Indian apparel exporters have reported healthy revenue growth and profitability in the past four quarters, surpassing the pre-Covid levels.
As per the ICRA’s recent research report on Apparels & Fabrics, in Q2 of FY 2023 also, while exporters are expected to have recorded healthy Y-o-Y growth, the revenues are expected to have moderated sequentially due to a slowdown in demand amid concerns about recession in the key markets.
Commenting on this, Jayanta Roy, Senior Vice President & Group Head, Corporate Sector Ratings, ICRA, said, “We expect ICRA’s sample of large/mid-scale apparel exporting companies to report a healthy growth in revenues in FY 2023. While high realisations are expected to support the revenue growth for the year, higher raw material and logistics costs could dent apparel exporters’ profitability for the year.”
In FY 2022, apparel exporters in the sample reported a 41 per cent increase in turnover, and a 280-300-basis-point (bps) improvement in operating margins, following a 16 per cent revenue decline in FY 2021.
While the revenues remained weak till Q1 of FY 2022, healthy improvement for the year was supported by higher pent-up demand and improved discretionary consumer spending with the easing of lockdown restrictions from Q2 of FY 2022.
For FY 2023, ICRA expects a top-line growth of approximately 14-15 per cent for apparel exporters with a slight moderation in margins by 100-300 bps amid sustained high raw material prices for a large part of the year, and higher logistics costs.
Indian cotton yarn prices averaged around 42 per cent and 39 per cent higher in FY 2022 compared to FY 2021 and the past 5-year average, respectively. While raw material cost pressures remain, the stability of export incentives together with the benefits of increased scale helped companies maintain profitability so far.
Even as concerns about growth are increasing due to geopolitical tensions and sustained inflationary pressures, the demand trend has remained encouraging so far. Apparel imports by the EU and the US, which account for around 55 per cent of the global apparel trade, grew by around 20 per cent Y-o-Y in first 5-month period of CY 2022, following a 17 per cent increase in CY 2021.
The EU’s apparel imports (excluding imports by the UK and trade within the EU) reported a healthy 37 per cent Y-o-Y growth in US dollar terms in first 5-month period of CY 2022. However, the growth is also partially due to the fall of the euro vis-à-vis USD.
In comparison, US apparel imports grew 39 per cent in value terms and 23 per cent in quantity terms in 7M of CY 2022. The higher growth in value terms is a reflection of increased production costs due to a sharp surge in raw material prices, which led to an overall increase in unit prices.
Commenting on this, Kaushik Das, Vice President & Co-Group Head, Corporate Sector Ratings, ICRA said, “While global apparel trade remained subdued in H1 CY 2021 due to incremental waves of infections, the opening up of economies and strong revival in discretionary consumer spending led by pent-up and revenge buying took global apparel trade to all-time highs in CY 2021. This also led to the US retail inventory levels to remain at multi-year low levels for the most part of CY 2021.”
