Cotton spinning sector set for revival in FY25: ICRA

The domestic cotton spinning sector is poised for a comeback in the financial year 2025, with an expected growth rate of 6-8 per cent, says a recent report by ICRA. This positive outlook follows nearly two years of decline caused by plummeting yarn prices and sluggish domestic demand.

The report attributes the anticipated growth to a combination of factors, including modest increases in yarn prices and a projected volume growth of 4-6 per cent. Over two-thirds of India’s cotton yarn production is consumed domestically, and the revival of downstream industries like home textiles and ready-made clothing is fueling optimism. While exports are expected to normalize after a rise in FY24, the impact of sluggish global demand is likely to be mitigated by a shift in sourcing preferences away from other countries.

K Srikumar, Senior Executive at ICRA, highlighted the improving financial health of spinners. Gross contribution margins, which took a significant hit in FY24, have shown signs of recovery in the first quarter of FY25. This trend is expected to continue, leading to a boost in operating profit margins. Additionally, the decline in domestic cotton prices, which peaked in H1 FY23, is anticipated to reverse slightly due to increased demand and a projected reduction in cotton cultivation.

The report also forecasts a modest increase in capital expenditure by industry players, driven by the need for machinery upgrades, the growing appeal of India as a manufacturing hub, and strengthening domestic demand from the garment sector.

Overall, the ICRA report paints a promising picture for the cotton spinning sector, indicating a potential return to growth and improved profitability.