Cotton spinners staring at 6-year low revenues

New Delhi: Revenues of cotton spinners are set to decline 30-35 per cent in the current fiscal - a six year low, because of tepid domestic and export demand following the Covid-19 pandemic, rating firm Crisil said on Wednesday.

This along with inventory losses and lower profitability is expected to result in moderation in credit quality of cotton spinners this fiscal, a study of 150 CRISIL-rated firms showed. Domestic demand for cotton yarn, which accounts for over 70 per cent of overall demand, has been impacted because of the slack in end-user segments such as readymade garments and home textiles.

Cotton yarn exports, too, have been materially affected because of fewer orders from China and Bangladesh, which account for over half of India's exports.

Revenue from exports had already wound back by a third last fiscal, with China increasing procurement from other countries, predominantly Vietnam.

According to the rating agency, the decline in yarn offtake since Covid-19 afflictions began in February 2020 has meant the current fiscal began with higher inventories of 4-4.5 months compared with 3-3.5 months on average in the past two fiscals.

With demand likely to revive only from the second half of this fiscal, inventories will remain high in the first half, the report said. Hetal Gandhi, Director, CRISIL Research, said: "Cotton spinners are facing a double whammy of sharp erosion in revenue and inventory losses.