Crisil’s analysis of about 40 companies, which together account for 40–45% of the industry’s revenue, suggests that frontloaded sales before the tariffs kicked in, limited capacity of competing nations such as China, Pakistan, and Turkey, and diversification into new markets will soften the impact.
Companies typically front-load orders to gain strategic advantages, most commonly to avoid rising costs and disruptions from expected tariffs, supply chain instability, or policy changes.
“Home textiles are discretionary products, and their exports to the US grew a modest 2–3% in the first quarter as retailers remained cautious amid inflationary concerns. But prior to the implementation of higher tariffs from August 27, exports had spiked because of some frontloading of orders,” said Manish Gupta, Deputy Chief Rating Officer, Crisil Ratings. He added that India is likely to retain its competitive edge in the US market.
Still, companies deriving more than half of their revenue from the US are expected to feel a sharper impact. To counter this, exporters are eyeing the European Union and the UK, which together made up about 13% of India’s home textile exports last fiscal.
The recent FTA with the UK is expected to aid textile exporters by removing the 10–12% duty that had previously hurt them against competitors. The deal now gives India parity with Cambodia, Pakistan, and Bangladesh, which already enjoy duty-free access.However, scaling up in these new markets will take time, says Crisil. “Operating profitability on exports to the US may decline sharply over the remainder of this fiscal as Indian exporters absorb part of the higher tariffs and contend with weaker demand,” said Gautam Shahi, Director, Crisil Ratings. He warned that potential oversupply could also weigh on profitability in both overseas and domestic markets.Crisil expects industry-wide operating profitability to contract by 200–250 basis points this fiscal. This will drag cash accruals lower, weakening credit metrics. The interest coverage ratio is likely to drop to around 4 times from 5.4 times last fiscal, while the debt-to-Ebitda ratio could deteriorate to 2.4–2.6 times from 1.9 times. The pressure will be more acute for players heavily reliant on the US.
Can the tide change?
Stocks witnessed a sharp surge yesterday after Donald Trump and Prime Minister Narendra Modi’s social media posts on September 10. Trump said the two nations continue to address trade barriers and voiced confidence in reaching a successful agreement. Prime Minister Modi also echoed the same optimism on X (formerly Twitter), saying, “I am confident that our trade negotiations will pave the way for unlocking the limitless potential of the India–US partnership.”
Stock performance
Gokaldas Exports, one of India’s leading exporters, has dropped over 30% year-to-date. The likes of Welspun Living, Pearl Global, Trident, Raymond Lifestyle, and Kitex Garments have fallen as much as 40% over the same period.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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