Domestic demand is expected to be stable in the industry’s second consecutive year of decline because of steady orders for bags used to store and transport grain procured by the government, while operating margin is seen down 200-250 basis points to 5 per cent due to lower exports, the domestic rating agency said.

Mandatory norms under the Jute Packaging Materials Act 1987 provide 100 per cent reservation for packaging of food grains and 20 per cent reservation for packaging of sugar in jute bags.

CRISIL predicted that credit profiles will be stable due to healthy balance sheets and little capital expenditure (capex). The agency analysed jute companies comprising 30 per cent of the sector’s revenue.

Exports, which form a third of the sector’s revenue of ₹12,000 crore, are projected to be 15 per cent lower in FY24, after falling by 8 per cent in FY23 with overseas channel partners continuing to destock amid slowdown worries in the United States and Europe, it noted.

“Weak export demand will reduce capacity utilisation of specialised looms and weigh on sales of specialised jute products such as hessian, gift articles and decorative fabrics. Hence, companies may defer capacity addition and only undertake minor maintenance capex,” Nitin Kansal, director at CRISIL Ratings, was quoted as saying by Indian media reports.

Jute companies may woo overseas customers by offering a longer credit period, which may lengthen working capital cycles from 100 days to 140 days, on average, leading to higher reliance on working capital debt, he added.

Fibre2Fashion News Desk (DS)