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The Textile Magazine
FEBRUARY 2012
Negative to stable outlook for
Indian textiles
– Fitch
industry update
Fitch Ratings has stated that the outlook for Indian
cotton textiles is negative to stable in 2012, while the
outlook for Indian synthetic textiles is stable.
Margin pressure persists for both cotton and synthetic
textiles driven by rising wage costs and power costs (in-
cluding shortage of power), and higher interest rates.
Cotton textiles are also facing challenges of a slower
demand pick-up and a loss of margins. However, recov-
ery is expected from the falling cotton prices, subject
to any further volatility in input costs or forex move-
ments. Synthetic textiles benefit from higher demand for
blended textiles, although
margins can turn volatile
in sync with crude oil price
volatility.
Weak demand for cotton
and cotton products in YTD
FY12 was mainly a result of
existing inventories causing
mills to postpone any fur-
ther buying in the backdrop
of uncertainty in overseas
demand for textiles. Weak
demand, labour and power
shortage in textile centres
such as Bhiwandi and Tiru-
pur have led to about 50 per cent of under-used capaci-
ties. Instead of adding capacity in India, garment manu-
facturers are looking at options of setting up capacity or
outsourcing job work to Bangladesh to benefit from the
lower cost of production.
Cash losses for cotton yarn manufacturers and lower-
end fabric companies in H112 impaired their debt re-
payment capacity leading to several instances of over-
utilisation of working capital limits. Some Fitch-rated
textile companies defaulted in YTD FY12 due to an in-
ability to obtain a timely increase of working capital fa-
cilities, as banks tightened lending criteria for the sector.
Refinancing risks would increase for distressed textile
companies in 2012 as the Reserve Bank of India and the
Finance Ministry have rejected the proposal for restruc-
turing of textile loans.
FY12 financial leverage will deteriorate for most tex-
tile companies due to their higher working-capital debt
and lower EBITDA compared with previous year’s, and
deleveraging will remain a challenge for the sector in
2012.
Given the challenging operating environment led by
the uncertainty over demand growth, volatility in raw
material prices and persist-
ent increases in other op-
erating costs, coupled with
the stress on liquidity, it is
unlikely that the sector’s
outlook will turn positive.
However, if falling cotton
prices translate into a reviv-
al of demand and capacity
utilisation, the outlook on
cotton textiles could turn
stable in the last two quar-
ters of 2012.
The outlook on synthetic
textiles may be revised to
negative if raw material prices increase substantially,
making synthetic textiles less competitive than cotton.
Downside risks to the outlook also include the adverse
impact of policy changes and a prolonged demand slow-
down.
Fitch-rated Indian textile companies include Rupa
& Company Ltd. (‘Fitch A-(ind)’/Stable), Balkrishna
Synthetics Ltd. (‘Fitch BBB-(ind)’/Negative), Ginni
Filaments Ltd. (‘Fitch B+(ind)’/Stable) and Eastman
Exports Global Clothing Private Ltd. (‘Fitch A-(ind)’/
Stable).
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