Markets
The new Indian textile boom: 3 stocks for your watchlist
Summary
- Which textile stocks look good in a competitive sector? Find out.
For India's textile industry, 26 February was a big day, marking a significant milestone with the inauguration of the Bharat Tex Expo at Bharat Mandapam (IECC) in the national capital by Prime Minister Narendra Modi. The expo, celebrated as the world's largest textile event, attracted over 3,000 exhibitors, 3,000 buyers, and 40,000 visitors from more than 100 countries.
Prime Minister Modi urged farmers, entrepreneurs, major textile corporations, and MSMEs to aim for major advancements in the international textile market. The event saw the signing of over 50 MoUs and agreements, highlighting its grandeur and the government's clear vision for the sector. With the global textile market valued at nearly $1 trillion, the government aims to adopt a focused and ambitious strategy to grab a significant market share.
To achieve this goal, a holistic approach is necessary, one that fosters collaboration among government, industry stakeholders, and artisans. This strategy has been named - Farm-to-foreign via fibre, fabric, and fashion.
This collaborative effort is crucial in a sector known for its labour-intensive nature, where a single textile plant can generate hundreds of jobs. However, price sensitivity and competition from countries with lower labour costs, such as Bangladesh and China, pose challenges.
Despite these hurdles and the slow adoption of modern technologies and inefficiencies in the supply chain, the Indian textile industry has grown significantly, reaching about ₹12 trillion, or approximately $145 billion, today from under ₹7 trillion in 2014.
The government has played a vital role in this growth through various policies, incentives, and regulations aimed at attracting investments, enhancing skill development, and strengthening infrastructure. Initiatives like the PM MITRA scheme and the production-linked incentive (PLI) scheme have been instrumental in promoting the sector's development. Last year 64 companies were shortlisted as beneficiaries under the PLI scheme with a proposed total investment of almost ₹200 billion and a projected turnover of ₹2 trillion.
Yet, with the global industry expected to grow at a modest 4% annually, Indian textile companies must also innovate and adapt to meet ambitious targets, including achieving a $350 billion textile industry by 2030.
In this piece, we will examine three companies that have a great chance to capture a bigger share of the global textile market and create value for shareholders.
#1 Arvind Fashions
Arvind Fashions operates in the branded apparels, beauty and footwear space. It has a portfolio of several owned and licensed global brands across different segments.
The company operates several brands across casual and formal segments including Calvin Klein, Tommy Hilfiger, US Polo Assn, Sephora, Arrow, Aeropostale.
After posting a loss in the first quarter of FY24, the company has recovered well and looks set to achieve its highest ever EPS in the upcoming quarters.
The company reduced its debt by over 80% in two financial years FY22 and FY23, and began paying a dividend in FY23.
#2 Raymond
Raymond Ltd is one of the leading players in the suiting business with a market share of over 60%. It is also the largest branded fabric player in the organized shirting segment.
As suits are a wedding staple, the company stands to benefit from India’s young demographics. As the number of weddings increase, so does the company’s revenue. The company is adding 150 outlets in the financial year 2024.
Further, Raymond is also a beneficiary of ‘China plus one’ megatrend. The company claims to have a healthy export order book.
With prices of cotton, a key input, easing , among other reasons, the textile sector is set for a strong comeback which could keep Raymond in steady waters.
Raymond has also forayed into a high growth sector to diversify its business.
#3 Trident
Trident Ltd mainly operates under three segments: yarn, home textiles, and paper. In the home textiles segment, the company manufactures terry towels and bed linen.
Back in 1992, when the company commenced its business, it was mainly into yarn and paper production.
The company has successfully transformed itself from a yarn manufacturer to a vertically integrated home textile player which would help the company to garner higher margins and de-risk its business profile.
It’s the second largest player in home textiles and the third largest player in yarn manufacturing in India. It has a global presence in over 150 countries and a reputed client base such as Amazon, Wal-Mart, Target, and IKEA.
The company is capitalising on the 'China plus one' strategy by expanding its product base by adding new products and expanding the capacities of existing products. With the company setting up its own power plant for captive use, it aims to lower the cost of production.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
