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The textile stocks witnessed huge sell-offs in today’s session on account of negative cues across the global markets. Today, the Indian markets opened up with a huge gap down of more than 3%. The negative cues are on account of rising inflation levels and anticipation of interest rate hike by the Federal Reserve.

The margins of textile companies are already under pressure on account of rising key material cost i.e. cotton. The management of the Indian textile companies expects that the cotton prices would normalise over next two quarters from current levels. However, we expect cotton prices to go up slightly, given lower domestic production following bollworm infestation. The Union Budget has also announced to increase MSP prices of Kharif crops to 1.5x of cost of production. This would increase cotton MSP by ~22% to ~Rs5,250.

 

The EBITDA margins for Trident Ltd declined by 227bps yoy to 17.6% for Q3FY18. However, other textile companies like Himatsinkga Seide Ltd and Welspun India Ltd are yet to announce their Q3FY18 results.

 

On the other hand, Rupee is under pressure for a combination of factors which include dollar strength, Union Budget announcements and higher crude prices. Rupee has depreciated by ~1.2% over last 1 month against USD. This will benefit all textile players like Himatsingka Siede Ltd, Welspun India Ltd, Trident Ltd etc., which have higher portion of revenue coming from outside India.  

 

The footwear stocks also witnessed correction in their values. However, increase in the custom duty on import of footwear in Union Budget bodes well for stocks like Bata India Ltd and Relaxo Footwears Ltd. Government has increased the custom duty from 10% to 20% on imports of footwear.    

 

Source : India Info Line

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