Trade Resources Industry Views Ind-Ra Has Maintained an Overall Stable Outlook for The Cotton Textile Sector for Fy16

Ind-Ra Has Maintained an Overall Stable Outlook for The Cotton Textile Sector for Fy16

Credit rating agency India Ratings and Research (Ind-Ra) has maintained an overall stable outlook for the cotton textile sector for FY16. This 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. However, the outlook for cotton yarn exporters is negative due to a slowdown in demand for yarn particularly from China, leading to softer yarn realisations and lower capacity utilization, the agency saidin a press statement.

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 per cent -13per cent. However, it would still remain lower than the FY14 levels (14 per cent -16 per cent) which benefitted due to exceptionally high Chinese demand.

Ind-Ra has revised the outlook for the synthetic textile sector 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, the statement said.

Oversupply of cotton and cotton yarn over FY16 coupled with lower average crude prices could also cause the price of polyester fibres 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.

Apparel exports could continue to show a positive growth trend in FY16, driven by the improving economic outlook of buyer countries, the agency said. India has gained out of higher wages, political instability and work place accidents in other apparel exporting nations. 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.

Growth of garment manufacturers might remain largely volume led while realisations could continue to exhibit commodity and competitive pricing pressure. Companies with diversification in higher value-added products are likely to benefit from the tailwinds of input price reduction. However, commoditised products will see a pass through, and not any margin expansion.

The agency 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 (i.e. lower gearing and leverage). 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. 

Source: http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=173454
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