CRISIL Research has said in its report that with the second wave of the COVID-19 pandemic derailing demand recovery in India’s apparel industry, the sector is expected to grow by 15-20 per cent this financial year.
That will be almost half the 28-33 per cent expected earlier, says CRISIL.
The export demand, which accounts for 26 per cent of the revenue pie, has remained healthy, and should log 18-22 per cent growth compared with a 16 per cent contraction last fiscal, because of improving discretionary spending in the US and Europe, which account for 60 per cent of India’s apparel exports, said the report.
According to the report, domestic demand has been severely affected by fresh curbs imposed in states to contain the pandemic. It is pertinent to mention here that domestic demand accounts for 74 per cent of overall demand.
Consequently, demand recovery to pre-pandemic levels is expected to be pushed back by at least a fiscal year, it noted.
But the positive aspect is that higher revenues this fiscal, supported by buoyant export demand, higher profitability and improving working capital management are likely to benefit credit profiles of the companies.
The report noted that this revenue growth would come on a low base – after an expected tumble of 23-25 per cent last fiscal.
The domestic demand had started recovering in the second half of last fiscal after lockdowns and other restrictions, which crimped first-half revenue. However, since the fierce second wave landed in the first quarter of this fiscal, curbs have been re-imposed, slowing the demand recovery.
The working capital position of apparel manufacturers is also expected to rebound close to pre-pandemic levels this fiscal, helped by prudent inventory management and normalisation of the debtor cycle, it added.
Hetal Gandhi, Research Director, CRISIL said, “The first quarter of this fiscal will be a near-washout, with most domestic bricks-and-mortar stores shut, and sales through e-commerce channels curbed. The second wave has also hit the hinterland, affecting sales of ‘value’ or affordable garments, which is the fastest-growing segment. Thankfully, with vaccinations accelerating and case-loads decelerating, a gradual recovery is likely from the second quarter.”
She further added, consequently, we see domestic sales growing 14-18 per cent this fiscal compared with a 24 per cent contraction last fiscal.