ICRA predicts a 12-14% annual increase in demand for the domestic cotton spinning industry in FY2024, with yarn exports likely to increase by a sharp 85% to 90%, on the back of a shift in sourcing preference away from China, and the expectations of demand improving for the spring/summer season in the US and the EU regions. These will drive domestic demand from apparel and home textile manufacturers.
Nonetheless, a significant slowdown in cotton prices, which results in reduced yarn realisations, is probably going to cause a 9–10% YoY drop in revenues to around Rs. 33,465 crore in FY2024.
Despite the increase in cotton yarn volumes, ICRA expects the operating income of Indian cotton spinning companies to decline by 9-10% and operating margins to shrink by 200-240 bps in FY2024 amid a significant drop in realisation and lower gross contribution levels.
Nevertheless, in-house power generation capacities recently added by select players are likely to alleviate margin pressures in the medium term.
Cotton yarn exports typically account for ~25-35% of India’s cotton yarn production, while the remaining is accounted for by the domestic market.
While a steep decline (53%) was witnessed in cotton yarn exports in FY2023, there has been a trend reversal in the current fiscal. In 7M FY2024, overall yarn export volumes grew by ~142% (on a YoY basis) on a low base, and with increased exports to China, resulting in the share of exports in the overall production increasing from 19% in FY2023 to ~33% in 7M FY2024.
For the full year FY2024, ICRA estimates India’s yarn exports to increase by ~85-90% on a YoY basis. Bangladesh, China, and Vietnam account for ~60% of these exports.
With the share of Asia in Indian yarn exports being ~70%, no immediate impact on Indian yarn exports is expected due to the ongoing Red Sea conflict; any sustained continuance of this face-off would have a direct impact on apparel export volumes and a consequent impact on both domestic and export demand for cotton yarn and its realisations.
As per the estimates of the office of the Textile Commissioner, domestic cotton production for CYi2024[1] is projected to decrease by 6% due to a reduction in cotton sown area amid uneven rainfall.
Cotton prices are expected to marginally increase from the current levels because of lower expected production.
ICRA expects the cotton yarn prices to remain soft for the remainder of FY2024 and increase marginally in FY2025 with demand from downstream companies picking up.