India’s cotton yarn sector aims for 7-9% revenue growth in current fiscal: CRISIL

From a modest 2-4 per cent growth last year, India's cotton yarn industry is projected to achieve 7-9 per cent revenue growth in the current fiscal. As per a CRISIL report, this optimistic outlook is due to a rebound in exports and strong domestic demand. Growth will primarily be driven by higher sales volumes, complemented by a slight uptick in yarn prices.

This fiscal year, operating margins are also expected to improve by 50-100 basis points (bps), building on last year's recovery. This is attributed to stable cotton yarn spreads and better availability of cotton through the Cotton Corporation of India (CCI). Crisil's analysis is based on 70 cotton yarn spinners, representing 35-40 per cent of the industry's total revenue.

One major factor for higher revenue is the recovery of yarn exports to China. Exports constitute approximately 30 per cent of the industry's revenue, with China accounting for 14 per cent. Last fiscal year, India's yarn exports to China declined due to exceptionally high cotton production there, leading to a 5-7 per cent overall decrease in India's cotton yarn exports. However, this trend is expected to reverse, with yarn exports projected to grow by 9-11 per cent as China's domestic cotton production normalizes.

Gautam Shahi, Director, CRISIL Ratings notes, this will benefit Indian spinners, allowing them to leverage steady domestic cotton production and regain market share. Additionally, India's competitive position in textile exports to the US, boosted by higher tariffs on China, is expected to support 6-8 per cent revenue growth for downstream home textiles and readymade garments this fiscal year.

The report also highlights, CCI's significant cotton procurement for the 2025 cotton season will ensure a steady supply, minimizing inventory losses and boosting spinners' profitability by another 50-100 bps. The interest coverage ratio for spinners is also anticipated to improve. However, potential shifts in tariffs, higher US inflation or economic slowdown, and adverse movements in domestic versus international cotton prices remain factors to monitor.