Budget 2013: Scrapping of excise duty on cotton, spun yarn big positive for textile industry

Measure

The Union Budget has proposed to do away with excise duty on cotton and manmade sector (spun yarn) at the yarn, fabric and garment stages.

Impact

This should be a big positive mainly for garment-manufacturing companies. The industry has been battling weak demand for one and half years. This is reflected in the subdued financial performance of textiles companies in the last few quarters.

It is estimated that the industry’s volume growth has been subdued at 5%. Earlier there was an excise duty of 3.6% on the maximum retail price of garments. With the doing away of excise duty, it is estimated that garment-manufacturing companies would save close to 2% of their sales, which would directly translate into earnings for these companies.

Pressure on pricing of garments will be lower and garments companies may well cut prices. This will boost demand in the coming quarters. It is estimated that the demand in the entire value chain may go up by 3-4%, thereby increasing prospects of enhanced earnings.

Who will benefit

Companies such as Arvind, Mandhana Industries, TT Ltd, and Alok Industries. Beside this, the Budget has proposed to incentivise Apparel Parks by proposing the Ministry of Textiles to provide an additional grant of up to Rs10 crore to each Park. This should be positive for Alok Industries and Mandhana Industries, which have apparel parks.