Spinners expect that the overall FY20 performance will be weighed down by the tepid volumes and weak earnings seen so far.
Kolkata: It's now the turn of the cotton spinning industry to take a hit from the demand slowdown. Both revenues and operating profits of domestic spinners are likely to drop. Spinners expect that the overall FY20 performance will be weighed down by the tepid volumes and weak earnings seen so far.
"The Indian cotton spinning industry's performance has been severely constrained in the current fiscal, being adversely impacted by the demand slowdown, unfavourable raw material prices and rising funding requirements. While export volumes have seen some uptick in recent months, as against the sharp de-growth witnessed between May-September 2019, they remain lower than the levels seen in the preceding fiscal," said Jayanta Roy, Senior VP and Group Head, Corporate Sector Ratings, Icra.
The rating agency expects a revenue de-growth of around 6 per cent for spinners due to weak export demand amid increasing competition from other countries and sluggishness in domestic consumption levels.
Significantly, the credit profile of spinners has weakened in the recent quarters, with earnings from operations and liquidity position facing pressures in H1 FY2020, amid rising debt levels. The scenario is quite similar to FY2012, when cotton prices fell sharply, resulting in high inventory losses and tight cash flows for spinners.
The impact on debt-coverage metrics and liquidity is expected to be more adverse for leveraged companies that have undertaken a sizeable debt-funded capital expansion in recent years and have higher repayments scheduled.