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- 16 Jun 2022
- ICICIdirect Research
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HIGH COTTON PRICES TO CONTINUE TO STRESS MARGINS OF SPINNERS IN H1FY23
News: As per India Ratings Research ( Ind-Ra) spinning units across the country are not likely to get respite till the arrival of the new cotton season in October this year, as increased cotton prices will continue to stress working capital and liquidity of yarn spinners, especially small-sized one.
Views: As per the report, inflated prices of cotton may lead to lower capacity utilisation of small-sized spinners during 1HFY23. However, an operational recovery is expected by 2HFY23, on the back of a likely correction in cotton prices with the arrival of the new cotton season in October 2022. While the duty-free import of cotton and arrival of summer cotton are likely to support the moderation in the domestic cotton prices in the short to medium term, a decline is expected in cotton yarn prices in tandem with cotton prices. This could ease pressure on apparels and textile players, who are already facing challenges to pass on raw material price inflation to consumers. The margins of small entities can decline significantly, whereas medium and large sized entities are likely to record a comparatively moderate decline in 1HFY23 owing to their economies of scale, value added product portfolio and controlled power cost and comparative easier financing terms for funding working capital requirements.
Impact: Negative