Indian spinners are likely to see a gradual performance recovery beginning 2017-18 last quarter after facing multiple problems over the last several quarters that resulted in their profitability touching six-year lows in the previous two quarters, according to a report by credit rating agency ICRA. Cotton yarn demand is also expected to gather strength.
The performance improvement is expected to be aided by a downward bias in cotton prices amid healthy cotton crop and an upward bias in yarn realisations due to demand restoration, said Jayanta Roy, senior vice president and group head, corporate sector ratings, ICRA.
ICRA believes the uptick in cotton prices in recent weeks to be an aberration in light of slower-than-usual arrivals in the leading cotton producing state Gujarat owing to elections and pest attack-related concerns.
These concerns are unlikely to considerably affect crop quantity and quality and the arrivals are likely to pick up in the fourth quarter of the current fiscal. Domestic prices are likely to remain 10 to 12 per cent lower than average cotton price during the twelve month period ending September 2017, a leading Indian business daily reported citing the ICRA report.
Better clarity on export incentives for textile goods in recent weeks is likely to support India's overall textile exports and demand restoration from the fourth quarter onwards, Roy said.
The cotton yarn demand is also likely to gather strength from restoration of domestic demand following the temporary disruption caused by the transition to the goods and services tax (GST) regime, and higher exports to one of India’s key export markets, China, before re-launch of its cotton auctions in March 2018.
However, credit profiles of spinners remain stable despite the weak performance, the report added.