3 weeks ago
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After a sharp drop in 2023-24, India’s apparel exports may see a muted recovery this year as the U.S. and EU retailers are expected to restock inventories, as per a research note by rating agency ICRA.
In the first 11 months of 2023-24, exports of readymade garments were down 11.42% 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 apparel-exporting companies to report a recovery in 2024-25 on a lower base, with replenishment of stock in the U.S. and the EU regions,” said Priyesh Ruparelia, vice president and co-group 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 ready-made garments exports rising 4.88% - a little more than $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 9.8% to 10% in 2023-24 from 11.3% in the previous year, thanks to contraction in volumes and weaker operating performance.
Cotton yarn prices averaged about 23% lower in the first nine months FY24 compared with FY23 and 1% below the past five-year 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 pick-up in capital expenditure in 2024-25.
PLI scheme
56 of the 64 applicants for new investments under the Production-linked 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.
On the impact of the ongoing Red Sea conflict, the rating agency said no immediate cost implication is being felt by apparel exporters operating on a FOB (Free On Board) basis, except for delays in shipments by about 15 days from their original transit times.
“Sustained continuance of this face-off would have a direct impact on apparel export volumes and their realisations due to higher costs for the customers,” the rating agency said.
