The rating agency Icra in a report has said that apparel exports are expected to improve from H2 FY2024, on the back of expected demand recovery in the United States (US) and European Union (EU) regions.
The rating agency expects its sample companies to report a mild two to three per cent year-on-year (YoY) revenue increase to Rs 27,255 crore for FY2024.
“Despite a tepid demand environment in H1 FY2024, ICRA expects the end demand to improve in H2 FY2024, boosting revenues,” it stated in the report.
The retail apparel brands in the US and the EU, which account for nearly 55 per cent of global apparel trade, are expected to liquidate the high inventory build-up of FY2023 and book their orders for the Spring/Summer 2024 season in H2 FY2024.
Icra’s outlook for the apparel industry remains stable.
Kaushik Das, Vice President and Co-group Head, Corporate Sector Ratings, Icra said, “cra expects the apparel-exporting companies to report a nominal increase in revenues in FY2024 with a recovery in growth rate in FY2025. Despite a rationalisation in raw material costs in H1 FY2024, the benefit is expected to be passed on to the orders executed, considering a weak operating environment at present.”
Das added that the long-term growth prospects however look encouraging, with the government’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.
For FY2024, the rating agency expects the sample set to report two to three per cent revenue growth, led by an expected recovery in demand conditions in the international markets during H2 FY2024. The operating margins may slightly moderate to 9.09.5 per cent in FY2024 (10.9 per cent in FY2023), on a relatively weaker operating environment in H1 FY2024, steeper raw material prices, and higher employee expenses, it mentioned.
Meanwhile, Indian cotton yarn prices had averaged 19 per cent higher in FY2023 compared to the past five-year average. However, between April and July 2023, average cotton yarn prices were 24 per cent lower than the average cotton yarn prices in FY2023, while remaining elevated.
Nevertheless, the stability of export incentives, together with the benefits of higher scale, should help the companies cushion the impact on profitability.