Sustained exports, demand recovery push Ind-Ra to revise FY22 textile outlook
India’s most reputed credit ratings agency, India Ratings and Research (Ind-Ra) has revised its FY22 outlook for the textile sector from negative to improving. The rating agency had earlier downgraded its outlook primarily focusing on the spinning, fabric and garments sub segments, while home textiles and export-oriented garments remained less affected.
Sustained exports, stronger balance sheet and liquidity will help the sector maintain stability in FY22. Though it may face few supply chain disruptions due to local lockdowns at key textile hubs including Tirupur, Ludhiana, Surat and Bhilwara, exports will remain stronger. Most cotton textile players will have sufficient stocks.
Garment and home textile exports to remain resilient
Restricted movement of goods due to recurrent lockdowns has not only created a shortage of yarns and fabrics in the country but also impacted labor availability. This may lead to 20-30 per cent Y-o-Y topline decline in Q1 FY22, says Ind-Ra. However, garment and home textile exports will remain resilient. Most shipments in Q1will be deferred to Q2. The sector may face challenges in availability of containers and shipping costs.
From 2HFY22, demand will start recovering across sectors. Growth rate will remain favorable due to low-base effect. Exports will benefit with orders diversifying from China. Profit margins will start expanding with prices increases across upstream, midstream and downstream segments.
Schemes to manage liquidity issues
Since last two years, textile investments in India have been subdued due to uncertainty over export and production-linked incentives. However, the debt moratorium and credit guarantee schemes will help the sector manage liquidity issues and face the second COVID wave with more confidence.
Ind-Ra hopes to treat the impending third wave’s impact on export and domestic demand, oil prices, foreign currency rates as independent events and not as base case expectations. The agency has also revised the credit rating outlook for the sector from Negative to Stable for FY22
