CRISIL Ratings: Red Sea crisis may not immediately hit Indian textile businesses

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Indian businesses in the textile and chemicals sectors may not be immediately affected due to the ongoing crisis around the Red Sea because of either better ability to pass on higher costs or a weaker trade cycle, according to Indian rating agency CRISIL Ratings.

As for home textiles (three-fourths of the production in India is exported, primarily to these regions), their mid-teen margins can absorb higher freight rates for some time, CRISIL observed in a credit alert.

Similarly, in chemicals (25-30 per cent of the revenue of agrochemicals and specialty chemicals makers comes from these regions), exports may be less affected given sufficient channel inventories and subdued near-term demand scenario. But a sustained disruption of trade channels could dent operating profits and crank up working capital needs in this sector, it noted.

Crude oil may also be less hit as only 10 per cent of the global oil trade is through the Red Sea route and the current disruptions have had a limited impact on prices. Also, India sources a major part of its requirement from the Middle East and Russia, largely shipped via the Persian Gulf.

A few sectors like shipping and freight forwarders could benefit from rising freight rates.

While the immediate impact of the crisis would be low for most of India Inc, a prolonged strife can affect the profitability and working capital cycle of export-oriented industries. Supply chain issues could also intensify, curbing trade volume and renewing inflationary pressures, it added.

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