India's largest textile maker Alok Industries expects its cotton consumption to rise more than 10% in the current fiscal year, faster than the economy, even though polyester will drive most of its growth, the firm's finance head said.
"We are betting on polyester to drive our growth in future as cotton, being a natural commodity, is difficult to produce in the requisite number," Chief Financial Officer Sunil Khandelwal told Reuters in an interview.
The company, which has nearly 2% of the fragmented USD 75 billion domestic textile market, consumes around 100,000 tonnes of cotton a year to produce nearly 80,000 tonnes of yarn.
It plans to expand polyester manufacturing capacity to 1,400 tonnes per day by December 2011 from 550 tonnes per day now, making it second to Reliance Industries in the sector, a report by rating agency CRISIL showed.
As a result, its polyester sales should jump to 45% of total revenues in the current fiscal year to March 2012 from around 32% in the previous fiscal year, when total revenues were Rs 6,388 crore (USD 1.39 billion).
Polyester will have cost advantages over cotton in the next few years as India will not have a surplus of the natural fibre and imports will certainly add to manufacturing costs, he said.
Alok Industries is targeting an overall sales growth of 35% in this fiscal year.
"There are no signs of a slowdown ... Our order book is full for the next two to three months. Orders are coming everyday," Khandelwal said.
India's Cotton Advisory Board (CAB) has revised in October its forecast for stocks at the start of the next season
to 5.25 million bales from 2.75 million bales, on slower consumption by mills and higher output.
"I think cotton output in the next season could touch 34 million bales on higher acreage and better irrigation facilities," Khandelwal said.
That compares with average expectations of 35.7 million bales in a Reuters poll of eight traders this month, and above the lowest 33 million bales estimate.
India, the world's second-largest producer and exporter of cotton, had output of about 32.5 million bales in the year to Sept. 30, 2010. It sells to China, the world's biggest importer, and other Asian countries such as Bangladesh and Vietnam.
India's cotton exports have grown 11% on a compound annual basis in the last 25 years in value terms to reach USD 25 billion in the 2010/11 fiscal year.
In 2010/11, India supplied about 1.08 million tonnes to global demand which is about 7.7 million tonnes, US Department of Agriculture data showed.
The government has kept a tight rein on exports to protect domestic mills but earlier this year it removed restrictions for the season ending in September after requests from traders and farmers who saw supply outstripping demand and prices falling.
But domestic textile makers have opposed the move, saying that it would result in an increase in input costs.
Cotton prices in India hit a record high of 61,700 rupees per candy of 356 kg each in March, as drought in China and floods in Pakistan and Australia created a global shortage, pushing prices to records in overseas markets as well.
But a bumper harvest in Latin America improved supplies and prices have since more than halved globally and at home.
As a result, India's mills have changed strategy and instead of keeping stocks for 6-9 months, they are buying for a much shorter period, Khandelwal said.
