The surge in export demand for cotton yarn over the past few months has come as a major respite for the domestic spinners, who had reported a multi-year low profitability during FY18 amid multiple headwinds. Even though the pace of growth is likely to moderate during the year with the base effect setting in, India is set to record strong growth in cotton yarn exports during FY19.
The revival in export demand has enabled large spinning companies report a comfortable volumetric growth of 5% year-on-year in the first quarter of FY19, which together with a 7% year-on-year increase in average yarn realisations to Rs 211/kg has translated into a growth of 12% in sales turnover during the quarter, said an Icra analysis on Monday.
The growth rate appears comfortable, when viewed in comparison to a growth of 5-6% reported by the sample during FY17 and FY18 amid multiple demand-side pressures. The aggregate operating margins also improved to 12.2% in first quarter of FY19 vis-a-vis 11.6% in fourth quarter of FY18, after having remained subdued at 9-11% during the preceding four quarters.
While the strong growth of 56% in cotton yarn exports during 4M FY19 driven by a more than two-fold increase in exports to China, is partly attributable to the low base effect, as exports were down by 56% year-on-year in 4M FY18, it has also been driven by competitive Indian cotton and yarn prices.