Local demand, lower cotton prices to sustain Indian RMG growth: Crisil

Volume growth will be higher at 6-8 per cent this fiscal compared with 3-5 per cent in the last. Despite this, revenue will grow slower than last fiscal's 14 per cent as realisations are moderate due to easing raw material prices.

Prices of cotton and man-made fibres are expected to fall by 15-17 per cent and 8-10 per cent year on year (YoY) this fiscal respectively. Consequently, growth in realisations will be a meagre 1-3 per cent this fiscal compared with 10 per cent in the last, the rating agency said in a note.

The credit outlook for RMG manufacturers remains stable, driven by steady operating performance and healthier balance sheets amid low capital expenditure (capex) intensity and stable working capital requirement.

“Volume of [RMG] exports (nearly 25 per cent of RMG demand) will grow [by] 4-6 per cent this fiscal on-year on a low base, led by re-stocking by global retailers, softer prices of cotton (the key raw material for RMG) and a slow but gradual pick-up in consumption in overseas markets,” said Gautam Shahi, director, CRISIL Ratings.

Volume of exports fell 7 per cent YoY in the last fiscal following a sharp rise in domestic cotton prices and moderation in demand from the United States and the European Union, which account for nearly 60 per cent of it.

This fiscal, higher domestic and export volume and lower cotton prices will help expand operating margin by 50 basis points (bps) YoY to 9.5 per cent.

Fibre2Fashion News Desk (DS)