 "Sombre results from spinning companies")
Sluggish demand from China and a fall in cotton yarn prices undermined the profitability of spinning mills across India in 2014-15.
Data compiled by the Business Standard Research Bureau shows the combined revenue of the 46 listed spinning companies was Rs 32,483 crore, compared to Rs 32,813 crore the year before. Combined net profit fell from Rs 1,041 crore to Rs 76 crore in FY15. The year's final quarter, January-March, saw most companies incurring losses.
S P Oswal, chairman of the Oswal Group, one of the largest in the textile sector, said tepid demand from China, withdrawal of the Focused Market Scheme by the Government of India and high cost of borrowing had hurt the spinning sector.
As Vietnam is expanding its spinning capacity and there have been reports of Chinese investments in spinning in Vietnam, this can cause further stress for cotton yarn exporters, said Oswal. Even smaller spinning mills have resorted to a 20 per cent cut in capacity utilisation.
As for China, its government had in April 2014 ended a three-year programme of stocking raw cotton to support local growers; it is, instead, offering subsidies directly to the farmers. Thus, Chinese spinning mills have got access to cheaper cotton from the local market, cutting their dependence on import.
D K Nair, secretary general, Confederation of Indian Textile Industry, said: “Alternative markets in Bangladesh, Vietnam and Egypt can give some respite to exporters but their base is small. China is a giant.”
A mismatch between India’s spinning sector and fabric sector (yarn manufacturing expanded rapidly in the past few years, with a stagnant fabric manufacturing base) has created oversupply, making Indian companies vulnerable to export demand changes, said Nair.
“Despite a good crop and a substantial stock with Cotton Corporation of India, spinning mills are paying for cotton through their nose. The margins have been squeezed due to slow demand and the government is not taking any corrective measures,” said R K Dalmia, chairman of The Cotton Textiles Export Promotion Council.
“There is light at the end of the tunnel. The garment sector is expected to do well this year, as demand from Europe and America is picking up. This might trigger the demand for cotton yarn in the domestic sector,” said T Kannan, chairman, Thiagarajar Mills, Madurai.
According to Krunal Modi, manager at CARE Ratings, “The demand dynamics might change in the coming months as new destinations like the UAE might translate the recessionary trend into an opportunity for the garment sector. Plus, growing demand from Europe and USA might perk exports. Some in the garment sector like Raymonds and Arvind Mills have ramped up their capacities; some are in the pipeline.”
However, under-utilisation of capacity due to lower exports and losses on inventory are expected to keep profits for cotton spinning units under check in FY15.
Data compiled by the Business Standard Research Bureau shows the combined revenue of the 46 listed spinning companies was Rs 32,483 crore, compared to Rs 32,813 crore the year before. Combined net profit fell from Rs 1,041 crore to Rs 76 crore in FY15. The year's final quarter, January-March, saw most companies incurring losses.
S P Oswal, chairman of the Oswal Group, one of the largest in the textile sector, said tepid demand from China, withdrawal of the Focused Market Scheme by the Government of India and high cost of borrowing had hurt the spinning sector.
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Two years earlier, China's demand for yarn rose phenomenally and then abruptly fell, not giving much time for exporters to scout for alternative destinations. the result was a glut in the home market and a 10-12 per cent fall in prices, a major reason for the fall in net profits.
As Vietnam is expanding its spinning capacity and there have been reports of Chinese investments in spinning in Vietnam, this can cause further stress for cotton yarn exporters, said Oswal. Even smaller spinning mills have resorted to a 20 per cent cut in capacity utilisation.
As for China, its government had in April 2014 ended a three-year programme of stocking raw cotton to support local growers; it is, instead, offering subsidies directly to the farmers. Thus, Chinese spinning mills have got access to cheaper cotton from the local market, cutting their dependence on import.
D K Nair, secretary general, Confederation of Indian Textile Industry, said: “Alternative markets in Bangladesh, Vietnam and Egypt can give some respite to exporters but their base is small. China is a giant.”
A mismatch between India’s spinning sector and fabric sector (yarn manufacturing expanded rapidly in the past few years, with a stagnant fabric manufacturing base) has created oversupply, making Indian companies vulnerable to export demand changes, said Nair.
“Despite a good crop and a substantial stock with Cotton Corporation of India, spinning mills are paying for cotton through their nose. The margins have been squeezed due to slow demand and the government is not taking any corrective measures,” said R K Dalmia, chairman of The Cotton Textiles Export Promotion Council.
“There is light at the end of the tunnel. The garment sector is expected to do well this year, as demand from Europe and America is picking up. This might trigger the demand for cotton yarn in the domestic sector,” said T Kannan, chairman, Thiagarajar Mills, Madurai.
According to Krunal Modi, manager at CARE Ratings, “The demand dynamics might change in the coming months as new destinations like the UAE might translate the recessionary trend into an opportunity for the garment sector. Plus, growing demand from Europe and USA might perk exports. Some in the garment sector like Raymonds and Arvind Mills have ramped up their capacities; some are in the pipeline.”
However, under-utilisation of capacity due to lower exports and losses on inventory are expected to keep profits for cotton spinning units under check in FY15.