Bangladesh Crisis: Gokaldas, Kitex, Other Textile Stocks Rally Up To 20%; Here’s Why

Crisis in Bangladesh: Shares of textiles, garments & apparel companies like Gokaldas Exports, Century Enka, and SP Apparels rallied up to 20 per cent on Tuesday.

Shares of Gokaldas Exports zoomed 18% to a fresh 52-week high of Rs 1,089.40 on the NSE as investors believe that the Bangladesh crisis will boost textile exports from India.

Other top gainers were KPR Mill (16%), Arvind Ltd (11%), SP Apparels (18%), Century Enka (20%), Kitex Garments (16%) and Nahar Spinning (14%).

With the crisis in Bangladesh intensifying, the textile sector, which contributes a lion’s share of its export, is likely to be a victim of the turmoil, with international buyers shifting their focus to alternative markets like India.

India’s gain will be an additional business of $300-400 million per month if 10-11 per cent of the neighbouring country’s export is diverted to Indian hubs like Tiruppur; the newspaper reported quoting industry experts.

Overall, government investments, coupled with growth in domestic demand on account of the rising disposable incomes and the growing popularity of ‘fast fashion’ products, promises a thrilling future for the Indian textiles and apparel industry. These factors will give an impetus to the industry despite the persistent slowdown in demand in certain key markets, according to analysts.

“This unrest will undoubtedly damage the country’s brand value in the eyes of the US and European manufacturers, who often give Bangladesh preference. Consequently, the garments and textile sector in India may gain an advantage due to these ongoing protests and clashes,” Vikram Kasat – Head of Advisory at Prabhudas Lilladher, said.

However, yarn exporters may get hit as Bangladesh is the biggest customer for yarn export as of now with a 25-30% share.

“And any disruption over there will have issues here also. But since it’s a small kind of a thing, I mean it’s not really very big. As of now, there is no impact on the demand. But unless it is resolved or it continues for a long period, then there could be a concern. But as of now, there doesn’t seem to be an issue,” Neeraj Jain, Joint Managing Director of Vardhman Textiles, said in an earnings call.

After weeks of anti-government protests and clashes between police and protestors that claimed hundreds of lives, Bangladesh Prime Minister Sheikh Hasina resigned and fled the country on Monday. The army chief said an interim government will be formed to run the country.

Bangladesh is the second-largest garments exporting country and exported around $47 billion worth of ready-made garments in 2023. The South Asian country has a high double-digit share in the European Union and the United Kingdom and a 10% market share in the United States.

The civil unrest in Bangladesh could present opportunities for Indian companies in the export market as global brands may want to diversify out of the troubled zone.

The turmoil is also bad news for all Indian companies which either source their products or sell their stuff in the neighbouring country.

The intense competition in the global market, especially from the textile and garment industries in Bangladesh and China, may also prove a dampener for the industry, but strong players and fully integrated ones with a fullstack solutions, will continue to stay ahead of the curve, Arvind Limited said.

Global demand outlook

Global demand outlook for CY24 continues to be relatively stronger vis-à-vis CY2023. In tandem with global retailers’ commentary, Indian Home textile and apparel exporters expect demand to improve in coming quarters. Any normalisation of demand in CY24 (led by hospitality / residential) amidst improved global retailers’ inventory position leaves headroom for export demand recovery by Indian exporters (refer positive demand guidance by Indian players in exhi, implying orders pick up in coming quarters, analysts at JM Financial Institutional Securities said in its textile sector report.

Extended runway for revenue growth over next 3 years (courtesy impending FTAs / ’China+1’), GOI’s increased focus on textile ecosystem (rebates/PLI) and deflation in commodity price (cotton price off highs and range bound) make a strong case for improvement in FY25 earnings trajectory, the brokerage firm said.

A deleveraged balance sheet of Indian textile players leave ample room for chasing revenue growth as / when structural demand drivers pick pace. Huge addressable market size / topnotch execution/ de-leveraged balance sheet bode well for key players in the home textile/ apparel sector, it added.

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