Indian Textile Sector in 2010

25th Feb 2010
  • +0
Share on
close
  • +0
Share on
close
Share on
close

Fitch Ratings has today said, in a just published Special Report, that the 2010 Outlook for the Indian textile sector remains Negative to Stable. The agency notes that there are clear signs pointing towards a recovery in India's textile industry in 2010, following the dismal operating environment that the sector grappled with for two consecutive years. The recovery will be supported by a pick-up in export demand, government stimulus, improved liquidity, and a stable-to-growing domestic demand for textile products.


Fitch expects an improvement in the credit quality of domestically-focused and synthetic textile companies given the stable demand, whereas cotton textile exporters could face another challenging year, as their credit quality has been more severely impacted by recession and may take longer to recover. However, the agency expects that there will be greater stability in textile ratings in 2010 since leverage metrics for most Indian textile companies have improved from peak levels seen in 2009. The trend is completely driven by recouping margins, as absolute debt levels have not come down significantly. Furthermore, Fitch expects liquidity pressures to ease during 2010, although the cost of liquidity remains a concern.


Demand fundamentals remain strong in the domestic textiles sector but the spending appetite of consumers will likely remain value-driven, leading to pressures on the margins. However, export revenues in 2010 should improve from the lows in 2009, and Fitch expects export demand to fully recover to pre-recession level by early 2011. That said, the appreciation of the Indian rupee since October 2009, remains a challenge for Indian exporters since it lowers their competitive advantage against their Asian peers in Vietnam, China, and Bangladesh. Should the rupee continue to strengthen, textile exports may register a sharp decline in the short-term, hitting revenues and cash flows of exporters.


The synthetic textile segment has seen an early earnings recovery since the beginning of H209, benefitted by the substitution effect as cotton prices rise - a trend that the agency expects to continue. Cotton and cotton yarn prices have risen since October 2009, and while fabric players have been able to pass on raw material price hikes to customers, garment players have not been able to do so. Margins recovery has been patchy across the value chain, with large and integrated players being the first to recover. These players are reaping the benefits of timely completion of capex, increasing vendor consolidation in the market, and the "preferred vendor" status with large retailers.


It is expected that capex spending will be subdued in the near-term, as companies focus on the consolidation and the streamlining of their capacities and processes, while improving their heavily-geared balance sheets. Depending on the pace of improvement in market conditions, new capex programmes may emerge in the medium-term; most of which may be for backward integration into spinning and weaving, and expansion into newer segments, such as technical textiles (e.g. textiles for automobiles).


The special report, entitled "Indian Textile Sector Outlook 2010", is available on the agency's website, www.fitchratings.com

Fitch Ratings currently maintains coverage of approximately 5,500 financial institutions, including over 3,200 banks and 1,100 insurance companies. Finance & leasing companies, broker-dealers, asset managers, managed funds, and covered bonds make up the remainder of Fitch Ratings' financial institution coverage universe.


Additionally, the agency currently rates more than 1,700 corporate issuers, 100 sovereigns, 200 sub-sovereigns, 300 global infrastructure ratings, and 45,000 U.S. municipal transactions. Fitch Ratings maintains surveillance on over 6,900 U.S., 1,500 European and 600 Asian structured finance transactions.


Fitch India has Five rating offices located at Mumbai, Delhi, Chennai, Kolkata and Bangalore. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.

Want to make your startup journey smooth? YS Education brings a comprehensive Funding and Startup Course. Learn from India's top investors and entrepreneurs. Click here to know more.

    • +0
    Share on
    close
    • +0
    Share on
    close
    Share on
    close