RTTNews - India's textile is vulnerable to downturn as it is heavily reliant on exports that was hit by the global recession said Fitch Ratings in a research report. In a separate report, the rating agency said it maintains its stable outlook on the Indian telecom sector, citing strong wireless subscriber addition.
Fitch said that the credit quality of the textile companies have been badly hit since the financial year 2009. Cotton prices and power costs along with the rupee appreciation impacted exports adversely. However, domestic demand is likely to have recovered, registering positive year-over-year growth, although margins suffered.
The agency expects weak earnings from the sector in FY10, while at the same time, it expressed concerns over the strained coverage ratios and high leverage indicators of textile companies. The subsidy that was recently released by the government could ease liquidity pressures depending upon the actual funds tied up in TUFS by different companies.
Notwithstanding its stable outlook on the telecom sector , Fitch expects profitability of the sector to suffer due to network expansion costs, stiff competition and regulatory pressures.
Falling tariffs and reduced mobile termination charges have resulted in high competition among the players. The proposed auction of 3G licenses and the introduction of mobile number portability (MNP) are also likely to increase competitive intensity. However, the agency believes that new operators could find it hard to get a considerable market share in the jammed wireless market. Of late major telecom operators have started de-merger of tower assets into joint ventures and subsidiaries and leasing assets to other operators.
Fitch noted that the revenue growth of private telecom players was affected due to falling average revenue per user (ARPU) and rising expenditure on subscriber acquisition and retention cost. As for state run telecom players like BSNL and MTNL, revenues declined as a result of reduced fixed line subscribers and falling wireless ARPUs, which have offset the marginal increase in subscriber base.
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