Indian Textiles - Volume Growth Trajectory Intact, Realisation To Remain Stable: Systematix

Systematix Research Report

Textile companies reported healthy YoY improvement in operating profit in Q4 FY24, led by higher volumes and benign raw material prices. Topline growth stayed healthy, as volume growth offset diminishing realisations. However, soft cotton prices (down 3% YoY and up 5% QoQ) aided the gross margin expansion of companies under our coverage, which though was sequentially lower.

Cotton prices at Rs 59,000-62,000/candy render the Indian industry competitive in the global arena in the prevailing scenario. Companies expect normalizing global demand coupled with muted raw material costs to improve volume growth in the medium term. Garment sales volumes improved YoY in Q4 FY24 on higher inventory liquidation as global retailers witnessed demand recovery. Similarly, home textile companies too continued to see healthy volumes in Q4 FY24. We expect demand momentum to sustain in 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 textile companies under our coverage increased by 8% YoY and 12% QoQ, lower than our estimate. The industry witnessed 150bps YoY and 70bps QoQ margin expansion, with aggregate Ebitda margin at 14%, driven by benign raw material costs and change in product mix. Aggregate Ebitda increased 21% YoY and 18% QoQ, while adjusted profit after tax increased 19% YoY, largely contributed by 24% YoY growth in Vardhman Textiles’ PAT.

Improving volume trends and stable realizations have led us to raise our earnings estimates for Vardhaman Textile and KPR Mill Ltd.

We have trimmed our earning per share for Welspun Living to adjust for the flat YoY Ebitda margin guidance for FY25.

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