The rating agency ICRA in its latest report has said that profit pressure of textiles exporters is likely to reduce by third quarter of fiscal year 2017-18, with easing prices of cotton from mid-September 2017 onwards. It pointed out that the pressures being observed on profitability, debt levels across the sector are likely to fall with the industry focusing on sweating the existing assets and undertaking limited debt-funded capacity additions. It also noted that since the past few months, the exporters are facing multiple headwinds, which have led to constrained growth as well as pressures on profitability.
Adding further, the rating agency has said that textile 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. Apart from this, it observed that unfavorable currency exchange rate fluctuations, high raw material prices in the past 6-9 months coupled with recent revision in duty drawback rates have also added to their woes. It also stated that 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.
With exports accounting for more than one-third of the Indian textile market, the report stated that this is a matter of concern, even as there is a large domestic market. It also highlighted that 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, it noted that cotton-yarn exports have been under pressure largely 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. It added that cotton yarn exports accounted for only 17 percent of the total in the first four months of FY18.