After facing a challenging fiscal year 2022-23 with a decline in demand from the textile industry, the Indian dye, dye intermediates, and pigment (D&P) industry is now on track for a promising recovery in the second half of the current fiscal year, according to a report by CareEdge Ratings.
The textile industry, which serves as the primary end-user for the D&P industry, is expected to show signs of improvement in H2 FY24, potentially offsetting the subdued performance witnessed in the first half of the year.
The challenging economic conditions during FY23 were marked by volatile input costs, including raw materials, fuel, and freight, along with disruptions resulting from the Russia-Ukraine war and intense competition from low-cost Chinese products. These factors led to a decline in total operating income (TOI) by over 5 percent and a contraction in operating profitability of around 400 basis points for major players in the D&P sector.
However, CareEdge Ratings predicts a rebound in the industry’s fortunes, with a volume-driven recovery in TOI, aiming to approach the levels seen in FY22. The report foresees a potential expansion in operating profitability by 100 to 150 basis points compared to the previous fiscal year.
One significant positive factor is the stabilization of input prices in H2 FY24, which is expected to lead to moderate volume growth and a slight improvement in profitability. Additionally, major players in the D&P industry are in a favorable position with controlled leverage, stable interest rates, and comfortable debt protection metrics, enabling them to handle capital expenditures and incremental working capital requirements.
Despite the positive outlook for major players, the report highlights potential vulnerability for smaller and mid-sized industry players with a more leveraged capital structure, who may continue to face headwinds in the ongoing market conditions.
As major economies grapple with high inflation rates, the Indian D&P industry’s recovery is a welcome sign, indicating the potential resilience of the sector. The expected improvement in the solvency position of major players in FY24 suggests that they are well-equipped to manage capital requirements and navigate any challenges that may lie ahead.
With the textile industry showing signs of rebounding in H2 FY24, the Indian D&P sector is gearing up for a period of recovery, offering hope for increased volumes and improved profitability in the coming months. As the industry adapts to the changing dynamics, stakeholders remain optimistic about the potential for growth and stability in the near-to-medium term.