Apparel & Textiles
The woes of the textile industry just don't seem to end. While last year it was the rupee appreciation that affected textile exports, this year the weakening of demand in recession-struck US, Europe and Japan is expected to impact export growth significantly.
The case is similar for apparel exporters. The cracks have already started showing.
Apparel Export Promotion Council (AEPC) has estimated that exports may drop to $8.78 billion in this fiscal, 24 per cent below the target set by AEPC for FY09. (Last fiscal, India had exported garments worth $9.69 billion).
This, despite the fact that the rupee has depreciated by more than 20 per cent against the dollar in the current fiscal, is worrisome.
Several foreign retailers like Steeve and Barry's along with Mervyns have filed for bankruptcy while others like Fashion Bug and Catherines are downsizing their operations. Even as retailers begin to cut their sales budgets, their Indian vendors have started experiencing decline in volume growth and pressure on their margins.
The rise in Chinese costs (labour, power, currency, lower export subsidies) by nearly 20 per cent y-o-y will result in increasing competitiveness for India. Also, fall in input costs, especially cotton (has come off its peak, but still remains significantly high annually) is a positive for the sector.
But, analysts feel that companies might be forced to pass on these benefits to the buyers to keep their capacities running.
High balance sheet leverage (debt-equity ratio of 2.8) and substantial exposure to the US (near 60 per cent of sales) are some of the concerns faced by Welspun India. The performance of its European brands and distribution companies, Christy and Sorema (accounting for nearly 20 per cent of sales), is at risk given the slowdown in the European markets.
Gokaldas Exports is also likely to underperform after disappointing Q2FY09 numbers and exports comprising 95 per cent of its business.
Alok Industries (earns 43.4 per cent of revenues from exports) seems to have lost investor favour despite a 50 per cent y-o-y growth in revenues and operating margins of over 30 per cent, mainly due to its high debt-equity of 4.1. Bombay Rayon Fashion (BRFL) is relatively better placed, with stronger earnings visibility (44 per cent EPS growth over FY08-FY10E) and a comfortable leverage position (debt-equity of 1.5).
Image: Indian craftsmen Parmjit Singh (right) and Vishal give the finishing touches to a consignment of clothes at a workshop in Amritsar.
Also read: How India can help ease global financial crisis
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