Mumbai, 9th November: As per the recent report, CareEdge Ratings expects the growth momentum for D&P (the domestic dye, dye intermediates, and pigment) players to continue with volume backed recovery of over 10% in top line, and improvement of 150-200 bps in the operating profitability largely led by improvement in gross margin for FY25.
India is one of the leading global suppliers of D&P with ~10% share by value in the global industry. Within the total D&P industry, dye and dye intermediates constitute ~75-80%, with their major (over 70%) end-use application being in textile. Also, the industry highly depends on imports, majorly from China, which has over 50% share in overall imports.
Following a slowdown in FY23, the D&P industry showed signs of recovery in FY24, aligning with CARE Ratings’ expectations. The industry saw a revival in sales volume, ranging from 5-10%, and ~100 bps improvement in operating profitability in FY24. While volumes improved across D&P players due to improvement in demand from major consumption industries and softening input prices, margin improvements were primarily observed by pigment players. CARE Ratings had envisaged a 5-7% volume growth and a 100-150 bps recovery in PBILDT margin, supported by restocking of inventory by textile channel partners, softening cotton & crude oil prices and onset of festive season.
In FY23, the D&P industry faced a demand slowdown from the end-user industries such as textiles, plastic and coating. This was due to high inflation across major consumption economies and sharp fluctuation in input costs. Major industry players saw over 5% moderation in top line and contraction of ~500 bps in their operating profitability.
“The Dye, Dye Intermediates, and Pigment industry is on path of recovery after challenges faced in FY23 and FY24. As envisaged, demand from major end-use industries including textile improved in later part of FY24 and is expected to further recover in FY25. This should result in moderate volume driven growth in top line with improvement in profitability across industry players as input costs stabilise.” said Anuja Parikh, Associate Director at CARE Ratings.
Recovery to continue in FY25; exports revival visible
The exports volume of D&P from India significantly moderated in FY23 and 4MFY24. Post this period, uptick was witnessed in demand, resulting in a 9% y-o-y volume growth for full year FY24 (despite moderation in 4MFY24). This momentum continued in 4MFY25, resulting in a 15% y-o-y volume growth. Despite volume growth, exports registered a degrowth of 8% value wise in FY24, owing to moderation in prices. However, in 4MFY25, there was growth in both the value and volume of exports (value increased by 13% y-o-y), indicating stabilisation of product prices.
For FY25, CARE Ratings expects sales volume growth to continue, with an overall improvement of over 10% in top line of players, supported by stabilisation of product and input prices. This is also expected to result in 150-200 bps improvement in PBILDT margin, largely driven by expansion in the gross margin. Tailwinds such as easing inflationary pressure in major consumption economies, interest rate cuts, continued moderate cotton & crude oil prices, and inventory restocking by textile channel partners are expected to drive this growth. However, factors such as freight rates movements, container availability and ongoing geopolitical unrest shall play a key role in determining sales growth and profitability.
In line with CARE Ratings’ view, major players in the D&P industry continued to operate with a comfortable leverage of 0.3x as on FY24 end, and healthy interest coverage of over 6x. While some debt-funded capex is being undertaken by a few players in FY25, still the leverage is expected to remain comfortable below 0.3x at the end of FY25 and sustenance of interest coverage of over 6x, with better profitability.
“Modified Credit Ratio (MCR) of CARE Ratings’ rated portfolio, though improved marginally from FY23, remained below unity in FY24. While the credit risk profile of majority players with a diversified product portfolio remained resilient, that of a few mid-sized players having a concentrated product basket and recently added capacities were impacted; leading to rating downgrades. With further industry-wide recovery expected in FY25, performance of majority players is poised to improve, which shall also lead to a gradual improvement in MCR,” added Anuja Parikh, Associate Director at CARE Ratings.