Positive budget measures fail to cheer textile stocks

Though the Finance Minister in the Union Budget

announced the extension of zero excise duty to textiles at the garment stage, the measures failed to lift stocks of textile companies listed today. 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, Alok Industries and Raymond fell by around 5 percent each.

The biggest measure announced yesterday that of extension of zero excise duty to textiles at the garment stage will definitely be of the benefit to garment manufacturers because the government had imposed a 10 percent excise duty on branded ready-made garments in last year’s budget, with 70 percent abatement. Now if the industry witnesses improved consumer demand and cash-flow then the zero excise duty at the garment stage would help them boost revenues and margins.

When the government announced 10 per cent excise duty on readymade garments earluer, industry players had to bear the brunt since they found it difficult to pass on the excise duty to the consumer. Increasing raw material costs had also added to their woes.

According to the statement released by India Ratings, “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.

On the other hand, extension of the Technology Upgradation Fund Scheme (TUFS) and the modernization of the power loom (large textile units) is a positive step for the overall growth of the textile industry. Under the TUFS scheme, companies undertaking capital expenditure will continue to get interest reimbursement of up to 5 percent.