Cotton yarn industry to see 5-7% volume growth in FY24: Report
2 min read 13 Jul 2023, 05:48 PM ISTAnalysts have warned that average sales realisation of cotton yarn is expected to fall by 12-17% followed by a decline in cotton prices.
PremiumNew Delhi: Indian cotton yarn industry is likely to witness 5-7% year-on-year growth in sales volume, while the operating margin is expected to expand by 100-150 bps in FY24, according to a report by CareEdge Ratings released Thursday.
Indian cotton yarn exports hit a decade-low level of 664,000 tonnes in FY23, compared to the highest exports of 1,389,000 tonnes in FY22.
“Demand for cotton yarn in FY22 was strong, driven by downstream demand for home-textile products and the advantage of lower domestic cotton prices compared to international prices. Furthermore, America’s ban on cotton products from China’s Xinjiang region redirected some of the demand from China to other countries, including India. This increased demand also led to an elevated cotton yarn spread of around ₹125 per kg in FY22, which was 25-30% higher than the historical average," it said in a report.
However, in FY23, Indian cotton yarn exports faced challenges due to the disparity between domestic and international cotton prices.
“The global demand slowdown resulting from high inflation and recessionary pressures in developed economies, such as the USA and the European Union, further impacted the industry. Retailers with excess inventories deferred new orders for home textiles and ready-made garments (RMG), negatively impacting the demand for cotton yarn," the ratings agency said.
As a result, cotton yarn exports stood at 19% of cotton yarn produced in FY23. Historically, China has been largest buyer of cotton yarn from India. However, post the US’s ban, Bangladesh took its place and became largest importer of Indian cotton yarn during FY22 and FY23, according to the report.
However, this is set to reverse albeit in the second half of fiscal 2024, the parity with international cotton prices will enhance the competitiveness of Indian cotton yarn, CareEdge said in its report.
“Secondly, there is a shift in demand from competing nations, which can create opportunities for Indian exporters. Additionally, the gradual relaxation of China’s zero Covid policy is anticipated to improve demand from China," it said.
However, analysts have warned that average sales realisation of cotton yarn is expected to fall by 12-17% followed by a decline in cotton prices.
“Slowdown in demand is expected to continue in H1FY24 amidst macro-economic headwinds while demand is expected to improve in H2FY24, thereby limiting growth in FY24. Overall, the Indian cotton yarn industry is expected to witness 5-7% growth in sales volume during FY24 while average sales realisation of cotton yarn is expected to fall by 12-17% followed by a decline in cotton prices," said Krunal Modi, Associate Director at CareEdge Ratings.
Subsequently, the Indian spinning industry may register a revenue decline of around 8-10% while the operating margin is expected to expand by 100-150 bps aided by higher capacity utilization, softening of cotton prices coupled with the benefit of lower freight and power cost, he said.
