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FY22 landmark year for textile exports as it crosses US$40 billion mark

ICICI Securities 19 Apr 2022

What's Buzzing:

Textile exports continued their healthy growth momentum across categories in March 2022 and exited FY22 with strong numbers. Key positive was ready-made garment (RMG) exports surpassing Rs 13000+ crore mark for the first time in March 2022. Overall, India’s textile & apparel exports have surpassed the US$40 billion mark for the first time (US$41.3 billion) in FY22 (US$34 billion in FY20).

Context:

Exports for RMG grew 28% YoY to Rs 13269 crore (two-year CAGR: 26%) in March 2022. In the last four months, RMG segment has staged a robust recovery with consistent sequential growth of 38.3%, 4.1%, 4.2%, 11%, respectively, in December, January, February and March. Subsequently, for FY22, export for RMG has surpassed pre-Covid levels with growth of ~9% (vs. FY20) to Rs 119434 crore (US$16.0 billion) with the trajectory accelerating significantly in the second half of FY22. Driven by significantly higher yarn prices and volume demand owing to US sanctions on China's Xinjiang cotton, export market for cotton yarn and home textile continued to be healthy with two-year CAGR of 26% in FY22 to Rs 113876 crore (US$15.3 billion). Indian RMG exporters are well placed to capitalise on the opportunities from a shift in demand from China to other low cost Asian countries. In a recent development, the Ministry of Textiles, has selected 61 applicants under production linked incentive (PLI) Scheme for textiles with proposed total investment of Rs 19077 crore and a projected turnover of Rs 184917 crore over five years.

Our perspective:

The global apparel trade market is pegged at US$482 billion (pre-Covid levels) and India's share is miniscule at ~3.4% in the overall trade. Indian apparel exporters, in the past couple of quarters, have witnessed strong customer interest owing to many large global retailers diversifying their sourcing and reducing dependence on China. Indian companies are having healthy order book for the next six months and are also steadily exploring opportunities to expand their garmenting capacities to capitalise on long term growth opportunities. We believe Indian apparel exporters are on the cusp of a breakout owing to conducive business environment with realigning of sourcing pattern by global retailers coupled with increased government focus (approval of Mega Apparel parks, extension of export incentive scheme and pursing FTA with major export markets). In a bid to tame the recent spike in domestic cotton prices (up 22% YTD), the government has exempted cotton imports from 5% basic customs duty and 5% agriculture and infrastructure development cess. We believe the duty free import would aid Indian companies to import cotton at lower than domestic prices (as international price is currently lower by ~11% than domestic cotton price) and thereby aid in stabilising the cotton prices. From our coverage universe, we expect KPR Mills and Gokaldas Exports to be the key beneficiaries of the current trend.

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