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Cotton prices may impact margins of apparel companies

Cotton prices in India increased by 30 per cent year-on-year in the second quarter of FY ’17 and it is likely to have a negative impact on margins of apparel companies. EBDITA margins of Arvind, Page Industries, Kewal Kiran and Rupa are likely to decline 70 basis points, 108 basis points, 84 basis points and 100 basis points year on year respectively. However, Vardhman Textiles is an exception. Vardhman buys its yearly cotton requirement in March-April every year. Thus the company will report a margin expansion of 16 basis points year on year.

Revenue growth of apparel companies is likely to be moderate due to subdued consumer behavior at the retail level. Except for Page Industries and Kewal Kiran, all other companies in the coverage universe are likely to register single digit growth. Page’s revenue growth is expected to be driven by 17.2 per cent year on year volume growth and 5.4 per cent year on year realisation growth. Kewal Kiran, Arvind and Rupa are likely to register year on year revenue growth of 10 per cent, 9 per cent and 7 per cent respectively.

Cotton output in the country is expected to decrease by close to 10 per cent due to the white-fly attack on the crop in the northern states.

 
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