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Credit rating agency ICRA in its latest report has said that the domestic cotton spinning industry is likely to recover in FY2025, growing by 6-8%, supported by a 4-6% volume growth and mild realisation gains. This follows two consecutive years of de-growth on the back of subdued domestic demand and falling yarn realisations. Over two-thirds of the total cotton yarn produced is consumed domestically, where green shoots of recovery are visible from the downstream segments, such as readymade garments and home textiles. 

According to the report, cotton yarn exports, which rebounded in FY2024 on a lower base, are likely to normalise in FY2025. While the exports will remain exposed to headwinds from sluggish global demand, a shift in sourcing preference away from other countries will offset this impact to an extent. Domestic cotton prices, which peaked sharply in H1 FY2023 and reached a lifetime high of Rs. 284 per kg, have been declining over the last two years. The average prices, which fell by around 26% YoY in FY2024 amid a moderation in global prices and weak demand from the end-user segments, are likely to marginally increase in the near term with a recovery in demand and an expected reduction in the cotton sown area. Cotton yarn prices, too, had been declining since June 2022 amid softening cotton fibre prices and slowing demand from the downstream segments. ICRA expects the cotton yarn prices to rise marginally in FY2025 and remain exposed to the vagaries of demand.

The report said the industry had incurred high debt-funded capex in FY2023, partly due to the deferment of major capital expenses during the Covid period (FY2020-21). Consequently, the industry’s coverage metrics deteriorated in FY2023 with a drop in yarn demand in H2 FY2023. The spinners have halted major capex plans in the near term due to weak domestic demand and lower realisations in FY2024. However, ICRA expects a marginal pick-up in capex announcements in FY2025, driven by the modernisation requirements of machineries, flow of demand from the China Plus One scheme, and improvement in domestic demand from downstream apparel companies.