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Friday, March 29, 2024

Strength of rupee- A dent to textile & apparel exporter’s margin

According to the reports the Earning and Ebitda margins of textile and apparel exporters will be hit in the near term, following rupee’s appreciation against the dollar in 2017 and weak apparel import from traditional markets like the US and the UK, as said by the sources. The Ebitda margin is a term used for earnings before interest, tax, depreciation and amortization divided by total revenue. It is used as a gauge of a company’s operating profitability. 

According to the experts of Indian Rating & Research; “A stronger rupee is likely to have an adverse impact on export trade volumes and earnings since fresh orders will have reduced competitiveness.” Estimated by the rating agency is that the realization will decrease for about 3 to 5% in the near future and will have an impact on the profitability of the cooperate sector in the value added chain of the textile industry. Expected is that the Ebitda margin erosion of around 150 basis points year-on-year in the fourth quarter the ended-up in March 2017.

It is also believed that the condition may have an offset of gains that will accrue from the export stimulus package from the government, the GST implementation and the US’ exit from the Trans Pacific Partnership. It is also said that “The ongoing strength of the Indian rupee (INR) versus USD as reflected in the 3-month USD-INR futures trading at around 65.19 constrains the price competitiveness of the Indian textile exporters.” The report also observed that the apparel exporters’ value- added garment mix, partially hedged forex exposure, debt- light structure and reasonable liquidity will support the overall business and financial risk profile.

Though the ease in liquidity in Feb/march 2017 has boosted the recovery in the production as well as the output of the export volumes, the Ind-Ra believes that the export realizations will be dented due to the strong rupee. With more than 70% of the textile & apparel exports are dominated by dollar.

According to Ind-RA; at the time when domestic prices have recovered from the negative impact of the demonetization, the high prices of cotton in addition to the increased price competitiveness of the imported fabric and yarn will surely put a pressure on the margins.

 

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