India’s domestic cotton spinning industry to rebound in FY25: ICRA

Leading Indian credit rating agency, ICRA projects a significant recovery for the domestic cotton spinning industry in India during FY2025, spanning April 2024 to March 2025. ICRA anticipates operating income of Indian cotton companies will grow by 6-8 per cent increase in operating income. These companies revenue is expected to rise 4-6 per cent. A key driver of this would be the pickup in domestic demand for cotton yarn. Over two-thirds of the total cotton yarn produced in India is consumed domestically.

Along with volume growth, ICRA expects mild or marginal increases in yarn realizations (prices). Cotton yarn prices had been declining since June 2022, but are anticipated to see a slight uptick in FY2025.

ICRA also estimates, domestic cotton prices will rise marginally in near term due to recovering demand and an anticipated reduction in the cotton sown area. Having dropped approximately 20 per cent Y-o-Y in FY24, gross contribution margins for spinners is estimated to improve by 5 per cent Q1 FY2025. This recovery trend is expected to continue. Consequently, ICRA projects operating profit margins to expand by 100-150 basis points (bps) in FY2025, supported by scale benefits and cost-saving measures implemented by companies.

In essence, ICRA's outlook paints a picture of a cotton spinning industry that is gradually emerging from a challenging period, driven by a rebound in domestic consumption and a slight improvement in pricing power, leading to better financial health for the companies.