Financial metrics of Indian garment manufacturers to rise

“A combination of improving textile and apparel demand from large markets, benefits accruing from a depreciating rupee and structural changes in competing markets like China and Bangladesh have resulted in the improved performance of and stronger order book visibility for Indian exporters. The trends are seen to sustain in the short-to-medium term”, says Tanu Sharma, Associate Director, Corporates, India Ratings & Research.

Most garment exporters are therefore running on full capacity and also outsourcing manufacturing on a job work basis as order books are growing ahead of the peak festive season (December). During April-September 2013, garment exports grew 13% yoy in US dollar (USD) terms reaching USD6.5bn while growth in rupee terms was even higher at 18% yoy.

Rupee depreciation has improved the competitiveness of Indian exporters in global textile trade against China, Bangladesh and Vietnam. India’s competitiveness has also has benefited from the appreciation of the Chinese yuan against USD and rising labour cost in China. Large international buyers have also diverted orders to India from Bangladesh on account of wage protests in September 2013 and a factory accident in April 2013.

Shahi Exports Private Limited (‘IND A-’/Stable), a leading garment exporter, registered revenue (unaudited) of INR18.65bn, up 25% yoy, and has an order book of INR12.75bn to be executed in the next three months. Eastman Exports Global Clothing Private Limited was upgraded on 21 October 2013 to ‘IND A’ from ‘IND A-’, primarily due to a significant improvement in revenue with the addition of new clients and a strong order book from them, among other positive rating drivers..

Strong revenue growth in FY14 and earnings are likely to improve the credit metrics of garment exporters. However, the challenge for exporters is to manage liquidity amid increasing volumes coupled with a long working capital cycle and the consequent higher use of working capital limits, which is a characteristic of the textile export business.

India Ratings & Research (Ind-Ra)