Home textile exporters are emerging out of the downturn faster than other textile segments with increase in demand from people working from home and a sharper focus on health and hygiene amid the pandemic.
Revenue degrowth of home textile exporters will be limited to 10-12 per cent this fiscal compared with 30-35 per cent for the overall textile sector, according to a Crisil analysis of 50 companies that account for over 60 per cent of India’s home textile exports.
While lower revenues will hurt operating margins, exporters would save on fall in the requirement for working capital and lesser capex.
The ₹55,000-crore Indian home textile sector, comprising products such as terry towels, bed sheets and spreads, pillow cases, curtains and rugs and carpets, derives 60-70 per cent of its revenue from exports.
The United States and the European Union account for over 80 per cent of these exports, with big-box retailers of essentials and departmental stores among the major customers.
Anuj Sethi, Senior Director, Crisil Ratings, said export order flow has improved significantly beginning with the second quarter of the current fiscal due to reopening of departmental stores and pent-up demand.
Sales are expected to stay strong in the third quarter due to the festive season, when these retailers launch large-scale programmes, he said.
The improvement is borne out by a 7 per cent sales growth in the fiscal second quarter for four large, listed home textile exporters which logged 40 per cent lower revenue on-year in the first quarter.
The lockdown had a limited impact on retailers of essentials as these operated through the Covid-19 pandemic. However, sales at departmental stores suffered heavily in the March-May period. Some retailers also underwent restructuring, leading to permanent store closures.
Operating margin of home textile exporters is expected to fall by 200 basis points to 12-13 per cent from 15 per cent seen over the past two fiscals.
That said, home textile manufacturers deriving a larger part of their revenue domestically are affected more than exporters due to extensive lockdowns in India and gradual opening of many retail outlets, leading to slower recovery.