Apparel retail revenue to grow at 25% in India despite COVID: Crisil

The rise in operating margins will be backed by improving operating leverage, continued cost rationalisation, and prudent inventory management, the report said.

Losses last fiscal were funded by raising equity of ₹2,000 crore, thus limiting the deterioration in capital structure. That, and the recovery in accruals this fiscal will strengthen credit profiles. An analysis of about 35 apparel retailers rated by CRISIL Ratings, accounting for a fourth of the sector’s revenue, indicates as much. Of these, the top eight apparel retailers, representing a fifth of the sector’s revenue, have seen strong recovery in the first nine months of this fiscal, with revenue growing 55-60 per cent year-on-year on higher festive and wedding sales.

“Less intensive restrictions and the much shorter duration of the third wave resulted in minimal disruptions in operations of B&M retailers. The sharp recovery seen in the second and third quarters this fiscal, and the expected healthy performance in the fourth quarter, will propel revenue to 75-80 per cent of the pre-pandemic level. Revenue is expected to log a healthy 8-10 per cent growth next fiscal as well, on sustained footfalls and waning impact of the pandemic, but will still be lower than the pre-pandemic level,” said Anuj Sethi, senior director, Crisil Ratings.

With retail operations curtailed over the past two years, B&M retailers have augmented their omni-channel presence. Consequently, the share of e-retail sales is seen at 8-9 per cent this fiscal, compared with the pre-pandemic level of 4-5 per cent.

Apparel retailers renegotiated rentals and entered into revenue-sharing agreements after the first wave of the pandemic. They also have limited seasonal collections, leading to inventory rationalisation and lower working capital requirement, the Crisil report added.

Gautam Shahi, director, CRISIL Ratings, said: “Higher accruals and lower incremental working capital requirement will support the financial risk profiles of apparel retailers. Given that sales are yet to reach the pre-pandemic level, capital spends on new store openings are expected to be calibrated, resulting in better debt protection metrics. Interest coverage is set to improve to 4-5 times this fiscal from 1 time last fiscal, while total outside liabilities to tangible net worth ratio is set to improve to ~1.4 times from 1.7 times.”

Fibre2Fashion News Desk (KD)