Ready-made garment makers will report a 16-18% increase in revenue this fiscal year
NEW DELHI: Supply chain disruptions in markets such as Sri Lanka, which has been reeling from a severe economic crisis, and China, which faces severe pandemic-induced lockdowns, could benefit Indian manufacturers of ready-to-wear clothing that could see their income increase.
Revenues for those makers could rise 16-18% this fiscal year, ratings firm Crisil said in a report on Wednesday. Moreover, with the normalization of domestic demand and discretionary spending, companies could benefit from an increase in clothing sales.
“Normalization of discretionary spending, higher achievements and sustained export demand, due to higher opportunities following supply chain issues in Sri Lanka and China, will boost apparel manufacturers’ revenues by ready-to-wear (RMG) by 16-18% this fiscal year,” Crisil said in an industry report.
Manufacturers would report this growth on a strong prior year base.
Apparel demand as well as apparel exports fell in FY21 as the pandemic spread, suspending production and prompting brands to reduce orders.
Anuj Sethi, senior director of Crisil Ratings, said domestic demand, which accounts for three-quarters of overall RMG demand, is expected to increase by more than 20%. This was due to the recovery of discretionary spending and improved realizations amid soaring commodity prices.
Meanwhile, export demand is expected to grow by at least 12-15%, despite last year’s higher base, as foreign players continue to diversify their supplier base in light of the economic crisis in Sri Lanka. Lanka and a further rise in covid cases in China, which has disrupted supply chains, Sethi said.
Textile and clothing shipments account for almost half of Sri Lanka’s exports, but the economic crisis has put a strain on its overseas sales.
Mint had reported that Indian garment exporters had started receiving orders from the UK, European Union and even Latin American countries following the unrest in Sri Lanka.
Crisil also sees improvement in operating margin for apparel manufacturers which it says could rise 75 to 100 basis points year-over-year to 7.5% at 8, 0% during this fiscal year. These will still be below pre-pandemic levels of 8% to 9%.
“Profitability will be supported by partial pass-through of higher input prices and better operating leverage. Furthermore, the depreciation of the rupee and the continuation of export-related incentive programs will be additional benefits for export players on the road ahead,” he said.
Crisil analyzed data from 140 ready-to-wear manufacturers with cumulative revenues of ₹20,000 crores.
The ratings firm, however, flagged commodity inflation, including a rise in cotton yarn and synthetic fiber prices, and said apparel makers could partially pass on input price increases.
“Any new wave of the pandemic or shift in customer adoption in light of rising commodity prices will remain key things to watch,” the analysts said in the report.