|
| Half of spinning sector debt to be NPA by April | | Of the 240 spinning mills in India, 125 declared net loss till the second quarter of the current financial year |
| Dilip Kumar Jha / Mumbai Feb 24, 2012, 00:23 IST |
|
 Around Rs 25,000 crore of the total debt on the books of country’s various cotton spinning mills may be declared non-performing assets (NPA) by the first quarter of the next financial year beginning April.
Out of 240 spinning mills in India, 125 had notched up net losses till the second quarter of the current financial year ending September 2011. Initial indications show nothing changed in the profitability of spinning mills during the third quarter. But, the fourth quarter is likely to be even worse as the price of cotton yarn has started declining. Consequently, according to industry estimates, these mills may not to be able to re-pay the nearly 50 per cent of the total borrowings in this sector. Their outstanding borrowings stood at Rs 50,000 crore.
“Pending our detailed analysis, I believe spinning mills will not be able to re-pay around 50 per cent of the overall debt due to their poor financial health. However, the figure may vary on actual analysis,” said D K Nair, secretary general, Confederation of Indian Textile Industry (Citi).
After over 10 months of severe jolt with yarn prices falling 50 per cent until November, the industry made a huge loss of around Rs 11,000 crore. Although, yarn prices started recovering steadily thereafter, financial health of mills continued to remain under pressure due to poor demand from the textile sector. Since then, yarn prices shot up by 20 per cent, pulling the industry from a position of severe losses to breakeven.
“Currently, the spinning industry in India is neither making a loss nor a profit. It is just managing to break even. By the time the industry witnesses a noticeable recovery, yarn prices started falling again in February, pushing the industry back into dire straits,” said Nair.
The price for 40’s count cotton yarn declined dramatically from Rs 279 a kg on March 26 last year to Rs 184 a kg on February 4. Similarly, the price of 80’s count and 100’s count plunged from Rs 438 a kg and Rs 486 a kg to Rs 344 a kg and Rs 401 a kg, respectively.
Since February 4, however, the price of cotton yarn has further declined between five and seven per cent due to poor domestic and export demand and falling cotton prices.
“Even at the current level of yarn prices, spinning mills would not be able to recover losses for the next two years. By then, however, many small and medium size mills would not be able to survive,” said Nair.
According to Bharat Malkan, the owner of IB Yarn Agency, a Mumbai-based cotton yarn trader, some enquiries have emerged, especially for 40’s count yarn from Brazil, Portugal and Latin America. But, it would be inadequate to support the price upwards, he added.
A recent report by Rabobank forecast a bearish outlook for the cotton market on expectations of huge surplus for old crop as well as new crop resulting into downside bias. The global stocks-to-use ratio is equally bearish, with the new 2011-12 ratio estimate being the second-highest in the last decade. The high stocks occur as demand is expected to be modest and growth negative in 2012-13.
The report further said Chinese imports were at a record high in December on National Reserve buying in China, but dropped 17 per cent in January. Chinese buying has slowed and further reductions in Chinese imports are likely. The world is forecast to have more than six months of consumption stock at the end of 2011-12 season, and a major contraction beyond 10 per cent in global planted area could keep prices at current levels.
Meanwhile, cotton arrivals from the new crop in various mandis have declined five per cent in the current cotton year until February 20 at 21.33 million bales (170 kg each), compared with 22.46 million bales in the year-ago period. The new cotton year begins on October 1.
To protect the industry from the volatility of cotton availability, A Sakthivel, chairman, Apparel Export Promotion Council urged the government to introduce a policy to keep an annual reserve of 2.5 million bales, which can be purchased and kept by the Cotton Corporation of India (CCI).
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
