FIIs add colour to textile industry

The domestic textile industry is now firmly on the radar of foreign institutional investors (FIIs). The expectation of significant cash flows due to improving global and domestic traction for garments and textiles has caught the imagination of FIIs.

Alok Industries, Arvind (formerly Arvind Mills), S Kumars Nationwide, B K Birla group’s Century Textiles & Industries and Bombay Dyeing, among others, benefited from this renewed FII interest during the September quarter.

According to data with the Bombay Stock Exchange (BSE), FIIs raised their stake in Alok Industries, a fast-growing vertically-integrated textile company, to 13.89 per cent in the quarter from 4.92 per cent in the June quarter. Similarly, foreign investors raised stake in S Kumars from 25.14 per cent to 32.87 per cent. S Kumars has brands like Belmonte and Reid & Taylor.

According to Sunil Khandelwal, chief financial officer of Alok Industries, “Demand in both domestic and export markets is on the rise. This will have a positive impact on profitability as volumes as well as realisations are moving up.”

“Key textile companies undertook large capacity expansion during 2006-2009, allowing them to achieve critical scale. Most of these capacities are slated to reach full utilisation from 2010-11. Key players are now in a sweet spot, as they do not have any major capital expenditure plans in the near term. They are likely to enjoy significant free cash flows over the next few years,” Motilal Oswal said in a report.

From mid-2007 to mid-2009, the domestic textile industry was reeling under multiple factors, including an appreciating rupee, demand slowdown in foreign markets, inventory de-stocking by domestic retailers, and higher depreciation and interest costs.

“Most of these factors reversed in 2009-10. We expect the industry’s fortunes to improve further in 2010-11,” said the report.

Management consulting firm Technopak is also bullish on the industry. According to its latest report, the country’s textile & apparel industry is expected to grow from Rs 3,27,000 crore ($70 billion) to Rs 10,32,000 crore ($220 billion) by 2020.

“The main drivers of domestic growth are increasing population, income levels, rapid urbanisation, improving demographics, rising number of players and growing penetration of retailers into smaller cities,’ Technopak said.