ICRA has recently published a research note on the domestic cotton spinning industry. The rating agency expects demand for the industry to improve by close to 10% in volume terms in FY2024 on a yearly basis, primarily gaining through a shift in preference away from Chinese cotton, and the expectations of demand improving for the spring-summer season in USA and EU regions. However, an expected moderation in cotton prices will lead to lower realisations, which is likely to translate to a 7% year-o ..
Commenting on this, Kaushik Das, Vice President & Co-Group Head, Corporate Sector Ratings, ICRA, said in a statement, “Despite lower revenues, ICRA expects the operating margins of Indian cotton spinning companies to improve by ~50 - 100 bps to 11.5%-12% in FY2024. The spinners are expected to benefit from the operating efficiencies arising from higher volumes, and lower logistics expenses as the blockages at the ports in various regions have started to ease, accompanied by a reduction in co ..
While the cash accruals of players are expected to decline marginally, ICRA expects the spinners’ borrowings to come down too, in FY2024. Lack of any major capital expenditure plan along with lower working capital requirements, because of the softening in cotton prices, are likely to lower the debt levels and improve the capital structure for companies. ICRA expects the debt coverage ratios for the sector to improve in FY2024 with debt/OPBITDA forecast to ease to ~2.2X from 2.4X in FY2023. The c ..
Das adds, “The industry had undertaken high debt-funded capex in FY2022, partly due to the deferment of major capital expenses during the Covid period (FY2020-2021). Consequently, with a drop in yarn demand in H2 FY2023, the coverage metrics of the industry deteriorated in FY2023. Due to limited order visibility for FY2024, as of now, the spinners have halted major capex plans for the near term. ICRA, however, expects capex announcements for FY2025 to pick up, driven by the modernisation require ..
Domestic cotton prices were at a historical high in H1 CY2022, but had declined steadily in H2 CY2022. For 5M CY2023, cotton prices declined further by ~20% compared with December 2022, as the new season crop hit the market. As per the estimates of the Office of the textile commissioner, domestic cotton production for CY2023 is projected to increase by 10% on the back of expected higher acreage in Maharashtra and Gujarat. ICRA however notes on the slow progress on the cotton sowing areas in Maha ..
Cotton yarn prices have been declining since June 2022 following the softening in cotton fibre prices and subdued demand from downstream apparel companies. ICRA expects cotton yarn prices to remain steady in the near term and increase marginally in H2 FY2024 as demand from downstream companies picks up. The average gross contribution margins for spinners had declined sharply (24%) in FY2023 after a steep increase (+27%) in FY2022. The decline in FY2023 was led by high cotton fibre prices and wea ..
Exports account for ~25-35% of India’s cotton yarn production, while the domestic market makes up for the rest. With a sharp surge in cotton prices and the ensuing operational disruptions, yarn production declined ~15% YoY and exports plunged 53% YoY in FY2023. ICRA expects cotton yarn pr ..
Source Name : Economic Times