Jute Industry’s Revenue Expected To Fall 5-6% This Fiscal: CRISIL

New Delhi, Aug 16 (KNN) Due to the second consecutive year of decline in exports of jute, the industry is set to witness 5-6 per cent decline in revenue, according to CRISIL Ratings.

The operating margin is seen down 200-250 basis points to 5 per cent as exports, which are more profitable, would be lower. Credit profiles are seen stable on healthy balance sheets, and negligible capital expenditure (capex).

An analysis of jute companies rated by CRISIL Ratings, accounting for 30 per cent of the sector’s revenue, indicates as much. Exports, which form a third of the sector’s revenue of Rs 12,000 crore, are seen 15 per cent lower this fiscal, after falling 8 per cent last fiscal as overseas channel partners continue to destock amid slowdown worries in the US and Europe.

As far as the domestic demand is concerned, the demand is expected to be stable because of steady orders for storage and transportation bags (made of jute) owing to higher grain procurement by the government, reported ET quoting the report.

“The domestic market, which accounts for the balance two-third of the sector’s revenue, depends on government demand as it procures almost 80 per cent of the jute produced through its nodal agencies. To add, mandatory norms under the Jute Packaging Materials Act 1987, provides 100 per cent reservation for packaging of food grains and 20 per cent reservation for packaging of sugar in jute bags, This lends stability to demand for jute bags domestically and this trend is unlikely to change over the medium term,” CRISIL said.

Nitin Kansal, Director, CRISIL Ratings, “Weak export demand will reduce capacity utilisation of specialised looms and weigh on sales of specialised jute products such as hessian, gift articles and decorative fabrics. Hence, companies may defer capacity addition and only undertake minor maintenance capex.”

“At the same time, companies may woo overseas customers through longer credit period, which may lengthen working capital cycles from 100 days to 140 days, on average, leading to higher reliance on working capital debt. But healthy balance sheets will ensure comfortable debt metrics, lending stability to credit profiles,” he said.

Argha Chanda, Associate Director, CRISIL Ratings, “Despite lower cash accruals and a likely increase in working capital borrowings, healthy balance sheets should keep debt metrics comfortable. Moreover, the capex outlay will be minimal and will be funded through cash accrual. Hence, credit profiles of jute companies will remain stable.”

CRISIL Ratings expects leverage and interest coverage for its portfolio at 0.55 and 3.7 times, respectively, this fiscal, compared with an average of 0.45 time and 8 times, respectively, in past three fiscals. Global recessionary pressures and any dilution in jute packaging reservation norms will remain key monitorable for the jute industry.  (KNN Bureau)