are expecting a revival in their fortunes in July-September on a rebound in customer footfalls and restocking by traders following GST
(goods and services tax) compliance.
margins of textile firms remained under pressure in the first quarter of the current financial year due to traders’ destocking ahead of the GST
implementation effective July 1. Primary textile players had stocks returned to them amid fears of the GST’s burden on unsold inventory.
Not only small players but large ones, too, saw profits being squeezed in the quarter ended June. The net profit
of Vardhman Textiles
and Welspun Industries declined by 7.19 per cent and 38.39 per cent, respectively, during April-June. Grasim Industries
reported a 9.48 per cent rise in its net profit, which according to a Motilal Oswal report, was driven by improvement in realisation from the VST segment. Overall volume growth from the textile business
remained flat for Grasim Industries, the report said.
“Following the disruption due to demonetisation, the imminent introduction of the GST
dampened demand during this quarter. The implementation of the GST
has disrupted the unorganised sector, which has been demanding its removal on fabrics and resolution of the inverted duty structure,” said
C S Nopany, chairman, Sutlej Textiles and Industries. The government announced demonetisation
of Rs 500 and Rs 1,000 notes in November, which caused the cash business to come to a standstill.
Textile traders, especially those dealing in fabric and yarn, went on a 40-day strike in May after the announcement of a five per cent GST
levy on them. With the government firm on the levy, traders resumed business after compliance with the new tax norms in July.
Analysts said business would become normal with a resumption in demand from the domestic and export markets. Apart from that, cotton prices, which remained elevated last year on low output, are expected to decline this year on expectations of a bumper crop.
“Adverse rupee movement against the Chinese yuan is affecting textile players. In addition, high cotton prices have posed a challenge. With supplies likely to rise in the upcoming season, cotton prices are expected to moderate by 5-10 per cent,” Sumant Kumar, an analyst with Emkay Global Financial Services, said in a report.
The Cotton Advisory Board estimated India’s cotton output at 34.5 million bales in 2016-17. The output is likely to be higher in 2017-18 on an increase in acreage. Analysts said textile companies
with low debt and a better product mix were likely to perform better.