Jute Manufacturers in India Face Profit Decline Due to Wage Hikes and Low Export Demand

Jute manufacturers in India are expected to see a 50 basis point decline in operating margins for the financial year 2024-25, according to Crisil. This is due to wage hikes for workers in West Bengal and subdued demand from export markets like the US and Europe. Despite this, the credit profiles of these companies will remain stable due to strong government procurement and healthy balance sheets.

Wage Hikes and Export Demand

The wages of jute mill workers in West Bengal, which produces almost 80% of India’s jute products, have been raised following an agreement between the state government, mill owners, and trade unions. The wage bill is expected to increase by 5-6% annually. Demand from the US and Europe, which account for over 60% of exports, will remain subdued.

Impact on Profitability

Rahul Guha, Director at Crisil Ratings, stated that the impact of wage hikes on operating profitability will be limited due to strong demand from government agencies. However, operating margins are expected to fall by 50 basis points this fiscal year.

Credit Profiles and Debt

Argha Chanda, another Director at Crisil Ratings, mentioned that minimal capital expenditure will mean limited long-term debt addition for the industry. However, reliance on working capital debt will increase as working capital cycles will be stretched to nearly 150 days.