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The estimates are based on a survey comprising a sample of 13 listed entities in the domestic cotton spinning industry. Representative Picture
The domestic cotton spinning industry will recover in FY25, growing 6-8 per cent, rating agency ICRA said on Wednesday.
The recovery will be aided by 4-6 per cent volume growth and mild-realisation gains, the rating agency said.
The estimated recovery would follow two consecutive years of de-growth on the back of subdued domestic demand and falling yarn realisations.
Over two-thirds of the total cotton yarn produced is consumed domestically, where green shoots of recovery are visible from the downstream segments, such as ready-made garments and home textiles.
According to ICRA, cotton yarn exports, which rebounded in FY24 on a lower base, are likely to normalise in FY25.
“While exports will remain exposed to headwinds from sluggish global demand, a shift in sourcing preference away from other countries will offset this impact to an extent,” the rating agency said.
It shared that domestic cotton prices, which peaked sharply in H1 FY23 and reached a lifetime high of Rs 284 per kg, have been declining over the last two years.
The average prices, which fell approximately 26 per cent year-on-year in FY24 amid a moderation in global prices and weak demand from the end-user segments, are likely to marginally increase in the near-term with a recovery in demand and an expected reduction in the cotton sown area, ICRA said.
“The operating income of Indian cotton spinning companies is estimated to improve 6-8 per cent in FY25 with a recovery in domestic demand and marginal rise in yarn realisations.
“The gross contribution margins for spinners, which contracted sharply by around 20 per cent year-on-year in FY24 amid weak domestic demand, recovered by an estimated 5 per cent in Q1 FY25 and the recovery trend is likely to continue for the remainder of FY25,” K Srikumar, Senior Vice President & Co-Group Head, Corporate Sector Ratings, ICRA, said.
Accordingly, ICRA expects the operating profit margins to expand further by 100-150 basis points, supported by scale benefits and the cost-saving measures undertaken by industry players, he added.
The estimates are based on a survey comprising a sample of 13 listed entities in the domestic cotton spinning industry.
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First Published: Jul 17 2024 | 6:07 PM IST
