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Cotton prices are to remain firm through 2010-11
17 Dec '10
4 min read
In contrast, synthetic textiles players have benefited, from the rise in cotton prices, especially in the mass clothing segment.
Raw material cost as a percentage to sales varies between 55%-65% for cotton yarn spinners, hence even a 10% increase in the raw material prices (that cannot be passed on) can reduce the spinner's operating margin by 500 bps (basis points) to 600 bps. Fitch factors in the inherent risk of volatile input costs while rating spinners, however a variation beyond anticipation could lead to liquidity pressures and might warrant a review of the ratings. Sharmanji Yarns Private Limited ('BB(ind)'/Stable) is partly insulated from such volatility by its presence in polyester blended yarn. Smaller spinners such as Mountain Spinning Mills Ltd ('BB(ind)'/Stable) and Tuticorin Spinning Mills Ltd ('BB(ind)'/Stable) which are purely cotton yarn spinners are exposed to higher risk.
Raw material cost as a percentage to sales varies between 55%-65% for cotton yarn spinners, hence even a 10% increase in the raw material prices (that cannot be passed on) can reduce the spinner's operating margin by 500 bps (basis points) to 600 bps. Fitch factors in the inherent risk of volatile input costs while rating spinners, however a variation beyond anticipation could lead to liquidity pressures and might warrant a review of the ratings. Sharmanji Yarns Private Limited ('BB(ind)'/Stable) is partly insulated from such volatility by its presence in polyester blended yarn. Smaller spinners such as Mountain Spinning Mills Ltd ('BB(ind)'/Stable) and Tuticorin Spinning Mills Ltd ('BB(ind)'/Stable) which are purely cotton yarn spinners are exposed to higher risk.
Fitch Ratings Ltd
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