India Ratings & Research (Ind-Ra) has revised its outlook on the cotton textile sector to stable for FY15 from negative to stable and that for the synthetic textiles industry to negative to stable from negative. The agency has maintained a stable outlook on its rated textile companies on the back of growing revenue and stable margins and thus improving leverage and cash flow from operations.
The stable outlook on the cotton textile sector reflects improving revenue prospects from a rebounding economy in key export destinations, stabilising input costs and continuing favourable policies. Improved demand outlook would support cotton prices round the year, barring a global demand-supply mismatch which could impact export revenue. The negative to stable outlook for the synthetic textiles industry reflects a recovery in demand for polyester and viscose fibre/yarns, especially in technical and home textiles. However, oversupply in the polyester chips segment exposes the segment to margin volatility risks.
Improving textile and apparel demand from large markets, benefits accruing from a falling rupee and India's improving position as a preferred supplier for value-added garments have significantly improved the order book visibility and thus performance of garment exporters. China's high cotton cost and rising labour costs have encouraged millers to import cotton yarn, which has benefitted Indian yarn exporters. These trends, if sustained in FY15, are likely to improve the financial metrics of yarn and garment manufacturers.
Exporters may find it challenging to manage liquidity in FY15 amid increasing volumes coupled with a long working capital cycle and the consequent higher use of working capital limits-a characteristic of the textile business. Inventory prudence and liquidity management continue to be key success factors for textile companies for FY15.
Capex could be imminent in FY15 in the weaving, processing and garmenting segments in view of the improved sector outlook, near-full use of existing capacities and continued subsidy benefits under the Revised Restructured Technology Upgradation Fund Scheme notified in October 2013.
