Industry Risk Score : Textiles – Manmade Fibres / Yarn

Executive Summary

India is the second largest producer of manmade fibres / yarn (MMFs) globally with production of around 2,511 million kg in FY 2016-17.

The domestic MMF industry has been going through a lean phase in the last five years. But the situation is expected to improve in the near future with rising demand from technical textiles and constant government support. On the global front, the demand for MMFs is largely driven by the growing usage of blended fabrics. The industry faces moderate to high competition risk in both the domestic as well as export markets.

The industry also faces risk in terms of input costs due to its dependence on petrochemicals and uninterrupted supply of power. Manufacturing of MMF is technology and capital intensive. The industry faces risk on account of technology obsolescence and consequent capital expenditure for upgradation.

Acuité believes that the Indian MMF industry will remain stable in FY 2018-19. Increased exports, boost in domestic consumption and favourable government policies will help the industry register healthy growth over the medium term.

Key Risks & Attributes

  • Domestic market sensitive to consumer spends, linked to overall economic cycles
  • Crude oil and petro-chemical prices
  • Raw material (petrochemicals) price fluctuations
  • Availability of cheap skilled labour
  • Risk of technology obsolescence and associated capital costs for upgradation

Demand & Supply Scenario


The Indian textile industry contributes to 4% of the country’s gross domestic product, 15% of the country’s export earnings, over 14% of industrial production, and employs more than 45 million people. The industry stood at US$ 150 billion as of FY 2016-17, and is expected to touch US$ 230 billion by FY 2020.

In India, the presence of cotton in the textile chain is close to 70%, with synthetics and MMFs constituting 30%. This is exactly the obverse to the global fashion and demand trends wherein MMFs constitute 70%. MMFs are more durable than most natural fibres and consumer friendly, on account of being stretchable, waterproof, stain resistant, resistant to insect damage, and so on. As there are limits to growth of cotton cultivation worldwide, the global consumption of MMFs is expected to rise in the future.

The domestic MMF industry has been going through a lean phase in the last five years. However, MMF demand is likely to improve in the near future due to constant government support and wide acceptance in various end-use categories such as technical textiles, sportswear, leisurewear, women dresses, home textiles, automotive, carpet, and other industrial segments.

The Indian government has taken several initiatives to promote the textile industry. 100% foreign direct investment (FDI) under the automatic route is allowed in the sector. Huge investments are being made by the government under the Scheme for Integrated Textile Parks ( $184.98 million) and Technology Upgradation Fund Scheme or TUFS (US$ 216.25 million released in 2017) to encourage more private equity, improve infrastructure and train workforce. TUFS provides support for modernisation and upgradation to power loom units by providing credit at reduced rates and capital subsidies. The Amended TUFS provide incentives for upgrading technologies and is expected to receive an investment of USD 15 billion. The Technology Mission for Technical Textiles aims at standardising, creating common testing facilities and several resource centres with IT infrastructure and creating a healthy ecosystem for the production of technical textiles in India. In 2017, the ‘Make in India’ campaign was launched to attract manufacturers and FDI. GoI allocated about Rs.7500 crores in the Union Budget 2018-19 for the textile Industry, an increase by 14 per cent over previous year.

The technical textile market in India is still at a nascent stage and almost all categories are expected to observe significant growth. MMFs are also extensively used in protective wear and in automobiles (seat belts, airbags, seat covers and headliners). India is expected to be a key growth market for the technical textile sector due to cost-effectiveness, durability and versatility of technical textiles.

With the growing textile market in India and improving export competitiveness, MMF-based textile products are expected to lead demand in the near future. A large part of the MMF-based fabric manufactured and processed in India is low value added and primarily supplied to the mass domestic market, thus offering potential for future investments. However, it may be noted the share of domestic sales of MMF yarn is substantially higher than the export sales and hence, a falling rupee may not have a substantial impact on the industry in the short term.

Acuité expects that demand for MMF in the domestic market in the medium term will remain stable. The export market is expected to provide a favourable environment for the MMF industry on account of limited cotton availability and increased demand for technical textile in the medium term.

Nature & Extent of Competition


The MMF industry is fragmented with a large number of small and medium enterprise (SME) manufacturers. As entry barriers are low, existing players face continuous risk from potential new entrants. The organised sector units have large, more integrated or composite-type production capacities and normally focus on multiple processes including spinning/weaving or weaving/processing. The manufacture and spinning of polyester fibre is majorly organised, whereas many SMEs exist in weaving, processing, cut and sew and embroidery sectors. The presence of a large unorganised sector leads to lower efficiency and productivity.

Stiff competition and fragmentation in the domestic market limit the pricing power of players and constrain their margins. This, to some extent, is offset by government incentives in the form of interest subsidies, duty drawback schemes and duty-credit facilities, which provide sizeable support to profitability.

The domestic market for MMF products is highly price sensitive. This leads to pressures in pricing, product quality and preference of buyers for latest products, resulting in the inability of any particular player gaining large market share. The MMF fabric sector is affected by cheaper imports from China and Indonesia, where the fabric industry is subsidised to increase its share in world trade.

Acuité believes that the competitive landscape in the MMF industry will continue to be moderate with a large number of fragmented players and pressures on pricing and product quality, in both the domestic as well as export markets.

Input Related Risk


The MMF industry is petrochemical based, and hence, prices of raw materials are linked with international prices of crude oil, chemicals and dyes. Any crude oil price upsurge leaves MMF manufacturers with limited bargaining power and price flexibility over raw material suppliers. The government pricing regulations on petroleum products may also impact the use of certain raw materials used in MMF production. The price rise in the international market for all petrochemicals, polymers and solvents have been sharp since April 2018. Most petrochemicals have seen a price rise of 4-18%, so have polymers, the key raw material for MMF yarn and textiles.

The MMF industry requires substantial amount of power, the quantum and nature of which is primarily dependent on provision of the same by the government. Any disruptions or non-availability of power may have an adverse impact on manufacturing. Rising power and fuel costs and high transportation costs are also key input risks for the industry. Besides, through the substitution effect the price of natural raw materials such as cotton and silk also affect the demand and consequently, the price of MMF.

Acuité believes that the dependence of the industry on petrochemicals and availability of skilled labour poses moderate risk to the MMF industry in terms of input costs.

Regulatory Risk


The introduction of Goods and Services Tax (GST) is expected to have a ‘fibre-neutrality effect’ on the Indian textiles sector, which means that all MMFs and natural fibres will be treated equally from the tax point of view. However, the GST rate on MMF is 12%, whereas that on MMF fabrics is 5%. This duty differential will create a higher tax incidence at the fibre/ yarn level than on the successive value chain segment, which will lead to duty accumulation at the weaving stage. This means that weavers will not be able to reclaim full input credit on purchase of yarn, and hence, will increase fabric prices to mitigate the loss, which will further reflect in increased prices of MMF-blended garments.

The Indian MMF industry is not directly subject to intense government regulations, other than any fiscal or environmental regulations that may affect the industry. But the manufacturing units are governed by various environmental laws and regulations relating to environmental protection. Any accidental discharge or emission of chemicals or other pollutants into the air, soil or water beyond permitted levels may lead to penalties. Stricter laws and regulations may also impose new liabilities or require additional investment in environmental protection equipment.

Acuité believes that the risk faced by the MMF industry with respect to government regulations is low in the medium term. Strong industry dynamics and favourable government initiatives will give an overall boost to the sector over the long term.

Technology Risk


The MMF industry is highly dependent on manufacturing facilities, making modernisation of units and technology upgradation imperative for sustaining growth of the industry. The Indian textile industry has witnessed considerable integration, expansion and technological up-gradation in the last few years. These measures have helped improve product quality and reduce cost of production.

However, the MMF industry is highly capital intensive with a long gestation period and requiring capital expenditure for upgradation of manufacturing facilities. SMEs have limited resources and are therefore reluctant to invest in technology upgradation. As a result, India’s presence in high value-added segments and innovation-driven technical textile segment is very low compared with other countries.

Eventually, modern manufacturing techniques, higher productivity, faster output, ability to process large orders, higher capacity utilisation and capability to deliver quality products will be the primary drivers for the industry.

Acuité believes that in the medium term, the industry faces moderate risk on account of advancement in technology and related capital expenditure for upgradation.

Operating Margin


In terms of net sales, the MMF industry witnessed a robust YoY increase of 12.3% during FY16-FY18. Average EBITDA margins for the industry have been at 15% for FY 2016-18. Industry also witnessed growth in the operating margins from 14% in FY 2015-16 to 16% in FY 2017-18, reflecting a highly favourable position. Key drivers included robust sales growth and efficient cost management.

Interest Coverage


Despite the overall interest expense increase during FY 16-18, improved profitability resulted in an improved average interest coverage ratio at 3.3 times during FY 2017-18 compared to 2.5 times in FY 2015-16. Also, the average industry interest coverage ratio was reported as highly favourable at 3.05 times during FY 16-18.

Return on Capital Employed


Industry ROCE remained highly unfavourable during the period FY 16-18 as the average ROCE for the three-year period was reported as 4%. Further, the industry ROCE in FY 2017-18 declined sharply and was reported as 3%; whereas, it was reported as 6% in FY 2016-17, and 4% in FY 2015-16.

This is mostly due to capacity expansions, investments in technology upgradation, coupled with poor profitability indicators.

Debt / Equity


MMF industry showed a stable and highly favourable debt-equity ratio with an average of 0.38 times, during the three-year period. Debt-Equity ratio has improved in FY 2017-18 and was reported as 0.3 times compared to 0.5 times in FY 2016-17 and FY 2015-16.



Though gross current assets (GCA) remained favourable during FY 16-18, the industry presented a concerning trend in terms of GCA increasing from 99 days in FY2015-16 to 109 days in FY2016-18. The industry had an average GCA of 102 days, during the three-year period

Industry Financials and Averages

Fact Sheet (As on Year Ended March 31st)SUM Unit 201803 201703 201603
Net Sales Rs. Cr. 42,293 36,719 33,955
OPBDIT (Excl. NOI) Rs. Cr 6,598 5,643 4,653
Depreciation Rs. Cr. 1,515 1,239 1,220
PAT Rs. Cr. 2,238 1,985 1,287
Net Cash Accruals Rs. Cr. 3,753 3,224 2,508
Networth Rs. Cr. 50,738 21,504 20,222
Total Debt Rs. Cr. 14,588 10,171 10,789

Average Unit 201803 201703 201603
EBITDA Margin % 16% 15% 14%
PAT Margin % 5% 5% 4%
ROCE % 3% 6% 4%
Interest Coverage Times 3.3 2.8 2.5
Debt to Equity Times 0.3 0.5 0.5
Debt to EBITDA Times 2.2 1.8 2.3
GCA Days Days 109 98 99

The entities considered in the static pool are as under:

  1. A Y M Syntex Ltd.
  2. Bombay Dyeing & Mfg. Co. Ltd.
  3. Filatex India Ltd.
  4. Ganesha Ecosphere Ltd.
  5. Garden Silk Mills Ltd.
  6. Gillanders Arbuthnot & Co. Ltd.
  7. Grasim Industries Ltd.
  8. Indian Acrylics Ltd.
  9. Indo Rama Synthetics (India) Ltd.
  10. J B F Industries Ltd.
  11. Sangam (India) Ltd.
  12. Shubhalakshmi Polyesters Ltd.
  13. SRF Ltd.
  14. Sumeet Industries Ltd.
  15. Sutlej Textiles & Inds. Ltd.

IRS Definitions

Acuité Industry Risk Scores are assigned on a six-point scale, with 1 indicating ‘High Risk’ and 6 indicating ‘Highest Safety’. The intermediate scores are defined in the table below:

Industry Risk Score Risk classification of the Industry
ACUITE IRS 1 Highly Unfavourable
ACUITE IRS 2 Unfavourable
ACUITE IRS 3 Neutral
ACUITE IRS 4 Marginally Favourable
ACUITE IRS 5 Favourable
ACUITE IRS 6 Highly Favourable


Acuité IRS should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security of any entity forming part of the industry. Acuité IRS is based on the publicly available data and information and obtained from sources we consider reliable. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind arising from the use of Acuité IRS.

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