Polyester Yarn: Polyester yarn makers to laugh all the way to the bank this year too: Report

MUMBAI: Robust demand from end-users and increased blending with cotton yarn due to decadal high prices of cotton will boost the revenue of polyester yarn makers by 18-20 per cent this fiscal, a report said on Thursday. This will have the industry’s growth spree continuing this fiscal as well leading to operating margins expansion, and the resultant stronger balance sheets and better credit outlook, rating agency said in a report on Thursday.

The revenue of the polyester yarn industry grew 60 per cent last fiscal due to massive price hikes on healthy demand. Polyester yarn is used mostly in athletic and leisure wear, home textiles and garments.

Operating profitability (difference between prices of polyester yarn and its raw materials) of the industry is also expected to increase by 100 basis points to 11 per cent this fiscal, driven by continued higher capacity utilisation (over 90 per cent) due to demand growth and healthy polyester yarn spread, said the report.

The average spreads rose to a five-year high of Rs 29 per kilogram last fiscal from Rs 22 a kilogram in the previous fiscal and should sustain at Rs 28-29 per kilogram this fiscal, it added.

Better profitability and expected modest capital spending will improve credit profiles of yarn makers, shows an analysis of 24 players that account for about 40 per cent of the sectoral revenue, the report said.

Recovery in demand from these end-user segments and multiple price hikes had led to a revenue growth of 60 per cent last fiscal, though on a low base, with sales volume picking up 15 per cent.

Demand is seen to remain healthy this fiscal too, with garments and home textiles segments expected to grow at 16-18 per cent and 12-13 per cent this fiscal respectively, driven by recovery in domestic demand and moderate growth in exports, according to the agency.

Polyester yarn is cost-effective to blend with cotton yarn, and since cotton yarn prices have risen by 25 per cent over the past year, higher blending has increased the demand for polyester yarn. With the increased differential between cotton and polyester yarn prices to sustain, the report expects 4-5 per cent of cotton yarn demand to shift to polyester yarn.

Purified Terephthalic Acid (PTA) and Mono-Ethylene Glycol (MEG), both crude derivatives, account for 80 per cent of raw material cost for polyester yarn manufacturers and the prices of these two raw materials prices have increased sharply due to supply chain issues arising from the Russian invasion of Ukraine in February.

The industry will also benefit from favourable demand-supply dynamics as no large capacity addition is expected over the next two fiscals, while demand is expected to grow at 7-8 per cent, the report said.

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