The Bank of Baroda (BoB) in a recent report has said that increased shipping costs and delays in shipments due to the Red Sea crisis is a major headwind for the textile sector.
The report titled ‘Corporate performance: Q3-FY24’ stated that for the textiles sector, festive demand momentum was short-lived as discretionary demand continues to remain weak. Even during festive sales, premium segments performed better while discretionary spending was weak.
However, some companies reported a pickup in demand for woven fabrics and home textiles. Apart from this, the decline in inventories and increased demand in export markets such as the US and Japan have also helped sales.
Reduction in prices of raw materials, specifically cotton yarn, in India has contributed to an increase in profitability for the textiles sector. “There has also been a steady improvement in capacity utilisation of the sector as well,” the report mentioned.
In the case of consumer durables, sales growth was in the high single-digit at 8.3 per cent, while PAT growth was 12.9 per cent. Sales in both B2B as well as B2C segments showed improvement and the trend is expected to continue. Companies reported an increase in demand during the festive season, particularly for small appliances.
In an encouraging sign, demand from lower-tier cities showed improvement. Profit growth showed improvement, led by price hikes. However, this was partly impacted by increased spending on advertising during the festive season, it stated.
Performance of the IT sector remained muted with low single-digit growth in both sales and profit as macroeconomic conditions were largely unchanged. The quarter was marked by seasonal factors due to yearend holidays and increased furloughs.
Notably, companies reported a cautious approach from clients concerning new orders, with discretionary spending continuing to remain weak. However, there was a sequential improvement and commentary from major companies indicated some green shoots.
According to the report, “Major IT firms reported an uptick in new deals even as employee headcount has continued to decline.”
For the fast-moving consumer goods (FMCG) sector as well, the Q3-FY24 performance remained dismal, with both sales and net profit growth decelerating. Increased competition from regional peers remained a key concern for major players.
The trend of softness in rural demand continued this quarter as well, with even festive demand failing to take off materially. Delays in the winter season, warmer than usual winters, lower reservoir levels and high food inflation kept a lid on rural demand.
“Urban markets continued to outperform, with demand for premium products continuing to outstrip the demand for mass products,” it mentioned. To counter the increased competition some firms reported of undertaking price cuts and higher advertising and promotional (A&P) spending.
For oil marketing companies, while net sales declined on a year-on-year (YoY) basis, profit after tax (PAT) growth was robust. Driving the higher profits were lower prices of oil in the international markets, according to the report.
