Cotton, polyester yarn segments anticipate revenue rebound in FY25: CRISIL
According to A new CRISIL report titled, ‘Upstream textiles sector: Threads of promise,’ both cotton and polyester yarn segments will see a rebound in revenue and profits in FY25, though export growth might remain a concern. Driven by increased demand from downstream textile industries stable yarn prices and better cotton availability, the cotton yarn sector is set for a 4-6 per cent revenue increase in FY25. Profit margins are expected to recover to 10-10.5 per cent from 8.5-9 per cent in FY24. This recovery is attributed to lower raw material costs, reduced inventory losses, and wider cotton-yarn price spreads.
Despite the positive outlook, major capacity expansions are unlikely to be revived in FY25 unless exports rise. Subdued global demand, especially from the US and Europe, might limit export growth, even though new opportunities are emerging in markets like Japan and Africa, with the potential India-UK Free Trade Agreement also offering a significant advantage.
CRISIL anticipates stable credit profiles for cotton yarn spinners in FY25, thanks to healthier balance sheets and improved cash flow. Normalizing cotton supply will also ease working capital pressures.
The polyester yarn segment is projected for 2-4 per cent revenue growth in FY25, following a flat FY24 impacted by cheap Chinese imports. This growth will be boosted by the implementation of Quality Control Orders (QCOs) designed to restrict such imports, along with a gradual increase in domestic volumes.
No major capital expenditure is planned for the polyester yarn industry in FY25, as 5-6 per cent of its capacity, added recently, will become operational. Exports are expected to decline by 15-17 per cent, due to continued Chinese dumping and currency devaluations in key export markets like Egypt and Turkey, with some export sales likely diverting to the domestic market for better pricing. Nevertheless, CRISIL foresees stable credit profiles for polyester yarn manufacturers in FY25, similar to cotton yarn, due to the operational stability of recently added capacities and stable debt levels. Working capital requirements are also expected to remain consistent.
Both segments face inherent risks. For cotton yarn, adverse fluctuations in domestic and international cotton prices could impact revenue and margins. Polyester yarn is susceptible to volatility in crude oil and raw material prices, as well as changes in government regulations that could affect imports and potentially lead to increased dumping of cheap polyester fabrics.