Report, Retail News, ET Retail
“We are seeing India’s ready-to-wear (RMG) industry grow 15-20% in this fiscal year, almost half of the 28-33% expected earlier,” Crisil Research said in a report.
Domestic demand, which accounts for nearly three-quarters of aggregate demand, has been severely affected by new restrictions imposed in states to contain the pandemic, he said.
Therefore, the recovery in demand to pre-pandemic levels should be postponed for at least one fiscal year, he noted.
But higher revenues this fiscal year, supported by sustained export demand, higher profitability and better management of working capital, should benefit corporate credit profiles, he said.
The report noted that this revenue growth would come on a weak basis – after an expected 23-25 percent drop in the previous fiscal year.
In addition, the report states that domestic demand, which accounts for 74% of aggregate demand, had started to recover in the second half of the previous fiscal year after lockdowns and other restrictions, which squeezed income from the first. semester.
However, since the fierce second wave landed in the first quarter of this fiscal year, restrictions have been reimposed, slowing the recovery in demand, he added.
“The first quarter of this fiscal year will be a near collapse, with most national brick-and-mortar stores shutting down and sales through e-commerce channels reduced. The second wave has hit the hinterland as well. , affecting sales of “value” or affordable clothing, which is the fastest growing segment, ”said Hetal Gandhi, research director at Crisil.
Fortunately, with the acceleration of vaccinations and the deceleration in the number of cases, a gradual recovery is likely from the second trimester, she said.
“As a result, we are seeing domestic sales growth of 14-18% this fiscal year, compared to a contraction of 24% the previous year,” she added.
On the other hand, export demand, which accounts for 26 percent of revenue, remained healthy and is expected to grow 18 to 22 percent against a contraction of 16 percent the previous year, due to the improved discretionary spending in the United States. and Europe, which account for 60 percent of India’s RMG exports, according to the report.
Therefore, industry revenue growth is estimated at 15-20 percent this fiscal year, which will support operating leverage.
RMG manufacturers’ working capital is also expected to rebound near pre-pandemic levels this fiscal year, aided by prudent inventory management and normalization of the debt cycle, he added.