Viscose staple yarn industry revenues to grow 10-12%: CRISIL

economictimes.indiatimes.com:

viscose staple yarn (VSY) industry is set to grow 10-12% on-year to an all-time high of over $2.5 billion this fiscal on continued strong demand — similar pace to last fiscal, said CRISIL Ratings on Tuesday. Even as yarn prices decline, though at a lower rate than raw material prices, overall profitability is likely to improve 200-300 basis points (bps). Strong balance sheets and improved cash flows will support the credit risk profiles of manufacturers, despite substantial debt-funded capital expenditure (capex).

A CRISIL Ratings analysis of VSY companies, accounting for over a fourth of the industry by revenue, indicates as much. VSY is an attractive alternative to cotton yarn because of its lower prices and comparable features. It logged a compound annual growth rate of 13% over the last three fiscals, higher than 5% for cotton yarn.

During this period, VSY prices were relatively stable, ranging between Rs 200 and Rs 250 per kg. In contrast, cotton yarn prices ranged between Rs 200 and Rs 380 per kg. The removal of anti-dumping duty on imports of viscose staple fibre (VSF) in fiscal 2022 also helped steady VSY prices.

Subsequently, VSY’s share of the spinning industry volume increased to over 10% last fiscal from under 7% in fiscal 2020. Says Himank Sharma, Director, CRISIL Ratings Ltd, “Viscose spinners’ volume is expected to grow 15% on year this fiscal, supported by sustained domestic demand and a revival in export demand during the second half. Overall, segmental growth will be in low double digits.” With VSY makers’ revenue improving and spreads between VSY and VSF expanding to Rs 55-58 per kg, the operating margin is likely to improve to 11-12%.