India Ratings and Research (Ind-Ra) has maintained an improving outlook on the overall textile sector for the remainder of FY22 on the back of the likelihood of a rise in revenue with improving operating margins on the back of continued strong demand, despite minor disruptions in 1QFY22 due to the second wave of COVID-19. The agency expects the domestic as well as export demand to sustain during the rest of FY22, leading to improved yoy sales volumes.
Ind-Ra has maintained the rating Outlook at Stable for the reminder of FY22, expecting a sustained improvement in the sector players’ profitability and the continued deleveraging of their balance sheets. The strong operating cash flows will lead to an improvement in their credit metrics, despite the likely increase in the working capital requirement on the back of the higher sales volumes and increased capital expenditure. The benefits of integrated business operations, healthy balance sheet liquidity and operating efficiencies over FY22 have already been factored into the ratings. Sector players in the ‘IND A’ and above rating categories have demonstrated resilience to COVID-19-led disruptions, given their adequate-to-superior liquidity profile. Ind-Ra-rated portfolio witnessed an improvement in both liquidity and credit metrics, supported by the strong operating cashflows in 1HFY22. The agency has changed the rating Outlook to Stable from Negative on the small and mid-sized commodity pure-plays, due to an expectation of a sustained recovery in demand and prices for FY22.
The domestic demand improved over 2HFY21 before declining marginally during 1QFY22, due to the closure of malls and retail spaces in cities. The demand is likely to improve from 2HFY22 with the easing of restrictions but remain vulnerable to any further restriction. Also, the demand from spinning mills seems to be recovering ahead of festivities in India. During 1QFY22, players witnessed a rise in volumes yoy, although it declined marginally qoq. Segments such as cotton yarn and fabrics witnessed a higher yoy demand from downstream players during 1HFY22. The domestic demand for home textile has sustained, whereas that for woven fabric and apparels is likely to improve with the opening up of retail shops and malls from 2HFY22.
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