The credit profiles of Indian home textile companies are projected to remain stable, supported by healthy cash accruals and moderate capital expenditure plans.
Following a 9-10 per cent rebound in revenue growth in the previous fiscal year, India’s home textile industry is expected to grow by 6-8 per cent in FY25, driven by resilient demand from the United States and expansion in the domestic market, despite some on-going logistical challenges, according to CRISIL Ratings. The credit profiles of Indian home textile companies are projected to remain stable, supported by healthy cash accruals and moderate capital expenditure plans, underpinned by deleveraged balance sheets, as stated in a release.
A CRISIL Ratings analysis of 40 companies, representing 40-45 per cent of the industry revenue, supports this outlook.
The Indian home textile industry derives 70-75 per cent of its revenue from exports, with the United States alone accounting for 60 per cent, while the remaining 25-30 per cent comes from the domestic market.
Mohit Makhija, senior director at CRISIL Ratings, identified three key factors driving growth in the Indian home textiles industry this fiscal. First, resilient consumer spending and normalised inventory levels at major US retailers are expected to boost exports, though container availability should be monitored. Second, the industry’s on-going efforts to expand its domestic presence will further contribute to growth. Third, domestic cotton prices, a key raw material, are likely to remain close to international levels, which will help maintain the competitiveness of domestic companies.
Makhija noted that India’s share of the US home textile imports is expected to stay steady this fiscal. From January to August 2024, it remained around 30 per cent, the same as in calendar year 2023.
International cotton prices had dropped below domestic prices between June and September 2024, driven by increased cotton supply from Brazil and the United States. However, with the start of India’s cotton season, the price gap is expected to narrow, helping to maintain India’s export competitiveness, according to CRISIL Ratings.
With domestic raw material prices remaining close to international prices, operating margins are likely to stay stable at 14-15 per cent this fiscal, in line with the previous fiscal. These margins are expected to be insulated from recent volatility in freight costs, as most exports are on a free-on-board basis.
In terms of capital expenditure, home textile companies had invested approximately Rs 85 billion to expand capacity between FY2018-19 and FY2023-24. As revenues gradually increase, the industry’s capacity utilisation is expected to remain between 60-70 per cent in FY25. While most companies plan to optimise utilisation this fiscal, a few large companies are considering capital expenditure, but on deleveraged balance sheets.
Pranav Shandil, associate director at CRISIL Ratings, stated that with steady operating performance and moderate capex in FY25, the interest coverage ratio for home textile companies should remain stable at 5-6 times, compared to 5.5 times in the previous fiscal. He added that healthy cash accruals are expected to reduce reliance on external debt for working capital, keeping the total outside liabilities to tangible net worth ratio low at 0.6-0.7 times this fiscal, compared to 0.7 times in the last fiscal.