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Demonetisation impact: Textile sector to be impacted in near-term, says ICRA

Consumer spending has resulted in a slowdown in domestic demand for apparel and other end-products of textile industry in the immediate term as a fallout of demonetisation.

While textile retailers are facing the immediate impact, the impact on apparel manufacturers and other intermediaries in the value chain is expected to be felt with a lag of a few weeks, with reduction in orders due to a slower offtake of the channel inventory. (Reuters)

Consumer spending has resulted in a slowdown in domestic demand for apparel and other end-products of textile industry in the immediate term as a fallout of demonetisation. The resulting inventory accumulation with the retailers will, in turn, cause deferment of purchases from apparel, home-textile manufacturers (focused on domestic market) in the near term, besides resulting in stretched payments, says an ICRA research report.

This, in turn, will affect the cash flow of the textile industry and is likely to drive a constraint in the demand for the entire textile value-chain, the report stated. While textile retailers are facing the immediate impact, the impact on apparel manufacturers and other intermediaries in the value chain is expected to be felt with a lag of a few weeks, with reduction in orders due to a slower offtake of the channel inventory. The overall impact on the sector, however, is expected to be limited as one third of the Indian textile industry is estimated to be export focused (directly or indirectly), the report stated.

Also, as the demand reverts back to a steady state over the next few months with expected improvement in liquidity, this impact will be neutralised. Winter-wear segment is likely to be worst-affected, the report said. In ICRA’s assessment, the impact of demonetisation is likely to be the most severe for winter-wear retailers and manufacturers focused on the domestic market, which witness 60-70% of their annual sales during the period October-February.

Though from the manufacturers’ end, the shipments typically take place by September-October, pressure on sales in the retail space during the subsequent peak season can indirectly affect manufacturers, the report said.

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