The Indian viscose staple yarn (VSY) industry will see a 10-12 per cent growth in revenue this fiscal, continuing the strong demand seen in the previous financial year, CRISIL Ratings said on Tuesday.
The report highlights that the revenue of the Indian viscose staple yarn (VSY) industry is expected to touch an all-time high of over US$ 2.5 billion.
According to the report, even as yarn prices decline, though at a lower rate than raw material prices, overall profitability is likely to improve by 200-300 basis points (bps).
"The strong balance sheet and improved cash flows will support the credit risk profile of manufacturers, despite substantial debt-funded capital expenditure (capex)," it added.
VSY is an attractive alternative to cotton yarn because of its lower prices and comparable characteristics. It registered a compound annual growth rate of 13 per cent in the last three financial years, which is higher than 5 per cent for cotton yarn.
Himank Sharma, director, Crisil Ratings Ltd., said, “Viscose spinnerets volumes are expected to grow by 15 per cent this fiscal, supported by sustained domestic demand and revival in export demand during the second half. Overall, segmental growth will be in the low double digits.
With improvement in revenue of VSY manufacturers and spread between VSY and VSF widening to Rs 55-58 per kg, operating margin is likely to improve to 11-12 per cent. Higher viscose yarn imports from China and weak global demand impacted spreads in the last fiscal, reducing margins by 800-900 bps.
Jayashree Nandakumar, Director, CRISIL Ratings Ltd., pointed out that the capital-intensive nature of the VSY segment has resulted in regular loan repayments by players for capacity expansion.
"However, the strong balance sheet has ensured that the credit risk profile of the players remains comfortable despite continued capital expenditure," he added.
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