Mumbai: Cotton is the basic raw material for the textile industries and its prices are influenced by both domestic and international factors particularly with the growing globalization and international trade. During October 2016 – September 2017, cotton prices witnessed volatility of 19.25% (annualised) and with physical market size of cotton estimated at around Rs. 68000 crore, the cotton industry faced annualised price risk of over Rs. 13000 crore. In order to cope up with the persistent volatility in cotton prices, India’s largest listed, integrated textile manufacturing company Vardhman Textiles Ltd. recently started hedging on Multi Commodity Exchange of India Ltd. (MCX).
Vardhman Textiles Ltd., headquartered in Ludhiana, is the flagship company of Vardhman Group. It is one of the largest textile companies in India manufacturing Cotton Yarns & Fabrics—for a range of applications, such as hand knitting yarns, machine knitting yarns, jerseys and sweaters, sarees, dress materials and carpets—with a capacity of over 1.00 million spindles, constituting more than 4% of the country’s yarn production, 1320 looms for weaving of fabrics and 180 Million Meter per annum of fabrics processing capacity. It is also the 2nd largest producer of sewing threads and the market leader in hand knitting yarn in India.
By providing an effective platform for risk management and price discovery, MCX cotton futures have been playing an immensely beneficial role for all stakeholders of the commodity ecosystem, thus enabling them to eliminate or significantly lower their price risk faced by them. MCX cotton contract has become a benchmark for the cotton industry in India, thus helping the diverse cotton trade and industry functionaries in managing price risks on their spot and forward transactions in the domestic as well as export markets.
Mr. Mrugank Paranjape, MD & CEO, MCX said, “We are glad to serve Vardhman as the platform of choice for their cotton price risk management obligations. Increased corporate participation has enhanced the quality and the process of information convergence in MCX cotton futures, thereby making it the hedging tool of choice for the cotton stakeholders in the country, besides transmitting signals to other major global markets in cotton trading.”
Mr. I. J. Dhuria, Director-Raw Materials, Vardhman Textiles Ltd. said, “MCX cotton futures contract has been gaining strength, providing us an ideal platform to hedge our inventory and raw material risks effectively. It has always been our corporate endeavour to best serve the investor interests besides strengthening our competitiveness. I am happy to note that this risk management initiative of ours will help not only convey the same through our corporate governance report but also provide for better compliance.”
India is the largest producer of cotton in the world accounting for about 27% of the world cotton production. It is also the second largest exporter of Cotton in the world. India’s cotton production is estimated at around 36.7 million bales (1 bale =170 kg) in 2017-18 as per the latest estimates of the Cotton Advisory Board. Major producing states are Gujarat, Maharashtra, Telangana and Andhra Pradesh, which together account for more than 70% of the total production in India.