The rising demand the industry was hoping to cash on, bolstered by Rs 25.5 billion in government subsidies to upgrade technology, has started to look less promising as a sharp spike in input prices threaten margins in the coming quarters.
Our textile exports have increased and so has our domestic consumption, and just when recovery was in sight cotton prices have started shooting up, said DK Nair, secretary general of trade body Confederation of Indian Textile Industry (CITI).
Companies will continue to lose margins. Just when margins were recovering, the prices rose. The industry will then have to reduce production as that is the only way out, said RK Dalmia, senior president at Century Textiles & Industries.
Cotton prices have shot up over 20% in the last six weeks. The benchmark Shanker-6 variety is at Rs 26,500 per candy of 170 kg from Rs 23,500 in October, data showed.
The global shortfall means the crop in India, despite being on expected lines, is being exported at a higher price, crimping supply at home. About 6 million bales of cotton have already arrived in the first two months of the cotton marketing year and 4 million bales have been booked by exporters, Century Textiles’ Dalmia said.
A cornered industry has few options. Raising prices would seem one, but analysts say that too is geography specific. Price increases are easier to implement domestically rather than internationally, said Devangshu Dutta, chief executive, Third Eyesight, a textile consultancy.
If we are looking at exporters, they are driven by a much vital competitive mix and also they trade across currencies and in the current scenario the flexibility for price rise is not that high, he added. Alok Industries with over 60% of sales in India, has raised prices, but Gokaldas Exports, which gets nearly all its revenues from exports, will not.
