The Indian textile sector has a stable outlook on the account of lower input costs, robust domestic demand and competitiveness in apparel exports in the current financial year, according to report by India Ratings and Research (Ind-Ra).
However, the outlook for cotton yarn exporters is negative due to a slowdown in demand for yarn particularly from China, leading to softer yarn realizations and lower capacity utilization, the report added.
The outlook for the cotton textile sector is led by stable spinning margins in the cotton yarn segment, range-bound cotton prices and favourable domestic and export demand for downstream fabrics and apparels.
The outlook for the synthetic textile sector has been revised by India Ratings to negative for FY16 from 'negative to stable'. Unfavourable cotton-polyester staple fibre spreads have hurt substitution demand for synthetic fibres and synthetic yarn. Lower export competitiveness of Indian synthetic yarn also contributes to the subdued outlook as import and central excise duty continue on man-made fibres.
Oversupply of cotton and cotton yarn over FY16 coupled with lower average crude prices could also cause the price of polyester fibers to decline.
Ind-Ra expects contribution margins for polyester yarn to remain downcast in FY16. Margins for texturised yarns and fully drawn yarns are likely to be partly insulated due to higher value addition.
Trends for FY16 in the textile sector indicate more cautious inventory management, risk aversion towards holding higher raw material stocks and focus on efficiencies in cash conversion cycle.
Although India has a small share in the global textile trade, it is well positioned to gain from weak input prices and growing demand for apparels and made-ups. The trends, if sustained in FY16, are likely to improve the financial metrics of garment manufacturers, Ind-Ra said. Presently, Pakistan and Bangladesh are one of the biggest players in the textile sectors.
Last year the EBITDA margins for the textile firms were affected after a 20 percent decline in cotton prices. As a result inventory held by the textile firms too saw lower profit margins. In the current financial year the margins could recover in the range of 10-13 percent, as per the report.
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