Is it time to re-evaluate textile stocks?

AdityaBirlaNuvo BSE | NSE 13/02/12 Are Mutual Funds betting on AdityaBirlaNuvo? Other Stocks in this news Aarvee Denim and Exports | Trident | Alps Industries | Alok Industries | Arvind | Delta Corp | Bombay Dyeing and Manufacturing Company | Banswara Syntex | Digjam | Cheviot Company | Gujarat Ambuja Exports | Ginni Filaments | Himatsingka Seide | Indo Rama Synthetics (India) | JBF Industries | JCT | Jaybharat Textiles And Real Estate | KSL & Industries | Loyal Textiles Mills | Maxwell Industries | Morarjee Textiles | Nahar Spinning Mills | Raymond | Spentex Industries | SPL Industries | Welspun India |

It appears that the textile space is all set to rise to the occasion. Not only has the free-fall in prices halted,  the domestic market may also see a price rise sooner-than-expected. The sector is also awaiting investments worth over Rs 100 crore towards expansion, mostly organic in nature, by next year.  Of the companies that have plans to expand capacities, we have The Welspun Group, Banswara Syntex , Gujarat Ambuja Exports etc.

Moneycontrol has picked up a universe of 38 textile companies that have market capitalization of Rs 100 crore and above. And Arrow Webtex (a manufacturer of elastic and non-elastic tapes and woven and printed lables) have emerged as a company that have given maximum return in the one year period between October 28, 2005 and October 30, 2006. The stock with a market cap of over Rs 188 crore has given a return of 598% in one year.

Market capitalization wise, Aditya Birla Nuvo emerges as the biggest company clocking in a return of over 57% in one year. Banswara Syntex, which does not feature in out list of universe owing to its market cap of Rs 94 crore, deserves a mention nevertheless. The stock has given a return of 61% in one year and look promising on the back of its expansion plans. 

According to a report by Edelweiss Research, The Welspun Group, Banswara Syntex, Gujarat Ambuja and Fab India  have investment plans of  Rs 3 billion, Rs 2.6 billion, Rs 3.3 billion and Rs 2.8 billion respectively in the near future.

Interestingly, both Welspun India (the terry towel company) and Welspun Syntex (the Synthetic Yarns company) have given negative returns of 16% and 7% respectively in the one year period under consideration.

Export Story
Home textiles are among the most prolific segments as far as exports are concerned. India's textile exports to the US grew by 19.3% in April 2006, allowing it to capture a marketshare of almost 7%.  India has become the USA's leading foreign supplier of towels, and one of its top three foreign suppliers of cotton sheets. Companies that have taken a lead in home textile exports include Welspun India, Abhishek Industries and Alok Industries. Recently, Welspun acquired 85% stake in CHT Holdings, the holding company of UK's largest and number one terry towel brand Christy for Rs 132 crore.

Outlook and Challenge:
Prospects for the domestic textile industry appear healthy, provided that it continues to modernize. This suggests that, with appropriate scale, investment, and technology, it can achieve rapid industrial growth. India has a dominant place in global textile industry. It is the world's second largest producer of textiles and garments after China, third largest producer of cotton (China is No. 1 and USA is No. 2) and second largest consumer of cotton (China is No. 1 ).

India was touted to take on China post WTO in terms of gains from global textile trade. But India remians a distant second to China. The first year of quota-free trade clearly went in favour of China, which retained its top  position. Moreover, the three neighbours -- Pakistan, Bangladesh and Sri Lanka---- have ramped up their textile acts giving tough competition to India. Pakistan's textile industry is planning to invest between $7-10 billion to counter growing global competition, and raise its declining exports. This will be on top of $6 billion, it has already invested over the past five years.

Moreover, some of the companies feel the duty structure for the finished goods in the industry has to be rationalized to reap the benefits in a quota free world. The raw material prices have been very volatile due to high crude prices. The firming up of the rupee against the dollar too affected export margins.

Full table on Page 2