed demand recovery, considering a large part of the inventory liquidated. Home textile companies too continued to see healthy volumes in Q1 FY25 (up 16% YoY and 6% QoQ).

We expect the demand momentum to improve in H2 FY25 and volume growth to gradually outpace inventory on easing inflation, normalised channel inventory, improving supply chain trends and expected cuts in interest rates.

Aggregate revenue of the four textile companies under our coverage increased by 14% YoY but fell 2% QoQ, broadly in line with our estimate. Our coverage companies witnessed 205 bps YoY and 110 bps QoQ margin expansion, with aggregate Ebitda margin of 15% being driven by benign raw material costs and change in product mix. Aggregate Ebitda increased 33% YoY and 6% QoQ, while adjusted profit after tax increased 57% YoY and 8% QoQ, largely contributed by 75% YoY growth in Vardhman Textiles’ PAT.

We raise earnings estimates for Vardhman Textiles, Welpsun and Gokaldas Exports on improving volume trends and stable realisations.

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