Companies, which are majorly into yarn manufacturing and selling, look set to go places in the coming days. But before dwelling on the why and wherefore of this statement, let''s take a look at the background.

The government of India through its Budgets 2002-03 and 2003-04 brought  all the players, both small and big, under the excise duty net. Thus, all players were set to pay excise duties henceforth. This has set forth a chain reaction in the textile industry, which will ultimately (i) bring all textile units under the excise duty net and (ii) not let smaller units, which have been evading excise duty till now, hold the bigger units to ransom by being able to sell their output at lower costs.

Bigger yarn units in the organised sector had to pay excise duty at 12% compared to smaller units which were kept out of the ambit of excise duty, thus rendering the produce of the bigger units more expensive and consequently less competitive. Post-Budget 2003-04, the 12% excise duty imposed on the bigger yarn players, were brought down to 8% and small units which did not pay excise duty now have to pay 8% excise duty.)

But the above action of the government was not taken very kindly by the powerful powerloom industry in the country. They went on a prolonged strike. This strike however, has now fizzled out with the government refusing to be cowed down. Thus, the powerloom sector is now getting back into production mode. An increasing number of players is registering with the excise authorities  and therefore offtake of yarn and production of fabric are set to increase, going forward.

That the reforms were bearing fruit became evident when for the first time in decades, organised mill produce actually became a little cheaper than powerloom produce (by about Rs 2 per sq meter). This really hurt the powerloom players who, till now, were enjoying (by remaining outside the excise net) at the expense of the big mills.

This trend is very healthy for the overall growth of the industry in the global context, for, it is only the large, integrated and organised sectors mills that can manufacture massive quantities of high quality fabrics for world markets and not the small, scattered units. Therefore, it was essential for the government to encourage as well as make viable the larger units, and which it has done now.

To get back to the yarn story, due to the strike by the powerloom players as well as the transport strike in Tamil Nadu, offtake of yarn by powerlooms (which then produce fabric with this yarn) was negatively affected. This created a fall in prices of yarn. Says Mr D K Nair, Secretary General, The Indian Cotton Mills Federation, "This was an aberration and does not reflect the reality of the situation."

But this is set to change and is in fact now changing. With offtake of yarn increasing, prices too are to move in that direction. Says Mr Nair, "One should see a healthy rise in prices of yarn, with the powerloom sector strike fizzling out and demand from that sector increasing. This should prop up the fortunes of yarn making entities, going forward."

In a study done by IG, we found that a large number of companies which are majorly into yarn manufacturing, have done commendably well for the year ending March 31, 2003. Though numbers for the quarter ended June 2003 may not be sharply up due to the transport strike and powerloom units strike, going forward, the fortunes of companies engaged in yarn business (manufacture and sales) will shine brightly, for there are no negatives to the overall picture.

We bring you some companies, which have done well financially, paid healthy dividends, and look set to post better results, going forward.

The companies are Hanil Era Textiles, Ginni Filaments, Kandagiri Spinning, Sambandam Spinning, Cheslind Textiles, Patspin and GTN Textiles.