Revenues from India's home textile industry are likely to decline by 5–10 per cent this fiscal year. As per a report by Crisil Ratings, the decline is a result of the 50 per cent tariffs imposed by the United States on August 27. The US is a critical market for the industry, accounting for nearly three-quarters of its income.
Despite the significant tariff, the impact may be partially cushioned for some companies. A review of around 40 firms, which make up 40–45 per cent of the sector's revenue, suggests a few factors will soften the blow.
These include speeding of shipments to the US by many companies before the tariff deadline, limited spare capacity of rival countries like China, Pakistan and Turkey that prevents them from immediately taking over India's market share, exploration of new markets by India’s exporters.
According to Manish Gupta, Deputy Chief Rating Officer, Crisil Ratings, while US home textile imports were slow in the first quarter, shipments surged as buyers advanced orders ahead of the tariff increase. Gupta believes India is likely to maintain its competitive edge in the American market.
Companies that rely on the US for more than half their revenues are expected to be the most affected. In response, exporters are now turning to Europe and the UK, which together made up 13 per cent of India’s home textile exports last year. A new free trade agreement with the UK is expected to help, as it eliminates the 10–12 per cent duty that previously disadvantaged Indian exporters compared to rivals like Cambodia, Pakistan, and Bangladesh.
However, scaling up in these new markets will take time. Gautam Shahi, Director, Crisil Ratings, warns, the tariffs will likely cause operating profitability on US exports to decline sharply. Indian suppliers may have to absorb part of the tariff costs while also dealing with weaker demand. He also noted that a risk of oversupply could put pressure on margins both domestically and abroad.
Crisil predicts a 200–250 basis point drop in the industry's operating profitability this fiscal year. This will result in lower cash flow and worse credit metrics. The debt-to-EBITDA ratio is expected to worsen from 1.9 to 2.4–2.6, and the interest coverage ratio is projected to fall from 5.4 to about four times.
