India Ratings and Research on Friday said textile companies are likely to see a 20-25 per cent decline in their topline this fiscal owing to muted domestic demand and sub-par exports in the April-June quarter due to COVID-19 related disruptions.
Ind-Ra in a report said coronavirus related disruptions weighed on the textitle sector which has been facing multiple headwinds in form of flattening demand from key exporting countries and increasing competition from neighbouring countries like Bangladesh, Pakistan and Vietnam.
Textile companies across the value chain could witness a topline contraction of 20-25 per cent on a year-on-year basis in FY21, on back of a muted domestic demand and sub-par exports during 1QFY21 due to COVID-19 related disruptions, Ind-Ra said in a report.
The COVID-19 related demand disruptions could substantially impact companies with weaker balance sheets and limited scale, should the recovery stretch beyond one quarter, the report said adding that in such a situation there might be consolidation within sub-segments such as yarn producers, spinning and dyeing.
The report said China's position as the largest exporter to the US may be challenged in the long-run, but will remain intact in the short run, given its strengths of scale, product integrity, price points and turnaround time.
India exported USD 28.36 billion worth of textiles from April 2019 till January 2020.
Majority of domestic companies are facing massive order cancellations from the US and Europe, along with factory shutdowns and raw material shortage.
Furthermore, full-fledged resumptions of exports would mainly depend on the containment of pandemic in key export geographies, the report said.
The US and Europe while being the worst hit geographies are also India's major export markets for textile products, hence export recovery could take longer, especially given the discretionary nature of these products.
Meanwhile, Ind-Ra said the liquidity score for FY21 for most issuers remains resilient to demand shocks, backed by the availability of cash reserves and unutilised bank limits.
A weak rupee is a silver lining in the current situation, it added.
Further, Ind-Ra expects the aggregate working capital requirement to remain limited, as a decline in commodity prices is likely to counter the incremental requirements of an elongated receivable cycle and higher inventory volumes.
However, the material relief especially to the MSME units in the sectors would depend on the domestic as well as export recovery, complemented with a focused government aid, Ind-Ra added.
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