September 13, 2024
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Stock Market

Indian stocks that can benefit from bangladesh+1 strategy

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Stock Market

Indian stocks that can benefit from bangladesh+1 strategy

Recent political turmoil in Bangladesh, marked by violent protests over job quotas, has sent shockwaves through the South Asian textile industry. This upheaval not only poses security risks in India’s neighborhood but also creates significant implications for Indian companies, particularly those in the textile sector. The resulting “Bangladesh+1” strategy adopted by global brands opens new avenues for Indian textile exporters, potentially reshaping the regional industry landscape.

This article explores how the “Bangladesh+1” strategy, triggered by recent political unrest, creates opportunities for Indian textile companies. It examines how key players like K.P.R. Mill, Trident, and Raymond are positioned to capitalise on this shift, potentially reshaping the regional textile industry landscape.

Bangladesh Economic Landscape

Bangladesh has established itself as a powerhouse in the global garment industry, exporting approximately $47 billion worth of ready-made garments in 2023. The country commands a high double-digit market share in the European Union and the United Kingdom, along with a 10% share in the United States.

Bangladesh’s monthly apparel exports, ranging from $3-3.5 billion, nearly double India’s output. However, the ongoing civil unrest has prompted international buyers to reconsider their sourcing strategies, potentially redirecting $300-400 million worth of monthly business to alternative manufacturing hubs like India.

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The crisis particularly affects yarn exporters, as Bangladesh currently accounts for 25-30% of India’s yarn exports. Conversely, the situation presents opportunities for Indian companies in the export market. Global brands seeking to diversify their sourcing away from the troubled zone may turn to Indian manufacturers, benefiting companies listed on Indian stock exchanges.

Industry Overview

India’s domestic apparel and textile industry plays a crucial role in the national economy, contributing 2.3% to the GDP, 13% to industrial production, and 12% to exports. The country holds a 4.6% share in the global textile and apparel trade, accounting for 10.5% of India’s overall export basket. India’s strengths lie in being one of the world’s largest producers of cotton and jute, the second-largest silk producer, and the source of 95% of the world’s handwoven fabric.

The Indian textile sector, as the country’s second-largest employer, provides direct employment to 45 million people and supports 100 million in allied industries. Current textile exports stand at $36 billion, with projections to reach $100 billion by 2030. The industry aims to achieve $250 billion in textile production by the same year.

India has also emerged as the second-largest manufacturer of personal protective equipment (PPE) globally. Over 600 Indian companies now produce PPEs, tapping into a market expected to grow from $52.7 billion in 2019 to $92.5 billion by 2025. The country’s silk production, particularly Eri and Muga varieties, has seen significant growth, increasing by 6% and 6.7%, respectively, in 2021-22.

Companies set to gain from the Bangladesh+1 strategy

K.P.R. Mill

K.P.R. Mill, founded in 1984 by K.P. Ramasamy, stands as one of India’s largest vertically integrated apparel manufacturers. The company produces yarn, knitted fabric, ready-made garments, and even generates wind power. K.P.R. Mill’s diverse portfolio, including sugar, molasses, and ethanol production, positions it perfectly to capitalise on the Bangladesh+1 strategy.

With six state-of-the-art spinning mills producing 110,000 MT of yarn annually, four garment facilities manufacturing 177 million knitted garments, and advanced fabric processing and printing capabilities, K.P.R. Mill can rapidly scale production to meet increased demand.

The company’s vertical integration allows for quick adaptation to changing market needs, making it an attractive partner for global brands seeking alternatives to Bangladesh-based suppliers.

Company Outlook

Expansion initiatives: K.P.R. Mill is establishing a vortex spinning mill and expanding processing facilities. These moves aim to enhance production capabilities and efficiency.

Sustainability focus: The company is installing additional rooftop solar power capacity. This demonstrates commitment to renewable energy and potential cost savings.

Market adaptability: K.P.R. Mill continuously monitors textile market conditions for expansion opportunities. This approach allows for strategic growth aligned with industry trends.

Modernisation efforts: The company is upgrading its spinning segment and expanding garment capacity. These investments should boost productivity and product quality.

Financial Highlights

Revenue: K.P.R. Mill’s revenue increased from ₹6,060 crore in 2023 to ₹6,186 crore in 2024. This 2.08% growth indicates positive market performance.

Profitability: Net profit slightly increased from ₹805 crore to ₹814 crore. This demonstrates the company’s ability to maintain profitability amid market fluctuations.

OPM: Operating Profit Margin remained stable at 21.28% in 2024 vs. 21.39% in 2023. This suggests efficient cost management despite industry challenges.

D/E: Debt-to-Equity ratio increased from 0.31 to 0.37. While higher, it remains at a reasonable level, indicating balanced financial leverage.

Trident

Trident, incorporated in 1990 by Rajinder Gupta, has emerged as a diversified manufacturing powerhouse. The company leads in yarn, terry towels, bed sheets, paper, and chemical production. As the world’s largest wheat straw-based paper manufacturer and North India’s top branded copier producer, Trident demonstrates remarkable versatility.

The company’s position as India’s largest terry towel manufacturer and second-largest home textile exporter makes it a prime beneficiary of the Bangladesh+1 strategy. Trident’s diverse product range, coupled with its strong export orientation, allows it to quickly capitalise on shifting global demand.

The company’s ability to offer integrated solutions from yarn to finished products positions it as an attractive alternative for international buyers looking to diversify their sourcing away from Bangladesh.

Company Outlook

Brand development: Trident aims to become a national brand through e-commerce, retail outlets, and social media. This multi-channel approach should enhance brand visibility and customer reach.

Digital transformation: The company is pursuing Industry 4.0 initiatives, including AI-enabled projects and virtual showrooms. These advancements will likely improve operational efficiency and customer experience.

Innovation focus: Trident secured 4 additional patents, demonstrating commitment to R&D. This intellectual property may provide competitive advantages in product development.

Product diversification: The company is expanding its product range. This strategy can help mitigate risks and capture new market segments.

Financial Highlights

Revenue: Trident’s revenue increased from ₹6,332 crore in 2023 to ₹6,809 crore in 2024. This 7.53% growth indicates strong market performance.

Profitability: Net profit decreased from ₹442 crore to ₹350 crore. This 20.81% decline suggests challenges in maintaining profitability despite revenue growth.

OPM: Operating Profit Margin slightly decreased from 15.28% to 14.54%. This indicates some pressure on operational efficiency or pricing power.

Debt: Debt-to-Equity ratio rose from 0.38 to 0.42. While still manageable, this increase suggests higher financial leverage.

Vardhman Textile

Vardhman Textile, founded by Dr. S.P. Oswal, has grown into a global conglomerate with a presence in 75 countries. The company specialises in yarn, fabric, acrylic fibre, and garment production, ranking among India’s top three woven fabric manufacturers.

Vardhman’s expertise in speciality yarns, dyed yarns, and a wide range of fabrics for both tops and bottoms in the apparel segment uniquely positions it to benefit from the Bangladesh+1 strategy.

The company’s established relationships with retailers in the USA, Europe, and Asia provide a strong foundation for expanding its market share. Vardhman’s vertically integrated operations and diverse product portfolio enable it to quickly adapt to increased demand from global brands seeking alternatives to Bangladesh-based suppliers.

Company Outlook

Raw material challenges: The 7% increase in cotton’s minimum support price may impact competitiveness. This could pressure margins if costs can’t be passed to customers.

Expansion plans: Vardhman increased its capex from ₹2,000 crore to ₹2,500 crore. This investment in open-end expansion and green power should enhance capacity and sustainability.

Sustainability focus: The allocation of ₹400 crore for biomass boilers demonstrates commitment to green energy. This may lead to long-term cost savings and improved environmental performance.

Growth strategy: Management is open to acquisitions but faces challenges due to company size. This indicates a proactive approach to growth, albeit with limitations.

Financial Highlights

Revenue: Vardhman’s revenue decreased from ₹10,138 crore to ₹9,505 crore. This 6.24% reduction suggests challenging market conditions or strategic shifts.

Profitability: Net profit fell from ₹805 crore to ₹637 crore. This 20.87% decrease indicates pressure on profitability, possibly due to market conditions or increased costs.

OPM: Operating Profit Margin decreased from 14.73% to 13.41%. This suggests challenges in maintaining operational efficiency amid market pressures.

Debt: Debt-to-Equity ratio improved from 0.23 to 0.2. This indicates a strengthening balance sheet and reduced financial risk.

Raymond

Raymond, incorporated in 1925 by Lala Kailashpat Singhania, stands as a diversified powerhouse in textiles, apparel, real estate, FMCG, and engineering. With a vast retail network of 1,638 stores across India and nine countries, Raymond’s global presence spans over 55 nations.

As one of the world’s largest vertically and horizontally integrated manufacturers of worsted suiting fabric, Raymond is poised to significantly benefit from the Bangladesh+1 strategy. The company’s established presence in key markets like the USA, Europe, Japan, and the Middle East positions it to capture a substantial share of the redirected garment business.

Potential FTAs with the UK and EU, combined with the existing Australia FTA, could exponentially boost Raymond’s export opportunities beyond India’s current $16 billion textile exports.

Company Outlook

Strategic restructuring: Raymond is completing demergers of lifestyle and real estate businesses. This will create focused entities, potentially unlocking shareholder value.

New focus areas: Post-demerger, Raymond Limited will concentrate on real estate and engineering. This strategic shift may lead to more specialised operations and growth.

Capacity expansion: A ₹200 crore investment in garmenting capacity is planned. This should improve responsiveness to customer demand and potentially increase market share.

Financial stability: Raymond aims to maintain a net-debt-free status with a cash surplus. This strong financial position provides flexibility for future growth initiatives.

Financial Highlights

Revenue: Raymond’s revenue increased from ₹8,215 crore to ₹9,020 crore. This 9.8% growth indicates strong market performance and effective sales strategies.

Profitability: Net profit surged from ₹537 crore to ₹1,643 crore. This 206% jump suggests exceptional performance or one-time gains, possibly related to restructuring.

OPM: Operating Profit Margin decreased marginally from 13.9% to 13%. This indicates relatively stable operational efficiency despite business changes.

Debt: Debt-to-Equity ratio improved slightly from 0.93 to 0.89. While still high, this reduction suggests progress in managing financial leverage.