Profit pressure of textiles exporters to ease by Q3 of FY18: ICRA report
Exporters have been facing subdued demand trends in the key importing countries as well as competitive pressures from Bangladesh and Vietnam over the past few years, the report says.
With cotton prices easing from mid-September, pressures on textiles exporters' profit is likely to subside from the third quarter of this financial years, ICRA said in a report.
The pressures being witnessed on profitability, debt levels across the sector are expected to decline with the industry focusing on sweating the existing assets and undertaking limited debt-funded capacity additions, it said.
Indian textile exporters are facing difficult times since the past few months, which have led to constrained growth as well as pressures on profitability, the rating outfit said.
Exporters have been facing subdued demand trends in the key importing countries as well as competitive pressures from Bangladesh and Vietnam over the past few years, it added.
In addition, unfavourable currency movements and high raw material prices in the last 6-9 months and revision in duty drawback rates have added to their woes, ICRA said.
With exports accounting for more than one-third of the Indian textile market, this is a matter of concern, even as there is a large domestic market, it added.
The slowdown in apparels segment has mainly been on account of subdued demand conditions in key textile-consuming regions of the US and European Union, which account for a majority of exports from India.
Besides, cotton-yarn exports have been under pressure due to decline in demand from China, which used to account for more than 40 percent of total cotton yarn exports from India till last year.
Cotton yarn exports accounted for only 17 percent of the total in the first four months of FY18, it added.
Pressures on textile exporters have become more severe with strengthening of Indian rupee against currencies of key competing nations during the current calendar year, which reduced competitiveness of Indian exporters from their counterparts.
"Notwithstanding the 2 percent depreciation in the Indian rupee against the US dollar in September, the rupee sustained its strong performance against currencies of most of the countries competing in the global textile space during much of the current calendar year," ICRA Senior Vice-President and Group Head, Corporate Sector Ratings, Jayanta Roy said.
Further, he added that GST rates for most product categories in textiles are in line with effective tax rates under the earlier tax regime and the benefits from improved input credit chain post GST implementation remains to be seen.The overall impact of GST and the revised duty drawback rates on the sector is uncertain at present, he said.