Economy

Discharge norms to impact Tirupur textile units: Crisil

Our Bureau Mumbai | Updated on February 16, 2011


The credit risk profiles of Tirupur (Tamil Nadu)-based dyeing and bleaching units and the entities dependent on them could be adversely impacted by the recent Madras High Court order, according to credit rating agency Crisil.

The HC has ordered the closure of all dyeing and bleaching units discharging effluents into the River Noyyal until they receive the court's clearance to resume operations.

“The extent to which the credit risk profiles of the entities weaken will be contingent upon the degree of decline in their operating profitability, and the time these units take to receive clearance to begin operations,” the agency said in a statement.

Tirupur accounts for nearly 20 per cent of India's textile exports (estimated at $2.6 billion in 2010).

On January 28, 2011, hearing a contempt petition from the Noyyal River Ayacut-dars Protection Association, the Madras HC observed that the dyeing units were polluting the river and should not function until they comply with Zero Liquid Discharge (ZLD) norms. Following the court's order, all dyeing and bleaching units have been shut down, resulting in a production loss of 200-250 tonnes per day.

“The immediate impact on operations of standalone dyeing units will be harsher than that on integrated textile players as the former's operations have been brought to a complete halt,” said Mr Gurpreet Chhatwal, Director, Crisil Ratings.

Integrated players with in-house dyeing facilities hold dyed fabric inventories of more than a month, and may, therefore, remain in operation for the next couple of weeks. Based on discussions with a large number of integrated textile players, the rating agency has assessed that these units use Individual Effluent Treatment Plants, and are compliant with ZLD norms. Therefore, these units should become operational post-receipt of clearance from the Madras High Court, the statement said.

“The impact on operations of ready-made garment (RMG) players is expected to be smaller, as they have dyed fabric inventories of around one to two months. The spinning units are expected to witness minimal impact, as the bulk of their production is exported or consumed at other locations in India,” said Mr Chhatwal.

The increased cost due to compliance with ZLD norms will not have a material impact on the long-term competitiveness of downstream textile players as it will result in only a marginal increase in their operating expenses, according to the rating agency's assessment. However, the inability to pass on significant portions of the increase in operating expense can have a sharp impact on the credit profiles of dyeing entities.

Published on February 16, 2011

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