Exporters of home textiles are set to weave 20% revenue growth this fiscal, and therefore achieve higher global market share, CRISIL’s analysis of 50 companies that account for over 60% of such revenue indicates.

The growth will ride on three tailwinds – strong retail sales in the US and better outlook for the upcoming festive season in export markets; continued focus on health and hygiene; and the 'China plus one’ sourcing strategy adopted by large customers.

Exports account for 60% of the Rs 55,000 crore revenue-a-year Indian home textiles industry, which comprises terry towels, bed sheets/spreads, pillow covers, curtains, rugs and carpets. Domestic sales account for the balance.

Says Gautam Shahi, Director, CRISIL Ratings, “Export demand has been healthy so far this fiscal and is expected to stay strong in the third quarter, going into the festive season, as the impact of the pandemic wanes. While vaccination has gained pace globally, work from home continues to a reasonable extent and replacement demand from the hospitality segments has risen with occupancy levels improving and hotels adhering to stricter sanitisation standards.”

Home furnishing retail sales in the US – a key export market that accounts for 55% of the export revenue pie of Indian home textile sector – jumped 42% on-year in the first half of calendar 2021, compared with 15% growth in the corresponding pre-pandemic period of calendar 2019.

Also, the ‘China plus one’ strategy is clearly playing out. This is visible in a sharp increase in India’s share of US imports of cotton bed sheets and terry towels to 51% in the first eight months of calendar 2021 vis-à-vis 46% in calendar 2020, while that of China has reduced to 16% from 20%¹.

Not surprisingly, average capacity utilisation of three large listed home textile players in the bed linen segment increased to ~87% in the first quarter this fiscal compared with the pre-pandemic level² of ~68%; and for bath linen segment to ~75% compared with ~66%.

Operating profitability is thus expected to improve 200-250 basis points to ~18% this fiscal. Extension of the Rebate of State and Central Taxes and Levies (RoSCTL) scheme till March 2024 and better coverage of fixed costs from higher capacity utilisation will help offset the sharp increase in prices of cotton, the key raw material.

While the increase in revenue and profitability will improve cash flows, current high capacity utilisation and healthy demand outlook will encourage capacity expansion in the near to medium term. This may result in higher debt levels.

Says Kiran Kavala, Associate Director, CRISIL Ratings, “Improvement in operating profitability will offset the impact of higher debt levels, lending a positive bias to credit quality of home textile manufacturers. We expect the interest coverage ratio for CRISIL-rated home textile players to improve to 6-6.5 times over the medium term from 5.5 times in fiscal 2021, while the ratio of debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) will also improve to 2-2.2 times from 2.5 times.”

Home textile manufacturers deriving a larger part of their revenue domestically would continue to underperform exporters due to the accentuated impact of the second wave and a slow recovery.

In this milieu, continued order flow from key export markets and a potential third wave of the pandemic, which could disrupt manufacturing, supply chain and demand, will be the key monitorables.

¹ The Office of Textiles and Apparel (OTEXA)
² Pre-pandemic refers to fiscal 2019