Tirupur’s fate has been replicated across other major textile hubs ever since the lockdown was announced. The textile industry, the second largest employer after agriculture, may lose 25 per cent of its jobs. Around 129 lakh people’s livelihoods depend on the industry and nearly 70 per cent of them are women.
While the Covid-19 pandemic has completely halted production and new orders, exporters say that payments have also been delayed for the shipments sent before the lockdown. Exporters say some customers are not taking delivery of the shipments because they have shut shop. Ready-made garment players had been hoping for a revival in demand in China but with the virus spreading to Europe, the US and other major markets, there are no orders coming from the major retailers. It’s true that the government has extended the rebate on state and centre taxes from 1 April to boost the liquidity and competitiveness of these players but this will not help many buyers who are going bankrupt because the lockdown and concomitant closure of stores has resulted in a fall in exports.
For FY20, the margins are likely to be impacted by 120-150bp and credit metrics to moderate with pressure on liquidity and higher working capital utilisations, according to India Ratings and Research.
The agency assumes that India’s exports — already reduced by more than 40 per cent till January 2020 owing to the US-China trade war —will be substantially hit till H1FY21. The agency assumes Ebitda will drop at least 15 per cent in FY21 across its textile portfolio.
The home textile industry
has seen shipments being held up and faces bleak uncertainty about operations being resumed in the short term. A handful of larger players have sufficient liquidity to manage the tough times but if the impact of the coronavirus
is larger or longer than expected, the outcome will be grim for the smaller companies. With malls and shopping centres closed, movement restricted, and mass transport unavailable, domestic sales have withered. India exported $16.2 billion worth of garments in 2018-19. The apparel sector accounts for 43 per cent of India’s textiles exports in value terms and for 5 per cent of overall exports.
From manufacturing through to retail, the garment industry employs close to 25 million people. If the current situation continues beyond a month from now, nearly a quarter of the jobs in the industry will be lost, according to the Clothing Manufacturers’ Association of India (CMAI). Recovery, the CMAI predicts, will take at least 10 months to a year. Without government support, it adds, the industry cannot survive this unprecedented crisis.
Bhilwara in Rajasthan was known as a centre for pv suitings and dyed yarn worth Rs 25,000 crore. Now it is known as a coronavirus
hot spot. S N Modani, chairman, Rajasthan Textile Mills
Association and managing director, Sangam in Bhilwara, said the textile industry
in the town is worth around Rs 35,000 crore, including exports.
Since the night of March 21, Bhilwara has been locked down. If the industry can resume operations after April 14 when the lockdown is scheduled to be lifted, a 15-20 per cent annual basis loss is expected on the topline. The bottomline will be even worse because of fixed expenses. If the lockdown is extended, the losses will rise as vertically as the virus curve.
Exports from Rajasthan total around Rs 10,000 crore. With no clearance from the ports, borders sealed and customers cancelling orders, 25 per cent of business has already been lost.
“European buyers, particularly from Italy and Spain, have already asked our members not to export garments to them and wait for a minimum of one or two months till the situation improves and shops are reopened. Some buyers are cancelling orders outright,” said Tirupur Exporters’ Association President Raja M Shanmugham.
He said that small and medium enterprises will not be able to repay bank loans. “We apprehend that due to non-clearance of dues, the banks may classify such units as non-performing assets as per BASEL norms,” said Shanmugham. Even those who manage to resume operations will have to face having to pay 30 per cent more for dyes and chemicals which will impact their cost of production.
Some in the industry are pinning their hopes on demand reviving once the virus settles down. Others are focused on getting financial support from the government along the lines offered by many developed countries hoping to limit the damage caused by Covid-19’s disruption of economic activity.
The CMAI has asked the government to consider postponing income tax, advance tax, and GST, give a minimum 180-day moratorium on repayment of all bank loans, and provide a disbursement of 25 per cent additional working capital loans on zero interest to tide over the current liquidity shortfall.
It has also asked for a wage subsidy to avoid job losses, the creation of a special Factor Fund for small and medium companies to discount their bills immediately, urged that banks should not treat a failure to repay loans as a non-performing asset, and provide a one year moratorium on repayment so that smaller players can avoid going under. It is only such a package, says the CMAI, that will allow the industry to see the other side of the lockdown.