The political upheaval in neighbouring Bangladesh can have “small but negligible negative impact” on cotton yarn, power, footwear, soft luggage and fast-moving consumer goods (FMCG) sectors while ship breaking, jute, readymade garments (RMG) should benefit, CRISIL Ratings said in a study adding for most other sectors, the impact would be insignificant.
Stating that developments in Bangladesh have not had a significant impact on India’s trade and going forward, it said it does not foresee any near-term impact on the credit quality of India Inc either.
However, a prolonged disruption can affect the revenue profiles and working capital cycles of some export-oriented industries for which Bangladesh is either a demand centre or a production hub, it added. Besides this one has to keep a watch on Bangladeshi currency taka.
Highlighting that India’s trade with Bangladesh is relatively low, accounting for 2.5% of its total exports and 0.3% of total imports last fiscal, CRISIL said merchandise exports mainly comprise cotton and cotton yarn, petroleum products, electric energy, while imports largely consist of vegetable fat oils, marine products and apparel.
“For cotton yarn players, Bangladesh accounts for 8-10% of sales, so the revenue profile of major exporters could be affected. Their ability to compensate sales in other geographies will be an important monitorable,” it said.
“Their operating profit margins, however, may not be significantly impacted because cotton-yarn spreads are already modest at present,” it added.
Pointing out that companies into footwear, FMCG and soft luggage could see some impact because of manufacturing facilities located in Bangladesh, the rating agency said these facilities faced operational challenges during the initial phase of the crisis.
“However most have since commenced operations, though a full ramp-up and the ability to maintain their supply chain will be critical,” it said.
Engineering, procurement and construction companies engaged in power and other projects in Bangladesh could see execution delays and companies supplying electricity could see delayed payment of dues, it said.
On the other hand, companies in the ship breaking, jute and RMG sectors are seeing an increase in sales inquiries from key export destinations such as the US and Europe, it added.
Published - September 17, 2024 09:13 pm IST
