Crisil Research expects credit outlook for cotton spinners to remain negative this fiscal. The firm says, most companies may manage the situation by availing moratorium on debt servicing, additional COVID-19 related bank lines, and government measures such as the relief package to micro, small and medium enterprises.

It also noted one-time restructuring of loans announced by RBI will be a viable option amidst tightness in accruals to repayments in current fiscal. That said, the benefit of continuing soft cotton prices and liquidation of high-cost inventories from past fiscal should help cotton spinners perform better in the second half of the current fiscal, provided demand limps back.

Revenue of cotton spinners is likely to decline 30-35 per cent to a six-year low in the current financial year due to tepid domestic as well as export demand following the COVID-19 pandemic, according to Crisil Research. This revenue loss along with inventory losses and lower profitability is expected to result in moderation in credit quality of cotton spinners this fiscal.

Domestic demand for cotton yarn, which accounts for over 70 per cent of overall demand, has been impacted because of slack in end-user segments such as readymade garments (RMG) and home textiles. Similarly, cotton yarn exports have been affected because of fewer orders from China and Bangladesh, which account for over half of India's exports, Crisil report said.