Presentation_Shri._Mohit_shah

GLOBAL CHALLENGES & OPPORTUNITIES FOR INDIAN COTTON GILL & COMPANY PVT. LTD.

7th March 2019

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Macro Economic Uncertainty

Trade War WORLD COTTON PRICES, SUPPLY & DEMAND STUCK IN THE MIDDLE

Weakening Global Expansion Amid Growing Risks

• Global growth in 2018 close to post crisis highs, global expansion weakening,IMF projects global growth at 3.5 % in 2019.

• US expansion continues, forecast remains for deceleration & unwinding of fiscal stimulus. advanced economies, foresee growth of 2% in 2019.

• Risks for downward corrections rising – led by trade tensions, tightening financial conditions; Trade and investment slowing, does not mean staring major down turn.

Contd.

• Downwards forecasts mainly due to Euro area adding headwinds to growth. Brexitcliffhanger continues.

• Emerging economies growth projected at 4.5 % in 2019 headwinds from weaker capital flows following higher US policy rates & exchange rate depreciations, Although become less extreme.

• China’s growth slowdown could be faster if trade tensions continue, can trigger abrupt sell-offs sell in financial and commodity markets.

India Macro Economic Factors •

Still World’s fastest growing economy but growth slowing – tight financial conditions acerbated by continuing effects of demonetization, and GST bottlenecks.

•

Tight credit conditions constraining economic growth and straining balance sheets.

•

Lower inflation expectations likely to lead to lower interest rates.

•

National elections around the corner – key to policy stability and much needed reforms.

•

Crude – any price increase detrimental to growth and currency stability.

•

Weakening global capital flows a matter of concern.

•

Normal monsoons critical for India for agriculture growth, domestic consumption and lower inflation.

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Much needed policy boost required for job growth and manufacturing sector.

FIBER CONSUMPTION GLOBALLY ITS BEEN A B R A W L !

COTTON AGAINST COTTON AGAINST SYTHETICS AGAINST TEXTILES ETC.

India Fiber Consumption Trend 6 5.6

4.8

5 4.5

4

In Million Tonnes

2.9

2.9

3

1.9

2 1.6

1 0.5

0.5 0.2

0.31

0.3

0.05

0.1

1990

2000

0.1

0.15

0

Cotton

Other Natural Fibers

Source : Fiber Year Book & Internal

2010

Chemical Fibers

2017

Cellulosic Fibers

% Share of Different Fibers in Indian Fiber onsumption 8%

6%

19%

33%

1990

2000 2%

2%

71%

59%

4% 4% 35% 43% 2010 2017 2% 2.0%

59%

Source : Fiber Year Book & Internal

Cellulosic Fibers

51%

Chemical Fibers

Other Natural Fibers

Cotton

• Although cotton % share better MMF rising.

• In absolute terms, cotton consumption increasing but its share in the total fiber/filament basket declining.

• Of course (happily) cotton has done much better over the past year.

• Cotton increasingly facing competition from artificial fibres, notably polyester.

• Viscose fiber capacities also increasing.

• Continued breakthroughs in MMF performance with little to no response from cotton.

• Prices of MMF have been relatively less volatile than cotton.

• Productivity of manufacturing units higher when MMF blended with cotton.

• Easy and adequate availability of MMF all year round.

Country Wise Yield Comparison 2680 2700 2600 2500 2400

2303 2300

2270 2144

2200

2077 2000

2088

2071

1706 1758

1706 1764

2042

2100

2006

Yeld in kgs/hectares

2000

1861

1900

1785

1598

1800 1700

1601

1569

1600

1440

1465 1428

1389

1000

1508

1390 1213 1298

1282

1311

1410

1339 1300 1239

1161 931

912

911

910

748

775

771

770

761

742

972

939

921

886

871 795

1014

999

985

900 800

1479

1347

1200 1100

1581

1414

1400 1300

1629

1545

1487 1500

1553

964

859 778

801

773

772

809

789

693 700 600 500

521

554

581 524

472

503

522

2009

2010

512

525

2011

2012

511

541

519

482

489

400 300 2005

2006

2007

2008

2013

2014

Source: ICAC India

China

USA

Australia

Brazil

World

2015

2016

2017

2018

Cotton Yield Struggles •

Although yields increased over a decade, but long-term long trend worrisome.

•

Still well below world average.

•

We can blame weather or blame inter-crop inter competition.

•

But assigning blame misses the point need to identify what’s going on in the farm.

•

Predominance of rain-fed fed area major hindrance.

•

Almost 60% of area rain-fed fed exposing productivity to monsoon vagaries.

•

Lack of irrigation facilities BUT Tremendous Scope to increase.

•

High Density planting system needed to achieve higher yields.

•

Need better seeds to address both Quality/Yield.

•

Joint efforts & research involving private & public sector needed to find quick solution.

•

To meet current demand & address demand growth for the future value chain.

And yes, the Indian bale does sell..

But, it’s good to see the mirror some times

And there are some concerns‌

Indian Cotton - Positives • Hand Picked, Spinning value better due to manual harvesting, gentle processing minimizes damage to fiber.

• Less Short fibers & Neps formation as Roller Ginning.

• Only Country producing all kinds of cotton for spinning with a wide range of counts from 10s to 100s.

• Improvement seen in Ginning process.

• Improvement in level of contamination.

• Geographical proximity advantageous in transit cost and time.

Indian Cotton--Challenges 1.

Continuous Improvement in ginning.

2.

Bale Identification System & data management.

3.

High Moisture Content.

4.

Improve Bale Packaging.

5.

Branding of Indian Cotton.

6.

High inland costs.

7.

Problem of admixtures: Makes grading & testing difficult. Mills compelled to engage expensive bale management to maintain yarn quality.

8.

Contamination levels twin problem – Discounted value for supply chain & textile industry keeps discounting to other origins.

BUT, I DO HAVE A WORRY…

LET’S TAKE A CLOSER LOOK…

VALUE 2011 VALUE 2015

VALUE 2019

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Globally demand / Preference increasing for High Grade Machine picked contamination free cotton.

•

Indian Bale competes with such origins US / Brazilian / Australian in export market.

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Perceptions do vary But over years seen value of Indian Bale erode.

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Basis levels and comparative spreads widening between Indian and other Origins.

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Value than 3 cent discount to US 2 cent discount to Brazilian Par to WAF

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As Indian Textile Industry maturing.

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Seeing a shift to these cottons paying similar premium to above origins during buying decisions.

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Similar to what we see in the export Market today.

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Other origins working hard to improve fiber characteristics, we are going backwards as our parameters are deteriorating.

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The issues plaguing us 10 years back still continue to haunt us.

Value now 5 to 6 cents to US 3 to 4 cents to Brazilian 2 to 4 cents to WAF

THANK YOU