Whalesbook
Why Prices Are Rising
The South India Hosiery Manufacturers Association (SIHMA) is raising prices by 7% on branded innerwear, nightwear, and kidswear starting Wednesday. This move follows a sharp rise in production costs, with key materials like cotton and polyester jumping 15% to 40%. Overall production costs have climbed by approximately 15%.
Specific material cost surges include cotton (5%), polyester (35%), dyeing and sewing thread (20% each), elastic (25%), boxes (10%), and polybags (40%). The surge in input costs, especially for polyester and nylon derived from crude oil, is worsened by global geopolitical tensions pushing oil prices above $100 a barrel. Wholesale prices for apparel rose 2.08% in January 2026, contributing to wider wholesale inflation.
Small Businesses Feeling the Pinch
The Tirupur knitwear sector is a major economic force, valued at about ₹30,000 crore annually. It includes around 2,500 production units employing over five lakh workers. However, smaller companies, or MSMEs, are under severe financial pressure. Suppliers have stopped offering 35-45 day payment terms and now demand immediate payment, creating cash flow crises. This pressure has already led to a reported 25% decline in production over the past 10 days.
The Indian textile industry has faced similar cost pressures before; for example, in April 2022, garment costs rose about 7% due to higher processing expenses.
Consumer Spending: A Mixed Picture
The 7% price adjustment comes as the consumer spending environment is complex. While Indian consumer confidence is generally optimistic for 2026, with 60% expecting higher household spending and strong interest in big-ticket items like cars and phones, other signs point to caution.
A January 2026 survey shows that worries about inflation and job security are reducing spending on non-essentials, with plans for dining, shopping, and entertainment dropping to 55% in 2026 from 58% in 2024. The clothing and footwear inflation rate stood at 2.98% in January 2026.
This mix means the 7% price hike's impact on apparel demand is unclear. Consumers might resist the increase, prioritizing essentials or cutting back on non-essential buys.
Company Performance Amid Price Hikes
Several SIHMA member brands are publicly traded. Rupa & Company (RUPA.NS) has a TTM P/E of around 16.03, but its 5-year revenue growth of 5.06% trails the industry average (9.37%), and its market share has declined. Dollar Industries (DOLLAR.NS) has a TTM P/E around 13.27, with a history of volatile P/E ratios. Lux Industries (LUXIND.NS) trades at a TTM P/E of about 23.9, but has seen poor profit growth (-21.35% over 3 years) and negative operating cash flow.
The average P/E ratio for the Consumer Discretionary sector in India is around 24.0x. Dixcy Textiles, now part of Modenik Lifestyle after a merger, reported negative EBITDA last year. SIHMA members' price hike must navigate these diverse financial performances and market positions.
Risks Ahead: Margin Pressure and Demand Uncertainty
Despite projections that the Indian textile and apparel market will reach $190-$248.7 billion by 2025-26, significant risks remain. Continued high raw material costs, particularly those tied to volatile crude oil prices, could keep eroding margins. Historically, such cost pressures have made Indian cotton goods less competitive, leading to sharp stock declines for textile firms.
The fragmented domestic innerwear market also limits pricing flexibility for larger companies. Additionally, consumer demand could fall more than anticipated if inflation fears grow or job security concerns mount. This poses a major threat to sales volumes, especially for discretionary items like branded apparel. Analysts also point to potential export slowdowns due to trade barriers, highlighting global market sensitivities.
Industry Growth Prospects
Looking ahead, the Indian textile and apparel industry is set for substantial growth, with forecasts predicting over 11% CAGR by 2034. Analysts expect input costs to stabilize in 2026. Free Trade Agreements, like one with the UK, could also boost tariff competitiveness. India is projected to maintain strong GDP growth and become the world's third-largest consumer market by 2026.
These factors suggest underlying demand potential, but the immediate challenge is navigating the current inflation and its effect on consumer spending power.