Tamil Nadu Garment Exporters To See 8-10% Revenue Growth
The balance sheets to remain strong, with low capex, moderate working capital requirement, says Crisil Ratings
Healthy order inflows amid rising demand will lift the revenue of readymade garment (RMG) exporters1 in Tamil Nadu by 8 to 10 per cent to Rs 43,000 crore this fiscal. The industry has seen signs of recovery in Tamil Nadu after two years of subdued demand and muted realisations and is expected to fare better than the national level where revenue growth is expected to be 3 to 5 per cent this fiscal.
This is due to the larger share of exports in the state’s RMG sector, at 65 to 70 per cent, compared with 20 to 25 per cent at the national level. Operating profitability will improve 25-30 basis points (bps) on better operating leverage, marginal increase in realisations and stable yarn prices.
An analysis of over 50 Tamil Nadu-based RMG exporters assessed by Crisil Ratings, accounting for over a fourth of the industry revenue, indicates as much.
The Tamil Nadu RMG industry is set to grow after a prolonged period of sluggish demand in key export markets, particularly the US and Europe, which account for the bulk of the demand. The central government’s impetus through various schemes and the recent political developments and ongoing gas crisis2 in Bangladesh would also benefit the industry.
Jayashree Nandakumar, Director, Crisil Ratings said, “Tamil Nadu RMG industry, which accounts for over 30% of RMG exports from India, will see volume grow 6 to 7 per cent in the current fiscal. Growth will be driven by the Tirupur region, the knitwear hub of India, supported by improving demand from the US and Europe. The government’s plan to review the PLI3 scheme for textiles to expand its scope to the RMG sector will support exporters over the medium term.”
Moreover, an extension of the export incentive scheme (providing a rebate of state and central taxes and levies) for apparel, garments and made-ups till 31 March 2026, will ensure cost competitiveness and help companies secure orders, driving volume.
Realisations, too, will rise 1 to 3 per cent with rising demand as retailers in the US and Europe may restock inventory ahead of the festive season and in anticipation of spring-summer demand. With surging demand, a marginal increase in cotton prices can easily be passed on to customers, curbing any downward movement in profitability. Better realisations coupled with higher efficiencies would push the operating margins up 25 to 30 bps to 10.5 per cent this fiscal.
Sajesh K V, Associate Director, Crisil Ratings said, “With adequate capacities already in place, players are unlikely to add any significant capacities over the medium term. Players rated by CRISIL Ratings are expected to increase capacities by ~5% and also undertake maintenance capital expenditure (capex) with an outlay of Rs.400-450 crore in the current fiscal. This would be mainly for meeting incremental orders for upcoming fiscals, with the industry expected to see a moderate rise in working capital requirement considering the additional order flow.”
Coupled with healthy accrual, the lower capex will minimise reliance on external debt. Credit profiles of CRISIL-rated players will continue to be supported by healthy accrual, limited capex and a steady working capital cycle this fiscal. Gearing is likely to remain low at 0.5 to 0.6 times, while the interest coverage ratio will be adequate at over five times.
Going forward, geopolitical uncertainties, any change in discretionary spending patterns and volatility in raw material prices will bear watching.
