India's high interest and high wages erodes the profits of textile companies

by:JIYALI     2021-07-30
According to a recent study conducted by Mr. Venugopal N. Dhoot, the president of the Assocham Chamber of Commerce and Industry in India, the appreciation of the rupee against the U.S. dollar has led to losses for small textile companies, while large brand companies are paying interest, Increase the cost of raw materials and labor to fight.   ASSOCHAMEcoPulse (AEP) research pointed out that in addition to the continuous appreciation of domestic currencies, high borrowing costs and rising wage costs caused by labor tensions have rapidly reduced the profit margins of textile companies.   The net profit of the 10 largest textile companies, including Nahar Spinning Mill, Gokaldas, Raymonds, RSWM, Welspun, and DSCLShriram, has decreased by an average of 32% in the quarter ended this year to September.   After-tax profits of small businesses with an average income of Rs 2-9 crore fell by 74%.   The AEP research report completed by Assocham Research Institute is based on the performance of 10 large textile and apparel companies and 10 small textile and apparel companies.   10 large textile companies increased by an average of 12% in the second quarter of this year, and 10 medium-sized companies increased by 9.4%.   Seven of these 20 companies have reduced their revenue in the second quarter compared to the second quarter of FY07. As more than 50% of textile and apparel companies sell to overseas markets, the rupee appreciated by nearly 12% against the U.S. dollar last year, causing the Indian textile industry to lose its competitiveness in the international market. The Indian textile industry faces international markets from China, Bangladesh, and Pakistan. Fierce competition with Sri Lanka. The reduction in exports has increased the price pressure on the domestic market, and has also affected the income growth of textile companies.   The impact of the appreciation of the rupee has had a more significant impact on medium-sized textile companies, because their comprehensive income increased by only 8%, while the income of large textile companies increased by an average of 16%. Because large companies have stronger bargaining power.   The high operating costs of textile companies are the main reason for the decrease in net profit.   The interest rate for the current fiscal year so far is as high as 12.75-13.25, compared to 11-11.5 last year.   The interest rate of the textile company is growing faster than the sales growth. Large companies’ borrowing costs have increased significantly by 45%, while sales have increased by only 12%. Similarly, interest expenses for small companies increased by 17.5%, while sales increased by only 9%.   High interest rates have also suppressed the credit expenditures of textile companies. The growth of non-food bank credit in the textile industry has dropped from 39% on August 17, 2006 to 28% this year.   The reason for the decline in the profits of the textile industry was increased export pressure, but wage growth was not affected. The wage costs of large and medium-sized companies increased by 25% and 21%, respectively.   India’s strict labor laws do not allow companies to adjust their labor force as needed. The Labor Contract Law of 1970 restricted textile companies from looking for workers outside or hiring contract workers.   Most large textile companies believe that the cost of raw materials has increased significantly, and 7 out of 10 large textile companies believe that the increase in raw material prices is greater than the increase in sales.   Four medium-sized textile companies also have the same phenomenon. Based on the competitive price policy of large textile and apparel companies, AEP found that when small companies may reduce production due to reduced exports, large companies did not reduce their production significantly, but chose to seek help from competitive prices to reduce profits.
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