New Delhi [India], April 3 (ANI): Following the tepid demand environment in the financial year 2024, Investment Information and Credit Rating Agency of India Limited (ICRA) expects a muted 8-9 per cent recovery in revenues of its sample companies to Rs 28,150 crore in the financial year 2025 from Rs 26,000 crore the year before, benefiting from the low base and replenishment of stock in the US and EU regions.
The retail apparel brands in the United States and the European Union, which together account for close to 55 per cent of global apparel trade, are expected to liquidate the high inventory build-up and book their orders for the Summer 2024 season in the first half of FY2025.
ICRA’s outlook for the apparel industry remains stable.
Commenting on this, Priyesh Ruparelia, Vice President and Co-Group Head, Corporate Sector Ratings, ICRA, said, “After a nominal decline in revenues in FY2024, ICRA expects the apparel-exporting companies to report a recovery in FY2025 on a lower base, with replenishment of stock in the US and EU regions. Despite a rationalisation in raw material costs in FY2024, the benefit is expected to be passed on to the end-users, considering a weak operating environment at present.”
“The long-term growth prospects look encouraging, with the Government of India’s various promotional steps, including the PLI schemes, the PM Mitra parks, the proposed FTAs with the UK and the EU and the longer-term benefit of the China Plus One shift in apparel sourcing,” he added.
Despite the ongoing Red Sea conflict, no immediate cost implications are being felt by apparel exporters operating on a FOB basis, except for their shipments getting delayed by 15 days from their original transit time.
Any sustained continuance of this face-off would have a direct impact on apparel export volumes and their realisations due to higher costs for the customers.
A difficult operating environment had pushed back large capex investments for most players. However, based on an expectation of demand revival in FY2025 and the industry players’ strategies to take advantage of the China Plus One movement, ICRA expects a pick-up in capex spending in FY2025.
Out of the approved 64 applicants for the PLI 1.0 scheme in April 2022, 56 completed the mandatory criteria for the formation of a new company and approval letters have been issued. Twelve more applications are under evaluation at present, for the selection of investors under the scheme.
Investment of Rs 2,119 crore by 30 selected applicants has been made till September 2023. In addition to the fresh capacity additions under the PLI, the PM Mega Integrated Textile Region and Apparel (MITRA) schemes will strengthen India’s presence in the global apparel trade, by providing scale benefits and strengthening the country’s presence in the MMF value chain.
ICRA also anticipates the culmination of these schemes to enable the Indian apparel exporters to capture a greater share of the Chinese apparel export market.
The rating agency estimates its sample companies to report a mild 5-6 per cent year-on-year dip in revenues to Rs 26,000 crores for FY2024.
Despite US apparel imports declining by 22 per cent in the calendar year 2023, their retail clothing store sales remained resilient, registering a 4 per cent YoY growth, with retailers unwinding their excess inventory position.
Amidst no major debt addition, the coverage ratios of the sample set are expected to marginally moderate as earnings weaken.
ICRA’s sample set of apparel-exporting companies is likely to report an interesting cover of 5.6-5.8 times and total debt/OPBDITA of 1.8-1.9 times in FY2024 and FY2025, respectively (as compared to around 6.3 times and around 1.5 times, respectively, in FY2023).
The operating margins of apparel exporters may moderate to 9.8-10 per cent in FY2024 (11.3 per cent in FY2023), on relatively weaker operating performance in 9 months FY2024 and contraction in volumes leading to a decline in operational efficiencies.
Indian cotton yarn prices had averaged approx. 23 per cent lower in 9 months FY2024 compared to FY2023 and 1 per cent lower than the past five-year average.
Despite moderation in cotton yarn prices, the same is getting passed on to the customers owing to a weak demand environment. Nevertheless, the stability of export incentives, together with the benefits of higher scale, should help the companies cushion the impact on profitability in FY2025. (ANI)
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