Anticipating a robust recovery for the segment, ICRA expects the Indian cotton spinning industry to grow by 6-8 per cent in FY25
Following two years of decline due to subdued domestic demand and falling yarn realisations, this revival will be driven by a 4-6 percent increase in volume and modest realisation gains.
The agency expects exports to stabilise in FY25. Though these will face challenges from sluggish global demand, a shift in sourcing preferences away from other countries is expected to mitigate this impact.
Domestic cotton prices, which reached an all-time high of Rs 284 per kg in the first half of FY23, have been on a downward trend over the last two years. Average prices fell by approximately 26 percent year-over-year in FY24 due to a moderation in global prices and weak end-user demand.
In the near term, prices are expected to rise slightly due to recovering demand and a projected reduction in the cotton sown area. Cotton yarn prices, which have been declining since June 2022 amid softening cotton fibre prices and reduced downstream demand, are also expected to see a marginal increase in FY25, though they will remain sensitive to demand fluctuations, according to ICRA.
ICRA also expects a slight increase in capex announcements in FY25, driven by the need to modernise machinery, demand flow from the China Plus One scheme, and improved domestic demand from downstream apparel companies.
KSrikumar, Senior Vice President and Co-Group Head, Corporate Sector Ratings at ICRA, says, the gross contribution margins for spinners, which recovered by 5 per cent in Q1 FY25 after contracting sharply by approximately 20 percent Y-o-Y in FY24 amid weak domestic demand, is likely to continue growing for the remainder of FY25.
Accordingly, the operating profit margins of companieswill expand further by 100-150 basis points, supported by scale benefits and the cost-saving measures undertaken by industry players, adds Srikumar.
