Icra stated in a research that despite economic headwinds having an impact on textile players’ performance across segments in the second quarter of 2022–23, the companies are anticipated to see a healthy turnover in this fiscal year.
Icra stated that while margins are anticipated to decline due to cost constraints, textile industries are predicted to post good growth in turnover in FY23.
“In the second quarter of FY23, revenue and margins dipped for the Indian spinners amidst macro headwinds, while for the apparel segment the revenue and margins remained flat, with recessionary conditions in key markets,” Icra Assistant Vice-President and Sector Head, Corporate Sector Ratings, Sahil Udani said.
After cotton stocks from the previous harvest season started to diminish and cotton prices saw a severe fluctuation, leading to players being cautious on buying, the majority of textile players reported a decline in inventory levels in the second quarter of FY23, he noted.
According to the research, spinners’ income had decreased by 4% year over year while their margins had shrunk by 950 basis points.
According to the report, the interest cover also slowed down during this time as enterprises of all sizes faced pressure to increase their profitability.
According to the paper, the impact is more severe for smaller players because big scale businesses benefit from cost savings on bulk purchases of raw materials.
According to the report, the majority of participants’ inventory levels have decreased for H1 FY23 as cotton stockpiles from the previous harvest season have run out and the sharp volatility in cotton prices has reduced spinners’ purchasing power.
As their revenue increased by 4.5% year over year, clothing exporters, in contrast to Indian cotton spinners, showed resilience in the face of macroeconomic difficulties.
According to the study, the first quarter of FY23 saw solid revenue growth continue after reaching an all-time high in FY22.
Additionally, operational margins remained unchanged with a 180 bps decrease in the second quarter of FY23 compared to the same time of the previous fiscal year, as rising raw material prices exerted cost pressures.
It was highlighted that the interest covers decreased in the second quarter of FY23 along with the slowdown in profitability.
Increased interest costs associated with debt-financed capex conducted in H1 FY23 by the majority of companies are also largely responsible for the reduction.
The large retailers concentrated on decreasing inventory due to a scenario of weak demand in crucial exporting regions, which resulted in lower inventory levels for most companies in H1 FY23, it was said.
ICRA therefore anticipates modest moderating in spinner performance from FY22 to FY23, but good revenue growth in 2022–23 is anticipated for clothing exporters.
