With cautious inventory management and risk aversion towards holding higher raw material stocks, the country’s textile industry has a stable outlook for the current fiscal on account of robust domestic demand, lower input costs and competitiveness in apparel exports, according to a report by India Ratings & Research.
The trends for FY16 in the textile sector shows more cautious inventory controls, 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,” the report said.
India Ratings & Research has maintained a stable outlook on its rated textile companies as they are likely to show ratings stability on growing domestic demand, competitiveness in apparel exports and an overall improvement in credit profile.
Cotton spinners’ EBITDA margins, which were hurt by inventory valuation losses on a 20 per cent decline in cotton prices in FY15, could recover in FY16 in the range of 10-13 per cent. However, it would still remain lower than the FY14 levels of 14-16 per cent, which benefitted due to exceptionally high Chinese demand,” the report said.
“However, sector’s outlook will be revised to negative if margins and cash flows come under pressure on account of volatility in cotton prices and inventory losses,” the report added.
Besides, the agency has revised the outlook for the synthetic textile sector to ‘negative’ for FY16 from ‘negative to stable’. “Unfavourable cotton-polyester staple fiber spreads have hurt substitution demand for synthetic fibers and synthetic yarn. 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,” it said.
Oversupply of cotton and cotton yarn over FY16 coupled with lower average crude prices could also cause the price of polyester fibers to decline. “It is expected that 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,” it added.
Besides, apparel exports could continue to show a positive growth trend in FY16, driven by the improving economic outlook of buyer countries. India has gained out of higher wages, political instability and work place accidents in other apparel exporting nations.