Most analysts were taken by surprise when Malwa Cotton Spinning announced 81 per cent growth in net profit and 25 per cent rise in turnover for the first half of 1997-98. Likewise Vardhman Spinning, GTN Textiles, Maral Overseas and other cotton yarn units also maintain the trend. This performance is far above the market expectations and now analysts are taking a second look at this sector, which had been doing badly in the past two to three years. The change in the fortune of this industry can be attributed to two major factors "" sharp jump in export of yarn last year and low domestic cotton prices for the last two years.
Booming exports
Cotton yarn, the largest item in the textile export portfolio registered the highest growth last year. India exported 461 million kg of cotton yarn valued at Rs 5,323.8 crore. This is 75 per cent rise in volume terms and a 58 per cent jump in value terms. By any yardstick this performance has been impressive.
Even in the current fiscal the industry has tried to maintain the same trend. Exports in the six months (April to September 1997) increased 25.34 per cent in volume terms to 257.21 million kg over the corresponding previous period. In value terms, it increased 26.2 per cent to Rs 3035.10 crore. This is in spite of a higher export base in the previous year. The industry estimates the 1997 cotton yarn exports to be around 550 million kg.
More significantly, th industry has been able to venture into new markets. Till last year Bangladesh accounted for 8.3 per of total exports, but its share declined in the current year. This is because the European Union which sources fabrics from Bangladesh made the tariff concessions but only if the yarn is manufactured within that Bangladesh.
This in turn has seen a lot of Indian companies shifting to new markets like China and other countries in west Asia. Another factor which has worked in favour is reduced yarn exports from traditional exporters like China and Turkey which are now moving forward to fabrics and garments. This in turn has left the field open to the Indian mills to step in and fill the gap.
Rise in cotton yarn exports can be attributed to the gradual shift in government policy towards encouraging polyester consumption. In the past five years, the duties on petrochemicals have been slashed significantly to encourage a host of companies to set capacities in the polyester fibre and yarn. This has been the major factor in narrowing down the price difference between polyester staple fibre and some varieties of cotton. This in turn has led to a shift in the use of polyester in blended yarns. The ratio of polyester usage has increased to around 60-65 per cent from around 40-45 per cent over the last five years. This shift has been a boon for the cotton yarn industry as greater consumption of polyester releases extra cotton for the lucrative export market.
But the major question is: Will the industry able to maintain this trend in exports? Rajesh Mayani, analyst at HSBC Batlivala & Karani Securities, suggests that in the coming months the Indian industry will find it difficult to compete against other South East Asian countries which have seen more than a 40 per cent fall in their currency in the last five months. Pakistan, the largest exporter of cotton yarn till last year and India's major competitor has also seen a sharp depreciation of its currency. Thus most companies are unlikely to maintain the same momentum in export growth.
