The appreciating rupee could significantly erode net profit margin of textile & apparel as well as leather & leather products sector as per the result of a CII Survey.
The CII survey of textiles and apparel companies engaged in exports revealed that there has been a decline in total revenue, operating income and net profit margin to the tune of 7.9%, 8.9% and 7.9% respectively and further, there could be an erosion of net profit margins to the extent of 10.4 percent during the next six months only on account of appreciation of the rupee.
If we add the impact of rise in interest rates on the net profit margins, it is a further decline of another 1.5 percent. This impact assumes that the exporters would maintain their export share. However, if we take into account the loss of market share, the impact would lead to further depletion in net profit margins.
The impact of the appreciation is worse in the leather and leather products sector. The erosion of net profits expected in the next 6 months is 13.7 percent and the industry is already facing an erosion of 8.8 percent on its net profits margin.
The erosion is higher in net profits margin than in operating income due to impact of rising interest rates, which depletes a further 2 per cent off the net profit margin.
Moreover, this sector also faces an import threat from China, Bangladesh and Pakistan in the domestic markets. Leather and leather products units operate with very low margins and the impact of the rupee appreciation alone would lead to unsustainable loss on margins for the industry.
marketing@alchempro.com
