AK Spintex share is one of the penny stocks that have given multibagger returns to its shareholders in the last week.  Its price has surged from ₹24.50 to ₹47.60, logging around 94 per cent rise in this period. And it’s not the only one, many textile stocks have already become multibagger. It’s part of a big trend and not a coincidence.  Indian textile sector is fast coming out of slumber and moving on the part of a strong growth trajectory.

The Indian textile sector, which predominantly comprises home textiles, yarns and garments, has been one of the more favourable sectors of the country’s export basket. The sector has been witnessing higher export orders after a really long time, thanks to a slew of measures taken by state governments to encourage exports.

 

These include export promotions days at textile clusters, funding 100% loans for exporters seeking debt capital from the Small Industries Development Bank of India (SIDBI), and zero-interest or low-interest loans.

Exports under Free Trade Agreements (FTAs) have also boosted India’s textile exports by enabling exporters to do business with markets such as the US, Europe, Canada and Latin American countries.

To accommodate this growing demand, players have gone ahead with aggressive Capex plans across spinning, processing and garment manufacturing segments. This is expected to positively impact companies like JK Synthetics Ltd., TBL Manufacturing Ltd. and Arvind Ltd.

Textile Sector Is Booming: China+1 Effect

India’s textile sector is expected to gain incremental demand from markets like the US and the EU. Over the last two years, China has lost market share in every cotton category.

In cotton made-ups, China’s lost share has been picked up by India (34-40% share) whereas in Cotton Apparels, Vietnam has been the major beneficiary. Also, the resumption of mills and gradual recovery in domestic retail has further increased demand and kept yarn prices healthy.

With the US Senate passing a bill banning China’s Xinjiang cotton (20% of the world’s cotton), orders rerouted to India and domestic mills will benefit.

Additionally, China is focusing more on developing a more sophisticated and high-tech-driven textile and apparel industry and want to strengthen its position in the supply chain.  Because of this, it’s vacating position in many areas. Indian textile companies are tapping these opportunities in a significant manner.

Also, because of frequent power cuts and electricity shortage, Chinese textile prices can go up by 30-40 percent, significantly reducing their global competitiveness. China+1 is not just a media hype, it’s becoming a reality. A survey, done by UBS, suggests that 20-30% of textile manufacturing units will be leaving from China. One of the primary reasons cited is the cost of labour going up at an alarming rate.

The textile industry in India is in a great position to take advantage of this situation, to build new supply chain management infrastructure and produce goods close to their markets. In the home textile sector, China is fast losing the market share and Indian is gaining in global market share.

Which Textile Stocks Can Benefit The Most

We love investing in the textiles sector for its ability to grow with global trends, as well as for the fact that it’s a low-cost and high-margin business.

We believe that integrated players, tech-driven, especially in the B2B segment with a large client base will benefit the most. For example,  Indo Count Industries, one of India’s largest down comforters producers; Welspun India, which has steadily grown into a natural fibres powerhouse; and Himatsingka Seide, an Italian-owned premium bedding maker in northern India (it is the main supplier to Hilton Hotels.

These stocks have clocked stellar growth over the last few years and should continue to do so. A fully integrated garment manufacturer in India with a presence across the value chain – from spinning and processing to manufacturing garments can leverage the opportunity as they can control cost, sustain margin, and keep continuing to grow.  KPR Mills is one such company. Here we have done a detailed textile sector analysis and will also reveal the textile stocks that can become potential multibagger.

Free Trade Agreements: How This Can Benefit Indian Textile Sector And Stocks

As of now, countries like Bangladesh, Vietnam enjoy advantages in the European, UK and Australian markets because of preferential trade agreements. If FTAs are passed, India will be able to compete with garment powerhouses such as Bangladesh, China, Vietnam and Pakistan on a level playing field in these countries.  The Ministry of Commerce is in talks with these countries and, this may help further. If this happens, a company like KPR Mills can benefit a lot as UK and US, export significantly.

As India’s share in MMF ( Manmade Fibres) has been less than 1% globally for these categories, this is where the government is putting a lot of thrust in PLI scheme as only MMF producing mills can take advantage of this.

The government aims to enhance its manufacturing capabilities by increasing investment and production in the MMF-based apparel/garment and Technical Textiles segments. As per a CRISIL report, this PLI scheme will boost the competitiveness of Indian textile exports by 4–5%.

Other Factors Affecting Textile Sector Prospects

Ticker Tape has published a report on textile market and here are some salient points:

• India n textile sector is organized compared to other Asian rivals.
• India’s share in the global textile export market share is amongst the highest.
• India has a pool of large players who enjoy better control over the supply chain and are able to mobilize working capital better.
• India has the technical prowess to capture both low-end and high-end textile segment, which can further aid in the margins.

Mega Textile Parks: A Huge Catalyst For Growth

With the establishment of mega textile parks, it will be easier to attract global players to set up factories in JV and directly also. This will solve a major problem as Indian Textile operations have largely been fragmented with spinning, ginning, weaving, and processing happening at different places that increase the logistics cost while reducing the margin. Mega Textile Parks will address these issues as it will act as a plug and play.

The Ministry of Textiles has adopted a different and innovative approach for the development of the textile sector in India, by setting up seven integrated textile parks (ITPs).

Each ITP is planned to have an area of over 1,000 acres and will comprise, besides the basic infrastructure like drainage, electric supply, roads etc., several core facilities that need to be provided. Earlier the companies had to apply for electricity, water, land and everything separately which took a lot of time.

On a final note, it’s high time to look for quality Indian textile stocks that can give a great return in the future. Those companies having the integrated capability and tech-driven approach can benefit immensely from the headwinds in the sector.