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India’s textiles sector EBITDA to dip 15 per cent in FY21

According to India Ratings and Research (Ind-Ra), the nationwide lockdown in India is likely to impact the textiles sector both in terms of demand and supply and the EBITDA might drop by least 15 per cent in 2020-21 across the industry portfolio, a report said.

While India's dependency on imports is limited, it is dependent on exports and hence, the return of demand from the key markets including the US, the UK, the UAE and China is critical. The EBITDA (earnings before interest, taxes, depreciation and amortisation) will drop at least 15 per cent in FY21 across its textile portfolio, the report said.

Further, the COVID-19 pandemic is likely to continue to impact the global textile production and supply chains and thereby textile product prices. The Indian textiles industry has taken a major hit because most of Indian yarn exports are to China, it added.

The agency estimates India's exports will be substantially hit till the first half of FY21, which had already reduced by more than 40 per cent till January 2020 due to the US-China trade war. Meanwhile, it revealed that cotton prices continued to soften in February 2020, due to lower export demand and squeezed domestic consumption. They fell to Rs 111 per kg in February 2020, compared to Rs 118 in the same month in 2019, on account of reduced offtake by mill owners, which are facing the heat of excess production and supply disruptions amid the spread of COVID-19.

However, the Cotton Corporation of India continues to hold up the stock (40 per cent of total arrivals) and would maintain the current prices over the short term. While in the long term, a higher uncertainty regarding the duration of lockdown would be negative for the prices and pressure the liquidity of cotton spinners who are holding a cotton inventory of three to four months.

 
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