Hosiery sector revenue to grow 10-12% in FY24

The projected growth in volume is expected to compensate for a 1-2 per cent decline in average sales realisation due to reduced selling prices aimed at clearing year-end inventory.

A Crisil Ratings analysis of 30 hosiery manufacturers, representing approximately one-third of the industry by revenue, suggests that Indian hosiery makers are set to witness a 10-12 per cent year-on-year revenue growth this fiscal. This increase is attributed to a revival in rural demand, strong volume support from the export market, and robust modern trade sales.

The projected growth in volume is expected to compensate for a 1-2 per cent decline in average sales realisation due to reduced selling prices aimed at clearing year-end inventory, following weaker demand from channel partners in the previous fiscal. The industry’s operating margin is anticipated to improve by 150-200 basis points (bps), driven by lower input costs and better capacity utilisation enabled by higher volumes.

Argha Chanda, Director of CRISIL Ratings, explained that the anticipated revenue growth will be largely supported by rural sales, which account for nearly half of the domestic revenue. He noted that factors such as increased agricultural output due to an above-average monsoon, a rise in the minimum support price, and enhanced government spending on rural infrastructure will bolster rural spending. Additionally, higher exports to the Middle East and North Africa, along with urban demand growth fuelled by expanding modern trade, are expected to further support volume growth.

The hosiery industry typically experiences a surge in volumes towards the fiscal year-end, as channel partners stock up to meet peak summer demand. However, the previous year-end saw lower stocking levels due to falling yarn prices and expectations of reduced product realisation. This fiscal, the stabilisation of yarn prices and a marginal dip in selling prices have rekindled demand from channel partners.

In response to strong demand, hosiery manufacturers are expected to limit their advertising and marketing expenses. Increased operating leverage from higher capacity utilisation is likely to boost operating margins by 150-200 bps, reaching 11.5-12 per cent this fiscal. This improvement is expected to translate into higher cash accruals.

Improved cash generation and shorter inventory holding periods are anticipated to reduce working capital requirements, enhancing liquidity. With moderate capacity utilisation and no significant expansion plans, long-term borrowings and financing costs should remain under control.

Vishnu Sinha, Team Leader at CRISIL Ratings, highlighted that inventory holding is expected to decline to a historical low of 90-100 days this fiscal, compared to 150 days in fiscal 2024. This reduction, coupled with limited debt-funded capital expenditure, is likely to keep debt levels stable. Furthermore, the ratio of total outside liabilities to tangible net worth is projected to remain below 1, consistent with last fiscal. Improved operational performance is expected to raise the interest coverage ratio to approximately 6.5 times this fiscal from 4.5 times previously.

Nevertheless, the report underscores the need to monitor key factors such as the impact of inflation, the stability of farm incomes in the rural economy, and the performance of exports and modern trade, which are crucial for achieving sustained volume and margin growth.