Talking about the domestic cotton spinning industry, the rating agency Icra in a report has said that the demand for the industry is likely to improve by close to 12-14 per cent in volume terms in FY2024 every year.
The report added that yarn exports are likely to increase by a sharp 85 to 90 per cent, on the back of a shift in sourcing preference away from China and the expectations of demand improving for the spring/summer season in the US and the EU regions that will drive domestic demand from apparel and home textile manufacturers.
However, a sharp moderation in cotton prices, leading to lower yarn realisations, is likely to translate to an 8 to 9 per cent year-on-year (YoY) decline in revenues to Rs 33,465 crore in FY2024.
Jayanta Roy, Senior Vice President and Group Head, Corporate Sector Ratings, Icra said: “Despite the increase in cotton yarn volumes, ICRA expects the operating income of Indian cotton spinning companies to decline by 9-10 per cent and operating margins to shrink by 200-240 bps in FY2024 amid a significant drop in realisation and lower gross contribution levels.”
Roy added that nevertheless, in-house power generation capacities recently added by select players are likely to alleviate margin pressures in the medium term.
Cotton yarn exports typically account for 25 to 35 per cent of India’s cotton yarn production, while the remaining is accounted for by the domestic market. While a steep decline (53 per cent) was witnessed in cotton yarn exports in FY2023, there has been a trend reversal in the current fiscal.
In 7M FY2024, overall yarn export volumes grew by 142 per cent (on a YoY basis) on a low base, and with increased exports to China, resulting in the share of exports in the overall production increasing from 19 per cent in FY2023 to 33 per cent in 7M FY2024.
For the full year FY2024, ICRA estimates India’s yarn exports to increase by 85 to 90 per cent on a YoY basis. Bangladesh, China, and Vietnam account for 60 per cent of these exports.
With the share of Asia in Indian yarn exports being 70 per cent, no immediate impact on Indian yarn exports is expected due to the ongoing Red Sea conflict; any sustained continuance of this face-off would have a direct impact on apparel export volumes and a consequent impact on both domestic and export demand for cotton yarn and its realisations.