Why textile machinery prices could rise

Improving consumer confidence levels,
pick up in discretionary spending and
opening up of economies are assisting Indian
textile companies to tide over the COVID 19
pandemic with continued rise in demand.
According to ICRA, the recovery in the
domestic textile sector, that picked up pace in
Q3 FY2021, is likely to continue in the
upcoming quarters. The rating agency
expects the textile sector performance to
recover to pre-Covid levels in FY2022 as
demand continues to normalise in domestic
and export markets.

Performance of exports was much better
than domestic market as economies of key
buying regions opened up faster, facilitating
better performance for spinning and apparel segments, which have greater
reliance on export markets. Though with a lag, domestic textile sales also
picked up pace supported by pent up demand, pick-up in online sale activity
and reduced consumer skepticism to step out and shop, said ICRA report.

The recovery in demand of textile products is likely to trickle down the entire
value chain. For example, MMF production increased by higher single digits on
YoY basis during October 2020.

Rising demand for textile products has had a rub-off effect on allied
industries like textile machinery. After negligible business in the first 2 quarters
of 2020-21, textile machinery makers have started getting orders. With their
capacity utilisation close to 100 per cent, textile machinery makers expect to
achieve up to 80-90 per cent of their annual turnover as compared to previous
year in the fourth quarter of the fiscal year, said the Textile Machinery
Manufacturers’ Association of India (TMMA).

While increasing demand has brought cheers on the face of machine makers,
rising raw material prices (especially steel) could play a spoilsport. The order
bookings which were closed at prices during April-June 2020 quarter are
supposed to be fulfilled by Q3 or Q4 of the current fiscal. At the time of booking,
TMMA claims, the steel prices were 15-40 per cent lesser than the current rates
and the increased raw material cost is severely impacting the basic cost of the
machines to be supplied.

The cause of cost rise are restrictions imposed on the imports of steel & other
products, and domestic steel producers dictating the prices (in the absence of
competition from imports). These challenges are only putting more hurdles for
domestic machinery manufacturers to produce their machines at competitive
rates and qualities in comparison to their global counterparts.

Adding to the woes is the rising fuel cost, which is up by 20-25 percent in
January 2021 compared to April 2020. As a result, the prices of other
commodities, transportation, material handling and manufacturing have also
risen. If the raw material prices remain at the current high level (or escalate
further), companies will have no option but to increase their textile machinery
prices by at least 15-20 per cent with in the current fiscal year. This could have
detrimental effects on the industry’s growth.

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