The Indian readymade garments (RMG) industry is forecasted to see its revenue growth moderate to 4-6% during the fiscal year 2024-25, down from the 6% recorded in the previous fiscal, as per CRISIL Ratings report. This anticipated slowdown is primarily due to sluggish domestic demand, which has been influenced by a shift in consumer spending towards other products and services, as well as some inventory build-up by retailers last fiscal.
In fiscal 2023, overall revenue for the RMG sector grew by around 18%, driven by a 10% increase in domestic sales despite a 7% decline in export revenue. However, with domestic demand now expected to temper, exports are poised for a rebound, helping to offset some of the slowing growth in the domestic market. Exports, which currently account for about one-fourth of the industry’s total revenue, are projected to increase by 5-7% this fiscal, as retailers in the United States and European Union work to restock their inventories following a period of decreased purchases.
“Moderate revenue growth and stable margins will help sustain operating performance of RMG manufacturers. This, along with modest capex and a steady working capital cycle, will support their credit profiles this fiscal. The interest coverage ratio is expected to improve to 5.6 times this fiscal from 5.2 times last fiscal, while the total outside liabilities-to-tangible net worth ratio will remain healthy at 0.7 time as on March 31, 2025 (0.8 time last fiscal),” Pranav Shandil, associate director, CRISIL Ratings,said.
The realisation for exporters may remain flat, as market conditions anticipate continued stable cotton prices. Raw material prices have remained relatively low and consistent, providing some support to operating margins, which are expected to remain steady at around 11.0-11.5% for the current fiscal year—similar to the margins observed in the last fiscal year.
The Indian RMG industry continues to be labour-intensive, with minimal reliance on capital expenditure. Stable working capital cycles among major industry players are projected to prevent the need for additional working capital debt this fiscal. Strengthened balance sheets should also help maintain the stability of credit profiles for these entities.
An analysis of more than 140 RMG makers rated by CRISIL Ratings, with a combined revenue of roughly Rs 43,000 crore, confirms these trends.
Looking ahead, there remains some uncertainty around the effects of ongoing political instability in Bangladesh. While this turmoil may present a short-term opportunity for Indian RMG exporters, any gains are expected to be limited due to Bangladesh’s critical dependence on RMG exports and differences in product portfolios. Additionally, Bangladesh enjoys a zero-percent import duty on RMG exports to the European Union compared to India’s 9.6%.
“The domestic market, which contributes three-fourths of the RMG industry’s revenue, is expected to grow a modest 4-6% this fiscal2 due to a shift in consumer spending towards avenues such as travel, electronic gadgets and other services. Moreover, the contagion effect of retailers’ overstocking last fiscal impacted RMG manufacturers’ revenue growth in the first half of this fiscal. The second half, however, is expected to receive a fillip from the festive season and a higher number of weddings,” Gautam Shahi, Director, CRISIL Ratings, said.
Consumer discretionary spending trends and any unforeseen fluctuations in domestic and international cotton prices will also be closely monitored over the course of the fiscal year. Retailers Association of India (RAI) business survey data suggests a moderation in year-on-year sales growth for apparel retailers to 2-4% from April to August 2024, compared to the 4-8% observed during the same period in the previous year.
Despite these challenges, the Indian RMG industry remains resilient. The stable working capital cycles, low raw material prices, and steady margins are expected to help the industry maintain creditworthiness throughout the fiscal year. As the industry navigates these complex factors, a moderate growth rate of 4-6% seems a realistic projection for the coming months.
