Inventories at textile mills swell as sales decline

After a strong start during the festival season last year, textiles and apparel manufacturers and retailers saw a sharp contraction in demand due to the liquidity crisis after demonetisation in November 2016.

According to the latest study by Edelweiss Securities, India’s top pure fashion and lifestyle company, Aditya Birla Fashion and Retail (ABFRL), has lost ~100 crore in sales across all its textile business verticals due to demonetisation.

ABFRL, the producer of apparel brands such as Louis Philippe, Van Heusen, Allen Solly, Peter England and Pantaloons, has posted 4.8 per cent growth in revenue (y-o-y) and an 8.8 per cent dip in EBIDTA (earnings before interest, depreciation, taxation and amortisation) in October-December 2016.

“ABFRL had a strong start in the festive season till the first week of November, after which the growth trajectory was largely impacted by demonetisation. The wholesale channel has returned to normal in the fourth quarter of 2016-17 and the upstocking should start in the first quarter of the next financial year.

The company has reduced working capital by ~50 crore compared to the start of 201617 and increased inventory turns. Store rationalisation is largely complete. Anchored by the revival of Madura and Pantaloons, we are confident of a strong growth trajectory in the first quarter of the next financial year,” said Abneesh Roy, an analyst with Edelweiss Securities Ltd.

The case was similar with branded fabric and fashion design leader Raymond Ltd. The company said in an investor presentation available on the Bombay Stock Exchange website that its branded textile segment declined during the OctoberDecember quarter mainly due to lower sales following demand contraction. Raymond’s wholesale and MBO (management by objectives) channels were affected the most.

Raymond’s branded apparel segment, however, grew in single digits following a recovery in retail apparel sales.