The Economic Times daily newspaper is available online now.

    Lower cotton prices to support textile sector profitability: Ind-Ra

    Synopsis

    Slowdown on account of demonetisation & GST seems to have bottomed out in the second half; better margins expected in FY19 leading to improved credit profile.

    textile sectorAgencies
    Ratings agency further expects challenges to be countered by improved demand growth on a year-on-year basis and operating leverage benefits.
    Lower cotton prices and demand recovery are expected to support textile sector profitability, a report said.

    "We have maintained a stable outlook for cotton textiles and synthetics for FY19. This is in view of expected margin expansion due to softening in cotton prices, improved consumer spending outlook in key user countries and the low base effect of FY18," according to India Ratings and Research (Ind-Ra).

    The report noted that the slowdown in domestic demand for textiles due to demonetisation and the goods and services tax (GST) implementation, seems to have bottomed out in the second half of the fiscal. Better margins, modest reduction in working capital requirements and subdued capex in FY19 will improve the overall credit profile, Ind-Ra said.

    The report noted that the textile sector outlook is constrained by the possible impact of pink bollworm on cotton output and prices, and increasing crude prices on synthetics.

    Increasing crude price is likely to narrow the spread between cotton and synthetic yarns, thereby moderating the pace of switch to synthetics from cotton textiles.

    Operating margins of synthetics manufacturers may witness volatile margins due to crude price fluctuations and delays in passing on cost inflation. However, these challenges may be countered by improved demand growth on a year-on-year basis and operating leverage benefits, Ind-Ra said.

    A higher-than-expected rise in cotton acreage at 19 per cent and a consequent 11 per cent increase in crop production in FY17-FY18 are likely to moderate cotton prices in FY19, despite increase in prices in the last few months due to the pink bollworm issue.

    The global stock-to-use ratio for cotton, excluding China, increased to 56 per cent in FY18 from 47 per cent in FY17, although Chinese inventory declined 17 per cent year on year.


    (You can now subscribe to our Economic Times WhatsApp channel)
    (Catch all the Business News, Breaking News Budget 2024 News, Budget 2024 Live Coverage, Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more

    (You can now subscribe to our Economic Times WhatsApp channel)
    (Catch all the Business News, Breaking News Budget 2024 News, Budget 2024 Live Coverage, Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more
    The Economic Times

    Stories you might be interested in