Cotton Spinning Industry Set for Recovery in FY25: ICRA

The cotton spinning industry is projected to recover in FY25, driven by a 6-8% growth in operating income, according to rating agency ICRA. The recovery follows two years of de-growth due to subdued domestic demand and declining yarn prices. Rising domestic demand and mild realisation gains are key growth drivers.

The domestic cotton spinning industry is on track for a recovery in FY25, with an anticipated growth rate of 6-8 per cent, according to ICRA.

This rebound will be fueled by a 4-6 per cent increase in volume and minor realisation gains. The industry has struggled with two years of de-growth, impacted by weakened domestic demand and falling yarn realisations.

A significant portion of cotton yarn is consumed domestically, showing early signs of rebound, particularly from sectors like ready-made garments and home textiles.

ICRA also noted that cotton yarn exports, which saw a resurgence in FY24 from a lower base, are expected to stabilize in FY25.

While global demand may remain sluggish, a shift in sourcing preferences is anticipated to mitigate some of these challenges.

Domestic cotton prices, which peaked at an all-time high in H1 FY23, have been on a downward trend over the past two years, seeing a 26 per cent year-on-year decline in FY24.

Prices are expected to rise marginally in the near-term due to recovering demand and potential reduction in cotton sown area. In FY25, the operating income for cotton spinning companies is projected to grow 6-8 per cent, aided by increased domestic demand and a slight rise in yarn realisations.

Gross contribution margins saw a sharp 20 per cent year-on-year contraction in FY24 but showed a 5 per cent recovery in Q1 FY25, a trend expected to continue.

ICRA foresees operating profit margins expanding by 100-150 basis points, driven by economies of scale and cost-saving measures implemented by the industry.

(With inputs from agencies.)