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Apparel exports expected to grow by 8-9% in FY2025, says ICRA

In a recent research note on the Indian apparel export industry, ICRA has projected a moderate 8-9% recovery in revenues for the fiscal year 2025. This growth is anticipated to be driven by expected demand for stock replenishment in the US and EU regions.

After experiencing tepid demand in FY2024, ICRA expects a muted yet noticeable recovery in revenues of its sample companies to Rs. 28,150 crore in FY2025 from Rs. 26,000 crore in FY2024. The replenishment of stock in the US and EU regions is anticipated to be a significant contributing factor to this recovery. The retail apparel brands in these regions, which account for approximately 55% of the global apparel trade, are expected to liquidate high inventory build-up and place orders for the Summer 2024 season in the first half of FY2025.

“After a nominal decline in revenues in FY2024, ICRA expects the apparel-exporting companies to report a recovery in FY2025 on a lower base, with replenishment of stock in the US and the EU regions. Despite a rationalisation in raw material costs in FY2024, the benefit is expected to be passed on to the end-users, considering a weak operating environment at present,” Priyesh Ruparelia, Vice President & Co-Group Head, Corporate Sector Ratings at ICRA said.

“The long-term growth prospects look encouraging, with the Government of India’s various promotional steps, including the PLI schemes, the PM Mitra parks, the proposed FTAs with the UK and the EU and the longer-term benefit of China Plus One shift in apparel sourcing,” Ruparelia added.

Despite the ongoing Red Sea conflict, apparel exporters operating on a FOB basis have not felt immediate cost implications, apart from delayed shipments by approximately 15 days from their original transit time. However, any sustained continuance of this conflict may directly impact apparel export volumes and realizations due to higher costs for customers.

A difficult operating environment had previously pushed back large capex investments for most players. However, based on the expectation of demand revival in FY2025 and industry players’ strategies to take advantage of the China Plus One movement, ICRA anticipates a pick-up in capex spending in FY2025.

Regarding government schemes, out of the approved 64 applicants for the PLI 1.0 scheme in April 2022, 56 have completed the mandatory criteria for the formation of a new company, and approval letters have been issued. Additionally, ICRA expects schemes such as the PM Mega Integrated Textile Region and Apparel (MITRA) to strengthen India’s presence in the global apparel trade.

Despite challenges, ICRA estimates its sample companies to report a mild 5-6% YoY dip in revenues to Rs. 26,000 crore for FY2024. Operating margins of apparel exporters may moderate to 9.8-10% in FY2024 due to relatively weaker performance.

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