The support from China plus one vendor strategy and improvements on the back of inventory liquidation at the importers’ end is likely to help the Indian apparel and fabric sector’s revenues to grow by 9 to 11 per cent in the financial year 2025 (FY25), as per Icra. However, an increase in labour and inflation in other operating costs shall contract the industry operating margins by 30 to 50 basis points year-on-year (YoY).
After witnessing healthy growth in calendar year 2021 (CY21) and CY22, global apparel trade declined by around 7 per cent to USD 520 billion in CY23 amid inflationary pressures and destocking by customers. The report stated that the imports by the European Union and the United States contracted by 3 per cent YoY during the first half of the CY24.
As per the report, Indian apparel exports declined by 10 per cent to USD 14.5 billion in FY24 on a YoY basis with the contraction in global trade, following a flattish growth in FY23. However, the Indian apparel exports registered a growth of 6 per cent on a YoY basis from April to July 2024 period.
Icra has expected the exports to remain healthy for the remainder of FY25. However, challenges prevail for the sector amid inflationary pressures and tepid economic growth in key end markets.
The ongoing inorganic expansions and large debt-funded capital expenditure by certain players in Icra’s sample had led to an increase in capex spent in FY. Based on an estimation of demand revival, Icra has expected the trend to continue further in FY25.
With the inorganic expansions and large debt-funded capex incurred by players in Icra’s sample, the interest coverage ratios are likely to moderate to 4.9 times in FY25 and 5.3 times in FY26.
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