The second covid-19 wave may slightly impact the textile sector's supply and demand dynamics primarily in 1Q FY22, according to the India Ratings and Research (Ind-Ra).
However, a sustained export demand, learnings from the first wave, stronger balance sheet and liquidity compared to 4Q FY20 when the first wave struck the economy will enable the sector credit profile to remain stable in FY22.
Ind-Ra said the supply chain has been impacted by local lockdowns imposed at key textile hubs like Tirupur, Ludhiana, Surat and Bhilwara. The restricted movement of goods means non-availability of inputs such as yarns and fabric is likely to have a short-term impact on the finished output.
The labour availability has also been impacted but moderately and at much lesser severity than that during the first wave. Shop floors are likely to remain functional at a few plant sites but a restricted occupancy level.
"However, 1Q FY22 may not be a lost quarter, thanks to strong export markets," said Ind-Ra. "Moreover, most cotton textile players will have adequate inventory given the second wave has hit in April and May, and because the fresh inventory is available during November to March."
This supply chain disruption may lead to 20-30% year-on-year of reduction in toplines in 1Q FY22. Again, the recovery expectation varies depending on the sub-sector.
Export-focused garments and home textiles are likely to remain resilient compared to the spinning and fabric segment. The export order book was reported to be higher at end-March 2021 with garment players.
However, the 1Q FY21 shipments are likely to get deferred to 2Q FY22. Challenges on the availability of containers and high shipping costs however have been impacting profitability since 3Q FY21 and are likely to remain so in the near term.
Such beyond 1Q FY22, Ind-Ra assumes a demand recovery across sub-segments, driven by the unleashing of pent-up demand in 2H FY22 with the start of retail, offices, educational institutions, social functions among other things but moderately countered by weak household balance sheets.