A lack of deftness in handling raw material costs and the economic slowdown have hurt the textile and garment sector, with the profitability of listed companies tumbling 33% in the first three quarters of FY14 despite an initial pick-up in exports due to the rupee?s depreciation.
As many as 286 listed firms in the sector recorded a combined net profit of R1,900.17 crore in the first three quarter of 2013-14 compared with R2,822.97 crore a year earlier. Of these, the number of profit-making firms rose to 203 from 202 a year ago, which means many companies witnessed a higher drop in profit than a year before.
Significantly, companies that are solely in the business of spinning have fared much better than those having a presence in weaving, processing or even composite segments. The profit of such only-spinning companies, 81 in number, more than doubled their combined net profit to R832.33 crore during the April-December period, compared with R353.81 crore a year before.
Most major players either witnessed a drop in profit or recorded losses. Alok Industries, the country’s biggest player, saw its profit plunge 59% to R228.18 crore during the April-December period while Bombay Rayon Fashions saw losses of R538.07 crore compared with a profit of R140.4 crore in the previous fiscal. S Kumars Nationwide posted losses of R231.82 crore in the first three quarters of this fiscal compared with a profit of R15.25 crore a year before while Bombay Dyeing saw losses of R182.91 crore from R82.10 crore a year ago.
However, some players managed to swim against the tide. Vardhman Textiles bucked the trend with a whopping 139% rise in profit in the first three quarters to R497.55 crore while Arvind recorded a 51% rise in profit to R266.50 crore. Page Industries witnessed a 33% rise in net profit to R118.66 crore during the period.
Neeraj Jain, executive director at Vardhman Textiles, said: ?With everything else remaining almost constant, our growth was mainly driven by our stocking up of cotton at the right time. However, our product mix and enhanced focus on customers also paid off,? he said.
Not just the volatility in cotton prices, even higher wage, power and manufacturing costs ? partly triggered by elevated inflation ? adversely affected the sector, mainly its labour-intensive segments like garments, senior apparel industry executives said.
?The sector, as a whole, hasn’t done well in managing its raw material costs. Those who handled it better reaped the benefits. The appreciation of the rupee since its lowest in August last year is also affecting our competitiveness in exports,? said DK Nair, secretary-general of the Confederation of the Indian Textile Industry (CITI).
Industry executives said cotton price volatility over the past year caught many mills off-guard as they couldn’t pass on the entire rise in raw material costs to buyers. The average price of raw cotton rose from R99.45 per kg in April to a high of R122.49 in August before easing to R108.66 in November and jumping to R116 in January and February. On the other hand, average yarn (cones) price rose marginally from R214.19 per kg in April to R215.27 in August before dropping to R203.35 in November and rising to R214.08 in February despite a sharper gain in cotton prices.
Cotton prices account for roughly 60% of yarn costs. Not just yarn, even the rise in other raw material costs couldn’t be passed on to the buyers due to an overall slowdown in the economy, resulting in losses for many companies, industry executives said.
Importantly, textile production during the April-January period gained just 4% compared with 5.8% a year before, according to the Index Of Industrial Production data, suggesting that exports had been driving the sector?s growth this fiscal.
Since the rupee has now appreciated 12.7% since its record low against the dollar in last August, export growth has come under pressure. If the rupee strengthens further to 57 in the short term, as forecast by some analysts, the profitability of the organised textile and garment sector could be further strained in the coming months, industry executives said.
“We expect cotton-based manufacturers to witness moderate margin pressure due to higher cotton prices while synthetic fibre prices are stabilising,” a Karvy report said. It cautioned against revenue growth in the apparel segment due to tepid consumer sentiment despite continued excise duty benefits extended in FY14.
According to the provisional data, textile and garment exports alone hit $20.43 billion during April-December, up 13.4% from a year before. This is mainly because the rupee depreciated 11.6% between April and December this fiscal from a year before to an average of 60.79, making the shipments more remunerative. However, industry executives said after factoring in exports of raw cotton, handicrafts, jute, coir and handlooms, the overall textile and garment exports won’t exceed $40 billion this fiscal, falling short of the $43-billion target set by the government.
