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Domestic demand to drive textile sector growth in FY24: CRISIL SME Tracker

In FY24, cotton yarn prices are projected to fall almost 15 per cent due to a high base and subdued export demand. This is expected to hurt price realisation

Textile industry,

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The textiles industry is set for moderation in revenue growth in 2023-24 (FY24) as export demand, which usually accounts for a fourth of the total market, is expected to be limited due to a slowdown in key markets, though domestic demand will continue to grow at a steady pace.
 
This bodes ill for small and medium enterprises (SMEs), which make up close to 75 per cent of the textile value chain and are estimated to have seen robust revenue and profit growth in FY22 on the back of a post-pandemic surge in exports.
 
In FY23 a sharp rise in cotton yarn prices at the start of the year and moderation in export demand are expected to impact industry revenue and profitability. The revenues of SMEs in the spinning segment, which are more susceptible to fluctuations in raw material prices, are set to contract 9-11 per cent, led by a decline in yarn prices later.
 
In FY24, cotton yarn prices are projected to fall almost 15 per cent due to a high base and subdued export demand. This is expected to hurt price realisation. 
 
In the readymade garment (RMG) segment, an easing of discretionary spending in leading consumer markets such as the US and EU will tone down revenue growth of key export-oriented RMG clusters such as Tirupur, Bengaluru and Mumbai to 6-8 per cent.

Clusters like Kolkata, Kanchipuram and Ludhiana, which depend more on the domestic market, are likely to outperform the export-centric clusters.
 
However, after a contraction in operating profit margins in FY23, players’ profitability is expected to improve due to easing of input cost pressure.
 
In the medium term, free trade pacts with major markets and the setting up of textile parks under the PM MITRA scheme will boost India’s competitiveness in the RMG space. This will be complemented by the Production Linked Incentive scheme, which will give a leg-up to domestic manufacturing, particularly in synthetic textiles.

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First Published: Mar 30 2023 | 5:40 PM IST

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