Good days lie ahead for large and mid-scale spinning companies with their profits expected to reach all-time high in FY2022. Revenues of these companies are expected to grow in double digits while operating margins are expected to enhance by 400-600 bps as per an ICRA report. Strong demand and realizations boosted the operating profits of Indian cotton spinners in the last four quarters. Even as cotton fiber prices increased, domestic demand recovery and a strong export growth also supported volumes.

Companies with low-cost cotton stock boomed

Jayanta Roy, Senior Vice President & Group Head, Corporate Sector Ratings, ICRA, says, companies having huge stocks of low-cost cotton from the last seasons recorded more profits in H1 FY2022. Their profit margins also surged on the inclusion of all cotton yarn exports under Remission of Duties and Taxes on Exported Products (RoDTEP) scheme from January 2021 onwards, and price competitiveness of domestic spinners in international markets.

Cotton yarn prices continued to rise in the current fiscal, touching all-time high in recent months. They averaged 36 per cent higher than FY2021 in the first nine months of FY2022. This led to average spot margins for the first nine months of FY2022 reaching decadal highs.

Exports to reach all-time high in FY2022

Despite the effects of pandemic, cotton yarn exports surged by 47 per cent year on year in H1 FY2022 as exports to Bangladesh increased by 130 per cent year on year. Exports are expected to reach all-high time high in FY2022, predicts ICRA.

Nidhi Marwaha, Vice President & Sector Head, Corporate Sector Ratings, ICRA, opines, most of this growth will be driven by concerns raised by large buying regions, including the US and EU on Xinjiang cotton and healthy growth in Bangladesh’s apparel exports. Competitive Indian cotton and cotton yarn prices in the international markets will help drive up demand. Exports to Bangladesh, which overtook China as the largest importer of Indian cotton in FY2022, are expected to sustain for the next 9-12 months at least, says ICRA.

Healthy volumes to maintain price-competitiveness

In FY2023, domestic spinners are expected to sustain healthy volumes as prices will remain competitive and buyers’ preferences will shift from Xinjiang cotton. However, unsustainable realizations are expected to impact yarn prices, affecting demand. This would limit the industry’s performance in FY2023 to moderate levels with turnover correcting 10-15 per cent. The operating margins of the sector are also expected to decline during the year though remaining 100-200 bps higher than the past three-year average.

In terms of scale and profitability, spinners’ performance is expected to surge past pre-COVID levels, encouraging ICRA to accord a positive outlook to the sector, says Marwaha.

Improvement in capitalization and coverage metrics expected

ICRA expected, capex activity in the cotton spinning segment has surged on improved capacity utilization and greater financial flexibility. Mid-scale and large players have announced investments in de-bottlenecking, as well as margin-accretive/ efficiency improvement projects such as machinery upgradation and renewable power capacity additions. However, as debt-funded capex is expected to surge, spinners’ capitalization and coverage metrics are expected to improve from the past few years as revenues and profits are also expected to surge.

The second highest consumer of textiles per person in the world, Australia discards around 23 kg textiles into landfills every year. A large part of this waste comprises non-renewable, synthetic materials that cannot be recycled. This waste is not regulated at the federal levels and requires a shift to a circular waste economy to manage. The circular economy model focuses on creating recyclable and re-usable products and materials and keeping them in the economy for a longer period. One of the key themes as per recent McKinsey & Co report, ‘The State of Fashion ’for 2022 is: circular textiles.

As per this theme, Australian fashion industry can reduce its environmental impact by adopting the closed-loop recycling system to produce virgin raw materials and reduce textile waste. For effective use, companies need to embed these technologies into the design of their products.

Government initiatives to tackle waste problem

At the Industry Clothing Textiles Waste Roundtable and Exhibition held in May 2021, Sussan Lay, Australia’s Environment Minister initiated important discussions on the need to reduce clothing waste, the impacts of fast fashion and the necessity for nation-wide co-ordinated action. The discussions concluded that Australia needs to adopt a circular economy approach to the textile waste problem to accomplish sustainability in the relevant industries. This would also help the country drive the launch of innovative and efficient solutions to prevent the mass dumping of products in the landfills besides creating new jobs in the sustainable resources field.

In November 2021, the Australian Fashion Council was awarded $1 million through the National Product Stewardship Investment Fund to establish the country’s first National Production Stewardship Scheme for clothing textiles. The scheme aims to provide "a roadmap to 2030 for clothing circularity in Australia in line with National Waste Policy Action Plan targets". The scheme includes the commission of three reports on data and material flow, analysis of global initiatives, policies and technologies for promoting circularity in textiles and recommendations to achieve the National Waste Policy Action Plan targets by 203O. The money will be used to fund the commission of three reports by March 2023.

The National Product Stewardship Investment Fund has also granted aid to the Australasian Circular Textile Association for the Circular Threads project to develop a business case and design a product stewardship scheme to collect, reuse and recycle uniforms and workwear.

Innovative solutions from companies

Innovative solutions are being offered by several companies in Australia to tackle its textile waste problem. For instance, a clean technology company, BlockTex has created a process to recover polyester and cellulose from textiles and clothing in collaboration with researchers from Queensland University of Technology. Known as S.O.F.T (‘Seperation of fiber technolgy’), this process generates polyester and cellulose materials all industries including textiles, packaging and building products.

BlockTexx is also setting up a textile recycling plant in Logan, Queensland, to recycle 4000 tons of textile waste in its first year by the S.O.F.T technology. BlockTexx estimates it will be able to offset about 120,000 tons of CO2 emissions.

Another organization Worn Up i aims to make new products from up-cycled non-wearable uniforms and production offcuts. The organization has launched Textile Rescue Program to work with schools, corporates, local governments and sporting associations to keep uniforms out of landfill and help suppliers identify sustainability challenges in their uniform supply chains. Their stewardship and certification program, Responsible Textile Disposal Tick, holds organizations accountable for their waste and ensure they dispose of it responsibly.

Severe repercussions in absence of urgent action

The problem of textile waste in Australia needs to be addressed urgently if it aims to transit to a net zero economy. Several fashion and textile companies in the country are collaborating with the government to tackle this program.

In 2022, most consumers will engage in a wardrobe reboot, says The State of Fashion 2022 report by McKinsey & Co. Some of them may also engage in revenge shopping . This may further compound the waste problem in Australia unless some urgent action is taken against it.

As per a new study by the Polaris Market Research report, the global synthetic leather market is expected to reach $50.34 billion by 2028.

The adoption of synthetic leather is expected to increase during the forecast period owing to wide applications in industries such as automotive, apparel, and furnishing. Rising disposable income of consumers and improving lifestyles have increased the demand for footwear, clothing, and accessories.

Increasing urbanization and growing demand from the automotive sector have further supported the market growth. However, the COVID-19 outbreak has restricted the growth of the market due to operational challenges, disruption of the supply chain, reduced demand, and workforce impairment.

The different types of the product include bio-based, polyurethane, polyvinyl chloride, and others. The demand for the polyurethane segment is expected to be high during the forecast period. Polyurethane material offers the same texture as real leather while being lighter, cheaper, and durable. The rising ethical concerns regarding animal cruelty, growing environmental awareness, and the introduction of stringent regulations support the growth of this segment.

The automotive segment is expected to grow at a significant rate during the forecast period.

Exports of cotton yarn by China increased by 33.3 per centin 2021. However, they declined by 28.7 per cent compared with that in 2019, as per data by China customs.

China’s cotton yarn exports increased by 33.3 per cent to 170kt, against 12.7kt in 2020, but declined by 28.7 per cent compared with that in 2019. It peaked in 2018 during the past ten years. The decrease in exports mainly lies in the production distribution and transfer of cotton textile industrial chain in South Asia and Southeast Asia.

The product structure did not change much compared with that in the past years. It was still centered on combed cotton yarn, as combed 30.4-46.6S, combed 54.8-66S and combed over 66S still ranked the top three in exports, but the shares of combed cotton yarn decreased by 2.3 per cent on the year and that of uncombed 8.2-25S improved by 2.3%.

The export volume of combed 30.4-46.6S/1 and ply yarn, and combed 8.2-25S dropped obviously by 25 per cent, 11 per cent and 2 per cent respectively, while that of uncombed 8.2-25S, combed 46.6-54.8S and combed over 66S increased by 39 per cent, 22 per cent and 22 per cent respectively.

Sateri’s five viscose mills in China have been independently evaluated for their social and labor practices. As per a Textile Value Chain report, these mills have completed the Higg Facility Social and Labour Module (FSLM) audit and achieved a consistently high score of above 80 per cent. A member of the RGE group of companies, Sateri is also one of the world’s first viscose producers to have completed the Higg Facility Environmental Module (FEM) assessment, with a similar verified high score of over 80% for all its viscose mills.

Developed by the Sustainable Apparel Coalition, a global, multi-stakeholder non-profit alliance for the fashion industry, the Higg Index is a suite of tools that enables brands, retailers, and facilities of all sizes to accurately measure and score a company or product’s sustainability performance. The FSLM tool of the Higg Index holistically assesses working conditions of the mills, including fair wages and compensation, health & safety, respectful treatment of employees, etc; while the FEM tool focuses more on environmental performance, including energy consumption, greenhouse gas emissions, water use, chemical, and waste management.

Bangladesh exported $150.39 million worth of lingerie products, including categories such as shapewear and foundation garments to the US in the 11 months of 2021.

According to the latest official US custom data, Bangladesh brassieres export to the US surged by 43 per cent during the January to November period of 2021.

The US imported $2.57 billion worth of brassieres in the first 11-month period of 2021, observing 46.81 per cent year-on-year growth.

Among the other top 4 lingerie exporter countries – China bragged the top position with $858.81 million, noting 48.64 per cent Y-o-Y growth in January to November 2021 period.

Vietnam exported $496.76 million brassieres to the US, growing by 52.77per cent on yearly basis.

Sri Lanka exported $244.73 million worth of lingerie items, gaining by 34.54 per cent.

While Indonesia shipped $238.97 million worth of lingerie and intimatewear garments witnessing a significant 89.64 per cent growth in January to November period of 2021.

As per trade promotion body ZimTrade, Zimbabwe’s textile and footwear exports by 85 percent in 2021 as the country made inroads into regional markets. Zimbabwe’s exports of these products surged to $32,3 million in the first eight months of 2021 from $17,7 million in 2020, as per a report by The Herald.

Traditionally Zimbabwe’s textile market sector exports products mainly to South Africa with an estimated export market share of 91,74 percent, Zambia (1,91 percent), Germany (0,34), Malawi with an exports contribution of 0,12 percent, and Mozambique.

Currently less than 10 per cent textile manufacturers export their products inspite the growing regional market and inroads being made into Europe in the past few years. On the other hand, footwear production is on path to recovery after taking a battering in the economically turbulent years between 2001-2008.

The National Development Strategy (NDS 2021-2022) has also identified the leather sector as one of the key-value chains. The government has also pledged to recapitalize the leather and footwear sub-sector so as to increase industrial capacity utilization and boost exports through the production of value-added products such as finished leather, footwear, and other leather products.

If current bidders do not improve their offers significantly, lenders of textile major Sintex Industries’ plan to hold a Swiss challenge auction to prevent the business from going bankrupt. The lenders plan to adopt several ways to encourage bidders to substantially increase their offers for purchase. They plan to take the auction route instead of voting for liquidation.

The Swiss challenge system involves publishing of the bid made upon it by an entityt and inviting third parties to either match the bid or submit a higher bid. Reliance Industries ACRE team earlier made a bid for Sintex industries, which led to resolution professional Pinakin Shah asking bidders to submit improved offers and resolution plans for the business.

Sintex currently has four bidders with Reliance Industries’ ACRE team having offered the most for the business with an offer of Rs 2,363 crore. Textile business Welspun’s Easygo Textile has offered Rs 2,300 crore and Himatsingka Ventures and GHCL have also placed slightly smaller bids.

In its third quarter ended December 31, 2021, Sangam India posted a net profit of Rs 43.74 crore as against loss of Rs 29.87 crore posted during the quarter ended September 30, 2021. The company reported total income of Rs 652.44 crore in Q3 ended December 31, 2021 as compared to Rs 642.20 crore during the quarter ended September 30, 2021.

On a year-on-year basis, Sangam India posted a profit of Rs 43.74 crore during the quarter ended December 2021 against a loss of Rs 7.43 crore posted during the quarter ended December 31, 2029. The company reported total income of Rs 652.44 crore during the period ended December 31, 2021 as compared to Rs442.83 crore during the period ended December 31, 2020.

The Noida Apparel Export Cluster (NAEC) has urged the Union government to help contain the rising cotton yarn and fabrics prices. Lalit Thukral, President, NAEC, urged the government to control cotton exports, remove 10 per cent cotton import duty, and develop a mechanism to regulate cotton and other raw materials prices to support the sector.

Thukral said the unexpected steep price rise of the cotton is hurting the production costs of apparel manufacturers and exporters. It is leading to loss of orders for exports and dwindling confidence of importers and buyers. Unchecked exports to competing countries like Bangladesh, Vietnam and Thailand is further aggravating the situation, Thukral added.

Prices of the fabrics have increased to Rs 40-50. Low import costs is helping Bangladesh, Vietnam Thailand and other countries reduce apparel production costs, threating India’s position in the global apparel market.