Google News

Fall in exports for the Home Textile segment: CRISIL

Must Read

Operating profit margins of home textiles exporters is seen falling 300 basis points (bps) from this fiscal following pressure on export realisations stemming from a shift in the dynamics of US retail, and a reduction in incentives after the implementation of the Goods and Services Tax (GST).

This fiscal, the landscape is undergoing a sea-change. Many brick-and-mortal retailers in the US have pruned inventories and downsized stores to offset profitability pressures caused by the e-tail boom. In order to cushion the consequent fall in utilisation levels, Indian exporters have been enhancing their share of the business with US e-retailers, but at lower realisations.

Domestic home textile firms have had a good run since fiscal 2012, with India’s share of US imports of cotton bed sheets and terry towels increasing from 34 percent to about 40 percent in fiscal 2017 because of cost competitiveness compared with peers in China and Pakistan.

US accounts for a third of global home textiles market worth US $16 billion. Almost 47 percent of India’s home textile exports of US $5.3 billion last fiscal was to the US.

Additionally, competitiveness continues to be impacted in Europe – an equally large consumer of home textiles as the US – with levies up to 10 percent duty on Indian products compared with free access to Bangladesh and Pakistan firms. Suppliers from Pakistan also benefit from better export incentives provided by their government.

Domestic home textile firms, on the other hand, have been hit by the lowering of Duty Drawback Rate and Rebate of State Levies to 2 percent from 7.5 percent and 3.9 percent, respectively, following the implementation of GST in July 2017. However, recently, partial relief was provided whereby incentives under the Merchandise Exports from India Scheme (MEIS) was increased from 2 percent to 4 percent.

Anuj Sethi, Senior Director, CRISIL Ratings said, “Our study of 63 firms (including 59 rated by CRISIL), which account for 70 percent of India’s home textiles exports, indicates that despite relief under MEIS this fiscal, average export incentives as a percentage of revenues will be lower by at least 200 bps,”

That, along with pricing pressure, is expected to crunch EBITDA (earnings before interest, tax, depreciation and amortisation), or operating margins to 16 percent starting fiscal 2018 from 19 percent last fiscal.

However, demand for Indian home textiles will continue to grow at 8 percent seen in the recent past, helped by exports to traditional markets and better penetration in non-traditional markets such as Asia, Australia, South America and Canada.

Rajeswari Karthigeyan, Associate Director, CRISIL Ratings said, “Given the still healthy demand, CRISIL expects the 63 firms to spend as much as Rs 3,700 crore to expand capacities in fiscals 2018 and 2019. That would be significant considering that Rs 4,600 crore has already been spent in the previous two fiscals.”

Latest News

ONDC announces Build for Bharat initiative 

The initiative intends to tap into India’s technological and entrepreneurial potential with an expected participation of over 2,00,000 participants...

Login to your account below

Fill the forms bellow to register

Retrieve your password

Please enter your username or email address to reset your password.