Domestic D&P industry faces challenges amid demand decline and input cost fluctuations: Report

The industry also faced significant hurdles due to volatile input costs, including raw materials, fuel, and freight, resulting in major players experiencing a moderation in total operating income (TOI) by over 5% and a contraction in operating profitability of around 400 basis points.

A multitude of factors contributed to this downturn, including high inflation across major economies, disruptions stemming from the Russia-Ukraine war, and stiff competition from low-cost Chinese products. These elements collectively impacted the industry’s performance, leading to a challenging fiscal year for major players.

Looking ahead to H1FY24, CareEdge Ratings expects that headwinds will persist, with subdued performance expected. However, a glimmer of hope shines on the horizon for H2FY24 as an anticipated revival in demand from the textile industry and stabilization of input prices could bolster the industry’s performance.

CareEdge Ratings envisions a volume-driven recovery in TOI, approaching FY22 levels, coupled with a 100 to 150 basis points expansion in operating profitability compared to FY23.

Despite the subdued performance, the solvency position of major players in the D&P industry is expected to remain relatively comfortable in FY24. This observation bodes well for their ability to manage capital expenditure and incremental working capital requirements.

“The Dye, Dye Intermediates, and Pigment industry is poised for recovery after the challenges faced in FY23. The demand from the textile industry is expected to improve in H2FY24, though H1FY24 may remain subdued. This anticipated rebound should result in moderate volume growth and a slight improvement in profitability as input costs stabilize. Further, the major players in the industry are likely to maintain comfortable debt protection metrics with controlled leverage and stable interest rates. This positions them well to handle any capital expenditure or incremental working capital requirements,” said Kalpesh Patel, Director at CareEdge Ratings.

CareEdge Ratings‘ rated portfolio revealed a moderation with the Modified Credit Ratio (MCR) declining below unity during FY23. However, the credit risk profile of major players is expected to remain stable in the near to medium term, thanks to the expected improvement in the current fiscal year. Despite this positive outlook, smaller and mid-sized industry players with a more leveraged capital structure may continue to face vulnerability amid the ongoing headwinds.

Updated: 24 Jul 2023, 06:57 PM IST