ICRA projects a 6-8% growth for the domestic cotton spinning industry in FY2025, driven by 4-6% volume growth and slight realization gains, following two years of decline. Recovery signs are visible in downstream segments like readymade garments and home textiles, while exports, which rebounded in FY2024, are expected to normalize despite global demand challenges.
Domestic cotton prices, which peaked at Rs. 284 per kg in H1 FY2023, have declined over the past two years but are expected to rise slightly with demand recovery and reduced sown area. Cotton yarn prices, declining since June 2022, are also expected to increase marginally in FY2025.
K Srikumar, Senior Vice President at ICRA, predicts a 6-8% improvement in operating income for cotton spinning companies in FY2025, with gross contribution margins recovering by 5% in Q1 FY2025. Operating profit margins are expected to expand by 100-150 basis points due to scale benefits and cost-saving measures.
High debt-funded capex in FY2023 impacted the industry's coverage metrics, but a marginal capex increase is anticipated in FY2025 for modernization and increased demand from the China Plus One strategy. Leverage levels rose in FY2024 but are expected to decrease with better cash accruals and minimal capex spending, improving debt protection metrics. The total debt to operating profit ratio is expected to improve to 2.5-3.0 times from 3.5-4.0 times in FY2024.
