The industry’s bounce-back is attributable to a correction in domestic cotton prices, which have fallen from ₹1 lakh per candy in May 2022 to approximately ₹55,000, according to the analysis. Coupled with restocking by major retailers abroad, particularly in the United States, the industry's largest market, the favourable conditions are set to propel growth.
Operating profitability is projected to improve 150-200 basis points, reaching 14.0-14.5 per cent, although it will remain below pre-pandemic levels. Mohit Makhija, senior director at CRISIL Ratings, attributed the uptick to improved competitiveness in raw material prices and a "sustained China+1 policy" from global buyers.
While the outlook is largely positive, capacity utilisation is expected to improve only gradually. "The sector has seen large capacity additions recently amid moderate demand, which will keep operating margins below pre-pandemic levels," said Gautam Shahi, director at CRISIL Ratings.
The industry is also nearing the end of nearly a ₹4,000 crore capital expenditure (capex) cycle planned between fiscals 2022 and 2024. Debt metrics are expected to remain stable due to the healthy cash accrual driven by the predicted growth in revenue and profitability.
However, risks remain, including a potential slowdown in the US market and a surge in domestic cotton prices, which are key factors to monitor moving forward.
Fibre2Fashion News Desk (KD)