Apparel companies in India are on the recovery path. The companies also have high cotton inventories, which should aid profitability in the near term. If the recovery in their business continues, they will be in a better position to pass on higher costs once they begin to buy raw material at higher rates.
Also, home textile exporters have a silver lining with the depreciating rupee acting as a cushion against rising cost pressures. Even so, in a rising raw material-cost environment, sustained demand recovery is crucial to pass on costs. Companies with more exposure to the domestic market are better placed now. How strong or durable the recovery will be is the question.
Elevated cotton prices can drive up working capital requirements of textile companies and will warrant a sustained calibration in pricing for end products. This can worsen the scenario for textile exporters, who are on the back foot due to rationalization of export incentives, slow tax refunds under the goods and services tax and a churn in the US, a large market for home textile exporters.
Domestic apparel companies such as Arvind, Page and Rupa are expected to register double digit revenue growth in the June quarter over a year ago.