Team Blitz India
The operating margins of cotton yarn spinners are expected to improve by 150-200 bps this year, according to a report by Crisil Ratings. This is likely to provide a breather to the industry which had hit decadal lows of 8.5-9 per cent last fiscal.
“Stable cotton prices due to better availability of cotton during cotton season 2024 and improved cotton yarn spreads this fiscal will support improvements in margins,” the report stated. Revenue, too, will rise up by 4-6 per cent this fiscal and this will be driven by moderate growth in downstream demand amid stable yarn prices, after a 5-7 per cent decline last fiscal due to a sharp reduction in yarn prices.
As per the report, credit profiles, which were impacted by lower cash accrual last fiscal, will also improve with better operating performance and moderate capex on deleveraged balance sheets. Crisil analysed 95 cotton yarn spinners, which account for 35-40 per cent of the industry revenue, to reach these conclusions. “Better availability of domestic cotton and continued downstream demand growth will drive recovery in cotton yarn spreads to Rs 90-92 per kg this fiscal from around Rs 87 per kg last fiscal. The improvement was already visible in the second half of fiscal 2024 as higher cotton arrivals resulted in normalisation of cotton prices, thereby improving the margins of spinners. With cotton prices expected to stay benign and likely to remain below international prices, the operating margin is expected to recover 150-200 bps to 10.5-11 per cent this fiscal,” said Gautam Shahi, Director, Crisil Ratings Ltd.
In terms of revenue, while yarn prices are expected to remain flat, CRISIL said that the domestic sales volume, which forms 70-75 per cent of the industry pie, is set to grow 4-6 per cent this fiscal, backed by orders from key end-user segments – readymade garments and home textiles. However, exports are likely to grow only 3-4 per cent this fiscal, given sluggish global economic growth. Exports had staged a recovery last fiscal with 80-85 per cent growth. With recovery in demand and operating performance, capacity utilisation level for the industry has reached 80-85 per cent and is expected to improve further this fiscal, it said.
