Textile firms to remain under pressure in Q2

Textile companies’ sales and margins are expected to remain under pressure in the second quarter of the current financial year due to weak exports and domestic demand. Only integrated textile companies are expected to fare better.

Many mills will see margin pressure. Improvement, if any, could be seen only in the quarters to come. This year, cotton spinners have been affected by high inventory costs, as many of them had piled up cotton procured at high prices in February, after which the prices have fallen sharply in the recent months. Most textile mills/companies are facing difficulty in servicing their debts, and have approached the Indian Banks Association and RBI for relief.

In August, power looms in the South were on a month-long strike, affecting demand of yarns, both cotton and synthetic. The strike is now over, but this has not had any change in the numbers for the quarter ending September. Many small player have also suffered cash losses in the last two quarters.

“The first quarter was bad for many textile companies and the total loss is estimated at Rs 6,500 crore, which also rolled into the second quarter,” said D K Nair, secretary general of Confederation of Indian Textile Industry(CITI). Since man-made fiber prices follow cotton and cotton yarn prices, this has also affected companies negatively.

Over all there is stagnancy in growth, said Pulkit Agarwal, manager at CARE Ratings. The rupee depreciation has helped exports, but they remain vulnerable due to lower demand in major market like Europe. Volumes have also come under pressure this quarter; bottom line is also expected to remain flat, according to industry analysts.

The performance of integrated textile companies like Alok Industries and Kewal Kiran are likely to register a good top line of almost 25 to 30 per cent, an analyst from a leading broking firm added. For most companies, margins are expected to remain flat on a sequential basis, but, lower on a year-on-year basis. Bottom line is also expected to remain flat on rising interest costs.

The outlook for the textile companies could be a little better in the next quarter as they are in the process of getting rid of their inventory of cotton yarn. But, certain factors like uncertainty in major world economies will remain a concern, Nair said.