Operating Margins Of Poly Yarn Manufacturers To Touch 7-8% In FY25: Crisil
Owing to curbs on cheaper imports, the segment is set to recover after a two-year dull performance
As a result of various countermeasures by the government to discourage the imports of cheaper polyester yarn from China, the Indian polyester yarn manufacturers are set to register operating profitability after two years of dull performance. The operating margins of polyester yarn manufacturers are expected to be in the range of 7 to 8 per cent in the financial year 202, according to a report by Crisil.
The positive outlook is on the back of efforts by the Centre to give the domestic players a boost in this segment. In October 2023, the Centre issued a Quality Control Order (QCO) which mandated a Bureau of Indian Standards (BIS) certification on the imported yarn, to restrict the imports of cheaper polyester yarn from China.
Furthermore, In March 2024, the Centre even imposed a minimum import price (MIP) of USD 3.5 per kilogram on the synthetic knitted fabric, in an attempt to curb uncompetitive imports. This resulted in a fall in polyester yarn imports by about 61 per cent in the seven months ending May 2024, after a YoY rise of 92 per cent in the seven months prior.
“The imports of synthetic knitted fabric, too, fell significantly in April-May on-year. Therefore, the operating profitability of polyester yarn manufacturers will recover this fiscal and reach closer to the pre-pandemic level, as steady downstream demand and import curbs will improve the spread between yarn and its raw material to Rs 24 to 25 per kg in FY25 from Rs 23 per kg in the previous year,” said Gautam Shahi, Director, Crisil Ratings.
The revenue of such manufacturers is also expected to grow 3 to 5 per cent this fiscal. This is set to improve the cash accruals and the capex in the segment, as per Crisil. “Capacity utilisation in the industry remains moderate, at 65 to 70 per cent, aided by the capacity addition of 5 to 6 per cent in last two years,” Stated Pranav Shandil, Associate Director, Crisil Ratings.
The interest coverage is likely to improve to 5.5 to 5.7 times in the current fiscal as compared to 4.0 to 4.2 times in the previous fiscal. However, a slowdown in demand from the downstream segments along with adverse crude price movements may impact the polyester yarn industry in the coming months.
