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ICRA predicts modest recovery for Indian apparel exporters in FY25

03 Apr '24
4 min read
Pic: Adobe Stock
Pic: Adobe Stock


  • ICRA forecasts a modest 8-9 per cent revenue recovery for Indian apparel exporters in FY25 to ₹281.5 billion (~$3.37 billion) from FY24's ₹260 billion (~$3.11 billion), amid global demand recovery.
  • Despite the Red Sea conflict and operational challenges, capex is expected to rise, buoyed by government schemes and the China Plus One strategy.
Following the tepid demand environment in financial year 2024 (FY24), ICRA expects a muted 8-9 per cent recovery in revenues of its sample Indian apparel-exporting companies to ₹281.5 billion (approximately $3.37 billion) in FY25 from ₹260 billion (approximately $3.11 billion) for FY24, benefitting from the low base and with replenishment of stock in the US and the EU regions, according to ICRA’s recent research note on the Indian apparel export industry.

The retail apparel brands in the US and the EU, which together account for close to 55 per cent of global apparel trade, are expected to liquidate the high inventory build-up and book their orders for the summer 2024 season in the first half (H1) of FY25. ICRA’s outlook for the apparel industry remains stable.

Despite the ongoing Red Sea conflict, no immediate cost implication is being felt by apparel exporters operating on a free on board (FOB) basis, except for their shipments getting delayed by approximately 15 days from its original transit time. Any 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, as per ICRA.

“After a nominal decline in revenues in FY24, ICRA expects the apparel-exporting companies to report a recovery in FY25 on a lower base, with replenishment of stock in the US and the EU regions. Despite a rationalisation in raw material costs in FY2024, the benefit is expected to be passed on to the end-users, considering a weak operating environment at present. The long-term growth prospects look encouraging, with the government of India’s various promotional steps, including the PLI schemes, the PM Mitra parks, the proposed FTAs with the UK and the EU, and the longer-term benefit of China Plus One shift in apparel sourcing,” said Priyesh Ruparelia, vice president and co-group head, corporate sector ratings, ICRA.

A difficult operating environment had pushed back large capex investments for most players. However, based on an expectation of demand revival in FY25 and the industry players’ strategies to take advantage of the China Plus One movement, ICRA expects a pick-up in capex spending in FY25.

Out of the approved 64 applicants for the PLI 1 scheme in April 2022, 56 completed the mandatory criteria for formation of a new company and approval letters have been issued. Twelve more applications are under evaluation at present, for selection of investors under the scheme. Investment of approximately ₹21.19 billion by 30 selected applicants has been made till September 2023.

In addition to the fresh capacity additions under the PLI, the PM Mega Integrated Textile Region and Apparel (MITRA) schemes will strengthen India's presence in the global apparel trade, by providing scale benefits and strengthening the country’s presence in the MMF value chain. ICRA anticipates the culmination of these schemes to enable the Indian apparel exporters to capture a greater share of the Chinese apparel export market.

The rating agency estimates its sample companies to report a mild 5-6 per cent YoY dip in revenues to ₹260 billion for FY24. Despite US apparel imports declining by approximately 22 per cent in calendar year 2-23 (CY23), their retail clothing store sales had remained resilient registering a 4 per cent YoY growth, with retailers unwinding their excess inventory position. Amidst no major debt addition, the coverage ratios of the sample set are expected to marginally moderate as earnings weaken.

ICRA’s sample set of apparel-exporting companies is likely to report an interest cover of approximately 5.6-5.8 times and total debt/OPBDITA of approximately 1.8-1.9 times in FY24 and FY25, respectively (compared to approximately 6.3 times and 1.5 time respectively, in FY23).

The operating margins of apparel exporters may moderate to 9.8-10 per cent in FY24 (11.3 per cent in FY23), on relatively weaker operating performance in the first nine months (9M) of FY24 and contraction in volumes leading to decline in operational efficiencies. Indian cotton yarn prices had averaged approximately 23 per cent lower in 9M FY24 compared to FY23 and 1 per cent lower than the past five-year average. Despite moderation in cotton yarn prices, the same is getting passed on to the customers owing to a weak demand environment. Nevertheless, the stability of export incentives, together with the benefits of higher scale, should help the companies cushion the impact on profitability in FY25.

Fibre2Fashion News Desk (DP)

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