The textile industry is witnessing buoyant demand of cotton yarn from export markets and diversion of garmenting orders from Bangladesh due to labour unrest and safety issues. Moreover, weaker INR YoY helped Indian exporters further on global competitive scale. During Apr-Jan FY14 period, textile exports grew 14.6% YoY to USD 28.5 billion (In INR terms, grew 27.2% to Rs. 1,723 billion). Vardhman Textiles (yarn & fabric), Arvind (fabric & garments) and Raymond (fabric & garments) are expected to fare well on exports front.
''We expect cotton based manufacturers to witness moderate margin pressure due to higher cotton prices, while synthetic fibre prices are stabilizing. Worsted fabric is looking positive with 10% YoY decline in imported wool prices, coupled with strengthening of Rupee. Companies with exposure to exports are expected to gain on buoyant demand while domestic demand is subdued on seasonality. March and June quarters are usually leaner for domestic market,'' said Karvy Stock Broking.
''Moreover, apparel players, which enjoyed incremental revenue growth (~5-7%) along with margin expansion during FY14E due to removal of excise duty, are not going to get additional impetus. Therefore, we remain cautious on revenue growth in apparel segment despite continued excise benefits; on tepid consumer sentiments.''
''We expect the aggregate revenue, EBITDA & PAT of seven companies under our coverage to grow 19%, 16% & 33% YoY respectively, primarily on account of capacity additions in Arvind & Vardhman along with incremental exports,'' it opined.
''We introduce FY16E estimates and roll forward our target price based on FY16E. We maintain our valuation multiples in most of the companies except Kewal Kiran- reduced to 14x PE from 15x earlier on slower growth expectations, Arvind (switched to SOTP) and Maxwell from 6.5x EV/EBITDA to 5.5x on account of delay in product launches and slower volume growth. Raymond was struggling with margin compression on account of high raw material prices, slower demand in fabric, inventory hangover in apparel and supply chain issues. Going forward, with improvement in above factors, we expect margin expansion and better profitability,'' Karvy said.
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