Sops for textile manufacturers fail to lift stocks
A big surprise was the extension of zero excise duty to textiles at the garment stage
Textile stocks gave up all the gains made earlier in the day and ended in the red as the measures announced for the sector were more or less on expected lines. Arvind Ltd, Alok Industries Ltd and Raymond Ltd fell by around 5% each.
A big surprise was the extension of zero excise duty to textiles at the garment stage. Garment-makers will benefit because the government had imposed a 12% excise duty on branded ready-made garments in last year’s budget, with 70% abatement.
Tanu Sharma, associate director, India Ratings and Research, said, “zero excise duty at the garment stage should boost revenue and margins of textile makers if demand and cash flows improve".
Further, an impetus to ready-made garments will see the benefits trickle down to cotton yarn, too, helping spinning mills in the process.
Ready-made garment manufacturers were finding it difficult to pass on the excise duty due to tepid demand and high competition.
Analysts said textile manufacturers will not gain much if they pass on the excise duty benefit. India Ratings, in a note, said, “The measures are unlikely to reflect a change in India Ratings’ outlook on the textile sector, which is negative to stable on account of broader concerns over volatility in raw material prices and sluggish export demand."
The industry was expecting an increase in customs duty on polyester products such as filament and yarn, which did not happen, and that could be a negative for domestic polyester manufacturers.
The extension of the Technology Upgradation Fund Scheme (TUFS) and the modernization of the power loom (large textile units) is a positive for the overall growth of the textile industry, especially for manufacturers that are planning for capital expansion.
Under the TUFS scheme, companies undertaking capital expenditure will continue to get interest reimbursement of up to 5%. Apparel makers will benefit from incentives to set up apparel parks under the scheme of integrated textile parks.
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