This surge in demand and exports is attributed to reduced cotton prices and improvements in supply-chain disruptions, as per a report by Crisil Ratings.
Readymade garment manufacturers are expected to see a 8-10 per cent increase in revenue due to growing domestic demand and the recovery of exports. This surge in demand and exports is attributed to reduced cotton prices and improvements in supply-chain disruptions, as per a report by Crisil Ratings.
The report projected a higher volume growth of 6-8 per cent in the current fiscal year, compared to the previous year’s 3-5 per cent. However, it noted that the revenue growth would be slower than the 14 per cent recorded in the last fiscal year due to the moderation in realisations caused by decreasing raw material prices.
Crisil Ratings anticipated a decline of 15-17 per cent in cotton prices and 8-10 per cent in man-made fibre prices for this fiscal year. Consequently, the growth in realisations was forecasted to be only 1-3 per cent, a significant drop from the 10 per cent of the previous year, according to the rating agency.
Gautam Shahi, Director at Crisil Ratings, mentioned that readymade garment manufacturers would primarily depend on domestic consumption, which accounted for 75 per cent of the overall demand. It was expected to grow by 6-8 per cent in volume terms in the current fiscal year. Additionally, the volume of exports, constituting 25 per cent of the demand, was projected to grow by 4-6 per cent year-on-year due to restocking by global retailers, lower cotton prices, and gradual consumption recovery in overseas markets.
The report also highlighted the stable credit outlook for readymade garment manufacturers, driven by consistent operating performance and healthier balance sheets. This stability was attributed to low capital expenditure and a stable working capital requirement.
In the previous fiscal year, the volume of exports had decreased by 7 per cent year-on-year due to high domestic cotton prices and reduced demand from major markets like the US and the European Union, which accounted for 60 per cent of shipments. However, in the current fiscal year, higher domestic and export volumes along with lower cotton prices were expected to expand operating margins by 50 basis points to 9.5 per cent year-on-year. This contrasted with the 150 basis points shrinkage in operating margins in the last fiscal year, which was caused by elevated cotton prices, delayed price hikes in the domestic market, and reduced purchases by global retailers due to inventory pile-up.