The Indian textile industry’s profitability is likely to improve with lower cotton prices, demand revival in the key user nations and the low base impact of FY 2018, states a report by India Ratings and Research (Ind-Ra). These all factors may lead to an improved margin, it adds.
The effect of demonetisation and GST execution appears to have diminished in the latter half of the fiscal, while improved margins, moderate decline in working capital needs and muted capex in FY 2019 will perk up the overall credit profile, the report underlines.
However, the report also states that cotton textile segment outlook is constrained by the probable impact of ‘pink bollworm’ on cotton production and prices.
Furthermore, Ind-Ra observed that a 19 per cent increase in cotton acreage and a resultant 11 per cent surge in crop output in previous two fiscals are expected to moderate cotton prices in FY 2019, notwithstanding the rising prices in the last few months due to the pink bollworm issue.
Barring China, the global stock-to-use ratio for cotton surged to 56 per cent in FY 2018 from 47 per cent in the previous fiscal, even as Chinese inventory plunged 17 per cent Y-oY, it noted.
Apparel Resources spoke to The Cotton Textiles Export Promotion Council (Texprocil) Chairman Ujwal Lahoti to know his views on the report’s findings and conclusion.
As per Lahoti, lower cotton prices should be defined in relative terms, and the “movement in domestic cotton prices needs to be analysed by comparing with prices in major cotton supplying countries”.
India is the largest producer and the second-largest consumer of cotton in the world, and ideally, cotton should be made available to Indian spinners at a price lower than international cotton prices. However, if the Indian cotton prices are at par with international prices, there is no major advantage to the Indian spinners, he explicates.
“Although domestic cotton prices were a bit lower over the past couple of months, the prices have started edging upward from last week (3rd week of Feb 2018),” Lahoti apprised us.
Despite minor volatility in the cotton prices during the current cotton year, the downstream domestic market in India is definitely supporting the cotton textile manufacturers. However, cotton textile export continues to face certain disadvantages while compared to other major competitors like Vietnam, Bangladesh and China, he points out.
Hoping that increase in cotton cultivation area and output in the current cotton year in India will lead to minimum fluctuation in cotton prices, Lahoti, however, also notes that India’s cotton exports surged 20 per cent in quantity terms and 38 per cent in value terms for the period Jan-Nov 2017.
“Considering the above facts and also as China is not likely to increase import of cotton, we anticipate that the cotton prices will hover within the band of US Cents 75 to 85 per lb during the current cotton year,” he concluded.