West Asia Conflict Adds Cost Pressure On India’s Textile Sector: Crisil
The ongoing conflict in West Asia is expected to increase cost pressures for India’s textile and readymade garment sectors, with higher fuel prices, freight costs and supply-chain disruptions likely to impact profitability, according to a recent report by Crisil Ratings.
The agency noted that crude-linked segments, particularly polyester textiles, could face significant pressure on operating margins as rising raw material costs may only be partially passed on to consumers and with a time lag.
As part of its stress analysis across 34 sectors representing nearly 65% of rated corporate debt, Crisil assumed supply-chain disruptions would persist for nine months during the current fiscal, with crude oil averaging US$110 per barrel, against its base-case estimate of US$95 per barrel.
Under this scenario, corporate operating profitability could decline by nearly 200 basis points from earlier expectations of around 12%.
Subodh Rai, MD, Crisil Ratings said cost management is likely to emerge as a bigger challenge for companies than topline growth, adding that several sectors may witness a double-digit decline in operating profitability due to rising inventory costs and delayed pricing pass-through.
Despite these pressures, Crisil maintained that India Inc’s overall credit quality remains stable, supported by healthy balance sheets, lower leverage and resilient domestic demand.
The report added that export-driven sectors such as textiles and garments could see some relief from rupee depreciation, which may partly offset margin pressures.
According to Crisil, the median gearing ratio of Indian corporates has improved significantly over the past decade, while stronger interest coverage levels have enhanced resilience against external shocks.
The agency also highlighted that policy support measures for MSMEs could provide a cushion for smaller businesses, which remain more exposed to prolonged disruptions.
Somasekhar Vemuri said while the outlook for corporate credit quality remains stable, a prolonged conflict could intensify inflationary pressures and further impact profitability across sectors.
