ICRA Expects Cotton Yarn Industry To Grow 6–8% In FY25

The domestic cotton spinning industry will recover in FY25, growing 6-8%, rating agency ICRA said on Wednesday.

The recovery will be aided by 4-6% volume growth and mild-realisation gains, the rating agency said.

The estimated recovery would follow two consecutive years of de-growth on the back of subdued domestic demand and falling yarn realisations.

Over two-thirds of the total cotton yarn produced is consumed domestically, where green shoots of recovery are visible from the downstream segments, such as readymade garments and home textiles.

According to the ICRA, cotton yarn exports, which rebounded in FY24 on a lower base, are likely to normalise in FY25.

"While exports will remain exposed to headwinds from sluggish global demand, a shift in sourcing preference away from other countries will offset this impact to an extent," the rating agency said.

It shared that domestic cotton prices, which peaked sharply in first half of FY23 and reached a lifetime high of Rs 284 per kg., have been declining over the last two years.

The average prices, which fell approximately 26% year-on-year in FY24 amid a moderation in global prices and weak demand from the end-user segments, are likely to marginally increase in the near-term with a recovery in demand and an expected reduction in the cotton sown area, ICRA said.

"The operating income of Indian cotton spinning companies is estimated to improve 6-8% in FY25, with a recovery in domestic demand and marginal rise in yarn realisations.

"The gross contribution margins for spinners, which contracted sharply by around 20% year-on-year in FY24 amid weak domestic demand, recovered by an estimated 5% in Q1 FY25 and the recovery trend is likely to continue for the remainder of FY25," K Srikumar, senior vice-president and co-group head of corporate sector ratings at theICRA, said.

Accordingly, the ICRA expects the operating profit margins to expand further by 100-150 basis points, supported by scale benefits and the cost-saving measures undertaken by industry players, he added.

The estimates are based on a survey comprising a sample of 13 listed entities in the domestic cotton spinning industry.