The decision by the finance minister to roll back excise duty on ready-made garments may lead to a 3-5% drop in costs for most textile companies, but that may not be passed on to customers as manufacturers are still coping with reduced margins.
Although an immediate drop in prices may not be seen, companies feel that prices will be stable for at least a year. This move is also expected to lead to higher demand for branded garments, placing them on par with un-branded ones, thereby helping branded manufacturers like Raymond and Siyaram Silk Mills.
An executive with textile conglomerate Arvind said the company foresees close to a 5% cut in costs in the next financial year due to exemption of the excise duty, but the company does not have definite plans of passing it on the customers as yet. However, the executive said the margins are expected to improve by 3% over the next one year.
For the quarter ended December 31, the textile business? margins were at 16.8%. Separately, Arvind?s chief financial officer Jayesh Shah said, ?The excise duty was levied two years back. This had resulted in an increase of prices and affected margins. Rolling back of excise duty will help increase margins of the brand and retail players.
The earnings of the garment and textile manufacturers have been under pressure over the past few years due to a higher raw material costs and sluggish domestic and foreign demand. Earlier, the garment manufacturers had to pay an excise duty of 3.6 % on maximum retail price (MRP) value.
?The excise duty exemption would lead to a 3.7% savings in costs, but this might not necessarily lead to lower prices,? said Surendra Shetty, chief financial officer, Siyaram Silk. ?When the excise duty was increased, it was not absorbed as the market was weak. The situation is no different now as most companies have a depressed bottomline and would like to get some cash flow.?
?The apparel & textile industry has witnessed a significant slowdown in the last 2 years due to combined impact of inflation & excise duty. The new excise regime in this Budget would significantly ease the cost pressures in the industry,? said Ashish Dikshit, chief executive officer, Madura Fashion & Lifestyle.
Raghav Gupta, principal, Booz & Co, a strategy consulting firm, is of the opinion that the excise duty exemption may lead to some struggle for power between retailers and textile companies, as both, the retailers and the manufacturers will have to share the cost reduction in different degrees.