Indian apparel exporters will register a 9-11 per cent revenue expansion in FY2025, the independent and professional investment information and credit rating agency, ICRA said on Monday.
The growth will be aided primarily by the gradual liquidation of retail inventory in the key end markets and a shift in global sourcing to India, a part of the derisking strategy adopted by several customers, it said.
This follows a tepid performance in FY2024 when exports were affected because of high retail inventory, sluggish demand from the key end markets, supply chain issues (including the Red Sea crisis) and heightened competition from neighbouring countries.
ICRA highlighted that the long-term prospects for Indian apparel exports are favourable, aided by enhanced product acceptance in end markets, evolving consumer trends and a boost from the Government in the form of the production-linked incentive (PLI) scheme, export incentives, the proposed free trade agreement with the UK and the EU, among others.
With the revival in demand, ICRA expects the capex spending to increase in FY2025 and FY2026 and may stay in the range of 5-8 per cent of the turnover.
Further, at USD 9.3 billion (in CY2023), the US and the European Union (EU) region account for over two-thirds of apparel exports from India and remain the preferred destinations.
While headwinds persist in certain end markets because of geopolitical tensions and macroeconomic slowdown, there has been a gradual recovery in apparel exports from
India in the current year.
In H1 FY2025, apparel exports grew by ~9 per cent on a YoY basis to USD 7.5 billion on the back of a gradual liquidation of inventory, a shift in global sourcing to India as a part of derisking strategy adopted by several customers and a higher order booking for the upcoming spring/summer.
Recent geo-political tensions in Bangladesh could result in capacity additions outside the country, including India.
Nevertheless, the availability of labour at competitive costs and preferential duty access, given its least developed country status for another two years on exports to the US and the EU help Bangladesh to remain competitive against most other developing countries.
The interest coverage ratios of ICRA’s sample set of companies are likely to moderate marginally to 5.0-5.5 times in FY2025 and FY2026 from 5.8 times in FY2023 due to inorganic expansions and large debt-funded capex expected.
The Total Debt/ OPBDITA (operating profit before depreciation, interest and tax) is expected to be in the range of 2.0-2.4 times in FY2025 and FY2026.