Textile sector on verge of breakout? Can textile sector be the next wealth creator?

Summary

This video explores the potential resurgence of India's textile sector, which has underperformed for over two years but now shows promising signs. The host discusses three key reasons for the sector's past underperformance, including low demand, high inventory, and fluctuating cotton prices, and outlines factors like China's trade conflicts and government support that could drive future growth. The video also examines the value chain of the textile industry, highlighting top players and stocks favored by institutional investors and ace investors, suggesting a bullish outlook for the sector.

Takeaways

• 📈 The textile sector in India is anticipated to be the next wealth creator, with many FII's and HNI's investing in it.
• 📉 The sector has underperformed for over two years due to low demand, high inventory, and a surge in cotton prices.
• 🔍 Three reasons for the recent underperformance include reduced consumer spending, high inventory leading to losses, and increased cotton prices affecting margins.
• 🌟 The demand is picking up as inflation eases, and retailers are sitting on low inventory, signaling a potential increase in order books.
• 📉 The fall in cotton prices is expected to boost the profitability of textile companies.
• 🌐 The 'China Plus One' strategy, where companies are reducing dependency on China, positions India as a beneficiary and a key growth driver.
• 🏭 The Indian government's support, with a set export target and possible extension of the PLI scheme, is another growth driver for the sector.
• 🧵 The value chain of the textile sector includes spinners, garment manufacturers, made-ups, and technical textiles, each with key players.
• 💹 Stocks like Goa Export, KPR Mill, and Phase Three have seen significant interest from top FII's and are expected to perform well.
• 📊 The script emphasizes the importance of research and timing in investment, warning against blindly following advice and highlighting the potential for both gains and losses in the sector.

Q & A

What was the performance of the textile sector stocks during the COVID period?

During the COVID period, the textile sector stocks generated exponential returns, with some stocks like Gochuan and KPR Mill experiencing over 10 times returns.

Why has the textile sector underperformed in the past two years?

The textile sector underperformed due to low demand during COVID, high inventory issues, and a surge in cotton prices which led to a sharp decline in profit margins.

What are the current signs of recovery in the textile sector?

The recovery signs include easing inflation, increased demand, low inventory levels among retailers, and a drop in cotton prices, which are expected to boost the sector's profits.

What is the 'China Plus One' strategy and how does it benefit the Indian textile sector?

The 'China Plus One' strategy refers to companies reducing dependency on China due to trade conflicts. India has emerged as a significant beneficiary of this trend, attracting more textile business.

What is the Indian government's target for textile exports?

The Indian government has set a textile export target of $100 billion for FY23, up from the previous exports of $35 billion.

Which are the key players in the textile value chain?

The key players in the textile value chain include spinners, garment manufacturers, made-ups, and technical textile companies.

How do spinners in the textile sector get affected by raw material price changes?

Spinners are more volatile to raw material changes. If raw material prices like cotton go down, spinners make more profit, and vice versa.

What are some of the top companies in the garment manufacturing segment of the textile sector?

Some top companies in the garment manufacturing segment include KPR Mill, Gochuan Exports, and Rupa.

Which companies have been attracting investments from top FIs and HNIs in the textile sector?

Companies like Gochuan Exports, KPR Mill, and Phase Three have been attracting investments from top FIs and HNIs, indicating their potential for growth.

What is the significance of the recent investment by top FIs, DIS, and HNIs in textile stocks?

The recent investment by top FIs, DIS, and HNIs suggests that the textile sector is attractive and may be ready for the next phase of growth.

What are the long-term growth drivers for the Indian textile sector mentioned in the script?

The long-term growth drivers for the Indian textile sector include the 'China Plus One' strategy, government support, and the potential for increased exports.

Outlines

00:00

📈 Textile Sector's Past Performance and Future Potential

The speaker begins by reminiscing about the exponential returns the textile sector experienced during the COVID-19 pandemic but notes that it has underperformed for over two years since. They reference their past analysis that predicted a rally in the Indian textile sector, attributing this to consistent investments by Foreign Institutional Investors (FIIs) and High Net-Worth Individuals (HNIs). The video aims to explore the reasons behind the textile sector's potential as a wealth creator, analyze the value chain of the textile segment, and identify top players and stocks favored by major investors. A disclaimer is issued, emphasizing the video's educational purpose and advising viewers to conduct their research before investing.

05:00

🧵 Understanding the Textile Sector's Value Chain and Key Players

The speaker delves into the textile sector's value chain, starting with spinners who manufacture yarn used by garment manufacturers. They explain that spinners operate on lower margins and are sensitive to raw material price changes, which can significantly impact profits and share prices. The speaker lists key companies in this category, such as Waman Textile, Nahar Spinning, and Sportking India. They also discuss the garment manufacturing segment, dividing it into companies that produce apparel and those that manufacture innerwear and winter wear, with examples like KPR Mill and Rupa. The segment concludes with a look at made-ups and technical textiles, highlighting companies like Indo Count and Trident Group, and noting the potential for growth in these areas.

10:03

📊 Analyzing Top Textile Stocks and Investor Sentiments

The speaker examines specific textile stocks and the investment trends of top FIs, DIs, and HNIs. They detail the financial performance and growth of companies like Goa Exports and KPR Mill, noting the increase in F and DI stakes and the potential for these stocks to reflect industry upcycles. The discussion includes the performance of micro-cap companies like Phase Three and Sportking India, and the strategic investments of prominent investors like Ashish Kacholia and Mul Agrawal. The speaker concludes by emphasizing the textile sector's attractiveness to investors due to factors like improved demand, low retailer inventory, reduced cotton prices, the 'China Plus One' strategy, and government support. They invite viewers to share their thoughts on the video and request further analysis on specific textile companies.

Keywords

💡Textile Sector

The textile sector refers to the industry that involves the production of fibers, yarns, fabrics, and garments. It is a significant part of the global economy, encompassing a wide range of products and processes. In the video, the textile sector is highlighted as a potential wealth creator, especially in India, due to recent market trends and government initiatives. The speaker discusses the sector's underperformance in the past two years and the factors that are now making it promising for investors.

💡Exponential Returns

Exponential returns refer to a situation where an investment grows at a rate that is proportional to its current value, leading to rapid and significant increases in value over time. In the context of the video, the speaker recalls how certain textile stocks generated exponential returns during the COVID-19 pandemic, indicating a period of exceptional growth for those investments.

💡Underperformance

Underperformance in the financial context means that an investment or sector has not met the expected returns or has performed worse than comparable investments. The video discusses the textile sector's underperformance over the past two years, attributing it to factors such as low demand, high inventory issues, and surges in cotton prices.

💡Wealth Creator

A wealth creator in the financial sense is an investment or sector that has the potential to generate significant returns and increase an investor's wealth. The video suggests that the textile sector could be the next wealth creator due to various factors such as improving demand, low retailer inventories, and favorable government policies.

💡Value Chain

The value chain in business refers to the sequence of activities a company performs to deliver a product or service to the market. In the video, the speaker analyzes the value chain of the textile sector, which includes spinners, garment manufacturers, made-ups, and technical textiles. Understanding the value chain helps investors identify key players and potential areas for growth within the sector.

💡Spinners

Spinners are companies that produce yarn from fibers, which is a crucial step in the textile manufacturing process. In the video, spinners are highlighted as a segment of the textile industry that can benefit significantly from an upcycle in the sector due to their sensitivity to raw material price changes and their potential for profit when raw material costs, such as cotton, decrease.

💡Garment Manufacturers

Garment manufacturers are companies that produce clothing and other textile products by cutting and sewing fabric. The video discusses garment manufacturers as a key segment within the textile sector, with some companies focusing on apparel for different demographics, while others may specialize in innerwear or winter wear. The financial performance and stock price movements of these companies are influenced by their market focus and operational efficiency.

💡Technical Textiles

Technical textiles refer to textile materials that are specifically designed for their technical performance and are used in various industries beyond fashion, such as automotive, medical, and industrial applications. In the video, technical textiles are mentioned as a segment with diverse applications, including sports nets, fishing nets, and agricultural uses, indicating a broad market potential for these specialized products.

💡China Plus One

China Plus One is a strategy adopted by companies to diversify their supply chains by adding an alternative manufacturing base to their operations in China. This strategy is often driven by geopolitical tensions and trade wars. The video suggests that India is emerging as a beneficiary of this trend, with the textile sector poised to gain from the shift in global manufacturing dynamics.

💡Government Support

Government support in the context of the video refers to the initiatives and policies implemented by the Indian government to boost the textile sector, such as setting export targets and providing production-linked incentives. These measures are seen as catalysts for the sector's growth, attracting investments and fostering a competitive environment for domestic textile companies.

Highlights

The textile sector in India is on the verge of the next set of rally after underperforming for over two years.

Many Foreign Institutional Investors (FIIs) and High Net Worth Individuals (HNIs) are consistently investing in the textile sector.

Three key reasons for the underperformance of the textile sector include low demand during COVID, high inventory issues, and a surge in cotton prices.

The demand for the textile sector is picking up as inflation eases and retailers' inventory is low.

The Indian government has set a textile export target of $100 billion, indicating strong support for the sector.

The value chain of the textile sector includes spinners, garment manufacturers, made-ups, and technical textiles.

Spinners operate on lower margins and are more volatile to raw material changes, which can impact profits and share prices.

Garment manufacturers are divided into two segments: apparel and innerwear, with companies like KPR Mill and Rupa being key players.

Made-ups include home textiles, with companies like Indo Count and Trident Group being significant players.

Technical textiles, which are man-made fibers, have applications in sports, agriculture, and home textiles.

Gokaldas Exports is a preferred company by top FIs and has seen a consistent increase in FII stake.

KPR Mill has been a consistent wealth creator, with its share price increasing significantly over the last decade.

Phase Three, a micro-cap company, has seen increased investment from Ace investor Ashish Kacholia.

Lux Industries and Indo Count are part of Mr. Mul Agrawal's portfolio, indicating his confidence in the sector's growth.

Rupa is part of Mr. Sunil Singha's portfolio, with a 4.2% stake held by him.

The recent investment by top FIs, DIs, and HNIs suggests that the textile sector is attractive and ready for an upcycle.

The video concludes with an invitation for viewers to share their thoughts on textile stocks and request further analysis on specific companies.

Transcripts

hey everyone I still remember the covid

period when textile sector stock

generated exponential returns however

it's been more than two years since it

has underperformed if you recall I did a

detailed analysis during the beginning

of this year and discussed why I think

that the textile sector in India is on

the wge of the next set of rally in fact

I've been observing that many FIS dis

and hnis are consistently investing in

the textile sector so in this video

we'll first try to understand the reason

behind why textile sector can be the

next wealth Creator then we'll look at

the entire value chain of textile

segment and top player in the segment

and then we'll also look at the textile

stocks where top institutions and Ace

investors are bullish but before you

begin a disclaimer that this video is

only for Education purpose the idea is

to share my knowledge please don't

blindly invest based on this video do

your research to build conviction before

investing all right let's get started to

begin with let us take a few case

studies and understand the rise in

textile stocks during covid and then

correction and consolidation for

instance go export zoomed from lows of

30 rupe in March 20 all the way to 1,000

rupe generating more than 30 T return a

brilliant turnaround story however it's

been nearly a year since the stock price

is stagnant kpr Mill zoomed from lows of

65 all the way to 750 they're getting

more than 10 times return however it's

been more than 2 years since the returns

are not great tighton Zoom from lows of

3 rupe all the way to 60 plus but it's

been more than 2 years since the share

price has corrected and consolidated

likewise government companies like Rupa

zoomed from 120 rupe all the way to 500

and since then it has corrected and

Consolidated in the range of 270 Lux

industry zoomed more than five times but

witnessed a brutal correction micro cap

company like sportking zoomed more than

40 times and then corrected

significantly however there are very

good signs of recovery in share price

with very high volume the question is

why textile sector underperform for the

last more than 2 years and why is it

looking promising now so there are three

key reasons for underperformance first

is low demand during covid the interest

rate across the world were very low and

that eventually resulted in high

inflation to combat the inflation

Central Bank around the world increased

interest rate as a result consumption

started slowing down due to that there

was a sharp fall in demand for textile

sector as consumer curtail their

spending on fashion and discretionary

products so fall in demand for fashion

product resulted in sharp decline in

Autobook for textile sector especially

during fi23 that fall in Autobook badly

impacted the top line of textile

companies however the inflation problem

has started to ease out and the demand

has again started to pick up then second

reason was high inventory issue due to

fall in demand the inventory with

textile companies got piled up and when

you have inventory piled up you have to

clear it at low cost so that resulted in

inventory loss and impacted the VA of

textile companies but now retailers

across the world are setting on very low

inventory that has created Creed a good

case for an increase in the order book

and third reason is huge surge in Cotton

price during covid cotton prices fell

down significantly that boosted the

profit of textile companies but over the

next two years cotton prices zoomed

exponentially that resulted in sharp

decline in AA margin but cotton prices

have already seen a significant drop in

the prices so basically textile sector

got badly impacted due to fall in

revenue and margin contraction that

resulted in sharp decline in profits and

now that there is increase in demand and

retailers are sitting on very low

inventory so that would result in

increase on AUD book and eventually the

revenues on top of that fall in Cotton

prices would increase Thea of textile

companies and that should result in

sharp increase in net profits apart from

these three factors there are two more

factors that are key growth driver for

textile sector in India so fourth factor

is China plus one historically China has

dominated the global textile industry

but there has been consistent conflict

and trade war between us and China and

that is one key reason

especially us companies are reducing

dependency on China and India has

emerged as one of the biggest

beneficiary of this trend and fifth

factor is government support Indian

government has set a textile export

Target to100 billion versus f23 export

of 35 billion there's already a PL

scheme for technical textile segment and

government now intend to extend that PL

to t-shirt in aware although it's not

yet finalized so all these factors would

play a key role in upcycle in Indian

textile sector now let us look at the

value chain of Tex yle and key players

in the value

chain so this is the value chain of

entire textile sector that include your

Spinners garment manufacturers made ups

and Technical textile Spinners basically

manufacture the yarn that is further

used by garment manufacturer here please

note that Spinners operate on Lower

margin and they are more volatile to raw

material changes for example if let's

say raw material like cotton the prices

goes down then Spinners make a lot of

profit likewise if the prices goes up

for raw material they make lower profit

and that's where if there's an upcycle

in textile industry then Spinners can

make a lot of profit and that would get

reflected in the share price what are

some of the companies it include your

waman textile Nahar spinning sport king

India lakmi Mills sutas textile Jinder

textile ambika cotton Nan Spinners so

those who can time this upcycle in

textile industry that can make a good

money in spinner category having said

this you also need to time the exit

because when the downside start these

companies uh you know their profit can

tank and their share price would also

fall but yeah this is a good category to

probably consider doing the upcycle the

next segment is garment manufacturer as

the name suggest they manufacture the

Garment across your categories like your

uh women men and kids here again you can

divide it into two segments one is uh

the category that manufacture the appals

like your jackets tops bottom and so so

on and so forth companies like kpr mil

SP ail goas export irin fashion Pearl

Global kitex these are some of the

companies then second category is the

companies that manufacture the inner

okay that include your Rupa Lux dollars

and within inare they also manufacture

the Winter Wear right and again you can

broadly divide this into geography as

well for example company like Google do

export mainly derive it business from US

market right so you can uh understand

you know some of the companies May

derive Market from Indian market for

examp example arind has got major

business nearly 50% business coming from

Indian market and uh some companies uh

have business coming from across the

world like us Europe and so on and so

forth also here please note that some of

the companies are also backward

integrated like kpr mill that also

manufacture the yarn right so this is

the value chain where you have got

garment manufacturer then third category

is madeup madeup is nothing but uh the

textile that is other than appil so it

mainly include your home Tex style like

your pillow cover bed sheets then

blanket then throws bathrobes and all of

these things uh top companies include

your Indo count well spun living phase 3

Trident group and himas and fourth

category is technical textile now

textile can also be divided into two

category one is your uh natural fiber

and another is man-made fiber so

technical textile is nothing but the

man-made fiber natural fiber example is

your cotton wool silk and and your

man-made or technical textile example is

your polister viscos so these companies

manufacture the technical textile what

are some of the companies it include

your Ganesha ecosphere indorama then

filatex suam India and garware Technical

textile what are the applications the

lot of applications like your uh Sports

Nets fishing nets agriculture Nets and

uh they also find usage in uh your

garment sector for example the jackets

out of category uh is also made up of

technical textile likewise find usage in

your home textile as well here please

note that this is a very interesting

company within technical textile Ganesha

ecosphere where it manufactured the

technical textile out of the plastic

waste right and you also have garware

textile is also a leading company so

this is basically the value chain of

textile sector that include your yarn

manufacturer then garment manufacturer

then made ups that include your home

textile and finally you have got the

technical

textile so first company in the list is

Galas export this is one of the most

preferred Company by top FIS and dis

I've already done a detailed analysis on

goas turnaround story under the

leadership of Mr siiva ganapati now if

you look at company sholing pattern in

last 12 quarters fi stake in the company

has consistently increased from 4.6% all

the way to 26.55 per. in fact in latest

June quarter the stake has increased by

more than 5% who are the FIS where it

include top names like Goldman Sachs

that has consistently increased take in

the company in the last few quarters

there are two more FIS with recent

purchase that include custody Bank of

Japan and Fidelity India focused fund D

St in the company has also consistently

increased from 10% all the way to

31.8% and it again include all top

mutual funds of India overall F and Di

collectively hold around 58% stake in

the company although promoter holding in

the company is consistently falling but

we have already discussed the reason in

the past it's because Gokul promoter is

a p form that entered at very low levels

and now booking profit but the key point

is that the stake sale is absorbed by

strong hand of fi and Di weak hands of

public have consistently reduced in the

last 12 quarters Google D is mainly

engaged in garment manufacturing with

focus on US market if you look at

company's financials after struggling

for many years company got turned around

with new leadership and Its Top Line has

grown at a very good rate company's

margins have consistently improved that

resulted in huge growth in operating

profit and that got reflected in the

bottom line as well although f24 was a

bit softer with slowdown in growth due

to multiple challenges in Tex St sector

but looks like f25 should be much better

company has consistently generated cash

in the past but f24 is showing negative

cash due to very high inventory because

of slowdown going forward this should

also become positive another very

promising company in this segment is kpr

Mill it has been a consistent wealth

Creator where it share prices zoomed

from 2025 rupe all the way to 850 in the

last 10 years company's financials have

consistently grown for the last 10 years

company has consistently generated very

high cash from operations its debt to

equity is also just around 0.27 and both

Roe and Roc are around 20% and that to

in this difficult environment company

has a very strong promoter background

with 73.7% holding and fi and Di

collectively hold another 20% just 6% is

with retail then third stock in the list

is phase three where Ace investor Ashish

kacholia has consistently increased take

from 2.78% all the way to

5.42% phase 3 is a micro cap company

with market cap of around 12200 CR and

primarily engaged in manufacturing and

export of Home textile products like

your bath mats rugs blankets throws

cushion Etc it's key Market is us and UK

Company's top line has grown at a very

good rate since 2018 although it has

been stagnant in the last two years

company's margins have also improved

consistently but fell down in fi 24 its

bottom line has also grown at fast

weight since 2019 but earning fell down

in fi 24 Company's stock price has also

been consolidating since almost an year

fourth stock is also a micro cap company

it's Port King India company has

recently declared its QQ and result and

its top line is up by 18% year on year

and net profits have zoomed 75% year on

year compan is engaged in the production

of yarn that include cotton yarn

synthetic yarn Blended yarn as well as

fabrics and garments if you look at at

Shing pattern promoter hold nearly 75%

stake within retail Ace investor Mr Anil

Kumar has consistently increased

take in the company since last four

quarters and his wife SEMA gu has also

increased take in the company Company

stock price has Consolidated for a long

time and has recently seen a sharp

recovery by the way Mr Anil goyel and

his wife have also consistently

increased take in Nahar spinning bill

that commands a market cap of around

1200 CR next two stocks are part of a

Sinister Mr mul agrawal portfolio first

is Lux industry Mr mul agal has recently

entered in Lux industry in June quarter

now Lux share price has corrected

significantly in last two years but mul

agrawal entry in the company suest that

he's expecting better days ahead for the

company and second textile stock that

mul Agra hold in his portfolio is indo

count a leading home textile

manufacturer of India he been holding

this company since 2020 I've already

discussed this company in detail in the

past to watch that video to understand

the business model and its potential

then seventh stock that is part of Ace

investor portfolio is Rupa and it's part

of Mr Sunil Singa portfolio he has been

holding 4.2% stake in the company

overall the recent investment of top dis

FIS and hnis suggest that the textile

sector is looking quite attractive and

ready for next phase of Up Cycle we have

already discussed the reason for high

growth potential in the sector that

include Improvement in demand low

inventory with retailers and fall in

Cotton prices and then China plus one

and government brocus are more of

long-term growth drivers then we have

also covered the entire value chain of

textile space personally I also hold a

few textile stock in my portfolio that I

discuss in my exclusive video series

where I cover my own investment ideas

and reason for investment although the

idea behind the series is to only share

my knowledge with long-term fundamental

investors for more detail you can

explore my website or check the join

button on my YouTube channel now tell me

in the comments do you hold any textile

stock in your portfolio and let me know

if you want me to cover any textile

company in detail if you find this video

useful do share it within your circle

I'll see next video till then take care