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Managing debt - Core issue facing Indian textile industry

Aug '12
Mr Mitesh Shah
Fitch Ratings, a global ratings agency has said that the outlook for Indian cotton textiles remains negative to stable for the second half of 2012. It has also revised the outlook for synthetic textiles from stable to negative and the cotton textile industry has a stable to negative rating.

The ratings have the potential to create an impact on the Indian textile industry to raise cheap capital from domestic as well as foreign markets. The ratings downgrade has come at a time when the industry is grappling with volatile input costs.

According to Fitch, a prolonged demand slowdown will subdue capacity utilisation levels and in turn revenue growth prospects of the domestic textile companies. Although softening cotton and cotton yarn prices have helped margins recover to some extent, but have not translated into a full-scale demand revival.

It says - Benefits from rupee depreciation on exports will be limited by the existing hedge positions of, or by, price renegotiations and discount demands from overseas buyers.

However, Chief Financial Officer (CFO) of Mumbai-based Mandhana Industries Ltd – Mitesh Shah is not overtly worried. He says, “I am of the opinion that we should not read much into the ratings. It is a known fact that the whole textile industry is going through a rough patch.

“The downgrade in ratings is more or less sentimental. Even the US – the biggest economy in the world was downgraded, however it has managed to script a path to a turnaround and as of now it looks fine.

“The main challenge facing the Indian textile sector today is aptly managing debt, which is the biggest test; the textile industry needs to overcome deftly. Otherwise, the industry has been able to achieve the set targets with regards to production and also revenues. Moreover, domestic demand is also good”.

Considering that ratings have been downwardly revised, it could prove difficult for the Indian textile industry to access cheap overseas capital. “This will be on a case-to-case basis. Those companies with strong balance sheets and good corporate practices will be able to access cheap credit irrespective of the Fitch downgrading”, Mr Shah informs.

Contrary to general opinion, Mr Shah is very appreciative of the policies of the Indian government. “It will be unfair to say the government is not helpful. To name a few, the recent foreign trade policy, focus market incentives, drawback on exports, etc. The government on its part has helped the industry to the extent possible”.

“However, the most awaited decision expected from the government is bringing down interest rates. Though inflation which is stubbornly at high levels, is the main reason as to why the government is not able to bring down interest rates. Even a one percentage point reduction has the capacity to generate excitement among industry and consumers alike, he reveals.

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