Textile players likely to witness healthy turnover in FY23: Report

Even as macro headwinds impact performance of textile players across segments in the second quarter of 2022-23, the companies are expected to witness a healthy turnover in this financial year, Icra said in a report.

Icra said it expects textile companies to report healthy growth in turnover in FY23 while the margins are expected to moderate amidst cost pressures.

"In the second quarter of FY23, revenue and margins dipped for the Indian spinners amidst macro headwinds, while for the apparel segment the revenue and margins remained flat, with recessionary conditions in key markets," Icra Assistant Vice-President and Sector Head, Corporate Sector Ratings, Sahil Udani said.

Most textile players reported a decline in inventory levels in the second quarter of FY23 after cotton stocks from the previous harvest season started to reduce and cotton prices saw a sharp volatility, resulting in players becoming cautious on buying, he added.

According to the report, revenue of spinners had declined by 4 per cent on a year-on-year basis while the margins were moderated by 950 bps.

With pressure on the profitability of companies across different scales, the interest cover also moderated during this period, it stated.

The impact is steeper for smaller players since large scale companies benefit from cost savings on bulk purchases of raw materials, said the report.

For H1 FY23, inventory levels for most players have come down with the cotton stocks from the previous harvest season getting extinguished and sharp volatility in cotton prices affecting the buying power of spinners, it said.

Unlike the Indian cotton spinners, apparel exporters demonstrated resilience against the macro headwinds as their revenue improved by 4.5 per cent on a Y-o-Y basis.

The healthy growth in revenues continued in the first quarter of FY23 followed by all-time high revenues registered in FY22, the report said.

And with higher raw material prices exerting cost pressures, operating margins remained flat with 180 bps moderation in the second quarter of FY23, compared to the same period of the previous fiscal.

With moderation in the profitability, the interest cover also declined in the second quarter of FY23, it noted.

The decline is also partially attributable to increased interest cost with debt-funded capex undertaken in H1 FY23 by most players.

For H1 FY23, inventory levels for most players had reduced as the large retailers focused on reducing inventory due to a weak demand scenario in key exporting regions, it added.

Therefore, Icra expects spinners to report some moderation in performance in FY23 from the previous fiscal, while apparel exporters are likely to have a healthy growth in revenues in 2022-23.