According to a report released on Friday by Crisil Ratings, manufacturers of ready-made garments are expected to witness an 8-10 per cent increase in revenue due to surging domestic demand and the resurgence of exports. These positive trends have been fuelled by lower cotton prices and the gradual stabilization of supply chains.
The report highlighted a significant surge in volume growth, projected at 6-8 per cent for this fiscal year, compared to the previous year’s 3-5 per cent. However, despite this uptick in volume, revenue growth is anticipated to be slower than the previous fiscal year’s 14 per cent. This is primarily due to the moderation in realizations resulting from the easing of raw material prices.
Crisil Ratings stated that cotton prices are expected to decrease by 15-17 per cent, and man-made fiber prices are projected to drop by 8-10 per cent in this fiscal year. Consequently, the growth in realizations is estimated to be modest, ranging from 1-3 per cent, in contrast to the 10 per cent witnessed last year.
Gautam Shahi, Director at Crisil Ratings, said “Readymade garment manufacturer makers will rely on domestic consumption (75 per cent of the overall demand), which is expected to grow 6- 8 per cent in volume terms this fiscal.”
“The volume of exports (25 per cent) will grow 4-6 per cent this fiscal year-onyear on a low base, led by re-stocking by global retailers, softer prices of cotton (the key raw material) and a slow but gradual pick-up in consumption in overseas markets.”
The report indicated that the credit outlook for ready-made garment manufacturers remains stable, supported by consistent operational performance, robust balance sheets, low capital expenditure, and stable working capital requirements.
Operating margins are forecasted to expand by 50 basis points (bps) year-on-year, reaching 9.5 per cent, mainly due to increased domestic and export volume and reduced cotton prices. In contrast, the previous fiscal year witnessed a 150 bps contraction in operating margins, attributed to high cotton prices, delayed price adjustments in the domestic market, and decreased offtake by global retailers amid excess inventory.