The India Ratings and Research (Ind-Ra) in its latest report has maintained a stable outlook on the cotton and synthetic textiles sector for the remaining period of financial year 2019. It expects that the domestic demand for textiles is likely to remain robust from end-user, buoyed by a strong rise in private consumption during the rest of FY19. Besides, it expects textile exports to rise, which will result in apparel exporters benefitting due to the rupee's depreciation against the US dollar.
According to the report, the rupee has depreciated at a higher rate against the US dollar during the April to August period than the currencies of key apparel-exporting nations. It also said that the sector profitability is likely to improve gradually with players passing on increased raw material prices to end-users following healthy demand, a depreciating rupee and waning impact of the structural issues. However, it said that the positive impact of improved demand and profitability will be partly affected by working capital requirements on the back of cost inflation leading to steady reliance on debt.
The ratings agency has stated that a lower-than-expected cotton production in 2017-2018 (October-September) and a further decline in production in 2018-2019 due to a low acreage, along with high domestic consumption demand and high export demand from China, would further erode the domestic stock levels. It also said that an expected decline in the stock levels, along with a likely rise in minimum support price for the cotton season 2018-2019, would keep cotton prices elevated. It noted that this is likely to result in volume growth of synthetic textiles and support the profitability of the synthetic value chain. Adding further, it said that the government's decision to allow input credit on man-made fabric to 7% of fabric price would lead to a decline in input prices for apparel manufacturers and further support their volume growth.