Hello jiten sir please shre your views on amarjothi spinning sarla permomance zenith fibres
I think textile as a basket will not be but some sectors in textile looking good
1)Home textiles - Mostly exporters to usa, European markets benificial due rupees weakness & Comparatively stable yarn prices
2)Naylon synthetic yarn manufacture - Government has imposed custom duty on imported yarn for next 5 years
Yes. Looking at exporters should be first point to start. Would request more people from the industry to participate and give their views. Views from unorganized sector of Surat and Mumbai is not very good. Of course, we need organized segment views, as that is where we will invest.
Sorry. I cannot comment on individual stocks.
INR depreciation from 64 to 74 is a big positive for the sector. Look for companies which can export as well as sell locally as situation changes. Companies that have recently expanded capacity and its underutilized or utilized at less than industry margins…these are the first ones to benefit as demand comes back.
home textile companies generally hedge and all of them are having forex losses (Trident, welspun, Indocount). It will take them some time to take benefit of INR depreciation.
Yarn manufacturers may benefit from INR depreciation which will be partially mitigated by increase in cotton prices. But its just just a time lag before high cotton prices get transferred in form of higher yarn prices.
Unorganised sector hit hard and due to working capital constraints some of the capacity is offline at least temporarily.
Concalls suggest worst is behind and things are changing for good.
Textile sector might present a very good opportunity. In fact I was just planning on asking your opinion on the same. The sector will benefit from :
1.Operating leverage coming into play (how will the demand for the textile sector increase? Can someone pls mention some triggers)
2. Rupee depreciation.
3. Decreasing price of cotton. (however I am unsure as to whether cotton will fall in the near term or remain stable for next few qtrs)
@jitenp in your interview you had suggested to invest in cyclicals at the inflection point. My question whether the inflection point for the textile sector has come or it is still a few qtrs away?
Regards
Aditya
I start taking small bets when things are at extreme pessimism. And then track it closely. You track harder, when there is skin in the game 
And at inflection point, make the big bets. Just the way, I do it. People might have different approaches, which might be better. The above works for me most of the time.
Very valid point Sir. Even I have taken a tracking position in basket of textile stocks. However I am still weak in identifying inflection points so I am afraid that I might not be able to scale up as I don’t know when to scale up.
I know you can’t comment on individual stocks but Trident’s result has been very good. Is it the beginning of the upcycle or it is just a one off case? And how do we know the reason behind such good result?
Well you cannot invest at the bottom and exit at the highest peak ! But if you get the cycle fairly right : your risks are much less and gains can be 2x - 8x in cyclicals. Some points I personally follow:
- Go through all concalls of companies in the sector - first, most promoters know their business much better than the analysts but are not good at communicating or analysts don’t ask the right questions hence the need to go through different conference calls.
- Look out for signs of extreme pessimism on the ground…like in case of Real Estate 2 yrs back, people stopped applying for affordable housing too - no. of applications where less than no. of flats when the applicable rates were much less than the market ! So when veteran employees say this is the worst downturn they have seen in their life / capacities being closed / mass job losses or people shifting to different occupation…these are good signs that turnaround is near
- Risk perception is much higher than real risk - most of these sectors are capital intensive, non transparent (corporate governance issues) and have bad reputation so its easy to be totally neglected during downturn…this leads to situations where risk perception is much higher than actual risk.
- Textiles is little complex - you cannot compare a home textiles company with a yarn company or even a high compact yarn company with a normal yarn company or company that is across value chain but in most commodities like cement, real estate, etc. its fairly easy to compare them like EV/ton, etc. So better to understand past cycles and how companies have evolved to what they are today
- One should follow Risk management - this is something I am still struggling with so cannot give any advice on this.
- Public perception is like Lady luck it changes - for example, NBFC which was called a steady compounder for another 10-20 yrs suddenly appears most risky, so perception changes with price…try to ignore it. Even valuation metrics changes - in downturn cash flows become important and in up cycle capacities become important !
so small piece of knowledge from my little experience!!
To answer your points:
1.Operating leverage coming into play (how will the demand for the textile sector increase? Can someone pls mention some triggers)
First, demand for garments has been increasing `steadily’ since 2012…go through concalls you will get the numbers too. Operating leverage will be in form of better capacity utilization and higher margins for premium products. Also some of the pent up demand due to gst and de-stocking in US, coming back
-
Rupee depreciation.
Yes but see it in light of how our currency has depreciated vs our competitors i.e. other Asian countries - China, Vietnam, Bangladesh, Pakistan, Indonesia -
Decreasing price of cotton. (however I am unsure as to whether cotton will fall in the near term or remain stable for next few qtrs)
Not sure how you arrived at this…but cotton prices have increased from 38,000 per candy last season to around 46,000 per candy.
Very good note and understanding Savishesh. Keep it up.
demand cud also come due to us tariff on chinese textile
@bharat19 would like to know other players in the caustic space apart from gujarat alkalis, i believe a check on other players and the way they have reacted might help to bring in a conviction in the caustic story
@jitenp - Have a basic question on the textile sector turnaround
Have been tracking the cotton prices (source: indexmundi) and they are on an uptrend for quite some time.
Since this being a key raw material for the textile sectors, (for ex purpose : Trident) will that not impact them.
All I am trying to understand with my limited knowledge is when a sector is turning around the key raw material prices softening down will add to their margins which is not the case yet in the textile sector.
Your views will be greatly appreciated.
thanks @bharat19 for the quick response, would you mind sharing the source to track the price of caustic if it is available as a free source data
As per my understanding from Q3,Q4 FY18 Indo Count conference calls, cotton price also depends on the area for cotton plantation area. Management pointed out that cotton plantation area has increased in FY18 which would lead to drop in cotton prices in FY19.
I was bit surprised to see impact would take quite longer and be seen in FY19. On google search, I could see that
“Its growing season of approximately 150 to 180 days is the longest of any annually planted crop in the country.”
Hence, I believe cotton cycles would take 1-2 years to reach peak as RM cotton prices would reach bottom. However, i am relatively new to cyclicals and learning the traits. @Jitenp Sir would be able to validate my understanding.
Excellent summation.
One good example of pessimism in sector was , eg Welspun India management gave a guidance of top line growth of 10% and margin of 18-20%, discussed all these cotton price and rupee stuff in Q1 call in details, still market hammered it badly as pessimism index was at its peak…
Regarding cotton price increase, please listen to Q1 concall of good textiles cos, they already mentioned it that gain from rupee depreciation will nullify Cotton price increase to a good extent. Infact they mentioned that Price will hover around 46000-48000 in this season. So this price of cotton is not a news to Industry. Good management is already prepared
They hedged around Rs69. Benefits of Rs71 will come Jan 2019 onwards…