Stable Outlook For Cotton Textiles, Synthetics In India

Stable Outlook For Cotton Textiles, Synthetics In India

India Ratings and Research has maintained a stable outlook for cotton textiles and synthetics for fiscal 2018-19 as margins may expand due to softening in cotton prices, better consumer spending outlook and the low base effect of the last fiscal. However, the possible impact of pink bollworm on cotton and rising crude prices on synthetics are the constraints.

Better margins, modest reduction in working capital requirements and subdued capital expenditure in the next fiscal will lead to an improvement in the overall credit profile in India, according to a press release from the Fitch Group company.

The slowdown in domestic demand growth for textiles due to demonetisation and the implementation of the goods and services tax seems to have bottomed out in the second half of the current fiscal.

A higher-than-expected rise in cotton acreage at 19.0 per cent and a consequent 11.0 per cent increase in crop production in the current and last fiscals are likely to moderate cotton prices in the next fiscal, although domestic cotton prices increased in the last few months due to the pink bollworm issue.

The global stock-to-use ratio for cotton, excluding China, increased to 56.0 per cent in fiscal 2017-18 from 47.0 per cent in the precious fiscal, although Chinese inventory declined by 17 per cent year-on-year.

An increasing crude price is likely to narrow the spread between cotton and synthetic yarns, thereby moderating the pace of switch to synthetics from cotton textiles. Operating margins of synthetics manufacturers may witness volatile margins due to fluctuations in crude price and delays in passing on cost inflation, the company said. (DS)