Jute industry revenue likely to dip by 5-6% on weak overseas demand: Report

Mumbai: Jute industry's revenue is likely to witness a decline of 5-6 per cent in this financial year due to lower exports, a report said on Wednesday.

According to Crisil Ratings, this would be the second consecutive year of fall for Jute industry revenue, However, domestic demand is expected to be stable, it added.

Exports, which form a third of the sector's revenue of Rs 12,000 crore, are seeing a 15 per cent dip this fiscal, after falling 8 per cent last fiscal, as overseas channel partners continue to destock amid slowdown worries in the US and Europe, Crisil Ratings said in the report.

Weak overseas demand is likely to snip 5-6 per cent off revenue of the jute industry in the country this fiscal, the report added.

The US and Europe are the key export markets accounting for over 60 per cent of the total jute exports from India, it noted.

The end-use of jute in these markets is largely discretionary, the report added.

In contrast, the report stated that the domestic demand is expected to be stable because of steady orders for storage and transportation bags (made of jute) owing to higher grain procurement by the government.

The domestic market, which accounts for the balance two-third of the sector's revenue, depends on the government demand as it procures almost 80 per cent of the jute produced through nodal agencies, Crisil Ratings report noted.

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

This lends stability to demand for jute bags domestically and this trend is unlikely to change over the medium term, it said.

However, the revenue comes at a lower operating margin compared with exports.

"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.

"At the same time, companies may woo overseas customers through longer credit periods, which may lengthen working capital cycles from 100 days to 140 days, on average, leading to higher reliance on working capital debt,” Crisil Ratings Director Nitin Kansal said.

However, healthy balance sheets will ensure comfortable debt metrics, lending stability to credit profiles. Jute companies had used cash accruals from strong operating performance in fiscal 2022 to deleverage their balance sheets.

"Despite lower cash accruals and a likely increase in working capital borrowings, healthy balance sheets should keep debt metrics comfortable. Moreover, the capex outlay will be minimal and will be funded through cash accrual. Hence, credit profiles of jute companies will remain stable," Crisil Ratings Associate Director Argha Chanda added.