India’s cotton yarn sector is poised for substantial revenue growth, with Crisil Ratings forecasting a 7-9% increase in FY26.
This projection is underpinned by a rebound in exports, particularly to China, which accounts for 14% of the industry’s export revenue. Domestic demand is also a significant contributor to this growth. The Cotton Corporation of India’s (CCI) substantial cotton procurement in the 2025 cotton season will ensure stable availability, minimizing inventory losses and boosting spinners’ profitability by 50-100 basis points.
Operating margins are expected to increase, driven by stable cotton yarn spreads and better availability. The primary driver for the revenue increase in FY26 will be the recovery in yarn exports to China, which declined in FY25 due to high domestic cotton production in China. This decline resulted in a 5-7% de-growth in India’s total cotton yarn exports. However, the normalisation of China’s domestic cotton production is expected to drive a 9-11% growth in exports to China in FY26.
Credit profiles of cotton yarn spinners are expected to remain stable, supported by improved operating performance. Crisil Ratings expects the interest coverage ratio to improve to 4.5-5 times in FY26 from 4-4.5 times in FY25. Gearing is projected to remain stable at approximately 0.55-0.6 times. Capital expenditure will remain moderate, with only select players undertaking significant capex, limiting the need for substantial debt additions.
Steady cotton availability will reduce the need for significant incremental working capital financing. However, potential changes in tariffs imposed on India and competing nations, higher inflation, or slowing economic growth in the US, which could lead to a demand slowdown, and any adverse movement in domestic cotton prices compared to international prices, will need to be monitored.