Textile companies have shown one of their best quarterly performances in the second quarter of the current financial year, due to a staggering demand for garments from both domestic and foreign markets.
Around 130 textile companies which have declared their results have posted a 136 per cent jump in aggregate net profit to Rs 1,230 crore for the quarter ended September, as compared to Rs 842 crore in the same quarter of last year. The combined net sales of these companies grew 28 per cent to Rs 18,632 crore, as against Rs 14,568 crore in the same period last year.
The industry, however, is apprehensive over the sustainability of this growth. It says yarn manufacturers are the biggest beneficiary, not them. The profit is partly passed on to farmers, too, in the form of high cotton prices, while garment makers are squeezed between yarn manufacturers and retailers, said Premal Udani, chairman of the Apparel Export Promotion Council (AEPC).
Cotton yarn prices are at an all-time high of Rs 240 per kg (of 40-count), an increase of 70-80 per cent in the past 16 months. As a result, fabric prices have also shot up by 90 per cent for various counts. The price of the benchmark Shankar-6 variety of cotton has doubled in the same period, to Rs 46,000 a candy (356 kg).
In the previous quarter, when these companies booked bulk orders from foreign and domestic companies, prices of raw material, including cotton and yarn, were low. The prices of end-products shot up tremendously by the time of execution of orders. This fetched them higher top line and bottom line. But, the trend is unlikely to continue in the subsequent quarters, as raw material prices have surged four times since the last quarter.
Local demand rides high on the back of increasing per capita income, coupled with aspirations for a better standard of living, say observers. There is consistent demand growth at a yearly rate of 10 per cent in China and India.
D K Nair, secretary-general of the Confederation of India Textile Industry, believes the organised sector companies in readymade garments and a handful of raw material suppliees are growing at the cost of unorganised sector units, who neither have global market access nor are updated with the day to day global developments affecting their industry.
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Yet, 96 per cent of fabric production and 75 per cent of garment production is in the unorganised sector, where units are not listed. Only in yarn is it the other way round, with 90 per cent of production is in the organised sector.
“The growth in top line is significantly influenced by the increase in raw material prices, especially prices of cotton and other fibres. But there has also been improvement in the bottom line, because demand for textile products has improved in both domestic and global markets,” said Nair.
In the global market, however, India’s share declined from 5.99 per cent in readymade garments last year to 5.05 per cent this year. The industry blames unfriendly government policy, which allows export of raw materials like cotton and yarn to competing countries such as China and Bangladesh.