Textile mills pin hopes on fourth quarter

Industry is banking on the textile ministry's move to boost cotton procurement

Textile mills are hoping the fourth quarter of the financial year will be better than the demonetisation-affected previous one because of the textile ministry's reprieve reducing the initial payment for the cotton procured.

As first-time payment, firms now need to shell out 10% of the price if the procurement is 3,000-30,000 bales (one bale=170 kg), as against 20% earlier. It is 15% for procurement below 3,000 bales, and 20% for 30,000 bales or more. 

Union Textile Minister Smriti Irani has directed Cotton Corporation of India (CCI), which procures cotton normally when the prices crash below the minimum support price, to procure on a commercial basis and supply to the mills.

“This will greatly help micro, small and medium units, which are starved of working-capital funds in the demonetisation regime," said M Senthilkumar, chairman, Southern India Mills’ Association (SIMA).

According to industry sources, the move could reduce the production cost. Also, the industry hopes orders for the summer of 2017 could boost the fourth-quarter results.

"We are hoping that the fourth quarter will not be as bad as the third. We are yet to see an immediate impact of the recent move but are also focusing more on exports, which could help us boost the fourth-quarter results. However, we are sure that business would pick up in the first quarter of the next financial year," said Paritosh Aggarwal, managing director, Suryalakshmi Cotton Mills Ltd.

While large traders, including those doing multinational trade, take advantage of hedging facilities and cheaper funds, mills are unable to build adequate inventories and have been paying higher prices for cotton during the low season. 

More than 75% of the cotton arrives in the market between December and March and around Rs 60,000 crore is required to procure the seed cotton. 

Since ginning and spinning mills do not have such funds, farmers invariably get lower prices.

As a result, the industry has been asking the government to ensure cotton fibre security and stability in cotton prices.