India's cotton yarn industry to grow 7–9% in FY26: Crisil

India’s cotton yarn industry is expected to witness a revenue growth of 7–9 per cent in the current fiscal, a marked improvement from the modest 2–4 per cent growth recorded in the previous year. This uptick will be driven primarily by higher volumes, aided by a modest rise in yarn prices and strong domestic demand.

Operating margins, which had already shown recovery last fiscal, are projected to improve by another 50–100 basis points this year. This will be supported by stable cotton yarn spreads and improved cotton availability through procurement by the Cotton Corporation of India (CCI).

An analysis of 70 cotton yarn spinning companies — representing 35–40 per cent of the industry’s revenue — supports this outlook.

The key growth catalyst for fiscal 2026 (FY26) will be a rebound in yarn exports to China. Exports constitute around 30 per cent of the industry’s revenue, with China accounting for nearly 14 per cent. In fiscal 2025, India’s yarn exports to China saw a dip due to an unusually high domestic cotton output in China, leading to a 5–7 per cent contraction in India’s overall cotton yarn exports. However, with China’s cotton production expected to normalise, yarn exports are projected to rise by 9–11 per cent this year.

“This is likely to benefit Indian spinners as they will leverage steady domestic cotton production in current cotton season and regain their market share. Moreover, India's position in textile exports to US remains competitive given the higher tariff on China (key competing nation in home textile exports), which is expected to support the 6-8 per cent revenue growth for downstream industries (home textiles and readymade garments) this fiscal,” said Gautam Shahi, director, Crisil Ratings Ltd.

On the raw material front, the CCI’s substantial procurement during the 2025 cotton season is expected to ensure steady cotton supply. This will help minimise inventory losses and support a 50–100 basis point improvement in spinners’ profitability in the current fiscal, following a 100–150 basis point recovery last year.

“Driven by improved operating performance, credit profiles, which showed signs of recovery last fiscal, will remain stable this fiscal. Meanwhile, capex for cotton yarn spinners will remain moderate, with only select players undertaking capital expenditure, which will limit the need for significant debt additions. Additionally, steady cotton availability will lead to lower inventory holding, reducing the requirement for significant incremental working capital financing,” Pranav Shandil, associate director, Crisil Ratings, said in a release.

Consequently, the interest coverage ratio of spinners is expected to rise to 4.5–5 times in the current fiscal, up from approximately 4–4.5 times in fiscal 2025. Gearing is likely to remain stable at around 0.55–0.6 times.

However, industry stakeholders remain cautious about potential risks, including tariff changes affecting India and its competitors, high inflation or an economic slowdown in the US, and volatility in domestic cotton prices relative to international levels.

ALCHEMPro News Desk (HU)