Spinning Success: The Textile Sector’s Resurgence in India

Recently, there has been a resurgence of investor interest in textile stocks, driven by a cocktail of factors. There’s the China+1 theme making waves, A Civil unrest in Bangladesh threatens disruption coupled with the Indian Government’s impetus to the sector, in the form of Production Linked Incentive (PLI), PM Mitra Schemes, etc. 

Textiles Secretary Rachna Shah pointed out that the Indian textile sector is expected to attract investments to the tune of ₹95,000 crores from the Seven PM Mitra mega textile parks and the PLI schemes for man-made fabrics (MMFs) and technical textile products, as quoted by Business Standard. 

As per an article by the Economic Times, India’s textile hub of Tiruppur is bouncing back as US-based suppliers who earlier were sourcing from Bangladesh are now tapping the Indian market. 

It must also be noted that traders in the UK remain hopeful of an FTA between the two nations. Fibre2Fashion, a market intelligence portal on the textile industry remarks that home-textile exports- cotton-based bed linen & terry towels are well placed to benefit- bringing to the forefront stocks like Trident, Welspun Living, and  Indo Count Industries amongst others.

The question begets, how exactly does one latch onto this theme? Out of a total of 270 stocks directly related to the textile industry, just 32 of them have a market capitalization in excess of 1,000 crores. 

It becomes imperative to note that every textile player is functioning at a distinct level in the value chain. Of course, there might be a few fully integrated players too that have a presence throughout the life cycle. Let’s demarcate them into four types- 

1. Fibre-  Manufacturers/Growers
2. Spinning- Thread/Yarn makers
3. Knitting -  Fabric/ Cloth makers
4. Garmenting- Apparel Manufacturing & Retailing 

The first three business models suffer from inherent weaknesses. They are essentially B2B potboilers with homogenous goods making them classic commodity plays exposed to the vagaries of raw material price fluctuations & government intervention. In other words, there is the curse of a lack of pricing power coupled with a volatile margin profile. 

Let’s turn our attention to the fourth kind i.e. garmenting players with a focus on apparel manufacturing & retailing. Herein, the operating model is primarily B2C- hence the boon of consistency and predictability. These stocks are direct benefactors of the India Consumption Story. And one stock in particular crossed our attention. But before we get to that, have a look at what garmenting majors are saying about demand- 

However, India sourcing is growing. So, even if they are not buying so much more, they are buying much more from India, relatively speaking. So, they are reallocating from other regions to India. So, that is helping us, even that will help us negotiate better. But all of that will happen, in my opinion, from next year onwards. So, we are seeing a volume tailwind in H2, and I hope that it will be augmented by some bit of pricing power also from H1 next year. 

Sivaramakrishnan G. 

Gokaldas Exports 

We are pleased to share that we have seen our revenues jump to an ever quarterly highest of Rs. 2,936 crores, growing by 16% Y-on-Y and 13% quarter-on-quarter. The upcoming holiday season in the U.S. has seen increased buying from all major retailers. Consequently, we witnessed higher capacity utilization on the back of season’s rollout at over 95% of our terry towels, bed sheets, and rugs units. 

Dipali Goenka

Welspun Living

Looking ahead on the outlook, we are optimistic about the upcoming months with the festival season and a strong wedding calendar expected to drive consumer engagement. With nearly 4.8 million weddings projected for November and December alone, this period presents significant demand potential which should benefit key segments across our business. 

Sunil Kataria

Raymond Lifestyle 

Optimism shines through, if management commentary is any indication.

But stock prices tell a different tale, except one- 

Siyaram Silk Mills shows unusual strength in an otherwise weaker broader market, delivering 14%/47%/71% on a 1W/1M/6M timeframe. A noteworthy point is also that the stock has climbed to a fresh 52-week high. 

So, what’s propelling these maniac moves? 

In a press release accompanying its Q2FY25 earnings report on October 26, the company announced the launch of two new retail concepts. The first, “ZECODE,” targets urban shoppers with a focus on trendy and affordable fast fashion. The second, “DEVO,” highlights a diverse range of ethnic wear, celebrating India’s rich cultural heritage and traditional style preferences.

Source- Company Filings, Siyaram Silk Mills 

At the time of this announcement the stock was languishing around ₹535 odd levels- it is trading at ₹786 at the time of writing this article. 

Why is this significant, one might wonder? After all, companies roll out new brands at the turn of every passing hour. 

Focus on the phrases- 

“Fast Fashion” 

“Trendy, Affordable apparel” 

Does any of this ring a bell? 

It's time to turn back the pages of history. Circa FY17

At that time, Zudio was operating under the umbrella of Star Bazaar, a separate entity under the hood of Trent Retail with just one store

Source- Trent Retail FY17 Annual Report 

By FY18, Zudio had transitioned under the umbrella of Trent Retail, marking a significant milestone as the network grew to seven standalone stores. This strategic move also ushered with it meaningful revenue growth.

Source- Trent Retail FY18 Annual Report 

Present day, Zudio has expanded to a massive network of 577 stores across 184 cities far eclipsing the mainstay Westside business. For FY24, Zudio contributed 56% of the total consolidated revenue of ₹12,375 crores for Trent Retail. If we were to extrapolate the current growth rates, Zudio is all set to ring in billion-dollar sales for FY25.

Source- Trent Retail Q2FY25 Investor Presentation 

Needless to say, the stock found its mojo after a decade of mediocrity. In the last 10 years, sales & profits compounded at 18%/59% CAGR respectively. The stock gave a return of 47% CAGR in the same period. 

Economies of scale came into full swing in the last 3 years with sales/profits growing at 68%/101% respectively. Trent rewarded investors handsomely delivering returns of 86% on a 3Y basis. 

Back to base- 

Gaurav Poddar, Executive Director of SIYSIL, further shared his plans- 

“To capitalize on the growing demand, we are expanding our footprint with approx. 30 new fast fashion and ethnic retail outlets by March 2025 of which 12 will be opened by December 2024” 

This is too fast and too furious. To open 30 stores in less than 5 months results signals the vigor and aggressiveness with which the management plans to borrow a leaf out of Trent’s booklet. 

Investors must set their eyes on three things- 

1. Management walking the talk. 
2. The pace of store addition
3. Revenue contribution 

It is worth noting that the ramp-up of new stores will require time, particularly when operating within an untested format. A lot of hope is riding on Siyaram Silk Mills after such a strong upmove. And much of it hinges on just one word- execution.