In Short:
Indian apparel exporters are expected to grow revenues by 9-11% in FY25, recovering from challenges in FY24 due to high inventory and competition. This growth is driven by global sourcing shifts and government support like the PLI scheme. Despite some cost pressures, increased demand, particularly from the US and EU, will support capital investments, enhancing India’s global market position.
Positive Outlook for Indian Apparel Exporters in FY25
New Delhi: Indian apparel exporters are gearing up for a promising revenue growth of 9-11% in FY25. This optimistic forecast, unveiled in a report by Icra on Monday, is largely attributed to the gradual clearing of retail inventories in major markets and a notable shift towards sourcing from India as part of global derisking strategies.
Recovering from FY24 Challenges
After a rather tough FY24, where exports stumbled due to high retail inventory, sluggish demand, and supply chain disruptions significantly influenced by the Red Sea crisis, the sector appears to be bouncing back. The intensified competition from neighboring countries didn’t make things any easier either.
Promising Projections
The positive projections stem from Icra’s detailed analysis of a group of 15 apparel exporting companies, which together account for approximately 15% of India’s total apparel exports. Despite the hurdles faced last fiscal year, long-term prospects remain bright, according to the credit rating agency.
Factors Driving Growth
What’s fueling this growth? Enhanced acceptance of Indian products in global markets, shifting consumer trends, and robust government initiatives like the Production-Linked Incentive (PLI) scheme and export incentives are expected to play crucial roles.
Boost from Proposed Free Trade Agreements
Additionally, upcoming free trade agreements (FTAs) with the UK and EU are poised to give a significant boost to the apparel sector.
Strong Performance in 2023
In fact, during CY2023, the US and EU collectively accounted for more than two-thirds of India’s apparel exports, which were valued at an impressive $9.3 billion.
Early Signs of Recovery in FY25
In the initial half of FY25, apparel exports witnessed a year-on-year increase of around 9%, totaling $7.5 billion. This recovery can be linked to the gradual clearing of existing inventory and a surge in orders for the upcoming spring/summer season.
Expert Insights
“After a modest decline of 2% in FY2024, we expect Indian apparel exporters to report a revenue growth of 9-11% in FY2025,” explained Srikumar Krishnamurthy, senior vice president at Icra.
He further emphasized that this growth will be propelled by derisking strategies employed by customers and the replenishment of retail stocks in critical markets like the US and EU.
Staying Cautious Amid Challenges
However, the road ahead isn’t entirely clear. Srikumar cautioned about ongoing challenges due to demand uncertainties, which stem from a subdued macroeconomic climate and geopolitical issues.
Operating Margin Projections
Icra also predicts a slight contraction in operating margins by 30-50 basis points in FY25, primarily due to rising labor and freight costs, along with other operational expenses putting pressure on profitability.
Capital Expenditure Growth
Nevertheless, a revival in demand is likely to stimulate capital expenditure spending, which is expected to hover between 5% and 8% of turnover in FY25 and FY26.
Competitive Edge for India
Interestingly, the geopolitical tensions in Bangladesh might lead to capacity expansions outside that country, but India could benefit from its competitive labor costs and preferential duty access, especially as Bangladesh retains its least developed country status regarding exports to the US and EU for another two years.
Looking Ahead
Icra’s analysis indicates a possible dip in interest coverage ratios, predicted to drop to 5.0-5.5 times in FY25 and FY26 from 5.8 times in FY23, primarily due to anticipated inorganic expansions and considerable debt-funded capital expenditures.
Moving forward, the PLI scheme and the PM Mega Integrated Textile Region and Apparel (PM-MITRA) scheme are expected to strengthen India’s foothold in the global apparel market.
An Encouraging Future
“These initiatives will not only enhance scale benefits but also solidify India’s position within the man-made fiber value chain,” added Srikumar.
With these strategic advantages, Indian apparel exporters are well-positioned to not just thrive but expand their share in the global market, heralding a bright future ahead!
