Indian textile stocks fetched positive ROI despite lean phase

The stocks of textile companies have performed well in the last one year. Of the 52 textile stocks, 43 stocks have fetched positive ROIs despite Indian textiles going through a lean phase since the last few years and the government’s measures have done little to help the industry’s cause.

The list of woes is also a long one – falling exports of cotton yarn and apparel, growing competition from China, negative impact of global economic slowdown, mounting inventories, lack of capital infusion for technology upgradation and volatile stock markets among others.

The current Chinese economic slowdown is a fresh phenomenon, but the Indian textile industry, mainly cotton yarn producers and apparel exporters, are on tenterhooks since long on account of escalating raw material prices and falling overseas demand.

But shares of Blue Blends (India) generated a hefty return of 585.20% in last one year. The small cap stock spurted to Rs. 80.10 as on January 15, 2015 from Rs. 11.69 a year ago. At current market price (CMP) of Rs. 153.80, shares of Spenta International have given a 339.42% return. Similarly, Premco Global has skyrocketed 305.86% to Rs. 765.25 from Rs. 188.55 as on January 15, 2015.

What’s even more significant is the fact that these ROIs have outperformed benchmark indices big time. In last one year, the S&P BSE Sensex and Nifty 50 have tanked by over 12%, while the BSE Small cap Index, too, has plunged 4.69%.

Among other top performers of textile industry, shares of E-Land Apparel gave 281.62% return, Blue Chip Textiles (273.56%), Pioneer Embroideries (252.23%), Soma Textiles (193.70%), Welspun Syntex (189.75%), K G Denim (165.59%), Ruby Mills (148.38%), Welspun India (143.22%), Mafatlal Industries (106.77%) and BSL Ltd (104.82%). There are 13 textiles stocks with ROI between 50 – 99% while 17 stocks offered ROIs below 50%.

The yuan depreciation is alarming for Indian textile value chain as China accounts for 40% of India’s total exports of cotton yarn. Sinking yuan may result into oversupply of cotton yarn in domestic market. The Chinese currency has fallen nearly 5.6% since August 2015, whiles the Indian rupee too, has slumped 4.5% against the US dollar in the same period.

Due to sluggish demand from the US and European markets, India’s apparel exports grew 7-8% till December 2015 as against an estimate of 13-15%. Besides, both India and China have common access to bigger markets of the US and the EU, which will intensify the competition on export front and devaluating yuan, will be China’s dumpcart. With plummeting yuan, India is on the verge of witnessing huge dumping of man-made fiber from China. India’s textile and clothing exports stand at US$ 40 billion, of which apparels account for US$ 16 billion.

In order to increase job creation in the Indian textile industry, the government has notified the Amended Technology Upgradation Fund Scheme (ATUFS), under which one-time capital subsidy will be provided for employment generation and technology upgradation. However, there has been no mention on the committed liabilities of more than Rs. 3,000 crore falling under cases in the blackout and left-out period. In response to declining exports, the cabinet government withdrew focus market scheme for the textile sector. However, now with global economic slowdown intensifying, exports orders remain dismal at present. Further duty drawback and interest subvention have scaled up new challenges for the industry.

In Indian textile industry, generally, a 30 day credit is given to the parties and , many firms trade raw material or finished products on a 30-day credit, if they fail to make payments for 120 days, the Association is forced to take penal action. But a significant increase in defaulters has now added to the industry’s woes.

Recently, the Gujarat Garment Manufacturing Association decided to blacklist such defaulters from the market access and have officially intimated another 25 to 30 garment markets about such defaulters.