As per a recent study of 75 CRISIL-rated spinners, improved yarn prices due to a sharp rebound in demand in the second half of this fiscal will help Indian yarn firms maintain their operating profitability at nearly 10 per cent this fiscal, despite the pandemic effects.
A report by SRTEPC informs prices of polyester yarn and its key input, purified terephthalic acid (PTA), fell after the onset of the pandemic. But those rebounded between September 2020 and January 2021, with the price of yarn rising faster than PTA, thus aiding profitability
On the other side, prices of viscose yarn and its raw material input have remained largely steady, supporting spreads. Although some softening in the polyester spreads is expected over the next two quarters, it is still likely to remain higher than that in the corresponding periods of last fiscal as the tide of demand continually rises. This is likely to support operating profitability next fiscal as well.
Overall, the industry is expected see a contraction in volume to 5.5 million tonne this fiscal from 6 million tonne last fiscal. Spinners are expected to mitigate this impact by tightening their working capital cycles, with faster collections and better inventory management.