Wazir Textile Index Q1 FY18– Increasing Sales but declining EBITDA
As part of textile industry analysis, Wazir had recently introduced the Wazir Textile Index (WTI) as a barometer to periodically assess the financial performance status of the Indian textile industry. In continuation of the same, discussed below is the Wazir Textile Index comprising cumulative financial performance of the top Indian textile companies along with update on market performance of Indian textile sector for the first quarter of FY18.
WTI Sales was calculated to be 113.0 in quarter 1 of FY18. This reflects that consolidated sales of the top 10 selected companies increased by 3% in Q1 FY18 as compared to Q1 FY17. The consolidated sales of the top 10 selected companies was Rs 10,122 cr in Q1 FY18 compared to Rs 8,961 cr in Q1 FY16. The WTI EBITDA was calculated to be 77.7 in Q1 FY18. This reflects the overall decline of 25% in EBITDA margin in Q1 FY18. EBITDA decreased significantly due to impact of increase in raw material cost and employee costs. Consolidated EBITDA margin of top selected companies was 12% in Q1 FY18 declining from 16.6% in Q1 FY17.
The WTI Cost for raw material (RM), manpower and others were 122.2, 130.5 & 112.9 in Q1 FY18. There was a significant increase in raw material prices which resulted in overall cost, while manpower costs increased on the back of increasing labour wages. Consolidated RM cost constituted 54.9% of sales in Q1 FY18, while consolidated manpower cost constituted 9.8% of sales. The impact of the cost increase was visible in the declining EBITDA margin.
Slight decline in key economic indicators in Q1 FY18
In Q1 FY18, India’s real Gross Domestic Product (GDP) increased from Rs 29.40 lakh crore to Rs 31.10 lakh crore from last year’s quarter 1, growing at a rate of 5.7%. This was a much lower growth than previous year’s quarter growth of 7.9%. Average Index of Industrial Production (IIP) for textiles has declined by 2% while IIP for apparel has declined by 3% in Q1 FY18 compared to Q1 FY17. The Wholesale Price Index (WPI) for textiles registered an increase of 3.5% in Q1 FY18, indicating increase in prices.
India’s Textile & Apparel (T&A) exports grew healthy in Q1 FY18
The overall T&A exports in Q1 FY18 was US$ 9.5 bn increasing at a healthy rate of 8% from previous year. Export of fibre, apparel, home textiles and filament has grown in Q1 FY18 as compared to Q1 FY17, fibre having the majority share. Highest growth was observed in exports of fibre growing at a rate of 48%. Exports of yarn fell by 11% in Q1 FY18. USA and UAE were the largest export markets for India with a cumulative share of ~35%. Share of UAE increased slightly in Q1 FY18.
India’s T&A imports increased drastically in Q1 FY18
The overall T&A imports in Q1 FY18 was around US$ 1.7 bn increasing significantly at a rate of 23% from the previous year. Imports growth in Q1 FY18 was primarily attributed to a tremendous increase in fibre imports by 99% over Q1 FY17. However, imports of other major categories yarn, home T&A declined significantly. China continues to be the largest import partner for India. Import share of USA has increased significantly from 7% to 13% in Q1 FY18 while import share of Bangladesh declined from 10% to 4% in Q1 FY18.
Raw material prices have increased over the last quarter
Overall there was an increase in raw material prices in Q1 FY18 compared to Q1 FY17. On an average basis, raw cotton, viscose staple fibre and polyester staple fibre prices increased by 15%, 10% and 3% respectively in Q1 FY18. Similarly there was an increase in cotton yarn and polyester viscose blended yarn average prices growing at a rate of 10% & 11% respectively in Q1 FY18. However, polyester cotton blended yarn registered a decline of 9% in the Q1 FY18 compared to Q1 FY17 on an average.
Overall, Indian textile and apparel mill sector exhibited growth in overall sales during the first quarter of financial year 2017-18. However, there has been tremendous pressure on margins due to increased input factor costs like raw material and manpower resulting in steep decline in EBIDTA levels.
The article has been authored by B. Prakash, Associate Director and Soumya Gupta, Associate Consultant.
It was published in October 2018 in Fibre2Fashion.