Although the performance of Indian textile players were impacted by macro-economic headwinds in the second quarter of 2022-23, the companies may witness a healthy turnover in the ongoing financial year, according to a report by credit rating agency Icra. Textile companies are likely to report healthy growth in turnover in FY23, while the margins are expected to moderate amidst cost pressures, Icra said.
According to Sahil Udani, Assistant Vice-President and Sector Head, Corporate Sector Ratings, Icra, “The revenue and margins of Indian cotton spinners dipped in the second quarter of FY 23 due to macro headwinds. The revenue and margins remained flat for the apparel segment with recessionary conditions in key markets.”
In the second quarter of FY 23, most textile players posted a decline in inventory levels after cotton stocks from the previous harvest season started to reduce. “Cotton prices saw a sharp volatility resulting in players turning cautious on buying,” Udani said.
The rating agency said the revenue of spinners declined by 4 per cent on a Y-o-Y basis, while the margins were moderated by 950 bps. “With pressure on the profitability of companies across different scales, the interest cover also moderated during this period,” Icra report said.
Icra said that the impact is steeper for smaller players as large scale companies’ benefit from cost savings on bulk purchases of raw materials. “Inventory levels for most players declined in H1 FY23, with sharp volatility in cotton prices affecting the buying power of spinners,” the report noted.
However, unlike the cotton spinners, Indian apparel exporters’ revenue grew by 4.5 per cent on a Y-o-Y basis. “The healthy growth trend continued in the first quarter of FY23 followed by all-time high revenues registered in FY22,” Icra said.
And with higher raw material prices exerting cost pressures, operating margins of apparel exporters remained flat with 180 bps moderation in the second quarter of FY23, compared to the same period of the previous fiscal, the report added.
Icra said the interest cover of exporters declined in the second quarter of FY23 with moderation in the profitability. “The decline is attributable to increased interest cost with debt-funded capex undertaken in H1 FY23 by most players,” the report said. According to Icra, inventory levels of apparel exporters declined as the large retailers focused on reducing inventory due to a weak demand scenario in key exporting regions.
Indian cotton spinners will experience some moderation in performance in FY23 compared to the previous fiscal, while Indian apparel exporters are likely to have a healthy growth in revenues in 2022-23.
