Domestic textile market to remain subdued in 2020 – Arvind Ltd

Monthly revenue at Arvind Ltd during COVID Lockdown

Arvind Ltd, one of India’s biggest textile and garment manufactures, said its business revenue was down about 37% in August compared to the previous year due to the impact of the Coronavirus lockdown and it expects domestic market to remain subdued till early 2021.

Revenue in August was at Rs 414 cr in August, compared to the average of Rs 611 cr for January and February — before the lock-down was imposed.

Revenue had started falling in March, when it recorded sales of Rs 417 cr, impacted by the lock-down. Monthly revenue then fell to Rs 52 cr in April and to Rs 201 cr in May due to the lock-down, Arvind said.


Monthly volumes at textiles division

Since export volumes have bounced back faster, the denim division has seen a faster recovery versus the woven business.

Monthly sales were only 10% below yesteryear levels in the denim division in August, while they were still down 38% year-on-year in the woven division (see left side of chart above).

Business continued to be impacted quite sharply at the garments division, where volumes were down 37% year-on-year in August, improving slightly from the 41% dip seen in July.

In terms of revenues, denim was down 21% in August, while woven was down 46% and garments were down 26% (see chart below).

Monthly Revenues at various divisions

Cash profit (EBITDA) margins, which had fallen to 8.9% of revenue in May, had bounced back to pre-COVID levels at 12.6% in the garments division and 11.1% for the company as a whole by August, it added.


Samir Agrawal, chief business officer of Arvind Composites, pointed out that the company was hit hard by the lock-down as it deals in a discretionary purchase item — clothes.

Besides the need to ‘conserve cash’ that hurt discretionary purchases, the sale of clothing has also been hurt by the fear of consumers to enter air conditioned shops.

“COVID-19 and associated lockdown have had a deep impact on most businesses in practically every geography around the world,” Agrawal said. “Arvind’s core business being tied to discretionary consumption got really hit hard. Domestic market is still quite challenged, and we are seeing a demand recovery only to the tune of 30% to 40% across various segments.

“Further, a large part of recovering demand in India isin the rural and semi-urban areas, which traditionally buy value merchandise. Urban India is yet to resume apparel consumption in a substantial manner also reflected in the results of major apparel brand and retailers in the country,” he added.

Jayesh Shah, chief financial officer, said its likely that big apparel retailers in are now likely to start taking stock from manufacturers like Arvind Ltd only by Jan-Mar 2021, after liquidating their existing stocks during the Diwali season (Oct-Nov).

“There is challenge both for the end consumer like B2C businesses where we supply fabrics or garments to branded apparel companies and retailers where the sales have been quite affected. Similarly, our retail sale of fabric is also impacted because of that, so the goods which we sold in the last quarter of Q4 or last quarter of last financial year are still not really sold out by them because most of the period so far has been under the lockdown, so they are holding inventories. They have postponed purchases.

“We believe that most branded apparel and retailers will not purchase, they will skip a buy for one season and I believe they will start buying in Quarter-4, so we will see a gradual reduction in inventory levels of our customers over next three to six months, particularly in Quarter-3, where the it is a Diwali festival season, where we believe that a lot of inventory will get pushed out. They will not be buying something new for next four to five months, so the demand from domestic market will remain subdued for the domestic consumption,” he said.

The company also said that it is too early to see any impact from attempts by international clothing brands to diversify away from China into markets such as Bangladesh and India.

“Most of these big customers are relooking at their entire supply chain, and as a country-risk mitigation strategy, they are definitely looking at India as one of the destinations. However, what happens is that at this point of time, these customers are planning for their fall 21 assortments. So, definitely, there’s a flow of enquiries, but this will result in real business in the fourth quarter of this financial year  [Jan-Mar 2021],” said Ashish Kumar, CEO of garments and advanced materials division at Arvind Ltd.