Domestic textile mills are redoing strategy to protect margins from the pressure of high raw material prices.
Gokaldas Exports is among these re-negotiating with foreign buyers to pass on cotton price increases, while domestic suppliers such as Century Textiles are planning to pass it on to consumers. This means another round of price rises in fabrics and readymade garments are round the corner. Prices of readymade garments have risen by Rs 100-120 per piece in six months.
“Price revision, of course upwards, is a slow but regular process. Hence, we are re-negotiating with buyers to pass on a proportion of the current cotton price increase,” said Rajendra Hinduja, managing director of Gokaldas.
Cotton prices have doubled in the past year from Rs 25,000 per candy (356 kg) to Rs 50,000 per candy, resulting in numerous spinning mills in textile hubs like Tirupur shutting due to rise in their business risk. Without adequate raw material hedging avenues, the risk has compounded for textile mills, too.
“With April 1 round the corner, dearness allowance for employees is set to increase, raising overall manpower cost by eight to 10 per cent. Also, we are bound to lose some valuable customers, as the exact proportion of raw material price increases may not be absorbed by overseas buyers and mills like us will not do any business at a loss,” said Hinduja.
Century Textiles is planning to pass the raw material price rise on to consumers. The company plans to raise prices of fabric and readymade garments. “Mills do not have options but to pass it on to consumers. It will not be done at one go — the raw material price hike will be passed on to consumers fully in two-three months,” said R K Dalmia, president.
Engaged in the entire value chain, the Konark Group is in talks with customers to raise prices of its fabric. According to Shonit Dalmia, Director, the Group is planning to raise prices of finished products in a phased manner until all extra prices of raw material are absorbed fully.
Some are not for a rise at this juncture. Such as Alok Industries, a textile manufacturer. Dilip Jiwrajka, managing director, said: “We had revised product prices, considering cotton at Rs 48,000 per candy. In between, cotton fell to Rs 42,000 per candy and we did not cut prices. Now, prices have recovered their earlier level and, hence, there’s no need to consider a rise at this moment.”
Meanwhile, traders have urged the government not to allow any more cotton exports.
M B Lal, managing director of Shail Exports, a Mumbai-based exporter, said, “The government allowed 5.5 million bales (170 kg in a bale) for exports on the basis of Cotton Advisory Board’s output estimate of 32.9 million bales. Since untimely rainfall in the flowering season hampered the crop in Gujarat and Andhra Pradesh, India’s two leading producing states, total output is unlikely to surpass 30 million bales this year. If the government allows further quota, domestic weaving and spinning will have to close in the lean season.”
D K Nair, secretary general of the Confederation of Indian Textile Industry, agrees. He says more cotton exports would wring domestic industry and breach the government norm of having five million bales of carryforward stocks. Considering this year’s output between 30-31 million bales and carryover stocks from last year at 4.45 million bales, total availability for the current season is around 35 million bales.
Since consumption by local mills has been allocated at 25 million bales, exports at 5.5 million bales and miscellaneous scattered consumption at two million bales, total carryover stock will be 2.5 million bales only, he said.
