However, it is expected that a moderate cotton price will lead to lower performance, which is likely to lead to a 7% year-on-year (YoY) drop in revenue to around Rs 34,000 crore in fiscal year. main 24, ICRA said in a press release.
According to ICRA, India’s cotton spinning industry is forecast to see 10% year-on-year demand growth, although revenue is expected to fall 7% due to lower cotton prices. The sector’s debt ratio is likely to improve and despite some concerns about a monsoon delay, overall cotton production is forecast to increase.
While player cash accumulations are expected to decline slightly, ICRA expects player loans to also decline in 2024. Lack of any major capital expenditure plans coupled with capital requirements lower liquidity due to lower cotton prices, potentially reducing debt levels and improving capital structure for companies. ICRA expects the sector’s debt ratio to improve in FY24 with its debt/OPBITDA forecast to decline to around 2.2x from 2.4x in FY23. As reflected by the total external liabilities/tangible net worth ratio, it is also expected to improve slightly to around 0.5x in 2024 (0.6x in 2023).
Domestic cotton prices were at historic highs in the first half of calendar year 2022 (H1 CY22) but declined gradually during H2 CY22. For 5M CY23, cotton prices are down about 20% more than December 2022 due to the new crop hitting the market. According to estimates by the textile commissioner’s office, domestic cotton production for CY23 is expected to increase by 10% thanks to the higher projected acreage in Maharashtra and Gujarat. However, ICRA noted slow progress on cotton-growing areas in Maharashtra and southern states due to the late onset of the monsoon. However, as the sowing season extends into July in these regions, ICRA expects a harvest with monsoon normalization. The deficit (on an annualized basis) in seeding improved from about 14% at the end of June to about 11% as of July 7.
Cotton yarn prices have been falling since June 2022 after cotton fiber prices fell and demand fell from downstream apparel companies. ICRA expects cotton yarn prices to remain stable in the near term and increase slightly in the second half of FY2024 due to increased demand from downstream companies. The average gross margin of spinning companies fell sharply (24%) in 2023 after a strong increase (27%) in 2022. The decline in 2023 was due to high cotton fiber prices and demand weak demand from downstream companies. Although yarn prices are expected to increase in the second half of 2024, ICRA estimates that the gross margin of spinners will decrease further by about 5% year-on-year in 2024 due to fluctuating cotton and yarn prices. relatively disadvantageous.
Exports account for about 25-35% of India’s cotton yarn production, while the domestic market accounts for the rest. With a sharp increase in cotton prices and the subsequent disruption of operations, yarn production is down around 15% y/y and exports down 53% y/y in 2023. ICRA expects cotton yarn production to increase around 15-17%, while exports are estimated to account for 28% of total cotton yarn production in fiscal year 2024. However, cotton yarn production and exports will remain well below historic highs seen in 2022.
Kaushik Das, vice president and co-head, corporate sector ratings, ICRA, “Despite lower sales, ICRA expects Indian cotton spinning companies operating margins to improve by around 50-100 basis points (bps) to 11.5-12,” said. % in 2024. Spinners are expected to benefit from operational efficiencies arising from higher throughput and lower logistics costs due to congestion at ports in different regions has begun to ease, along with a reduction in container freight rates. However, the accumulated profits and cash of spinning companies are expected to be slightly lower in 2024 than in 2023.
“The industry made high debt-equity capital investments in FY22, partly due to the postponement of large capital expenditures during the Covid period (Fiscal Year 20-21). Therefore, with the decline in yarn demand in the second half of fiscal year 2023, industry coverage indicators have deteriorated in fiscal year 2023. As the visibility of orders for fiscal year 24 is limited. However, up to now, spinning mills have halted large capital investment plans in the coming time. However, ICRA expects capital announcements for FY 2025 to increase, due to machinery modernization requirements, demand inflows from the China + One movement and resumption of demand from consumers apparel use in the EU and North America.”
Fiber2Fashion (DP) News Desk
