India’s textile sales likely to rebound on retail growth in US

Source: https://www.livemint.com

The US market for textiles is vital to the health of local textile exporters. After a turbulent time in FY18, the market is gradually improving. Walmart Inc. and Target Corp., large retailers in the US, reported their best quarterly performances in recent years. This has created hope that measures taken by traditional retailers to combat industry changes (such as a consumer shift to online retail) are beginning to yield results.

The US-based National Retail Federation (NRF) raised its retail sales forecast for the year, citing a strengthening economy. The trade association now expects 2018 retail sales to increase at a minimum of 4.5% over 2017 compared to the 3.8-4.4% range forecast earlier. “Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation’s consumer-driven economy,” said NRF in a statement.

Validating the commentary, a senior executive at a local textile exporter said the industry is returning to growth trajectory after several quarters of weak sales. The domestic exporters have alluded to the recovery during the June quarter results. But conviction among investors was low as financial performance remained unimpressive. Earnings of most companies trailed estimates even as firms such as Indo Count Industries Ltd and Welspun India Ltd reported healthy volume growth.

Motilal Oswal Securities Ltd, for instance, pegged its FY19 volume growth estimate for Indo Count Industries at around 5% compared to the management guidance of 7-11%. “We remain cautious on account of a slower-than-anticipated recovery,” it said.

Perhaps the recovery needs more validation. US merchandise import data capturing the coming holiday season sales needs to show an increase. As market disruption took its toll, India’s share in total home textile exports to the US fell by a percentage point in the first five months of this year, shows data compiled by JM Financial Institutional Securities Ltd. According to an analyst with a domestic broking firm, the market share losses began to subside with cotton sheets gaining a foothold from June.

The volume recovery should also translate into earnings. Despite healthy volume growth, Indo Count Industries and Welspun India’s earnings remained weak as reduction in export incentives, high cotton costs and low realizations impacted performance. The depreciating rupee may provide some relief. But as an analyst with a domestic broking firm pointed out, obtaining quality cotton at benchmark rates can be a challenge given the pest attacks and reduced crop acreage.

Improving US retail sales have raised the prospects of a recovery in performance of home textile exporters. However, clarity on the pace of recovery and earnings improvement is what will determine if investors in these companies also benefit.



Categories: Asia, Business, India, Retail, Textile, USA

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