Indian cotton spinners are riding high on strong demand and realisations and have reported multi-year high operating profits in the past four quarters, even as cotton fibre prices increased parallelly, according to domestic ICRA Ratings. Besides recovery in domestic demand, robust growth in export demand has also supported volumes, the rating agency said.
ICRA Ratings expects its sample of large- and mid-scale spinning companies to report a robust double-digit growth in revenues and all-time high profits in fiscal 2021-22 (FY22), with nearly 400-600 bps improvement in operating margins.
While the growth is primarily being led by all-time high realisations which have sustained for much of the year, volumes are also estimated to be better than the pre-COVID levels. The slight decline in December 2021 aside, cotton yarn prices remained on a rising trend in the current fiscal, touching all-time highs in recent months.
In the first nine months of fiscal 2021-22, Indian cotton yarn prices averaged around 36 percent higher than FY21.On the exports front, following a 5 percent growth in FY21 despite the pandemic impact, India’s cotton yarn exports surged by nearly 47 percent YoY in the first half of FY22, led by around 130 percent YoY rise in exports to Bangladesh.
ICRA expects Indian cotton yarn exports to be at all-time highs in FY22, breaching the previous high recorded in FY14. Even as risk of subsequent pandemic waves remains, ICRA expects domestic spinners to sustain healthy volumes in FY23 as well, amid a shift in preference away from Xinjiang cotton and competitive domestic cotton prices.
However, prices are expected to taper as cotton yarn realisations remain unsustainable at current levels, which may affect demand, ICRA said. Improved capacity utilisation and greater financial flexibility have led to pick up in capital expenditure activity in the cotton spinning segment in recent months, in line with ICRA’s expectations.
