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Sales & margins of textile sector under pressure
28
Oct '11
The boom period which Indian textile companies witnessed in the last two quarters of fiscal year 2010-11 seem to be over. Since the first two quarters in fiscal year 2011-12, they are now facing the stark reality of pressure on sales and margins.

The drastic plunge in raw cotton prices beginning from April has been the trigger for the current situation. Textile mills were sitting on huge cotton inventories and the nearly 50 percent fall in prices of raw cotton turned the tables for the mills.

“The Q2 results of textile companies are not likely to be very positive. In case of Q1, of the 168 of 287 companies that we could examine, had results that were poorer than that of Q1 of last year. 122 companies had made net losses, says Mr DK Nair, Secretary General – CITI.

“In Q2, cotton prices initially came down a bit, but increased subsequently. Cotton yarn prices showed only a moderate improvement. Exports in August were good, but in September, probably exports also lost tempo. The economies of Western countries are in a crisis. They are the largest consumers of textile products.

“Our exports of intermediate products like yarn and fabrics to other countries would also depend basically on demand for the finished products in West Europe and North America, since that is where the finished products would ultimately go. Thus, the results are more or less likely to be as negative as those of Q1.

“The festive season will provide some hike in demand. But, whether this can be sustained in the subsequent months will depend primarily on the economic growth and the way inflation behaves. As of now, there is some uncertainty on when the textiles and clothing industry can really look at a comfortable market”, he concluded by saying.

Mr Pulkit Agarwal, Manager - CARE Ratings says, “In terms of exports we are of the opinion that there might be some increase because of the rupee depreciation. But, as far as volumes are concerned we are of the opinion that they might go down to an extent.

“On the domestic front, we expect the sales to remain flat, as compared to last year as we have not seen increase in sales of retailers also. As far as apparel prices are concerned, they have increased because of excise duty and other such factors. Therefore, because of the price increase, we expect the sales volume would not go up.

“Festive time is always good for the industry. This time, compared to last year, cotton prices have also come down. So, in terms of that, we expect the Q3 to be a little better compared to Q2, because of the fall in raw material prices”.

Fibre2fashion News Desk - India

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