High interest & wage cost erodes Textile Profit margins
01 Dec '07
4 min read
While rising value of rupee against dollar has sent small textile companies into losses, big brands are striving with high interest, raw material and labour cost to save their declining bottom lines, says Mr. Venugopal N. Dhoot, President of the Chamber while releasing the study undertaken by the ASSOCHAM.
The ASSOCHAM Eco Pulse (AEP) study stated that besides strengthening of domestic currency, the high borrowing cost and huge wage expenses owing to stringent labour laws, have led to fast shrinking of the profit margins of these firms.
The small companies whose average revenues are in range of Rs.20 crore-Rs.90 crore, have recorded 74 per cent decline in profit after tax.
The AEP Study was carried by the Assocham Research Bureau based on the corporate results for second quarter announced by 10 big companies and 10 small companies in textiles and clothing sector. The small companies analyzed include Celebrity Fashions, Ginni Filaments, Zodiac Clothing, Vardhaman Acrylics etc.
The top lines of the top ten textile majors grew by average 12 per cent in Q2 of this year and those of mid-size companies grew by 9.4 per cent.
Seven out of these twenty companies recorded decline in income in second quarter of current financial year as compared to Q2 of FY07.
As more than 50 per cent of textile and garments sales are made offshore, hardening of Rupee against Dollar by almost 12 per cent over last year has rendered the Indian textile industry uncompetitive in the international market where its is facing tough competition from China, Bangladesh, Pakistan and Sri Lanka. Drop in exports suppressed the prices in domestic market, affecting income growth of the textile firms.
The impact of Rupee rise is more pronounced in case of mid-size textile companies as their collective income increased by only 8 per cent while the large ones registered 16 per cent growth. This can be explained by the better price negotiating position of the big firms.
High operating cost borne by the textile industry, according to ASSOCHAM is major factor responsible for shrink in net earnings.
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