New Delhi: The country's textile industry has a stable outlook for the current fiscal on account of robust domestic demand, lower input costs and competitiveness in apparel exports, says a report by India Ratings & Research (Ind-Ra).
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, Ind-Ra said.
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.
However, sector's outlook will be revised to negative if margins and cash flows come under pressure on account of volatility in cotton prices and inventory losses, Ind-Ra's report added.
Besides, the agency has revised the outlook for the synthetic textile sector to 'negative' for FY16 from 'negative to stable'.
According to it, unfavourable cotton-polyester staple fiber spreads have hurt substitution demand for synthetic fibers and synthetic yarn.
The outlook for the cotton textile sector 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.
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 utilisation.
On the synthetic textile sector outlook, Ind-Ra said lower export competitiveness of Indian synthetic yarn also contributes to the subdued outlook as import and central excise duty continue on man-made fibers.
Oversupply of cotton and cotton yarn over FY16 coupled with lower average crude prices could also cause the price of polyester fibers 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.
Besides, apparel exports could continue to show a positive growth trend in FY16, driven by the improving economic outlook of buyer countries. India has gained out of higher wages, political instability and work place accidents in other apparel exporting nations.
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.
