Textiles, realty on revival path as business limps back to pre-Covid levels

Textiles: A case for cautious optimism

Key sectors are on the path to recovery,with business activity limping towards pre-Covid levels. In the final part of the series, we are looking at the textile and real estate sectors:

CRISIL expects textile firms to see gradual recovery in demand during FY22, as Covid worries ease and discretionary spending returns — as reflected in the recent festive sales. The industry’s revenue is expected to grow 40-45 per cent in FY22, after a sharp de-growth in FY21.

Recovery will be across segments, including cotton yarn, readymade garments, polyester yarn, and home textiles, driven by higher domestic and export demand. Further, domestic players will gain market share from China, given the growing preference for India as a supplier.

Operating margins of textile players will recover to pre-pandemic levels in FY22, after an expected decline of 250-300 basis points (bps) in FY21. This will ride on better capacity utilisation, benign raw material prices, and rupee depreciation.

In FY21, lower cash accrual will weaken credit metrics of textiles makers. However, with modest capacity addition and higher cash accrual in FY22, they will improve, along with recovery in revenue and profitability. For cotton-yarn and garment makers, interest coverage will improve to over 3.5x the next FY, against below 2x in FY21. For polyester yarn and home textiles makers, it should improve from 3x to 4.2x.

Realty: Showing a sharp but shaky rebound

CRISIL expects residential sales to rebound close to 40 per cent in FY22 to 150-160 million square feet (msf) in the top six cities (MMR, Delhi-NCR, Bengaluru, Pune, Hyderabad, and Kolkata), on account of lower capital values and interest rates.

Sales may remain below the pre-Covid levels of 170-180 msf, owing to weak investor sentiment about the pressure on capital appreciation / rental yields over the past few years.

The larger established developers, with strong balance sheets, will continue gaining market share in FY22. These players are bucking the trend as they look to end FY21 at levels similar to previous years.

The credit profiles of small-to-mid-sized and large leveraged developers were already under stress before the pandemic, due to the NBFC-led crisis.

The credit outlook for these players may remain weak in FY22, as end-users gravitate towards well-established players with a strong track record.

Commercial office spaces may have a limited impact, on account of the surrender of leases by stressed tenants or the impetus to work from home.

Vacancy may see a modest increase by up to 5 per cent over the next 12 months. However, absorption of new areas coming up in FY21 and FY22 is likely to be a challenge, as cautious business environment may limit demand.

Series concludes