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'Second Covid wave unlikely to severely impact textile sector'
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SME Times News Bureau | 18 May, 2021
The second covid wave might slightly impact the textile sector's supply
and demand dynamics primarily in Q1FY22, said ratings agency India
Ratings and Research (Ind-Ra).
However, a sustained export
demand, learnings from the first wave, stronger balance sheet and
liquidity compared to Q4FY20 will enable the sector credit profile to
remain stable in FY22, the agency said.
"The supply chain has
been impacted by the local lockdowns imposed at key textile hubs such as
Tirupur, Ludhiana, Surat and Bhilwara," the agency said.
"The
restricted movement of goods means non-availability of inputs such as
yarns and fabric is likely to have a short-term impact on the finished
output."
Besides, it pointed out that labour availability has
also been impacted but moderately and at much lesser severity than that
during the first wave.
"Shop floor are likely to remain
functional at a few plant sites but a restricted occupancy level.
However, 1QFY22 may not be a lost quarter, thanks to strong export
markets."
"Moreover, most cotton textile players will have
adequate inventory given the second wave has hit us in April-May and
because the fresh inventory is available during November to March."
Nevertheless, this supply chain disruption may lead to a 20-30 per cent YoY of reduction in toplines in Q1FY22.
"Again, the recovery expectation varies depending on the sub-sector.
Export-focused garments and home textiles are likely to remain resilient
compared to the spinning and fabric segment."
"The export order
book was reported to be yoy higher at end-March 2021 with garment
players. However, the 1QFY21 shipments are likely to get deferred to
2QFY22. Challenges on the availability of containers and high shipping
costs however have been impacting profitability since 3QFY21 and are
likely to remain in so in the near term."
As such beyond 1QFY22,
Ind-Ra assumes a demand recovery across the sub-segments, driven by the
unleashing of pent-up demand in 2HFY22 with the start of retail,
offices, educational institutions, social functions among other things,
moderately countered by weak household balance sheets.
"The
growth rates will also benefit from the low base effect. Ind-Ra expects
the export demand to remain favourable with geo-political tensions and
China, Plus One story continuing to play."
"Demand recovery continues in export markets, which is at least 30% of the India's total textile produce."
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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