WFH accelerates recovery of home textiles; segment to de-grow 10-12% in FY21: Report

Increased work from home has resulted in higher consumptions of home textiles, which will help in limiting the de-growth of the segment to 10-12 per cent during this financial year as compared to the overall textile sector that is likely to de-grow by 30-35 per cent, according to a report.

Higher in-home consumption due to increased stay-at-home period and a sharper focus on health and hygiene amid the pandemic are helping Indian home textile exporters weave their way out of the downturn faster than other textiles segments, Crisil Ratings said in a report.

Revenue de-growth for home textile exporters will be limited to 10-12 per cent this fiscal, compared with 30-35 per cent for the overall textile sector, the report added.

The Rs 55,000-crore Indian home textile sector, comprising products such as terry towels, bedsheets and spreads, pillowcases, curtains, and rugs and carpets, derives as much as 60-70 per cent of its revenue from exports.

The US and the European Union account for over 80 per cent of these exports, with big-box retailers of essentials and departmental stores among the major customers, added the report.

Crisil Ratings Senior Director Anuj Sethi said, "Export order flow has improved significantly beginning with the second quarter of the current fiscal due to reopening of departmental stores and pent-up demand."

He added that with people spending more time at home, including for work, drastically lower socialising opportunities, and sharper focus on health and hygiene, demand for home textile products will continue to grow.

Demand is expected to stay strong in the third quarter as well due to the festive season when these retailers launch large-scale programmes, he added.

The report also added that home textile manufacturers, who derive a larger part of their revenue domestically, are affected more than exporters due to extensive lockdowns in India and the gradual opening of many retail outlets, leading to a slower recovery.

The lockdown had a limited impact on retailers of essentials as these operated through the pandemic.

However, sales at departmental stores suffered heavily in the March-May period as some retailers also underwent restructuring, leading to permanent store closures.

Additionally, manufacturing was impacted due to plant shutdowns for 30-45 days, it added.

A weak first quarter will have a bearing on revenues for the full fiscal, which are expected to decline 10-12 per cent, the report stated.

Also, lower capacity utilisation and benign realisations in the first quarter will lead to suboptimal coverage of fixed costs despite cheaper cotton prices and favourable currency movement, it pointed out.

This will lead to moderation in the operating margin of home textile exporters by 200 basis points to 12-13 per cent from 15 per cent seen over the past two fiscals.

With sufficient capacity available, investments in capacity addition are expected to be moderate this fiscal.

Also, lower inventory requirements owing to continued soft cotton prices in the coming season will keep working capital requirements stable, and hence debt levels under control, it added.