Mumbai, Sept. 21 -- Jute manufacturers are expected to witness sales volume growth of 15 per cent this financial year, supported by stronger demand and a favourable cost environment, a Crisil Ratings report said on Monday.
India's jute industry is set for a meaningful recovery this fiscal after two challenging years marked by weak demand, high raw material costs and pressure on profitability, the report said. A revival in domestic demand, improving export prospects and softer raw jute prices are expected to drive growth, improve profitability and support the industry's credit profiles.
It said sales volumes are projected to grow around 15 per cent this fiscal year, reversing an annualised decline of around 10 per cent over the previous two fiscals. The recovery is expected to be supported by stronger demand and a more favourable cost environment, it added.
The report further said domestic demand is projected to increase about 20 per cent this fiscal, reversing a cumulative decline at a similar pace over the preceding two years.
The downturn was largely triggered by a sharp rise in raw jute prices, which manufacturers passed on to customers, dampening demand and prompting a shift towards lower-cost alternative packaging materials, it said.
With input costs now moderating, product prices are expected to soften, supporting a recovery in demand. The rating agency said that export demand is also beginning to show signs of improvement.
Growth in downstream sectors such as home textiles, lifestyle products and other value-added jute applications is expected to support exports.
In addition, the rationalisation of US tariffs from the elevated levels seen last fiscal could improve the competitiveness of Indian jute products in global markets.
"While improving demand will support revenue growth, profitability is likely to receive an even larger boost from easing raw material costs.
Better crop output has improved domestic availability of raw jute and led to softer prices despite subdued imports. This is significant because raw jute accounts for 60-65 per cent of the industry's operating expenses.
Lower fibre costs and improved capacity utilisation should drive up profitability. Consequently, operating margins are projected to expand by 130 basis points (bps) to nearly 9 per cent in FY27, Crisil Ratings Senior Director Rahul Guha said.
Raw jute prices had risen by more than 10 per cent last fiscal because of supply constraints; however, higher minimum support prices encouraged farmers to increase acreage, resulting in better crop output this year.
Published by HT Digital Content Services with permission from Millennium Post.