The Indian cotton spinning industry’s performance has been severely constrained in the current fiscal. Both revenues and operating profits of domestic spinners are likely to drop. Reasons include a demand slowdown, unfavorable raw material prices and rising funding requirements. While export volumes have seen some uptick in recent months, they remain lower than the levels seen in the preceding fiscal.

Significantly, the credit profile of spinners has weakened in recent quarters, with earnings from operations and liquidity position facing pressures in the first half of fiscal 2020, amid rising debt levels. The scenario is quite similar to fiscal 2012, when cotton prices fell sharply, resulting in high inventory losses and tight cash flows for spinners. The impact on debt-coverage metrics and liquidity is expected to be more adverse for leveraged companies that have undertaken a sizeable debt-funded capital expansion in recent years and have higher repayments scheduled.

So, spinners expect that the overall fiscal ’20 performance will be weighed down by the tepid volumes and weak earnings seen so far. A revenue de-growth of around six per cent is expected for spinners due to weak export demand amid increasing competition from other countries and sluggishness in domestic consumption levels.