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High domestic demand and spurt in exports are expected to boost readymade garment companies’ revenues this calendar year.
Domestic sales, which account for 80 per cent of the sector’s revenue, logged a compound annual growth rate of 9.6 per cent in the last five years to ₹4.83 lakh crore.
The growth is set to increase to 10-10.5 per cent this year, due to an increase in reach of both organised retail and brands in tier-II and -III cities and rising growth of value apparel retail segment.
A rebound in export growth to 7-8 per cent this year after a de-growth of one and two per cent, respectively in the last two years, will complement the domestic demand.
In the first 6 months of this year, garment exports were up over 10 per cent. Exports will benefit from a likely rupee depreciation, partial restoration of export incentives and revival of demand in the UAE, the third-largest exports destination after the US and the European Union.
Exports to UAE, which account for 12 per cent of total Indian garment exports, are slated to recover after a significant drop in last two years.
The export incentives restored include an increase in rebate of State and Central taxes and levies by almost 200 bps in March, addition of merchant exporters in the interest equalisation scheme for pre- and post-shipment export credit and a 200 bps increase in the rebate offered to micro, small and medium enterprises under IES.
Crisil Ratings expects revenue growth of readymade garment makers to increase 300 basis points to 10 per cent this year, against 7 per cent logged last year.
Anuj Sethi, Senior Director, Crisil Ratings, said operating profit of garment firms focusing on domestic market is expected to remain stable at 10-11 per cent, whereas that of exporters, who will benefit from incentives, is likely to improve another 50-100 bps this fiscal, on top of the 100-120 bps increase seen last fiscal.
“Higher cash accrual, along with stable working capital requirement and prudent capital spending, will lead to a gradual recovery in credit metrics this year,” said Gautam Shahi, Director, Crisil Ratings.
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