International cotton prices have hit a 10-year high. Following in the footsteps of its global peers, Indian cotton prices have also reached a record high.
To understand how the rising cotton prices are impacting the apparel sector, CNBC-TV18 spoke to Sivaramkrishnan Ganapathi, managing director, Gokaldas Exports, and V Balaji, chief financial officer, SP Apparels.
First up, Ganapathi shared that fabric prices are higher by 15 percent as compared to last year. He said that the company passes 50 percent of the cost inflation to its customers.
"Sharply rising cotton price would effectively result in higher yarn price and consequently, a higher fabric price. Fabric prices are rolling at about 10 to 15 percent higher than what it used to be last year, which really substantially increases the raw material price for us as a manufacturer of apparel," he said.
"Hence, it increases the price at which we sell to the customers. We have mutually arranged a tripartite between us, the customer and the fabric supplier. We pass through about 50 percent of what we do, but the for the rest there is some pressure. Some of it, we will have to absorb through better productivity or through falling rupee, etc. But yes, indeed, there is a pressure which comes across because of the rise in cotton prices on our margins," he mentioned.
On demand, he said that that some softness is likely in the short to medium term.
He said, "We also foresee European slowdown. Despite sanctions on Russia, I think the impact on the Western European economy is also going to be high with higher gas prices, oil prices, etc. So, overall, there will be a bit of a softness and demand."
"I foresee this to be more of a short to medium-term issue rather than long-term. The long-term prognosis for the textile industry and apparel industry is excellent because of the secular movement of supplies. But in the short to medium-term, there may be some demand hiccup, which we will have to contend with," he explained.
To offset the softness in demand, the company plans to diversify its customer base, Ganapathi shared.
"So, as manufacturers, we will try to diversify our customer base as much as possible to offset it (demand softness), but there will be some demand challenges, I can see that in the horizon; we will have to deal with that," he said.
Balaji of SP Apparels, however, said that demand isn’t soft for the company. In fact, he expects 20-25 percent growth in revenues in FY23.
Balaji said, “The demand is not that weak as such. What we see is that the demand is good, because the textile of late is being looked at, because of the diversification that is coming from China. The demand is good, but for SP Apparels, we are guiding for revenue growth of 20-25 percent next year.”
Watch the video for the full interview.