Here’s why polyester yarn makers are set for another year of good news

Polyester yarn makers reported heady growth last year, albeit on a lower base, with revenue growth pegged at 60%. A mix of factors is likely to support double- digit growth in the current year and the companies in the sector are expected to see better margins, too.

Polyester yarn is used mostly in athletic and leisure wear, home textiles and garment industries. The recovery in demand from these end-user segments and multiple price hikes had led to a sharp revenue growth last year, with sales volume picking up 15%.

Demand is projected to remain healthy this fiscal year, too, with garments and home textiles segments expected to grow at 16-18% and 12-13% in the year ending March 31, 2023, respectively. Growth will be driven by recovery in domestic demand and moderate growth in exports, according to rating and research agency CRISIL.

Healthy demand from end user industries, and increased blending with cotton yarn due to decadal high prices of cotton, will drive revenue growth of 18-20% this fiscal year for polyester yarn manufacturing sector, it added.

To add icing on the cake, operating profitability of the polyester yarn segment is also expected to increase by 100 basis points to around 11% this fiscal year. This will likely be driven by continued high-capacity utilisation that is pegged at over 90% due to demand growth and healthy polyester yarn spread, or the difference between prices of polyester yarn and its raw materials.

The average spreads rose to a five-year high of around Rs 29 per kg last fiscal year from Rs 22 per kg in the previous fiscal year and should sustain at Rs 28-29 per kg this fiscal year.

While purified terephthalic acid (PTA) and mono-ethylene glycol (MEG), both crude derivatives, accounting for 80% of raw material cost for polyester yarn manufacturers, have seen prices shoot up due to supply chain issues arising from the Russia-Ukraine conflict, the companies are negotiating it well with pass-through to end users.

The polyester yarn sector will also benefit from favourable demand-supply dynamics as no large capacity addition is expected in the industry over next two fiscal years.

At the same time, the continued wide price differential between cotton yarn and polyester yarn will result in higher blending among downstream players, further spurring demand for polyester yarn.