Domestic demand for readymade garments has been severely impacted due to curbs imposed by States to contain the pandemic lowering the growth forecast of the sector for this fiscal.

According to Crisil Ratings, the readymade garment sector is expected to witness a growth in the range of 15-20 per cent compared to the earlier anticipated 28-33 per cent pushing back achieving pre-pandemic levels by nearly a fiscal year.

“But higher revenues this fiscal, supported by buoyant export demand, higher profitability and improving working capital management will benefit credit profiles, an analysis of over 140 Crisil-rated RMG makers with aggregate revenue of estimated ₹20,000 crore, shows,” it added.

Lockdown impact

While in the second half of last fiscal, domestic demand, which accounts for 74 per cent of overall demand, had begun witnessing recovery, but with curbs being re-imposed the demand recovery has slowed down.

Hetal Gandhi, Director, Crisil Research, said, “The first quarter of this fiscal will be a near-washout, with most domestic brick-and-mortar stores shut, and sales through e-commerce channels curbed. The second wave has also hit the hinterland, affecting sales of ‘value’ or affordable garments, which is the fastest-growing segment. Thankfully, with vaccinations accelerating and case-loads decelerating, a gradual recovery is likely from the second quarter. Consequently, we see domestic sales growing 14-18 per cent this fiscal compared with a 24 per cent contraction last fiscal.”

At the same time, export demand, which accounts for 26 per cent of the revenue pie, has remained buoyant. Exports of readymade garments are expected to see growth in the range of 18-22 per cent compared with a 16 per cent contraction last fiscal, because of improving discretionary spending in the US and Europe, the ratings agency added. Therefore, overall growth outlook for the sector is estimated to be in the range of 15-20 per cent.

Travel expenditure

Reduction in promotion and travel expenditure is expected to improve operating profitability by 75-100 basis points (bps) on-year to 5.5-6 per cent this fiscal. But that will still be lower than the 8-9 per cent seen between fiscals 2016 and 2019, it added.

“The working capital position of RMG makers is also expected to rebound close to pre-pandemic levels this fiscal, helped by prudent inventory management and normalisation of the debtor cycle,” the report added.

Kiran Kavala, Associate Director, Crisil Ratings, added, “Any extension of lockdown beyond the first quarter will impact domestic ready-made garment sales, while resurgence of infections in key export markets will bear watching.”

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