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Wednesday, Feb 13, 2002

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Squeeze in margins: Textile spinners bear brunt in Q3

G. Gurumurthy


THE performance of the textile spinning mills during the third-quarter in the 2001-2002 fiscal has proved agonising for most major players as their working results have left them bleeding more than they did in the first two quarters.

In a sharp contrast to the first two quarters, when the mills managed to push their finished goods into the market despite an evolving glut situation, their plight got worsened in the third quarter in the form of severe price drop for their products, thereby, affecting their bottomline.

This is notwithstanding the advantage of having lower cost on their prime raw material, cotton.

Added to the glut situation, the international developments following the September 11 US attacks too brought its share of woes to the Indian textile, which saw fall in textile orders from the EU and the US markets.

The acute price erosion for their products in the market, which sought to cut price, citing the falling raw material prices, has forced the mills to adopt cut in production to the extent that the market will finally absorb.

This has reflected in most companies' results, which showed almost 20 per cent drop in sales turnover compared to the previous year.

Major southern regional players have effected cut in production either by way of stoppage of specified number of spindles or weekly production holidays.

Lakshmi Mills, which went in for a planned production cut during the quarter, has its sales drop down to Rs 43 crore from the last year's Rs 55 crore.

Similarly, the Precot Mills, another major cotton spinners in the region, has got its sale income slid to Rs 45.8 crore in the quarter from last year's Rs 55.3 crore.

Both the companies have shown their net profit for the three months in the negative.

Another major operator here, the Super Spinning Mills managed to show a higher income from an operation of Rs 114 crore during the quarter compared to Rs 62 crore last year but this was made possible thanks to the income earned out of cotton trading done by the company.

For Super Spinning, its revenue generation from cotton trade (Rs.69 crore) remained more than its revenue from yarn spinning Rs.55 crore).

The textile industry analysts say the drop in prices for cotton yarn cutting across all popular counts, during the quarter, is all the more sharper and between May and December 2001, yarn prices had declined by 18 per cent. According to them, the worst affected are those units which covered cotton for a longer puffer period as they chose to buy cotton at high prices in a falling market which witnessed a free-fall of prices since May-June 2001.

The yarn exporting mills had to suffer in exports where they could not hold on to their prices due to cotton price fall on one hand and at the other end, they were also denied of full benefit from the rupee exchange rate advantages which had to pass on partly to the buyers. The analysts feel that given the present scenario, the last quarter performance for the textile industry will not be any different from the Q3 as no drastic changes either in the local market or in export are to happen between now and April next.

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Squeeze in margins: Textile spinners bear brunt in Q3

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