‘Apparel exports may see mild recovery in FY25, after a sharp fall in FY24’
After a sharp decline in 202324, India’s apparel exports may see a muted recovery this year as the U.S. and EU retailers are expected to restock inventories, rating agency ICRA said in a research note.
In the first 11 months of 202324, exports of readymade garments were down 11.4% at a little more than $13 billion. The U.S. and EU account for 55% of global apparel trade, and the U.S. alone slashed such imports by 22% during calendar year 2023.
“ICRA expects the apparelexporting companies to report a recovery in 202425 on a lower base, with replenishment of stock in the U.S. and the EU regions,” said Priyesh Ruparelia, vice president and cogroup head for corporate sector ratings at the firm, who expects a muted 8%9% uptick in revenues of firms tracked by ICRA.
Some evidence of this was visible in February’s foreign trade numbers, with readymade garment exports rising 4.88% to a little over $1.47 billion.
Low operating margins A decline in cotton yarn prices has not helped firms’ profit margins. ICRA reckoned that apparel producers’ operating margins moderated to about 9.810% in 202324 from 11.3% in the previous year, thanks to a contraction in volumes and weaker operating performance.
Cotton yarn prices averaged about 23% lower in the first nine months of FY24 compared with FY23 and 1% below the past fiveyear’s average. Despite rationalisation in raw material prices, the same is getting passed on to the customers and that is expected to continue, owing to a weak demand environment, ICRA said.
While a difficult operating environment had pushed back large capex investments for most players, the rating agency believes the expected demand revival in this financial year and industry players’ strategies to take advantage of the China Plus One movement, could lead to a pickup in capital expenditure in 202425.
56 of the 64 applicants for new investments under the Productionlinked Incentive (PLI) scheme have completed the mandatory criteria for formation of a new company and received approval letters from the government. An investment of around ₹2,119 crore by 30 selected applicants has been made till September 2023, ICRA said, adding that 12 more applications from investors under the scheme are under evaluation.
Red Sea issue Commenting on the impact of the ongoing Red Sea conflict, the rating agency said no immediate cost implication was being felt by apparel exporters operating on a FOB (Free On Board) basis, except for the delays in shipments by about 15 days from their original transit times.
“Sustained continuance of this faceoff would have a direct impact on apparel export volumes and their realisations due to higher costs for the customers,” the rating agency added.