In a recent panel discussion organized by Crisil, titled 'Upstream textiles sector: Threads of promise', industry experts provided insights into the outlook for the cotton yarn and polyester yarn segments of the upstream textiles industry for the fiscal year 2025 (FY25). Crisil anticipates moderate revenue growth of 4-6 per cent year-on-year (YoY) for the cotton yarn segment, attributed to expected improvements in downstream demand, stable yarn prices, and enhanced availability of cotton. Meanwhile, the polyester yarn segment is forecasted to achieve 2-4 per cent YoY growth, despite an export slowdown, thanks to the introduction of a quality control order (QCO) aimed at curbing the influx of cheap polyester yarn into India.

Profitability to witness improvement

Profitability in both segments is expected to see an uptick, with cotton yarn projected to reach 10-10.5 per cent and polyester yarn to achieve 6.5-7.5 per cent margins, respectively. This improvement is attributed to lower raw material prices, which are anticipated to bolster spreads in both sectors.

Moderate capex is expected in the cotton yarn industry for FY25, following a major halt in the previous fiscal year. Conversely, no significant capex plans are on the horizon for the polyester yarn industry as it focuses on ramping up existing capacities. Despite the moderate capex, the credit outlook remains stable across both segments.

The discussion also addressed key risks, including adverse movements between domestic and international cotton prices, volatility in crude oil and raw material prices affecting polyester yarn imports, and the potential increase in the dumping of cheap polyester fabric in Indian markets.

Outlook for cotton yarn industry

The panel highlighted expectations of a decline in cotton production in the upcoming Cotton Season (CS) 2024, which could impact acreage due to recent declines in cotton prices. Despite stable consumption projections, improved cotton-yarn spreads are anticipated, driven by benign raw material prices. Capacity utilization levels are also expected to improve, particularly in downstream industries such as knitwear and home textiles.

Outlook for polyester yarn industry

The polyester yarn industry dynamics were analyzed, with China's dominance in global trade highlighted. The implementation of the QCO, aimed at curbing the dumping of cheap polyester yarn, is expected to benefit Indian manufacturers. Despite challenges such as inventory buildup and the delayed implementation of QCOs, moderate revenue growth is expected in FY25, supported by government regulations and gradual improvements in volumes.

Operating margins for both segments are anticipated to recover gradually, with cotton yarn margins expected to rebound from decadal lows. Limited capex plans are foreseen for both industries, with the cotton yarn sector awaiting major export demand for a potential revival.

Export growth prospects are limited, particularly for polyester yarn, due to challenges such as continued dumping by China and currency devaluations in key export markets. Despite these challenges, credit profiles for both segments are expected to remain stable, backed by deleveraged balance sheets and improved cash accruals.

Working capital outlook

Crisil expects working capital to normalize in the near-medium term for the cotton yarn segment, supported by a regular supply of cotton and lower cotton prices. Conversely, no significant movements are anticipated in working capital requirements for the polyester yarn segment.

In conclusion, while challenges and risks persist, the Crisil panel remains cautiously optimistic about the outlook for the upstream textiles sector, foreseeing steady growth and stable credit profiles in FY25.