Outlook for textiles in 2012 to range from negative to stable: Fitch

The outlook for the Indian cotton textiles is negative to stable in 2012, while the outlook for the Indian synthetic textiles is stable.

Ratings agency Fitch said in its 2012 series of sector outlook studies, (2012 Outlook: Indian Textiles) that margin pressure persists for both cotton and synthetic textiles driven by rising wage costs and power costs (including shortage of power), and higher interest rates.

Cotton textiles are also facing challenges of a slower demand pick-up and a loss of margins; though, recovery is expected from the falling cotton prices, subject to any further volatility in input costs or forex movements. Synthetic textiles benefit from higher demand for blended textiles, although margins can turn volatile in sync with crude oil price volatility.

Weak demand for cotton and cotton products in year to date FY12 was mainly a result of existing inventories causing mills to postpone any further buying in the backdrop of uncertainty in overseas demand for textiles.

Weak demand, labour and power shortage in textiles centres such as Bhiwandi and Tirupur have lead to about 50 per cent of underused capacities. Instead of adding capacity in India, garment manufacturers are looking at options of setting up capacity or outsourcing job work to Bangladesh to benefit from the lower cost of production.

Cash losses for cotton yarn manufacturers and lower-end fabric companies in H112 impaired their debt repayment capacity leading to several instances of over-utilisation of working capital limits.