Covid-19 impact: Textile companies’ revenue to decline due to fall in demand, says report

PTI Mumbai | Updated on June 18, 2020

The textile sector across the value chain is planning to start operations from Wednesday

Would take 3-4 months for operations to stabilise post Unlock 1.0, says India Ratings

India Ratings expects a ‘huge fall’ in revenue of textile companies in the first half of 2020-21 due to the economic slowdown following lockdown to curb the spread of the Covid-19 pandemic.

Subdued domestic demand and declining export demand due to lockdowns in global markets on account of Covid-19 come as a double blow for textile companies, India Ratings & Research (Ind-Ra) said in its report.

While domestic demand could revive in third quarter of FY21 with the onset of festive season and reopening of retail spaces, export demand would fairly depend on recoup of major economies such as the United States (US) and the United Kingdom (UK).

However, there also seems to be a short-term opportunity for Indian companies to cater to those markets which were earlier catered by China and Bangladesh, it said.

The agency expects a huge fall in revenues of textile companies in 1HFY21 (April-September) and a moderate recovery only over 2HFY22 (October-March), the report said.

With stoppage of production and shortage of labourers due to lockdown, revenue is likely to bottom out over 1HFY21. However, consumption demand is unlikely to revive in FY21.

Further, players in spinning, readymade garments carry high debts on account of stretched working capital cycles with low cushion to borrow, it said.

The agency expects the working capital cycle to stretch for textile players over the next nine months due to delays in collections and a longer inventory.

The ongoing economic slowdown is likely to contract the demand by 25-35 per cent across yarn, fabric and apparels in FY21 as compared to the previous fiscal.

The demand in first half of FY21 is likely to be muted with summers lost because of the lockdown. Demand growth in FY21 will depend on discretionary spending, and thus a gradual recovery in household income in second half of FY21.

Ind-Ra assumes normalcy in revenue to return by second half of FY22 . Demand revival will also depend on government measures to incentivise exports, it added.

Meanwhile, the agency expects a correction in cotton prices over July-September in FY21 from the levels of Rs 90-95 per kg as of May due to low demand and high holding levels at Cotton Corporation of India.

However, holding stocks could only provide a short-term relief as some of the inventory is expected to be exported, given the advantage of lower prices and rupee depreciation, it said.

The textile industry is labour intensive in nature, and with most labourers headed to their hometowns, sector companies could face challenges to operate even at low capacities.

The agency said that it expects that it would take 3-4 months for operations to stabilise post Unlock 1.0.

Published on June 18, 2020

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