Textiles stocks: Key triggers set the stage for growth in these two companies

Primarily unorganized, the industry comprises micro, small, and medium enterprises, which account for 80% of its capacity. Global market dynamics significantly influence the sector, and its reliance on raw materials like cotton makes it highly cyclical.

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Textile minister Giriraj Singh has ambitious plans for the sector, aiming to raise its value to $350 billion by 2030 and create 35 million jobs. However, in the short term, the industry has faced challenges. Over the past two years, subdued demand and rising costs have led to a downturn, with textile stocks underperforming even as the broader market delivered record returns.

Recently, however, the sector has shown signs of recovery. We explore the reasons behind the slowdown, its impact on stocks, and two promising companies to watch in 2025.

Why textile stocks have struggled

Russia-Ukraine war: The global economy was relatively stable until 2021, but the Russia-Ukraine conflict in early 2022 disrupted this equilibrium. The invasion severely impacted Ukraine and sent shockwaves across the global economy, particularly in the European Union (EU), as energy prices surged to record highs.

Higher inflation: Inflation soared globally, hitting the EU hardest due to its reliance on Russian gas. Central banks worldwide responded by raising interest rates to curb rising costs, further straining the global economy. Supply chain disruptions added to the burden, escalating costs for businesses and consumers alike. This slowdown significantly impacted India’s primary textile export markets—the EU and the US

Surging cotton prices: Even before the war, cotton prices—a critical raw material for Indian textiles—were on the rise. The war-induced uncertainty, combined with soaring energy costs, exacerbated this issue, making production increasingly expensive for Indian manufacturers.

Loss of competitiveness against Bangladesh: High production costs eroded India’s competitiveness in the global market. Countries like Bangladesh benefited from lower costs and duty-free access to key markets, further challenging Indian exporters.

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Excess inventory build-up: The combination of high inflation and slowing economies reduced consumer purchasing power, dampening demand for textiles. Retailers, unable to clear existing stock, halted new orders, significantly affecting Indian manufacturers. Adding to this, major retailers like Zara, H&M, and Mango suspended operations in Russia, further reducing orders.

This impact was stark in places like Tiruppur, Tamil Nadu, a key textile hub in India, which saw a 20-25% decline in exports to the EU following the invasion of Ukraine.

Despite these challenges, the tide appears to be turning. While the recovery is gradual, signs of demand resurgence are beginning to emerge, offering hope for a brighter future for the Indian textile industry.

Signs of revival

In its latest report on the textile sector, JM Financial noted that the global de-stocking cycle has concluded. The firm anticipates a pickup in demand during the second half of FY25 as retailers gear up for the holiday, festival, and wedding seasons. Export activity is also expected to gain momentum in this period, signalling a potential recovery for the sector.

Dhaka turmoil: A boon for India’s textile industry?

Bangladesh, the world’s second-largest textile exporter, holds a 6.8% share of the global market, with 60% of its production catering to the US and EU markets. Until recently, its textile industry was operating smoothly.

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However, political turmoil has disrupted the sector, with factory shutdowns and wage-related protests sparking significant unrest. For retailers dependent on Bangladeshi imports, this instability has raised serious concerns.

Much like the China+1 strategy, many retailers are now looking to diversify their supply chains beyond Bangladesh. India has emerged as a viable alternative, driven by its robust economic growth and competitive labour costs. These factors have led to a surge in order bookings and inquiries for Indian textile companies. Additionally, falling cotton prices and reduced shipping costs are expected to boost profit margins in the sector.

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These developments have sparked renewed interest in textile stocks, many of which have already seen a strong rally.

Against this backdrop, we focus on two textile stocks poised for growth. Both companies have significant expansion plans set to materialize in the coming months, positioning them to capitalize on what appears to be a burgeoning market opportunity. Let’s dive in.

Arvind Ltd

Arvind Ltd, a name synonymous with India’s textile legacy, has been a pioneer in the industry for over eight decades. Known as the world’s largest denim manufacturer, the company is also recognized for its innovative textile solutions.

While Vietnam offers cheaper labour than India, it struggles to fully meet the demand previously fulfilled by Bangladesh. This creates a significant opportunity for Arvind, which is cost-competitive with Bangladesh, though slightly behind Vietnam.

To bridge this gap and stay ahead in the global market, Arvind has invested ₹50-60 crore to boost operational efficiency. This strategic move not only enhances its pricing competitiveness but also strengthens its position globally. With these improvements, Arvind aims to attract larger orders and compete directly with Vietnam on cost.

The company is also broadening its product offerings. Known for its expertise in men’s apparel, Arvind plans to expand into children’s and women’s clothing. Women’s wear, in particular, offers higher profit margins, and the company aims to increase its overall margin to 12-13% from the high single digits over the next 1.5 years.

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Arvind is further ramping up its production capacity, with new facilities expected to be operational by the end of FY25. Additionally, it is targeting new business opportunities, including contracts with Indian Railways, which are anticipated to boost revenue in the coming quarters. Encouragingly, its performance has already seen a significant turnaround in FY25.

In Q3 FY25, Arvind reported its highest revenue in two years, totalling ₹2,188 crore—a 19.5% quarter-on-quarter increase and a 13.8% rise year-on-year (YoY). Profit before tax surged 150% sequentially, and 19.5% YoY to ₹135 crore during the same period.

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The company’s share price has rallied recently, breaking out to an all-time high. Despite the surge, it still presents a decent risk-reward opportunity, with strong downside support near its trendline.

On the valuation front, Arvind trades at a price-to-earnings (P/E) ratio of 40.5, significantly higher than the sector’s median P/E of 13.9. However, this aligns with its P/E during its peak in late 2021. It’s also worth noting that cyclical businesses like textiles often trade at higher P/E ratios during sector downturns due to suppressed earnings.

Welspun Living

Welspun Living stands as a prominent player in the global home solutions market, with operations spanning over 50 countries. The company operates across three primary segments: Home Textiles, Advanced Textiles, and Flooring Solutions. It has major manufacturing facilities in Vapi and Anjar, Gujarat, and a flooring plant in Telangana.

What sets Welspun apart is its dual focus on strategic expansion and debt reduction. Leveraging growing opportunities in the U.S. market, the company has established a new pillow manufacturing facility in Ohio. The plant, which has recently commenced commercial production, is expected to ramp up to its full capacity of 13 million pillows annually by FY27. Once operations stabilize, Welspun plans to expand further with a second facility on the US West Coast.

Domestically, Welspun is expanding its textiles segment by investing ₹3.4 billion in its Anjar plant. This facility, expected to be operational by Q4 FY25, has a revenue potential of ₹450-500 crore and has already secured orders. The expansion will significantly enhance production capacity and drive revenue growth while maintaining healthy margins.

The company is also extending its retail footprint through aggressive franchise expansion. By FY27, Welspun aims to increase its franchise count from 25 to 350. It plans to expand its retail outlets from 20,000 to 50,000 and double the number of stores in the US and UK

Welspun’s focus on improving financial health is equally noteworthy. Net debt has declined sharply from ₹30 billion in FY21 to ₹13.5 billion in FY24, with a target to achieve net-zero debt by FY28. This reduction in debt will significantly cut interest costs, bolstering earnings over time.

Despite a year of stagnant revenue, Welspun’s financial performance has shown signs of improvement. In the September quarter, revenue rose 13.2% quarter-on-quarter and 14.5% YoY to ₹2,873 crore. Profit increased 8.6% sequentially, though it remained flat on a YoY basis.

From a valuation perspective, Welspun trades at a price-to-earnings (P/E) ratio of 24.5, slightly above its 5-year median P/E of 19.8. On the technical front, the stock is consolidating but appears poised for an upside breakout, supported by strong downside levels.

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With robust expansion plans, a clear debt-reduction strategy, and strong revenue visibility, Welspun Living is well-positioned to solidify its leadership in the global home solutions market.

In conclusion

Timing is everything in a cyclical industry, and the textile sector is no exception. After a challenging two-year downturn, the industry is gaining momentum, with demand rebounding and cotton prices declining. These factors are expected to drive revenue, profits, and margins in 2025, keeping the sector in the spotlight.

Both Arvind and Welspun are well-positioned to capitalize on this recovery, with their expansion projects set to become operational in the coming months. As demand continues to rise, these developments could accelerate their growth trajectory.

For more such analysis, read Profit Pulse.

Against this backdrop, it might be worth keeping an eye on select textile stocks to see how this opportunity unfolds.

Note: This article relies on data primarily sourced from www.Screener.in and Tijorifinance. In cases where data was unavailable, alternative but widely recognized and accepted sources have been used.

The purpose of this article is to present intriguing charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you are considering an investment, please consult a qualified advisor. This article is strictly for educational purposes.

About the author: Madhvendra, a seasoned financial content writer, has been passionately following the equity markets for over seven years. He enjoys reading and sharing his candid opinions on publicly listed Indian companies and macroeconomic trends.

Disclosure: The writer holds shares in the stocks discussed in this article.