Spinning mills in south India can expect stable cotton prices and supplies.
The cotton production for the 2016-17 season will probably be more than adequate to meet the demand from spinning mills. This should check a further rise in the price of cotton. Moreover international prices are expected to be benign as well thanks to a bumper crop in Australia, an 18 per cent increase in production in the US and restricted imports by China.
If cotton prices remain stable from here on, it will help contain raw material costs for a few quarters ahead. Meanwhile, higher domestic demand for textiles and garments and higher exports will improve demand for yarn.
Leading mills such as Vardhman Textiles, KPR Mills and Ambika Cotton Mills have reported double-digit year-on-year growth in sales over the past three quarters, although exports have been subdued.
And despite the high cotton prices and the challenges related to demonetization, these companies managed stable operating margins over the past three quarters in the range of 18.5 per cent to 20 per cent. Thanks to the robust performance, stocks of these firms have rallied substantially in the past year and are now trading close to the 52-week high prices.