Industry Needs To Gear Up For Falling Consumer Confidence, Spending

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The last fortnight witnessed a lot of humdrum after the North India Textile Mills Association (NITMA) released an advertisement about the pathetic state of the textile industry, and the urgent need for ever more government support, if textile jobs are to be saved.

In an earlier report we had mentioned that to some extent the slowdown is a seasonal phenomenon. As the festive season draws near, activity in the processing sector has picked up.

Some clusters that were reporting 40% capacity utilisation in the last few months, have ramped up utilisation to 90%. And this will spur activity in the rest of the textile sectors.

However, that is not to deny that there is a problem in the spinning sector – domestic market demand is dull, China isn’t buying as much yarn as the Indian industry had gotten used to, Bangladesh has yarn inventories too. But is the situation as dire as being made out by NITMA and others? Let’s take a quick look at the first quarter corporate results of some of the leading textile players.

Arvind Fashions Q1 net loss at Rs 95.36 cr
Arvind Fashions reported a net loss of Rs 95.36 crore for the first quarter ended June 30. The company had posted a net loss of Rs 15.29 crore in April-June quarter a year ago. Its revenue from operations was Rs 900.94 crore during the quarter under review. It was Rs 1,006.83 crore in the corresponding quarter previous fiscal. Meanwhile, the company said its results are “are not comparable with the year ended March 31, 2019 and quarter ended on June 30, 2018” due to scheme of arrangement for demerger of Branded Apparel undertaking of Arvind Ltd to Arvind Fashions Ltd.

Commenting on the results Arvind Fashions MD and CEO J Suresh said: “We have taken few strategic decisions during the quarter that had a negative impact on the reported quarterly financial results, but it will set us up for consistent growth going forward. There is indeed a slowdown in consumption that is impacting the economy”.

Raymond posts Q1 net loss of Rs 12.20 cr
Diversified Raymond Ltd reported a consolidated net loss of Rs 12.20 crore for the first quarter ended June 2019. The company had posted a net profit of Rs 1.92 crore in the April-June period a year ago.

However, net sales rose 14.74% to Rs 1,435.12 crore as against Rs 1,250.66 crore in the corresponding quarter of the previous fiscal. “We have delivered a healthy top line growth in a moderate quarter witnessing sluggish market conditions, subdued consumer sentiment and liquidity crunch impacting our trade channel,” Raymond Chairman and Managing Director Gautam Hari Singhania said. Total expenses was at Rs 1,480.51 crore as against Rs 1,281.01 crore earlier, up 15.57%. Operating expenses, as a percentage of sales, declined YoY. This led to an uptick in EBITDA margin.

While the company’s branded apparel and shirting fabric segments seem to be doing fairly well, it’s the branded suiting fabric division that will have to meaningfully contribute to overall growth and profitability. Branded textiles, which account for 40% of Q1  sales saw a sharp drop in offtake. Gross margin declined marginally YoY, indicating unfavourable raw material prices. Depreciation and interest costs rose significantly YoY due to Ind AS 116 implementation. As a result, bottom line was negative.

Of late, prices of cotton, polyester and wool, the main raw materials used by Raymond, have been softening. This should ease the pressure on gross margin, especially in the branded textile segment (comprising suiting fabric and B2C shirting fabric).

Going forward, top line growth in this segment (target for FY20 – mid to high single digit) would be achieved through a blend of high-value and economy products. In case of the latter, emphasis will be laid on foraying into new and relatively under-penetrated geographies.

In case of B2C shirting, inventory correction, which was initiated in Q4 FY19, is expected to conclude by the early days of H2 FY20. This may reduce strain on the margins.

The company’s Ethiopian factory had low utilisation levels due to political uncertainty in  the  country. This segment contributes 18-20% of the revenue of the segment. The export order book for April-December 2019 is full at the moment.

A downtrend in rural demand will continue to hurt growth strategies. Top line traction may be subdued during the remainder of FY20. Dealers in the wholesale and retail channels have also been facing a cash crunch, which only aggravates the problem.

In branded apparel, margins in the near future are anticipated to come under pressure. This can be attributed to extended end-of-season-sale phases, higher contribution from value-priced products and an increase in overheads.

Starting September 2019, with seasonality kicking in, the company should see a visible improvement in its numbers, especially from a sequential (quarter-on-quarter) perspective. It remains to be seen as to how the negative free cash flows and extended working capital cycles (as seen in Q1) are managed amid the slowdown.

Trident net profit up 107.81%
Trident’s Q1FY20 net profit jumped 107.81% to Rs 122.4 crore against Rs 58.9 crore in the same quarter last year. Revenue rose 15.5% to Rs 1,312.1 crore versus Rs 1,136.4 crore.

The board of directors declared first interim dividend of Rs 0.90 (9 percent) per fully paid up equity shares of Rs 10 each for the financial year 2019-20.

Trident’s paper segment revenue stood at Rs 248 crore in Q1FY20 as compared to Rs 215.5 crore in Q1FY19 registering a growth of 15.3%. Textile segment revenue stood at Rs 1057.4 crore in Q1FY20 as compared to Rs 915.8 crore Q1 FY19 registering a growth of 15.4%.

Indo Count net sales up 4.4% Y-o-Y
Indo Count reported net sales at Rs 476.97 crore in June 2019 up 4.4% from Rs 456.88 crore in June 2018. Quarterly net profit at Rs 33.63 crore in June 2019 was up 16.77% from Rs 28.80 crore in June 2018. EBITDA stands at Rs 69.46 crore in June 2019 up 8.38% from Rs 64.09 crore in June 2018.

Welspun India Q1 net profit up 17.49%
Welspun India reported a 17.49% increase in consolidated net profit at Rs 156.07 crore for the quarter ended June 30. The company had posted a net profit of Rs 132.83 crore for the corresponding period of the previous financial year.

Total income during the quarter under review stood at Rs 1,736.29 crore, up 10.04%, as against Rs 1,577.78 crore reported in the corresponding quarter a year ago.

Earlier this month, Welspun India said it received preliminary court approval for settlement of its litigation in the US with regards to labelling and marketing of Egyptian cotton products.

In May this year, Welspun India had announced that the company and its subsidiaries, which have been facing litigation in the US surrounding its premium cotton home textile products, have entered into a settlement agreement in the US. The settlement agreement provides monetary payments to settlement class members not exceeding US$ 36 million (about Rs 250 crore). Welspun had reported a consolidated loss of Rs 78.43 crore for the quarter ended March 31, 2019, due to exceptional expense of Rs 224.01 crore related to settlement of litigation in the US with regards to labelling and marketing of Egyptian cotton products.

Vardhman Textiles Q1 net profits down 27.05%
Vardhman Textile reported net sales of Rs 1650.36 crore during Q1 2019-20, down 2.92% from Rs 1699.97 crore in the same quarter of 2018. Quarterly net profit stood at Rs 116.08 crore in June 2019 down 27.05% from Rs 159.13 crore in June 2018.

EBITDA stands at Rs 283.30 crore in June 2019 down 11.32% from Rs 319.47 crore in June 2018. Vardhman Text EPS has decreased to Rs. 20.55 in June 2019 from Rs. 28.20 in June 2018.

Kitex Garments net profit rises 11.41%
Net profit of Kitex Garments rose 11.41% to Rs 13.96 crore in the quarter ended June 2019 as against Rs 12.53 crore during the previous quarter ended June 2018. Sales rose 18.49% to Rs 145.56 crore in the quarter ended June 2019 as against Rs 122.85 crore during the previous quarter ended June 2018.

JBF Industries net sales down 18.18% Y-o-Y
JBF Industries reported net sales at Rs 717.51 crore in June 2019 down 18.18% from Rs 876.94 crore in June 2018. Quarterly net loss stood at Rs 60.19 crore in June 2019 down 21.42% from Rs 49.57 crore in June 2018. EBITDA stands at Rs 18.40 crore in June 2019 down 57.07% from Rs 42.86 crore in June 2018.

SRF’s strong Q1 show
SRF registered 42% jump in its Q1 profit to Rs 189.2 crore against Rs 133.8 crore in the same quarter last year. Revenue of the company increased 9% at Rs 1,828.4 crore versus Rs 1,676.2 crore. The board of directors of the company declared interim dividend at 70% i.e. Rs 7 per share on the paid-up equity share capital of the company. The board also approved a project for setting up of an integrated facility for the development of PTFE at an estimated cost of Rs 424 crore. The proposed capacity addition is 5,000 MTPA by October 31, 2021 with mix of debt and internal accruals.

Himatsingka Seide net sales up 9.77% Y-o-Y
Himatsingka Seide reported net sales at Rs 639.53 crore in June 2019 up 9.77% from Rs 582.59 crore in June 2018. Quarterly net profit at Rs 45.25 crore in June 2019 was up 1.53% from Rs 44.57 crore in June 2018. EBITDA stands at Rs 143.08 crore in June 2019 up 6.54% from Rs 134.30 crore in June 2018.

Mandhana Industries’ standalone net profit of Rs 0.36 crore
Net profit of Mandhana Industries was Rs 0.36 crore in the quarter ended June 2019 as against net loss of Rs 4.61 crore during the previous quarter ended June 2018. Sales rose 24.56% to Rs 83.37 crore in the quarter ended June 2019 as against Rs 66.93 crore during the previous quarter ended June 2018.

Sutlej Textiles net sales up 5.41% Y-o-Y
Sutlej Textiles reported net sales at Rs 648.64 crore in June 2019 up 5.41% from Rs 615.36 crore in June 2018. Quarterly net profit at Rs 8.56 crore in June 2019 was down 0.81% from Rs 8.63 crore in June 2018. EBITDA stands at Rs 50.81 crore in June 2019 down 8.17% from Rs 55.33 crore in June 2018.

Indo Rama net sales up 50.01% Y-o-Y
Indo Rama Synthetics’ reported net sales of Rs 533.33 crore in June 2019 up 50.01% from Rs 355.54 crore in June 2018. Quarterly net loss at Rs 30.04 crore in June 2019 down 2.88% from Rs 29.20 crore in June 2018. EBITDA stands at Rs 7.86 crore in June 2019 up 1207.04% from Rs 0.71 crore in June 2018.

Shoppers Stop reports Q1 net loss of Rs 10 lakh
Retail chain Shoppers Stop reported a consolidated net loss of Rs 10.17 lakh for the quarter ended June 30, 2019. The company had posted a net profit of Rs 4.73 crore in the corresponding quarter a year-ago. Total income during the quarter under review stood at Rs 856.32 crore, as against Rs 858.1 crore in the year-ago period. “Whilst the country’s economic growth has slowed down in overall consumption, impacting primarily agriculture, retail and manufacturing, Shoppers Stop achieved a mid-single digit 5.2% like-to-like sales growth, in line with our expectations,” Rajiv Suri, Customer Care Associate, MD and CEO, Shoppers Stop said.

“We continue to invest in our private brands, design studio, sampling units and testing labs that are now operational. We expect to see a positive impact in our collection range from the coming season,” he added. At present, the company operates 83 department stores stores across 40 cities.

Trent Q1 net profit at Rs 36.32 cr
Tata group retail firm Trent Ltd reported a consolidated net profit of Rs 36.32 crore for the first quarter ended June 2019. The company had posted a net profit of Rs 35.90 crore in the April-June period a year ago. Total income during the quarter under review stood at Rs 823.90 crore.

It was Rs 622.75 crore in the corresponding quarter last fiscal. Meanwhile, the company said its “operating results are primarily not comparable” on account of adoption of new accounting standard. Its total expenses were at Rs 753.99 crore.

Nahar Spinning Mills net profit declines 77.01%
Net profit of Nahar Spinning Mills declined 77.01% to Rs 3.18 crore in the quarter ended June 2019 as against Rs 13.83 crore during the previous quarter ended June 2018. Sales declined 8.41% to Rs 533.54 crore in the quarter ended June 2019 as against Rs 582.52 crore during the previous quarter ended June 2018.

Page Industries net sales up 2.42% Y-o-Y
Page Industries reported net sales of Rs 834.96 crore in June 2019 up 2.42% from Rs 815.26 crore in June 2018. Quarterly net profit was at Rs 110.67 crore in June 2019 down 11.06% from Rs 124.44 crore in June 2018. EBITDA stands at Rs 192.11 crore in June 2019 down 2.21% from Rs 196.45 crore in June 2018.

Banswara Syntex consolidated net profit rises 1143.48%
Net profit of Banswara Syntex rose 1143.48% to Rs 11.44 crore in the quarter ended June 2019 as against Rs 0.92 crore during the previous quarter ended June 2018. Sales rose 13.08% to Rs 335.61 crore in the quarter ended June 2019 as against Rs 296.79 crore during the previous quarter ended June 2018.

KG Denim net sales down 22.14% Y-o-Y
KG Denim reported net sales at Rs 125.30 crore in June 2019 down 22.14% from Rs 160.92 crore in June 2018. Quarterly net loss was at Rs 4.21 crore in June 2019, down 977.08% from Rs 0.48 crore in June 2018. EBITDA stands at Rs 5.71 crore in June 2019 down 50.73% from Rs 11.59 crore in June 2018.

From the above, it is clear that the industry is facing a slowdown, which may take some time to recover, as consumer confidence and consumer spending is also impacted..

Consumer confidence and spending is on a downward trend
Amid a persisting economic slowdown, consumer confidence has fallen and pessimism prevails for spending, investment, and jobs. With a drop of 3.1 percentage points in August 2019, the losing confidence among urban Indians is evident, according to a recent survey. “Urban Indians are feeling less confident about the economy and jobs and further, there is a bit of a tightening in personal spending and investments for the future,” Parijat Chakraborty, Country Service Line Leader, Public Affairs & Corporate Reputation, Ipsos India said.

“Macroeconomic factors (both global and local) are definitely impacting the mood, making the indicators drop, month on month,” Chakraborty added.

The consumer sentiment has been on a downward trend since May 2019, except for a marginal improvement in July 2019. For August, the PCSI (Primary Consumer Sentiment Index) is downbeat across all the four parameters viz the PCSI Employment Confidence (Jobs), the PCSI Economic Expectations (Expectations), the PCSI Investment Climate (Investment) and the PCSI Current Personal Financial Conditions (Current Conditions).

The survey, which was conducted on Upper-deck consumer citizens, may not be reflective of the general population.
However, “the online sample is particularly valuable in its own right as the respondents are more urban, educated and have more income than their fellow citizens,” Ipsos-Thomson Reuters said. The situation could be even worse for the rural segment which has led the slowdown for FMCG companies.

The results of the Ipsos-Thomson Reuters survey are in line with the slowdown in FMCG and auto sales. However, the current state of the economy is likely to stay for some time as the RBI Governor Shaktikanta Das said that there is “clear evidence of domestic demand slowing down further,” he said in the MPC minutes of the Reserve Bank of India’s August meeting. The government now plans to bolster dwindling domestic demand and support investment activity on priority.

“Shoppers are more planned in their purchases, so-called impulse purchases have come down,” said Vasanth Kumar, managing director of Lifestyle International that runs a chain of departmental stores. Kumar added that the apparel retailer has also been witnessing a dip in footfall over the last few months prompted by new store openings and muted demand.

In response, retailers are not overstocking inventory and are holding on to any price hikes. Promotions inside stores are compensating for the drop in footfalls, he added. “The rate cut could make a difference to middle income households,” said Nandi. “With higher liquidity in the system, we expect banks to respond positively by transferring the benefit to borrowers through interest rate cut. This will lead to an increase in disposable income at the hands of borrowers and create a spike in consumption,” he added.

FPI surcharge removal, stimulus measures likely to boost markets: Experts
The government has tried to improve the liquidity in the market by removing enhanced surcharge on FPIs and also unveiled various measures to jumpstart growth.

The Budget proposal to hike surcharge on FPIs had spooked foreign investors, who withdrew more than US$ 3.4 billion (Rs 24,500 crore) from domestic equities in July and August. The massive capital outflows also put pressure on the rupee, which slumped to 72-level against the US dollar last week. The Centre also announced a raft of measures to revive growth momentum, including exempting startups from ‘angel tax’, a package to address distress in the auto sector and upfront infusion of Rs 70,000 crore into public sector banks.

Textile IEMs from April-June 2019
During April-June, 54 textile related IEMs were filed with the DIPP. This includes yarn production (cotton, MMF, blends)  of 238502 tons, fabric weaving of 50.63 million meters, fabric processing of 67 million meters, and RMG production of 667 million pieces.

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